Content submission by Thomas Miller, District Captain for COS Florida.
As we move toward the third decade after the millennium, how far can privatization (outsourcing) city services go in America and maintain a superior level of service for residents? The answer depends on who you ask and which city we are referring to.
This success story of privatization considered the original so-called “contract city” is Sandy Springs, Georgia, a suburb of Atlanta in Fulton County to the north of the metro area.
Fed up with high taxes, poor service delivery and a perceived lack of land control, the 90,000 residents of Sandy Springs voted by 94% to incorporate as an independent city in 2005. This in itself is an excellent example of local self-governance but not that unusual in growing areas of the country like the Southeast.
What was and remains quite unique is that the city opted to contract out nearly all city services rather than create a bureaucracy. Police and fire services had to be provided directly under the Georgia Constitution. Everything else, including the local court system, was facilitated by a $32 million contract with one private company, CH2M-Hill OMI.
The value of the contract was just over half of what Fulton County had charged Sandy Springs through taxes. Nine other Georgia cities have followed this model over the years to varying extents, but some have scaled back on privatization.
In 2011 Sandy Springs parted ways with CH2M, and city officials assert the city saved $7 million annually by splitting the former contract up among six contractors. The city has about nine employees other than about 270 police and fire personnel.
The problem of local taxpayers funding public pensions far into the future will never be an issue in Sandy Springs as long as the great majority of city employees have 401K retirement plans through their private employers and not public pensions.
Roswell, Georgia, is the next city over from Sandy Springs (population slightly less than Sandy Springs) and has over 1,400 people on it's payroll. Sandy Springs city officials maintain the privatization model is more efficient, more flexible, and less costly to residents. Critics point out that Sandy Springs is a rather affluent area and their privatization model may not work in less affluent communities. This remains to be seen.
There are myths surrounding the implementation of privatization of local governments. Privatization is complex and is never a one-size-fits-all approach.
Myth 1: Privatization involves a loss of public control and limits good governance.
Critics maintain that to account for long-term unpredictability and guarantee private gain contracts often contain clauses that may obstruct government autonomy and jeopardize the public interest.
This criticism shows a misunderstanding of the fundamental nature of what privatization is and the claim that government lacks control of an asset or service once it is out of the public sector.
Accountability is gained by government and taxpayers in a well-structured privatization agreement. The legal foundation is a contract that spells out responsibilities and performance expectations that the government partner will require of the contractor.
Myth 2: Privatization often merely transfers monopoly power from public into private hands and thereby hurts taxpayers.
Private contracts are subject to review and renegotiation from time to time. Sandy Springs renegotiated it's contract deal in 2011 (after five years) and saved $7 million. If a city makes a bad deal with a contractor, privatization is not at fault. Bad negotiating is.
Myth 3: Privatization hurts public employees.
Critics also maintain that cost-saving from privatization and contracting out often accrue as a result of lower wages and fewer benefits for workers. Comprehensive reviews of privatization initiatives have discovered that they tend to result in few, if any, layoffs.
Individuals not retained by the new contractor usually either retire early or shift to other public sector positions. Long-term benefits of employment with private contractors (as private entities) often present better opportunities for upward career advancement, training, and continuing education and pay commensurate with performance.
Of course, it is most important that city officials communicate early and often with public employee unions regarding any privatization initiatives and employee transitions.
As with all types of contracting, privatization can be implemented well or not. According to the Reason Foundation, there are many methods to enhance the likelihood of success in the migration to privatizing city services.
- Ask the fundamental question
of what role local government should play. - Think big. Ask not what can we privatize but what can't we privatize.
- Bundle services for better value.
- Build procurement and contract management expertise.
- Establish a centralized procurement unit.
- Apply the so-called “Yellow Pages” test. Local government managers (officials) should regularly review all government agencies, services, and activities and classify each as inherently governmental to be placed in either the public employee sphere or commercial (services which can be offered by private sector vendors).
- Utilize performance-based contracting.
- Establish guidelines for cost comparisons.
- Rather than awarding contracts solely to the lowest bidder, use a mix of quality, cost, and other factors.
- Use rigorous monitoring and performance evaluations to ensure accountability.
“We have harnessed the energy of the private sector to organize the major functions of city government instead of assembling our own bureaucracy. This we have done because we are convinced that the competitive model is what has made America so successful. And we are here to demonstrate that this same competitive model will lead to an efficient and effective local government.”
The bottom line is that local policymakers should be asking very basic and fundamental questions about how their governments operate and whether there is a better way involving self-governance at the local level.
Sandy Springs is just one of many examples of various levels of local government privatization models around this country and around the world.
