City budget savings claimed in Midwest

Indianapolis led way on privatization

foes call it `sleight-of-hand'

April 19, 2001|By Neal Thompson and Gady A. Epstein | Neal Thompson and Gady A. Epstein,SUN STAFF

Mayor Martin O'Malley's idea to let private firms bid against city agencies to provide security and janitorial services is a page ripped from the playbook of Indianapolis, the first city in the nation to promote broad privatization of government services.

During the eight-year administration of former Mayor Stephen Goldsmith, Indiana's biggest city privatized 70 services, establishing a reputation as a model for reinvented city government.

Goldsmith, a Republican, handed management of the city's waste-water treatment plant and airport to private companies, contributing to more than $400 million in claimed savings and earning him a national reputation as a visionary reformist.

But with Goldsmith out of office -- he chose not to seek a third term and left office last year -- assessments of real costs saved as a result of privatization are mixed. Critics say privatization in Indianapolis was more an example of good marketing than good government.

Susan Williams, a Democratic city-county councilor, said all the national attention -- and the adoption of Indianapolis' tactics in cities such as Milwaukee and Philadelphia -- obscured the more subdued local reviews.

"Every budget hearing I went to I said, `Show me the money.' And they couldn't do it," Williams said, adding that at some point the administration's jargon changed from boasting cost savings to "cost avoidance."

"It was a sleight-of-hand kind of thing -- but it was brilliantly executed."

Mark S. Rosentraub, a former University of Indiana professor who studied Indianapolis' privatization, said Goldsmith was widely considered to be a good mayor and a good financial manager, but the benefits of privatization were largely hype created by "privatization euphoria."

"We've got this image that by and large everything that government does is negative and everything private industry does is positive," said Rosentraub, now dean of the College of Urban Affairs at Cleveland State University. "But there was a lot more hype about the privatization than there was substance."

After taking office in 1992 with a promise to privatize the bulk of city government, Goldsmith found that the bids submitted by union locals often were lower than those of private firms. The union won a large contract to continue performing fleet maintenance while private firms won many of the smaller contracts, such as window washing and photocopying.

"But the financial situation was relatively unchanged," Rosentraub said. "It was much ado about nothing in some ways."

O'Malley -- who has read Goldsmith's 1998 book, "The 21st Century City: Restructuring Urban America" -- has floated a proposal to privatize city custodians and guards in the Department of Public Works, and possibly other city services. But he said he might let union workers bid on their jobs.

Indianapolis union leaders say one benefit was elimination of middle-level managers. Also, morale rose because employees proved they could do their jobs cheaper and better than a private firm.

Salaries didn't change much, union officials said. But in some cases, workers earning $12 to $14 an hour earned annual bonuses of $1,200 to $2,000 for cutting costs. In the end, unions embraced privatization.

"We had to readjust our way of thinking and our way of living," said Lettie Oliver, staff representative of the American Federation of State, County and Municipal Employees in Indianapolis.

Privatization advocates in Indianapolis said they saved money by forcing unions to compete. One example is the enforcement of parking meters, which had been the job of about 60 part-time and full-time law enforcement officers."[We] determined that with a staff of six people, meters could be staffed downtown, so those 60 officers could be freed up to work elsewhere on public safety issues," said Tamara Zahn, president of Downtown Indianapolis Inc.

But some say it's not so clear how much money the city has saved on contracting out its work.

"We've had a hard time substantiating the cost-saving figures," said Michael B. O'Connor, chief deputy to Indianapolis Mayor Bart Peterson, a Democrat.

City officials haven't been able to verify the more than $400 million in savings claimed under Goldsmith's tenure. The current administration believes in contracting out some services and functions -- privatization of the golf courses is an example of one success -- but they see a potential downside to some large contracts.

"When you award a private contract to one company ... then the natural competitors don't have anything to do in this city, so they go away," O'Connor said. "Now you've got a private entity that can hold you over a barrel."

Brian Williams, president of the Sycamore Institute -- a liberal think tank in Indianapolis that has studied the privatization system -- also disputes the savings. At the wastewater treatment plant, he said, employees were transferred from city rolls to private rolls, but overall costs changed little.

"Expenses associated with running the facility remained constant," Williams said.

Goldsmith, now a lawyer in Washington, was traveling in New York and couldn't be reached yesterday. But Skip Stitt, who served as Goldsmith's senior deputy mayor, said private firms and foundations have verified that the city saved money by asking unions and private companies to compete.

"Total savings were $428 million," Stitt said. "Our typical savings were 20 percent."

Stitt said the proof of success was in the city's ability to cut its operating budget seven years in a row, and its ability to cut property taxes four times.

And, Stitt said, "We never laid off a union employee."

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