State’s taxpayers win, but county’s take a protectionist hit
Written by Michael Lewis on May 12, 2015
Fair competition in government contracts got a win at the state level last week but took another hit in Miami-Dade.
Legislative leaders sent to Gov. Rick Scott a bill on Thursday to prohibit using local preferences in construction contract selections when half or more of the costs will be paid from state-appropriated funds.
But in Miami-Dade, commissioners voted unanimously to create a local preference for goods made or grown here when the county is the buyer.
Local preferences always sound like wonderful agents to build up the local economy but they have one serious drawback – they actually tear it down. A few local businesses wind up economic winners but every other business and the taxpayers lose.
Serious research by the Virginia Association of Government Purchasing found a long list of cons when local businesses get a head start in any competition for government contracts.
For one, government officials by design might not buy from the most efficient source because outsiders don’t get a fair shot at contracts.
Local buying also reduces the pool of bidders, and it’s frequently the best vendors who don’t compete, raising the prices government pays for inferior services and goods.
Those increased costs taken as a whole might in fact lead to higher local taxes, the Virginia study found.
Further, one local preference leads to others in other communities in retaliation or for self protection, so that in fact Miami-Dade firms might be at a disadvantage elsewhere. The Virginia study stretches that thought to the concept that businesses might actually avoid moving here rather than risk retaliation when they bid elsewhere.
Because the Virginia team was also looking from an inside government viewpoint, it noted the added costs to government in administering the local preference program, including the painstaking gathering of proof that goods are in fact produced locally – after all, just because it doesn’t say “Made in China” doesn’t mean it was really made in Miami-Dade. How do you know for sure?
The purchasing group also sees added bid protests springing from local preference contracts and possible legal challenges on exactly what “local” means and who is really “local.”
The group correctly notes that it’s hard to have joint purchasing agreements across government boundaries that save money in economy of buying scale when other jurisdictions aren’t insiders in the legislation. There go those giant economy size discounts.
Finally, the Virginia study notes that in five states local preferences have been found in court to be unconstitutional barriers to interstate commerce. All the more work for our law department.
None of those reasons – or others we cited three weeks ago – gave Miami-Dade commissioners pause as they unanimously told the administration to set up local preferences in purchases of goods, preferences not spelled out in either method or degree of preference. That’s all to come later.
Yet with no specifics at all, commissioners didn’t bother to discuss the measure in either its committee stop or at the fully commission meeting last week – they passed it without a single word.
Maybe it sounded so good to have local business that nobody stopped to think about why in the end it will have a few business winners and all taxpayers as losers.
In Tallahassee, meanwhile, the Associated Builders and Contractors of Florida got a bill passed 28-9 by the Senate and 95-22 by the House recognizing drawbacks of limiting competition by giving unfair advantage to local bidders.
That bill decreases instances in which geographic bidding preferences could be imposed in construction contracts based on bids issued by state colleges, counties, municipalities or school districts. If more than half the money in those bids comes ultimately from the state, local preferences will be outlawed as of July 1 if the governor signs the bill.
It’s true, of course, that local preferences have one good point. If you are an inefficient local provider who can’t match outsiders in quality or price of your goods you can get contracts from local government if outsiders are barred or handicapped in the bidding. Some folks argue that such artificial protection allows weak businesses to get strong and hence improve.
Unfortunately, other studies show that not only do local preferences raise prices government pays, but the local firms that win actually average less profit on the deal than outsiders would have. They’re too inefficient to do better. Chalk that up as a lose-lose.
New Commissioner Daniella Levine Cava last week issued a press release hailing her triumph in building more local preferences into the Miami-Dade government framework and noted that the mayor’s office is now left to develop the strategies and the rules to make it all work.
Good luck, Mr. Mayor. Your problem is, it doesn’t really work.
Preferences are the economic equivalent of a big bag of candy – attractive and tasty, true, but not nourishing, and the more of it you try, the worse off you’re going to be.