By Jim Christie
SAN FRANCISCO, Dec 18 (Reuters) - Cash-strapped
California cities will think twice about outsourcing work to
companies to cut costs after a state court blocked one city's
ambitious plan to hand several services to the private sector.
The state's Supreme Court last month backed an appeals court
decision against the City of Costa Mesa's outsourcing plan,
which garnered national attention when a city worker jumped to
his death from the roof of the city hall after being fired.
Huy Pham, 29, was one of about 200 Costa Mesa employees
notified they could lose their jobs under the outsourcing plan,
which the southern California city's unions have sought to stop
with a lawsuit.
The unions won an injunction in county court blocking the
plan. This put California's "general-law" cities on notice they
may only privatize certain services. By contrast, the state's
charter cities, like Los Angeles and San Francisco, have more
control over how they conduct their affairs.
The decision may greatly restrict plans by officials of
California's general-law cities, which follow laws crafted by
the legislature, to hire private companies on a large scale.
The League of California Cities thought the decision so
important it asked the Supreme Court to "depublish," or strike
it from official records, but the court declined.
"By having that published it can be cited by other courts in
other lawsuits as precedent," said Patrick Whitnell, general
counsel for the League. Public employee and their unions may now
use that precedent to block outsourcing plans.
Costa Mesa, a city of 110,000, has rescinded its layoff
notices while other cities are reviewing how outsourcing plans
and tie-ups with contractors may be affected.
"Our city managers are concerned," said Sam Olivito of the
California Contract Cities Association, a group for local
governments that rely on private companies to deliver services.
"We've always applied the law as we believe it to be, which is
they can contract out for any service."
PINCHING PENNIES BY GOING PRIVATE
Slumping revenue helped tip Stockton and San Bernardino, two
sizeable but down-on-their-luck California cities, to file for
bankruptcy earlier this year, triggering concerns other
financially troubled cities in the state would do the same.
They have instead held down spending, sought tax increases
and cut payrolls, contributing to the loss of 370,000 local
government jobs across the United States since February 2010,
according to the Center on Budget Policy and Priorities.
Officials have increasingly looked to the private sector as
a way to lower costs. Costa Mesa's plan estimated savings of
more than $22 million over five years from outsourcing services
including animal control, park works and jail operations.
Lafayette City Manager Steven Falk kept a close eye on Costa
Mesa's plan as it seemed to borrow a page from his northern
California city. Lafayette incorporated in 1968 and its
38-person work force has hired regional agencies and private
firms to deliver services for nearly 24,000 residents.
Lafayette's police department is staffed by the county
sheriff. Uniformed city work crews are employees of private
contractors. They also handle street cleaning, traffic signal
operations, printing, garbage pick-up and emergency planning.
"We contract for everything. It's easier to tell you what we
don't contract for than what we contract for," said Falk.
Lafayette likely will not be affected by the appeals court
decision, Falk said.
SEEKING 'CHARTER CITY' STATUS
California has more than 480 cities, the vast majority
following general-law rules. Charter cities have far more
ability to outsource to shore up finances.
Costa Mesa officials suffered another setback last month
when voters rejected a measure to make their city a charter city
like San Diego.
San Diego is far more nimble with contracting and has used
its voter-approved "managed competition" program to reduce
spending. Under the program, the city is putting certain
operations up for bid from private contractors, but city
employees may also compete to maintain the services.
San Diego employees have held on to street-sweeping,
publishing and fleet services under the program, with bids
saving more than $3 million a year. Spending more than $30
million a year on trash collection, San Diego is reviewing
putting that up for bid too.
As a charter city, Costa Mesa would be able to outsource to
cut similar spending, which could also help in reducing pension
San Diego voters tackled their city's rising pension costs
in June by backing a measure to scrap pensions for nearly all
new city workers. They'll now get 401(k)-style accounts.
About $18 million of Costa Mesa's roughly $100 million
general fund is set aside for pensions, up from about $5 million
in 2000 even though the work force has shrunk over that time,
said City Councilman Jim Righeimer.
Costa Mesa's charter-city measure would have required voter
approval for increases to retirement benefits. Fewer employees
due to outsourcing would have helped Costa Mesa hold down
pension spending, said Righeimer, who aims to put another
charter measure to voters in 2014.
He predicts other general law cities across the state will
likewise put charter city measures on their ballots.
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