The final analysis of costs incurred and costs saved in the privatization efforts during the Ecorse Receivership are summarized in this section of the Report. The summary is broken down into two sections: privatization of the DPW operations, and all other privatization efforts directed at similar services.

Privatization of DPW Operations

This section reflects a calculation of the average annual cost savings arising from the conversion of the DPW operations to a privatized environment. The adjustments are used to eliminate the one-time effect of conversion costs included in 1988 operations, and reflect costs and benefits not included in the1989 through1991 fiscal year amounts reflected below.

DPW costs incurred for in 1986-88

$2,856,420

DPW costs incurred for in 1989-91

1,215,398

Unadjusted reductions in costs

1,641,022

Adjustments for one-time costs in above:

Vested vacation and sick pay

(150,000)

Severance payments

(21,812)

Adjustments for recurring costs and benefits not included in above:

Longevity payments

60,000

Retiree health and life insurance costs

(300,000)

Property taxes

7,350

SAVINGS OVER A THREE YEAR PERIOD

$1,236,560

MINIMUM ANNUAL SAVINGS

$412,187

The annual cost savings of approximately $412,000 does not consider inflation in the costs between the 1986-88 and the 1989-91 fiscal years. Assuming a modest inflation rate of 3.0%, the annual costs saved would increase by an additional$15,000 to $30,000.

In addition, the minimum annual savings does not include amounts attributable to the Water and Sewer Fund operations. Presently, it is not possible to segregate the costs associated with a significant increase in service levels requested of the contractor in1989 through1991 from normal repairs and maintenance. As such, the Water and Sewer DPW Fund expenditures (and potential savings) have been excluded from the above table. The likely savings in the DPW operations function may be significant.

Finally, the cost savings associated with the items below, which could not be quantified, are excluded from the above table:

  • Central service costs

  • Facility insurance and utilities

  • Workers' compensation claims

  • Retiree health and life insurance benefits that would have been paid in future years for terminated DPW employees

The following is a summary of the one-time conversion costs incurred and benefits received:

Costs/(Benefits)

Vested vacation and sick pay

$150,000*

Severance pay

21,812 

Workers' compensation-Unemployment costs

86,000 

Sale of facility and equipment

(308,500)

NET BENEFITS FROM CONVERSION

$(50,688)

*Vested vacation and sick pay was really only accelerated, rather than incremental costs.

All Other Privatization Efforts

The Receiver renegotiated the rubbish disposal contract and then in 1989 put it out for competitive bids. The average annual cost of providing this service prior to the Receiver's appointment was $350,000, or approximately $29,000 per month. The best way to determine the cost savings to the City from these efforts is to compare the average costs the City would have continued to incur under this contract had no negotiations taken place (no effect has been given to inflation).

As most of the benefits of the renegotiation process did not begin until the 1988 fiscal year, the comparison of cost savings from the renegotiation is presumed to start at this point. The analysis follows:

Pro forma costs of a rubbish contract for 1988-91 (at $350,000 per year)

$1,400,000

Actual costs incurred for 1988-91

(831,967)

 

ESTIMATED COST SAVINGS FROM RENEGOTIATED CONTRACT

$568,033

 

ANNUAL COST SAVINGS

$189,611

Reductions in the engineering and parks and recreation areas resulted in the average annual estimated costs savings of approximately $150,000 and 125,000, respectively. As discussed previously, the annual net gain to the City in privatizing the boat ramp approximated $50,000.