Cities Starting to Out-source Non-Core Activities

In a trend well worth watching due to the insolvency of many states, cities and municipalities across the country, government outsourcing of non-core activities is increasingly occurring.

"Faced with a $118 million budget deficit, the city of San Jose, Calif., recently decided it could no longer afford its own janitors. So the city's budget called for dropping its custodial staff and hiring outside contractors to clean its city hall and airport, saving about $4 million.

To keep all its swimming pools open and staffed, the city is replacing some city workers with contractors.

"These are cases where the question is being asked, 'Is this a core service at the city level?' " said Michelle McGurk, senior policy adviser to the San Jose mayor.

After years of whittling staff and cutting back on services, towns and cities are now outsourcing some of the most basic functions of local government, from policing to trash collection. Services that cities can no longer afford to provide are being contracted to private vendors, counties or even neighboring towns."

The budget deficits of states such as New York, California and Illinois, and cities such as New York City, San Diego and Newark have long been chronicled. Many of the states and cities that have the biggest budget deficits are still not acting on the issue in a timely and forceful manner.

The Wall Street Journal article cited above shows that many governments are however starting to grasp the severity of the issue. Those that do get "it" are starting to focus on one key area: compensation of government employees.

You see, employment by the government was long-viewed as a fairly undesirable destination, due to its low-pay and relatively modest pension/post-retirement benefits. However, that has changed dramatically in recent years.

In recent years, government unions have won significant concessions in terms of pay increases and pension increases. The cost of funding these obligations has out-stripped the ability of state and city governments to raise taxes to pay for them.

Now that the ability to afford over-paid, unionized government workers has dissolved, smart governments are either looking to renegotiate those contracts (dramatically scaling back promised benefits in the meantime) or, barring that, outsourcing most of the services it used to provide itself.

There is no reason governments shouldn't be seeking to outsource as much as possible, getting the best deal for its citizens in the process. It's a trend that's well worth continuing, and offers probably the best and perhaps the only way for states and cities to fend off insolvency.