As cities and states continue to see their budgets implode from declining revenues and increased costs, we’re increasingly seeing news reports of once-vaunted public sector jobs ranging from sanitation to police and fire forces being outsourced to private sector third party companies. The primary driver tends to be cost savings, which begs the question as to whether municipalities will only wait until AFTER there’s a budget crisis before outsourcing as opposed to this being the prevalent model in general now that the trend is gaining steam.
Trends in Outsourcing of City and Municipal Work:
- Costa Mesa to lay off 43% of city workforce and outsource services (source)
- Phoenix barely avoids outsourcing of water plant by 1 vote (source)
- Carlsbad exploring outsourcing of government work (source)
- Cape Coral City Outsourcing street sweeping, canal dredging and tree removal (source)
Pros and Cons of Outsourcing the Public Sector Workforce
- Displacement of Experienced Workers – One common refrain is that by outsourcing jobs from experienced local employees to outside firms, residents should anticipate a lower level of service and possibly even safety issues. Once the thought of outsourcing police and fire/rescue was unheard of but now it’s on the table in many municipalities. It’s tough to measure such a qualitative outcome, so for the moment, the jury is out on whether residents are getting less for their money.
- Community – Obviously, by outsourcing existing local jobs, there would be some impact on the local economy. After all, these were usually above-market-rate pay jobs with accruing pension benefits and healthcare that are replaced by private sector employees who may be traveling from another community. While one would think the lower costs to the local community would offset the declines from local job losses, it doesn’t change the economic reality for the persons affected.
- Budget Benefits – The key driver here being costs, one must consider not just current wage rates but also healthcare and pension obligations. With healthcare costs skyrocketing annually and very few private firms offering pensions anymore, taxpayers are starting to question why city and state workers are enjoying lavish benefits on their dime that are no longer commonplace or ordinary Americans. One of the biggest risks to municipal budgets nationwide is the pension obligations that are stacking up. By shedding permanent employees, municipalities greatly reduce their funding obligations and thus, can slow the rate of tax increases.
- Politics – Many blame conservatives for the decline of the working class by being anti-union and pro-outsourcing, whereas many liberals are blamed for out of control spending without regard for who’s going to pay for it. There’s plenty of blame to go around, but taking the politics out of it, it’s tough to argue that the current cost model makes sense. After all, if you can achieve a similar level of service for a given price, why would you pay 50% more in net costs? Cities, states, municipalities and the federal government can no longer afford it. We don’t allow runaway expenditures to ruin our personal budgets, so why is it acceptable for taxpayers?
What Are Your Thoughts on Outsourcing of Public Services?