San Diego’s government needs more competition, not more taxes

San Diego’s rising pension costs and mounting long-term debt are creating significant budget pressures that have city officials turning to tax and fee increases, such as the recently imposed trash fee on many San Diego property owners.

San Diego’s $2.5 billion unfunded pension liability accounts for about 40% of the city’s total $6.8 billion debt. In the 2024 fiscal year, the city paid about $500 million in pension contributions, nearly 60% of which goes toward paying down pension debt. With unfunded pension liabilities and the city facing $540 million in forecasted budget deficits in the coming years, it has imposed a wave of unpopular taxes and fees on solid waste, parking, hotel stays, and more. Today, it is more than justifiable for taxpayers to question whether local leaders have given sufficient consideration to spending reductions and service streamlining relative to raising taxes and fees.

San Diegans felt similarly in 2006 when they passed Proposition C, authorizing “managed competitions” in which private companies would compete against city workers to reduce costs and increase innovation in delivering city services.

Managed competition can be transformational, generating cost savings of 5% to 20%. This technique has been successfully implemented in numerous states and cities, including Phoenix, Charlotte, and Indianapolis.

Former Indianapolis Mayor Stephen Goldsmith told Governing that the robust managed competition program implemented during his terms in the 1990s created over $400 million of value for city taxpayers. In Florida, former Gov. Jeb Bush’s administration conducted more than 100 managed competition initiatives that saved taxpayers more than $550 million.

But managed competition requires leadership committed to driving ongoing improvements, results and value. Politics and special interests can make managed competition challenging to sustain over time, as happened in San Diego.

City leaders didn’t fully embrace the managed competition effort, dragging out its implementation for years. Then they tended to give public employees special treatment relative to private firms regarding their cost estimates to deliver services, projections of future service demand, and the ability to penalize underperformance. It wasn’t a level playing field for private firms, and the city wasn’t pushing for efficiencies from government agencies. Rather than build the capabilities to improve these things, San Diego stopped trying.

From a taxpayer perspective, it is time to give competition another chance.

The rising costs of residential solid waste are a prime example. The private sector already picks up 70% of San Diego’s solid waste from businesses and apartments, with the city’s solid waste operation collecting the remaining 30% from single-family neighborhoods and multiplexes. The city’s costs have gotten so high that it is imposing a new solid waste tax on homeowners. San Diego did not see fit to test the market with the private firms that perform the same job in surrounding cities at significantly lower costs.

Phoenix has been applying managed competition in residential solid waste collection since 1979, dividing the city into zones and competing trash service in each zone every six years. In 2011, Phoenix’s Public Works Department told Government Technology that competition had generated $38 million in cumulative savings to that point.

San Diego’s leaders owe it to taxpayers to test the market and ensure that city workers are performing their jobs at maximum efficiency and at the lowest possible cost. Frustrated San Diegans rightfully wonder why the city didn’t implement this approach instead of raising taxpayers’ costs with the trash fee while continuing to do business with the same city employees. Worse, city officials are executing this implicit city job protection program at a time when every worker hired is adding significant costs and financial risks to San Diego’s already underfunded pension system.

Two decades ago, San Diego’s financial mismanagement earned it the moniker “Enron-by-the-Sea” and prompted taxpayers to demand procurement and pension reforms to save money. But as things improved over time, the city abandoned competition. And after state courts blocked a pension overhaul approved in a landslide in 2012, elected leaders ignored residents’ wishes and made no effort to craft a similar reform.

Instead of asking taxpayers to pay more taxes and fees to cover the city’s spending and debt, San Diego should give managed competition a fair chance to see if government agencies can improve efficiency or if the private sector can deliver better services at lower costs.

A version of this column first appeared at The San Diego Union-Tribune.

The post San Diego’s government needs more competition, not more taxes appeared first on Reason Foundation.

Source: https://reason.org/commentary/san-diegos-government-needs-more-competition-not-more-taxes/