California Union Bill Looks to Ban Outsourcing Public Services

The bill would drive up struggling counties' costs of providing such services.

Municipal governments exist to provide essential services, such as law enforcement, firefighting, parks and recreation, street repairs and programs for the poor and homeless. But as pension, health-care and other compensation costs soar for workers and retirees alike, local governments are struggling to fulfill these basic functions.

There's even a term to describe that situation. "Service insolvency" is when localities have enough money to pay their bills, but not enough left over to provide adequate public service. These governments are not insolvent per se, but there's little they can afford beyond paying the salaries and benefits of their workers.

As a city manager quoted in a newspaper article once quipped, California cities have become pension providers that offer a few public services on the side. It's a sad state of affairs when local governments exist to do little more than pay the people who work for them.

Not surprisingly, the union-dominated California state legislature has been of little help to local officials dealing with such fiscal troubles. The state pension systems have run up unfunded liabilities, or debts, ranging from $374 billion to $1 trillion (depending on the financial assumptions one makes). But legislators have ignored meaningful pension reform. This has forced local governments to cut back services or raise taxes to meet their ever-increasing payments to California's pension funds.

It's one thing to ignore the plight of hard-pressed cities and counties, but now legislators are trying to make the problem a lot worse. Assembly Bill 1250 would essentially stop county governments from outsourcing personal services (financial, economic, accounting, engineering, legal, etc.), which is a prime way counties make ends meet these days.

The legislation originally also applied to cities, but recently was scaled back. It now applies to all 58 counties except for San Francisco (which is exempt because it also is a city) and the authors plan to exempt Santa Clara County also because of its hospital contract.

The bill is sponsored by the Service Employees International Union and authored by Assemblyman Reginald Byron Jones-Sawyer, a Los Angeles Democrat who previously was an SEIU vice president. It's a shameless effort to force county governments to beef up the size of their full-time, unionized workforce. Ultimately, the bill views county governments as employment agencies rather than service providers.

It's what one would expect from a public-sector union that exists to protect jobs (even duplicative ones) and the public employees who fill them. But this bill passed the full Assembly in June and cleared a Senate committee this month. Legislators are supposed to balance the demands of special interests with the broader needs of all Californians.

The legislation "would make it costlier and in many cases nearly impossible for counties to contract out for vital services," opined a July 24 editorial in the East Bay Times. As a result, counties would "have to stop providing the services or, as union leaders hope, hire permanent county workers, replete with their costly retirement benefits."

The bill's supporters gussy up this atrocity by claiming it would save money and improve services in the long term. "While cheaper services and employee layoffs may appear to save dollars in the short term, the savings are often illusory with hidden costs that are not accounted for and diminished services or contractor failures that require cities and counties to ultimately re-hire and/or re-train staff to provide the outsourced service," Jones-Sawyer explained in the bill analysis.

Of course, not every instance of outsourcing is successful, but the idea that this is about helping taxpayers is laughable. Elected county boards of supervisors are best able to decide how to handle their own resources. They often find that contracting-out improves the provision of services because contractors—unlike permanent employees—can be held to higher standards and even fired. Private contracts can be terminated.

These contracts save money because they are put out to bid for the lowest price. Moreover, contract employees aren't paid lifetime pensions that drive up long-term municipal debt. If the legislation really were about savings, then why does the bill rig the way savings are analyzed?

The bill "would bar counties from contracting for services when they could be more cheaply provided in-house," the East Bay Times explains, but "the cost-savings comparisons are designed to skew the results against using private and non-profit firms." For instance, "the comparison would exclude a county's overhead costs, but include the overhead of the outside firm."

An analysis for the counties by the Oakland law firm Jarvis Fay Doporto & Gibson concluded, the latest version of the bill "will substantially increase the cost for delivery of county services and substantially decrease delivery of county services—including critical public health and safety services." Counties will be forced to pare back services "to offset increased pension and benefit costs." Small and rural communities in particular will face service reductions.

The California State Association of Counties, which opposes the bill, points out that it includes all sorts of cumbersome disclosure and auditing rules. Even though later versions of the bill "places that burden on contractors instead," it "doesn't really change the impact. Many service providers will simply choose not to do business with public agencies if they know they are going to be required to comply with a new, complex and costly process."

Counties can still technically outsource certain services, but the bill makes it so difficult and costly that it won't be worth the trouble of trying. The legislation also mandates "public disclosure of otherwise private information—an intrusive requirement that may violate constitutional privacy rights, without providing any public benefit," according to the law firm's analysis.

This surely is just the latest effort to shut down outsourcing, which is used less frequently in California than in most other states. One should expect unions later will revive the effort to expand it to cities and other governments. They'll likely also try to limit outsourcing of other types of public services beyond these listed personal services.

As usual, the costs of union feather-bedding strategies fall disproportionately on the poor. Teachers' unions are constantly trying to limit charters and other school-choice options that help people from poor neighborhoods get their kids enrolled in better schools. Unfunded pension liabilities cause service cutbacks, especially in the state's poorest cities.

And now the Legislature may force counties to cut back on funding for homeless shelters, domestic-violence centers, health-care programs and other programs that benefit low-income people, all in order to help unions protect jobs for their highly paid members. But local government doesn't exist to provide cushy jobs, but to provide cost-effective services for the public. It's about time the Legislature was reminded of that fact.

This column was first published by the California Policy Center.