Detroit: Possibility of Real Privatization, Savings

Emergency manager's plan filed in bankruptcy court

The city of Detroit published its plan of adjustment detailing how it intends to solve the city’s financial and other problems. It contains important references to privatization of certain services, though it doesn’t go far enough.

A bolder vision might spare city retirees and creditors from as deep of cuts.

Page 116 of the Disclosure document makes it clear that Emergency Manager Kevyn Orr is prepared to contract out for some if not all the operations now provided by the Detroit Department of Transportation. This was a recommendation made by the Mackinac Center for Public Policy in late 2000. At the time, we estimated that the city could save $60 million a year by doing so. If it had saved just half of that since 2000, Detroit would have accrued $360 million in savings by now.

Additionally, the emergency manager's report alludes to the possibility of outsourcing city airport work and redeploying city parking assets.

On balance the reforms laid out by Orr "give short shrift to outsourcing and asset sales," said Leonard Gilroy of the Reason Foundation, a national expert in privatization, although the city did recently sign a contract for refuse collection.

"While it's encouraging to see proposals for sensible privatization initiatives in transit operations, parking, payroll administration and airport operations, these are drops in the city’s fiscal bucket," Gilroy said. "There's still a lot of low-hanging fruit left untouched in terms of cost-savings opportunities through privatization, particularly in areas like public works, fleet operations and various administrative support functions."

There is much more that could be done by the city that would maximize revenue to the city: Sell more properties and other assets, aggressively contract out more services and end them where possible.

Pontiac cut its general fund spending by 43.5 percent with such an aggressive program and its employment rolls from 495 to a proposed 20 in just 5 years.

Cutting 43.5 percent out of Detroit's general fund would mean a nearly $480 million decline in spending — revenue that would go a long way toward reducing the cuts that may be imposed on the city's retirees and creditors.