Detroit Mayor Proposes Privatization of City Finance Functions

According to the Detroit Free Press, Detroit Mayor David Bing is proposing to privatize city payroll and tax collection, two functions currently performed by the city’s finance department:

Ed Cardenas, a Bing spokesman, said Thursday the city’s antiquated systems — some processing is still done manually — make it difficult for payroll to function efficiently. He said the administration did not yet know how much the city could save by outsourcing those duties.

Bing told union leaders this week that the department’s divisions are broken and costing the city potentially millions of dollars. Their response: groans and shouts of profanity.

“It was shocking to us,” said Leamon Wilson, president of chairman of the presidents of the American Federation of State, County and Municipal Employees locals, which represent city employees. “He said, ‘There are a bunch of problems with it and it’s not working, so I’m privatizing it.’ ” […]

In June Bing appeared on PBS’s “Tavis Smiley” program, and said the services of the much-maligned Public Lighting Department should be performed by a private entity, not the government. A day later, he softened his stance.

I’m not sure what in that statement was so shocking or objectionable. Let’s use payroll as an example. If it is indeed the case that (A) the current system is inefficient (manual processing of paperwork would be one red flag), and (B) it’s leading to millions in wasted tax dollars, then most people would probably agree that an overhaul is in order.

Then if we can agree on the premise of an overhaul, what’s the lowest risk option for the city? One could certainly argue that the city should implement a payroll makeover on its own, retrain existing staff and let them build a new payroll system. But to me, this seems like a high-risk option. Not only would you be asking an entrenched bureaucracy to do something it’s poorly suited to do—start from scratch and re-engineer a business process—but you would also be putting a lot of faith in the same people presiding over the current system to correctly design, build and implement a brand new, efficient mousetrap.

The less risky option to me would be to contract out with any one of the numerous firms that routinely provide this very same service to corporations and governments. Payroll systems are not rocket science, they are not an inherently governmental function, and there already exist a number of good mousetraps out there. Why wouldn’t you just contract it out, procuring the services of experts in the field who make it the very core of their business to specialize in the delivery of payroll services.

Bing is on target here. The question should not be about whether to privatize or not—the question should be, “what are we trying to achieve and what will be the most effective and efficient way to achieve it in order to maximize value for taxpayer money spent?” The simple fact is that there are many commercial services that governments perform (such as payroll, accounting, HR, etc.) when they don’t need to. Every dollar spent to hire public employees to perform them increases the size and cost of government, most visibly in generous salaries and benefit packages and less visibly in long-term pension and health care obligations.

Cash-strapped cities like Detroit need to be open to exploring alternative service delivery methods if they’re going to bring their budgets into line the next several years as the recessionary effects linger. There should be nothing “shocking” about suggesting that government get itself out of an enterprise that it doesn’t need to be in in the first place and for which there are ample private providers seeking new business. Opportunities like these are really the low hanging fruit in government that are ripe for privatization.

Reason Foundation’s Annual Privatization Report 2009
Reason Foundation’s Privatization Research and Commentary