April 14, 2014 at 11:25 am

Amid crisis, Detroit urged to outsource more

City Airport, emergency medical services and parking violations are among the city services up that could be up for privatization in Detroit. (Photos by The Detroit News)

Detroit has made progress in contracting with private firms for certain services, such as garbage collection and electricity, but outsourcing advocates say there are more opportunities yet unexplored.

Emergency Manager Kevyn Orr’s office is considering outsourcing other services, including the water department, to cut costs and an estimated $18 billion in debt.

Yet Detroit’s privatization efforts are “a bit underwhelming, when you look at the severity of the (financial) crunch,” said Leonard Gilroy, director of government reform for the libertarian Reason Foundation in Los Angeles.

City officials insist they are being prudent.

“The city’s goal is to provide the best service to its residents that is cost-effective and in line with best practices from the 21st century,” Orr spokesman Bill Nowling said.

“Privatization is one means to that end, but not the only one. If we can improve service and reduce cost by privatizing a service or some portion of it, the city will give it serious consideration.”

Privatizing services has been controversial in Detroit, where city unions have argued that outside companies cannot provide the same level of service as city employees, and outsourcing cuts union membership.

“They are not saving any money” through outsourcing, said Ed McNeil, special assistant to the president of the American Federation of State, County and Municipal Employees Local 25, which represents many city workers.

McNeil argues that many city contracts with private firms over the years have ended up costing the city more because “nobody follows up on these contracts that are being let.”

Privatization experts worry whether Orr will do enough to change practices at City Hall. Orr has set a new goal for the city of exiting bankruptcy in six months, and his presumed departure might leave operations to Mayor Mike Duggan, who has insisted he can turn around most services with the existing union workforce.

Privatizing services in Detroit “can go further, but I’m encouraged the emergency manager is willing to look at a competitive contracting arrangement for the water department,” said Michael LaFaive, director of the Morey Fiscal Policy Initiative at the free-market-oriented Mackinac Center for Public Policy in Midland. “... There’s no reason for the city to own as much as it does.”

Gilroy agrees the city’s plan of adjustment “offers a good start on privatization of city services and looking at potential assets,” but the list “gets pretty thin” after that.

Other cities have outsourced their entire public works operations, he said, adding Detroit also should consider contracting out fleet maintenance and administrative functions.

Saving money

Detroit is investigating whether to privatize the Water and Sewerage Department, municipal parking, tax revenue collection and some operations at Coleman A. Young Municipal Airport. The city is starting to save up to $6 million a year leasing Belle Isle park to the state.

The city’s garbage contract saves about $6 million a year by providing weekly bulk collection and curbside recycling to residents. Detroit previously did not provide citywide recycling and collected bulk trash quarterly.

Other savings are found because the contractor provides new trucks and other equipment the city can’t afford to purchase. Residents still pay an annual $240 fee, which union leader McNeil says justifies keeping his employees on board.

LaFaive said Orr could go further and sell Belle Isle. The city also should explore privatizing services such as business licensing and permits, as well as ambulance service, LaFaive said. The city’s Emergency Medical Services unit has been notorious for slow response times, a problem Duggan is addressing through internal reforms.

Royal Oak lawyer Tim Wittebort, who was a member of Pontiac’s financial review team when it went under state oversight, said outsourcing Detroit’s airport would make sense.

The city is considering selling the airport or “outsourcing certain functions” to reduce costs, but also plans to spend $28.5 million over 10 years to upgrade bays and terminals, create a new passenger ramp, improve security and bolster maintenance, according to Orr’s amended bankruptcy disclosure statement.

Orr said the city plans to continue subsidizing and operating the airport at $600,000 or more a year until a viable deal is found — in part because it otherwise would lose federal subsidies and have to repay federal grants.

“Since when should a city be running an airport?” said Wittebort, who added Orr is doing a good job. “You have more critical needs to address.”

'Excited about garbage'

Most major cities use some outside contracting, but the biggest practitioner is Sandy Springs, Ga. When it formed in 2005, the city located about 25 minutes from downtown Atlanta contracted for nearly all services except public safety.

As a result, the city has saved millions of dollars, privatization experts estimate.

Orr has said he is pleased city officials privatized garbage collection and were working on custodial services. The emergency manager also is seeking bids for the private operation of the water department, after talks to form a regional authority with the suburbs stalled.

“I never thought in my life I’d be so excited about garbage,” Orr told a University of Michigan audience on March 25. “... I wake up in the morning driving around the city to see what garbage is picked up.”

Orr told the conservative Manhattan Institute for Policy Research on March 24 he hopes to continue seeking competitive bidding on services from firms and city unions. He also rejected the notion that Detroit needs to sell off more assets.

Backlash feared

“New York did not have to sell Central Park and turn it into co-ops and condos. (They) got to keep the lake and the zoo,” Orr told a New York City audience. “Likewise with us, we have to keep some of our treasures (for) when the city does rebound.”

Metro Detroit independent political analyst Eric Foster said enough hasn’t been done to outsource city services because elected officials fear a political backlash from voters and labor groups.

“What would make logical sense is for Mayor Duggan and the council to be proactive in working with the EM regarding the assessing of what areas should be outsourced and off the city’s books,” he said.

But Foster argued offloading EMS and municipal parking would be a mistake.

“EMS and parking are two departments that should (continue) because they have the capacity to be revenue generators for the city’s bottom line,” he said. “They pay for all of their operating expenses, and they can make contributions back to the general fund.”

If Detroit continues to operate most of its services, it could pay a price, the Mackinac Center’s LaFaive said.

“They can continue doing what they did in the past,” he said, “and provide incentives (for people) to flee or not return to Detroit.”

dnichols@detroitnews.com
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Coleman Young City Airport in Detroit (Photos by The Detroit News / The Detroit News)