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* Outsourcing deal pays city $1.5 mln up front, $200,000 a month
* City employees oppose deal, fear lower-paying jobs
* More than three quarters of U.S. cities outsource garbage service
By Jim Christie
SAN FRANCISCO, March 15 (Reuters) - Voters in Fresno, California's fifth-biggest city, in June will settle a fight between city officials and employees over a plan to hand garbage services to the private sector - a common form of outsourcing for more than three-quarters of U.S. cities
Fresno's city council has put the matter on the ballot after city workers turned in 40,000 signatures on a petition for a special election, setting up a showdown with Republican Mayor Ashley Swearengin that will be closely watched by other local officials mulling outsourcing services to help shave costs.
In the outsourcing pressed by the mayor, a local garbage company will pay Fresno for its residential refuse service. Fresno officials say the new service will cost households less and help the city put its wobbly finances on firmer footing.
Outsourcing refuse services can help reduce payrolls, pension costs and capital spending, said Steven Frates, a local government expert and research director of Pepperdine University's Davenport Institute. And trash routes generate franchise fees for cash-strapped governments.
"It's a revenue source - as opposed to a cost," Frates said.
Financially troubled Flint, Michigan, outsourced its garbage collection in the last month.
Such savings and an influx of cash have made outsourcing waste services pervasive. More than 80 percent of U.S. cities now outsource some or all garbage and recycling services, according to Phoenix, Arizona-based Republic Services Inc, the second-largest U.S. waste collector.
Fresno's June vote on its residential garbage service will be watched by credit rating agencies concerned about the city's finances, which like those of many other cities in the most populous U.S. state have been hammered by falling revenue.
In January, Moody's Investors Service confirmed Fresno's issuer credit rating at A3 but lowered most of its lease revenue bonds to junk-level and downgraded its convention center, pension obligation and judgment obligation bonds to Ba2 for the city's "exceedingly weak financial position" and the "weakness of the city's economy." The outlook on the ratings is negative.
With about 505,000 residents, Fresno is the biggest city in California's Central Valley, which suffers some of the worst poverty and joblessness in the nation, said Joseph Penbera of the economic consulting firm PenberaParis and former dean of California State University, Fresno's Craig School of Business.
He estimates more than half of the Valley's population gets some form of government assistance or payment. Unemployment in Fresno is 14.9 percent, well above California's average of 9.8 percent and the national 7.7 percent average.
Fresno's jobless rate is not far from the 14.5 percent rate of Stockton, another Central Valley city that last year became the biggest U.S. city to file for bankruptcy.
"We're in the same valley Stockton is in," said City Manager Mark Scott explaining why rating agencies are watching Fresno.
Since 2009, Fresno has cut about 950 jobs from its payroll to 3,150 positions, Scott said, adding that Swearengin's administration expects the city's finances to remain strained for years to come.
Privatizing garbage services will cut more spending and raise cash. Fresno will get $1.5 million up front from Mid Valley Disposal for a 10-year contract for residential trash pick-up and about $9 million from the company to buy city garbage trucks and gear, Scott said.
Fresno will also net $200,000 a month from franchise fees from the company, similar to payments the city has been getting since outsourcing commercial trash service in 2011, Scott said.
According to a city report, Mid Valley Disposal will provide residential garbage service at an overall lower cost than the city. The company adds that households will see a rate reduction of 17.6 percent for two years with its service and save about $200 over the life of its contract with the city.
Fresno could use new revenue right away. Scott said a $1.2 million deficit may open in Fresno's $240 million general fund budget, tenuously balanced due to police officers leaving the city at faster rate than forecast. Their numbers will be down to about 715 in June from a peak of 849 in July 2009, Scott said.
"Things are better, but there are a lot of ifs," Scott said, noting Fresno needs more concessions from its unions and better revenue on top of garbage franchise fees to clean up its books.
Fresno's employees oppose Swearengin's plan. It provides jobs for about 110 of them at Mid Valley Disposal but at lower wages. "We have never ever denied that the city has a problem," said Dee Barnes, head of one of the city's unions. "We just believe this isn't the way to fix it."