Delivering Municipal Services

Header-image-LafleurBy Steve Lafleur

(WINNIPEG, MB) – How should municipal services be delivered to citizens?

The political right argues that outsourcing services is usually most efficient, while the left argues that “privatization” of services such as waste management or wastewater treatment would lead to lower quality services.

In actuality, many municipal services are delivered by both public and private employees. Sometimes public employees are best positioned to provide better services sand sometimes private contractors have the edge. Neither public nor private delivery is always the best option.

Whether services are publicly or privately delivered is typically determined by short term political calculations and the ideological commitments of local politicians. Rather than debating the virtues of public or private delivery, municipalities should examine the costs of both options in each scenario. Fortunately, one mid-sized American city has created a model for doing just that.

Indianapolis was a hotbed for municipal innovation during the 1990s. Mayor Stephen Goldsmith sought out ways to reduce service delivery costs while revitalizing the downtown core without cutting public services. He managed to shave $100 million from the city government’s budget while attracting $3 billion in new investment to the central city.

Goldsmith’s philosophy was that if a service was replicable by a company in the phone book, the city probably didn’t need to do it in house. For instance, the city outsourced all of its printing, saving $400,000 per year. Other services were more complicated.

Fleet Services, which maintains city vehicles, was one area where Goldsmith believed he could find further savings. One of the difficulties is that it is hard for a city to determine what a reasonable price for many services should be. His solution was to introduce “managed competition”. Rather than simply outsourcing, Goldsmith allowed municipal agencies to bid against private contractors. By accepting bids from both the private and public sectors, the city got a more accurate idea of what the true cost should be.

As it happens, Fleet Services employees were able to outbid private contractors. In fact, over 6 years they decreased the costs by $8 million, and the percentage of vehicles repaired within 8 hours increased  from 71 to 82 per cent. They didn’t do it by cutting corners. They were able to find common sense ways to decrease costs by working smarter and eliminating wasteful overhead. Union representatives who initially opposed the approach came to support it. Employee moral increased leading annual employee complaints to plummet from 149 to 5.

The second element of Goldsmith’s approach that was “gain-sharing.” In order to incentivize public sector cost savings, Goldsmith offered cash rewards for employees who found ways to save money without reducing service quality. All of a sudden, employees had incentives to put their knowledge to work making things run more efficiently. For instance, in 1994, city garbage workers were able to beat their previous bid price by $15 million over five years. As part of their gain-sharing program, the city issued bonuses at averaged $1750 per employee. This benefitted both city employees and taxpayers.

While managed competition and gain-sharing haven’t taken off across the continent, some cities have used these ideas effectively. Tulsa, Oklahoma undertook a gain-sharing project that won an award for municipal innovation from the Bloomberg Foundation. San Diego introduced managed competition in 2006 and municipal employees have won every single bid. In 2012, Winnipeg City Council voted to use managed competition to stem losses at city golf courses.  But, the plan was eventually derailed by opponents.

Neither managed competition nor gain-sharing require an ideological shift. They are both tools to better manage mixed public-private delivery of services. They succeed by introducing transparency and competition into the procurement and delivery process. The threat of entry by the private sector motivates the public sector to perform efficiently, and vice versa. It isn’t a win for the public or private sector. It’s a win for residents.

Steve Lafleur is a public policy analyst currently based out of Winnipeg. He recently graduated with a Master of Arts Degree in Political Science from Wilfrid Laurier University, and is a former Research Associate at the Cascade Policy Institute in Portland, Oregon.

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About the Author

Ian Shalapata

Ian Shalapata is the owner and publisher of Square Media Group. He covers politics, the police beat, community events, the arts, sports, and everything in between.

His imagery and freelance contributions have appeared in select publications and for organizations in Canada and the United States.

Contact Ian with story ideas.

1 Comment on "Delivering Municipal Services"

  1. Just look at our garbage and re-cycle pick up that has been privatized the service is 100% better than when we had the city employees collecting it. We are saving a lot of tax dollars and getting better service. I really think that the city should look at out sourcing our parks and rec’s, I’m sure we could save a lot of money. I have constantly seen right on Riverside Drive 5 city workers at the river front with only 2 of the 5 working and the other three standing around doing nothing, and this is typical across the city.

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