SADOW: Louisiana Local Governments Should Embrace Bid Competition

The next round of the great competitive bond issuance bidding debate overshadowed introduction of Bossier City’s 2022 budget, providing insight into the insider style of governance promoted by the City Council majority yet highlighting a path forward to save citizens money not just in that municipality but in any Louisiana local government.

Concerning a pair of introduced bonding items, in the previous meeting Republican Councilor Chris Smith had queried about competitive bidding for such professional services. Appearing to speak for the Council majority, GOP Councilor David Montgomery dismissed the idea, claiming that this was unneeded when a reliable provider was engaged.

Smith persisted at this meeting, when the items came up for final consideration. He noted the 2018 Louisiana Legislative Auditor’s report that summarized the use of competitive bidding is considered a best practice in local government debt contracting, estimated it would save local governments money if universally adopted, and recommended adoption of this practice in debt financing. Instead of offering motions for competitive bidding on these items, he announced he would vote against them because they didn’t have such a provision that he thought might result in taxpayer savings.

Montgomery again attempted a defense of the no-bid philosophy. He made reference to an otherwise undefined “process a couple of years ago” and alleged “it was not successful” without giving any specifics, concluding that this “proved all the more so that sticking to a professional firm that charges a fair fee … provides the best possible savings” – a notion perhaps palatable in political systems that discourage, if not prevent, economic competition, but one certainly at odds with modern economic theory and counter to the advice of government purchasing professionals.

Of course, that incident Montgomery referenced provides no such confirmation of the wisdom of no-bid contracting. The city has dozens of professional services contracts and several times every four-year cycle sells anew or refinances bonds. A one-off episode years ago proves nothing: with today’s technology, it costs next to nothing to put professional services deals out to bid, and nabbing a lower price on just a couple at the lower end, and certainly on just a single bond deal, would more than pay for any additional resources spent in the conducting the process for all.

Montgomery also lauded the current firms for a recent refinancing that saved the city money in its water and sewerage department. That’s nice, but totally irrelevant to the argument at hand: there’s no reason another firm that bid lower couldn’t do the same thing or better, and all of that would have been part of the bid package in any event.

Understand that Montgomery – on behalf of the Council, other than Smith, whose voting behavior suggests they agree – doesn’t speak for taxpayers on this issue but for the special interests that have these no-bid contracts grooved their way. Perhaps Montgomery so passionately defends this approach shunned by professionals because he so extensively shops his insurance services to local governments, to the tune of around $280,000 last year, and can benefit from a series of no-bid deals with these.

The argument spilled over into comments made by a citizen on the refinancing proposal, who wanted to bring up the city’s extensively leveraged position. Referring to a previous post in this space, he brought up the city’s per capita debt in 2019 of $6,827, by far the highest of the state’s ten largest cities (he seemed somewhat confused on the source of that information: the link in the post goes to the part of the Louisiana Legislative Auditor’s website that delivers reports, where the comprehensive annual financial reports for all ten cities may be accessed, with that figure taken from Bossier City’s 2019 CAFR).

This prompted from Montgomery bursts of his favorite three words in English language – unlike the vast majority of population that prefers “I love you” – “point of order,” in that the discussion of amount of debt outstanding wasn’t germane to the topic of the item of refinancing. To that, City Attorney Charles Jacobs agreed refinancing didn’t relate to debt levels and declared the latter topic out of bounds.

Perhaps hastily, as it was. It depends on the deal, but commonly the financing costs of a bond issue are rolled into the amount of debt owed (the legal agreement indicates that is left to the city’s discretion). Thus, if the deal ends up doing that then the amount of the city’s overall debt increases, making a discussion of that at that time germane. However, if the matter had been brought up as part of debate on the next item, which asked for new debt, that should have been allowed as part of the discussion.

Eventually, the votes on this item that refinanced $125 million and another that refinanced $15 million and issued as much as $75 million more in debt passed with only Smith opposed. He joined in Council unanimity to approve introduction or issuance of other professional services contracts that later came up on the agenda.

This needs to change. The city, and all Louisiana local governments with more than a few contracts of that size that haven’t, should adopt the LLA recommendation for using the state’s Public Bid Law in purchasing all professional contracts, which is obtaining three quotes for services costing between $10,000 and $30,000, and soliciting bids for the purchase of services exceeding $30,000. This way in the end, taxpayers, not political insiders, win.

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