By Leonard Gilroy
Reason Foundation
When it comes to dealing with municipal fiscal woes and rising pension costs, Costa Mesa and San Bernardino offer an interesting contrast, especially when it comes to using outsourcing as a means of lowering costs and ensuring the continued delivery of public services.
In the wake of the Great Recession, officials in then-cash-strapped Costa Mesa attempted to privatize nearly half of the city’s workforce to lower costs, but were rebuked by the courts. City officials have negotiated with unions to contract out street sweeping and jail operations in recent years, but they recently reached a legal settlement with unions that will prevent all but one future privatization effort (parks maintenance) for four years. In addition to granting a virtual moratorium on privatization, officials also granted employees a 4 percent pay increase.
One might wonder why this matters when Costa Mesa is back on seemingly sound fiscal footing today, having had five years of increasing revenue. The answer is that the city’s total pension costs are skyrocketing, increasing at about double the rate of revenue. Hence, pension costs are increasingly crowding out spending on public services, all while outsourcing, a powerful cost-cutting tool, has been largely taken off the table.
Contrast this with San Bernardino, whose bankruptcy exit plan relies heavily on outsourcing as a primary strategy for restoring fiscal solvency. In May, the City Council overwhelmingly approved a bankruptcy plan that includes large-scale proposals to contract out 15 city services, which it estimates would produce at least $9 million in annual cost savings.
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