Pontiac Should Privatize its DPW

The city provides a number of services that fall under the heading of “Public Works,” such as wastewater treatment, shown in the picture above. But public works duties are routinely contracted to the private sector. Indeed, Pontiac already contracts for the traditional DPW service of refuse collection. Officials should investigate other areas ripe for contracting.

The city of Pontiac needs a dramatic reorganization. One area that is ripe for privatization is the city’s Department of Public Works. All of the services currently provided by the DPW also are available from private vendors to varying degrees. Throughout the country, many municipalities already contract for these services.

The 2007 fiscal year budget calls for 153 employees, 10 fewer than fiscal year 2006. The city, to its credit, has been paring the size of its employment rolls in an attempt to dig itself out of a significant financial hole. It must do more.

It needs a sweeping privatization program that would place a wide array of services currently provided by the city into the hands of vendors who win contracts through open competitive bidding. The city has done it before (refuse collection, for instance) and is reviewing bids for other services.

The fiscal 2007 City Council budget allocates $74.6 million for expenses to provide DPW services, including contracted refuse collection. It is impossible to tell how accurate this figure is from the current budget because it is not clear exactly how much of the insurance, material, supply, vehicle-purchase and maintenance costs, and depreciation generated by the DPW are accurately attributed to the DPW. Phone calls to the city finance and public works departments by this author were unreturned.

The DPW operates from several buildings and sites, including the city hall and four other locations, two of which are wastewater treatment facilities. The city maintains a large inventory of vehicles and equipment that could be sold if the city were to privatize its services.

The city’s water supply is purchased from the city of Detroit system and residential trash pick-up is contracted to a private vendor, Veolia Environmental Services, Inc. The parking system is operated by the city’s Downtown Development Authority and is not part of DPW operations. Included in the following list of DPW services is the maintenance of 24 city parks and recreation fields and six community centers, four of which are closed.

Current services provided through the DPW, according to its Web page, include community development, which oversees economic development, zoning issues and building safety; engineering (planning capital improvements to city owned buildings and roads); general services (administration); building maintenance (cleaning and repairing city buildings); equipment maintenance (cleaning and repairing tools and machinery used by DPW); highway maintenance (repairing potholes, etc., on 250 miles of city roads); electrical/sign shop (provides electrical maintenance and creates and maintains signs in the city; sanitation (under contract with Veolia); grounds/forestry (mowing, gardening, removing diseased trees); municipal golf course (up for management or sale now); cemeteries (up for management or sale now); wastewater treatment; water and sewer maintenance; and water billing and collections.

If all of the costs for providing these DPW services were tallied by function, they easily could be compared to the lowest bids of qualified contractors. It is not unreasonable to assume that the city could save at least 15 percent of what it currently pays for DPW services it provides. After subtracting costs for refuse collection, the city is left with $66 million in budgeted expenses. Knocking 15 percent off the remaining cost of operating DPW would yield nearly $10 million in annual savings.

This figure is probably understated for at least two reasons. First, there may be many costs of running the DPW that are not now properly attributed to it. Accurately identifying these costs would lift the cost of the public service and, thus, the amount that could be saved through contracting. Second, some services, such as cemeteries or the city golf course, could be "zeroed out" entirely by selling them, thereby increasing the overall savings rate.

Besides saving money, the city may benefit from a higher level of service provided by private contractors.

In addition to reducing its annual costs by contracting DPW services, the city could realize a large one-time revenue gain by selling its DPW buildings, sites, vehicles and equipment. This one-time revenue could be used to reduce city deficits or pay down other debt. When I was emergency financial manager of Hamtramck, I sold the city’s DPW building and site for $860,000, DPW’s vehicles and equipment for $235,000 and I leased vacant land owned by the city for $25,000 per year to Nextel for a cell tower.

Few people, other than some accountants and small circles of local government officials, realize the magnitude of the problems faced by Pontiac. Nothing the Mackinac Center could publish in a series of short articles could do the city’s problems justice. Pontiac must start revolutionizing its fiscal landscape now or face takeover by a state-appointed emergency financial manager.

Other cities have saved substantial amounts of money by privatizing city services. Pontiac should do the same, and it should rank DPW services high on the list of privatization candidates.

Louis Schimmel is director of municipal finance with the Mackinac Center for Public Policy.