Detroit Can’t Afford to Stall Privatization

Other cities save millions by forcing government services to compete

Detroit’s elected officials should consider every possible alternative to cut costs, especially with a $146 million deficit. Unfortunately for Detroit’s taxpayers, Mayor Kwame Kilpatrick is closing the door on a proven tool: applying competitive pressures to government services.

A month ago, Kilpatrick suggested he would seriously consider spinning off services to other providers. But last week he told The Detroit News that privatization does not generate substantial savings. Kilpatrick says Detroit’s peer cities aren’t privatizing either – opting, instead, to beef up in-house operations.

Unfortunately for the mayor, history and facts don’t seem to agree with his statement. Countless cities of all sizes, with mayors of either political party, have used competition and privatization to save millions of dollars.

Why? Because competition makes people work harder and more creatively.

The Philadelphia story

When Democrat Ed Rendell, the governor of Pennsylvania, was mayor of Philadelphia, he privatized 49 city services, saving $275 million. The list of services privatized included golf courses and print shops to parking garages and prison services. By privatizing one nursing home, for instance, the city saved nearly $27 million – a 54 percent reduction.

Indianapolis is often considered the leader in competition and privatization. As mayor, Stephen Goldsmith, a Republican, solicited competitive bids on dozens of services. Public employees managed to keep some services – but at huge savings to city taxpayers.

Indianapolis saves $15 million annually by privatizing trash collection – which Kilpatrick has declared off limits to privatization until 2009. Privatizing the city’s sewer plant saved an additional $68 million – a 44 percent cut.

Chicago’s Daley an advocate

Chicago’s Democratic Mayor Richard Daley has privatized more than 40 services. In fact, he was so satisfied after the privatization of Skyway, one of Chicago’s major highways, that he is lobbying for similar deals for city-owned parking lots and the Midway airport.

Former Cleveland Mayor Michael White, a Democrat, launched “Cleveland Competes” to allow private vendors to bid on contracts, including pothole repair, downtown trash collection and payroll services, resulting in millions of dollars in savings. Milwaukee, Jersey City, N.J., and Atlanta have posted similar results.

Nearly every service, short of police and fire, has been successfully privatized by a government.

For the time being, Kilpatrick has dismissed privatized trash collection. But fewer than half of all local governments provide waste services to their residents through a government-operated solid waste department.

Private trash collectors are often more productive than their public counterparts because they use larger, more automated trucks that cut personnel, operating and capital costs. Keeping the service in city hands would mean a larger-than-necessary labor force that resists cost-saving technologies.

Privatization would allow Detroit to shrink its bloated bureaucracy. In the last year for which there are comparative statistics, Detroit had 18,600 employees, a resident-per-city-employee ratio of over 48-1. Indianapolis, which has aggressively privatized, has a ratio of about 203-1. Although Detroit’s work force is now down to about 15,500 workers, its ratio of residents to employees remains worse than that of Indianapolis.

Detroit contracts out services

Privatization isn’t new to Detroit. The city privatized several golf courses in the 1990s and has historically contracted for some services, including oil changes in police cars and parking meter collection. However, some contracts have been brought back in-house.

And who can forget Ecorse and Hamtramck, which under a court receiver and an emergency financial manager, respectively, aggressively used privatization, including of nearly all “public works,” to rescue themselves from insolvency.

But the biggest advantage of privatization is that it generates new ideas for getting things done. In 1994, the mere threat of privatization by then Flint Mayor Woodrow Stanley led to a 31 percent reduction in trash collection costs – all the more reason not to take privatization off the table.

The mayor owes it to Detroit’s taxpayers to force government services to compete.

Geoffrey F. Segal is the director of government reform at Reason Foundation. An archive of his work is here and Reason’s privatization research and commentary is here. This column originally appeared in the Detroit News on April 20, 2006.