Privatization of DPW Operations

In the spring of 1988, the American Federation of State, County and Municipal Employees (AFSCME) and the City were in arbitration over the bargaining group's contract. By June 1988, the Receiver had negotiated a settlement which included, among others, provisions which:

  • Allowed the Receiver to privatize the DPW.

  • Eliminated the linkage ("me too" clause) of AFSCME compensation increases to other bargaining union agreements.

  • Provided pay increases to remaining AFSCME clerical employees.

  • Limited sick and vacation pay.

  • Enhanced retirement benefits.

In connection with the settlement, AFSCME employees received $669,650 (including related fringe benefits) of retroactive pay increases linked to other bargaining group contracts ("me too" clause). The "me too" clause was then eliminated from future AFSCME contracts. The payment of the retroactive pay increases was obtained in exchange for AFSCME's approval to eliminate the DPW.

The City's employees ceased operations of the DPW services effective June 30, 1988. A contract was entered into effective July 1, 1988 with a private company – Central Installation Co. – to provide the DPW services. Shortly thereafter, the DPW facilities and related equipment were sold at auction

Cost Comparison — Before and After

The following is a comparison of the salaries, fringe benefits and other costs for the three years preceding privatization and the three years after (without adjustment for the effects of inflation):



General Fund – DPW



Local Street Fund



Major Street Fund



Water and Sewer Fund





The above table, which was developed based upon the accompanying Schedule of Department of Public Works Costs (see Appendix,), excludes costs associatedwith engineering, garbage disposal, and parks and recreation maintenance which are discussed below. The table is not meant to indicate the cost savings generated from the DPW privatization, which is discussed subsequently.

NOTE: The following discussions of operating and fiscal concerns applicable to the General, Local Streets, Major Streets, and Water and Sewer Funds should be read in connection with the Appendix.

General Fund. During the years preceding the Receivership, City management had borrowed substantially all cash of the special revenue (including Local and Major Street Funds) and the Water and Sewer Funds for General Fund operations. As reflected in the City's June 30, 1986 audited financial statements, the cash and investment balances of the Local Street, Major Street, and Water and Sewer Funds was $110,356. These three Funds had advanced the General Fund $2.6 million through June 30,1986. As of June 30,1986, the General Fund owed $3.8 million to all of its funds.

The General Fund DPW costs for the six years ended June 30,1991 contain no significant or unusual construction projects. All of the activities of the General Fund for the six years is considered to be routine maintenance.

Local and Major Street Funds. Substantially all of the equity of the Local and Major Street Funds on June 30, 1986 of $311,700 was represented by a receivable from the City's General Fund. The cash received by these Funds is restricted by State statutes for the maintenance of roads and similar projects and is not intended to fund the operations of the General Fund. As a result of the interfund borrowing, the Local and Major Street Funds were unable to provide services beyond normal repair and maintenance.

The General Fund's fiscal distress prevented the repayment of this interfund borrowing until mid-1989. As such, expenditures in the fiscal years 1986 through 1988 reflect only minimal repair and maintenance. Preventative repairs and maintenance prior to 1989 were almost nonexistent.

By mid-1989, the interfund borrowings had been substantially repaid and there were sufficient cash reserves to begin a significant street renovation program. The contractor costs for 1989 and 1990 reflect this major renovation program. The renovation was completed in the 1990 fiscal year.

It is presently not possible to separate the costs of normal road maintenance from these construction costs. However, the 1986 through 1988 and 1991 Fiscal years are reasonably representative of normal, required maintenance. The average annual cost of road maintenance, based upon these years, would approximate $69,500. Assuming the 1989 and 1990 fiscal years had similar cost levels for normal, required maintenance, the estimated renovation costs for the 1989 and 1990 project was $761,000.

Water and Sewer Fund. As with the Local and Major Street Funds, the Water and Sewer Fund cash had been borrowed by the General Fund, preventing the Fund from performing any significant repair and maintenance for the period 1986 through 1988. The physical condition of the water and sewer system is believed to be such that substantial repairs continue to be required. In addition, the U.S. Environmental Protection Agency (EPA) continues to increase water standards, which have contributed to cost increases into the early 1990s.

Early in the 1989 fiscal year, the Receiver initiated a project to replace all of the City's water meters. Prior to this time, most of these meters were located in residents' basements resulting in a high-cost, labor-intensive system to read the meters. Many meters were so old they were non-functional.

The replacement of the meters throughout 1989 resulted in a reduction of the time required to read the meters by placing a reading device on the outside of residents' homes. The new meters could be read by a hand-held device. The information captured from the reading process was input directly into the computer for billing purposes. Previously, the reading process captured the information on manual cards which were keypunched into the computer system. Overall, the meter reading effort required one full-time position prior to the installations. After the installation of the new meters, the reading effort was reduced to one week per month. In 1990, an outside contractor assumed these responsibilities.

During 1990 and 1991, the City began addressing several EPA matters and previously deferred maintenance. Neither the costs of normal and routine repairs and maintenance had the system been well maintained, nor the cost of present maintenance on the City's system can be readily determined.

The General Fund's improved cash flow by fiscal 1989, largely attributable to the DPW privatization, permitted the Receiver to resume normal repairs and maintenance, including certain major projects, in 1989 and beyond.