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Our Path Forward: Encouraging High-Road Procurement

Wisconsin state government should use its procurement to support high-road development – using democracy to increasing a community’s total factor productivity (including natural capital as a factor) and capturing sharing the increased wealth locally. It should put no limits on local governments doing the same. 

What’s the Problem Addressed?
State and local governments annually spend hundreds of billions of dollars purchasing goods and services from commercial entities outside themselves.1 That amount of buying power is a powerful tool. Governments can use it to encourage or discourage different kinds of commercial products, sorts of business models, or patterns of firm attitude and behavior – toward their employees, area community, each other, the environment, or government itself.  Courts have long held that governments, behaving as market actors, are pretty much free to buy from outside themselves on pretty much whatever terms and conditions they want. 

Federal Reserve Bank of St. Louis. Table 3.10.6. Real Government Consumption Expenditures and General Government Gross Output, Chained Dollars. Retrieved on March 31, 2018, from: https://fred.stlouisfed.org/release/tables?rid=53&eid=16745&snid=16799. See Also
Annual Surveys of State and Local Government Finances (September 7, 2017). Table 1: State and Local Government Finances by Level of Government and by State, 2014-15. U.S. Census Bureau. https://www.census.gov/govs/local/

That amount of buying power is a powerful tool. Governments can use it to encourage or discourage different kinds of commercial products, sorts of business models, or patterns of firm attitude and behavior – toward their employees, area community, each other, the environment, or government itself.  Courts have long held that governments, behaving as market actors, are pretty much free to buy from outside themselves on pretty much whatever terms and conditions they want. 

Throughout our history, state and local governments have used this power to shape development in their jurisdictions. Recently, many governments interested in high-road development have used procurement to do so – for example by favoring firms that are local, or independent, or with good labor relations, or higher than average productivity, or higher regard for their community or area environment. But as state governments have come to be dominated by low-roaders, they have not only wasted much state money buying from low-road firms, but often used their power over localities to block them from using their money to encourage the high road. This is true now in Wisconsin.

How Does OWR’s Proposal Address It?
OWR proposal is rather simple: bar standards-lowering state interference with local procurement, and eliminate this aspect of overweening state preemption (Should some well-intentioned local government exercise this power unwisely – for example, by requiring that no local procurement contract go to any firm not paying its non-supervisory workers less than $100 per hour – we’re confident it will hear the wrath of its own taxpayer soon enough. It does not need hear from Madison). Regarding state government itself, we hope that its wholesale replacement will, under our proposal, lead to a happy explosion of ideas for using our statewide purchasing power more constructively than at present. Right now, across Wisconsin, virtually all our governments are declining the invitation and incentive the Government Accounting Standards Board offers them to be more transparent and responsible on their spending. We hope our simple fiat proposal will clear the ground to change that too.  

Who Else is Doing it?
Shaping procurement standards by real public concerns is more or less ubiquitous. At least 45 states and the District of Columbia have procurement policies favoring businesses that meet certain characteristics, including being veteran-owned, paying workers above a certain wage-level, using environmentally sustainable practices, or manufacturing within the state.2 The number of local governments with similar policies is far greater, and often extends to elaborate “community benefit agreements” intended to make some government purchase or transaction meet some specified community need, including affordable housing, environmental remediation,  or job opportunities for underserved communities.3

Among many examples (just from states, for reasons of space): CA – Since 1973 California’s Small Business Procurement and Contract Act aims to provide small businesses the same free enterprise opportunities as larger business-certified competitors. The law allows certified small business and microbusiness to receive a 5% bidding preference on applicable state solicitations.4 AK – Alaska has a product preference program that provides local bidders with a cost preference of 3%-7%. Contracts, for example, are awarded to the lowest responsive and responsible bidder after applying the 5% preference if the provider maintains a place of business in the state. A bidder who qualifies as an Alaska bidder and also offers services through an employment program receives a 15% preference.5 MD – In 2007, Maryland became the first state to pass a state-wide law requiring providers of maintenance services and information technology services to pay workers a living wage. The Commissioner of Labor and Industry administers and enforces the law. The wage rates are adjusted annually based on the Consumer Price Index.6 NY – To advance special social and economic goals, New York state agencies, political subdivisions and public benefit corporations are required to prioritize procurement from a “preferred source”. These include the New York State Industries for the Disabled (NYSID), the New York State Preferred Source Program for New Yorkers who are Blind (NYSPSP), and the manufacturing program of the New York State Department of Correctional Services.7 DC – The District of Columbia operates a Certified Business Enterprise (“CBE”) Program, which provides preference to District-based firms.8

Why Not Wisconsin?
In 2017, Wisconsin spent $659 million on contractual services alone.10 Rather than providing incentives for in-state businesses, Wisconsin actually penalizes out-of-state vendors if their state provides such incentives.11 This strategy offers little assistance to small-medium local businesses, which are unlikely to compete in other states. As a result, the potential of state procurement to promote local economic development remains untapped.

While state laws do include some relevant provisions, these are weakly formulated. For example, Wisconsin requires government agencies to “attempt to ensure” that 5% of the total expenditures will be is paid to minority businesses, and that 1% will be paid to disabled veteran‐owned businesses.12 State Bureau of Procurement (November 2, 2017). Vendor’s Guide. State of Wisconsin, Department of Administration. https://doa.wi.gov/DEO/VendorsGuide.pdf13 In practice, it is impossible to guarantee that agencies seriously work toward achieving these goals, or even make any effort in this direction.

In brief, we could do much better. But this requires changing our state government to one that actually wants to serve our people through its procurement practices, and does not block local governments pursuing such goals.

NOTES

  1. Federal Reserve Bank of St. Louis. Table 3.10.6. Real Government Consumption Expenditures and General Government Gross Output, Chained Dollars. Retrieved on March 31, 2018, from: https://fred.stlouisfed.org/release/tables?rid=53&eid=16745&snid=16799. See Also
    Annual Surveys of State and Local Government Finances (September 7, 2017). Table 1: State and Local Government Finances by Level of Government and by State, 2014-15. U.S. Census Bureau. https://www.census.gov/govs/local/
  2.  LaVecchia, O. (August 27, 2015). Procurement Can Be a Powerful Tool for Local Economies, but Takes More Than a Policy Change to Work. Institute for Local Self-Reliance.https://ilsr.org/procurement-more-than-a-policy-change/
  3.  See the many examples highlighted (and often organized) by the Partnership for Working Families and its 17 urban affiliates at the Partnerhship’s website: http://www.forworkingfamilies.org
  4.  California Division of Administrative Services. Contracting Guidelines 5 Percent Small Business Preference. Retrieved on March 16, 2018. http://www.cdcr.ca.gov/DoingBusiness/SBDVBE/docs/Policy-and-Guidelines_5-SB-Preference.pdf
  5.  Alaska Procurement Technical Assistance Center. Alaska Bidder Preference Program. Retrieved on March 16, 2018. https://ptacalaska.org/procurement-tools/product-preference/
  6.  Maryland Department of Labor, Licensing and Regulation. Overview – Living Wage for State Service Contracts. Retrieved on March 16, 2018. https://www.dllr.state.md.us/labor/prev/livingoverview.shtml#law
  7.  New York State, Office of General Services (October 2014). NYS Procurement Bulletin: Preferred Source Guidelines. https://www.ogs.ny.gov/procurecounc/pdfdoc/psguide.pdf
  8.  D.C. Department of Small and Local Business Development. CBE Program History. District of Columbia. Retrieved on March 14, 2018. https://dslbd.dc.gov/service/cbe-program-history
  9.  Bureau of Procurement, Division of Enterprise Operations (February 2018). Contractual Services Annual Report 2017. Wisconsin Department of Administration. https://doa.wi.gov/DEO/FY2017ContractSvcRpt.pdf[/ Unfortunately, with limited exceptions, state laws require government agencies to award contracts to the lowest bidder or highest-scoring proposer. 9 Bureau of Procurement, Division of Enterprise Operations (September 2016). Procurement Desk Guide. Wisconsin Department of Administration. https://doa.wi.gov/DEO/ProcurementDeskGuide.pdf
  10.  Wisconsin State Legislature. Chapter 16: Department of Administration; Sub-Chapter IV: Purchasing; 16.75 Buy on low bid, exceptions. Retrieved on March 10, 2018. http://docs.legis.wisconsin.gov/statutes/statutes/16/IV/75
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