Indianapolis Announces New Privatization Initiatives

Indianapolis, an early privatization pioneer dating back to the administration of former Mayor and current Harvard scholar Stephen Goldsmith, is revisiting its policy roots:

Mayor Greg Ballard is looking at privatizing some city services to save money, a move that could ultimately effect hundreds of city employees. His administration recently sent draft letters to three unions alerting them to the possibility.

The draft letter reads, “The city has determined that it is in its and the taxpayers’ best interest to competitively bid out the work of the following areas: 1) grounds maintenance; 2) forestry; 3) pool/plumbing maintenance; 4) mowing; 5) towing; 6) water maintenance; 7) fleet services: 8) payroll; 9) HVAC; 10) electrical; and 11) procurement.”

“The 2010 budget will be very difficult to write,” said City Controller David Reynolds. Because of new property tax caps, Reynolds said the city faces a $23 million shortfall next year.”So we’re making sure we look at all the services to see that they’re delivered in the most efficient and effective way possible,” Reynolds said.

When you hear these sorts of announcements in state and local government, they’re typically met with a sharp, negative response from public sector employees. But note the refreshing reaction in Indianapolis, where there’s been a long history of managed competition (letting public employees pool together and bid against private sector contractors in a competitive procurement process), with the public sector teams winning a number of competitions over the years. Instead of demonizing privatization, these public employees in Indy seem to be rolling up their sleeves and saying, “bring it on…we’ll compete.”

Bob Swearingin, the shop foreman at Fleet Services on Belmont, said, “I don’t think we have anything to worry about.” “We don’t really want to hear that, but we can do the job. We showed them in the past and we’ll do it again,” he said.

Swearingin worked at fleet services when then-Mayor Goldsmith looked into privatization the early 1990s. Goldsmith wound up contracting for some trash pick-up and some mowing, but Fleet Services, among others, proved they could do the job for less money than a private company. Still, Swearingin said the union also had to cut the staff and forgo raises to win the bid. […]

“I think the numbers we’ll show we’re as efficient as it gets,” said Steven Quick, president of AFSCME Local 725. […] Quick said “while nobody wants to” go through the process again, he understands. It is a new administration. “What I appreciate is we will be part of the process and they will work with us as a team,” Quick said.

One of the more attractive aspects of managed competition is that it’s based on a simple, yet powerful, premise: just let ’em compete. In the absence of such a tool, privatization discussions can easily devolve into an analysis paralysis loop, a dizzying “he said/she said” on service delivery costs, quality, performance, etc. that can turn what should be a management decision into a political tete-a-tete. It’s akin to having an endless cycle of sports analysis and commentary that may or may not ever get settled in an actual championship game.

When done right with a fair process and neutral playing field (a critical component), managed competition is that championship game. It’s about putting your money where your mouth is—both sides suit up, put their helmets on and settle the issue on the gridiron.

What we’ve learned in Indy, Phoenix, Charlotte and other managed competition pioneers is that whichever side wins on the field, taxpayers win regardless—injecting competition into traditionally monopolistic systems creates the proper incentive structure highly conducive to fostering innovation, modernizing antiquated business practices, and discovering new opportunities to drive cost savings and streamlining. For more background, see this Reason study outlining the potential for managed competition in San Diego. See also here, here, here and here.

Reason’s Annual Privatization Report 2008
Reason’s Privatization Research and Commentary