privatization comes to town faulty school bus ... · detroit schools privatize ... cafeteria...

Mackinac Center for Public Policy Michigan Privatization Report • Spring 2001 1

A Quarterly Publication on Privatization Initiatives throughout the State • Mackinac Center for Public Policy • No. 2001-01 / Spring 2001

Privatization Comes to Town

Faulty School Bus PrivatizationCan Take Districts for a Ride

Urban Sprawl for Dummies?

Computing the Savings:Detroit Schools PrivatizeInformation Technology

Privatization:The Life of the Party

Michigan Privatization Report • Spring 2001 Mackinac Center for Public Policy2

MICHIGAN PRIVATIZATION REPORT

Editor:Managing Editor:Assistant Editor:

Graphic Designer:Circulation Manager:

David BardallisMichael LaFaiveSamuel WalkerDaniel MontgomeryAmy Kellogg

Michigan Privatization Report is published quarterly by the Macki-nac Center for Public Policy, a nonprofit, nonpartisan, tax-exemptresearch and educational organization devoted to analyzing Michi-gan public policy issues. Michigan Privatization Report isdistributed to state senators and representatives and policy staff;department directors and staff; municipal officials and adminis-trators; school superintendents and school board members.Additional copies are sent to Michigan radio and television newsdirectors, print news editors and select industry leaders. Totalcirculation is over 14,000. Copyright © 2001 by the MackinacCenter. All rights reserved. Permission to excerpt or reprint ishereby granted provided that Michigan Privatization Report, theauthor, and the Mackinac Center for Public Policy are properlycited, and a copy of excerpt or reprint is sent to the editor. Pleasecontact the Mackinac Center for Public Policy at 140 West MainStreet, P.O. Box 568, Midland, MI 48640; Phone: (517) 631-0900;Fax: (517) 631-0964; e-mail: [email protected]; or WorldWide Web: http://www.mackinac.org if you wish to receiveMichigan Privatization Report.

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www.mackinac.org/pubs/mprCheck out Michigan Privatization Report on-line at


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FEATURES4Emergency Financial Managerto Help Hamtramck Balancethe BooksThe state has appointed privatizationexpert Louis Schimmel as the city ofHamtramck’s “emergency financialmanager.” Read what Schimmel has inmind for bringing the city back from thebrink of insolvency.

5Computing the Savings:Detroit Schools PrivatizeInformation TechnologyDetroit Public Schools has contractedwith Compuware Corp., a computersoftware and services company, tomanage the district’s costly and inefficientinformation technology services.

7Faulty School BusPrivatization Can TakeDistricts for a RidePrivatization of transportation servicescan help districts save more money tospend in the classroom. But safetystandards must be met.

8Cafeteria Privatization: DetroitPuts New Plan on the TableDetroit school officials last summerinvestigated privatizing the district’scafeteria management system. Aftercareful review, a vendor was chosen.Unfortunately, officials belatedlydecided to use a different form ofcontracting and have so far delayedmaking a deal.

9Privatization, Not Regulation:Detroit Should Open Its Doorsfor BusinessThe city of Detroit supports one of thenation’s most byzantine systems of

permitting and licensing for itscitzens’ occupations and businesses.Cutting back on the some of the mostburdensome regulations wouldencourage more businesses andcitizens to stay in the city—as well asattract new ones.

10Privatization Could RescueDetroit Fire ServiceA recent series of articles in TheDetroit News focused on the manytroubles besetting the city’s firedepartment. To improve operation ofthe department, Mayor Dennis Archeris considering a host of options. Oneoption he should consider is aprivatized fire department.

11Greasing the PrivatizationSkids: Detroit OutsourcesPolice Oil ChangesIn 1997, former Detroit mayor andstaunch privatization opponentColeman Young surprised many whenhe proposed that the city contract outpolice car oil changes to a private firmto improve quality and save the citynearly $700,000 annually. What havebeen the results?

13Make a Toast to Privatization:Repeal Michigan’sProtectionist Liquor LawDecades after the Prohibition Eraended, 29 states still prosecute a kindof mini-Prohibition of their own. ButMichigan’s liquor laws only choke offout-of-state competition and limitresponsible consumers’ choices.

14Privatization:The Life of the PartyIs throwing parties a proper role forany unit of government?

17Oakland Saves TaxpayersMillions by Contracting OutPrivatization efforts in OaklandCounty have saved its taxpayersalmost $9 million since 1993.

20Cities’ Budget WoesCould Be Preview ofDetroit’s FutureThe financial turmoil facing theWayne County cities of HighlandPark and Hamtramck may offer aglimpse into Detroit’s future.

DEPARTMENTS15NATIONAL PERSPECTIVEUrban Sprawl for Dummies?The solution to “urban sprawl” liesin fixing the problems that causepeople and businesses to leave citiesin the first place: high taxes,burdensome regulations, inefficientcity services, and poor schools.

18AROUND THE STATEAn update of privatization initia-tives, opportunities, and controver-sies from around the Great LakesState.

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A Quarterly Publication on Privatization Initiatives throughout the State • Mackinac Center for Public Policy • No. 2001-01 / Spring 2001


Emergency Financial Manager toHelp Hamtramck Balance the Books

By David Bardallis

After teetering on the brink of in-solvency, the Detroit-area city ofHamtramck is on its way back to finan-cial health and stability following thestate’s appointment of privatization ex-pert Louis Schimmel as the city’s emer-gency financial manager.

Schimmel is recentlyretired from the MunicipalAdvisory Council of Michi-gan, a nonprofit statisticalclearing house for invest-ment bankers throughout theUnited States who under-write and/or invest in Michi-gan municipal bond issues.He had planned to spend hisretirement building housesin and around his home ofWaterford Township, butstate officials had otherideas.

Gov. John Engler anda five-member state reviewpanel selected Schimmel inNovember 2000 to help thecash-strapped city ofHamtramck erase its enor-mous $2.4 million debt.Mayor Gary Zych had re-quested state help after fail-ing to gain economic concessions fromthe city employees’ union, some mem-bers of which balked at performing suchbasic services as garbage collection.

In early December, Schimmel gotto work by immediately shaving 30 non-essential city jobs from the budget, sav-ing the small community $600,000.More changes designed to make the citysolvent again include the reduction offrivolous city employee benefits, suchas “accumulated time off.” Accumu-lated time off allows workers to be paidfor unused time off at the end of theircareers. This policy has cost the city afortune because accumulated time off ispaid based on an employee’s final sal-

Unionopposition to

Schimmel’sefforts has

delayedchangesbecause,

under statelaw, an

emergencyfinancial

manager mayonly

renegotiatecontractsinstead of

setting themaside entirely.

ary rate, which is almost certain to behigher than the salary rate at which theunused time was originally accrued.

Schimmel is currently attemptingto gain the right to contract out for gar-bage collection, street and water systemmaintenance, and sewer services in theDepartment of Public Works. He may

also sell city-owned property such asHamtramck City Hall and the currentpolice headquarters as well as “lay off”one of the two local judges. He recentlyreceived permission from the WayneCounty Commission to negotiate withthe Wayne County Sheriff’s Departmentover inter-governmental contracting forservices. Ultimately, he may replaceHamtramck’s city police force withWayne County officers, and halve thecost of paying for police protection inthe process.

Union opposition to Schimmel’sefforts has delayed these changes be-cause, under state law, an emergencyfinancial manager may only renegoti-

ate contracts instead of setting themaside entirely. Consequently, Schimmeland the city employees’ union appear tobe at an impasse on several negotiationfronts. For instance, Schimmel wantsto privatize 100 percent of the city’sDepartment of Public Works (DPW),but the union representing DPW work-ers is only willing to part with half.

Schimmel did have words ofpraise for the city’s fire department,though. He reports that the fire de-partment is comprised of “a verythoughtful group of people who workhard and want to do what is right forthe city.”

This is not the f irst t imeSchimmel has applied his expertise toa distressed municipality. In 1986, thestate appointed him receiver of thebankrupt city of Ecorse, which wassaddled with a $6 million debt. By1990, Schimmel had largely solvedthe problem and stepped down as re-ceiver, continuing to watch over

See “Hamtramck” on page 6

Feature

City provision of garbage collection has been so sporadic that the rat population has increased dramatically.Louis Schimmel, city emergency financial manager, has attempted to remedy the situation by contractingout, but has met with stiff resistance from the local union representing Department of Public Worksemployees.

Photo courtesy of The Hamtramck Citizen


Feature

lems and providing a smooth transitionfrom the current system. The companybeat offers by Ameritech; Celt Corpo-ration, an educational technology andservices firm; and EDS, a business so-

lutions company. Although Compu-ware’s was not the lowest bid, Tom Diggs,chief information officer for the schooldistrict, told the Detroit Free Press that thepositive recommendation of other busi-nesses and school districts convinced of-ficials Compuware was the way to go.

“The Compuware deal will get usup to speed pretty quickly, as opposedto taking several years rebuilding thedepartment with what we have in place.Our kids don’t have several years,”School Board Chairman FremanHendrix told The Detroit News.

The Compuware agreement is thesecond contract Detroit Public Schoolshas signed with an outside vendor thisyear. Earlier, the district struck a dealwith Office Depot to take care of itsschool supply system. CEO Burnleyis strongly considering hiring outsidecompanies to provide food andgroundskeeping services as well.

“We’re looking at any and allthings that would allow us to be more

Computing the Savings: Detroit SchoolsPrivatize Information Technology

By Elizabeth Moser

Detroit Public Schools has re-cently contracted with CompuwareCorp., a computer software and ser-vices company, tomanage the district’sinformation technol-ogy services.

Detroit PublicSchools is the tenth-largest school districtin the United States,with over 165,000 stu-dents, 22,000 employ-ees, and 260 schools.The district operatesnumerous computernetworks, including28,000 personal com-puters in administra-tive offices andclassrooms. The dis-trict eventually plansto hook up each of its 8,400 classroomsfor voice, video, and data transmission.

The deal between Detroit PublicSchools and Compuware, which mayexceed $90 million, is expected to savethe school district approximately $10million over the five-year term of thenew contract. These savings will helpthe district reprioritize its spending anddirect more money into classrooms.Last year, the district spent 68 percentof its budget at the school level; the restprovided for administration. This year,the district’s budget slates 76 percent tobe spent in schools.

New Detroit schools CEO Ken-neth Burnley anticipates that theCompuware deal also will put a signifi-cant dent in problems with outdatedhardware and software, payroll, the tele-phone system, cost overruns, and othertechnology-related issues, which haveplagued the district for years.

Burnley says Compuware offeredthe best plan for overcoming these prob-

The dealbetweenDetroitPublicSchools andCompuware,which mayexceed $90million, isexpected tosave theschooldistrictapproxi-mately $10million.

efficient,” Burnley told The DetroitNews. “As educators, we need to lookat what is our core mission. And that isstudents’ instruction, learning, andteaching.”

The Compuwarecontract is only the latestdevelopment in a nation-wide movement in whichmany government agen-cies and institutions arelooking to outside, pri-vate vendors for services,resulting in substantialsavings and improve-ments. Schools, espe-cially, are finding thatpriva-tization can helpdistricts provide superiorprograms and services.The information servicesrealm is no exception.

Lack of qualifiedpersonnel and the constant advanceof technological complexity oftenmake it necessary for government in-stitutions to contract their technologyservices out to information expertswho can keep up with the ever-chang-ing pace. One way technology com-panies are responding to this need isby offering “seat-based” computermanagement to schools and govern-ment offices: billing services by thenumber of computer stations in thebuilding. This more precise measureof the costs involved in providing andservicing information systems candramatically cut expenses and im-prove efficiency.

The Compuware contract mayeven avoid employee layoffs. Employ-ees representing five different unionswork in the district’s information tech-nology department, but many of themalready are contract employees whocould easily be integrated into the newCompuware system or given positionselsewhere in the district.

See “Compuware” on page 12

Public school students across Michigan will benefit if their schools follow Detroit’slead and privatize their computer services.


Feature

“Hamtramck” continued from page 4

Ecorse’s finances until the city madeits last loan repayment to the state inAugust 1999.

“Much of thedeficit was eliminatedby the privatization ofnearly al l c i ty ser-vices,” Schimmel ex-plained in the spring1996 issue of MichiganPrivatization Report.Within weeks of takingover Ecorse’s financialmatters, Schimmeltransferred responsibil-ity for such services astrash col lect ion andsnowplowing fromgovernment to private

service providers, reaping tremendoussavings and reversing Ecorse’s finan-cial decline.

“Schimmel is credited with mak-ing the tough decisions that helped turnthe city [of Ecorse] around,” a recentDetroit Free Press article concluded.Schimmel’s background in municipal fi-nance, including his service on numer-ous boards and committees, and hisexperience with successfulprivatization, will certainly serveHamtramck well as it struggles to getback on its financial feet. -MPR!

David Bardallis is managing editorof publications for the Mackinac Center forPublic Policy.Louis Schimmel is the state-appointed emergency financial

manager of Hamtramck.

Photo courtesy of The Hamtramck Citizen


FeatureFaulty School Bus Privatization CanTake Districts for a Ride

By Michael LaFaive

Detroit-area parents who trustprivate school busing companies withthe safety of their children each schoolday got a rude surprise recently. Theresults of a survey by the Detroit FreePress, published on Nov. 14, 2000,found that private bus firms hired bylocal school districts failed state in-spections at a rate higher than that oftheir public-sector rivals.

Even though Detroit PublicSchools buses were the worst—thesebuses failed inspections more oftenthan their privately operated counter-parts—the situation was seriousenough to generate negative publicityfor private firms.

Yet, privatization is just like any-thing else: It doesn’t work well unlessit is handled correctly.

The survey—involving Macomb,Oakland, Wayne, Livingston, andWashtenaw counties—was based uponrecords kept by the state police depart-ment responsible for school bus safetyinspections. The Free Press found thatof 801 buses operated by private con-tractors in the five counties, only 492,or 61 percent, passed inspection. Busesthat were actually owned by privateschools performed only slightly better,with 65 percent of 140 buses passing.This is well below the 86-percent pass-ing rate of the 4,017 publicly owned andoperated buses serving public schoolsin the same region.

Of the 22 contractual arrange-ments in which private companies wereemployed to transport school children,only three received passing grades forthe entire fleet of buses. Six had a zeropass rate—not one of their busespassed inspection.

The “failure” designation is givento buses that inspectors give either a redor yellow tag—red meaning a bus must

be fixed before it can transport childrenagain, yellow for some item (such as aripped seat) that must be fixed within60 days, even thoughthe bus may continueto transport children.

When privat-ization is carried outwithout proper atten-tion to performancestandards—withoutexplaining clearlyand in detail what acontractor should do,how success will bemeasured, and mak-ing those terms acondition of the con-tract—no one shouldwonder when aprivatization plandoesn’t work.

Having clearperformance objec-tives and standardswritten as conditionsof the contract is theonly way to ensurethat contractors—who have a profit-based incentive tokeep costs as low aspossible—don’t cut too many corners.For example, a pre-emptive safetyclause written into a busing contractmight read, “district reserves the rightto revoke contract if more than 15 per-cent of a contractor’s bus fleet failsstate safety inspection.” Such an in-centive would keep a contractor on itsmaintenance toes. While district con-tracts do have performance objectives,they are apparently not stringentenough—a condition that may be rem-edied as a result of publicity from theDetroit Free Press survey.

Moreover, a contract admin-istrator’s job does not end when the dealis struck. The performance of contrac-tors must be monitored. Indeed, in a

Mackinac Center for Public Policy/Rea-son Foundation study on designing bid-ding and monitoring systems for

privatization contracts, author JohnRehfus writes that without monitoringa contract, “there is no way of knowingwhether the contractor’s work is faith-ful to the contract terms or whether ornot citizens and agency officials are sat-isfied with the service.”

While this may seem like commonsense, it is a point that often eludes con-tract administrators. According toRehfus, a comprehensive monitoringsystem should incorporate three compo-nents: contractor reports, inspections, andcitizen complaints.

Contractor reports must informthe proper authorities of the status of

Of the 22contractualarrangementsin whichprivatecompanieswereemployed totransportschoolchildren, onlythreereceivedpassinggrades for theentire fleet ofbuses. Sixhad a zeropass rate—not one oftheir busespassedinspection.

See “Buses” on page 14

A state school bus inspector examines the latch on a public schoolbus. A recent analysis of state records by the Detroit Free Presssuggests that public school buses are passing safety inspectionsat a higher rate except in the city of Detroit.


Feature

tricts is because of their belief that itincreases the likelihood that currentdistrict employees will be retained byvendors. Under such an arrangement,all 1,265 of Detroit’s cafeteria em-ployees would remain as employeesof the district. After the union con-tract expires, the private food serviceprovider could then hire district em-ployees and let them keep the senior-ity they had established.

A Change in Plan

After receiving a number offixed-price proposals, Detroit officialsreviewed them and chose a winnerbased on quality and price. But thecontract was never awarded. Aftermonths of inaction, the district in-formed all vendors that it was re-bid-ding the service. The official reasonwas that the district wanted to issue anew request for proposal (RFP) basedon a cost reimbursable, as opposed toa fixed-price, contract.

During the first week of Janu-ary 2001, the district posted a newRFP on its web site, reflecting thenew criteria for bidding. Detroit Pub-lic Schools intends to solicit feedbackfrom vendors before issuing a finalcopy of the RFP. Once the final RFPis issued, vendors can decidewhether or not they wish to bid onthe proposal.

But delays in awarding the foodservice contract have probably hurtDetroit’s school children and districtalready. This is because of the factthat responding to an RFP is expen-sive. Contractors being forced to re-double their efforts for an indecisiveschool district not only results ingreater costs being imposed on theprocess, but it hurts the reputation ofthe district as well. Vendors may thinktwice about dealing with a district thathas a reputation for changing its rulesin the middle of the game, or simplyusing vendor bids to beat union nego-

Cafeteria Privatization:Detroit Puts New Plan on the Table

By Michael LaFaive

One way the embattled Detroitpublic school district has tried to im-prove quality while reserving moreeducation dollars for the classroom isthrough privatization of noneduca-tional services. And one service it hasbeen considering privatizing for sometime is cafeteria management.

In the summer of 2000, however,Detroit school officials halted—atleast temporarily—privatization of thedistrict’s cafeteria system in order toexplore new options for contractingout the service. What happened?

Officials originally asked pri-vate vendors to submit proposals ex-plaining how they would manage thedistrict’s cafeteria service and forhow much. It’s a big job: Any pri-vate contractor that signed on wouldhave to feed as many as 70 percentof the district’s 167,000 studentseach day.

The first request the district is-sued for private-sector proposals in-dicated a desire to operate under a“fixed-price” contract. A fixed-pricecontract is one in which a contractorpromises to provide lunches (or break-fasts, if requested) on a per-meal ba-sis at an agreed-upon price—$1.20each, for example.

There is not a single school dis-trict in the state of Michigan thatoutsources for cafeteria services un-der a fixed-price contract. The 150school districts that already outsourcefor food services operate under “costreimbursable” contracts. A cost reim-bursable contract reimburses vendorsfor their expenses (including food pro-vision and some direct management)and also pays vendors an agreed-uponfee for delivering the service.

One reason the cost reimburs-able contract is favored by school dis-

Shaving just10 percent

from Detroit’s$45 million

annualcafeteria

budget couldplace a lot

moretextbooks,notepads,

pencils,software, and

other resources in

theclassroom.

tiators over the head during contracttalks, as some school boards havedone. This could lead a district tobeing stuck with the same poor andexpensive in-house service it had in thefirst place.

Money saved from contractingout could be reinvested in classroomswhere it could do more to further thedistrict’s educational mission. Shav-ing just 10 percent from Detroit’s $45million annual cafeteria budget couldplace a lot more textbooks, notepads,pencils, software, and other resourcesin the classroom.

Contracting out for school caf-eteria services should not be difficultor time consuming. After decades ofschool contracting experience in otherMichigan counties and Americanstates, the issuance of a new RFP andaward of a food service contractshould be elementary. The Detroitschool district should place a high pri-ority on choosing a winning bidderbefore it’s too late to outsource itscafeteria system for the 2001-2002school year. MPR!

Michael LaFaive is managing editorof Michigan Privatization Report.


Feature

permits issued by 11 different agenciesin the city.

But Detroit is not alone in throw-ing up ridiculous barriers to entrepre-neurship. Many cities, from New Yorkto Los Angeles, heavily regulate com-merce at the local level. In New York,for example, city officials recently de-cided they didn’t like street vendors.The result has been an ongoing regula-tory assault against these vendors, whorun legitimate businesses trying to pro-vide food and other products to willingcustomers. In Baltimore, it is illegal toset up a newsstand. And a few yearsago, officials in Washington, D.C. drovemost vendors selling souvenirs to tour-ists off the Mall.

With this kind of attitude pre-dominating in our urban centers, is it any

wonder that “urban blight” has becomea cliché? The causes of urban decay arecomplex, but connect the dots: Govern-ment regulations are a major reason thatbusinesses everywhere—and entry-level workers and entrepreneurs in in-ner cities especially—find feweropportunities to translate their energyand initiative into productive commerceand trade.

Often under the guise of protect-ing consumers, city regulations unnec-essarily stifle the entrepreneurial spiritthat drives the economic growth anddevelopment essential to a city’s pros-perity. If cities like Detroit really wantto improve their citizens’ quality of lifedramatically, they should instead con-duct an across-the-board privatizationof municipal regulations. Cities need

Privatization, Not Regulation: DetroitShould Open Its Doors for Business

By Edward Hudgins

The city of Detroit supports oneof the nation’s most byzantine systemsof permitting and licensing for itscitzens’ occupations and businesses.For instance, a Detroiter who wished topursue a career as a landscape gardenerwould have to navigate a maze of regu-lations to obtain a license to do so. Thecity also maintains outright bans onsome activities, including all home-based businesses and “jitney” car andvan services (i.e., private individualsproviding taxi service).

Detroit, in fact, regulates all man-ner of entrepreneurial activity, the ef-fects of which are to stifle economiclife and drive away businesses andpeople. A September 1996 editorial byThe Detroit News cited 350 different

Detroit is notalone inthrowing upridiculousbarriers toentrepre-neurship.Many cities,from NewYork to LosAngeles,heavilyregulatecommerce atthe locallevel.

Detroit’s regulatory tentacles have now moved outside the city. Michiganstate House Bill 5812, which amends Public Act 271, is more commonly known as the“Limousine Transportation Act.” The bill would force certain suburban limousineswho pick up or drop off clients in Detroit to adhere to rules and regulations thatDetroit-based taxis and limousines must face.

Mayor Archer lobbied for this bill. He sent letters to state representativesasking for support, saying “Currently, most taxis and limousines operating withinthe city comply with the aforementioned ordinance, which among other things,requires operators to buy bond plates as part of their legislation. Still somecarriers based outside the city continue to pick up passengers within the cityabsent proper registration. . .” “Furthermore, [T]he City of Detroit ordinance ismore stringent than the state law by requiring an inspection by the city, as wellas additional insurance coverage.”

Not once in his letter did Mayor Archer mention the impact of such regula-tions on consumers. Had there been some evidence that Detroit consumers werebeing poorly served by less regulated suburban services, it would have no doubtbeen mentioned. Instead, the mayor makes the case that it is unfair to Detroittaxi companies to have to compete against suburban limousine companies becausethey operate under “a different set of rules.”

Instead of using the state legislature to foist unhealthy mandates on subur-ban businesses, perhaps Detroit could simply reduce its own regulation.

Regulation: An Ever-Widening Circle

See “Regulation” on page 12


Feature

Detroit could even make it profit-able for a private company to preventfires, and unprofitable when it fails todo so. For example, Rural/Metro ofScottsdale, Ariz., a private fire-fightingcompany, actually loses money whenfires break out. This creates a profit-based incentive for the company to pre-vent fires while adhering to its othercontractual mandates. Last year aloneRural/Metro held 1,000 fire-preventioneducation events.

How has the profit incentive pre-vented fires in Scottsdale? Since 1997,there has been only one fire-relateddeath in Scottsdale’s Rural/Metro terri-tory, which covers 183 square miles. Bycontrast, Detroit, which covers 140square miles, has lost 18 lives in firesdue to “failed fire equipment” or closedstations during the same time.

Granted, there are many techni-calities to consider when contemplatingprivatization of an endeavor as complexas a large urban fire department, and thematter would have to be handled care-fully. For example, municipalities toooften ask for bids from private compa-nies only as a threat to frightenfirefighters’ unions into submission dur-ing contract negotiations.

In order to demonstrate to privatecontractors that Detroit is serious aboutprivatization, Mayor Archer would needto play a prominent role. He would needto announce that services will be priva-tized, award the contract himself, andmake it clear that his office would beresponsible for carefully monitoring thecontract for compliance.

It is likely that privatizingDetroit’s fire department could not onlyprovide better service, but save moneyat the same time.

Fire departments and cities oftenexpress their rates of spending as anamount of money spent per unit of prop-erty value being protected. The techni-

cal term is SEV, or “state equalizedvalue,” and the rate of spending wouldbe expressed as a dollar amount “per$1,000 of SEV,” which represents halfa property’s market value, which is whatproperty taxes are based upon.

In fiscal year 1998, it cost Detroit$16.78 per $1,000 of SEV to operate itsfire system. By contrast, Scottsdale’sfor-profit Rural/Metro spends only$6.89 per $1,000 of SEV. In otherwords, Scottsdale, by contracting out itsfire-fighting service to a private com-pany, not only gets better service, it getsfire protection for dramatically less.

Right next door to Detroit, in thecity of Troy, fire protection costs just57 cents for every $1,000 in SEV. Troyhas a tradition of relying heavily on fire-fighting volunteers, supervised by full-time fire personnel. It now maintains acomplement of 11 career and 170 vol-unteer firefighters.

Oddly enough, Detroit isn’t evenspending all of the money it allocatesfor fire protection. Budget records showthat despite being desperate for new andsafer equipment, Detroit spent $13.5million less in 1999 than was appropri-ated for the fire department. In fact, thecity spent only $1.5 million more in1999 on all public safety expendituresthan it spent in 1990. This doesn’t evenkeep up with inflation.

Now, faced with The Detroit Newsexposé, Mayor Archer has announcedthat the city will provide Fire Commis-sioner Charles Wilson with “an opencheckbook” to improve the Fire Depart-ment. But if more money were the an-swer, Commissioner Wilson would havespent the money he already has.

Clearly the problem is not a lackof money, it is mismanagement and thedanger this mismanagement poses to thecitizens of Detroit, who die in fire-relateddeaths far more often than citizens in

Privatization CouldRescue Detroit Fire Service

By Michael LaFaive

A recent series of articles in TheDetroit News exposed a tangled webof trouble besetting the city’s fire de-partment. The long and short of it isthat the citizens of Detroit have a rightto expect reliable protection from fireand other emergencies—but they’re notgetting it.

To remedy the situation, MayorDennis Archer is considering a host ofoptions, including contracting with out-side firms to deal with maintenance,bill paying, and driver training. Butwhy not go even further? The prob-lems outlined by The News are sodeeply ingrained and bureaucraticallyentrenched that it may be time to try acompletely or nearly completely priva-tized fire department.

The idea is not as radical as itsounds. In fact, it’s been done in othercities, with positive results. Detroitcould contract with a private companyfor virtually every duty currently per-formed by the city-run fire department,including fire-code enforcement, arsoninvestigation, training, communications,

maintenance,e m e rg e n c ymedical ser-vices, and firefighting itself.

Would aprivate com-pany performas well as thecity force?First, as TheDetroit Newsreports, the

current city-run department has manyserious problems. Second, the citywould have the option of mandating, asconditions of a private contract, perfor-mance standards such as response time,maintenance of vehicles, number ofopen fire houses, and cost of operations,just to name a few.

Since 1997,Detroit has

lost 18 livesin fires due

to “failed fireequipment”

or closedstations.

See “Fire” on page 16

Detroit may wish to consider outsourcing its firedepartment, as other cities have done.


FeatureGreasing the Privatization Skids:Detroit Outsources Police Oil Changes

hours per day, seven days per week.That allows no stopping to catchcrooks, no sitting at traffic lights, andno time for oil changes.

Obviously, DPW was not runninga smooth, efficient oil-change operation.What’s more, the factthat expenses wereso far out of whackwas apparently com-mon knowledge—somuch so that evenprivatization oppo-nents like Young feltsafe in proposing aprivate contract. It istherefore little won-der that Detroit offi-cials found theformer mayor’s offerappealing and con-tracted with hisgroup to provide themaintenance for citypolice vehicles.

The city qui-etly gave Young andhis business associ-ates the contract.Young, now de-ceased, said his pro-posal would save thecity nearly $700,000 of the $1 millionyearly cost of changing the oil in its 500police cars—a 70 percent savings. Of-ficials from Urban Management indi-cated that the savings would come froma quicker oil changing technique thatcould be performed at 13 individualpolice precincts instead of at the currentsingle Department of Public Works(DPW) location.

The contract, now being carriedout by On Site Oil, which bought Ur-ban Management Corporation in 1998,stipulates that Detroit will pay a per-car cost for maintenance of $32.95.The price is higher for trucks and vans.The contract is limited to 7,325 oilchanges annually.

In exchange for these fees Ur-ban Management agreed to drain andreplace up to five quarts of oil; pro-vide new oil filters; lubricate eachcar’s chassis; maintain and fill radia-tor coolant, brake fluid, transmissionfluid, and windshield washer fluid;

and conduct a general inspection ofhoses, belts, and air filters on everyvehicle.

The contract, signed in Novem-ber 1997, had four major objectives:

• To develop a computerized systemto schedule and track police ve-hicles for routine maintenance inaccordance with time periods andmileage levels established by thecity of Detroit, Vehicle Manage-ment Division of the Department ofPublic Works;

• To provide routine on-site mainte-nance services to police vehicles at

By Michael LaFaiveand Joseph Lehman

In 1997, nearly four years after heleft office, former Detroit Mayor andstaunch privatization opponent ColemanYoung surprised many when he sug-gested that one of the city’s servicesmight save money if it were contractedout to a private firm. He said the citycould realize substantial savings if itcontracted with Urban ManagementCorporation, a company for whichYoung served on the Board of Directors,to change oil in city police cars.

The city followed Young’s advice.Has it saved money?

It could hardly fail to do so. WhileDetroit’s Department of Public Works(DPW) never advertised its oil-changecosts, some of its cost information canbe easily deduced from published re-ports. The picture one can draw fitsright in with other Detroit boondogglesuncovered in recent years—mismanage-ment in the public school bureaucracy,building and safety inspections, the De-partment of Transportation, etc.

According to The Detroit News,DPW charged about $1 million in 1997to change the oil in 500 police cars forone year. Each change commonly takesan officer and his car out of service forup to 45 minutes. Slower service not-withstanding, if DPW is at least as effi-cient as private garages, an oil changeshould cost around $30.

Assuming a $30 per DPW oilchange, $1 million worth of oil changesfor 500 police cars buys about 67 oilchanges per car per year—that’s one foreach car every 5 or 6 days, on average.To need that many oil changes in so shorta time, the police cars would each haveto be running 200,000 miles per year.

To drive that many miles in ayear, each car must be moving, on av-erage, just under 23 miles per hour, 24 See “Oil” on page 16

The city of Detroit now saves $750,000 per year thanks to privatization through a contractwith a private oil change company.


Feature

to take inventory of their stock of regu-lations and eliminate those not aimedat facilitating commerce. At the veryleast, cities should contract out their li-censing and permitting departments toprivate, for-profit institutions.

Regulations are essentially hiddenjob killers. The problem is detectinghow many jobs are being killed: There’sno reliable way to know how many jobswere “never created” because the regu-latory environment was too hostile. En-trepreneurs often find it too difficult toget through a costly maze of regulationsand either throw up their hands in frus-tration and leave, or else operate ille-gally. As one Detroit businessmannoted, “We operate on the basis that wejust do what we want and the permitswill catch up with us sometime.”

Last year, ABC News journalistJohn Stossel contrasted what works andwhat does not with regard to city regu-lation of commerce. As a test, Stosselattempted to open small businesses inHong Kong and New York City. Hewent to the appropriate Hong Kong cityoffice first, to apply for a license to opena small retail outlet. He filled out one

form and the next day he was operatinghis business in a mall. By contrast, theprocess in New York City took weeksand required licenses, state and federaltax numbers, and building and zoningapproval.

There is no reason why U.S. cit-ies cannot once again become small-business friendly. And there aresuccessful examples available of howto go about it. Former Mayor StephenGoldsmith helped Indianapolis elimi-nate licenses and fees for 110 local busi-nesses and movie and live entertainmenttheatre licenses at 30 locations. The re-sult: Not only did the city not lapse intochaos from a lack of regulation, it con-tinues to thrive. A September 1998Mackinac Center for Public Policyanalysis reported that these changes,combined with competition from con-tractors, helped save the city 40 percenton the cost of issuing permits.

If a city insists on maintainingtight regulatory control on occupationsand businesses, it could at least contractout regulatory duties to private firms.There are at least eight companies inMichigan that perform private building

“Regulation” continued from page 9

inspections, for example. Many of thesealso can conduct review and approvalof construction and other developmentplans as well as zoning enforcement.

Because regulation constitutes anunseen tax that adds to the cost of do-ing business, it can easily cease to per-form its proper function of facilitatingcommerce if it gets out of hand. Com-plex, duplicative, and expensive regu-lations send a signal to entrepreneursthat their talents are unwelcome; indeed,that they will be punished.

Cities could go a long way towardopening themselves to greater prosper-ity if they would encourage entrepre-neurship and simply step out of the way.

MPR!

Edward Hudgins, Ph.D., is directorof regulatory studies at the Cato Institute, aWashington D.C.-based think tank.

In an information age, childrenmust be taught to use computers andto access information electronically.Administrative systems that trackgrades, maintain confidential studentand school records, and provide nec-essary services to districts must oper-ate at maximum efficiency. Schoolsshould not be bound to status quo sys-tems or programs because of bureau-cratic lethargy or be forced to choosethe cheapest vendor without consid-ering service quality.

Detroit officials are optimistic thatthe Compuware contract will provide

the district with reliable service, thusredirecting spending into the classroomswhere it belongs. And successful, large-scale privatizations such as this couldserve as a model for other school dis-tricts across the country that are seek-ing ways to streamline services andensure cost-efficiency in all their admin-istrative programs.

Editor ’s note: As MichiganPrivatization Report went to print theDetroit Free Press reported thatCompuware Corp., had been forced togo back and re-bid parts of the con-tract it had previously won. Compu-

ware did so and was successful in theirbid attempt. MPR!

Elizabeth Moser is education reformproject coordinator with the Mackinac Cen-ter for Public Policy.

“Compuware” continued from page 5


Feature

TheMichigan lawis a relicfrom 1934,when statestook over theregulation ofalcoholsales.

Imagine if the state passed a lawdeclaring that citizens of Michigan couldnot buy cherries from producers in anyof the other 49 states. Does anyone re-ally believe that it would benefit any-one other than Michigan cherryproducers, assuming it could be en-forced and that people would pay anyattention to it?

Undoubtedly, people who ignorethe law transport lots of illegal alcoholfrom other states into Michigan. Shortof searching every car and truck at theborders, the state can’t possibly expectto stop the flow. The primary effect ofthe law is probably to restrict sales overthe Internet. If you’ve ever attemptedto purchase wine from one of hundredsof web sites of wineries in other states,you discovered that all but a handfulsend back a reply, “Sorry, Michigan isnot a ship-to state. We can’t sell to you.”The few exceptions are those that agreeto comply with state regulations that donothing more than jack up the price byabout 25 percent.

Of course, Michigan wineriesthat have web pages can and do sellwine legally over the Internet to Michi-gan residents.

Defenders of these protectionistlaws argue that opening up the marketto Internet sales would make it easierfor underage minors to get alcohol.James Rodney of Birmingham has acommon-sense answer to that: “I reallythink a minor who wanted a bottle ofgood wine would find someone to buyit for him instead of using a credit cardover the Internet and waiting for deliv-ery at his parents’ residence or even acollege post office box.” Like thousandsof Michigan citizens who don’t abusealcohol and would simply like to get anoccasional bottle from a favorite out-of-state winery, he wonders what makes thestate think its law does any good.

Nonetheless, the Michigan LiquorControl Commission does make an en-

forcement effort. In a state of nearly 10million residents, the commissionseized more than a hundred packagesof illegally shippedbeer, wine and li-quor in the first 11months of last year.And it’s been fight-ing a lawsuit filedby Michigan resi-dents who claim thelaw is unfair andviolates the inter-state commerceclause of the U. S.Constitution.

No matterwhat happens inMichigan courts,the state’s ban oninterstate shipmentof alcohol may runafoul of events elsewhere. The Insti-tute for Justice, a Washington, D.C.-based legal advocacy group with a trackrecord of getting special interest legis-lation thrown off the books, is litigat-ing a challenge to a similar state law inNew York. In refusing to dismiss thecase last September, a U. S. DistrictCourt judge noted that the repeal of Pro-hibition in 1933 was not intended “toempower states to favor local liquor in-dustries by erecting barriers” to com-petition. If the case goes all the way tothe U. S. Supreme Court, the states maybe hard-pressed to defend discrimina-tory treatment of each other’s productsin interstate commerce.

Michigan legislators don’t need towait for the courts to work this out.They should recognize the futility of thisthrowback to Prohibition and strike ablow for choice and competition—byrepealing the 1934 law and once againallowing private citizens to make theirown decisions. MPR!

Lawrence Reed is president of theMackinac Center for Public Policy.

Make a Toast to Privatization: RepealMichigan’s Protectionist Liquor Law

By Lawrence Reed

Privatization is about taking as-sets and services that were once a partof government’s domain and movingthem—in part or whole—into the pri-vate sector.

There are many ways to priva-tize. For instance, the state governmentmay choose to sell one of its parks toprivate developers to own and manageas they please. Or the state could con-tract with a private company to man-age the park’s operation.

Other privatization efforts simplydevolve the decision-making processfrom government officials to people inthe private sector. School choice is agood example. Instead of assigning stu-dents to schools geographically closestto their homes, vouchers or tax creditslet parents decide which school is bestfor their children.

Eliminating bad laws is anotherway to devolve decision-making author-ity to citizens. Take interstate alcoholsales, for example. It’s been nearlyseven decades since the failed waragainst alcohol during America’s Pro-hibition period (1920-33) came to anend. But 29 states including Michiganstill prosecute a kind of mini-Prohibi-tion of their own: They forbid consum-ers from buying alcoholic beveragesfrom other states unless the products areshipped through a state-licensed liquorauthority.

The Michigan law is a relic from1934, when states took over the regula-tion of alcohol sales after Prohibitionwas repealed. The thought then was thatstates that want to discourage drinkingshould have the power to determine thesources of legal beer, wine, and spirits.Whether that made sense then or not,the law today does little more than be-stow a monopoly privilege on domesticsellers, raise prices, and limit choicesfor Michigan consumers.

Wine, siezed by state officals, remainslocked in a Lansing evidence room. AProhibition-era law stops the purchase andshipment of wine across the Michiganborder unless it complies with a host ofstate regulations.


Feature

In SterlingHeights,

seniorcitizens are

treated to anannual “Older

AmericanFestival,”

which coststaxpayers

$30,000 for asingle day of

food,dancing, andcamaraderie.

or celebrate the contributions andachievements of older citizens. But tax-payers ought to wonder whether it is theplace of government to decide whenneighborly interaction is lacking, inwhat ways it is lacking, and what oughtto be done about it. After all, govern-ment action carries the force of law be-hind it. Empowering the localneighborhood cheerleader with the forceof law is bound, sooner or later, to yieldresults at variance with what might bevoluntarily hosted by associations suchas churches, the local PTA, Kiwanis andRotary clubs, and private citizens.

Leon Drolet, a Macomb Countycommissioner, is a long-time opponentof the Older American Festival. He saysthat many of his colleagues on the com-mission and in county government re-fer to the festival as “the absentee voterpicnic,” illustrating the types of abusesto which such civic lapses lend them-selves. He says the festival is simply apolitical program for local politicians.Using tax dollars, politicians are ableto gather 5,000 likely voters in a smallpark and work the crowd for votes.

The civic problem governmentofficials encounter with all programslike the party truck and Older Ameri-can Festival is that such programs re-distribute the earnings of people who

may or may not desire the particularform of entertainment provided. Gov-ernments have subsidized everythingfrom community swimming pools, icerinks, golf courses, sports stadiums, the-atres, concerts, and art exhibits, just toname a few. But it is fundamentallyunfair to force one person to subsidizethe recreation of another. If the citizensof a community want to organize largefestivals, the success of those festivalsshould be derived solely from the vol-untary contributions of those who sup-port them.

Local governments acrossMichigan have been subsidizing enter-tainment for years. But is throwingparties a proper role for any unit ofgovernment? Michigan PrivatizationReport has reported time and again oncity, county, and state governmentsusing tax money to entertain their citi-zens. A better approach is to leave en-tertainment to private initiative, wherethe market can cater to citizens’ diversetastes without unfairly burdening somepeople with the bills for others’ leisureactivities. MPR!


Privatization: The Life of the PartyBy Michael LaFaive

The pursuit of happiness—nothappiness itself—is one of the unalien-able rights of citizens listed inAmerica’s Declaration of Indepen-dence. This distinction between hap-piness and its pursuit was intentionalon the part of America’s Founders. Itmarks the difference between a govern-ment that imposes results that it con-siders desirable and a government thatpreserves individuals’ freedom of op-portunity to pursue what they desire aslong as their activities don’t obstructthe freedom of others.

Americans have been fightingover the distinction between results andopportunity ever since. In fact, over thepast several decades, the distinction hasbecome increasingly obscured in theminds of those who view governmentas society’s primary problem solver.

Today, we see government tryingto guarantee the “right” result in mat-ters large and small, from economicprosperity to education—and even toold-fashioned neighborliness. That’sright: The Detroit News reported re-cently on just two examples of govern-ment-imposed neighborliness, one inCanton Township and another in Ster-ling Heights.

Canton officials are looking topurchase a $20,000 “Mobile RecreationUnit.” According to The News, this rec-reation truck will come “chock full ofyard games and grills.” The idea be-hind the truck is to facilitate neighborlyinteraction. The township already em-ploys a “neighborhood specialist” tohelp throw parties and settle small dis-putes. Meanwhile, in Sterling Heights,senior citizens are treated to an annual“Older American Festival,” which costscounty taxpayers $30,000 for a singleday of food, dancing, and camaraderie.

Of course there is nothing wrongwith wanting to express neighborliness

efforts to meet the terms of the contract,including standards and project objec-tives. Inspections by the contract ad-ministrator or his staff, which may bescheduled or not, should be aimed atchecking whether the contract’s require-ments are being fulfilled. Citizen com-plaints should be formally documentedand researched, and when valid, shouldbe taken seriously. On the other hand,contract administrators should be on thelookout for complaints generated bydisgruntled employees or their friendsand relatives.

Clearly, one of the benefits ofprivatization is saving money. But thosesavings should never come at the ex-pense of the safety of school children.Private contractors—and public schoolemployees—must be held to strict stan-dards of safety or risk losing work tosomeone who will do the job safely.

MPR!


“Buses” continued from page 7


You’d be extremely grateful toanyone who came up with a way to di-vert attention from these failures. In theconcept of “urban sprawl,” those favor-ing government solutions have found away to: a) refocus attention away fromthe real problems; b) avoid having toadmit they were wrong about manythings; and c) not just keep their coer-cive government powers, but actuallyexpand them.

According to Albany Law Schoolprofessor Patricia Salkin, the conceptof urban sprawl inspired more than1,000 legislative bills in 1999 alone,and 20 percent of these passed. Theidea has empowered city governmentsand state legislatures to impose a hostof growth control policies that limitprivate, individual, and communitychoices in favor of vast, restrictive gov-ernment directives.

But the same people who gave usthe problems aren’t likely to come upwith the solutions. After all, we’veadded 120 million people to America’spopulation since 1950. That works outto about 55 million new homes. Theyhave to be built somewhere.

Perhaps “New Urbanist” develop-ments like Cherry Hill Village in Can-ton Township are the way to go.Developers—without either coercion orsubsidies from government—were ableto build high population density hous-ing that minimizes the need to use au-tomobiles because of mixed-use zoningthat allows both residents and commer-cial properties to be built side-by-side.

The point policy-makers shouldunderstand about what they refer to as“sprawl” is that it’s not wrong for indi-viduals, families, and businesses tochoose the most viable options open tothem. Whenever an alarmist shows apicture of ugly housing developments“encroaching” upon pristine farmland,it might be appropriate to show him apicture of a typical inner-city neighbor-

hood and ask which he would prefer, ifhis living arrangements were at issue.In fact, ask him where he lives now.

Policy-makers must look at thefactors that cause families to leave cit-ies. It’s time to focus on such things asmaking schools not just tolerable butgreat. There are a number of ways todo this, whether through charter-schoolexpansion or some kind of school choiceprogram that gives parents a tax creditfor tuition at public or private schools.

City officials also could do otherthings to fix the schools, improve thequality of city services, and lighten thetax load on citizens. They could openteacher certification so top-notch pro-fessionals who want to can becometeachers. They could contract out toprivate firms garbage pickup, water andsewer services—even rodent control—so service providers will go out of busi-ness if they fail to show up on time tofix a problem. They could post afriendly, neighborhood patrolman onfoot to walk the precinct. They couldavoid traffic problems in the city andavert “sprawling” developments outsideit by easing tough zoning requirementsso stores can be built close enough forpeople to walk or ride a bike there.

In short, the solution to “urbansprawl” lies in fixing the problems thatcause people and businesses to leavecities in the first place. But people mustbe allowed to come up with their ownsolutions. No one-size-fits-all solutionpolicy-makers try to impose has workedor is likely to work, even if they do thinkit’s “smart.” MPR!

Samuel Walker is a communicationsspecialist at the Mackinac Center for Pub-lic Policy.

Urban Sprawl for Dummies?By Samuel Walker

It’s difficult for officials and citi-zens to deal with an issue when theterms have been pre-packaged by oneside in the public debate. By drum-beating the term “urban sprawl” foryears now, policy-makers and activistswho favor government solutions to per-ceived problems have been able to takemuch of the public focus off some oftheir own most persistent urban failures.

Par for the course is that the termused to describe the solution to “urbansprawl” places a negative label uponall those who notice the sleight of hand.After all, the only people who wouldbe against “smart growth” must be,well, dummies. So maybe it’s time fora short lesson entitled, “Urban Sprawlfor Dummies.”

Market-oriented policy-makersand proponents are wrong to say thataesthetically ugly housing develop-ments spreading across the countrysideare “no problem.” But the real prob-lem has always been deterioration of thequality of life in our cities, and a refusalto acknowledge their causes in policy.Public school systems are willing to failgenerations of minority youth ratherthan admit that market-oriented reformslike school choice might work. Citygovernments are allowed to deliver ser-vices incompetently decade after decaderather than adopt more efficient, private-sector alternatives. Lawless, dangerouscity environments are only now beingchanged, slowly, against determinedresistance, through older, more tradi-tional law enforcement methods—methods government planners discardedas anachronistic decades ago.

Think about it: U.S. cities arebeing deluged with proposals aimedat reversing 40 years of failure. Howwould you like it if your political op-ponents could credibly cite 40 yearsof living testimony against your poli-cies and positions?

Market-orientedpolicy-makers andproponentsare wrong tosay thataestheticallyugly housingdevelop-mentsspreadingacross thecountrysideare “noproblem.”

National Perspective


Feature

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The contractwith Urban

Managementand On Site

Oil has savedDetroit at

least$750,000annually

since it wasimplemented.

police precincts so designated by theVehicle Management Division of theDepartment of Public Works;

• To provide transportation for all per-sonnel, supplies, and equipment tobe used in the servicing of the ve-hicles to and from the police pre-cincts; and

• To dispose of all items used in theservicing of the vehicles (oil, etc.)using methods that comply with lo-cal, state, and federal requirements.

What are the results? For thecomputerized system and services in-volved in the first objective, the citywas to pay Urban Management$17,000. For all other services the cityagreed to pay “a maximum not to ex-ceed” $242,208. This price representsa 75-percent drop in the price paid bythe city of Detroit to change the oil inits police cars. And the savings areeven greater when one considers thatthe company must return a portion ofthis money back to the city in the formof income tax. The contract with Ur-ban Management and On Site Oil hassaved Detroit at least $750,000 annu-ally since it was implemented.

Probably no one knows howmany other city services are beingsimilarly mismanaged and could savevast amounts of money through privatecontracts. Imagine what the city mightsave if it contracted out every otherDPW operation. MPR!


Joseph Lehman is executive vicepresident of the Mackinac Center for Pub-lic Policy.

“Fire” continued from page 10

Troy or Scottsdale. Indeed, combined,these smaller cities have experiencedonly two fire-related deaths since 1992.

In one year, 1999, the value ofresidential property destroyed by fire inDetroit was more than the value of allnew residential property built in the cityduring the entire decade of the 1990s.What type of message do these numberssend to the people and businesses con-sidering a move to the Motor City?

A reputation for providing poorservices hurts the city of Detroit and dis-courages those families and businesses

that might consider locating there. IfDetroit wants to experience the eco-nomic renaissance it has yearned for, itmust become willing to do things dif-ferently. One way to begin might be toprivatize its failing fire department.MPR!


“Oil” continued from page 11


Feature

• July 1996. Oakland County con-tracts with Staples Inc., for the pur-chase and delivery of office suppliesto all departments. Annual savings:$132,200.

Prior to this contract, county depart-ments ordered supplies directlyfrom the county’s Materials Man-agement Division. The divisionthen ordered supplies directly froma vendor, who delivered suppliestwice per week. This middle man-agement was reduced by allowingindividual departments to orderfrom Staples directly, via theInternet. In addition, the countywas able to avoid construction costsfor a new Materials ManagementDivision building. Ultimately,however, Oakland County becamedissatisfied with the Staples vendorand terminated the contract in favorof a new one with the vendor Boise-Cascade. One of privatization’sgreat virtues is that if a vendor failsto perform it is easy to get a newvendor. A poorly performing countyunit is much harder to replace.

• October 1997. The county contractswith a private dental organization toprovide dentistry services to 3,000low-income adults. Annual savings:$742,988.

For more on this subject, see “Oak-land County Fills A Cavity: Privatiz-ing Dental Work” in the winter 1998issue of Michigan Privatization Report.

• October 1999. Oakland County con-tracts with private physicians to con-duct breast and cervical cancerscreenings for Medicaid patients.Annual savings: $138,675.

• August 2000. County officials con-tract with a private firm for purchaseand preparation of inmate meals. An-nual savings: $1,656,765.

These privatization efforts re-

Oakland Saves TaxpayersMillions by Contracting Out

By Michael LaFaive

The suburban communities ofOakland County are generally knownfor their remarkable economic growthand prosperity. What sets Oakland, oneof the nation’s wealthiest counties,apart from its less wealthy but morepopulous neighbor to the south, WayneCounty?

One major difference is theprivatization efforts that have savedOakland County job providers and tax-payers almost $9 million since 1993.Most of the services contracted out byOakland County Executive L. BrooksPatterson and his staff have been small,so few privatization efforts have beenpublicized by the media. That does notmean, however, that they are not impor-tant. Below is a brief timeline of Oak-land County’s impressive privatizationaccomplishments.

• May 1993. County officials con-tract with a private firm to serve andprocess civil papers. The firm ispaid through fees generated by thecourt. Last year the companyserved 5,851 papers and receivedfees totaling $480,000. Annualsavings: $208,588.

• August-October, 1993. OaklandCounty enters into three contractswith private firms for food, janitorial,and medical services through itsMedical Care Facility, a 120-bedlong-term nursing home that servesMedicaid, Medicare, and Blue Cross/Blue Shield recipients. Annual sav-ings: $376,349.

• January 1996. Oakland County con-tracts with an automobile dealer toprovide “bump shop” services tocounty-owned vehicles. A bumpshop is responsible for removing themany dents and dings inflicted on au-tomobiles in the normal course oftheir useful lives. Annual savings:$86,300.

duced needless bureaucracy in countydepartments by 67 full-time positions.Few employees, however, had their jobsterminated. Positions that were vacantat the time of privatization were neverfilled, some employees retired, and stillothers were transferred to different po-sitions within the county.

In addition, Oakland County hasgiven its Wixom-based sewerage plantto the city of Wixom. The city then con-tracted with EarthTech for operationsand maintenance of the facility.EarthTech is a Long Beach-based pro-vider of water and wastewater manage-ment with offices all over the states,including Grand Rapids.

Looking to the Future

The next big public-private con-tract under consideration between Oak-land County and a private, for-profitfirm involves Oakland’s “806 Mega-hertz” system, which is a radio commu-nications system used primarily for thecounty’s emergency personnel. Oak-land may outsource the system’s opera-tion and maintenance over to a mobilecommunications company such asMotorola Inc. or ComNet Ericsson. Thecounty would retain the system’s tow-ers and issue radio licenses, while allother services would be provided by theprivate firm.

The Patterson administration inOakland County has not been a vocalchampion of privatization; however, ithas worked quietly behind the scenesto ensure that what privatization effortsit took were worthwhile and resultedin better services and lower costs forresidents. MPR!


One ofprivatization’sgreat virtuesis that if avendor fails toperform it iseasy to get anew vendor.A poorlyperformingcounty unit ismuch harderto replace.


The PublicLighting

Departmentsuffered a

terrible yearin 2000,

including twomajor poweroutages that

shut downschools,

hospitals,and

governmentoffices.

interest in taking over Detroit’s PublicLighting Department and taking a crackat running the trouble-laden system.

Although Mayor Dennis Archertold The Detroit News he would “seri-ously entertain any offer” from a pri-vate company to run the utility, neitherhis office nor any private company hasstepped forward with details on thedeal, which would represent the larg-est sell-off of a city agency in recentDetroit history.

The Public Lighting Departmentsuffered a terrible year in 2000, includ-ing two major power outages that shutdown schools, hospitals, and govern-ment offices. This and a major electri-cal explosion at Detroit’s main libraryhave elicited calls for privatization andapparently opened the door for offersfrom private companies that believethey could handle the job.

The only things known at thispoint are that the company that cameforward with an offer is not DetroitEdison, and that city government wasgiven “about a month,” according toArcher, to come up with an assessmentof just what a sale deal would entail andhow it should work.

The department provides lightingto 4,500 public buildings in Detroit, in-cluding schools, libraries, fire stations,police precincts, hospitals, and collegesand universities.

Garden City HoldsPrivate GarbageContractor Accountable

GARDEN CITY—In mostplaces, when public service is bad, citi-zen complaints pile up and the terms ofpublic employment shield those respon-sible from suffering any real penalty.But in Garden City, officials impose astiff fine—$750 a day—when AbcorEnterprises, the city’s private garbagepickup service, fails to fulfill the termsof its contract.

Abcor was hired in October 2000to haul trash for 11,500 homes and

Detroit MayPrivatize 13 Schools

DETROIT—Detroit Pub-lic Schools is in search of private

companies willing to take over 13 ofthe city’s schools. The district hasdrafted a request for proposals from pri-vate firms. The Chief Executive Officerof the district, Kenneth Burnley, mayselect one or more firms to manage theschools. The contract could start asearly as August.

When charter school legislationwas passed in the early 1990s, this iswhat the Mackinac Center for PublicPolicy had envisioned: allowing wholeportions of a district, if not the entiredistrict, to convert to charter status.

Novi Ice Arena Skatestoward Financial Stability

NOVI—When the city of Noviopened an ice arena in August 1998, offi-cials expected to reap a $70,000 profit inits first year. Instead, construction delaysand poor management drove the arena intowhat now amounts to a $350,000 debt.

But last fall the city hired a pri-vate management firm, and, as the re-sult of a deal to allow the tele-communications company Sprint tobuild three cell-phone towers on thearena’s grounds, the Novi Ice Arena isfinally on target to make a profit. InDecember, the City Council unani-mously approved the deal, which willgive the city an initial $100,000 pay-ment and yearly payments starting at$15,000 and rising to $25,000 per yearover 25 years. Officials expect theSprint deal to raise at least $585,000over the life of the contract.

Detroit Schools Clear Path forEfficient Snow Removal

DETROIT—Before the winter of2000-01, Detroit’s school district reliedon school principals to contract with the

private vendor of their choice for remov-ing snow from sidewalks, playgrounds,parking lots and roads. The usual resultwas deep snow covering everything fordays following a heavy snow—six snowdays off for students in 1999 alone.

This winter, the school district de-cided to sign a contract with B&L Land-scaping and Torro & Braglio Landscapingto clear away the snow at all of the district’s260 schools. The streets and thoroughfaresthat students, school buses, and moms anddads must brave are now neatly plowed.

“Everything is just fantastic,”Zelma Stinger, principal of HolcombElementary School, told The DetroitNews. “The sidewalks are clear. Thestreets are clear. It’s just amazing.”

MDOT Sells Lenawee CountyRailroad System

ADRIAN—In a move theMackinac Center called for back in April1995, the Michigan Department of Trans-portation (MDOT) has sold the state’soldest piece of railroad, the LenaweeCounty Railroad System, to a privatecompany, the Adrian & Blissfield RailRoad Company, for $1.7 million.

Originally built in 1836 by theErie and Kalamazoo Railroad, theLenawee was the first railroad west ofthe Allegheny mountains.

MDOT has owned the 19.5-milesystem since the 1980s and since thenhas contracted with several private rail-road companies to provide rail serviceto shippers. But ownership of the rail-road stayed with MDOT until recently,when officials decided to offer the prop-erty for sale to “the bidder that exhibitedthe greatest potential to provide efficientand reliable rail service,” according toMDOT Director James DeSana.

In the Dark about Sale of Detroit’sPublic Lighting Department

DETROIT—There is still no wordon which power company has expressed

Around the State


Around the State

Amanagementcompany,according tothe study,would beable todevote itselftonetworkingwith a largerrange ofcontacts tolure eventsto the28-year-oldfacility.

businesses in Garden City. If the com-pany fails to do its job, it is fined. InOctober alone, Abcor paid out nearly$7,000 in fines for offenses such asmissing entire city blocks and show-ing up to collect trash from houses aslate as 11:30 p.m.

In late November, even thoughthe company was doing better, a De-troit News article on Garden City’spoor garbage service didn’t do Abcor’sreputation any good at all. “If theydon’t do what the contract stipulates,we’ll continue to fine them,” City Man-ager David Kocsis told The News,neatly encapsulating the rationale forprivatization.

Reports now are that Abcor hasshaped up and won’t be fired, eventhough this remedy is always lurk-ing in the background as the ultimatemotivation for a private company toimprove.

Oakland County PrivatizesDirect Care for Mentally Ill

OAKLAND COUNTY—TheOakland County Community MentalHealth agency, one of the largest inthe state, has gotten out of the busi-ness of providing direct care foraround 14,000 people with psychiat-ric and developmental disorders.

Instead, it has contracted out thiscare to Macomb-Oakland RegionalCenter (MORC) and Easter Seals,which will use the same 240 direct-carestaffers used by the old system, to as-sure continuity of care for the patients.

Unlike the old system, both con-tractors will face heavy fines if theyfail to meet clearly stated contractualstandards of care. The contract alsocontains monetary incentives formeeting desired objectives, such asplacing patients in community set-tings. “No other Community HealthService in the state has a performancecontract,” John Torrone, MORC pub-lic affairs director, told the DetroitFree Press.

Consultants to Saginaw:Privatize Civic Center

SAGINAW—The best way togive a new lease on life to the finan-cially struggling Saginaw Civic Cen-ter, according to a 120-page reportreleased in November by internationalconsulting firm Deloitte & Touche, isfor the city to hire a private manage-ment company.

A management company, accord-ing to the $81,000 study, would be ableto devote itself to networking with alarger range of contacts to lure eventsto the 28-year-old facility. In additionto privatization of management, Deloitte& Touche reported that to avoid clos-ing in June, the Civic Center needs toinitiate a public relations blitz to change“negative connotations” about the cen-ter and downtown Saginaw, upgrade the“worn and dated” appearance of theconference meeting area, and make asmuch as $6 million in renovations andrepairs. The study projects that the Cen-ter will rack up a monetary shortfall ofanywhere from $194,500 to $467,800over the next five years.

Public-Private PartnershipBrings in the Recycling Green

ANN ARBOR—The privatecompany that operates Ann Arbor’s Ma-terials Recovery Facility brought inmore money for the city in 2000 than ithas in any year since the facility wasbuilt five years ago.

In the 1998-99 fiscal year, CasellaWaste/FCR, the company the runs thefacility, brought Ann Arbor a profit onits recyclables of $2,818. Not a badprofit on crunching up plastic bottlesand pop cans. Not bad, that is, until oneconsiders how much the firm placed incity coffers this year: $269,733.

“The market conditions were re-ally good,” explains Bryan Weinert,Ann Arbor’s manager for resource re-covery and waste reduction. “We’reextremely happy with the job our pri-

vate contractor is doing, and expecteven greater results in the comingyear,” Weinert said.

The firm’s most recent fiscal per-formance got rave reviews from theWhite House Task Force on Recycling,which recently recognized Ann Arborfor meeting the National RecyclingChallenge started by then-Vice Presi-dent Al Gore in 1998.

Private Group Wants to ManageDetroit Children’s Museum

DETROIT—A private groupmade up of professionals, business lead-ers, educators, media people, and par-ents from across Metro Detroit havelaunched a fundraising campaign to fi-nance either a total renovation or a totalremake, at a new location, of DetroitChildren’s Museum.

The group, which calls itself De-troit Discovery Museum, is respondingto a growing concern that the museum,currently run by Detroit Public Schools,is ineffective and substandard, espe-cially compared to children’s museumsin other cities such as St. Louis and In-dianapolis.

One option being consideredwould be for the school district to turnthe facility over to the nonprofit group,which would refurbish the museum inits current location. Another would befor Detroit Discovery Museum and theschool district to form some sort of co-operative partnership. Yet another wayis to begin a new facility in a new loca-tion. Whichever option is chosen,fundraising for the effort is ongoing.

As Amy Roth, a volunteer for thenonprofit group, told Detroit News col-umnist Bill Johnson, Detroit PublicSchools already has its hands full try-ing to take care of the catastrophic fi-nancial and educational woes that haveplagued it for decades, without theadded responsibility of running achildren’s museum.

“I think they have more pressingpriorities,” Roth said. MPR!


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known as the Local Government FiscalResponsibility Act, or Public Act 72.The law effectively confers the com-bined power of mayor and city councilupon financial managers, allowing themto unilaterally take measures—includ-ing privatization of city services—tobalance the books of troubled cities.

What does Highland Park andHamtramck’s experience with emer-

gency financial manag-ers mean for Detroit? Astrict interpretation ofPublic Act 72 suggeststhat Detroit’s financialcondition is similar tothat of the two smallercities. Under the law, theprocess of appointing afinancial manager maybe triggered if a city“fails to provide an an-nual financial report oraudit that conforms withthe minimum proceduresand standards of the statetreasurer and is requiredunder the uniform bud-geting and accountingact.” As of Jan. 2, De-

troit violated this condition when itfailed to complete its annual audit ontime. This should subject the city to afinancial review by the office of thestate treasurer.

If the state treasurer does conducta review of Detroit’s financial situation,he must inform the governor whether or

Cities’ Budget WoesCould Be Preview of Detroit’s Future

By Alicia Sikkenga

The financial turmoil facing theWayne County cities of Highland Parkand Hamtramck may offer a glimpseinto Detroit’s future—if officials do nottake measures to put the Motor City’sfiscal house in order.

Highland Park and Hamtramck,both surrounded entirely by Detroit, re-cently made head-lines when theirfinancial woes trig-gered a state ap-pointment of two“emergency finan-cial managers” tobring the cities’ mu-nicipal budgetsback into line.Hamtramck is fac-ing a $2.4 milliondebt while High-land Park was de-linquent in makinga $525,000 pay-ment to the Michi-gan EmployeeReitrement System,as it is required todo by law. In December, Wayne Countyjudge Louis Simmons reversed thestate’s decision to appoint a financialmanager in Highland Park. The city isnow back under the control of its demo-cratically elected leadership.

Emergency financial managersare appointed under a 1990 state law

not a “serious financial problem mayexist” within 30 days after beginning hisreview. If the treasurer determines thatthere is a problem, the governor may ap-point a review team to examine thecity’s fiscal health in greater detail.

The review team must examinecity financial documents to determineif one or more financial conditions haveoccurred and whether or not the city cansolve its own problems. Specific finan-cial conditions that the review teamlooks for are highlighted in the law.They include, but are not limited to

• Failure (by the city) to pay wagesand salaries or other compensationto employees or retirees for morethan 30 days;

• Failure to eliminate an existing defi-cit in any fund of the local govern-ment within the two-year periodpreceding the review team’s report tothe governor.

The second condition is bad newsfor Detroit because two of its funds arecurrently in deficit.

Now is the time for Detroit offi-cials to seriously consider money-sav-ing privatization options—before it’sthe Motor City’s turn for a state-ap-pointed fiscal manager. MPR!

Alicia Sikkenga is labor research as-sistant with the Mackinac Center for Pub-lic Policy.

The secondcondition is

bad news forDetroit

because twoof its funds are

currently indeficit.

Louis Schimmel is currently theemergency financial manager ofHamtramck. Is there one in store forDetroit?

privatization comes to town faulty school bus ... · detroit schools privatize ... cafeteria...

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