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City Explores Limited Service Privatization

POSTED May 1, 2012 10:20 p.m.

While financial troubles for cities like Oakdale deepen, city administrators are discussing the possibility of contracting out some local city services.

The proposition goes by many innovative labels; outsourcing, public-private partnerships, and creative financing solutions, but the basic premise – privatization – is to have the power of competition bid to provide the public with a once city-provided service at the lowest cost.

“As we develop the budget it (privatization of services) is in the exploratory phase,” said Oakdale Public Works Director Joe Leach. “Data collection is currently being done and we’re looking at costing models to see if anything can be gained.”

Leach mentioned the City of Elk Grove, which has been privately outsourcing its public works services rather than hiring its own staff since 2002. The Elk Grove public works director oversees a private contracted firm that has successfully performed public works services at a savings to the city.

Supporters believe a lack of unions and the pricey collective bargaining agreements that come with them translates to lower labor costs. Comprehensive large-scale companies can reduce redundancy and make the process more efficient.
In contrast, opponents argue that private firms may pursue outcomes that are not in the public interest.

Operating Engineers Business Representative Mike Eggener, who represents 34 Oakdale city employees, points out that privatization often does not solve cities’ budget woes.

Eggener said that his research shows that when municipal services are contracted out, costs can actually increase while service quality suffers due to loss of control and lack of ownership and pride in the work.

“Sometimes these cost increases are experienced as contract cost overruns,” Eggener said. “Other times a city may fail to take into account hidden costs such as the administrative costs of seeking proposals, evaluating bids, and monitoring the work.”

Oakdale City Manager Greg Wellman emphasized that nothing has been decided and privatization was only one of many things he was evaluating to control city spending.

“As the experiences from communities around the country show, privatization of municipal services has risks that require very careful long-term consideration,” said Eggener.

Eggener pointed to the City of Stockton which had contracted for its waste water treatment services in 2002 at an initial cost of several million dollars. In 2008, from a citizen outcry, the savings figures being grossly overstated, and violations of the contract, Stockton reclaimed the service at another cost of several million dollars.

“When necessary public services are privatized, many communities have complained of poorer service quality,” said Eggener. “These companies that provide the service are in it to make a profit and focus on the bottom dollar. Cutting corners on the quality of a service is a common way for the company to lower its own costs and retain more revenue.”

In 2008, due to public scrutiny and dissatisfaction from citizens with its current outsourcing model, the Elk Grove City Council hired a consultant who found that the city created a situation that it relied exclusively on a single contractor to perform critical municipal functions, and risked losing significant institutional knowledge if it ever brought in another vendor or made public works services in-house again.

In 2010 Elk Grove brought back a core of city workers and management staff to oversee the outsourced services and contract personnel.

“We’re adamantly against any privatization and we’re obviously going to take action,” said Eggener. “They’re going to have to provide some sort of justification for doing this.”

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