Lessons from Other Cities

Although most analysts praise Archer's spending plan, they note that it is only a start in curing city government's long-term troubles. For example, Bette Buss, a former senior research associate with the Citizen's Research Council of Michigan commented, "While he's bought himself some time to deal with big problems... he's postponed the hard decisions," Councilwoman Brenda Scott said, "The city's problems were 20 years in the making. I don't think he'll even put a dent in them even after four years." [1]

These comments suggest that Mayor Archer needs to do more. Let's look at how major cities similar to Detroit are dealing with their economic problems.

When Philadelphia Mayor Edward Rendell took office in January, 1992, city workers could not be sure that their next paycheck would clear. After a quarter-century of decline, the city had become the unappealing poster child for ailing Northeast cities. In the previous 10 years it experienced a net loss of nearly 44,000 jobs. At one point, the city had to delay payments to its pension fund.

Municipal-bond investors were requiring 27% effective rates of return to buy the city's bonds. And, after 19 tax increases in a dozen years, residents were being taxed to the bone.

Mr. Rendell put together a tough five-year fiscal plan that included $83.5 million in savings from management streamlining, and won $98.6 million in concessions from labor unions after a strike that lasted only 16 hours. To balance the budget, Mr. Rendell persuaded unions to accept a 33month wage freeze, sold such city-run services as a nursing home and health center to private operators, and gained city control over the administration of union health plans, saving almost $60 million a year. After the Mayor noted that Philadelphia had the highest number of stoplights per capita in the nation, and the fewest cars per capita, he even replaced 600 traffic lights with lower-cost stop signs.

Since 1992, by introducing competition into 19 different services, Mayor Rendell has produced annual savings of at least $22 million. Another 30 services have been identified for possible competitive contracting. According to Linda Morrison, the director of the city's competitive contracting program, savings from privatization are averaging 40-50%. She commented, "Savings that weren't possible before suddenly materialize once you put a service out to bid."[2] In response to the Mayor's budget initiatives, Moody's Investors Service Inc. and Standard & Poors raised their rating on the city's bonds one level.

Other large municipalities have increasingly followed the lead of Philadelphia. Mayors and administrators are seeking to increase competition among service providers in order to provide greater choice and lower cost for consumers. Municipalities that have embraced competitive contracting have generated impressive results.

Since taking office in 1992, Mayor Stephen Goldsmith of Indianapolis introduced competition into 50 city services, generating annual savings of $28 million. In 1993, Indianapolis opened up trash collection and wastewater treatment to outside contractors. Over a five-year period, estimated savings associated with these initiatives totaled nearly $80 million.

Mayor Goldsmith's Competition Initiative is comprehensive. Each service performed by the city is subjected to a rigorous analysis of its operations. Based on this review, each service is then competitively contracted out, sold, consolidated, modified, eliminated, or retained. Table 3 details some of the savings associated with competitively contracting services in Philadelphia and Indianapolis.

Table 3:   Cost Savings Associated with Competitive Contracting




Water Dept. Billing


City Hall Custodial


Street Maintenance


Sludge Hauling & Disposal


Nursing Home


Art Museum Security


Transfer Stations


City Warehouse


City Print Shop


Disability Mgmt.










Pothole Filling


Trash Collection


Wastewater Treatment


Source: The Reason Foundation.

Los Angeles and New York:
Newly elected mayors in Los Angeles and New York have also advocated more privatization. For example, during his 1993 campaign, Mayor Richard Riordan proposed privatizing trash collection and the Los Angeles International Airport. In New York, Mayor Rudolph Giuliani's first budget proposed opening up numerous services to private-sector competition, including street resurfacing and water pollution control plants. The budget also called for asset sales, including 85 of the city's 500 gas stations, the city owned radio and television stations, and parking garages.

Mayor Michael White of Cleveland is making privatization a major element of his fiscal strategy. Elected to a second term in 1993, the Mayor created a Council on Competitiveness to investigate methods of opening up city hall to competition from private firms. Despite opposition from public employee unions, he declared, "While we have 8,000 employees, there are 500,000 Clevelanders, and they pay for this. I think that somebody, somewhere, ought to stand up for them, since they are paying the tab." [3]

Not only are governments changing how they deliver services, they are also reconsidering what it is they do. More municipalities are limiting the services they provide in order to concentrate on core functions. As noted by Mayor Richard Daley of Chicago, "When government tries to be everything to everybody, it becomes nothing to anybody." [4]

Mayor Daley has turned over many ancillary services such as job training and alcohol and drug rehabilitation to community groups. Contracting out drug and alcohol treatment services has resulted in 200 more clients being served at three sites instead of one, while saving $700,000 per year.

Other Examples:
Other cities are saving money by shifting services to the private sector. Norfolk privatized its botanical gardens in 1993. Baltimore City Life Museum was privatized in 1992 after funding cuts had triggered staff reductions. As a private entity, the museum was able to raise funds for a new facility costing $5.8 million.

  • The Pittsburgh Zoo was privatized on January 1, 1994, after its request for capital improvements, repairs, and renovations was eliminated from the city budget. Contingent upon the legal approval of the privatization, several foundations have pledged a total of $1.5 million toward capital projects.

  • Rather than close the library in Palm Springs, California, citizens transformed it into a flourishing private institution with more books on the shelves than ever before.

  • In the private sector, companies are saving millions of dollars and increasing productivity by radically redesigning work processes through the practice of reengineering. If pursued aggressively, re-engineering could lead to dramatic productivity gains in the public sector. For example, installing document-imaging technology can eliminate the need to store millions of paper files. Dallas expects to save space and handle court document requests with 10 fewer employees through document imaging, resulting in yearly savings of $250,000.

  • Under Mayor Richard M. Daley, Chicago is also re-engineering. In the Public Health Department, field nurses previously spent about half of each day doing paperwork. The city recently bought hand-held computers. Nurses can now enter in codes on site, permitting them to spend more of each day helping sick people rather than filling out forms.

  • Other cities have reorganized their organizational structures. In most big cities, these structures are archaic: thousands of job classifications, rigid hiring and firing procedures, layers and layers of middle management, stifling bureaucratic rules and regulations, and procedures that make it almost impossible to fire any employee, no matter how incompetent.

  • Until recently, the city of Charlotte had four employees who spent their time doing nothing but writing job classifications. Furthermore, eight layers of management were needed just to oversee the maintenance of city streets. Not anymore, however. The organization structure of Charlotte has been flattened. The city's 24 departments were merged into nine key "businesses" organized around city hall's core activities, and at least one layer of management has been eliminated in each department.

  • In Philadelphia, Mayor Rendell also sought to restructure work rules to give management more flexibility and encourage efficiency. Prior to 1992, the city had some of the most costly, unproductive work rules in the country. There were over 3,000 job classifications and employees could not be compelled to work overtime. In fact, three employees were required to change a light bulb at the airport¾a mechanic to take off the light cover, an electrician to change the bulb, and a janitor to sweep the floor. By enlisting the assistance of middle managers, Mayor Rendell was able to reform these inefficient work processes reducing red tape and bureaucratic micromanaging.

  • Finally, other mayors are adopting performance based budgeting. Government typically rewards managers for poor performance: If crime or fires go up, the departments receive more money. Therefore, unfavorable outcomes lead to more funding. Under Mayor John Norquist, Milwaukee is changing these perverse incentives by altering the annual budget process. Under Milwaukee's new budget, success is measured according to outcomes. Managers submit five strategic objectives and are held accountable for achieving them. For example, the road maintenance department is judged according to the smoothness of the streets, not according to the number of road crews it manages.

For performance-based budgeting to be successful, mayors must hold the line on spending by capping department budgets. Spending caps create a mindset in which managers seek to increase their accomplishments, not their budgets.