Privatization and Hamtramck

The following article will appear in the March 2002 issue of "Ideas on Liberty," the monthly journal of the Foundation for Economic Education.

In November 2000, Louis Schimmel swept away the government of Hamtramck, Mich., and literally took over the city-lock, stock, and barrel.  Appointed by the governor under a 1990 law that allows the state to assume temporary control of a dysfunctional municipality, Schimmel has transformed the finances and the infrastructure of Hamtramck.  The result may not be an argument for dictatorship, but it sure speaks volumes about the virtues of things like common sense and privatization.

But first some background.  How did this town of 23,000, an independent enclave entirely surrounded by the city of Detroit, get into dire straits to begin with?  It's a case study of unions run amok and politicians unmindful of other people's money.

Poorly negotiated contracts with city employees' unions failed to establish a strong link between job performance and pay levels.  For example, Hamtramck's contract with the American Federation of State, County, and Municipal Employees (AFSCME), the union that represents city clerical and Department of Public Works (DPW) employees, provided for annual wage increases of as much as four times the rate of inflation.  Work rules stymied productivity and while the city's population fell by more than half during the last 50 years, the size and expense of the city work force resisted any adjustment.  AFSCME-represented city employees were entitled to up to 40 paid vacation days a year, plus 15 paid sick days, 13 paid holidays, 3 paid emergency leave days, and 3 paid personal days.  On top of all that, each employee also got a paid day for his birthday! 

City services deteriorated, driving taxpaying people and businesses elsewhere, but city workers made out like bandits.  They neglected their jobs, sometimes to the point of threatening the health and safety of citizens.  Garbage lay in the streets for as long as seven weeks, dramatically increasing Hamtramck's population of rats and other disease-carrying scavengers and pests.

The DPW suffered from poor equipment, inadequate supplies, and lax supervision.  The city had 95 fire hydrants that were either nonworking or in need of repair, and DPW expertise did not include a knowledge of how to fix them.  To make matters worse, Hamtramck officials were prohibited by union contracts from subcontracting out any work including fire hydrant repair and garbage collection. 

When the governor put Schimmel in charge of the city, the council and mayor were at loggerheads over everything, even as a deficit of $3 million in a budget of $16 million stared them in the face.  Hamtramck was at a standstill and swimming in both garbage and red ink.  About his first day on the job, Schimmel told the Metro Times, a local alternative news weekly, "Everything was such a mess.  There were 40 bank accounts.  Financially, nobody knew where anything was.  Nobody even knew what the deficit was.  There were all sorts of funny arrangements with people for this or that.  The records were deplorable."

Yes, dear readers, this was what a government had done to itself and to the citizens it was supposed to serve.  All that talk about selfless "public service" was laid bare in terms more vivid and tragic than in any other Michigan city in recent memory.  This wasn't public service; it was more like serve yourself, at the expense of the public.  This was a band of thieves and incompetents who could get away with what they were doing only because they worked for government, where the "customers" can at least for a time be treated more like hapless captives.

With dictatorial powers that essentially put the mayor and city council out of business, Schimmel lost no time in making big changes.  Just weeks into the job, he fired nine people and eliminated 21 jobs that had been unfilled for some time.  That was only the beginning.  By the end of his first year, he reduced the bloated, feather-bedded work force by 17 percent, from 162 employees down to 135.

He negotiated a new contract to provide for privatization of all DPW work.  This arrangement has allowed the city to competitively contract with private-sector firms for trash pickup, fire hydrant repair, tree trimming, snow plowing, street repairs, water and sewer line repairs, and nearly all other services formerly provided by the DPW.  By public auction, he sold off unnecessary city vehicles and equipment for $186,000.   Services have improved dramatically.  At much lower cost, garbage actually gets picked up on time now, trees really do get trimmed, snow actually gets plowed, and across the board, a day's work for a day's pay genuinely takes place in Hamtramck. 

It didn't come easily.  Schimmel had to sit down, look the union bosses squarely in the eyeballs and tell them in no uncertain terms that times had changed.  "You're going to have to work.  You have to put in an eight-hour day," he advised them from across the bargaining table.  They squealed and they squirmed but in the end, they had no choice but to get honest with the taxpaying public that was paying their salaries.

One reason, perhaps the main reason, that the unions came around was that Schimmel's track record clearly suggested he was a man of action.  For four years in the late 1980s, he was the court-appointed receiver for the bankrupt city of Ecorse, about a 20-minute drive downriver from Hamtramck.  There, he privatized almost everything, disciplined the unruly unions, and eliminated a huge city deficit.

Before the Hamtramck takeover, the city owned a fairly large amount of untapped capital in the form of idle land.  Under Schimmel, the city is leasing land for a cell-phone tower that now generates $26,000 annually.  He is in the process of selling other land to local commercial enterprises.

Before Schimmel arrived, the city operated a parking meter system that was in a constant state of disrepair.  A large number of meters were not working and parking enforcement was almost nonexistent.  The system has been the subject of scandal, with allegations of money being stolen from the meters.  City parking lots were in disrepair as well.   Schimmel directed the city to sign a lease with its own Downtown Development Authority (DDA) to provide for the operation of the parking system.  The DDA, in turn, is repairing the parking meters under Schimmel's watchful eye and at the same time, contracting out the management of the system. 

Schimmel has renegotiated police and fire personnel contracts that had been overly generous (annual pay hikes of nearly 10 percent per year for police officers, for example).  Wage hikes in the new contracts were adjusted to be more in line with inflation, departments were reorganized, and 15 positions were eliminated.  The annual savings from those measures alone have amounted to $1.6 million.

Lou Schimmel is still busy fixing Hamtramck and downsizing its public sector, but he's looking forward to finishing the job by the end of 2002.  He'll leave behind a decidedly smaller city government, lots of newly privatized and spiffed-up services, and a city that has a chance to function and attract people and business once again. 

And once again, the private sector has come to the rescue of the public.