Updated Information about SB 1322

After meeting with the lobbyist from the City of Phoenix, it is clear that there is no legal problem, or any other operational problem, with the language in SB 1322. The argument we kicked around is the argument that the costs of bidding out (“costs of procurement”) for many services (including the ones involving tax-free muni bonding) is, as the majority on the Council sees it, too high. But the city lobby doesn’t seem to have any numbers available for comparing the bidding cost to the savings achieved by contracting out. If that’s their strongest argument, they’re done. We have ample evidence from dozens of jurisdictions nationwide and beyond showing that the savings achieved from contracting out greatly outweigh the costs of making and monitoring the contracts. City Councilman Sal DiCiccio pointed out that the $32 million in savings from the Lake Pleasant contract greatly outweighed the million-dollar cost of making the contract.

At this point, the city lobby does not have a leg left on which to stand. They have to admit that either: 1) they are wrong about the supposedly high costs of procurement/bidding; or, 2) they are projecting embarrassingly/scandalously high procurement/bidding costs, out of line with anything in the private sector--or even typical costs in the government sector. Or, they can fall back to arguments that failed in committee—such as the erroneous notion that the (sovereign) State of Arizona has some obligation to defer to (nonsovereign) political subdivisions in the name of local control.

Basic Information about SB 1322

SB 1322 would require Arizona cities with populations of 500,000 or more (Phoenix and Tucson) to open up city services to competition from the private sector. The bill has three main policy objectives:

• Create jobs. By requiring an open and competitive bidding process, SB 1322 will allow private businesses, public-private partnerships, and city employees to compete to provide services to city residents at the lowest prices compatible with the highest quality and most reliable performance. Competitive bidding will help to moderate the costs of all productive factors, including labor, thus allowing thousands of new workers to be hired. (For example, in Fiscal Year 2010, the City of Phoenix paid its average worker a salary, benefit, and overhead package of $97,707. That was up from $83,231 in FY 2007—a 17-percent increase in just three short years, at a time when private-sector workers were suffering pay cuts and layoffs. Even if we take out police officers and firefighters—who would be exempt from SB 1322—competitive labor costs could allow the Phoenix economy to employ one and a half times the current number of city workers, at the average private-sector salary-and-benefit level.)

• Save money for city governments and city taxpayers. By saving money on maintenance and operations costs, SB 1322 would free up scarce budget resources at a time when cities are facing tough budget constraints. The combined savings in Phoenix and Tucson could soon be over $500 million a year—savings that could be passed on to taxpayers through rollback and repeal of recent tax and fee hikes.

• Create opportunities for small business. SB 1322 will help to inject hundreds of millions of dollars a year into the local economies in Phoenix and Tucson. By requiring those cities to bid out services, SB 1322 would create opportunities for dozens of small businesses to win contracts to perform city services.

SB 1322 gives city councils opportunities to disapprove statements of work presented to those councils by city managers, and allows cities to award longer-term contracts to independent contractors and public-private contractors that provide significant capital investments to the cities.

SB 1322 includes several key protections for taxpayers and several provisions designed to ensure that contractors serve as faithful stewards of public resources:

• Transparency in bidding and performance. SB 1322 stipulates that all bid-related communications and supporting materials submitted for consideration by the affected cities shall be public records, and mandates that the city managers and all city departments of affected cities shall conduct annual performance audits for contracted services, the cost of which must be accounted for and incorporated into all bids. SB 1322 requires city managers of affected cities to seek independent performance audits every five years to evaluate the accuracy and completeness of the municipalities’ performance audits, and stipulates that all performance audits shall be public records.

• Protection of city resources. SB 1322 requires that all bidders, public or private, must be able to provide bonding or other forms of security to adequately protect cities, and requires that all bidders maintain an adequate level of liability insurance consistent with the city risk management requirements.

• Public safety provisions. SB 1322 requires that independent contractors have appropriate safety policies and procedures in place to protect the public and its employees, and requires that independent contractors perform background checks on employees performing any service for which the affected cities require background checks of municipal employees.

• Breach-of-contract protections. SB 1322 mandates that independent contractors acknowledge that the affected cities may rightfully terminate and rescind contracts awarded to independent contractors in the event of material breaches of those contracts.

• Term limits for service contracts. SB 1322 provides that service contracts may not have terms longer than five years, with three one-year renewals, before the related services must be submitted again to open and competitive bidding.

• Term limits for capitalization projects. To address policy concerns voiced in committee, the proposed floor amendment to SB 1322 allows for longer terms to be awarded for contracts with independent contractors or public-private partnerships that involve significant capital investments. But the proposed amendment also limits the terms of those contracts to the length of the amortization schedules prevailing in those industries.

Given the wide latitude allowed to city councils and city managers in designing service contracts, SB 1322 includes a taxpayer standing clause that allows taxpayers residing in the affected cities to bring special actions in court to enforce the protections afforded in the legislation.

Once the success of this managed competition reform has been demonstrated in Phoenix and Tucson, it is our firm hope that future Legislatures will expand the reform to include all of the municipalities and counties in Arizona, thus providing its protections to all Arizona taxpayers.

For Liberty,

--Tom

Tom Jenney
Arizona Director
Americans for Prosperity
www.aztaxpayers.org
tjenney@afphq.org