"I have the hammers for $6, but somebody in Nowhere, Miss., can sell them for $5.99.
"Well, the shop in Mississippi doesn't have to pay San Francisco's minimum wage, doesn't have to pay for sick days, doesn't have to pay for health care ... We've asked businesses to contribute to all these good social policies, then those businesses get penalized because someone else can sell something cheaper."
Cornell who says he agrees that local businesses should pay well and give their workers benefits is frustrated that when it comes to purchasing, the city doesn't give anything back. "We lost S&C Ford, we lost Ellis Brooks Chevrolet," he said. "Those were all union jobs, with good benefits. And how many cars did the city buy from them?"
When Cornell was on the Small Business Commission, he remembered some small locally owned cabinet-making shops came to complain about a $4 million city contract for woodwork. "They told us that they lost the contract to a Canadian firm," he said. "The costs of operating in San Francisco were higher than in Canada, so they couldn't compete."
"We do not as a city reflect the fact that we ask employers to do good things for their workers," Chiu added. "When we spend perhaps $1 billion a year in city contracts, those employers don't have a level playing field."
Sure, on the surface and in the short term, the city gets a better deal when it awards contracts based entirely on price. But San Francisco has, as a matter of public policy, already decided there are good reasons to give minority-owned contractors some advantage in bidding, and that public contractors should pay prevailing union wages and offer benefits to domestic partners. Local enterprises get a modest advantage in some bids, but nowhere near enough to make up for the cost difference of operating in San Francisco.
And as Newsom himself has made clear, spending money locally has a long-term economic benefit that almost certainly outweighs the price differential in most bids. "When Newsom bought his car in Colma, the city lost the sales taxes, and lost the multiplier effect of the money being spent in town," Cornell noted.
In fact, a 2007 study by Civic Economics, sponsored by the San Francisco Locally Owned Merchants Alliance, showed that if city residents shifted just 10 percent of their purchasing from national chains to locally-owned businesses, the city would gain 1,300 new jobs and $200 million in economic activity every year.
Imagine the activity the positive benefits to the local economy that would come with the city shifting, say, 25 percent of its spending to local businesses.
Obviously the city can't buy everything in town. "Nobody in San Francisco makes Muni trains," Cornell noted. But a lot of what city departments buy, from hammers and paper to cars and trucks, is available from local suppliers or could be. "If the city made it known it was looking to buy something locally, some entrepreneur would come along and figure out a way to supply it," Cornell said.
So how could this work on a policy level? It's not that complicated. The city controller, or the Human Rights Commission, which oversees contracting policy, could devise a formula showing how much the cost of complying with city laws like the minimum wage, health care, and sick days (laws that most of us, and many small businesses, fully support) drives up the cost of doing business in San Francisco. Then give local merchants an equivalent advantage in the bidding process.
In other words, if the hammers at Brownie's Hardware cost 25 cents more than the hammers in Nowhere, Miss., because Cornell pays for his workers' health insurance, he should only have to come within 25 cents of the cut-rate suppliers' price to get the city's business.