By: Stephen Wall and Alicia Robinson | Original Article at PE.com
When Menifee became a city in 2008, a consultant ran the show.
A firm, Winzler & Kelly, hired experienced managers to make decisions about real estate, public safety contracts, finances and other issues.
As the years went by, the city moved away from contract workers in favor of in-house employees with a vested interest in the town and its well-being, Mayor Scott Mann said.
“There’s a time and a place for consultants and contractors,” Mann said, “but they are not to be used on a permanent basis. There’s too many things that can go wrong.”
About 28 miles away in Beaumont, people are wondering if something went wrong.
A consulting firm’s business relationship with that city appears to be at the center of a county and federal investigation.
The Riverside County District Attorney’s Office, assisted by the FBI, served search warrants Wednesday, April 22, at Beaumont City Hall and the Beaumont office of Urban Logic Consultants – a firm that has provided management services to the city for more than 20 years. At one time, the firm employed all the city’s top managers.
Authorities also served search warrants at the Palm Desert home of Beaumont City Manager Alan Kapanicas and a location in Temecula.
Officials have not said what prompted their investigation. Beaumont Mayor Brenda Knight said at a special council meeting Thursday night that the city has a bright future and that she cannot share much information because “investigators are keeping quiet about the focus of their inquiry.”
Other Inland cities and local government experts say the kind of arrangement Beaumont had with Urban Logic is rare.
“It sounds unique,” said Steve Harding, adjunct professor of public administration at the University of La Verne and Jurupa Valley’s former interim city manager. “I’ve certainly never heard of anything like that.”
NO CITY EMPLOYEES
Jurupa Valley, which became a city in July 2011, doesn’t have any city employees. All of the roughly 50 employees are contract workers hired by four consulting firms.
City Manager Gary Thompson, who currently works as a contractor, is set to become the city’s first employee May 1.
Harding said he was interim city manager two years longer than he wanted.
“It was never the intention of the council or me as an interim to have those contracts go beyond the first fiscal year,” Harding said. “Given the situation, we could not transition into full-time employees. There was no way we could do that.”
The situation Harding was referring to was the loss of state vehicle license fees two days before Jurupa Valley opened its doors. The city lost half its projected revenue and had no money to hire its own employees, Harding said.
Its finances are finally getting to the point where that may change, Thompson said.
The city finished a wage and compensation survey and hopes to start transferring about 10 administrative positions, including the city clerk and the finance department, from contract staff to city employees, Thompson said.
“Certain functions should be city employees,” he said. “A lot of it has to do with segregation of duties and contract oversight. You need to have regular city employees overseeing the contracts.”
Asked why, he said: “To avoid situations it sounds like you got in Beaumont.”
‘JUST NOT WORTH IT’
Experts say nearly all local governments contract out for some services, and practices vary widely, from cities that do almost everything in-house to those that are run mainly with contract employees.
Contracting out municipal functions can make sense for services that require specific expertise, equipment or facilities, such as trash collection. It’s also practical when the job is temporary or the volume of work is too small to justify a permanent employee like a city attorney.
“There are a lot of specialties that are just not worth it for smaller cities to invest in themselves,” said Douglas Johnson, a fellow at Claremont McKenna College’s Rose Institute of State and Local Government.
In a 2012 survey of nearly 2,200 city and county governments, the International City/County Management Association found a growing number of local governments are cooperating with each other to provide public services, while contracting out with private, for-profit companies dropped slightly since a 2002 survey.
Among the survey respondents, departments such as payroll, personnel, public safety and code enforcement were largely staffed by public employees. On the other hand, a significant number of governments used private companies to provide legal services, land use planning, vehicle towing and public hospital operations.
Contracting can bring savings on pensions and other benefit costs, Johnson said. Also, it’s typically easier to cancel a private contract than to lay off public employees with job protections, Johnson said.
In Beaumont, city leaders have said their arrangement with Urban Logic has saved hundreds of thousands of dollars a year.
CAUTION URGED
But relying on private companies for public services also can have pitfalls.
What matters is whether contracting is done in an open, transparent way, with competitive bidding and periodic reviews, said Kevin Duggan, the International City/County Management Association’s West Coast regional director.
Johnson said some local governments have been caught giving contracts to political donors. He also pointed to a recent situation in which a trash hauler asked several San Gabriel Valley communities for an emergency rate increase. Most cities agreed, but Glendora rejected the hike after getting an independent review of the matter.
“Contracting out isn’t the end of the city’s responsibilities,” Johnson said. “The city still has to monitor it, has to understand the service being provided and evaluate whether they’re really getting a good deal.”
Several firms that provide contract services to governments, including some that work for Inland cities, did not return calls seeking comment.
In Menifee, the city has a handful of engineering and planning positions held by contract employees. They are specialists who work short term to deliver specific projects, Mann said.
Menifee hires a firm to maintain streets, but city employees oversee and manage the company, he said.
“When I think about Beaumont and Menifee, they are not analogous,” Mann said. “Our consultants and contractors are not in key management positions. They’re not part of the leadership team.”
Mann credited City Manager Rob Johnson with helping the city transition “from a contract city to where it is today.”
Eastvale, which incorporated in 2010, contracts with consulting firms for planning, public works, engineering and building inspections.
“We contract because we can add inspectors as needed and cut back when the demand is not there,” Mayor Ike Bootsma said.
Bootsma said he can’t envision a situation similar to Beaumont happening in Eastvale.
“I could not imagine having the city manager hired by the consultant,” Bootsma said. “Then the consulting firm is running the city by controlling the city manager.”
In general, a city council needs to hire “a good city attorney who is really on the ball” watching for potential conflicts of interest, he said.
“A lot of stuff is perception,” he said. “Some things are legal, but from the outside it doesn’t look right. You have to be upfront and let the public know exactly what’s going on in your city.”