Back in Ann Arbor

Ann Arbor City officials are aware of the benefits of privatization and currently implement that awareness in a number of contracts with the private sector.

Sampling of current City contracts with the private sector
vehicle towing
maintenance/operation of Fairview Cemetery
various traffic island and property lawn mowing
centerline pavement marking
elevator maintenance
window cleaning
car washing
typewriter maintenance
street and sidewalk repairs
snow removal
sludge hauling
janitorial services
storage of voting machines
HVAC preventive maintenance
computerized traffic control maintenance
specialty maintenance of city vehicles and buildings
seal coating of outdoor athletic courts
collection of recyclables
park construction
various professional services – consulting, architectural design

This year, the forestry division will be using $18,000 of a $90,000 tree-trimming budget to experiment with contracting-out that service.

Ann Arbor also implements grants, subsidies, franchising and volunteerism. The goal of a subsidy/grant is to encourage a private firm or non-municipal entity to deliver a service at reduced cost to the user. Rather than own, operate and maintain its own homeless shelter, Ann Arbor gives The Shelter Association of Ann Arbor – a private, non-profit organization – a yearly grant to aid the Shelter Association in providing shelter to Ann Arbor's homeless citizens. The city franchises the rights to operate the concession stand and batting cages at Veteran's Park to private firms and collects a percentage of the profits. At three other City locations – Fuller and Sylvan Parks and Abbot School – the City enlisted volunteers to organize and supervise the construction of playground structures.

Ann Arbor's Central Services Director, James Amin, who is in charge of purchasing for the City, has even written guidelines for City officials to follow in order to effectively approach privatization of a municipally delivered service. (These guidelines are described further below.)

Just because privatization has been successful for Ann Arbor and many other cities, that does not imply that Ann Arbor should privatize every service it provides. For example, the Parks and Recreation Department has determined that the costs for the City to mow athletic fields, parks and larger traffic islands are very competitive with the costs it incurs through contracts for mowing of various smaller traffic islands. (The City contracts mowing for these areas because they require smaller, specialized equipment.) According to Gary Fichter, Manager of Park Operations, the City can mow at $29.50 per acre. This is 30% of the roughly $100/acre the City pays for its contracted mowing.

Unfortunately, municipal and private entities utilize different accounting systems, thus making direct comparisons rather difficult. The fee charged by a private firm is the direct charge to the user, be it an individual, a business or a government. That fee, in turn, covers the private firm's costs. A government's costs, on the other hand, are harder to diffract. Administrators and supervisors oversee a number of tasks within, and sometimes even between, departments. The $29.50/acre cost cited above is basically the marginal cost of mowing, consisting of labor, travel time, and equipment rent – fuel, maintenance and depreciation. Most of the insurance and retirement payments are not relevant here because seasonal employees do not receive these benefits. But the $29.50 does not include vacation and sick time, truck and trailer costs, supervisor and administrative labor costs and benefit payments, workers' and unemployment compensation; and more abstract costs, such as the opportunity cost of foregone income in the form of property tax receipts if a private firm happened to own the space used to store municipal mowing equipment. Quite understandably, the city can not easily discern what portion of fixed and administrative costs belong to which activity, especially for a department as diverse as Parks and Recreation.

Larger costs due to the inclusion of all relevant expenses incurred by the City to do its own mowing does not mean that the City should relinquish all mowing to the private sector. Detailed inclusion of all costs makes municipal costs less favorable versus private costs, but Ann Arbor may still be able to mow for less. In addition, maintaining its own mowing force gives the Parks and Recreation Department more flexibility to work around special events and the unpredictable weather of southeastern Michigan. However, compatible and consistent cost comparisons are necessary for elected and appointed officials to bring City residents quality service in the most efficient, cost-effective manner possible.