If Pontiac will not address its significant economic challenges with a bold reorganization of its structural spending, the state appointment of an emergency financial manager may be inevitable. An EFM with proper powers can take Pontiac where other municipalities have feared to tread — such as contracting for certain public safety services.
The Pontiac Fire Department is staffed with 119 personnel and operates on a budget of $14.1 million according to the City Council Adopted Budget for fiscal 2007. All positions are funded from the general fund account of the city. Police and fire together account for more than 52 percent of general fund spending in Pontiac. The general fund is the account from which council members have the most spending discretion. Only the police (149) and public/utilities (153) departments have larger staffs than the fire department, which provides fire suppression and advanced emergency medical services as well. The question is, should it?
Outside-the-box policy thinking is becoming the rule across Michigan municipalities as each community grapples with increasing health care-related employment costs and decreasing tax revenue resulting from a less-than-robust economy. Pontiac cannot afford to be an exception.
One difficult but potentially lucrative area of city reform involves fire suppression and emergency medical services privatization. Pontiac should explore some combination of privatized public safety services to save money and possibly improve services, too. There is nothing special about fire suppression or emergency medical service that mandates government-employee-only provision. Both are provided privately, to some degree, elsewhere in the nation. Consider a few possibilities.
Contract out. Pontiac should investigate contracting for services with a private fire company. Three big players in fire fighting and other public safety operations include Wackenhut Services Inc., of Florida, Rural/Metro Corporation of Arizona and Pro-Tec Fire Services of Wisconsin.
At the outset, it should be noted that awarding a contract to any of these companies would put all parties to the transaction in fairly new territory. None of these companies currently provides fire services in any community previously operated entirely by government firefighting employees. Companies such as Rural/Metro provide subscription fire services to communities that have not yet incorporated as a government entity. That does not mean that at least one of them couldn’t be persuaded to do so.
Rural/Metro is a 50-year-old company that currently provides fire protection for 25 communities and other public safety services, such as ambulance operations, to more than 350 communities nationwide, according to the company’s Web site. While it is an unlikely candidate to take over an existing municipal fire department, it represents evidence that a private firm can provide large-scale fire protection to people and businesses alike and do so cost effectively.
Wackenhut Services, Inc. also provides public safety related services, including fire suppression and emergency medical services. WSI has started and operated 25 fire departments and has 700 U.S. employees at military installations throughout Iraq, which may make Pontiac, or any American municipality, a comparatively easy place to do business.
If the city were to contract with one of these firms for all the services it currently provides and save a conservative five percent, Pontiac could cut its fire department costs by almost $706,000. In addition, the city could either sell its equipment and buildings to the winning bidder or come to some lease arrangement which would require payment equal to the "imputed" rent for use of city assets — that is, an estimate of what comparative equipment and buildings would cost to rent in the marketplace.
Employ volunteers. A second option for Pontiac would be the volunteer model employed by the Oakland County city of Troy, which employs only 14 full-time firefighters and as many as 180 authorized volunteers. Troy is comprised of 33.6 square miles and has the second largest State Equalized Value in Michigan at more than $6.6 billion. By contrast, the city of Pontiac employs 119 personnel to protect just 20 square miles, and has an SEV of $1.9 billion. The SEV is equal to half the market value of property and is calculated by governments for taxing purposes.
Municipalities and fire departments often express the cost of providing fire and other emergency services in per-unit terms to help put expenditures in perspective. For example, Pontiac’s fire department would be expressed as a dollar amount per $1,000 of SEV. That is, in Pontiac the city spends $7.43 per $1,000 of SEV on fire protection and related services ($14.1 million/($1.9 billion/$1,000)). By contrast, Troy spends only $1.57 per $1,000 in SEV.
This does not mean that converting Pontiac to a volunteer force overnight would yield a 78 percent drop in costs. Transitioning to a volunteer service would no doubt result in vociferous union opposition that would likely hike the cost. Moreover, Pontiac may simply have a different tradition of volunteerism. Unpaid firefighters may be difficult to recruit. In addition, it would be expensive (and logistically difficult) to hire and train a cadre of 100-plus volunteers all at once.
It should also be noted that comparing Pontiac and Troy cannot be done perfectly. For instance, the Troy fire department does not operate EMS-type services while Pontiac does. If Pontiac spun this service off, its total costs would drop.
Pontiac’s fire department does not need to be in the ambulance business. Such services are provided privately on a routine basis. Fire departments across the country have been encroaching on emergency medical service territory to help protect firefighter jobs. (The Mackinac Center has written about this mission creep in an article entitled "Ambulance Wars." Even if Pontiac refused private fire provision, it might consider ending its advanced EMS function in favor of contracted services.
That said, there is virtually no service being provided by the Pontiac fire department that isn’t being provided somewhere in the country on a private, for-profit basis. Critics might roll their eyes at the very notion of some of these proposals. But the fact that such ideas may seem implausible today does not mean that they lack credibility. Indeed, less than a generation ago school choice, Social Security (pension) privatization, and ending welfare as an entitlement were deemed beyond the pale of discussion. Today such ideas are mainstream.
Pontiac’s problems are such that they will very likely require an emergency financial manager to solve them. Only an EFM with the ability to set aside union contracts and make other changes could remake the city as dramatically as suggested here.
Using competitive contracting, volunteers or entirely private contractors (or some combination) would give Pontiac an opportunity to creatively save money and stay solvent while providing the same or better services.
Michael LaFaive is director of the Morey Fiscal Policy Initiative.
