Privatizing Public Services: A Good Thing?

A recent forum on privatization, organized by the local League of Women Voters, brought together four elected officials and one former administrator to share their experiences and opinions on the issue.

The membership of the national League of Women Voters is studying the issue of privatization, with the eventual goal of developing a position statement, based in part on feedback from local leagues. Susan Greenberg, who moderated the Feb. 27 panel in Ann Arbor, said they’ll be looking at the factors that governments use to determine which services are privatized, the policy issues that are considered, how privatization impacts a community, and what strategies are used to ensure transparency and accountability.

Panelists all had experience in public sector leadership: Lois Richardson, Ypsilanti city councilmember and mayor pro tem; Bob Guenzel, former Washtenaw County administrator; Sabra Briere, Ann Arbor city councilmember; Andy Fanta, Ypsilanti public schools board member; and Susan Baskett, Ann Arbor public schools board member.

Panelists gave examples of how privatization is being used locally – such as curbside recycling in Ann Arbor and garbage pick-up in Ypsilanti – but generally expressed caution about the practice. Fanta was less circumspect, describing privatization as capitalism eating its entrails. [All of the four elected officials are Democrats.]

The forum also included time for questions from the audience. Topics ranged from the impact of Proposal A – which shifted control of funding for K-12 schools from local communities to the state – to comments about national funding priorities.

The event was co-sponsored by the Ann Arbor alumnae chapter of the Delta Sigma Theta sorority, and held at the downtown Ann Arbor District Library. A videotape of the panel will be posted on the AADL website.

City of Ypsilanti: Lois Richardson

Lois Richardson, Ypsilanti’s mayor pro tem and a city councilmember representing Ward 1, began by saying that she’d asked to speak first so that she could give some background on the issue. Several years ago, she said, Michigan’s state and local governments started struggling with the public’s demand for better services. At the same time, governments faced diminished financial resources. One response was to privatize certain government functions, she said, by transferring services to the private sector.

Richardson then described four types of privatization: outsourcing, asset sale, commercialization, and vouchers.

With outsourcing, Richardson said, the government remains fully responsible and maintains control over management decisions, but a non-governmental entity carries out the work. This is something the city of Ypsilanti has used, she said – specifically, the city outsources its garbage pickup. City officials feel this is done in a way that doesn’t hurt the department of public services, she said.

For an asset sale, the government relinquishes that asset when it’s sold to a private entity, Richardson said, so there’s no longer any control over that asset. Commercialization occurs when the government simply stops offering a service, and citizens must turn to the private sector instead.

Vouchers are government subsidies that can be used to purchase services in the private or public sector, Richardson said. Most commonly this is seen with school vouchers, which can be used with charter schools – Richardson said she’s not a big proponent of that approach.

Richardson said she’s also not a supporter of privatization in general. Outsourcing garbage pick-up has worked well for Ypsilanti, she said, but the city still has a functioning department of public services, too. One reason she generally doesn’t support privatization is that it takes jobs away from the city and the community. When a service is privatized, employees can live anywhere, she said. However, most of the employees that are contracted to do Ypsilanti’s garbage pick-up live within the county, she said, so that’s working well. It saves the city money and the service is good, she said.

Asset sales – like those that are happening in the city of Pontiac, which is selling off property – destroy a community, Richardson said. For her, community is important. She also didn’t support commercialization of services. There are certain things that the government has a responsibility to provide, she said.

The state of Michigan has engaged in several privatization efforts over the years, Richardson said. In 1992, Gov. John Engler created the Michigan Public-Private Partnership Commission, to analyze whether competition from the private sector could result in state services being handled more efficiently. Richardson said it’s still a question for her as to whether a private company can do the work as well as the government for a reasonable amount.

Washtenaw County: Bob Guenzel

Bob Guenzel told the audience he’d worked with Washtenaw County for 37 years – 22 years as an attorney, and 15 years as county administrator before retiring in May of 2010. He said he knows the county well, and has dealt with contracting. His perspective will be different from the other panelists, he said, because he’s not an elected official, and he’s the only one who’s been an administrator.

Guenzel said he’s among those who believe in the nobility of public service, and that public entities can best provide certain services. For him, it’s also a matter of community. In most cases, he wouldn’t favor outsourcing, and he thinks his successor as county administrator, Verna McDaniel, feels the same way. Privatization feels like failure.

Having said that, Guenzel said, there’s an obligation to examine different methods of providing services, to determine whether the government is doing it in the most effective and efficient way. That’s especially important for human services, he added, because every dollar that you don’t spend on overhead is a dollar you can spend on services – in some cases, saving someone’s life. There’s also been added urgency starting in 2008, Guenzel said, when the economic crisis really hit. Washtenaw County is better off than other areas, he said, but it was still affected.

Guenzel outlined several factors to consider for deciding whether to privatize. The first is accountability. A public body can’t give up accountability, he said, even if the services are contracted out. For Washtenaw County, about 80% of the services it provides are mandated, Guenzel noted.

Another issue relates to labor and keeping jobs. Michigan is a strong labor union state, and most union contracts require that if a unit of government decides to contract out work, that action can’t result in layoffs for government employees. There are ways around that, Guenzel said, but obviously it’s a strong restriction. Labor unions are strong and have political clout, he noted. Many governments also have living wage requirements, which is a factor in contracting out services, he said.

Washtenaw County government has contracted out certain services for so many years that they “don’t think twice about it,” Guenzel continued. He cited the example of contracting with local nonprofits to provide human services, like help for people with substance abuse or mental health problems. The county also contracts out for janitorial, towing and ambulance services, he said. These are all well-accepted now. Legal counsel is another service that the county contracts out, he noted – before he was hired as a full-time employee, he had worked on a contract basis for the county, doing legal work. The idea is that in some cases, you’ll need advice only on occasion, he said.

But most legal services are best kept in-house because they are mandated, Guenzel said. He pointed to the public defender’s office, led by Lloyd Powell, which Guenzel described as one of the finest in Michigan. For years, some people have argued that those legal services should be provided on a contract basis, he said. But the county leadership felt it was important that the role of public defender be performed in a professional manner, and not by contracted attorneys who would just try to dispatch the cases as quickly as possible. There are many issues that weigh into the policy decision about contracting out services, he said.

The idea of sharing services among government entities is becoming more attractive, Guenzel said, and that’s where he thinks government leaders should be focusing. He gave the examples of the county partnering with the city of Ann Arbor for joint police dispatch services and a combined office of community and economic development.

Opportunities are out there, Guenzel said, and as a public servant, you can’t be blind to alternative ways of providing service. But overall, he said, his preference is for keeping services in-house.

City of Ann Arbor: Sabra Briere

Sabra Briere began by noting that while she hasn’t been in public view for 30-plus years like Bob Guenzel, she has lived in this community longer than that. She now serves on the Ann Arbor city council, as a representative for Ward 1. Briere said when she asked city staff about the issue of privatization, she received a bit of a blank look, because the city doesn’t do much of it. She discussed with staff whether contracts were considered privatization. The city does contract out for janitorial work, she noted, but the biggest area of privatization relates to solid waste services.

In 1991, Briere said, the city awarded its first private contract for recycling to Recycle Ann Arbor (RAA), which had been providing curbside pickup to a portion of the city since 1978. Periodically the city has issued a request for proposals (RFP) to solicit other bids, but the city has always decided to award the contract to RAA.

The next contract related to solid waste was for building the city’s materials recovery facility (MRF). Normally, Briere said, this type of project would have been handled in-house, but the city staff didn’t have the expertise to do it.

Then in 2010, the city contracted with a company to run Ann Arbor’s compost facility, which has previously been managed by the city. This was the first time that Briere, who was first elected in 2007, voted on a contracting item.

Briere offered examples of ways the staff had not managed the compost facility well. The contract displaced three city workers, but they didn’t lose their jobs – they were given other jobs within the city. Briere noted that this contract isn’t saving the city a lot of money, because the company – WeCare Organics – is being held to the city’s own employment standards. She also noted that Ann Arbor has a living wage ordinance that contractors must abide by.

Briere said it seems to her that the city doesn’t have clear policies about privatization. There are master plans that recommend looking into it, and city staff will put out RFPs to compare costs of a private sector provider with what it costs the city to do internally. Twice the city has put out an RFP for trash pickup, and twice they’ve decided that the city can still do a better job less expensively, she said. The city also continues to pick up compost, though they’ve hired a company to manage the compost facility.

Briere said she has a soft spot for Recycle Ann Arbor, but the city awards its contract to RAA because it’s the best bid. There’s now more competition for that bid, she noted, but that’s why the contract is for a long period – 15 years – so that RAA doesn’t have to worry about making investments in its services, only to have the contract withdrawn after a short time.

In addressing the issue of privatization’s impact on the community, Briere observed that Ann Arbor isn’t an inexpensive place to live. Far too few of the city’s employees can actually live within the city, she said. But residents want to be able to know that if there’s a problem getting their garbage picked up, for example, they’ll be able to complain and get a response. Briere said her experience with contractors has been that when they hear about a problem, they fix it right away.

Ypsilanti Public Schools: Andy Fanta

Andy Fanta, a board member for the Ypsilanti public school district, told the audience that he’d like to frame the issue in a different way. Briere had mentioned that privatization can save money. It reminded him of an Oliver Wendell Holmes quote, Fanta said: “Taxes are the price we pay for a civilized society.”

Fanta described how he’d become politically aware when he was in third grade, and had been sent to the principal’s office for some “gross class disturbance.” When the principal had told him to hold out his knuckles to be hit with a ruler, and said it would hurt him more than it would hurt Fanta, Fanta replied, “Then let me hit your knuckles!” This resulted in a call to Fanta’s mother, he recalled, but it taught him that there was a political world out there.

He grew up in Ohio and moved to Ann Arbor in 1970, then moved to Ypsilanti in 1993.

Fanta expects privatization to increase in velocity and expand in focus. He advocated for moving the word back into the political realm, and described it as capitalism eating its entrails. He said he’s not paranoid, but privatization is leading our country to a world that “I’m not sure I want to live in.” That’s because privatization erodes community, and community comes first for him, even before family. If that weren’t the case, he and his family would be living in a shack on the prairie, he quipped.

It doesn’t take much to imagine Google taking over the digitization of court records, he said, removing the government employees who are accountable for that job now. Those records might be stored in Bombay – would they be as accessible as they are now, if handled by a private firm?

Fanta again said he sees privatization as a political issue. Saying he’d be the last person to offer advice about what to do politically, he suggested seeking counsel from someone like Congressman John Lewis, who could share experiences from the civil rights era.

Our government is being hollowed out from the inside, Fanta said. Who could have imagined if this meeting had been held 20 years ago, and someone suggested that the U.S. government could outsource the feeding, clothing and transport of our armed forces to a private corporation? There would likely have been skepticism that it could happen, he said, yet these and other services are now privatized. Fanta said he wasn’t sure any money was actually saved.

Ypsilanti schools are struggling, Fanta said. But the question is how to politicize the citizens of Michigan to say that it’s a good thing to adequately fund public education? It goes back to a community’s core values, he said. There’s a lot to be proud of in this county, but with the recent unprecedented number of retirements, a lot has changed. In the courthouse, Fanta said, he used to be able to file a case quickly – in five minutes, including three minutes to chat with the staff about their families. Now, it takes him 20 minutes and instead of dealing with one person, the staff are like interchangeable parts, he said.

These issues need to be discussed in a holistic way, Fanta concluded. For him, the discussion needs to move back to the political realm.

Ann Arbor Public Schools: Susan Baskett

Susan Baskett, who was first elected to the Ann Arbor Public Schools board of education in 2003, began by saying she wanted to keep her personal politics out of the discussion. Everyone is challenged economically, and they don’t make decisions about privatization lightly, she said. It’s just one of many ways to decrease labor and program costs. A major expense relates to retirement funds, she noted, adding that the local districts don’t have control over that, except for paying the bills.

The challenge for AAPS is that the district is facing a $14 million deficit, Baskett said, even after several years of cutting millions of dollars out of the district’s operating budget. Funding has declined while costs have increased.

Baskett ticked through several different definitions of privatization, and looked at those definitions in terms of the impact on school employees. One definition is to change from governmental or public ownership to a private enterprise, she said. This usually means that government employees would be replaced by workers in the private sector.

Another type of privatization is outsourcing or contract services, Baskett said. AAPS typically retains control or responsibility for the services in this case, she said, and there’s less of an impact on employees.

AAPS also hires private contractors to design and build or renovate facilities, Baskett said. This occurs when the staff doesn’t have the expertise to do this work, she said, though district employees do provide project oversight. Finally, she noted that partnerships are another way to provide programs or services, with both parties typically assuming some kind of shared responsibility.

Baskett then listed eight specific examples of how AAPS has used these approaches:

• Substitute custodians: AAPS contracts with DLS Services, which provides substitute custodians when full-time custodians – who are district employees – aren’t available. An eight-year contract with DLS expired in June of 2011 but was not renewed, she said. The firm paid its custodians $9.06 an hour, without benefits – Baskett noted that this is far less than the city of Ann Arbor’s living wage of $13.19-per-hour (without benefits).
• School improvements: In 2004, Ann Arbor voters approved a $255 million bond and sinking fund to use for school improvements, including the construction of Skyline High School. The district has contracted with multiple companies for these services, Baskett said. The largest two firms have been Granger and Barton Malow.
• Substitute teachers: Professional Educational Services Group is a firm that manages substitute teachers and other substitute positions for many schools in this area, including AAPS. The Ann Arbor district began using this service in 2007, Baskett said.
• Food service: In 2007, AAPS outsourced its food service to Chartwells, and the private company now handles all food service in the district. She said that in exchange for its contract, Chartwells pays the district a “sizeable” amount each year. [The board discussed its most recent contract renewal with Chartwells at its June 8, 2011 meeting.]
• Transportation services: Busing and other transportation services are being handled by the Washtenaw Intermediate School District for Ann Arbor, Ypsilanti and Willow Run. This consolidation began in 2010, she said, and was seen as a way to prevent bus drivers from losing their retirement benefits – as WISD employees they would keep their state pension, Baskett explained. But there’s been high turnover, so she doubted that the strategy had been effective.
• Journeyman HVAC services: Last year, AAPS contracted with the firm D.M. Burr to provide heating, cooling, and ventilation services for the district. This was an option taken rather than add another union employee, she said.
• Parking at Pioneer High: The district has hired Great Lakes Environmental to manage events parking at Pioneer High School, including parking for games at Michigan Stadium.
• UM-Scarlett Middle School partnership: Baskett characterized this as her favorite partnership, a collaboration with UM’s School of Education for a “lab school” at Scarlett Middle School and Mitchell Elementary School.

Baskett concluded by noting that there are future opportunities that AAPS might explore, related to custodial services, maintenance, clerical services, school security, child care, and human resources. She noted that there’s even pending state legislation that would allow for the outsourcing of teachers. She did not indicate support for any of these actions, however.

Questions & Comments

During the last part of the forum, panelists fielded questions and commentary from the audience. This report summarizes the questions and presents them thematically.

Questions & Comments: War & Greed

Comment: Each panelist indicated that the real economic crisis began in 2008, and that crisis had a major role to play in conditions for local governments. There are larger problems that need to be addressed, like the billions of dollars that the federal government spends on war – what if that money had been invested in local communities? The mortgage foreclosure crisis was caused by corporate greed. Rather than contacting a congressman to help solve these problems, we should ask people on the ground, like those involved in the Occupy Ann Arbor or Occupy Ypsilanti movements.

When the moderator, Susan Greenberg, asked if the speaker had a question to pose, he said no – he just wanted to make his opinion known.

Questions & Comments: Middle Class

Comment: I’m a retired state corrections officer, and have some knowledge about privatizing in that sector. As an example, when a minimum-security prison was privatized in southern Ohio, the community tried to ensure it would remain a minimum security facility. The state wrote certain guarantees into the contract. But later, the firm started bringing in high-security prisoners from all across the country, which created a hazard for the community. The local government ended up filing a lawsuit. When considering whether to privatize, the long-term costs and impact should be factored in to the decision.

Bob Guenzel said he agreed that cheaper is not always better. It’s important to look at the full costs, including the long-term consequences and risks, he said, not just the short-term savings.

Sabra Briere noted that when you’re the person who makes policy – like a city councilmember – you rely on the recommendation of staff, or you argue with that recommendation. It’s difficult to get accurate, competing information when the staff recommends something, she said. Your gut reaction might be that it’s a bad idea, but unless you’re more knowledgeable than the staff, it’s difficult to argue against. Briere also observed that staff is generally trying to please the policymakers, but those policymakers might be people who left office years ago – it takes a long time for these things to work through the system.

Government is a service organization, Briere said, and service organizations are people-heavy, with salaries and benefits. And if people want more services, that comes at a cost – that’s true whether you’re talking about your local gym or your local government, she said.

Andy Fanta said he liked to anchor things in “the great sweep of history.” The 1980 election of Ronald Reagan as president was as revolutionary as the election of Franklin D. Roosevelt had been, Fanta said. (Or of Abraham Lincoln, Briere added.) Reagan began the steady dissemination of the belief that government is the problem, and that it doesn’t work. That set the stage for where the country finds itself now, Fanta said.

When local public bodies measure outcomes or costs, the decisions are contained in a very small universe, he said. Instead, the dialogue should be this: What do we want our government to do for us? Fanta said he could look back to the civil rights movement – before the government acted, there were actions by the people that touched the country’s moral fiber. The issue was raised as to whether all children had the right to a good education, and finally the government acted.

Fanta said he’s suggesting that privatization is just the tip of the iceberg, and it’s futile to discuss the issue in isolation. That’s not an effective way to carry this dialogue forward, he said.

Questions & Comments: Sharing Services

Question: I believe governments do many things very well. Could you elaborate on the issue of shared services?

Sabra Briere noted that Bob Guenzel had previously mentioned the consolidation of dispatch services, between the city of Ann Arbor and Washtenaw County, as well as the city/county consolidation of the office of community and economic development, which manages funding for human services. Often when you talk about sharing services, she said, you’re talking about saving money to do the same work. It’s also a kind of triage, she noted – if there’s a limited amount of funds for human services, for example, you can either spend it on parallel jobs in different government units, or reduce the staff and spend that money on direct services.

The same is true for police dispatch operations, she said. The city of Ann Arbor has faced budget challenges in recent years, and has decreased its police force to the point where the department isn’t as effective. The question was how could the city afford all of the officers it needed? One aspect of the solution, Briere said, was to consolidate dispatch services.

Andy Fanta cited several examples of inefficiencies. He observed that in driving along I-94 between Ann Arbor to Detroit, you’ll pass through about 15 separate political jurisdictions. He said he lives in a part of the county where the city of Ypsilanti and Ypsilanti Township can’t seem to work together.

Fanta also said he doesn’t believe the 15th District Court needs three judges – he’s felt that way since he arrived here in 1970. There’s the need for a flexible, mobile judiciary, he said, giving the example of circuit court judges in northern Michigan who are responsible for holding court in multiple counties. That should be encouraged, he said. However, he also cautioned that a risk of consolidation is in losing community contacts within an organization, which “chips away at who we are.”

Fanta concluded by saying that elected officials have been fobbing off their responsibilities. As a school board member, he was aghast to learn that the Ypsilanti school district had hired someone else to provide curriculum services. Wasn’t that the role of the district’s curriculum director? He indicated that public bodies like school boards and city councils have a responsibility to question these actions.

Susan Baskett said there are several areas that seem to be working for local public schools. The contract for substitute teacher services – with the firm Professional Educational Services Group – is working for the several school districts that use that service, she said. Baskett also cited the international baccalaureate program, offered through a consortium of local schools.

Ypsilanti has been working on sharing services for many years, Lois Richardson said. She pointed to the city’s reciprocal agreements with fire departments in other jurisdictions, as well as partnerships with Eastern Michigan University.

Questions & Comments: Proposal A

Question: What has been the impact of Proposal A?

By way of background, Proposal A is a 1994 statewide ballot initiative that shifted responsibility for K-12 funding away from local communities and created a system whereby local tax dollars are funneled to the state, which in turn redistributes the funding back to school districts statewide. Among other things, it puts a cap on how fast a property’s taxable value can increase. That cap is 5% or the rate of inflation, whichever is lower. [For a detailed view of how Michigan's public schools are financed, see Chronicle coverage: "Does It Take a Millage?"]

Andy Fanta began with a one-word answer: “Disaster.” Susan Baskett agreed, saying “it’s leaving us short.”

Fanta then elaborated. He noted that Proposal A has prohibited the citizens of Ypsilanti from raising money for their schools, even as expenses escalate. When he first joined the school board in 1998, the district’s share of retirement costs for its employees was less than 5%. In the coming year, he said, it’s possible that those costs will be as high as 37%. But because the retirement system is handled by the state, local districts have no control over those costs, he said. Fanta concluded by saying that Ypsilanti citizens would vote to support schools financially, but they can’t.

Weighing in from the audience, Glenn Nelson – another Ann Arbor school board member – commented that unfunded liabilities for public pension funds are an enormous problem. The rate is very high, he said, and going up very fast. The League of Women Voters should look into this question too, Nelson said.

Questions & Comments: Chartwells

Question: I come from Arkansas, and the university there also used Chartwells. How is it that the Ann Arbor schools gets paid by the company?

Susan Baskett said she didn’t know the details of the contract, but said she wanted to be clear that Chartwells is a profit-making business. She said she thought the question was going to be about how the school system evaluates Chartwells’ performance. She learned the hard way that an evaluation can’t be done in-house, she said. The staff and the company will give you answers that they think you want to hear, she said, so the evaluation needs to be done by a third party.

Later during the Q&A session, a woman addressed the panel by saying she was a recently retired AAPS teacher, and she had experience with Chartwells. She said the company had displaced some wonderful food service workers in the schools – people who knew the kids and who were dedicated to their jobs. The people that Chartwells hired didn’t know what they were doing, she said, and didn’t stay long. The woman also criticized the privatization of custodial services, and the quality of substitute teachers that are used in the Ann Arbor schools.

Questions & Comments: Legal Services

Question: Does Washtenaw County have an attorney to look over contracts, and are there legal procedures that take place when someone doesn’t do the job they’ve been contracted to do?

As former county administrator, Bob Guenzel fielded this question. He noted that all units of government employ attorneys and staff to review contracts, making sure the documents “are as tight as they can be.” He said he served as a legal consultant to the county before he was hired as the county’s corporation counsel, a full-time staff position. Sometimes it’s difficult if you have to terminate a contract, then find another entity to do that same work. Contracts also don’t address “soft skills,” Guenzel said, like worker attitudes.

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