Out-of-town auto deal could spur Santa Rosa to rethink when it shops local
Santa Rosa’s plan to spend nearly $100,000 on three new police vehicles from a Ford dealer in Southern California has raised questions about whether the city is doing enough to shop local.
The council voted 5-1 Tuesday to award a contract for three new SUVs to a dealer from Alhambra because its winning bid was $6,153 - just $2,051 per vehicle - lower than the bid from Santa Rosa-based Hansel Ford.
The 2017 police interceptor SUVs are being purchased in anticipation of the department needing to patrol Roseland once the unincorporated area is annexed into the city, expected late this year.
If Hansel Ford would have been within 1 percent of the lowest bid, local rules would have required the city to award the contract to the local firm even though its bid was slightly higher, a concept referred to as a local preference. Hansel missed the 1 percent mark by a little more than $5,000.
“I think a 1 percent local preference is not adequate to fully grasp the potential benefit to the local community,” said Councilman Chris Rogers, who voted against the contract. He said didn’t think the savings from selecting the lowest bidder, Alhambra-based Wondries Fleet Group, were necessarily greater than the benefits of keeping that money circulating in the local economy.
The Hansel Auto Group is probably the largest generator of sales tax for the city, said Justin Hansel, general manager of his family’s Ford dealership. The auto group supports 650 jobs that generate income with a ripple effect on the local economy, he said.
“The more inventory we bring in, the more we can hire,” he said.
Rogers, a policy manager at a local green energy company, stressed that city finance staff followed current policy and made the right recommendation in this case.
But he said he’s aware of numerous academic studies demonstrating how spending money locally has positive economic benefits that multiply as that money is recirculated.
Rogers declined to say how much more taxpayer dollars he’d be willing to spend on local goods and services to prime the pump of the local economy.
Local preference only applies to purchases over $10,000 that the city makes through the competitive bidding process requiring the lowest bid to be accepted. That encompasses everything from office paper to street paving and park construction.
To qualify for the preferential treatment, firms must be based in Santa Rosa. The 1 percent rule was meant to mirror the approximate of amount of sales tax the city receives back from the state for most goods purchased within city limits, CFO Debbi Lauchner explained.
Contracts for other types of services, such as garbage hauling or banking or legal services, can rely on a variety of factors, don’t have to be awarded on a lowest-bidder basis.
Sonoma County has a local preference of up to 5 percent, subject to a number of exemptions.
While no other council members voted against the contract, others also support revisiting the issue.
Councilman Jack Tibbetts recounted how during his two-year tenure on the Board of Public Utilities there were times he was frustrated with the “minute differences” between the value of the winning bids and losing local bids.
“The rule of thumb is that for every dollar you invest in a local business, 45 cents gets returned to the local economy,” Tibbetts said.
Councilman John Sawyer, a former downtown retailer, said he, too, didn’t like to see a local company losing out.
“When it’s this close, it is a little bit frustrating,” Sawyer said.
The SUVs being purchased would be identical regardless of which vendor the city picked, Lauchner said.
The city wouldn’t lose the sales taxes from the purchases to Alhambra because the state directs taxes from vehicle sales to community where the vehicle is registered, not where it is sold, Lauchner explained.
The city’s fleet maintenance department will outfit the SUVs with the gear they need and maintain them as needed. Any warranty issues would be addressed by Hansel as the local Ford franchise.
Justin Hansel said he was disappointed the company lost the business but was glad to hear the council might reconsider its local guidelines.
Hansel Ford in particular has a long history of supplying the city with vehicles, he said.
“Almost all of the police interceptors on the road today have had our license plates on them at one time or another,” Hansel said.
The positive impact on the economy of buying local is clear, but precisely calculating it can be tricky, said Terry Garrett, co-manager of Sonoma County Go Local, a local business cooperative.
The so-called economic multiplier for a service business like an architecture firm can be as high as 2.5, meaning that a $100,000 purchase can have a total impact of $250,000 after those dollars are recirculated to other local businesses, he said. The benefit from a straight purchase of goods such as vehicles might depend in part on the profit margin of the sale, making such estimates difficult, he said. But most studies say the average local purchase returns 1.25 times the amount spent to the local economy compared to cash spent with an out-of-area chain, Garrett said.
Because of the issue’s complexity, many city purchasing divisions don’t want to bother factoring location into calculations, but Garrett wishes they would. Santa Rosa boosting its local preference could be a good way to inject cash into the local economy, he said.
“If we could get it up to 5 percent, that would be great,” Garrett said.
You can reach Staff Writer Kevin McCallum at 521-5207 or email@example.com. On Twitter ?@srcitybeat.