Friday, July 08, 2011

"Buy Local" Law Makes A Mockery Of Public Bidding Law For Local Governments

Sen. Allen Paul (R-Richmond) was upset when a local government in Wayne County awarded a contract to purchase automobiles to an out-of-state dealer instead of a local automotive dealer because Indiana's procurement code requires purchases that are subject to the public bidding laws to be awarded to the lowest responsive and responsible bidder. That's been the law in Indiana as long as there has been a law on the books requiring public bidding to protect taxpayers from cronyism and cost-padding by unscrupulous government officials. Throwing common sense to the wind, Paul prevailed upon his colleagues in the Indiana General Assembly to slip a major rewrite of the long-standing procurement rules into a pending bill in the closing hours of this year's legislative session to provide preferences to "local Indiana businesses" whenever a local government purchases supplies or undertakes a public works project that is subject to the public bidding laws.

The Indiana Legislative Insight's Ed Feigenbaum has picked up on the mess Paul's new law has created for local government officials, who have been caught completely off guard that the new law had gone into effect as of July 1. Feigenbaum says the local business preference was inserted into HB 1004, a catch-all state and local administration bill that was primarily touted for slashing Indiana's corporate income tax in an effort to lure businesses away from neighboring states, particularly Illinois, where recent tax hikes are proving burdensome to businesses. The new law is "proving to be a major source of confusion for both businesses and government, and may well be potentially problematic (or even counterproductive) in its ultimate application" Feigenbaum says.

The new law gives a preference to a "local Indiana business" based on a sliding scale. The preference starts at 5% for bids under $50,000, drops to 3% for bids between $50,000 and $99,999 and bottoms out at 1% for bids of $100,000 or more. A local Indiana business bidding to sell supplies or perform a public works project would be deemed the lowest responsive and responsible bidder applying the applicable price advantage, even if there is a lower responsive and responsible bidder other than a local business. That will have the effect of driving up purchasing costs for local governments, which rely on property taxes as a major funding source. Local units of government have already complained about the loss of revenues due to the impact of property tax caps mandated by state law, and rising fuel prices and other inflationary pressures are taking a further toll on local budgets.

Feigenbaum says a confusing definition of what constitutes a local Indiana business is turning interpretation and enforcement of the new law into a nightmare. The new law provides several different criteria for determining what constitutes a local Indiana business, aside from where its actual place of business is headquartered, including a business that has made a "significant capital investment" or a "substantial positive economic impact." Feigenbaum says there is concern "that the definitions are so nebulous that a potential bidder who has sponsored a county commissioner's golf fundraiser or funded a picnic or party for employees of a government unit may win credit under the two criteria."

What is clear is that the new law will most assuredly lead to lawsuits by losing bidders who contest a local government's interpretation of the law. Feigenbaum even wonders whether it might be subject to a constitutional attack as a violation of the interstate commerce clause. The IBJ recently reported on how the Ballard administration used a technical mistake by an out-of-state bidder to award a demolition contract to tear down an abandoned high rise apartment building on Keystone Avenue to a local contractor whose bid was more than $250,000 higher than the out-of-state bid. The out-of-state vendor cried foul, but the Ballard administration refused to accept late-filed financial statements from the low bidder, even though timely filing of the financial statements had been waived in past bidding opportunities. This new law will open the floodgates to cronyism and favoritism in the awarding of public contracts, the very evils our long-standing laws sought to avoid.

A press release on Sen. Paul's website boasts of the passage of his "Buy Local" law. "I wrote the 'Buy Local' proposal to level the playing field for small area businesses that often have to compete with large national companies who can easily offer lower bids on community public works projects," Paul said. "With this initiative, I hope more project money can stay in local communities, advancing the success of small-town Hoosier employers and providing jobs for Indiana residents." Unfortunately, the only thing Paul's legislation has accomplished is to turn the procurement law on its head and drive up costs for local governments, which will ultimately lead to higher taxes for taxpayers.

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