Outsourced Cities Rethink Contracts In Recession

Johns Creek, Milton, Sandy Springs may have to adjust plan with city management firm

By DOUG NURSE

The Atlanta Journal-Constitution
Tuesday, January 20, 2009

As the economy faltered, Atlanta dealt with a budgetary shortfall by cutting 350 positions. Gwinnett County also axed 93 jobs. On Thursday, DeKalb County announced it was eliminating 181 positions to save money. But it may not be so easy for Georgia’s newest cities.
When they were launched, the cities embarked on a bold privatization experiment in which they all independently contracted with CH2M Hill-OMI, a Colorado company, to provide most day-to-day services. They are lump-sum contracts that the cities pay to have the company provide basic services.

For example, the firm manages the cities’ departments of public works, parks and recreation, planning and zoning, and human resources. The only people on city payroll are police and firefighters, and a handful of top administrators.

Now, as officials at Johns Creek, Milton and Sandy Springs project declining revenue in the foreseeable future, they are sounding out CH2M Hill’s willingness to change its contract to help them cut costs. The contracts are about a quarter to a third of the cities’ operating budgets.
Among the possibilities on the table are having CH2M Hill redeploy staff, eliminating positions, and perhaps even modifying its contract on the level of services provided.

Johns Creek City Manager John Kachmar said he’s not panicking, but if at midyear the revenue picture still looks bleak, he may begin negotiations with CH2M Hill in earnest.

“When you’re an outsourced city, you go to the contract,” Kachmar said. “You can’t be held hostage by a contract when you can’t afford it. Cities have to adjust, and contractors have to adjust. You have to live within your means.”

Reductions in service or layoffs would be a last resort, he said. Johns Creek would first ask CH2M Hill to freeze open positions and discount its bill accordingly, and it would give idle workers new tasks outside the normal course of their duties —- both of which would require negotiations with the company, Kachmar said.

Fortunately, the company is well aware of the cities’ financial pictures, and it is willing to do what it can to cut costs, said Al Crace, Sandy Springs project manager for CH2M Hill.
“This is a partnership, and we’re in it for the long haul,” Crace said. “These are the times we live in, and everyone has to be realistic. The city pays a fixed fee for a bundle of services and levels of service. They tell us what they want, and we’ll price it.”

It’s too early to project how bad the financial picture will be in the coming year.
But so far, property values are stagnating or declining so ad valorem taxes may be down. People aren’t spending as much, so sales tax revenues are flat or falling. Because of the downturn in development, permitting fees, licenses and other income are in a tailspin. And, the cities are at or near the maximum tax rate they can legally impose.

Even so, Johns Creek Mayor Mike Bodker said he believes the city probably won’t need to initiate real talks with CH2M Hill.

“We still have a lot of runway,” Bodker said, referring to the city’s financial status.
Sandy Springs City Manager John McDonough said he is hoping to find ways that don’t affect services to the public. For example, he said, CH2M Hill could move people from departments affected by the slowdown, such as in planning and zoning, and move them to other departments.
“We want to work smarter while providing the same level of service,” McDonough said. “All cities and counties across the country are dealing with budget issues. We are in a strong position, a very strong position.”

In Milton, the company’s city staff is so lean and capital improvements so few that discussions likely will turn to reduction in services, said Tami Hanlin, former CH2M Hill program director for Milton and now director of a company program that pools resources shared by all the cities.
“There’s not a lot of fat,” she said. “The whole premise is that we have a more efficient way of delivering services.”

If there’s no meeting of the minds, the cities and CH2M Hill would have little alternative but to sever the contract, a prospect everyone views with dread, Bodker said.
“We have a nuclear bomb and they have a nuclear bomb,” he said. “No one wants to use it.”

OUTSOURCED GOVERNMENT

City…………Total 2009 budget….CH2M Hill payment

Johns Creek……$47.35 million….$18.9 million
Milton………..$22.87 million…..$7.6 million
Sandy Springs….$97.5 million…..$25.8 million