By Nick Worth The Goldwater Institute, a non-profit watchdog group has brought a lawsuit against the City of Tucson over its local bidding preference ordinance. Should the institute prevail, it would impact several area entities. The institute, whose stated mission is “to protect freedom and prosperity,” claims in its lawsuit that the ordinance ends up costing taxpayers more money than using the practice of accepting the lowest bid for supplies and services. Charles Siler of the Goldwater Institute explained a local bidding preference gives preference to business within a certain area by allowing them to win the bid, even though they exceed the low bid on a project or a purchase. The institute’s website explains it in more detail. “A bid preference is an advantage provided to certain favored businesses,” reads the website. “These can range from preferences for women or minority-owned firms to preferences for certain sized or types of businesses. “A local bid preference is a preference for firms that are located within the local area, or whose owners are residents of the state or city awarding the contract,” the website states. “The government entity will define what counts as a ‘local business’ and then apply a discount, typically a set percentage, to bids from firms that meet the government’s definition.” According to Holbrook City Finance Director Randy Sullivan, the city has a bid preference for local businesses, but with a five percent limit. The policy, which is found in Section 1, Chapter 1 of the city code, reads, “In awarding a contract for work or supplies to be paid for from public funds, bids of contractors or suppliers who own a business supplying the goods or services, and which maintain a physical address within the city limits may receive the bid if their bid is within five percent of the lowest bid on the project.” The bid preference policy also states that the purpose in giving a bid preference to local businesses is to reduce costs to the city, and to promote economic development by encouraging businesses to locate and remain in the city. Holbrook City Manager Ray Alley explained that on a major purchase, for example a vehicle, if the city can buy locally it saves money in the long run, even if the bid is five percent above the lowest bid. “We have to pay sales tax on every purchase we make,” said Alley. “So if a bid is five percent higher than the low bid, three percent of that bid price comes right back to us in sales tax revenue and another .5 percent stays in the county as county sales tax revenue.” Alley said the net result is that the city is only actually paying two percent above the lowest bid, or 1.5 percent if you add in the county sales tax. “If we go outside the local area, say to Tucson, then we’re paying all that sales tax that stays in Pima County and we don’t see any of that back,” said Alley. Even with the local bid preference, the City of Holbrook does not always buy locally. Sometimes local merchants cannot bid a price that is within that five percent buffer. “We bought our last police cars from Earnhardt Motors in Phoenix, because they turned in a lower bid than any local dealers,” said Sullivan. The Tucson ordinance, which was adopted on June 12, 2012, is a bit more complicated than Holbrook’s. The law applies to city contracts for goods and services, and provides for three different local preferences. Type A businesses, which are those businesses whose principal business offices are physically located within Pima County, will receive a five percent preference over other businesses. Type B businesses are those whose principal business offices are located outside of Pima County, but still within Arizona. These businesses will receive a three percent bid preference. Type C businesses are described as those businesses that operate a franchise within Pima County and are owned by Pima County residents. They will be eligible for a 1½ percent preference. Among other local governments and entities that go out to bid for projects, the process varies. Winslow City Manager Steve Pauken said the City of Winslow has an ordinance similar to Holbrook’s which specifies a five percent preference for local bidders. “I imagine if you put them side by side, they’d be very similar,” Pauken said. Asked if the Winslow council has exercised the preference very often, Pauken said he did not have the background to answer the question since he had only been on the job in Winslow for six weeks. “The council just awarded a contract for work on the wastewater treatment plant and there were no local bidders,” said Pauken. “Sidewalks are one thing, but the more highly-technical or large-scale the projects are, the less likely we are to get a local bidder.” He said the city would soon be going out to bid on some facets of the capital improvement program for this fiscal year. Asked if a win by the Goldwater Institute in the court case against Tucson would affect how Winslow awards those bids, Pauken noted that Tucson is a charter city and that would also have an effect on the outcome of the case. “There are 19 cities and towns in Arizona that have charters, and the rest are general plan towns and cities that operate under the Arizona Revised Statutes,” Pauken said. “Those charter cities and towns will probably play a role in the outcome of this case.” Snowflake Town Manager Paul Watson said Snowflake does not have an official policy on bid preference. “We have an unofficial policy that if the bids are similar, we try to go with the local bidder first,” said Watson. “We use state contracts for our purchasing,” said Holbrook School District Superintendent Robbie Koerperich. “A lot of the services we purchase are not available locally.” Koerperich said there is no actual bid preference policy for the school district. “We may sometimes choose a higher bidder depending on past performance,” Koerperich said. He added that factors such as quality of the work, or materials can also cause a contract to be awarded to a higher bidder. Navajo County Manager James Jayne said the county is required to follow state law in soliciting bids. “We have to buy off state contracts if it’s a purchase over $50,000,” said Jayne. He noted since that is the case, when it comes to a large purchase, such as specialized vehicles, “if it’s over $50,000, we’re essentially getting them from Phoenix.” Jayne said the county does try to buy locally whenever possible, but that, too, is regulated by state law. “We bought two Ford Escapes for the motor pool and since they cost less than $50,000, we were able to solicit three bids from Ford dealers in Winslow, Holbrook and Show Low,” said Jayne. He added that state law prohibits the county from accepting any bid but the lowest. Jayne said that last year, Navajo and Yuma counties co-sponsored a bill in the state legislature that would have allowed rural counties to buy locally with a bid preference of up to five percent if their Board of Supervisors feels it is in the public interest. “It sailed through the legislature,” said Jayne. “It got great support in both the House and the Senate, but then the governor vetoed it.” Jayne said the two counties have not tried to bring the bill back this year. Siler said the institute’s case against the City of Tucson could have national implications. “A lot of cities have bid preferences and most states have the same constitution and the same equal protection clause,” said Siler. “It could be a legal precedent.” According to the institute’s website, Tucson’s local bid preference ordinance, “cast(s) off the fundamental concepts of fairness, openness and predictability in the public procurement process.” The institute’s lawyers claim this will result in higher costs for Tucson taxpayers. In addition to the direct percentage increase, taxpayers will pay more because firms that do not meet the preference are discouraged from participating in the procurement process, restricting the market and driving the prices still higher. “Bid preference policies like Tucson’s also encourage other municipalities to retaliate with their own local preferences, creating a bidding war that drives up the costs for all Arizona residents,” reads the institute’s case explanation. The law is also illegal, according to the institute’s lawyers, Jon Riches and Clint Bolick. They claim in their suit that the law is unlawful under state statute, and unconstitutional under both the federal and state constitutions. They say state statutes govern public contracts. “Specifically, Arizona law mandates that ‘any county, city or town…shall enter into a contract with the lowest responsible bidder whose proposal is satisfactory.’ The subsidy provided under Tucson’s bid preference ordinance ensures that in projects where the preference is exercised, the contract will be let to someone other than the ‘lowest responsible bidder.’” The institute goes on to state several goals for its lawsuit. “A successful taxpayer lawsuit in this case will save taxpayers money, place all businesses in Tucson on a level playing field and prevent retaliation in other Arizona cities contemplating enacting their own bid preferences,” concludes the institute case explanation. “I think this probably has a long way to go,” Pauken said of the case. “Tucson won’t take this lying down.”