Privatize it!

by Ted S. McGregor, Jr.


Bobby Brett has a problem. Call him a stickler for details, a control freak or just plain cranky, he likes things just so when it comes to his sports franchises. But it's an approach that works, as Avista Stadium, home to his Spokane Indians, has been named the Field of the Year in the Northwest League for five straight years under his company's direction. Brett Sports took over maintenance on the county-owned stadium several years ago, saving the county $30,000 a year. And from the luxury suites to the ice, the Spokane Arena, run by the Public Facilities District, is kept just the way he likes it for his Chiefs squad and its fans.


But when it comes to the venerable Joe Albi Stadium, the home to his newest franchise, the Spokane Shadow soccer club, it's a different story. Maintained by the city of Spokane, Brett says the facility needs a lot more TLC than it's getting. From rogue weeds poking through recently established landscaping to rifts in fencing to a five-year-old pile of discarded drinking fountains, Brett decided two years ago that something had to change in order for his organization to offer a first-class experience at the stadium.


"We need to control more of our own destiny," he says.


So Brett Sports has proposed to take over the management and event booking of the facility from the city -- an arrangement he calls a win-win.


"When you look at the city needing to save money," says Brett, "we think the privatization of Albi will save the city money."


In fact, the 22,000-seat stadium runs at a loss, costing the city over the past five years around $80,000 a year to operate. Brett believes his company's management would save the city about $65,000 a year, since the city would no longer need to send any employee to the site for anything. If they ever did require the city's help, Brett Sports would agree to pay the employee's going hourly rate. Those employees could then focus on other work or be reduced over time through attrition.


"I know this is small potatoes in the scheme of things," says Brett, "but I don't care if something can save $10,000, $20,000 or $50,0000, that's a start."


The proposal has drawn opposition, however. A recent report concluded that the plan, among other problems, may cost the city more money. That report, however, appears to have relied on incomplete financial documentation and understated the facility's annual loss at roughly $20,000 per year, a figure that was amplified in the local media. Now the Sports, Entertainment and Conventions Advisory Board (SEACAB), which oversees the stadium, is charged with sorting it all out and making a recommendation to Mayor John Powers on how to proceed.


Taken on its own, the proposal seems to do nothing more than save the city money and solve Brett's problem. But if you look just under the surface, it's a challenge to our traditional notion of what government should do -- and a threat to public employees. What Bobby Brett proposes is "privatizing" Albi Stadium, and that word carries all kinds of baggage with it.





Privatization is nothing new. An example everyone is familiar with at the federal level is the Department of Defense, which hires outside firms like Boeing to build its weaponry. Over in King County, Safeco Field, home of the Seattle Mariners, is a public facility managed by a private firm. In Spokane, a private firm operates our public waste-to-energy facility. Public golf courses are managed privately. And a private firm handles the ticket sales for the publicly owned Arena and Convention Center. It may surprise many people to know that about half the money government spends in delivering services nationwide is spent hiring private firms to do the job.


There has been renewed interest in privatization, a traditionally Republican initiative, starting back in the Reagan years. But it has really picked up steam in just the past decade, as many municipalities and states have experimented. With property tax revolts in places like California and tax limiting initiatives here in Washington state, municipalities have been looking for ways to "do more with less" -- a tidy catchphrase, but a tricky proposition. Privatization, the theory goes, makes it a little bit easier, as private firms can often deliver services for less money that their public counterparts.


"Traditional alternatives for communities that are hitting the tax wall are to raise taxes or lower services, but there's another alternative that has to be considered: privatization," says Robin Johnson, an alderman in Monmouth, Illinois, and director of the L.A.-based Reason Foundation, a think tank devoted to promoting privatization at all levels of government. "It is not a panacea, and it's not going to work in all cases, but the bottom line is it's a viable management tool."


But even those who wholeheartedly support privatizing everything from schools to parks say it can be a disaster if you simply hire a firm and ignore them until the contract is up in five or 10 years. The recipe for success, proponents agree, is to have frequent rebidding, carefully written contracts and lots of performance oversight. Municipalities can call the shots however they want, even in asking that cost savings be guaranteed contractually, not just promised.


Spokane is no stranger to the idea of privatization or to the necessity that often drives cities to choose it. Four years ago, the Community Partners, a grassroots, city-endorsed reform group, offered some privatization proposals. None of the Community Partners' proposals has been adopted. But today the stakes are getting a little higher, as Spokane finds itself in the uncomfortable situation of having revenues fall short of expectations, a situation Johnson says is being seen across the country today.


Spokane County Commissioner John Roskelley says the county is now considering some private contracts to augment its wastewater management duties. The county at one time even considered privatizing its jail.


While Roskelley says the county runs pretty well, and he predicts its employees would be able to do their jobs for less money than private competitors, he says contracting should have a place in the debate.


"Privatization is a concept that I would think will work under certain circumstances," he says. "And that's the problem; identifying those jobs in which privatization will be less expensive in the long run."





The experiences of other cities offer plenty of guidance on which jobs are most appropriate. While the staunchest supporters of privatization think every function could go private, clearly some functions work better than others. The "Yellow Pages" test is referred to often: If the local Yellow Pages contains four or five firms doing the job in question, it may be a function that could attract some interest from private service providers.


The most spectacular privatizer of all time is perhaps former Prime Minister of England Margaret Thatcher, who sold seven airports to millions of English stockholders, sold countless units of public housing to the residents who lived in them, and sold the formerly public British Telecom for $40 billion.


Closer to home, everybody's favorite case study is Indianapolis. Republican Stephen Goldsmith ran for mayor on an openly pro-privatization platform back in the 1990s and was elected handily. As he documents in his 1997 book, The Twenty-First Century City, his administration subjected more than 60 city-county functions to competitive bidding, allowing private firms to offer savings for the first time. Goldsmith is quite candid about what he is doing; he claims that the movement to privatize essentially aims to reverse much of the history of the last century.


Not surprisingly, he was greeted coldly by public employees in Indianapolis. Early on, the unions wouldn't even enter bids, instead choosing to politically oppose the mayor's initiative.


"Unions are the main source of opposition to privatization," says the Reason Foundation's Johnson. "They usually regard privatization as something that will result in mass layoffs and worse benefits. But we've found the opposite, that in most cases it does not work that way. The existing workforce is usually hired, and you can put into the RFP [request for proposals] that they must pay comparable wages and only reduce staff through attrition. But the fact is many of these [public service divisions] are overstaffed."


But as the handwriting on the wall became more legible for Indianapolis's public employees, something funny happened: Unions started competing for their jobs -- and winning. Even Goldsmith eventually came to realize that was just fine.


"The truth is that although privatization seemed like a useful piece of shorthand for what we wanted to do, it was actually misleading and threw us off track," writes Goldsmith. "The key issue, we soon discovered, was not whether tasks were performed by public or private institutions. A private monopoly, like the water company, might be less bureaucratic and more efficient than a government monopoly. But without the spur of competition, the difference in what we could expect in price and service [between the two monopolies] would be distinctly unrevolutionary."


When Indianapolis Fleet Services won the bidding competition to keep its jobs in maintaining the city's public vehicles, it was important in many ways. First it prompted the employees to keep a lid on expenses, even going so far as to not refill positions that came open. Secondly, it struck up a dialogue between the public employees and their bent-on-privatization mayor. All sides agree that an aura of mutual respect and teamwork developed from there.


That is not to say, however, that private firms were not able to win contracts in Indianapolis. In wastewater treatment, the private firm that won the bid guaranteed the city $13 million in savings over the first five years of the contract. No employees lost their jobs, as some were hired by the new firm and the remainder were absorbed into the city, where they were not replaced as they left. Those who stayed with the new provider earned more money and were given better benefits than before, and there was a marked decline in accidents and sick days at the under-new-management facility.


Goldsmith's experiments have been widely hailed as successful, and Indianapolis is often held up as an example of innovative governing. Feathers were ruffled, yes, but that proposed wastewater treatment rate hike was shelved, too.


"The competitive process allows us to specify the level of service quality vendors must provide -- something we simply could not do within a government monopoly," writes Goldsmith. "If they do not meet our standards, we can fire them -- while by contrast it is virtually impossible to get rid of even one bad public employee, much less an underperforming division."


San Diego had a similar story, with a reform-minded mayor coming into office in the early-1990s, when California was gripped by recession and tax revenues were shrinking. What was born at that time has evolved from first being called a "privatization initiative," then a "competitiveness program." Now it's an "optimization program," a kinder, gentler form of getting better performance out of government. San Diego, like Indianapolis, is often listed among the best fiscally managed cities in the nation.


Brook Doty, director of the San Diego Optimization Program, acts as a kind of coach for public employees, helping divisions author competitive bids for services they provide. And even when there is no private competition, San Diego conjures it up, forcing its divisions to compete against mock bids grounded in actual private sector numbers.


Another innovative program in San Diego is its performance audits. Similar to former Mayor John Talbott's call for an internal auditor, retired executives from prominent local companies in San Diego volunteer to conduct the audits, using private standards, the results are reported publicly and recommendations are often adopted. The retired executive oversight program costs the city just $100,000 per year. Due to these and other programs started in 1992, San Diego has realized savings of $68 million, and expects that number to grow to $137 million by the end of 2004.


Doty says the system that has developed in San Diego has been successful because it keeps confrontation with unions at a minimum. However, he is quick to add, the city reserves the right to privatize any functions it sees fit.


That may be the party line, but the reality is less firm. In 1998, the unions played their trump card against San Diego's privatization efforts: They claimed that plans to privatize the city's wastewater treatment facility violated the city and state Civil Service rules.


Ultimately in San Diego, the city retracted its RFP, and the lawsuit was never ruled upon, leaving both sides to claim victory. But the truth is that Civil Service is the single most difficult set of rules to overcome when seeking to privatize.





"Civil Service" refers to a set of laws passed in the early part of the century that dictate how public work is done. These rules trace their origins back to the Progressive era of the late-1800s and early-1900s, when political patronage turned many cities into managerial disaster areas. The new mayor's buddies would run the city services, regardless of their fitness for the job. In those early days, Civil Service had more to do with requiring that competent people did the city's business than it did with unions. In fact, it wasn't until after a Supreme Court decision to allow workers to strike against the government that unions wrapped themselves in the cloak of Civil Service.


Many states don't have Civil Service, but most of the West, which was most impacted by the Progressive era, does. In Spokane, Civil Service requirements are on the books in the city and at the state level. Some of the wording specifically prohibits the transfer of government jobs to the private sector. In many Civil Service communities, like Spokane, the debate over privatization is a short one ending with, "Yes, but we have Civil Service here."


But Civil Service has been challenged, as in San Diego's inconclusive case. In other places, courts have ruled for and against it. In perhaps the most famous case, the people of California voted to void Civil Service rules, via a statewide initiative, allowing the state's badly backlogged transportation department to partially privatize.


What's more interesting is when Civil Service rules are invoked. In Spokane, no one has claimed Civil Service rules are being violated by the private managers of the public golf courses, or by the private ticketing agents working for public facilities. San Diego's Doty says it is selectively applied, as several smaller functions were privatized in his city without opposition. But when they put the wastewater treatment plant on the table -- a big ticket item -- the unions "drew a line in the sand."


Spokane's Community Partners grappled unsuccessfully with Civil Service, as well, proposing that Civil Service passages be taken out of the city charter and put into the Civil Service rules, where they would be more flexible. the Partners also suggested that the people be allowed to vote on privatization proposals on a case-by-case basis, after the city lends its support, thereby bypassing Civil Service.


At the basic level, however, public employees who use Civil Service to defend themselves are taking up a valid side to an issue that has won the momentum in recent decades. There is a strong case to be made that many public functions are best fulfilled by public agencies, which have a different set of priorities than raw profit. Privatizing public schools has been a scandal in many of the places it has been tried, and there are almost no examples at the local level of companies wanting to run a parks department.


Jack Lynch is the city of Spokane's new administrator, and at his last job in Butte, Mont., he didn't have Civil Service to deal with, but he still preferred public employees in most cases.


"You have to be pretty selective," says Lynch. "Most of what government does, it does very well. And historically it's doing things that nobody else wanted to do.


"You have to look at each [proposal] individually and weigh Civil Service requirements," Lynch continues. "I'm never opposed to taking a look at anything, but we don't always do it to make money -- we do it for quality of life issues."


And for every Jersey City, N.J., saving $68 million over five years by privatizing its water department, there's a Massachusetts privatizing its transportation department with jurisdictional chaos, declining service and angry citizens as the results. Although Massachusetts has saved money, many believe the level of service, and therefore the quality of life it enables, has suffered.


Elliott Sclar, a professor of urban planning at Columbia University and the author of You Don't Always Get What You Pay For: The Economics of Privatization, believes the privatization hype machine often leads to bad public policy. In one passage, he discusses the use of "fully allocated cost accounting" instead of "avoidable cost accounting." Without getting into it too deep, the former is a kind of fuzzy math used by pro-privatization forces, making their savings look really good, when the latter is actually a more accurate gauge of savings.


"Results have fallen far short of promises," Sclar writes. "However, they have not been the abject failure predicted by opponents. This outcome should not have been surprising. Privatization American style is essentially old-fashioned public contracting writ very large."


Sclar posits that if you do not write your contracts with every eventuality thought out, and if you don't devote significant resources to monitoring performance, your city can, and probably will be taken advantage of. There's also the issue of when the priorities of the private firm don't match public priorities. An example Sclar cites is the private firm that provides Scottsdale, Ariz., with fire protection. The company built many of its firehouses on the edges of the city, where they are far from some parts of town, lengthening response times. Why? Because the firm had contracts with some neighboring towns and could service both with strategically located firehouses. A good move for the company, but not necessarily good for the citizens.


But Sclar believes privatization is just another means to end for its proponents, who really want to shrink government -- a point Mayor Goldsmith would probably agree with. Sclar, who understands contracting is a normal part of any government, says people demand their services, and the best method of delivery of traditional public services comes from public employees. He adds that the threat of privatization, in most cases, poisons the relationship between employees and elected officials when more progress could be accomplished through teamwork.


"Privatization is often presented to public workers with a 'shape up or ship out' set of choices," writes Sclar. "Officials in essence say to their employees, 'You figure out how to meet the price of an outside competitor or give up your job.' But as every good manager knows, organizational change is neither a bottom-up nor an easily mandated initiative. By the same token, every good manager also knows that contracting is not an automatic blessing. It takes much hard work and planning to avoid serious problems and expenses inherent in the misuse of this option."


But there's another pitfall, warned this time by privatization supporters, and that is in not going far enough. The concept is that municipalities often don't go far enough in privatizing, and either miss out on the really big savings or get burdened with expenses they don't have to assume. This is where the public can get more entrepreneurial, and it's more at the cutting edge of privatization than in the mainstream at this time.


One example is the DBO -- design, build, operate -- in which a firm may bid to do all three for a new, needed public function, like a wastewater treatment plant. In being able to do all three, firms can offer even bigger savings. Another example is to follow Margaret Thatcher's lead and to fully sell public property, with the requirement that the new owner keep the institution in service. If you hire a firm to run your facility, they get all the upside. Short of keeping the public service going smoothly, the city gives up any profits that might come from the facility -- and still is on the hook for capital expenditures related to the facility.


Still, in a place like Spokane, there are better places to start, if indeed there is the political will and the fiscal need to do so.


"Go for the low-hanging fruit, so to speak, to ensure that this works and perhaps move on to bigger services later," Johnson advises. "Many start on seasonal services, like tree trimming and snow plowing."


But even Johnson, who won office in his town of Monmouth, Ill., and has tried out his privatization theories to the town's benefit, admits that the small stuff doesn't add up to much. The big pieces of the pie are in schools, fire and police, the three most difficult things to privatize. Short of tackling those departments, successful cities have looked to maximize the rest of the budget's line items, and it can add up to a significant amount of money.





What are some of the specific areas that could apply in Spokane? Wastewater treatment has been mentioned frequently, and in the near future, Spokane County will be looking to either assist in the expansion of the city's facility or build its own. So that could be a ripe candidate, although it could provoke significant opposition as well.


"These projects require leadership, thinking outside the box and the guts to stay with it in the face of intense opposition," " says Johnson.


In the city, it's worth mentioning that in at least one other community, the library system has been privatized. Libraries across the nation are hurting; Worcester, Mass., even went so far as to close its libraries for good. Spokane recently had the embarrassing experience of seeing its brand new downtown library, freshly funded with a public bond issue, close on Saturdays.


In Riverside County, Calif., public officials faced with declining hours of operation and a dwindling book purchasing budget in their libraries put out a request for proposals. In that RFP, they required longer hours of operation and a higher book purchasing budget. A Maryland-based company was paid $5.3 million annually by the county to run the system. Even with a full-time employee maintained by the county to serve as head librarian and oversee the performance of the firm, the county saved money on the deal.


But one area that is really taking off in the area of privatization is convention center management. As citizens of the city of Spokane and the county may soon be asked to fund an expansion to the downtown convention center, which holds the promise of bringing more tourism business to the region, the question of who would manage it may also become an issue.


While a relatively new industry -- the first facility to be privatized was the Louisiana Superdome in 1976 -- in the last decade, there has been a significant push by national firms into secondary convention markets like Spokane's.


Jack Nicholson, president of Facility Consulting Associates and the former general manager of the Boston Garden, says if Spokane put out a request for proposals, it would probably receive four or five good offers to run the facility.


"Although some public buildings are run very well by full time GMs who work for municipalities, history will show that there has been a tremendous amount of money saved [through private management]," says Nicholson.


Nicholson, who helps municipalities write RFPs for both sports facilities and convention centers, believes private managers are often more effective because they have a focused agenda and their professional contacts can help them land more business for a facility.


"People don't get bothered by [private management] as long as the public feels like it's well run and it's blessing them with less taxes and more events -- that's the magic combination," he says.


Denver recently privatized its convention center management and has realized savings of about $500,000 per year.


Nicholson, who was a consultant on that original Superdome deal, says things have evolved so much that in Palm Beach, Fla., the convention center contract was recently awarded with the caveat that the operator would accept the local convention and visitor's bureau as the general manager of the facility, which offers a good blend of local and national perspectives.


"It takes the community making the commitment that it's not going to be politically run," says Nicholson, "it's going to be run like a private business."





And that's just what city officials are being asked to determine for the future of Joe Albi Stadium. But Brett worries that the project has become a poster child for privatization in general and has earned more opposition than it deserves.


"We've been frustrated with the length of this process, but we hope it can come to a successful conclusion here in the next 30 days or so" says Brett. "We're just excited; we have a vision of what this facility could become."


Of course, there's another motive; Brett also sees Albi Stadium as a foothold on the 115 surrounding acres, which are slated to accommodate even more youth sports with $3.6 million from a recent bond issue endorsed by public vote. "Let's make that the finest youth sports complex in the Northwest," says Brett, who, as part of his proposal, wants to sell the naming rights to the overall complex, dependent on city approval.


But perhaps Brett's Albi plan should become a poster child for privatization. It could be a step toward introducing more competition or optimization into the local municipal management equation. It might be just the kind of low-hanging fruit the Reason Foundation's Johnson talks about.


Perhaps the public employees who spend part of their time maintaining Albi Stadium should be encouraged to offer their own proposal and try to beat the cost savings offered by Brett Sports.


Down in San Diego, Doty helps public employees win bidding processes similar to that one every day.


"Efficiency doesn't come from privatizing," Doty concludes. "Efficiency comes from competition."