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Wilson's Privatization Effort Marred by False Start

Politics: Order to shut two warehouses was made before savings were calculated, interviews and documents say.


"The employees were up in arms," Grady said. "They said there is data you haven't seen [and] there is some data you probably haven't done proper analysis on. We think you are making the decision prematurely and we'd like you to reconsider. So I said, 'I will.' "

Grady subsequently directed the state's private consultant, Ernst & Young, to conduct a detailed comparison of the price differences between the warehouse and two private companies on the 29 most popular office items. The consultant, which was hired in August 1994 to study a wide range of privatization and downsizing possibilities, had already been examining the warehouse operation at least since the beginning of the year.

Grady also convened a task force of about a dozen warehouse workers and managers to evaluate the consultant's work.

Grady said the task force was provided with all the research Ernst & Young had compiled, including its estimate of the cost savings the closure would generate. But when asked for that estimate, Grady changed his statement in a subsequent interview by saying that no projection of cost savings was ever made before his September announcement that the warehouses should be closed.

"I went in with a loose analysis that said it just made sense to do this," he said. "We were dealing with imprecise conclusions. . . . [But] there definitely was no comparable number to the $1.3 million" savings estimate the department reported last month.

Later, concerned about a negative news story about the privatization effort, the governor's office convened a telephone conference call with The Times in which Grady changed his statement again by saying that the decision to close the warehouses was not made in September.


But Grady's comment conflicted with several earlier statements he had made in tape-recorded discussions with The Times and the warehouse employees. Grady had told The Times that before he talked to the employees in September, the case for closing the warehouses was so overwhelming that he did not believe further study was necessary.

"The bottom line [was] so significantly in favor of going to the private sector . . . we could probably spend a lot of time adjusting all of this and still come up with exactly the same answer," Grady said about his calculation in September.

Asked specifically whether the closure decision was made before the September employee meeting, Grady said: "The Ernst & Young people had done a significant amount of analysis. My predecessor had looked at it and said, 'Yes, that makes sense.' So the in-house team had come together and said pretty well--'yes.' "

The Times also obtained a tape-recording of Grady's first meeting with employees at the warehouse in Fullerton in September in which he told workers that he decided to close their operation. On the tape, Grady said his superiors recommended that he consider closing the warehouses when he was hired in August.

"I did that," he told the workers. "And I arrived at a conclusion that said there is enough merit there to make that change."

Regardless of Grady's actions, Wilson press secretary Sean Walsh said the governor did not consider the warehouse decision to be final until the consultant's report was completed in February.

By November, the employee committee issued a report on the warehouse closure that said the consultant inflated the overhead cost and did not compare identical office products in calculating the price differences. In summary, the committee said the state operation would be cheaper and provide better service.

But there was never a written response to the issues raised in the committee's report and employees now charge that their effort was ignored.


Grady said he examined the committee's report and ordered some changes to the final study of the warehouse operation. But instead of a written response, Grady said he went through the report with the committee members and explained verbally why he considered the findings inaccurate.

Last year, among all of the difficult decisions Wilson officials faced in deciding which areas of state government should be turned over to private companies, the warehouse transition appeared on paper to be an attractive target.

The size of the staff was small enough that layoffs were unlikely because the employees could be absorbed into vacancies on the state's 276,000-member work force. And the operation had been sharply criticized in a 1992 state auditor general's report for being woefully inefficient.

As a result of that report, Ernst & Young indicated in a February 1995 report that the warehouses were high on their list of targets for either streamlining or elimination.

But the auditor general's report was also a wake-up call for the warehouse staff, prompting it to reduce its line of products and improve efficiency. Last summer, in a survey of state agencies by officials considering the warehouse closure, only one department recommended the operation should be closed. Others recommended changes instead of elimination.

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