City Agencies Thrive Under Managed Competition

Carl DeMaio’s quest to privatize San Diego’s city services take an unexpected turn.

For decades now we have heard Republicans tell us that under every circumstance government is incapable and incompetent.  There’s this completely irrational hatred of all things linked to the government–except the military, of course, which somehow doesn’t qualify as a government agency by Republican definition.  Government, and by extension, government agencies—all government agencies—are unable to efficiently and effectively perform the tasks they’ve been chartered for, and thus cannot be trusted with taxpayer money.

The anti-government bent started in the 1980’s with Ronald Reagan scaring the bejeezus out of us, when as president he told us that “The nine most terrifying words in the English language are ‘I’m from the government and I’m here to help.’”  As if government agencies can’t ever help.  And right wing hero and anti-tax crusader Grover Norquist, who tells us that he “just wants to shrink government down to the size where we can drown it in a bathtub.”

According to dogma, you see, government is inherently bad.  Which leads me to wonder why Republicans want to run government so badly (pun intended)……but that’s neither here nor there.  The fact is that they do, and they have.

Government bad, private industry good.  Pretty simple.  Remember that.  We’ll come back to it.

Case in point:  The San Diego city government and the label “Enron by the Sea.”  The local government was viewed as absolutely hapless, the cause of a massive pension system failure and huge budget deficits in the mid 2000’s.  By 2005 San Diego was in such a deep budget hole that its bond rating was essentially reduced to junk status, and its ability to borrow money and issue bonds for all intents and purposes, gone.

Along came the caped crusader; the anti-government, anti-tax, pro-privatization hero from Washington, D.C./Northern Virginia to San Diego’s rescue, and he brought his Performance Institute with him.

Carl DeMaio sensed an opportunity.  Here was this extreme right wing zealot heeled in the annals of Republican Congressional corners in our nation’s capitol, who long ago had declared himself the country’s foremost expert on government efficiency and performance.  He started a business that would ultimately make him millions by teaching government agencies how to save money by outsourcing (privatizing) government services, and another business that gave seminars teaching private businesses how to take advantage of that gravy train.  He profited nicely and so did they.

DeMaio decided that San Diego needed a little of that DeMaio magic.  San Diego’s government was failing and he knew why, and he had just the tonic to fix it:  Privatization.  Only he couldn’t just come out and say that the city should up and privatize everything (although to this day that’s pretty clearly his ultimate goal).  State labor laws prevented that from happening straight off.

Instead, in 2006 DeMaio led the initiative to create a “managed competition” law for San Diego.  The whole idea was to put city services out to bid and make public agencies bid on those services alongside private companies.  May the lowest bidder win.  It could, according to some estimates, save the City of San Diego $80 million to $200 million per year.  Dubious claims to say the least, but it’s not unreasonable to assume that significant cost savings could be found.

At its core, though, the idea was that city workers and their hated union representation could not possibly compete with the services and cost structure that the private sector could offer.  We would put city services out to bid, allow city workers to participate in the process, and ultimately they would lose and the anti-government zealots would be able to carve another notch on their tote board.  Even better, another government agency bites the dust.

But there were problems with the law.  First is that state law prohibits governments from unilaterally making decisions on labor matters.  Any changes to labor contracts must be collectively bargained, regardless of “the will of the voters.”

There was another problem:  Initially managed competition meant that contracts would go to the lowest bidder.  Period.  That’s the idea, right?  To save the taxpayers money?  Turns out that’s not necessarily such a good idea, as the original law didn’t account for the quality of the services being contracted out.

Remember that assumption that “government bad, private industry good?”  Turns out that private contractors doing business with the city can be somewhat less than ethical, overcharging the city or shortchanging taxpayers in order to pad the company’s profits.  And why not?  It’s only taxpayer money, after all.  No one will miss it, right?  This whole outsourcing thing often means that there is less oversight and even less accountability, meaning the contractors get paid and the city gets screwed.  That’s not always the case, but it happens far more often than Carl DeMaio would care to ever admit.  Before it was able to be implemented, the managed competition law had to be amended to include certain quality standards and requirements.

Still, managed competition was a veiled attempt by DeMaio and Co. to begin the process of outsourcing our city’s services.  Last month at a debate with fellow mayoral candidate Bob Filner at the Ocean Beach Town Council meeting, DeMaio questioned specifically whether the city should be providing its own in house print shop services, or whether it should be employing people full time to maintain the city’s fleet of 4,000 vehicles.  Shouldn’t those services be farmed out to the private sector, who we know can to it better and cheaper, he asked?

In 2010, after working out the kinks in the new managed competition law, the city finally started putting some of its service contracts out to bid, including the very print shop and the fleet services DeMaio decried at the debate.

Only a funny thing happened on the road to Carl’s privatization efforts:  The city employees won the contracts.

On May 11, 2011, Mayor Jerry Sanders’ office issued a press release announcing that they city’s Publishing Services department had been victorious in their efforts to save their jobs, and that the new deal would save the city $5 million over the life of the contract.

The vehicle maintenance services that DeMaio insisted should not be a part of the city’s purview?  That went out to bid, too, and the city’s Fleet Services division—public employees—won that contract, turning in a bid that will save the city $4.4 million per year, $22 million over the five year term of the contract.

In fact, every city service that has gone out to bid thus far has been awarded to the city employees who currently perform the tasks, including the operation of the Miramar Landfill, and the city’s street sweeping operation.  The only contract sent out to bid that has not been awarded to the department currently performing the task is the street/sidewalk maintenance division, and that process has not yet been concluded.  Expect the same results, and DeMaio’s quest for complete privatization will be denied at yet another turn.

It should be noted that under the rules of managed competition, in order to be accepted as the winning bid, the private sector bid must come in at least 10% lower than the public sector bid, and that minimum performance requirements are a part of the bidding process as a result of the modifications to the law.  And it should further be noted that typically cost savings are achieved in the private sector through reductions in salaries and benefits to those performing the work.

The idea behind the whole managed competition rule is not necessarily a bad one.  You really can’t argue with wanting to save the city’s taxpayers millions of dollars while still maintaining a high quality level of service.  On the surface, that’s how managed competition was presented, but given the history of the man backing the law, I have a hard time believing that the results were as intended—that being maintaining a workforce that is directly employed by the city.  After all, city agencies are supposed to be incompetent and exorbitantly expensive, right?  And unions……well unions only muck things up and cost the taxpayer’s MORE money, right?

The recently upticked war on public employees has taken some ugly turns lately, but as San Diego’s managed competition law has demonstrated in no uncertain terms, when run properly and given the proper respect, public agencies can operate at a level that is as good or better than their private sector counterparts, and they can do so without gutting employee salaries and benefits.

Contrary to popular Republican belief, government can and does work, often despite the constant scapegoating and denigration, not to mention deliberate efforts to sabotage it.  Public employee unions can be reasonable and protect both the interests of their membership and the interests of the governments and taxpayers who employ them. Unions and public employees are not our enemies.  Wouldn’t it be nice if the right wing stopped treating them as such?

You can follow me on Twitter at @AndyCohenSD


Andy Cohen

Andy spent 15 years working in the highest levels of the San Diego professional sports world, including both the Padres and the Chargers. He began his foray into writing while a volunteer for Francine Busby's 2010 Congressional campaign, eventually becoming a contributor to the now defunct SDNN. He has reported on local and national politics for both the OB Rag and the San Diego Free Press. When not reporting news and events, he offers political and policy commentary from a liberal perspective, occasionally turning back to his sports roots. While he does not hide his more liberal political bent, Andy always strives for fairness in the telling of a story.


  1. avatarLucas O'Connor says

    Another way to look at it is that the city found a way to force city workers into pay cuts without going through the bargaining process.

    • avatarAnna Daniels says

      Lucas, that is the way I look at it too. Because privatization is done by specific function, an end run around the bargaining process (read unions) will become the new normal because of this piecemeal approach.
      The laughter must be echoing off the walls in back rooms far removed from citizens and city workers.

    • avatarAndy Cohen says

      I know I’m about to commit a bit of blasphemy here, but……the unions serve an important function in standing up for and protecting workers’ rights. But the unions aren’t always right, and City Hall isn’t always wrong. And if the two sides managed to come together and find a way to save the city millions while preserving good paying jobs and guaranteeing a high level of service in the process, so much the better.

      Broader point: I think we all know that the real point behind managed competition was to drive the public sector out of business. The assumption on the part of conservatives is that the public sector is always bad and cannot compete with the private sector, and each one of the city agencies that has come up for bid has somehow managed to present the best deal. If that’s not an argument for the value of public workers and the possibilities of what government can do when run properly, I don’t know what is.