The appeal of privatization - cities employing private industry for public services

Nation's Business, May, 1988 by Harry Bacas

The Appeal of Privatization

Scottsdale, Ariz., in the Valley of the Sun just north of Phoenix, has grown from 2,000 residents in 1951, the year it was incorporated, to more than 120,000 today. It used to be a place of farms and fancy desert resorted. Now it is home to hundreds of high tech, manufacturing and service business that are enthusiastic supporters of the city's privately run fire department.

"Our fire service is the best in the country." says Mayor Herbert R. Drinkwater. "The citizens love the service, I get letters all the time praising the work they do."

Another fast-growing community, Cobb County, Ga., across the Chattahooche River from Atlanta, has grown so fast in the past 20 years--its population is over 400,000--that it wants to put in a public-transit system. But its system won't be publicly operated; a private company will build and run it.

"We decided to go down that road," says Patrick salerno, the county namager. "because a private system will give us more flexibility."

Across the country, fire departments, transit systems and other ventures in "privatization" represent an appealing option for communities seeking to maintain or improve their public services in a time of taxpayer revolts and shrinking federal aid.

Privatization offers these communities a way to provide the light level of services needed to support industrial developments efforts while avoiding the higher taxes that could deter that development.

When the Industrial Development Research Council asked local public officials recently how they were coping in the wake of tax reform, deficit reduction and the "now federalism," they said their main concern was financing of public services.

To maintain their economic health, communities encourage business development. New business can strenghten their economies, broaden their tax basis and create jobs. Local juristications are trying new revenue-raising schemes--front impact development fees to selling advertising space on parking meters. States also are scratching for new revenues--more than half the states now operate lotteries.

Finally, to get the most effective return on these hard-won revenues, many governments are turning to the private sector for more efficient delivery of services once considered to be the function of government exclusively.

"Privatization" is taking hold not only in booming suburbs like Scottsdale and Cobb County but also in large established cities. Newwark, NJ., across the Hudson from New York, is undergoing a renaissance after two decades of urban decay, and it has begun to contract out some municipal activities such as garbage collection, street sweeping and water connections.

"In today's changing economic environment, competition is the word," says Newark Mayor Sharpe James. "The productivity of civil-service workers goes up fast when they see they can be replaced."

In Evansville, Ind., an established smaller city of 136,000 people, across the Ohio River from Kentucky, 11 department now are joint public private operations. The newest function to go private in Evansville is its $950,000-a-year ambulance service.

Mayor Frank McDonald ii explains why: "Where a city has limited resources for capital expenditure, going the privatized route on ambulance services lets us deliver advanced life support throughout the city."

"Privatization is not the answer to all municipal problems. It works better in some situations than in others. Opponents, including public employee unions and some academics, say contracting out can mean a loss of government control, less accountability annd a decline in quality of services. Advocates say governments can maintain control and improve quality with proper monitoring, and they add that privatizing can save tax dollars, make better use of resources and raise public-sector productivity.

Whatever the arguments, privatization is growing. The Privatization Council, an industry group, estimates that more than $100 billion a year of government services now are contracted out, compared with $27 billion in 1975.

A survey of local governments was sponsored jointly by the council, Touche Ross & Company and the International City Management Association. It found that nearly 60 percent of local governments contract out some solid-waste collection in disposal, 45 percent contract for building and grounds maintenance, 36 percent fort administrative services and 31 percent for data processing.

Evansville Mayor McDonald says the city has been contracting out for over a dozen years, but the recent move to a private ambulance service was done one area at a time until "finally we went all the way. Why did we do it? For one thing, we had trouble keeping man-power Nobody wanted to do it. These fellows came onto the fire department to fight fire, and run ambulances.

McDonald says people like the quality of the service. He adds: "Any time you go the privatized route, you're doing two things: You're providing a service the city wants to provide, and you are spurring an economic benefit by making jobs in the community."