Policy Perspective No. 1008
June 1998

Local Governments Can Compete

Let’s play public policy Jeopardy! The answer is: Indianapolis. The question: Where should public officials and concerned citizens look for ideas on how to improve public services and reduce their costs? Since 1992, Indianapolis has improved the quality of city services and reduced their costs by 25 percent under the leadership of twice-elected Mayor Stephen Goldsmith. Mayor Goldsmith’s recently published Twenty-first Century City provides insight into how other cities, counties, special districts, and state governments might replicate his results.

Goldsmith proudly says, “Our budget in 1997 was 7 percent lower than the budget when I took office...At the same time, we made the largest infrastructure investment in the city’s history...and put one-hundred more police officers on city streets, while reducing taxes slightly.” Emphasis added.

He states, “The notion that...more government spending improves services is the single most destructive idea that hampers government policy today.” Consider these select Indianapolis achievements:

• The cost of billing sewer users dropped 33 percent.
• Eight-men crews with two trucks used to repair potholes. Today, five-men crews and one truck do the same work. Savings: 25 percent.
• Copying costs reduced by 27 percent.
• In 1993, towing and disposing of abandoned vehicles cost taxpayers $174,000. In the next two years, Indianapolis earned $500,000 for the same activities.
• Management costs for two wastewater treatment plants, already nationally recognized models of efficiency and performance, were slashed 44 percent. Savings: $65 million over five years. On average, water leaving the plants is cleaner than EPA requirements.
• Through an innovative contract with Corrections Corporation of America to design, build and operate a jail, Indianapolis taxpayers will be saved approximately $20 million in construction costs and $1.4 million in annual operating costs.
• Indianapolis contracted out the management of its international airport in 1995 to BAA USA Inc., making it the largest privately-managed airport in the United States in terms of passenger traffic. The results: Landing fees were 77 percent less in 1997 than they were in 1994, net revenue per passenger increased by 41 percent, and, it is estimated, per passenger costs, the standard industry measure of efficiency, will drop by 26 percent by the year 2005.
• Between 1991 and 1994, Indianapolis Fleet Services reduced its workforce from 119 to 84 employees, and cut its annual budget from $11.1 million to $9.1 million, the lowest budget since 1988. In 1995, IFS decreased its operating costs by another 3 percent, despite a nearly 5 percent increase in the number of vehicles served.
• Since implementing a new garbage collection system on January 1, 1994, the cost per household for trash pickup has dropped from $85 to $68. Overall, taxpayers saw a $15 million savings over 5 years. Indianapolis has achieved similar accomplishments in other areas. Cost savings and efficiency gains tell only part of the story. Not one union public employee has lost his job, and work-related injuries, sick time, and absenteeism are down.

“[M]ost civil servants are hardworking and talented...The problem is that they have been trapped in a system that punishes initiative, ignores efficiency, and rewards big spenders,” Goldsmith writes. Goldsmith has freed public employees and improved services through “market-testing”, through competition.

Except for public safety, many city services are put out for bid. Public employees compete with private companies for the privilege to do the citizen’s work. In one instance, a department’s public employees worked with a private consulting firm to develop a bid in competition against the department’s management! Competitive bidding, not just politics, makes for strange bedfellows.

All told, unionized employees have won more than 40 percent of the contracts put out for bid. Moreover, they have won contracts that had been held by private companies. Union members now suggest outsourcing when it will save money. They know they must be cost-competitive--or they risk losing their contract to someone else when it expires.

Stephen Fantauzzo, executive director, American Federation of State County and Municipal Employees Council ( AFSCME ) 62, points out, “Look what happens in the 11th month of a budget in traditional government. Everyone is looking to spend the last dime to justify that plus more next year. Here, people are looking to save every dime because they figure a piece of the pie is going into their pocket.”

Public employee morale is up as well. “I feel like I have some say-so around here now,” a city mechanic told the New York Times. “Before, nobody wanted to hear your ideas. They were the bosses. We were the workers. There was a lack of respect.” Steve Quick, president of the local chapter of AFSCME, noted, because Goldsmith broke up the government monopoly and allowed city employees to compete to please consumers, “city workers are no longer asked to park their brains at the door when coming to work.”

Goldsmith didn’t appoint Blue Ribbon commissions to achieve such cost-saving and attitude-changing results. He simply introduced government to competition. To provide guidance, Goldsmith employed the “Yellow Pages Test” early in his administration.

“Look at the city’s yellow pages,” he advises. “If the phone book lists three companies that provide a certain service, the city probably should not be in that business, at least not exclusively.” For example, this writer suggests looking under “landscaping”. You’ll likely find more than three companies. City, county and state employees could compete with them for the contract to maintain our parks.

The Twenty-first Century City is a somewhat misleading book title because the ideas in it could be implemented at all levels of government, from counties to ports, special districts to state government, not just cities. Pick up a copy of The Twenty-first Century City or refer to the City of Indianapolis web site to learn how the quality of life has been improved through competitive bidding and enhanced public services.