Cities Outsourcing To Save Money Spells Trouble

Outsourcing art by Dreamstime

We both love, and love to hate, outsourcing.

While nobody loves talking to someone on the other side of the world about a technical issue on their laptop, nobody really wants to pay the type of money that will get you that help locally. Even my father (who runs his own ultra-small business) outsources uniform/linen maintenance and logistical processing so he can focus on his core business. Outsourcing allows companies to hand off business-necessity functions (like janitorial or accounting) to experts who can aggregate costs over anywhere from dozens to thousands of clients.

What’s happening in city halls around the country in regards to outsourcing is something else altogether — and it may come back to haunt them.

The Wall Street Journal published a story this week about cities outsourcing services, and this excerpt sums it up pretty nicely:

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 move saves cities budget-crushing costs of employee benefits like health insurance and retirement. Critics say contracting means giving up local control and personalized services.”

While much of the article focuses on the recent budget shortfalls plaguing many communities (particularly in California), I’d like to think about the longer term consequences of outsourcing vital city services to contractors.

The control issue

With my background in HR, you might find it surprising that I’m not a control freak — not until it comes to outsourcing. I get antsy about putting an outside company in between tasks that are critical to the success of my company. And if you’re a community leader who answers to city that democratically elected you, I’m guessing you have to be nervous about giving up that control too. While Maywood, CA (pop. 40,000) is an extreme example noted by the Journal, they have contractors for everything, even a contracted police force (legal problems relating to policing led to the city’s decision to contract it out).

If you’ve had problem with your police force, is outsourcing it to an outside company the best solution, where even less direct control can be exerted? And when the electorate has questions about pay or working conditions of contractors, are they going to be able to address them?

The short-term success of contracting essential services will come down to service agreements put into place by each individual community.

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Reverting back to an employed workforce

Even with those concerns, reverting back to a fully-employed workforce will not be pretty (or easy) for many of these municipalities. Unions have continued to fight the movement from a municipally-employed workforce to an independently-contracted one. If at some point a city reopens their doors to hiring city employees, both the unions and the city employees will remember what happened previously and will negotiate appropriately.

And while switching to a contractor from a municipally-employed workforce is costly, it doesn’t match the upfront costs and risks of trying to replace those contractors with full-time employees at a later date (especially if you have been unsatisfied with the contractor’s employees).

Is there any other option?

Still, as I go through these considerations I wonder how many choices a municipality can truly make in this scenario? It seems impossible for these communities to raise revenue at this time. The states are in an economic crisis. And, they already feel like they’ve cut their services to the bare bone.

What do you think? Are there any other options for struggling cities? Is a contracted workforce the only option to consider?

Lance Haun is the practice director of strategy and insights for The Starr Conspiracy, where he focuses on researching and writing about work technology. He is also a former editor for ERE Media, broadly covering the world of human resources, recruiting, and sourcing. 
He has been featured as a work expert in publications like the Harvard Business Review, The Wall Street Journal, Fortune, MSNBC, Fast Company, and other HR and business websites.
He's based in his Vancouver, Wash., home office with his wife and adorable daughter. You can reach him by email or find him off-topic on Twitter.