A slightly edited version of the following column was published as an "In My Opinion" in the March 10, 1998 Portland Oregonian newspaper.

City can compete

Indianapolis skips past privatization to formula that public employees can embrace

by William B. Conerly

Oregonians, who are constantly told they must pay higher taxes or suffer deteriorating public services, should point their elected officials and journalists to Indianapolis. Since 1992, Indianapolis has defied conventional wisdom by improving the quality of city services and reducing their cost.

Indianapolis Mayor Stephen Goldsmith puts it concisely, "The notion that more money improves public services is the single most destructive idea that hampers government policy today."

By cutting the cost of public services, America's 12th largest city has been able to reduce its budget. The 1997 Indianapolis budget was 7 percent lower than the 1992 budget, the year Mayor Goldsmith first took office.

How did they do it? Goldsmith introduced competition into virtually every aspect of city government operations. Most city functions, public safety excepted, are put out for bid; public employees and their respective departments compete with private firms for the privelage to do the citizen's work.

Goldsmith originally campaigned on a privatization theme in 1991. However, he quickly learned that competition, not private ownership, was the key to success. In many cases, he realized, privatization merely meant replacing a public monopoly with a private monopoly, with the same bad results: high prices, poor service, top heavy management.

Introducing competition thus became the centerpiece of his administration's efforts. The results make a compelling case in favor of competition, which has enabled Indianapolis to:

  • Reduce management costs for two wastewater treatment plants—already nationally recognized models for efficiency and performance—by 44 percent. Budget savings: $65 million over five years. Moreover, water leaving the plants is, on average, cleaner than EPA requirements.
  • Save $20 million in jail construction costs and $1.4 million in annual operating expenses.
  • Drop photocopying costs by $400,000.
  • Cut sewer billing costs by $1 million, a 33 percent savings.
  • Repair potholes with five-man crews and one truck, where previously eight-man crews with two trucks did the same job. Budget savings: 25 percent.
  • Increase the percentage of vehicles repaired by city mechanics in less than eight hours from 70 to 82 percent.

    The savings produced by competitive bidding have enabled Indianapolis to make the largest infrastructure investment in the city's history — more than $750 million — and put 100 additional police officers on the street. Surprisingly, not one unionized public employee lost his job, employee morale is up, and work-related injuries are down. And so are taxes.

    For the Hoosiers, determining which city functions to put out for bid was fairly easy, and inexpensive. Their early rule of thumb was simple: look at the city's Yellow Pages. If the phone book listed three companies that provided a certain service, the thinking was that the city probably shouldn't be in the business, at least not exclusively.

    In his recent book, The Twenty-first Century City, Goldsmith describes the Indianapolis experience and how they achieved these results. Many will be surprised to read that Goldsmith, a Republican, thinks "most civil servants are hardworking and talented...The problem is, they've been trapped in a system which punishes initiative, ignores efficiency, and rewards big spenders." The system Goldsmith refers to is monopoly government, government that lacks competition.

    Interestingly, public employees in Indianapolis are proponents of contracting out work, and they have been successful at winning: unionized public employees have won 37 of 86 contracts put out for bid.

    Stephen Fantauzzo, executive director for the American Federation of State, County, and Municipal Employees (AFSCME) Council 62, notes, "We had for years been saying that if we weren't saddled with the bureaucracy and the heavy layers of management, then we could provide services as efficiently as any private vendor."

    Because of competition, Indianapolis city employees have torn down job postings and devised a plan to use current staff to cover the work load. Because of competition, city employees suggested they give up their recent union-negotiated pay raise in exchange for a share of the savings achieved through smarter work.

    "City workers are no longer asked to park their brains at the door when coming to work," says Steve Quick, president of the local AFSCME chapter. Further, the cost of Indianapolis government is down nearly 25 percent, the city's work force has been pared by one-third, and taxpayers have been saved approximately $240 million since 1992.

    The Indianapolis experience proves that "pay higher taxes or cut public services" is a false dilemma. An option does exist: competition. Competition reins in runaway costs, is a catalyst for better services, and helps improve the quality of life. Oregonians would be well-served if their public officials at all levels explored the competition option.

    William B. Conerly is chairman of Cascade Policy Institute