PRIVATIZATION ISSUES IN COUNTY GOVERNMENT
Released: June 4, 1996
The first half of 1996 marks a major change in the way Santa Barbara County government will manage its business. In April the Board of Supervisors approved a comprehensive, long-term Strategic Plan to guide the future direction of county government.
This leadership by the Board of Supervisors, in conjunction with the County Administrator and the heads of operating departments, produced a new Mission Statement, 21 Organizational Values, 7 Goals and Objectives with 41 Action Items and timetables to improve the county’s performance in governing. The commitment is clear and specific; the accomplishment of the Objectives and Action Items lies ahead.
Within this operating framework, one major issue is privatization, defined as the contracting out of public services into the private sector. In this report “privatization” is used interchangeably with “contracting out” and “public/private partnerships.” This report concentrates on privatization issues as stated in the Board of Supervisors’ Strategic Plan. (These excerpts are provided in Exhibit A.)
The Grand Jury conducted interviews with officials in county departments who have experienced privatization: Auditor-Controller, General Services, Health Care Services, Public Works, Sheriff and Social Services. In addition the Grand Jury interviewed representatives from the largest local unions representing county workers, Service Employees International Union (SEIU) 535 and SEIU 620. The Grand Jury attended all the Board of Supervisors’ workshops that discussed the Strategic Plan.
The Grand Jury also met with the management consulting division of KPMG Peat Marwick LLP to discuss case histories of privatization programs by federal, state, county and city governments.
The Grand Jury reviewed and analyzed a range of publications including: departmental documents; National Criminal Justice Reference Center booklets on prison and jail privatization; current books, magazines, newspapers and legislative bulletins; Civil Service Rules; Memoranda of Understanding (MOUs) from the unions associated with the county; Guidelines for Establishing Public/Private Partnerships by the County of Santa Barbara Information Systems Advisory Committee (ISAC) and performance measurement concepts and reports.
COMPLEXITIES OF PRIVATIZATION
Privatization is a complex process involving various levels of government, unions, employees, Civil Service Rules, politics and, of course, the private sector. Privatization also requires specialized skills in the functions of cost accounting, legal analysis, contract writing, negotiations, contract compliance, and oversight.
To privatize effectively, additional factors must be considered. One department manager who has experience with privatization in the county spoke to the Grand Jury in business management terms. He explained that there must be a competitive environment to achieve maximum return on the county’s investment. He added that evaluating several competitive bids encourages efficiency, stimulates innovation, allocates resources most productively and provides for consumer choice.
Testimony to the Grand Jury indicated that in such a competitive bidding process, the public sector could perform a particular service more efficiently and effectively than the private sector. Competition helps drive the decision to privatize or not.
One member of county management pointed out that certain risks must be considered fully before deciding to privatize any activity within a county department. He told the Grand Jury that one of these risks is accountability. Even if privatization is initiated, the county continues to be responsible and must maintain oversight of the operation. This official stated that the contractor could fail to perform adequately or could elect to discontinue the contract. In these circumstances the county continues to be responsible to provide the service.
A Personnel Department manager informed the Grand Jury that the county is required to “meet and confer” with unions when considering privatization. The union Memoranda of Understanding (MOUs) also list the requirement to “meet and confer” on issues of privatization. Testimony to the Grand Jury indicated unions are concerned that contracting out trades higher-paying jobs for lower-paying jobs, so their employees lose job security and real wages. Labor union representatives pointed out that real cost savings from privatization may be illusory, difficult to track, and analyzed using misleading comparisons. They also noted that contracting with private companies can shift income out of the community.
According to labor leaders, Civil Service Rules are the main source of protection from job loss that occurs from contracting out. Privatization proponents view Civil Service
Rules as a major impediment.
An Action Item from the Board of Supervisors’ Strategic Plan is to “evaluate the Civil Service System and county personnel policies and make recommendations for changes to promote a productive and well-managed work force.” The Executive Association, composed of county department heads, is currently addressing this issue.
Another privatization consideration in Santa Barbara County is the attitude of some department managers. One county official described a “paternalistic” relationship between some managers and staff that was not in the best interest of the county taxpayers. An example of the attitude expressed to the Grand Jury cited a department director who knew that a particular service could be contracted out at a lower cost. Even though the same employees could do the work in the private sector, they would not get the same employee benefits at the same salary and would lose in terms of total compensation. The department director decided to continue the service with county employees rather than to privatize.
THE STATUS OF PRIVATIZATION IN COUNTY DEPARTMENTS
Although the Board of Supervisors set forth concepts for privatization as documented in Exhibit A of the Strategic Plan, adoption of such county-wide policies and procedures is not scheduled to occur until June 1997. County department heads stressed to the Grand Jury that a major difficulty in the process of privatization is the lack of coordinated direction; departments enter into public/private partnerships and make their own guidelines on an ad hoc basis. Often these efforts to privatize have taken years of planning, negotiation, and explanation to become operational.
During the course of discussions with several department heads, the Grand Jury was told that in this era of broader service demands and tight budgetary constraints, there are cogent reasons why county departments should actively seek public/private partnerships or privatization of services.
One department manager suggested that public/private partnerships should be pursued when the partnership provides “value-added services,” which means better, quicker and more accurate services in a cost-effective manner. One department head identified specific policy considerations, such as a requirement to analyze any county contract more than $500,000 for possible privatization when that contract comes up for renewal. He suggested contracts involving government functions which do not compete with the private sector and those services for which the county is legally prohibited from contracting should be exempt from analysis. The Grand Jury noted that this recommendation did not distinguish whether or not a particular service which is not legally mandated should be continued or discontinued.
The Information Systems Advisory Committee (ISAC) is a county group that coordinates the county’s information systems technology. In working with public/private partnerships, ISAC established its own guidelines for county departments. ISAC provided its own interpretation of the roles and responsibilities of county governmental areas:
County Administrator: The County Administrator will assist departments in defining appropriate and consistent setting of fees for market data and in reviewing any financial agreements between the county and private agencies.
Departments: It is the responsibility of the departments to meet all legal requirements, to follow the directions of the Board of Supervisors, and to follow established policies and procedures. Each department is expected to use expertise and best judgment in determining requirements and appropriate techniques....
County Counsel: County Counsel should be seen as a resource in sorting out what legal provisions may relate to preserving confidentiality. County Counsel should review proposed contracts between the county and an outside agency to advise on legal issues.”
Another report by this year’s Grand Jury addressed the Social Services Department’s public/private partnership with Curtis and Associates. Curtis provides service for Aid to Families with Dependent Children (AFDC) recipients through the Greater Avenues for Independence (GAIN) Program. It took the Social Services Department almost three years to enter into this partnership. In the beginning, unions and the employees of the department were against this change. However, after a one year pilot program and a year in operation, reductions in AFDC cost allocations and increases in AFDC terminations were strong indications of the success of this privatization program. These examples demonstrate the sustained effort required to bring about the delivery of services through the private sector.
A current example of effective privatization can be observed in the Solid Waste Division of the Public Works Department. This division adopted a new policy for solid waste collection within the county, and will be negotiating and/or bidding franchise agreements with outside contractors. Under recent amendments to Chapter 17 of the County Code, formal franchise agreements for regular solid waste collections service were created in lieu of the licenses held by service providers which expire June 30, 1997.
In preplanning for this new program, management in the Solid Waste Division focused on the importance of identifying the objectives for the hauler’s performance before the issuance of the franchise. Management will require thorough and complete reports during the franchise period. The contract will provide for ongoing audit procedures for franchisees’ performance and data collecting. Currently, the haulers are required to provide very little information regarding costs, efficiencies, and performance.
The General Services Department has the most experience with contracting out in the county. According to department management, over the past 10 years it has been very active in maintaining efficiency and contracting out where it is more cost effective. Management told the Grand Jury that this department employs fewer people than 10 years ago and provides at least 10 times the service for the county.
The Grand Jury was told that while there are numerous cases where privatization has occurred, just as importantly there are numerous cases where the department made a conscious decision to no longer provide a particular service:
“Example of successful contracting out: Data Services used to have eight full time staff doing data entry. Nearly ten years ago we started using a contractor to provide those services. Within less than two years we had completely eliminated our data entry section. By doing so in a gradual manner we experienced no transition problems and all employees were able to find other jobs; some within the county and some in the private sector. We did this because the contractor was able to provide an acceptable level of service at a lower cost. By contracting out we were able to save on the order of $50,000 or more in capital expenditures.
Example of not taking on a service: When cellular phones became popular, the communications division of General Services looked into what services the county may need. After talking with departments and surveying the local business community, we decided not to get involved. The private sector was providing all the services needed.”
The General Services Department head stated, “My managers and staff are always looking out for a better, more cost effective way to deliver service to our customers [county departments]. They understand that the best way to ensure their future jobs is not to ‘protect their turf,’ but rather to be the most cost effective provider around.”
FINDINGS AND RECOMMENDATIONS
FINDING 1: There are no broad county-wide policies and procedures for privatization. In this void some departments have developed their own guidelines.
RECOMMENDATION 1b: The Board of Supervisors and County Administrator should organize a County Privatization Task Force. The Task Force would develop countywide short and long term policies for consideration and approval by the Board of Supervisors. The Task Force could be comprised of from five to ten department heads who have experience in privatizing services.
RECOMMENDATION 1c: The County Privatization Task Force should seek advice from representatives of community groups, business people, and third party experts.
RECOMMENDATION 1d: The proposed policies and procedures from the Task Force should be submitted to the Board of Supervisors by March 1997 for adoption in June in order to meet the Strategic Plan timetable.
RECOMMENDATION 2b: The Board of Supervisors should review these inventories by March 1997 to confirm the requirement for each line item reported. For those items not passing the Board of Supervisors’ review, the service should be discontinued.
RECOMMENDATION 3b: The 1996-97 Grand Jury should monitor the county’s progress in privatization, report to the public and make appropriate recommendations.
California Government Code Sections 3504, 3505, 4525, 31000, 31000.6-7, 31001, 31003, and 53060.
California Labor Code Sections 132a and 1102.5.
California Penal Code Sections 1203.016 and 1208.
“CSAC Legislative Bulletin,” California State Association of Counties, January 22, 1996, March 4, 1996.
“Contracting Out: Personnel and Legal Issues,” Employee Relations Institute, February 29, 1996.
Documents from the Solid Waste Division of Public Works.
General Services Department Letter on Contracting Out, September 22, 1995.
Guideline for Establishing Public/Private Partnerships, Version 1.0, Adopted by the Information Systems Advisory Committee (ISAC) on July 24, 1995.
Health Care Services Letter from Steven A. Escoboza, Director to Shane Stark, County Counsel, on Contracting Services, September 25, 1995.
“Legal Ramifications of Contracting Out County Services,” presented by Bruce Barsook to the County Personnel Administrators Association of California, April 25, 1996.
“Too Many Agencies, Too Many Rules: Reforming California’s Civil Service,” Little Hoover Commission Report, State of California, April 1995.
Local Government Perspective on Contracting Out, Position Paper of the California State Association of Counties (CSAC) presented to the California Constitutional Revision Commission, May 18,1995.
Memoranda of Understanding with unions in Santa Barbara County.
Numerous newspaper articles on the subject of privatization.
Opinion No. 92-805 by California Attorney General Daniel E. Lungren, May 5, 1993.
Personnel Department Letter on Amending Civil Service Rules, February 26, 1996.
Prison and Jail Privatization Materials from the National Criminal Justice Reference Service, Rockville, Maryland, December, 1995.
“Privatization and Public Employees: Guidelines for Fair Treatment” by John O’Leary and William D. Eggers, Reason Foundation, Los Angeles, California, September 1993.
Reinventing Government, by David Osborne and Ted Gaebler, Addison-Wesley Publishing Company, Inc., Reading, Massachusetts, 1992.
“Reinventing Government, Contracting Out and Privatization,” a speech by Stewart Weinberg, Attorney, 1995.
Santa Barbara County Agenda Board Letter from Public Works on Process for Establishing Solid Waste Collection Franchise Agreements, April 9, 1996.
Santa Barbara County Agenda Board Letter from Public Works on Solid Waste and Utilities Workshop on April 15, April 2, 1996.
Santa Barbara County Agenda Board Letter from Health Care Services on Professional Service Contracts with Santa Maria Obstetricians, April 9, 1996.
Santa Barbara County Board of Supervisors Resolution No. 94-518, Code of Santa Barbara County Memorandum of Understanding with unions on Civil Service Rules, November 1, 1994.
“Strategic Plan,” Santa Barbara County Board of Supervisors, April 1996.
“The Soundness of Privatizing the Corrections Industry: An Inquiry into the Issues Surrounding Privatization,” California State Department of Corrections, 1995.
EXCERPTS FROM THE BOARD OF SUPERVISORS STRATEGIC PLAN
These excerpts establish the Board of Supervisors’ parameters for privatization.
Santa Barbara County’s elected representatives and employees are committed to providing excellent and cost effective public services utilizing public and private means to promote a life of quality for all county residents.
(extracted from a total of 21)
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