Impetus growing to divest services

Move to privatize tempered by recent unsuccessful projects

Unions oppose idea

May 29, 1999|By Gerard Shields | Gerard Shields,SUN STAFF

When Washington and Philadelphia faced the same multimillion-dollar budget deficit on Baltimore's horizon, officials looked to city workers.

In Washington, the financial-control board imposed by Congress fired 18,000 city workers, or one in three. In Philadelphia, Mayor Ed Rendell fought for $300 million in health benefit concessions from workers and turned the city from the verge of bankruptcy to a $169 million surplus last year.

In the waning months of his 12-year tenure, Mayor Kurt L. Schmoke is proposing that Baltimore allow private companies to bid on some city services.

The mere mention has riled city unions and forced City Council and mayoral candidates into the position of trying to maintain union support in an election year while trying to stem city spending.

Over the next four years, Baltimore faces a $153 million deficit because of a tax base stagnated by the exodus of about 1,000 residents a month and because of the rising costs of city services.

"The city's revenue base has been exhausted," Budget Director Ed Gallagher said.

In 1992, Schmoke hired a private company to manage nine city schools but canceled the contract two years later after woeful results. Most recently, the city took back the collection of ambulance payments after the company hired retrieved less than city collectors had.

The city has had positive results with private-sector operation of city golf courses and the Baltimore Zoo. Last year, the zoo reported record earnings and revenue gains for the second-straight year.

The key to making the process work, say union and government leaders who have studied it, is to choose services conducive to private management and allow city employees to compete for contracts.

Whenever city governments across the nation discuss private companies' bidding on city services, they point to Indianapolis. After his election in 1992, Indianapolis Mayor Stephen Goldsmith employed "the yellow pages" rule. The Republican mayor scanned the telephone book for companies providing services handled by the city. Goldsmith wondered: Why are cities in the businesses of trash collection, water service, photocopying and car repair if private companies exist to do the same thing?

Since then, Indianapolis has hired companies to handle 76 city services.

Since its first private contract eight years ago, Indianapolis has reduced its work force by 1,500 workers -- almost a third. Yet the unions have won 80 percent of the contracts they bid on, and the city avoided layoffs by ensuring that private companies taking over city services hire the city workers, who remained in the union.

In cases where the union completed services under bid, the city shared the savings with workers.

"It has proven to be beneficial for everyone involved," said Linda Ard, executive director of the American Federation of State, County and Municipal Employees Union Council 66 in Indianapolis. "It has saved the city money, the employees have not lost anything, and there is not one less union position."

Goldsmith contends the move saved the city $400 million in spending and helped increase the city surplus from $20 million to $100 million. Yet Goldsmith's critics call the movement to allow private companies to compete public relations.

Indianapolis government spending has gone up $19 million to more than $425 million since Goldsmith was elected in 1991, and the city property tax has dropped only 3 percent.

"Privatization is an excuse for poor management," said Brian Williams, president of the Sycamore Institute in Indianapolis, a liberal think tank that tracked the system. "From a homeowner's standpoint and a business owner's standpoint, there has been no impact."

Last summer, Schmoke formed the Millennium Group, a platoon of four administrators and a consultant to study whether opening the door to private contractors could help Baltimore provide better services at lower costs.

Under the direction of Schmoke aide and former West Baltimore Councilwoman Vera P. Hall, the city will hire a consultant in August to help study four city services: personnel management, workers' compensation, building maintenance and fleet management. In addition, the city will hire a private company to collect trash in three neighborhoods of the city as part of a pilot program.

Baltimore unions representing about 80 percent of the city's 25,000 city workers oppose the move. Many fear layoffs in a city where unemployment is 9 percent, double the national average. And they consider private companies less effective because city-operated services are not profit-driven.

"Businesses are in business to make a profit," said Stephan G. Fugate, president of the Baltimore Fire Officers Association.

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