Show Me The Money Part II

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The City is still reviewing bids from three private companies to take over trash collection in Newport Beach. On September 19, I reported that City Manager Dave Kiff’s analysis of the competing bids is a mix of on-going and one-time expenditures. Looking for “apples-to-apples” numbers, I focused on what Kiff refers to as “core services only.” Three private bidders were unable to beat the City on these core services and were eliminated on Sept. 10. The three still in the running beat the City on core services by $191,000 to $1,065,000 per year.

The current system is very popular, so the lower numbers probably don’t offer enough savings to justify a change. But at the upper end, a million bucks a year is tempting. So how good are the numbers for the current City-run option? I’m no accountant, and they say a little knowledge is a dangerous thing, but here are a few questions after reading Kiff’s report.

First, there is waste in the current system because of a lot of overtime pay. Why the overtime? Because there are two vacancies and 16 workers have been doing the work of 18 people. So why not fill the vacancies? Probably because the City already assumes these jobs will be eliminated. So are the overtime costs in or out of the projections?
Second, how good are the labor costs if the City replaces the old trucks with automated loading systems. Would there be productivity gains? And workers comp costs are supposedly high because the City uses a manual loading system. Wouldn’t automated loading systems save on workers’ comp?

Some pension costs would be eliminated if we privatize. But wait, we’re going to give these workers jobs elsewhere on the City payroll. So do the costs of their pensions go away or do they simply morph into some other part of the City budget? Would future hires get the same high pensions or are we going to transition to cheaper 401k benefit plans?

On the capital side, it is claimed privatizing will recover $5.8 million from selling our old trucks for $1.5 million and reclaiming a capital reserve of $4.3 million. But $3.3 million of this may be funny money. Let’s say the City stays in the trash business and replaces ten trucks for $2.5 million. If it sells the existing trucks for $1.5 million, that’s a net cost of only $1 million. So the City could get ten new trucks and still recover $3.3 million in reserves even if it stays in the trash business. In other words, the claimed savings from privatization are overstated by $3.3 million.

Finally there are the mysterious leases. In Kiff’s reports, the private bids get credits for eliminating the costs of leasing a transfer station. Elsewhere, it is suggested we have excess capacity at this operation which we could sell to outsiders, but this potential revenue isn’t included. Seems unfair to credit one side with the savings but not credit the other side with the potential income.

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