Taxpayers, businesses losers in bid preference legislation
Written by Michael Lewis on March 19, 2014
Should businesses be bled to death, slowly poisoned, or nibbled to death by ducks? And by what margin should government overpay for goods and services?
Don’t laugh: we’re offered those choices in bits of state and county legislation as officials tinker with bid preference laws.
Dueling state plans would supersede pernicious Miami-Dade rules. A county resolution, meanwhile, asks the state to let us go along unfettered on our costly anti-competitive path.
All three measures aim to give local firms an edge in bids over outsiders. The state packages make all of Florida local, while Miami-Dade already gives huge advantages inside county lines – adding three other counties if they do the same for us but leaving out the rest of Florida, the US and the globe.
Such barriers are common around the US because they sound so good: keep money at home rather than letting outsiders get it, and strengthen local businesses.
The problem is the unintended consequences of restricting competition: taxpayers pay more, government doesn’t get the best work, and businesses weaken rather than growing stronger because they don’t battle with the best.
There’s often another consequence: when we raise barriers against outsiders, others retaliate with their own barriers and our companies can’t get as much business out of town or out of state.
A 2012 study by states’ officials who procure goods and services – and who say such preferences cost taxpayers more – found 35 states have preferences that penalize bids from states that also have preferences.
A bill by Heather Fitzhagen of Fort Myers now in the Florida House would heavily penalize businesses in states with preferences when they bid in Florida and would force counties and cities to do the same. Florida businesses would get a break as big as the margins competitors’ states give. Local preference in Florida would be 5% on bids from non-preference states.
If this were foreign trade, it would be a battle of higher and higher taxes on imports – with the same disastrous consequence to all economies. Everyone would lose.
Meanwhile, a House bill by Miami’s Erik Fresen would give a flat 10% edge in any state, county or city bid to any Florida bidder over an outsider.
If Company A from another state would do the job for $1 million, any government in Florida would have to pick a Florida company that bid $100,000 higher, handing extra tax money to a Florida business, which itself would lose out on a 10% lower bid in the other state. Taxpayers everywhere would pay more so politicians could say they were keeping money at home.
So along comes Audrey Edmonson asking Miami-Dade commissioners to oppose both bills because they’d override our local rules, which offer up to a 15% head start to Miami-Dade but not statewide bidders. We might waste less under Rep. Fresen’s bill than we do now, she implies, so fight it.
Listen to the National Association of State Procurement Officials, the folks who actually seek the best bids, in their 2012 briefing on in-state bidding preferences:
“The costs of goods or services are increased for all taxpayers when a percentage differential is allowed; meaning that the state will not get the same value for the dollars spent…. This practice discourages firms that don’t meet the preference from participating in the procurement process… Experience has shown that when restricting a market, or implementing a preference, prices increase.”
You don’t have to go as far as national professionals or back to a 2012 study to see the validity in that, to the dismay of taxpayers.
Homestead, which has been seeking a new city hall for 17 years, tried again but in December the city council learned that the city’s local preferences had reduced competition, raised prices and forced the city to start all over.
Only five of 63 potential bidders braved the preference route, which gave local vendors a $4 million handicap and pushed bids above the city’s budget.
“If we increase the competition, we know the prices are going to go down,” said Julio Brea, Homestead’s head of the public works and engineering.
So preferences limit competition. A firm that starts 5% to 15% behind competitors has too much ground to make up to offer a winning bid and doesn’t bother. Meanwhile, the few remaining firms can bid higher knowing that competitors are frozen out. Study after study nationally proves that.
As Miami Commissioner Frank Carollo put it in another local preference case, “What I’m afraid of is there’s an out-of-town firm that’s way superior and now because we have this ordinance, we can’t actually hire them.”
By keeping out the best and thereby raising what we pay, local preferences – enacted to keep money at home – become a lose/lose through barriers to competition rather than a win/win. It sounds so good and it ends up so bad.
Three pieces of bad legislation now compete to make things worse. None deserves to survive.
We’d do far better to tear down Florida preference laws already on the books and do the same in cities and counties.
That would in a single stroke reduce costs, add quality by including top bidders who now are frozen out, and strengthen Florida’s business climate by allowing the best to win, not just those to which we artificially give the biggest head start.
An added advantage to us in that enlightened action would be that with no preferences in Florida, Miami-Dade firms would be on equal footing in all 67 counties, and as the biggest player we could profit most.
Or perhaps our taxpayers prefer to routinely overpay while our businesses are weakened by poison, bleeding or attack ducks. But don’t count on it.