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Business Observer Friday, Sep. 30, 2011 8 years ago

Private-sizing Government

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The privatization trend is gaining steam in the unending economic downturn. But plenty of hurdles remain.
by: Rod Thomson Staff Writer

While debate continues over what government should be doing, an entire new line of debate is how it should be doing it.

This has been forced by the unrelenting economic downturn, requiring government to look at more of what it has traditionally averted: outsourcing and privatizing functions.

It shows up in larger ways, such as the state of Florida privatizing the operations of its prisons and looking into selling some of its road systems as other cities and states have done.

And it is showing up in smaller ways, such as in Manatee County privatizing the operations of two of its public golf courses — taking baby steps before running and jumping.

But it is showing up everywhere.

Chicago sold its famed Skyway expressway and downtown parking garages for billions of dollars, ridding itself of a liability while reaping a cash windfall. Other cities, such as Indianapolis and Los Angeles, are considering privatizing parking meters and much more. Texas may privatize Austin's mass transit system. Ohio is looking to privatize its prisons and turnpikes.

Proponents see this as a natural evolution in government as the heydays of taxpayer cash rolling in may never return, but residents' expectations remain largely unchanged.

By nature, government is not particularly good at a lot of things, says Manatee County Administrator Ed Hunzeker. He would like to see the county look into privatizing many operations, such as Port Manatee. “Why is the government running a port?” he asks rhetorically.

The challenge is that no organization, no matter how skilled and well managed, can be expected to be good at such a broad and varied number of services as local governments provide. But for practically every thing government does, private companies do it, and often that function is all they do.

“To the extent possible, government shouldn't compete with the private sector,” says Fort Myers Mayor Randy Henderson.

But a surprising amount of modern government functions, and government-funded functions, are done in the private sector also.

Teeing up
Manatee County just approved Sarasota-based Pope Golf to operate and maintain the public Manatee County and Buffalo Creek golf courses. Golf course operations is what Pope does and apparently does well, also operating the Sarasota Golf Club and Bent Tree Country Club in Sarasota as well as courses in Indiana and Tennessee.

Pope will pay Manatee $2.7 million for leasing and invest $1.4 million in improving the courses during the five-year agreement. This is a stark contrast to the subsidization often required for public courses. Once they opened up to the idea and saw the numbers, the decision was a no-brainer for the county.

Pope has a history of improving golf courses it takes management of while keeping fees about the same. Opponents say it pays its employees less, but it pays them private-sector wages, not government wages. Pope can do things cheaper for that reason, compounded by not being constrained by government worker unions and benefits, and it can make decisions quickly. It also does not have to deal with public politics in its decision-making and labor relations.

That all accrues to the benefit of the local taxpayer. Manatee County is far from alone in doing this. Fort Myers already has privatized the operations of its two municipal courses, Henderson says.

In a recent six-month period, 175 municipal golf courses in the United States sent out requests for proposals for private companies to manage their courses. It's one less headache and one less cost.

Privatizing golf course operations may be just the start for privatization.

Bonita Springs in Lee County has gone in the same direction, promising its residents a “government lite” when incorporating 12 years ago.

Bonita Springs, with a population of 45,000, has about 60 full-time employees. By comparison, the city of Sarasota has a population of about 52,000, but has more than 700 employees — even after cutting 183 in recent years.

“'Government lite' works amazingly well if you are not wed to it,” says Bonita Springs Mayor Ben Nelson. The city found that as it grew, it made sense to bring a few things in-house. Code enforcement was one of those, because city leaders felt that function required more of an intimate relationship with residents and businesses.

The Bonita Springs Fire Department and all utilities are outsourced or privatized. Plus the police department is on contract from the Lee County Sheriff. Those are three large elements of most governments, and keeping them operating by non-city employees has kept Bonita Springs government small and inexpensive for residents.

In fact, a resident of Bonita Springs pays a tax rate on top of the basic county rate of .826 mills. (One mill is $1 per $1,000 of assessed property value.) Residents in unincorporated Lee County pay a rate on top of the basic county rate — called the unincorporated MSTU — of one mill.

“It's counterintuitive, but it's actually cheaper to live in the city,” Nelson says, and points out that Bonita Springs privatizes most operations while Lee County operates most through the government payroll.

Going all the way
Weston is privatization on steroids. And it is working.

The Broward County city has 14 city parks, a rather lavish new city hall building, the normal range of police, fire and rescue services, building and zoning departments and community services.

The city of 64,000 residents operates a $100 million budget providing all of the above on a grand total of nine city employees. Nine.

Weston is as fully contracted out a city as is possible. All nine employees are directors of a department of the city by title, but largely act as contract control agents with the 30 major private contractors handling the work of the city.

The entire city staff includes the city manager, assistant city manager, chief financial officer, chief operating officer, treasurer, city clerk, director of communications, director of parks and recreation and director of landscaping. Everyone else is a private-sector employee on contract with the city.

The results show in the costs to residents, says City Manager John Flint. “We have the lowest tax rate in Broward County,” he says, with some understandable degree of pride.

But there is more. A recent study for Broward County found that when all taxes, fees and other governmental assessments on citizens are combined, Weston becomes the cheapest place in the county to live — at least as far as government expenses go.

Flint says that would be impossible if the city employed a full staff to provide the same services. That's because of the dynamics of elected bodies and their employees and the power of public sector unions even in a right-to-work state such as Florida. For example, Flint says Weston has no escalating health care costs or soaring pension costs to deal with. The burden for keeping those costs in line falls on the companies.

Hurdles
One hurdle local governments face in pursuing broad privatization of government services is expectations. The mindset of many — not all — government bureaucrats is that the government is the place to get things done and there is a nascent mistrust of the private sector.

Further, politicians tend to take more into account than balancing the books, as there are employee and voting dynamics that can influence their decisions.

And there is the basic human nature resistance to change that creates a hurdle whenever new ways are proposed. This reality works at both the government and resident levels as expectations that what is will remain can turn progress to mud.

Public-sector unions are another hurdle to cost-saving privatization efforts. Unions representing government employees are naturally opposed to decisions that will cost some or many of the members their government jobs.

These unions wield a great deal of political influence through Political Actions Committees (PACs) and through the numbers of workers they can put on the ground in any given political race. This is no small consideration to local politicians whose reelection hopes may hinge on union support or opposition.

Which leads to another hurdle: politics.

Even if the numbers suggest real savings to the local government, and hence taxpayers, by allowing private-sector companies to run some government operations, the loss of government jobs and voters' expectations on how government will be run can cause many politicians to balk at the idea.

Plus, they may perceive a loss of power and influence by substantially downsizing their governmental staffs.

Two examples of this confluence of hurdles are in the state's plans to privatize the running of prisons and its attempts to privatize the operations of state parks.

Gov. Rick Scott's office backed out of the parks proposal after opposition from Democrats, some Republicans and users. The expectations hurdle could not be overcome as too many people feared that private companies would not be good stewards of the parks.

However, some in the Legislature still want to pursue the cost-saving possibilities. Scott also believes the parks can be made into a better experience for visitors through private-sector operations with incentives.

Second, the state is privatizing prison management, but has run into the government union hurdle as the correctional officers' union has filed a lawsuit to block the implementation of the plan involving prisons. About 3,800 state-employed prison guards work at those facilities.

Privatization is in its nascent stages, but the world is changing and forcing governments to change with it.

“We're living in an era that I believe is going to challenge leadership in government to be more entrepreneurial, to be creative in operating government in the future,” Fort Myers' Henderson says. “We need to look at innovative ways to outsource operations.”

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