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Privatization Of Municipal Services In Illinois

By ROBIN A. JOHNSON and NORMAN WALZER*

Municipal officials, faced with public resistance to higher taxes, ever increasing expenditure needs and growing pressures to "do more with less" are increasingly adopting alternate ways of financing and providing services to the public for the same or lower costs. Also causing financial stress in cities are cutbacks in federal assistance programs, such as General Revenue Sharing in 1987 and intergovernmental mandates. Cities may be called on to do even more in the future as services are transferred to local governments in the process of devolution from the federal and state governments.

Many municipal officials have turned to privatization of services previously provided by public employees. During the 1970s and 1980s, privatization became an increasingly popular management tool for local governments throughout the United States. Despite its acceptance by public officials, little systematic information is available regarding the extent and success of privatization, especially in Illinois cities.

To examine privatization efforts and related issues in Illinois municipalities, the Local Government Affairs Division of the Office of Comptroller Loleta Didrickson, the Illinois Institute for Rural Affairs at Western Illinois University and the Illinois Municipal League conducted a mail survey of city governments in 1995. According to the Reason Foundation and the National Council for Public Private Partnerships, two privatization advocacy groups, this comprehensive study of municipalities is the only one of its kind being done nationwide. In total, 516 cities responded, a 40.5 percent response rate. Results and analysis of the survey will be explored in a series of articles in this magazine. This article examines services for which cities are likely to contract and privatization trends.

What is privatization?

The term "privatization" can invoke different meanings depending on one's perspective. In the broadest sense, privatization means relying on private institutions such as businesses to provide public services. In narrow terms, privatization involves the private sector taking responsibility for providing a service or function previously provided by government. It can take many forms, ranging from governments contracting with a business for service delivery to the sale of public assets to private firms. For purposes of this study, privatization will be used to describe contracting with a private firm to provide services previously provided by the public sector.

Past trends.

Governments at all levels have always contracted for services. In fact, King Ferdinand and Queen Isabella hired Christopher Columbus, a private contractor, to seek an alternate trade route to India. It wasn't known as privatization at the time but it involved the same concept. Privatization became increasingly popular during the 1980s during the Reagan administration and the conservative tide that swept across the country. The feeling was that the private sector could provide services cheaper, faster and better. Privatization took on a conservative bent that emphasized cost reduction and was preceived as a threat to public employees and managers.

The 1990s brought forth leaders from both political parties who believed more in competition for city services than privatization exclusively. Privatization as a result of competition became a more progressive term that emphasized efficiency and quality service delivery, regardless of whether the public or private sector provided the service. The issue became competition versus monopoly, not public versus private and included strategies designed to lessen the effects on public employees.

In general, the amount of privatization in Illinois has not increased markedly during the past five years. Statewide, 28.7 percent of cities reported that the number of contracts with private firms had increased, compared with 56.8 percent reporting that the number had not changed. Only 2.0 percent reported that the number had declined. However, increases in contracting occurred more often in larger municipalities (population greater than 5,000), where more than half (52.1 percent) reported an increase. Thus, the size of the privatization efforts may be large. One explanation

* Robin A. Johnson is director of Local Government Affairs in the Office of Comptroller Loleta Didrickson. Norman Walzer is director of the Illinois Institute for Rural Affairs at Western Illinois University.

November 1996 / Illinois Municipal Review / Page 19


is that large cities offer more services and therefore, have greater opportunities for privatization.

Services currently privatized.

Privatization exists on two levels in Illinois. In small towns (less than 1,000 in population), contracting for services has long been utilized to avoid expensive labor or specialized equipment costs and liability concerns. Officials from larger cities are turning to privatization as a way to reduce costs while maintaining or improving the quality of services.

In Illinois, privatization is fairly widespread, with almost every municipality reporting contracting at least one service and nearly every one of the 82 services listed on the survey was contracted in at least one municipality. Many cities report contracting for a large number of services. For example, 274 municipalities (52.7 percent of the total respondents) contract for at least 10 services and 418 municipalities (80.4 percent) contract for at least five services.

Some cities contract for nearly all services provided to the public. Municipal governments in Machesney Park (pop. 19,000) and Crestwood (pop. 11,000) provide few services directly and contract with private firms for some services and rely on volunteers for others. Crestwood has been able to rebate property taxes as a result of saving tax dollars through privatization.

The city services most often reported privatized in Illinois are solid waste collection and disposal (Table 1). Statewide, 92.6 percent of respondents report contracting commercial solid waste collection and 87.7 percent have residential solid waste collected by private firms. A large number (84.5 percent) have privatized solid waste disposal (landfills) also.

Beecher (pop. 2,000) has successfully contracted for refuse collection since 1990 and reduced the cost to households by nearly 50 percent. Previously, the village had an "open market" system where citizens individually contracted with private firms for refuse collection. The system had inefficiencies because companies with separate sets of similar equipment provided the same service. Beecher officials contracted refuse collection with a single, lowest cost, qualified bidder resulting in economies of scale, increased efficiency and lower costs with the per household fee reduced from $11.00 to $6.50.

Some small towns have privatized all public works functions with a single source, private firm. Pecatonica (pop. 1,800) became the first town in Illinois to do so in 1994 and others since followed. The services contracted in Pecatonica include purification and distribution of drinking water, wastewater collection and treatment, and repair/maintenance of streets and alleys. Additional services provided by the private firm include a water rate study and increased purchases of safety equipment. At the end of the first two years of the contract, more services were provided by the private firm at less cost to the taxpayers.

Street light operation (61.0 percent) and hazardous waste materials disposal (50.0 percent) are also commonly provided by private firms. Tree trimming/planting is contracted with private firms in 24.9 percent of responding cities, mainly because of the specialized expertise required and relative infrequency of the service. Glen Ellyn (pop. 26,000) officials report privatized tree trimming allows public works staff to concentrate on other municipal services.

Table 1. Services Provided for Municipality by Private For Profit Firms

Population by Size

Services Provided*

Less than 1,000 Percent (n)

1,000- - 4,999 Percent (n)

5,000 or Greater Percent (n)

All

Municipalities Percent (n)

Public Works/Transportation

Residential Solid Waste Collection

88.1 126

90.4 123

85.0 142

87.7 392

Commercial Solid Waste Collection

90.3 93

92.1 116

94.6 140

92.6 350

Solid Waste Disposal

82.6 76

86.2 100

84.3 129

84.5 306

Recycling

62.8 49

79.6 90

82.1 133

77.1 273

Yard Waste Collection

60.4 29

60.6 66

67.1 110

64.0 206

Public Utilities

Electricity

87.8 108

87.7 100

86.4 108

87.3 317,'

Gas

82.4 98

82.6 95

93.4 113

86.2 307 "

Hazardous Materials Disposal

38.5 10

59.6 28

47.8 43

50.0 82

Street Light Operation

82.1 119

62.2 84

40.0 62

61.0 266

Public Safety

Vehicle Towing and Storage

65.6 42

75.5 80

81.7 125

76.2 247

Health and Human Services

Insect/Rodent Control

40.3 27

24.1 20

31.0 39

31.0 86

Day Care Facility Operation

50.0 16

56.9 33

52.3 46

53.4 95

Hospital Operation/Management

25.0 6

53.8 21

32.5 25

- 37.1 52

Support Functions

Legal Services

73.9 85

72.5 87

58.8 90

67.6 263

Food Services

29.4 5

3.7.5 9

56.1 23

45.1 37

* Information is reported for services which are being contracted municipalities that provide the service.

by one-third or more

of the municipalities

responding. Percentages

are based on

Source: IIRA Municipal Privatization Questionnaire, 1995


Page 20 / Illinois Municipal Review / November 1996


Other services most frequently privatized include recycling (77.1 percent), yard waste collection (64.0 percent), vehicle towing and storage (76.2 percent), legal services (67.6 percent) and food services (45.1 percent). In most instances, these are services with limited demand in the city so it makes sense to outsource them, rather than providing them on a full-time basis with city employees. Also, services most often privatized are likely to be provided extensively in the private sector.

Janitorial services are not contracted to the degree one may expect (27.1 percent) although larger cities contract for these services more often (35.1 percent). Addison (pop. 32,000), for example, reports first-year savings of approximately $100,000 and virtually no employee displacement from privatizing Janitorial services.

Financial pressures and concerns about service quality prompt some municipal officials to consider privatization of public safety services such as ambulance and emergency medical services (EMS). Statewide, 23.5 percent of cities have private ambulance service and 11.5 percent have contracted for EMS. Herrin (pop. 11,000) privatized its ambulance service in early 1995 due to financial concerns. The municipal service was losing money, causing the city to subsidize operations approximately $5,000 per month. The mayor reports that the city saved on subsidization costs in addition to general operating costs; the city also raised funds through the sale of ambulance equipment to the private firm that won the contract.

Future outlook.

One of the better indicators of satisfaction with privatization is whether city officials plan to increase contracting in the future. Statewide, almost one in five (18.3 percent) intend to increase privatization and 51.6 percent report contracting levels will remain the same. Less than one percent (0.6 percent) expect to decrease privatization. Larger cities are much more likely to increase privatization with 42.1 percent reporting this intent. They offer more services and benefit more from contracting.

Services that city officials indicate they will likely privatize in the next five years include street repair/maintenance, water treatment/distribution, and wastewater collection/treatment. As with services currently contracted most often, services slated for future privatization efforts are mainly in the area of public works.

Although few municipalities currently contract for wastewater treatment (6.5 percent), this service may be the hottest market nationwide for the privatization industry. Almost all local governments own wastewater treatment plants, compared with other utilities such as electric power plants. Water and wastewater services are the largest expenditures for local governments, according to the U.S. Conference of Mayors. Many facilities were built with federal funds more than 20 years ago and are becoming obsolete due to federal environmental mandates. With rising operational costs, reduced levels of federal assistance and reluctance by local officials to seek tax revenue increases for repairs or enhancement, privatization has become an attractive approach for saving dollars while increasing efficiency.

Summary.

Privatization of municipal services is fairly widespread in Illinois and will continue to grow in the future, especially in larger cities. Public works, such as solid waste collection and disposal, are most often privatized. Services which are seasonal, or require specialized labor or equipment, are also likely to be contracted.

Other public works services, such as wastewater treatment, will be increasingly privatized in the future due to the age of the facilities, stricter environmental mandates, fewer federal dollars and strained local finances. Some public safety services, such as ambulance and EMS, and support services will also be provided by the private sector more in the future.

With privatization ingrained in many municipalities, local officials have dealt with issues pertaining to contracting public services. The next article will examine how officials have fared with these issues, including the sensitive topic of employee displacement.

November 1996 / Illinois Municipal Review / Page 21


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