Court Restricts State’s Ability to Contract Out

SAN FRANCISCO — In a major defeat for Gov. Pete Wilson, the California Supreme Court decided Thursday that the state cannot hire private companies for work that civil servants are capable of performing.

State officials said the 5-2 decision would immediately force delays in $480 million in future transportation projects, including the extension of the Foothill Freeway in Los Angeles County, and may make vulnerable hundreds of millions of dollars in state professional contracts that labor representatives contend are illegal.

Under the ruling, the state can contract out only in the rare instances when it can show that private companies can do the work more cheaply, that state employees lack the ability, or that an emergency exists and public safety is at stake.

The ruling stems from a lawsuit brought by state engineers against the state Department of Transportation, or Caltrans, for contracting out professional work previously done by civil servants. The engineers have blasted many of the contracts as “political patronage,” charging that Wilson awards them to his campaign contributors. Such contracts do not require competitive bids.

The Supreme Court found that the state officials failed to buttress their claim that restrictions on private contracting create additional expense or safety risks.

A disappointed Wilson said the court had upheld “an antiquated case” that “created out of whole cloth a constitutional restriction against private contracting.”

He said he would urge the state Legislature to propose a constitutional amendment that would allow voters to override the court’s decision. But he acknowledged that, in the meantime, “projects that would have been moved forward are being delayed.”

John Barna, deputy secretary of transportation, said Caltrans will now have to vastly expand its engineering staff and abandon plans for accelerating dozens of road projects. Among those that will be pushed back to the year 1999 or 2000, he said, will be the expansion of the Foothill Freeway through Claremont and La Verne and a series of border projects in Imperial County designed to facilitate trade with Mexico.

“This impacts the daily lives of millions and millions of Californians, all to protect the special interests of some unions,” said Wilson’s press secretary Sean Walsh. “You’re going to have some mightily pissed off commuters driving to work tomorrow in Los Angeles when they read about this decision.”

During the past several years, California has reduced its professional engineering staff and awarded more highway and earthquake design work to private consultants.

Loren E. McMaster, a lawyer for the state engineers, said the court ruling will void private contracts awarded in violation of the Civil Service protection.

“The impact is huge,” he said. “It goes far beyond the engineers. It covers all state Civil Service.”

Under a 1942 California Supreme Court decision, McMaster contended, private firms that obtained these contracts can be forced to repay the state funds they received. Contracts awarded by cities and counties are not affected by Thursday’s decision.

But Los Angles lawyer Gregory R. Smith, who represented the state in the case, said it is unclear how many state contracts ultimately would be affected.

Smith said many contracts can be justified under other laws that provide exceptions to Civil Service rules. He said “fairness and common sense would dictate” that private contractors should not have to repay California for money they earned on state projects.

“In an era where we think we have to have more frugal government, this decision delivers the opposite mandate--that is that government must expand because you can’t use flexible means to get the job done,” Smith said. He also contended that it is difficult to show that private contracting is cheaper because many Civil Service costs are hidden.

The Supreme Court, in an opinion written by Justice Ming W. Chin, concluded that the state had provided insufficient evidence that private contracting was warranted.

Under a state constitutional provision enacted in the 1930s, California is required to use Civil Service employees whenever possible. State engineers, citing the constitutional requirement, obtained an injunction from a Sacramento trial judge in 1990 restricting the ability of Caltrans to award private contracts.

In response to that injunction, the Legislature passed a bill signed by Wilson that said more private contracting was needed to enhance and speed highway construction. Wilson cited that 1993 law in refusing to obey the injunction, and a Court of Appeal in Sacramento backed him. At the time, $159 million in Caltrans contracts were at stake.

But the Supreme Court, overturning the Court of Appeal decision, found that the state law conflicted with the California constitution and was adopted without sufficient evidence that private contracting was necessary. Justices noted that even Caltrans admitted that one study found that it was cheaper to use state employees rather than private engineers.

“The Civil Service mandate does not readily lend itself to broad legislative exemptions,” Chin wrote.

Chin cited previous court decisions that prohibited private contracting for work that government employees could perform “adequately and competently.” He noted that state engineers had argued that Caltrans created an “artificial” need for private contracting by maintaining an inadequate staff. The state laid off about 100 engineers in 1995.

Court decisions protecting state employees have been “reasonable, practical ones aimed at preserving the state’s Civil Service from dissolution or decay without unduly hampering state agencies from private contracting whenever the circumstances justify it,” Chin wrote.

But he noted: “Caltrans has had and continues to have the opportunity to justify specific private contracts on the basis they are needed to assure timely project delivery unobtainable through the available Civil Service.”

Justice Marvin Baxter, who served as appointments secretary to former Gov. George Deukmejian, accused the court majority of showing “a stunning lack of respect” for case law and the Legislature.

“I believe the majority opinion will have far-reaching and pernicious effects, prompting individual judges to invalidate legislation whenever they decide that the legislative determinations, though concerning matters that are fairly debatable, are not supported by what they perceive as substantial evidence,” Baxter wrote in a dissent.

Justices Kathryn Mickle Werdegar and Janice Brown did not participate in the case. Werdegar is married to a physician who is an administrator in a state health agency and Brown previously served as Wilson’s legal affairs secretary.

Court of Appeal Justices Patricia D. Benke and James A. Ardaiz sat in for the two absent justices. Benke, who serves in San Diego, voted with the majority. Ardaiz, who presides on the Court of Appeal in Fresno, filed a separate dissent, arguing that the court was required to accept the Legislature’s finding that private contracting would be cheaper and more efficient.

McMaster said that campaign records show a significant overlap between those who have contributed to Wilson and those who received private contracts. “Even the law firm representing the governor in this case made a . . . contribution to the governor,” McMaster said. “Maybe it is a coincidence that they got [up to] a $280,000 contract.”

State campaign records show that the firm, Irell & Manella, has made numerous political contributions to a variety of candidates over the past several years. Wilson received a total of $46,000 from it since 1990, reports show.

Smith, the lawyer who represented the state in the Supreme Court case, said the decision to award the firm the contract had nothing to do with political contributions and was made by a state official unaware of them.

“There is no indication that these contracts are given on the basis of political patronage,” Smith said. “The largest contributors . . . are the unions.” He said the engineers’ association that brought the suit that triggered Thursday’s ruling donated more than $630,000 in 1994 to a variety of state candidates.

Professional contracts covered by the Supreme Court ruling are awarded only after several candidates have been reviewed and on the basis of competency and price, he said.

McMaster contended that neither the lawsuit nor the state high court should be blamed for any project delays that may result from the ruling. Wilson “tried to evade the law, evade the constitution and got caught,” the lawyer said. “Why should we be the fall guy or the courts be the fall guy?”