Innovators in Action (October 2014 edition): Evolving the Public-Private Partnership Model in Johns Creek, Georgia

Commentary

Innovators in Action (October 2014 edition): Evolving the Public-Private Partnership Model in Johns Creek, Georgia

The latest interview in Reason Foundation’s Innovators in Action 2014 series focuses on Johns Creek, Georgia, which officially launched in late 2006 as the second new city incorporated in Georgia since the early 20th century. Like its predecessor, Sandy Springs-whose incorporation occurred the previous year-Johns Creek started up not as a traditional city, but one that relied on a large-scale public-private partnership (PPP) that saw most municipal services outside of public safety delivered by private sector service providers, as opposed to municipal employees. In the eight years since incorporation, the PPP model has evolved several times, but the city still fundamentally relies on PPPs to deliver many of its municipal services.

Local businessman Mike Bodker led the original efforts to incorporate Johns Creek and subsequently became the city’s first-and to this day, only-mayor, having been reelected twice since his first term. Earlier this month, I interviewed Mayor Bodker on the startup of Johns Creek, its evolving use of public-private partnerships, what’s next for the city, and more. Here’s an excerpt:

Gilroy: You followed a similar model to Sandy Springs in terms of hiring an outside contractor to provide the bulk of general municipal services-outside of police and fire services-at the outset, a partnership that received an award from the U.S. Conference of Mayors in 2008. Can you comment on the effectiveness of that partnership and how it performed?

Bodker: Like Sandy Springs, when we started we had a single contractor-a single throat to choke, if you will. It was CH2M HILL, and they had a fixed-fee contract where they were responsible for subcontracting out the various functional areas that they did not take on themselves.

The effectiveness of that partnership speaks for itself. On December 1, 2006, we launched as a city flawlessly, and I think that when you look at the surveys that we have subsequently done with our citizens, there has been an overwhelming positive feeling about Johns Creek and its ability to deliver good services. I don’t think that would have been possible without our public-private partnerships.

Gilroy: Can you comment on how the city’s use of the PPP model for service delivery has evolved over time? In 2012, the city decided to continue using CH2M HILL to provide public works and community development services, but dialed down the scope of the contract and shifted some functions initially contracted out to in-house delivery.

Bodker: The evolution was somewhat forced because the high water mark for Johns Creek from a revenue perspective was the first full year after incorporation. After that, we were in the middle of the Great Recession and started declining in revenue.

The first evolution that we went through would be a cost savings measure to ensure that we would live within our means as a government and not ask for any more revenue than was coming in. We’ve never changed our millage rate-it has remained flat since the day we incorporated. And we are, to our knowledge, the only new city in Fulton County to operate below our millage rate cap. And we’ve continued to operate below our millage cap, at the same millage rate, for all eight years of our existence.

But to do that in those years when our revenues were declining, we had to cut expenses. And part of our cost savings that got our budget balanced-because we’ve never used reserves-was to renegotiate our agreements with either CH2M HILL early on, or with multiple vendors later on after we broke the contracts up into smaller parts. The services that CH2M HILL is providing for us today aren’t actually that different than what we started with. If you look at what CH2M HILL was doing themselves versus what they were subcontracting out, the public works and community development services were the same functional areas they were doing themselves. But today, in addition to CH2M HILL, we have a number of other contracts both large and small with other organizations like SafeBuilt and iXP that cover other functional areas like 9-1-1 services, geographic information systems, parks maintenance, stormwater maintenance and building inspections.

The other thing we did in terms of evolution was that we changed from a fixed-fee methodology to a cost-plus methodology, and we realized another series of savings when we switched to that model. With our original contract, we agreed on a scope and a price, and whatever profit margin was inherently built in for the company we weren’t aware of, but we paid it. All the risk was on the company.

We now pay for individuals and the amount of time they work on behalf of the city of Johns Creek, and the calculation is the rate per individual times a multiplier plus an administrative fee for general overhead. The advantage of this model at the time was that it gave us another layer of cost savings because we realized that we could control how much we were buying and how much we were utilizing. If we needed less, then we asked for less; if we needed more, then we asked for more. And the risk to the organization was in making sure they had the availability of resources when we needed them. We could also make easy shifts between departments. So if all of a sudden we needed more community development people and less public works people, or vice versa, we could simply ask for that to occur.

That’s a huge advantage over a government that is hiring these people as employees that cannot easily be shifted around. The only way to do that would be to either let someone go and hire someone else, or to move someone from one area to another where they may not have the expertise. For us, having that flexibility was critical. At a time when everything was unpredictable over the last few years, we were able to coast right through it, while other governments have really suffered by having to let people go that they might eventually need again, or by not letting them go and expending money that they couldn’t afford.

Check out the full interview here. Other articles featured in the Innovators in Action 2014 series are available here.

Leonard Gilroy is Senior Managing Director of the Pension Integrity Project at Reason Foundation, a nonprofit think tank advancing free minds and free markets. The Pension Integrity Project assists policymakers and other stakeholders in designing, analyzing and implementing public sector pension reforms.