Ann Arbor, Michigan: A Privatization Profile

Introduction

ANN ARBOR, MICHIGAN – a nice place to live. The trees outnumber the citizens, the buildings, the cars, probably even the 409,000 parking tickets dealt out by the city last year. 109,252 people stretch across 27.4 square-miles of what Money magazine designated as the 46th best place to live in the United States in 1990. [1] Over 2000 acres of parkland, including baseball and softball diamonds, soccer fields, basketball and tennis courts, ice skating rinks, swimming pools and hiking and biking trails, tatoo this seat of Washtenaw County. Two nationally accredited Class A public high schools nurture over 3600 kids while over 36,000 students from all over the world harvest knowledge from Ann Arbor's largest landowner, the University of Michigan. The list goes on: Easy access to two world-class hospitals. Twenty-five minutes from an international airport. Just an hour from Detroit and Lansing .... Ann Arbor is a really nice place to live.

Yet, as with most local governments, Ann Arbor City Council is on defense, jockeying infrastructure decay, budget squeezing and demand for better services. Currently, wood beams shoulder splitting concrete in four of the seven city parking structures. Repairs estimated by Walker Parking Consultants/Engineers, Inc. of Kalamazoo, Michigan range from $6 million – the sum of short-term alternatives – to $19 million – the sum of long-term alternatives. Unsuitable parking at the Maynard structure, in part, has downtown's largest retailer, Jacobson's, threatening to relocate to the City's perimeter. Efforts to locate funds for improving parking facilities, including construction of a new structure, has activists for Ann Arbor's homeless citizens – population estimated to reach as high as 1,500 within the next year [2] – demonstrating on City streets and at City Council meetings insisting: "House people not cars."

In addition to decaying infrastructure, Ann Arbor is feeling tightening budget constraints. In June, the U of M approved a plan to form its own police force and parking bureau, possibly diverting $1.1 million in revenue from the City's $110 million operating budget. Also in June, the Michigan Department of Natural Resources (DNR) tagged Ann Arbor with a $108,000 fine for landfill overfill violations and required the City to install a special cap over 330,000 cubic yards of excess trash; clean up the soil, sediment and groundwater contamination; and control erosion. Since the DNR has not yet determined the exact specifications of the cap, the cost of compliance is unknown. However, the City had budgeted $8.3 million from a $28.2 million environmental bond issue passed in April to remove the overfill and construct a standard cap. While the City awaits DNR approval for expansion of the landfill, which could take at least two years, much of the City's trash is being dumped in the private Browning-Ferris Industries' Arbor Hill Landfill in Salem Township.

Attacking the fiscal year 1990 $9 million solid waste fund's $1.7 million deficit, City Council had been considering a plan to implement, on November 1, 1990, a $1per-bag fee for weekly residential trash pick-up beyond one bag per household. Intense citizen outrage forced the Council to put the plan on review. The Council recently approved a resolution to hire a consultant to conduct a feasibility study regarding a user-fee schedule.

The introduction to Ann Arbor's 1990-91 budget, "The Budget Message," signed by Ann Arbor's City Administrator Del Borgsdorf, records the City's current position: "The immediate fiscal crisis has been met, leaving the City with a series of complex financial challenges as this budget is submitted and reviewed. Infrastructure challenges far exceed available resources." [3]

The message continues, quoting a Planning Commission resolution stating that commission's view on solving the problem:

"Be it further resolved that alternative sources of revenue be explored in order to undertake necessary public improvement projects and maintenance of facilities in future years. The Planning Commission concludes: (1) That the City's infrastructure has deteriorated and will experience further serious deterioration over the next decade unless additional revenues from sources such as recreation fees, utility rates, street improvement millages, parking rates, City income tax, etc. are effectuated, and (2) that dedicated reserve funds be created to provide a systematic replacement of essential facilities as needed, otherwise closing of certain facilities may be necessary." [4]

Major issues of concern enumerated in the message include solid waste, utilities, parking, housing, education and development.

A Quick Glance at Privatization

As more and more cities like Ann Arbor face the dizzying challenge of providing reliable, quality services in the midst of pinched funding and "anti-tax" sentiment, municipal governments are looking away from tax-generated revenue and focusing on the use of private sector expertise and efficiency as a money-saving alternative for delivering those services. Utilizing the private sector as an alternative method of service delivery, or privatization, as this tactic is usually termed, can be diffracted into an entire spectrum of techniques ranging from volunteerism to contracting out to load shedding.

Load shedding, the most drastic method of privatization, occurs when a city relinquishes all ownership, responsibility and operation of a service. For example, Traverse City recently discontinued solid waste collection, relying on the existence of private collectors and state laws requiring consistent disposal of garbage to ensure provision of that service at zero cost to the city. A private firm in the area purchased all of the city's refuse collection vehicles and hired the city's employees.

When a government doesn't have the facilities, technology, skills or resources to be shed in the first place, Build-Operate-Transfer agreements (B-O-T's) may be used. A B-O-T entitles a private firm to build a facility, operate it and retain the revenues for a specified length of time, say, 10 to 30 years, when ownership is then transferred to the government.

Contracting services out – hiring a private firm to deliver a service or operate a government owned facility – is the most popular form of privatization. In 1987, a Touche Ross (now Deloitte and Touche) survey of over 5,000 city and county governments (yielding almost 1,100 responses) indicated about 80% of those polled had contracted services out in the last five years. [5]

Other less popular forms of privatization include volunteerism, vouchers, user fees, franchising, joint funding, grants and subsidies, incentives (e.g. tax encouraged) and self-help programs (e.g. neighborhood organizations).

Virtually any government-provided service can be delivered by the private sector with equal or better performance at equal or lower cost. Using one of the above techniques, local governments across the United States have privatized virtually every "public" service imaginable. A 1988 International City Management Association (ICMA) study lists 71 services that have all been privatized at least once by some city or county government within the United States. A sampling of these services include: solid waste collection, landfill management, tree trimming, park maintenance, street resurfacing, custodial services, data processing, towing, vehicle maintenance, fire departments, parking structures, ambulance service, low-income housing, waste water treatment, water distribution, schools and public transportation.

The effectiveness of privatization lies in the magic of the free market. Markets, like energy, in a sense, can not be created nor destroyed. They evolve out of the needs of people and the willingness of those people to pay for what they think they need. If a profit can be made producing a certain product or service, that is, if a market exists for that product or service, it will be produced.

Once a market has been defined and is open to competition, the entities producing the goods or services within that market will operate as efficiently as possible to maximize their profits and outdo each other. In other words, the resources utilized in production will be allocated to where they are most productive.

Somewhere along the line governments – whose principal role is to see that services are provided – and the private sector, have come to produce many of the same services. And, in general, the public sector does not have the incentive to maximize profits or reduce costs; the public sector usually is not competing to survive. Reward systems are based on size rather than performance. Sustaining an unchallenged monopoly, the public sector tends to allocate resources less efficiently, thus raising the cost of producing the services. Steve Hanke, professor of applied economics at Johns Hopkins University spoke of what he terms the "bureaucratic rule of two" in a 1988 Insight article discussing privatization: "If you want to find the public cost of doing something, you just find the private cost and then multiply by two, and that'll get you pretty close." [6]

Some people argue, "If you privatize, private firms will be making a profit." That's exactly right. A private firm would not even offer the service if the opportunity to make a profit did not exist. But the existence of "profit" should not be erroneously viewed as a "cost" to the government. If the private firm can deliver a service at equal or better quality than the government at lower or zero cost to the government, the government is doing its job of making sure the service is provided and saving money which can be transferred into tax decreases or delivery of services not adequately delivered by the private sector.

Privatization at Work

Local governments all over the country have realized tremendous savings from privatization. The Local Government Center (LGC), a division of the Reason Foundation located in Santa Monica, California, maintains a national privatization database, recording privatization activity throughout the country. In 1987 the LGC and the Law and Economics Center of the University of Miami, together produced a study entitled, The Role of Privatization in Florida's Growth. Based on a 48-page bibliography of studies, books and articles regarding all different types of privatization, the two groups generated a table of public services and the expected savings realized through privatization of those services. The following is a portion of that table: [7]

PUBLIC SERVICE	EXPECTED SAVINGS RANGE (percent)
Solid Waste Collection	22-30
Solid Waste Disposal	22-30
Street Repair	25-50
Street/Parking Lot Cleaning	15-39
Tree Trimming/Planting	16-35
Parking Lot/Garage Operation	14-31
Recycling Solid Waste	8-30
Wastewater Treatment	8-30
Water Utility	10-25

Back in Ann Arbor

Ann Arbor City officials are aware of the benefits of privatization and currently implement that awareness in a number of contracts with the private sector.

Sampling of current City contracts with the private sector
vehicle towing
maintenance/operation of Fairview Cemetery
various traffic island and property lawn mowing
centerline pavement marking
elevator maintenance
window cleaning
car washing
typewriter maintenance
street and sidewalk repairs
snow removal
sludge hauling
janitorial services
storage of voting machines
HVAC preventive maintenance
computerized traffic control maintenance
specialty maintenance of city vehicles and buildings
seal coating of outdoor athletic courts
collection of recyclables
park construction
various professional services – consulting, architectural design

This year, the forestry division will be using $18,000 of a $90,000 tree-trimming budget to experiment with contracting-out that service.

Ann Arbor also implements grants, subsidies, franchising and volunteerism. The goal of a subsidy/grant is to encourage a private firm or non-municipal entity to deliver a service at reduced cost to the user. Rather than own, operate and maintain its own homeless shelter, Ann Arbor gives The Shelter Association of Ann Arbor – a private, non-profit organization – a yearly grant to aid the Shelter Association in providing shelter to Ann Arbor's homeless citizens. The city franchises the rights to operate the concession stand and batting cages at Veteran's Park to private firms and collects a percentage of the profits. At three other City locations – Fuller and Sylvan Parks and Abbot School – the City enlisted volunteers to organize and supervise the construction of playground structures.

Ann Arbor's Central Services Director, James Amin, who is in charge of purchasing for the City, has even written guidelines for City officials to follow in order to effectively approach privatization of a municipally delivered service. (These guidelines are described further below.)

Just because privatization has been successful for Ann Arbor and many other cities, that does not imply that Ann Arbor should privatize every service it provides. For example, the Parks and Recreation Department has determined that the costs for the City to mow athletic fields, parks and larger traffic islands are very competitive with the costs it incurs through contracts for mowing of various smaller traffic islands. (The City contracts mowing for these areas because they require smaller, specialized equipment.) According to Gary Fichter, Manager of Park Operations, the City can mow at $29.50 per acre. This is 30% of the roughly $100/acre the City pays for its contracted mowing.

Unfortunately, municipal and private entities utilize different accounting systems, thus making direct comparisons rather difficult. The fee charged by a private firm is the direct charge to the user, be it an individual, a business or a government. That fee, in turn, covers the private firm's costs. A government's costs, on the other hand, are harder to diffract. Administrators and supervisors oversee a number of tasks within, and sometimes even between, departments. The $29.50/acre cost cited above is basically the marginal cost of mowing, consisting of labor, travel time, and equipment rent – fuel, maintenance and depreciation. Most of the insurance and retirement payments are not relevant here because seasonal employees do not receive these benefits. But the $29.50 does not include vacation and sick time, truck and trailer costs, supervisor and administrative labor costs and benefit payments, workers' and unemployment compensation; and more abstract costs, such as the opportunity cost of foregone income in the form of property tax receipts if a private firm happened to own the space used to store municipal mowing equipment. Quite understandably, the city can not easily discern what portion of fixed and administrative costs belong to which activity, especially for a department as diverse as Parks and Recreation.

Larger costs due to the inclusion of all relevant expenses incurred by the City to do its own mowing does not mean that the City should relinquish all mowing to the private sector. Detailed inclusion of all costs makes municipal costs less favorable versus private costs, but Ann Arbor may still be able to mow for less. In addition, maintaining its own mowing force gives the Parks and Recreation Department more flexibility to work around special events and the unpredictable weather of southeastern Michigan. However, compatible and consistent cost comparisons are necessary for elected and appointed officials to bring City residents quality service in the most efficient, cost-effective manner possible.

Could Ann Arbor Do Better?

When the City of Ann Arbor can provide a service for less--based on accurate cost comparisons – or even generate a profit delivering a service, the City should consider delivering that service. However, any service that does not meet these criteria is a reasonable object of consideration for privatization. In Ann Arbor the following three publicly-delivered services – solid waste collection, solid waste disposal and parking structure operation/maintenance/ownership – have fallen into an "emergency" state. The solid waste fund is running a $1.7 million deficit. The landfill is essentially closed, awaiting millions of dollars' worth of environmental contamination clean up and DNR approval for expansion. Ann Arbor's Transportation Director, James Valenta, has agreed that restoration of two of the City's parking structures is not worth the cost and that the structures should be torn down and rebuilt at a cost of $8.9 million. Temporary repairs to keep those structures open for three to five years, will cost an estimated $1 million. Repairs of two other structures will cost an estimated $7.8 million over five years, financed through revenue bonds and increased parking fees. [8] Meanwhile, the future health of the downtown's retailing concentration remains in question pending Jacobson's concern with improved parking safety and space. Privatization may not be the answer to all of Ann Arbor's budget woes, but privatization of these three services could save this city millions of dollars.

Solid Waste Collection

Solid waste collection is one of the most prolific examples of a privatized government service. According to the Michigan State Chamber of Commerce, 71% of local governments in Michigan have privatized this service. According to the 1988 ICMA survey of 4870 cities and counties (40.2% of cities and 23.0% of counties responding) 36% had contracts for residential solid waste collection and 38% had contracts for commercial solid waste collection. Thirteen percent of governments responding franchised residential solid waste collection and 20% franchised commercial. [9]

The success of privatization in the solid waste industry is mainly the result of the following reasons cited by James Bennet and Manuel Johnson: "...in contrast to firms that are regulated or limited to a given service area or route, private garbage firms may adjust to their most efficient size of operation...[and]...trash collection in the private sector should be fiercely competitive and pressures for cost minimization especially intense; large amounts of capital equipment are not required, nor are there any other real economic barriers to entry." [10]

In their survey of Washington, D.C. suburbs, Bennet and Johnson discovered that 29 private firms – at least five servicing any one specific neighborhood – collected garbage at twice the frequency – two times per week – and at roughly two-thirds the cost of public collection ($85.76/month versus $126.80/month). [11]

The Ann Arbor/Ypsilanti Area Yellow Pages list 29 firms providing "rubbish and garbage removal" to residents and businesses in Ann Arbor and its surrounding regions. According to a survey sponsored by the City of Ann Arbor, approximately 44 percent of Ann Arbor's commercial sector already hires the private sector to collect all or part of its refuse on top of paying the 2.63 mills in solid waste property taxes levied to all city businesses and residents for municipal collection. [12] Fifteen percent of the businesses that do not receive any city service report that they "require service more often than [the] City can provide." Fifteen percent reported they were not aware that City service was available. Only two percent cited poor City service in the past as the reason for disposing of trash entirely through a private refuse collector.

For fiscal year 1990, the City of Ann Arbor has budgeted $4.444 million for residential, rear and front-load commercial, special and yardwaste collection. [Inclusion of recycling operations, composting, emptying of City street refuse cans and collection of household hazardous waste boosts the City's total "refuse collection" budget to $5.244 million. The figure excluding these areas will be used here.] This figure accounts for all labor, sick and holiday pay, materials and supplies, tipping fees, uniforms, and vehicle rent. Vehicle rent is composed of fuel, operating and maintenance costs and depreciation and is charged to each department, payable to the Municipal Garage, as a per-hour usage fee.

The above four and-a-half million dollars does not include administrative overhead (both departmental and general City government overhead, the latter reflected in the budget line, "municipal service charge"), retirement payments, life or medical insurance, workers and unemployment compensation or social security payments. These costs are accounted for in a separate cost center entitled "administration." This category has been budgeted $2.285 million this year. Subtracting "administration" from the total $9 million solid waste budget yields $6.715 million. The abridged "refuse collection" budget above, $4.444 million, equals roughly two-thirds of the solid waste budget excluding administrative costs. In order to crudely estimate how much of "administrative" costs belongs to "refuse collection," two-thirds of $2.285 million can be added to $4.444 million resulting in a "refuse collection" total of $5.967 million.

Applying the LGC's savings realization range of 22-30% for residential and commercial solid waste collection, Ann Arbor could potentially cut its annual solid waste budget by $1.31 million to $1.79 million by contracting with a private firm to collect the garbage of City residents and businesses.

At the September 17, 1990 City Council meeting, the council approved a resolution, sponsored by Mayor Jerry Jernigan, to request bids for contracting solid waste collection. However, if Ann Arbor were to consider shedding its refuse collection operations, as did Traverse City recently, all or most of the six million dollars budgeted for refuse collection could be saved and reallocated to other service areas or translated into tax reductions. The only amount the City would pay for refuse collection is the amount it pays a private contractor to pick up the City's garbage.

Load shedding concerns some as a forfeiture of control over price and quality of service. However, shedding solid waste collection would establish consumer sovereignty as each household could choose between numerous suppliers. Price and quality would be controlled by the individual supplier working to better serve the customer and win his service by offering amenities his competition does not: lower price, more frequent collection, higher quantity limits, etc.

Landfill Management

As mentioned above, Ann Arbor's landfill mis-management will cost the taxpayers a substantial portion of a $28 million environmental bond issue. While governments across the country explore recycling and waste-to-energy alternatives, landfills remain the primary form of solid waste disposal. The 1988 ICMA study indicates 25% of local governments have contracted solid waste disposal. The LGC "expected savings range" for privatization of this service is the same as that for solid waste collection – 22 to 30%. In addition to operating cost savings, Fiscal Watchdog reports that privately operated landfills are more apt to adhere to strict environmental guidelines:

"...in regard to the issue of quality, there is reason to suspect that the private sector may be providing even more environmentally safe waste disposal. According to solid waste expert E.S. Savas, chairman of the department of management at CUNY's Baruch College, public landfills are often treated more leniently by state environmental agencies because they are perceived as 'public interest' entities; while private firms owning and operating landfills are held to stricter account. Savas declares that 'the private sector is more responsive to government guidelines requiring environmentally safe landfills.' In addition, the experience of many jurisdictions in finally turning to private contractors to meet stringent EPA water treatment standards would support Savas' observation that 'public agencies operating landfills are generally unable to adopt rapidly changing technologies as quickly as private companies operating landfills.'" [13]

This year, the City of Ann Arbor has budgeted $1.270 million for landfill operation and construction, but what portion of that money is actually being spent for that purpose is unclear. Due to the overfill and delayed DNR approval for expansion, the Solid Waste Department estimates that currently (mid-October), one-half of the garbage collected by the City is being dumped at the BFI dump; that number is expected to reach 90% by January of 1991. Over the four fiscal years 1986 to 1989, an annual average $1.6 million was expended on landfill operations and construction. Applying the procedure used above with refuse collection to estimate what portion of "administration" belongs to landfill operation bumps the $1.3 million up to $1.702 million. Based on the LGC savings range, Ann Arbor could potentially save $374,000 to $511,000 annually, plus avoid a future multi-million dollar capping/clean-up effort like the one the City is currently planning to tackle.

Parking Structures

Driving a car into an Ann Arbor parking structure requires a certain degree of courage; 4 x 4 wood beams stand between floors and cracked concrete ceilings in the Maynard Street, Fourth and Washington, Fourth and William and Forest Avenue structures. This must not only unnerve patrons, but City Council members and taxpayers as well, since, as stated earlier, any combination of short- to long-term repairs ranges between six and 19 million dollars.

According to the 1987 Touche Ross survey, seven percent of governments had contracted out parking lots or garages and 10% had planned to in the next two years. [14] Privatization of parking structures has many forms. Private firms will simply operate and maintain a structure for a city, lease a structure from a city and operate and maintain it, or, take over a structure from a city, pay for all structural repairs, maintain and operate the facility and eventually either retain ownership or return the facility to the city.

Ellis Parking in Grand Rapids owns and operates parking structures in Flint, Lansing and Grand Rapids. According to Mike Ellis, owner/president of Ellis Parking, any city like Ann Arbor soliciting bids for a private firm to take over or operate its parking structures would spur intense competition. Not only would three or four Michigan firms be expected to bid – for example, Ellis Parking and National Garages and Miller Parking in Detroit – but five or six national firms – such as, APCOA, System, Republic, Allright and Square – might bid as well.

For fiscal year 1990, the City has budgeted $1.416 million to operate its seven parking structures. When the parking structures' share of "administration" is estimated, parking structure operation costs $1.815 million. If the City were to contract operation and maintenance of the facilities with a private firm, LGC figures estimate the City could save $127,000 to $281,000. Please note here: Kenneth Clarkson, co-author of The Role of Privatization in Florida's Growth reports that the "expected range of privatization cost savings" should be halved when applied to a government service run in the form of an "enterprise fund" – that is, virtually self-supporting, similar to a private business. Ann Arbor's parking system is set up as an enterprise fund. However, the system has yet to operate fully as a true enterprise fund. When the standard LGC expected savings range is applied, savings reach $254,000 to $562,000.

If the City were to turn ownership of the facilities over to a private firm, the City could also avoid $1.294 million budgeted for restorations in 1990-91, $3.790 million in "anticipated capital improvements" planned to be financed through revenue bonds and the millions of dollars in subsequent restoration expenditures required to keep the structures open well into the future. Depending on how ownership of the structures were negotiated, the City could possibly eliminate its annual depreciation and interest payments which, for 1990-91, amount to $1.627 million.

Ann Arbor's newest parking structures, Ann and Ashley and Liberty Square, are owned by the Downtown Development Authority while the City operates the structures. James Valenta, Ann Arbor's Director of Transportation, reports that the structure proposed to be built behind Kline's Department Store would also be owned by the DDA but would most likely be privately run. According to Valenta, the reason for that is two-fold: "[The City wants] to set up competition between our employees and the private sector in order to see who can come up with innovative ways to do things less expensively. [In addition,] there is a goal in the City budget to fix what is old before building anything new."

A recent Ann Arbor News article enumerates the improvements in Kalamazoo's parking structure service since that City privatized its parking system: improved lighting, free weekend parking, security guard patrols in golf carts which can also be used to chauffeur customers to their cars and free assistance to drivers faced with dead batteries or keys locked in the car. [15]

In Kalamazoo, the city leased its parking system to the Downtown Development Authority which is directed by Downtown Kalamazoo Inc. (DKI). DKI, in turn, has hired Parking Properties Inc. of Cleveland to operate and maintain the system which includes all city-owned metered street parking, surface lots and parking ramps. Parking Properties Inc. receives a fixed annual fee – paid out by DKI – for its services while DKI oversees the entire parking system budget. DKI pays the city around one million dollars per year to lease the structures. Those dollars essentially cover Kalamazoo's debt-service for the parking system. Any outlays for capital improvements are financed by DKI; the city has no fiscal responsibility for the parking system.

In Kalamazoo, privatization initially spurred an increase in parking ticket revenue due to more rigid enforcement. As drivers in Kalamazoo have realized they can not get away without paying for parking, meter revenue has increased 10% while the number of tickets issued is lower than pre-privatization ticket levels. [16]

Theoretically, Ann Arbor could save anywhere from $1.811 million to over $13 million dollars in fiscal year 1990 if it were able to immediately privatize solid waste collection, landfill management and parking structure operation, maintenance and possibly ownership. In reality, annual savings of this magnitude would not be realized in one year, but phased in over several years. Savings would be even larger if these figures included the opportunity cost of capital and revenues earned by the City selling or renting all equipment – garbage trucks, earthmovers, etc. – and property – storage and office space – related to those activities. In addition, once a property is in the hands of the private sector, it becomes a property-tax generating entity producing more government revenue.

Concerns with Privatization

Privatization, as any public policy issue, has its proponents and its opponents and is subject to the not-always-efficient world of politics. Anti-privatization sentiment lies in concern for public job loss and loss of governmental control. At the September 17th City Council meeting, during a discussion on the resolution to solicit bids for solid waste collection, Councilmember Thais Peterson stated, "I don't see a relationship with a private contractor allowing the same oversight I think voters gave me the responsibility to show." She later added, "If we give up to privatization, we have no control." Peterson is particularly concerned about recycling. "The people in Ann Arbor are committed to recycling. Even if it's not profitable, they are willing to spend energy and money [to do it]. If the market changes, nothing guarantees that the private sector will follow through with recycling."

Councilmember Anne Marie Coleman raised an important point at the September 17th meeting: "I believe the City employees we have do a good job. We have responsibility to check out and make sure we are doing the best job with respect to trash collection. We must make sure the RFP includes everything, including hidden costs." Coleman expressed concern for non-profit organizations who currently receive refuse collection service without paying for it.

These fears, however, have been confronted and conquered by local public-private partnerships across the country. As Ann Arbor's Director of Central Services, James Amin, enumerates in his "Privatization Analytical Process: A Checklist Approach," privatization is a never-ending process, beginning with a detailed, fair and competitive bid/selection process. Once a service has been privatized, the participating private firms must be consistently monitored and evaluated based on strict performance guidelines, reporting requirements and citizen feedback. [17] The City should retain the "right to revoke" a contract at any time set service levels are violated. Contracts should be subject to re-bidding every three years.

Other councilmembers see requesting bids from private contractors as a great opportunity for the City of Ann Arbor. Mayor Jernigan said, "[This resolution] doesn't denigrate City employees. It allows us to get a handle on our costs and compare. This is an exciting time, looking at new ways the City does business. It doesn't mean anyone will be eliminated."

"We owe it to City residents to provide the best service at the lowest cost," said Councilmember Jerry Schleicher. "I would commit myself to look to alternate sources where costs do not increase and service increases. I hope most of you, if not all of you, are committed to provide the best service at the lowest cost." Councilmember Mark Ouimet added, "Just because we have done something in the past a certain way, we must examine all sides of this. We do not want to do away with jobs, we want to evaluate the most cost effective way of handling solid waste. We owe it to taxpayers to examine these kinds of avenues."

When the City Council decides a service is ripe to be bid for private contract, the City department currently delivering that service should not be eliminated. On the contrary, that department should be welcomed to bid and challenged to meet the efficiency, innovation and resourcefulness of the private sector. The goal of privatization is not to erase governments, but to replace the monopolistic/bureaucratic inefficiency usually accompanying governments with free market, performance-based competition.

Controlling the loss of public jobs can be mediated in many ways. Ann Arbor's current three-year contract with AFSCME (American Federation of State, County and Municipal Employees), which was just re-negotiated in August of 1990 and awaiting Council approval, stipulates that the City may contract-out for services as long as such action does not result in the layoff of any union employees. In order to privatize any of the above services, Ann Arbor may have to wait until this contract expires, or pursue, through deliberation with the union, one of the many innovative techniques being implemented around the country. In the case of solid waste collection, public employees have sometimes been the first hired by expanding private firms; those workers already know the job best. When this does not occur naturally, a city can negotiate for a contract to guarantee public employees the "right of first refusal" for jobs in the private firm. The number of public employees can be gradually reduced through attrition. Employees could be retrained using the money saved through privatization or even entitled to a share of that money.

Conclusion

Privatization, already at work in Ann Arbor, patiently waits on the City's call to deliver higher quality services at reduced costs. Ann Arbor stands to save millions of dollars per year through privatizing just three services which have placed a stranglehold on the city's future budget outlays.

Advocates of privatization do not contend that governments can not perform; they just do not have the incentive to perform well. That incentive is the blood of the private sector. Privatization is not about placing dutiful, taxpaying citizens at the mercy of profit-mongering businesses. Privatization seeks to inject the services governments provide with the performance-incentive, bringing citizens the services they pay for at the price they deserve.

Endnotes

Money, "The Best Places to Live Now: Our Fourth Annual Survey," p. 82, 9-90.
Ann Arbor News, "Removal of downtown homes may draw protest," p. A3, 9-6-90.
1990-91 Administrator's Budget, City of Ann Arbor, p. 4.
Ibid., p. 4.
Privatization in America, "An Opinion Survey of City and County Governments on Their Use of Privatization and Their Infrastructure Needs," Deloitte and Touche, 1987 p. 2.
"Cities Finding Public Services Better-Run by Private Firms," Insight, February 22, 1988, p. 42.
Clarkson KW and Fixler PE Jr., The Role of Privatization in Florida's Growth, Law and Economics Center, University of Miami and Local Government Center, Reason Foundation, 1987, p. 173.
Walker Parking Consultants/Engineers Inc., "City of Ann Arbor: Municipal Parking Structures," Conditional Appraisal, May, 1990.
Morley E, "Patterns in the Use of Alternative Service Delivery Approaches," The Municipal Yearbook 1989, p. 38.
Bennet JT and Johnson MH, Better Government at Half the Price, New York, Kampmann & Company, 1981, pp. 43-4.
Ibid., pp. 45-6.
Van Eck P, "Disposing of Commercial Trash, 1990 Survey of Ann Arbor Commercial Establishments," 5-14-90, p. 11.
Fixler Jr. PE, "The Role of Private Landfills in the Waste Disposal Crisis," Fiscal Watchdog, April 1986.
Privatization in America, Detoitte and Touche, p. 10.
Ann Arbor News, "A year later, Kalamazoo reviews parking changes," p. C1, 9-2-90.
lbid.
Amin JAL, "Privatization Analytical Process: A Checklist Approach," presented at the Michigan Public Purchasing Officer's Association, 1989 Summer Conference.