Introduction

by Richard A. Derham, former president, Washington Institute

"[Privatization is] a revolution in economic thinking...a return to principles we once adhered to, but from which we have strayed. They are principles of individual freedom and private enterprise that have changed the world more in 200 years than all the changes in the preceding 2000 years."
~ Secretary of State George P. Schultz

When these words were spoken over a decade ago, privatization was as yet a controversial subject. Yet today, privatization in its many forms is recognized around the world as an important element of public policy. As Elaine Davis notes in the following study, privatization concepts have been successfully implemented in as disparate places as the United Kingdom and a wide variety of Third World nations. Yet, as she also notes, it has lagged in the United States - the center of the free enterprise system, where the benefits of competition and of private sector initiative would have been thought to have been securely rooted in our institutions and our psyche.

Perhaps we should not be surprised. It is societies under stress - the UK after decades of labor dominated government, Third World nations facing the challenges of development - that first question the old, familiar ways of doing business. The U.S., comfortable in our prosperity, has had no such stimulus.

None until recently, that is, for citizen resistance to higher taxes has begun to impose fiscal stress on governments at all levels. It is under the resulting financial pressures that innovative local leaders have begun rethinking the inherited assumptions about how governments should conduct their affairs. And, as Elaine Davis' study makes clear, successful new ways of doing the public business have emerged.

In this report, we seek to identify significant sectors for privatization at the local government level, adopting King County, the state's largest and most diverse local government, as a focus. Elaine Davis has identified over a dozen sectors, chosen from literally scores of examples, where privatization has worked across the nation and she suggests they deserve consideration here. Tribute must be paid to our friends at the Reason Foundation, whose pioneering works in privatization have been yeast to the fermentation of ideas over the past decade.

Much remains to be done. This report identifies areas for further study. Building on this report, the Washington Institute Foundation will address specific privatization opportunities in the months ahead. We invite local government leaders and others interested in reforming local government to join us in the search for innovative solutions to local problems.

Overview

Privatization -- delivering governmental services with help from the private sector -- has been debated for nearly two decades. With a multitude of successful examples, par-ticularly in local government, privatization is no longer a fuzzy concept. Internationally, from Margaret Thatcher's innovations in England to its growing use throughout the Third World, private sector solutions are increasingly important to the public policy debate. Ironically, it has seemed to many that only in the U.S. has privatization lagged. But, here too, it is now being tested on the front lines of government. Privatization in its many forms - contracting out, competitive procurement, asset divestiture and outright asset sales - has been gaining ground within both political parties, and the results are in: Lower costs; greater efficiency; more effective and responsive programs; improved worker satisfaction; and, greater community support and involvement.

In this paper on privatization opportunities for King County, we review examples of effective privatization in local communities around the nation, reporting where innova-tive thinking saved money while contributing to improved service delivery. We describe how similar activities are currently accomplished in King County, and how much is being spent here.

Privatization ... has been gaining ground within both political parties, and the results are in: Lower costs; greater efficiency; more effective and responsive programs; improved worker satisfaction; and, greater community support and involvement.

Large organizations, whether big government or big business, have suffered from too many layers of management and from too much unproductive, bureaucratic process. Corporations and governments alike - whether through downsizing, rightsizing, re-engineering, reinventing, outsourcing or through privatization -- have begun working to reduce unnecessary barriers to efficiency and competitiveness.

Strong leadership has been the key ingredient necessary to success. And in several places around the country, government leaders, including Chicago Mayor Daley, Indianapolis Mayor Goldsmith, Governor Weld in Massachusetts, and Governor Wilson in California, in cooperation with businesses in their areas, have demonstrated that public purposes, thoughtfully conceived, can be achieved best by moving away from the traditional monopoly of government employment, opting instead for service delivery in competitive -- often private sector-- environments.

In competitive environments, the presence of more than one model -- more than one way of accomplishing various tasks -- allows all providers to observe alternative ways of doing things and to learn from the successes and mistakes of others. In business, change can occur and improvements can be made relatively easily compared to government. Similar changes in government often require legislation.

This is the case in Washington state where state law prohibits privatizing state government jobs that have traditionally been filled by public employees. The artificial constraints of this law obscure the fact that many jobs, filled by public employees in one part of government, continue to be filled by private sector workers in another part of government.

...leadership and political will is all that is required to change statute and make privatization a viable alternative in King County.

Authorities disagree on the extent to which this state law applies to local government. More important to understand, however, is that leadership and political will is all that is required to change statute and make privatization a viable alternative in King County. The legislature meets every year to change state statute, often in response to county and city government requests. Recent debates around both the Kingdome and Mariner sports stadiums are excellent examples of the time and energy that local lawmakers are willing to devote to resolving issues they consider important.

The principal vested interest which stands opposed to privatization -- public employee unions -- fears the loss of public sector jobs and reduction of compensation. Personnel provisions common in the public sector, like civil service, mandatory binding arbitration in labor disputes, automatic pay increases, and fully paid health insurance for family members, often go well beyond those offered in the private sector. To the extent that public employee unions want simply to perpetuate, at taxpayer expense, wages and benefits for public employees well exceeding those paid for similar work in the private sector, their objections are not legitimate. Indeed, their claims result in inequitable burdens on taxpayers and unnecessarily divert resources from fulfilling other public purposes.

In any case, these provisions represent only one source of privatization savings. Other areas of savings commonly resulting from privatization include superior management practices, fewer layers of management, and greater labor productivity.

Public employees have a more legitimate concern: Since the terms of public employment have included promises, through civil service, of job stability, a sudden and disruptive change can be unfair. No one, public employees included, has a right to a permanent job, but employees deserve fair and reasonable treatment. Fortunately, many methods exist for accommodating public workers affected by a privatization project. Financial planning should acknowledge the costs of implementing such provisions as: Early retirement, transfer to another job within the public agency (including job retraining, where appropriate), help with out-placement, job placement preferences with the private sector employer, and timing the transition to a private provider to match natural attrition. No single method serves the needs of all employees, but a combination can go a long toward assuring that individual employees are treated fairly at the same time that taxpayers receive the long term benefits of privatization.

In the paper that follows, we present illustrations of privatization successes. Thirteen areas of local government were selected based on the availability of documented, successes around the country, the presence of a similar function in King County government, and the ability to capture financial information on the activity in King County. The areas selected for review are:

Public Enterprises

• Airports
• Public Transit
• Solid Waste
• Wastewater Treatment

Public Programs

• Jails
• Park Maintenance
• Park Management
• Road Maintenance
• Youth Detention

Internal Services

• Building Maintenance
• Motor Pool
• Purchasing
• Real Property Management

For each of these areas our paper summarizes the tasks involved, the potential for successful privatization, examples of where privatization has been working, a brief description of how King County operates and the County's spending and staffing in 1996. These financial and staffing figures are intended to give the reader a reference point for the general magnitude of the dollars being devoted to particular tasks. They do not imply that too much or too little is being spent, nor that there are necessarily program inefficiencies, nor should these numbers be compared, without additional evaluation, to the cost of similar functions in other jurisdictions.

These summaries have borrowed from research done by others around the country. An extensive bibliography is included at the end of the paper. Special mention and appreciation goes to Bill Eggers and the Reason Foundation for their continued commitment to the issue of privatization and for their most recent work in which they provide many of the illustrations that are included in this paper.

Public Enterprises

King County Airport

Boeing Field is primarily a general-aviation airport owned and operated by King County. Run as an enterprise fund, airport expenses are paid from income earned from airport operations. The field is used by The Boeing Company, small charter airline companies, and, in a limited way, for cargo shipping to and from Alaska by commercial airlines.

Privatization Potential

U.S. airport privatization has been limited primarily to contracts for management services. In only a few cases are airports owned by private firms or operated under long-term lease agreements. Considerable debate has surrounded proposals to sell or lease major airports like LAX in Los Angeles, BWI in Baltimore, Kennedy and LaGuardia in New York.

Upwards of 17 airports around the country are managed by private companies. Cost savings estimates range from 15 to 40 percent.

Congress passed a pilot program in 1996 that allows five airports to either sell or enter into long-term leases with private operators. Allegheny County, Pennsylvania is expected to be the first to apply under the pilot program.

Examples of Privatization

Indianapolis contracted management of its airport in the mid-1990's. The winner of a com-petitively bid contract committed to reduce landing fees by 25 percent over the 10-year term of the contract.

The White Plains/Westchester County Airport in New York state has contracted for its management for nearly 30 years, turning large operating losses (up to $250,000 a year) into solid net income of up to $3 million per year.
King County Opportunities

King County Airport reported about $7.5 million in operating revenue in 1996, pri-marily from space rental fees and concession proceeds paid by airport's tenants.

The airport's 40 staff earned about $2.1 million in salaries, amounting to 34 percent of operational spending of $7.6 million in 1996. The airport reported assets totaling $56 mil-lion in 1996 and an operating loss of about $27,000. With non-operating expenses and income (including $1.2 million in interest earnings), the airport reported total net income of $1 million in 1996.

The County should evaluate the potential benefits (like on-going tax revenues, cash, and elimination of operating costs and responsibilities) of selling King County Airport against the costs of such a divestiture. If electing to retain ownership of the airport, the County should evaluate potential net savings possible through contracted management and operation.

Public Transit

Since the merger with Metro in 1993, King County has been responsible for countywide public transportation. Until the 1980's, public transit primarily involved getting to, from, and around within the city of Seattle. This is no longer the case. With the growth in population and dispersion of economic activity throughout the county since the 1970's, today's challenge is to program resources to help people move efficiently within and be-tween the population centers that now surround Seattle.

Privatization Potential

Increasingly, transit systems around the world are contracting with private companies to provide passenger service. Typically, the public agency sets fares and a desired level of service, and private firms operate bus services. London, San Diego, and Denver are among many cities where such activities have succeeded.

Examples of Privatization

San Diego's transit system contracts 37 percent of its services at an average cost per revenue mile of $2.62. This compares with $4.89 per revenue mile for its public transit operations. Routes are bid competitively, and management reports that the competition promotes lower costs in both public and private operations.
Through an act of Parliament, London began contracting bus service in 1985. By the year 2000, all of its service will be contracted. Nearly 40 companies provide services under 150 competitive contracts. These have resulted in a 30 percent decrease in operating costs, a 29 percent increase in service levels, and a 94 percent fare-box recovery ratio.

Community Transit in Snohomish County contracts 35 percent of its service, including nearly all of its express routes to downtown Seattle. A new, 5-year contract, negotiated in 1996, is expected to save between $10 and $18 million.

King County Opportunities

In 1996 the transit agency spent about $293 million and was budgeted to employ 3,152 FTE staff. The agency collected nearly $58 million in operating revenues, primarily farebox revenue, and was otherwise subsidized with non-operating revenue, primarily sales and motor vehicle excise taxes.

The County should evaluate the per mile and per passenger costs of each of its routes and consider expanding alternative modes of public transportation, like shuttles or contract taxi service, where utilization justifies, or competitively bidding certain routes to be used as pilot cases. Pilot costs and operations should be monitored so that public and private delivery models can be compared.

The Washington Institute Foundation will sponsor a series of workshops on transportation innovation in the fall of 1997. Topics will include "build-operate-transfer" models of capital construction and ways of creating a competitive environment in local transit service.

Solid Waste

Garbage hauling, recycling and disposal are local government responsibilities bearing high price tags and increasingly strict environmental regulation. Growing, too, is the role played by the private sector. Several surveys have been conducted over the past few years documenting the growing presence of private ownership and operation of solid waste recycling and disposal facilities and transportation.

Privatization Potential

More than 50 percent of U.S. cities contract all or part of their garbage collection services, according to the Reason Foundation. In 1996, Seattle's R. W. Beck polled 1,600 municipalities, representing more than 80 percent of the U.S. population, and found more than a third of the communities are considering privatizing some phase of their solid waste management system.

A 1984, analysis sponsored by the US Housing and Urban Development department (HUD) found that contract garbage collectors offered similar quality service for costs averaging 28 to 42 percent less than public employees in 20 sample southern California cities.

Examples of Privatization

Indianapolis called for competitive bids for its curbside refuse collection in 1993. The city's own Department of Public Works bid and won a contract, and beat its first year target savings of $3 million by $2.1 million. In addition to DPW, four private firms were awarded contracts to serve the city's 11 solid waste districts. No more than three districts could be awarded to any one contractor, in order to promote competition.
Traverse City, Michigan, voted to put itself out of the waste business in 1990. Today, six private firms compete for 2,200 residential trash customers.
King County Opportunities

King County employed 377 FTE staff and paid nearly $16.6 million in salaries in 1996 for its solid waste operation. The County's Solid Waste Enterprise Fund reported total spending for 1996 of about $60 million. It spent $34.1 million in its solid waste administrative division on functions including engineering, planning, fiscal analysis, household hazardous waste, and recycling. One of the largest single expenditure items in solid waste administration was $9.7 million for the County's landfill reserve fund. In addition the County spent $5.9 million on shop operations, $1.7 million on operations management, $4.1 million on transfer stations, $3.8 million on transportation (including $2.7 million in regular salaries), $3.3 million at the Cedar Hill landfill, and $2.0 million on landfill gas and water. Refuse collection in King County is handled under franchise agreement with four private firms by the state's Utilities and Transportation Commission.

The County should consider private ownership of any new transfer stations and begin a full review of other privatization opportunities, like contracted transportation and operation of transfer stations.

Wastewater Treatment

Wastewater treatment is a federal requirement of communities throughout the country. In King County the Municipality of Metropolitan Seattle (Metro) was historically responsible for treating residential and industrial wastewater. In 1993 Metro and King County government officially merged their operations and King County absorbed all of the wastewater treatment functions and responsibilities for Seattle, suburban cities, and unincorporated areas throughout King County. With the County's reorganization that necessarily followed, wastewater treatment functions became part of the Wastewater Treatment Division of the County's Department of Natural Resources.

Privatization Potential

The Heritage Foundation conducted studies during the 1980's that estimated cost savings associated with privately contracted construction and operation of wastewater treatment facilities to range from 20 to 50 percent compared with in-house operations. These savings were due in major part to shorter construction periods and lower construction costs.

With federal government support of several privatization pilots involving wastewater treatment in the early 1990's, privately operated treatment facilities have been on the rise. There are now estimated to be more than 500 different facilities throughout the country that are privately operated and publicly owned, with more anticipated as cities comply with regulations growing out of the 1993 Clean Water Act.

Examples of Privatization

White River Environmental Partnership manages the Indianapolis Advanced Wastewater Treatment facility making it the largest, privately managed wastewater treatment facility in the country. According to studies by the Reason Foundation, privatization has allowed Indianapolis to save more than $65 million over five years, to trim its plant staffing by 154 employees, and to reduce employee grievances from 38 to zero. At the same time wages and benefits are up by four percent, industrial insurance rates are down by eight percent and effluent violations are down by 50 percent.

King County Opportunities

The Wastewater Treatment Division managed wastewater treatment facilities throughout the County including its major secondary treatment facility, West Point, located on Puget Sound, west of Magnolia, in Seattle. Operational staffing in 1996 was budgeted for 676 FTE employees, with operational spending budgeted for more than $75 million. The County should explore private management and operation of its existing wastewater treatment facilities. Where new facilities are being considered, the County should evaluate the potential benefit of private construction and management and compare costs with those anticipated with a more traditional approach.

Public Programs

County Jail

The County Jail houses adult men and women arrested by County police, as well as those individuals arrested by Seattle and the other cities in King County. The jail books each person, houses and feeds them, escorts them to court hearings, and transports them to other facilities, when necessary. Individuals housed in the jail are primarily those awaiting trial who pose a threat to society and those who have been tried, found guilty and sentenced to less than a year.

Rising costs, overcrowding, and court-ordered solutions have prompted state and local governments to move to private responses to detention and incarceration. Included are private detention facilities, electronic monitoring, and private transport of prisoners.

Privatization Potential

Private companies most often operate medium- or minimum-security facilities, freeing up space for inmates requiring more intensive oversight. However, Correction Corporation of America is now specializing in operations of maximum-security facilities.

Savings from private management of jails and prisons are reported to range from 15 to 35 percent when compared with government-run facilities.

Examples of Privatization

Florida passed legislation in the mid-1990's enabling 1,500 additional private prison beds to be built. Contract awards typically require more vocational training and education programs and a commitment to cost reductions of 10 percent compared with other state-run facilities. Such cost savings stipulations are common in private prison contracts, according to the Reason Foundation.

Two studies conducted by the Tennessee legislature found that the state's "private prison is operating at a lower cost and providing better and safer services than comparable prisons ad-ministered by the State Department of Corrections."

King County Opportunities

About 743 FTE staff worked for the County's Department of Adult Detention, earning more than $30.5 million in 1996. The County collected nearly $31 million in revenue including more than $15 million from housing prisoners of the city of Seattle and other King County cities, as well as prisoners of the federal government. Spending by the department in 1996 totaled more than $58 million, with the balance of the department supported by County taxes.

King County expects to house about 2,500 inmates on an average daily basis in 1997. The Regional Justice Center in Kent opened in April, 1997 and is expected to house about 524 prisoners. With its opening the County will terminate contracts with Yakima County and the State of Washington for adult bed space at their detention facilities.

With current capacity problems resolved, King County should explore opportunities like contracted management and operation, private food service and prisoner transport.

Parks Management

Local government and counties, in particular, typically have extensive parks and rec-reation programs. These, include large, multi-use parks that promote activities like hiking, camping, fishing, boating, and swimming, as well as smaller neighborhood parks with swimming pools and ball fields, recreational classes, after-school and summer programs and late-night programs for teens.

Privatization Potential

Contracting for park management and operations has resulted in savings between 20 and 50 percent, according to some studies.

Examples of Privatization

In New York the Central Park Conservancy, a non-profit organization, manages Central Park. It has raised more than $100 million since 1980, for park operations and maintenance. It contributed half of the $135 million in capital improvements to the park completed since 1980 and carries more than 70 percent of the city's park workers on its payroll. The city now takes in more than $4 million in concession revenue and has experienced a 59 percent drop in crime in the Park.

Rancho Palos Verdes, California, eliminated its recreation services and programs when it learned that private organizations, both profit making and non-profit, were providing many of the same programs at reasonable prices. Private providers committed to expanding their programs to absorb recreation services the city had been providing. The city is now bringing in revenues from facility and grounds rental fees charged to the private recreation services providers.

King County Opportunities

King County spent $21 million on parks in 1996. About half -- $11 million -- was paid in salaries to the County's nearly 200 employees working for the Department of Recreation and Aquatics.

King County collected $5.7 million in revenues in 1996 earned primarily from park facility rental and concession fees.

The County should work with private parks management firms to determine the value and feasibility of contracting for management services at various county facilities. Various recreation activities offered by the County should be evaluated separately to determine which should continue to receive public subsidy. The County should seek methods through which to deliver these subsidies (vouchers, for example), that target desired subsidies and minimize the effects on competitive recreation markets.

Parks Maintenance

King County has 220 different parks and open space areas covering 18,500 acres. They range in size from large, natural resource-type parks, like Cougar Mountain Regional Wildland Park with more than 2,800 acres, to small, neighborhood parks with ball fields and swimming pools. The County has one of the largest trail systems in the country with over 200 miles of walking and hiking trails, as well as one of the largest aquatics programs, with two outdoor pools and 16 indoor, including the Weyerhaeuser-King County Aquatics Center in Federal Way.

Privatization Potential

As cash-strapped local governments tightened their budgets in recent years, contracting for park maintenance services increased around the country. Savings have been estimated to range from 10 to 28 percent. These programs, which have included helping local neighborhoods to assume more responsibility for upkeep of their nearby parks, have contributed not only to cost savings, but to a stronger sense of community and a greater satisfaction with community assets and programs.

A HUD study showed that private turf maintenance contractors were costing 40 percent less than public employees in 20 sample southern California cities, with no sacrifice in service quality. Contractor savings resulted primarily from: Lower absentee rates (including vacation); lower tenure, less unionization and younger workers; greater flexibility in hiring and firing; more delegation of authority; and, lower pay and benefits.

Examples of Privatization

King County's Department of Recreation and Aquatics enjoyed the help of about 4,000 volunteers, who worked more than 33,000 hours in 1996. Many of these people worked through the County's Adopt-a-Park program helping with upkeep of park grounds and facilities. Some of the more common tasks include: Planting shrubs and trees; clearing trails; monitoring wetland water quality; building benches and small buildings; and monitoring for graffiti and vandalism.

King County Opportunities

The County spent nearly $8 million on park maintenance in 1996. It should evaluate the potential savings of contracting with private firms for maintenance of its larger park facilities; explore the savings and feasibility of contracting with non-profit neighborhood associations for upkeep of nearby neighborhood parks; and consider transferring neighborhood park ownership to such associations.

Road Maintenance

Road maintenance represents one of the County's primary areas of traditional responsibility. A major source of constituent concern and complaints, road maintenance includes filling potholes, sealing cracks, painting lines, cleaning and snow removal, as well as trimming trees and bushes to maintain visibility.

Privatization Potential

A 1995 survey conducted by the Mercer Group of 120 local governments in 34 states found that 37 percent of the jurisdictions outsourced road maintenance, an increase of 19 percent between 1987 and 1995. A HUD analysis found that private contractors cleaned streets with similar results for 43 percent lower costs than municipal employees, due to: More productive workers; longer shifts; lower absentee rates (including vacation); wider span of supervisory control; more standardized equipment promoting greater worker familiarity in operations; and workers more likely to be responsible for assuring equipment maintenance.

Examples of Privatization

Indianapolis found that even after halving the number of workers on a crew they could not be competitive with private firms. Indirect management was the problem in the early 1990's, with 32 management supervisors for 95 truck drivers. Front-line union drivers asked Mayor Goldsmith to relieve them of the overhead burden of their supervisors in their cost-of-business calculations. The Mayor agreed and laid off most of the supervisors and the city employees won the competitive contract. These employees, who now have the help of an intensive, full-cost accounting system, can account for the costs for every mile of road they repair.

The city of Laguna Niguel, California, reduced its costs of street maintenance by 25 per-cent in the first year by contracting with a private firm. It had previously contracted with Orange County for street maintenance services. Laguna Niguel now has a regular patrol of its rights of way, reduced response time to constituent complaints from 56 days to 6.5 days, a reduced number of complaints, cleaner streets, and more control over how the maintenance program is accomplished.

King County Opportunities

King County's road fund employed 481 FTE staff in 1996 and paid salaries totaling $27.4 million.

The County spent $31.7 million on road maintenance in 1996. More than $3.2 million of this amount was spent on various road and building supplies purchased from private companies, with another $3.2 million spent on mostly private contract services for equipment rental and repair services.

The County should evaluate specific road maintenance tasks performed in-house and consider competitively bid contracts for a portion of the work. Areas or tasks that have extraordinary requirements periodically, like emergency road repair, are particularly ame-nable to private contracting.

Youth Detention

Youth detention in King County experienced unprecedented growth in 1996, with peak populations often exceeding 210 youth offenders. The facility in which these young people are housed was built for populations requiring 160 beds. The Department of Youth Services continues in 1997 to develop long terms plans for an alternate youth detention facility.

Privatization Potential

Private resources similar to those available for adult jails and prisons are also being built for youth offenders.

A study released in 1996 by the Washington State Legislative Budget Committee concluded that: Cost savings have been achieved through privatization in other states; competition had the effect of keeping costs down at public facilities; and, that private facilities reviewed were as secure and safe as public prisons (with private prisons having no escapes and fewer major disturbances than public facilities during the review period).

Examples of Privatization

Corrections Corporation of America (CCA) owns and operates seven youth facilities, including its newest 100 bed facility at Okeechobee Training Center in Florida. In addition CCA owns and operates Shelby Training Center, a 175-bed secure juvenile training school in Memphis, Tennessee and Tall Trees, a 63-bed non-secure juvenile residential facility in Memphis. All of these facilities are accredited by the American Correctional Association (ACA), whose standards are recognized by the corrections industry.
CCA specializes in housing programs for violent offenders. All of its youth facilities have training components including basic and vocational education, and life skills training.

King County Opportunities

In addition to the County's resource commitment to adult detention, 272 staff work for the Department of Youth Services, earning about $10.2 million in salaries. Youth Services spending in 1996 totaled more than $18.2 million.

At a minimum King County should explore private solutions in facility ownership and management as it evaluates how to address its current space needs for housing juvenile offenders. As with adult detention, there is potential for privatization in food service and prisoner transport. The County should review its use of private providers for coun-seling, vocational training and basic education for possible savings, paying special atten-tion to whether or not providers are competitively selected.

Internal Services

Building Maintenance

Contracted building maintenance for government facilities has a history dating back at least 20 years. As a result, numerous private custodial firms have demonstrated their ability to operate more efficiently, decrease costs and increase customer satisfaction. King County's Department of Construction and Facilities Management provides building maintenance services to most County agencies as an internal service for which it charges each department.

Privatization Potential

Some jurisdictions have saved more than 50 percent by contracting for building maintenance services. In the 1995 Mercer Group survey, nearly 70 percent of the governments responding contracted for janitorial services.

The 1984 HUD analysis determined that cities using in-house staff averaged 73 percent higher costs than cities contracting with private janitorial firms with no difference in service quality. Private contractors tended to pay lower wages and benefits, use part-time workers, schedule cleaning during non-business hours, employ more equipment, and achieve lower absentee rates.

Examples of Privatization

Los Angeles County, California was able to reduce its costs for custodial services by 51 percent to $1.85 per square foot for a total savings on 15 buildings of more than $200,000 by contracting privately.
The New York State budget office and the state's Office of General Services (OGS) hoped to save $1.2 million over five years when they embarked on a managed competition for janitorial services. After one year of the project, they anticipated savings instead to range be-tween $35 million and $54 million over five years. The competitive bidding process enabled OGS staff to find ways to redesign work processes, reduce management layers and break time allowances. As of 1996, cleaning contracts for five buildings had been won by private firms and five had been won by the OGS employees.

King County Opportunities

In 1996 the department employed 102 FTE maintenance staff with salaries of more than $3.9 million. Spending for building maintenance services in 1996 totaled $9.7 million. Nearly $3.3 million of this amount was spent on maintenance of heating and ventilation systems. In addition $2.2 million was spent for maintaining the Courthouse-garage-administration building complex; $2.6 million for specialty buildings, like the jail; and $1.3 million for outlying buildings, including police precincts and public health and district court offices.

The County should seek competitive bids for janitorial services for its various buildings and complexes of buildings.

Motor Pool

King County, like most counties, owns fleets of cars, buses, and vans. Maintenance of these vehicles, like oil changes, tune ups and other repairs, as well as with managing equipment rentals, require a full assortment of staff. These operations are often the source of frustration due to problems with scheduling and availability, vehicle upkeep, appearance and operation, and unnecessary replacement costs associated with poor preventive maintenance. In addition some jurisdictions have expressed concerns for potential environ-mental liability like hazardous waste products and their handling.

Privatization Potential

For more than a decade governments throughout the country have been either turning to private contractors for fleet management and vehicle maintenance or benefiting from open competition. Although ownership of cars and equipment has typically remained with government, vehicles are increasingly being taken to private providers for quick oil and lube jobs, fueling, and other maintenance services, as well as for overall fleet management. Where services have remained in-house, competitive bidding and the threat of privatization has resulted in productivity and efficiency improvements.

Examples of Privatization

San Mateo, California solicited proposals for fleet maintenance services in 1993, eventually selecting Managed Logistics Systems and saving nearly 20 percent in its 1994 budget.

In Coral Springs, Florida city employees won the competitively bid contract for fleet maintenance. The lessons they learned through the competitive process helped them to cut costs by more than $200,000.

The Indianapolis mayor competitively bid the city's central garage, which was widely acclaimed for its efficiency. Three of the country's biggest contractors submitted bids. The city's own department submitted a bid eliminating $2.5 million in overhead, increasing productivity by 22 percent, reducing costs to other city agencies and eventually saving $4.6 million. By surpassing its cost-containment goals in the first year, city employees were entitled to incentive pay-ments of more than $75,000.

King County Opportunities

Of the total $6.45 million in revenue collected by the County's motor pool from other county offices in 1996, $4.82 million was for vehicle maintenance, including $757,453 in fuel sales.

Motor pool had 19 FTE staff in 1996 and salaries totaled $721,800. Spending on vehicle maintenance totaled about $2.0 million. The excess revenue collected from departments beyond annual spending is explained in large part by the County's policy for maintaining a fund for vehicle replacement.

The County should review its policies for fleet maintenance to determine the potential for greater use of private providers. In addition it should evaluate the potential savings of either leasing its fleet or contracting privately for fleet management and maintenance services.

Purchasing

King County's procurement division buys office supplies and equipment for all County departments. Many high-use items, like paper, tablets, pencils, pens and the like, are normally kept in stock, while more individualized items, like desks, chairs, and computer equipment, are ordered separately, as needed.

Privatization Potential

The economies-of-scale present in volume purchasing can be enormous, as has been well-demonstrated by large warehouse stores, like Costco and Office Depot. Similarly, in purchasing for an organization, the ability to buy in large quantities enables large cost savings. For many years most people in the purchasing arena assumed that large or-ganizations were capturing most of the savings possible through volume buying. The state of Oregon disproved this assumption several years back when it contracted with Boise Cascade Office Products. (See below for results.)

Examples of Privatization

In 1991, after a successful pilot program that had begun in 1988, the state of Oregon contracted with Boise Cascade Office Products and replaced its 15-person general store. The move immediately gave Oregon state agencies access to more than 10,000 in-stock items, where its general store has only been providing 1,000.
Agencies accustomed to waiting weeks for delivery of common office products, immediately began receiving most orders within 48 hours.

Because of the long waits and high prices, agencies had been purchasing from outside suppliers. As a result the initial estimates of purchases anticipated to be made from Boise Cascade were more than 35 percent underestimated.
In price testing that occurred as part of the state's on-going contract management, Boise Cascade's prices were consistently lower -- by hundreds or thousands of dollars -- than prices offered by office warehouse stores like, Bizmart and Office Club. In addition Boise Cascade provided extra services, like free delivery.

King County Opportunities

In 1996 about $1.0 million was spent by the County. Most of this amount -- $608,810 -- paid the salaries of 31 FTE staff employed by the procurement division. Spending on supplies and equipment is reported in the individual spending for each department and is not readily retrievable for the total County. County departments may purchase directly from outside vendors to a limit of $2,500 per purchase per vendor.

At a minimum the County should encourage departments to compare prices between what they are paying the purchasing department for various supplies and equipment and what they might be quoted by outside suppliers. In addition the County should review the possibility of contracting with a private provider similar to the model used by the state of Oregon.

Real Property Management

Management of the various properties owned by County government can require sig-nificant staffing and budget commitments in order to accomplish all of the responsibilities that attend ownership. At a minimum these responsibilities include building maintenance, which has been discussed. Full real estate management includes repair and maintenance, including replacement of capital items, construction of tenant improvements, and management of space utilization to minimize vacant space. Cost calculations for government-owned office space frequently ignore invested capital used to construct or purchase a building and the property taxes foregone by public ownership.

Privatization Potential

Private management and operation of public stadiums, arenas, convention centers, and other buildings has gained in popularity and feasibility over the last couple of decades. Numerous private management firms have joined the marketplace and governments are finding they can get the job done better, spending less money than they would have to spend for in-house management, in several cases turning around significant operating deficits that had accumulated. Management fees range from $50,000 to $200,000 per year with incentives. The incentives may be based on how closely the private contractor meets its annual performance and budget objectives.

Examples of Privatization

The city of Riverside, California privatized its convention center in 1991, with savings in the first year of $400,000.
In the first year of operating the City Center of Performing Arts for Coral Springs, Florida, Professional Facility Management reduced the city's operating subsidy by 33 percent, increased revenue by 19 percent, and achieved a 28 percent attendance increase.
Spectacor Management Group (SMG) reduced spending by $220,000 from the operating budget approved by Shelby and the city of Memphis, Tennessee for the Cook Convention Center. SMG offered positions to 27 of the center's 32 full-time employees and the other employees found jobs in other county departments.

King County Opportunities

In addition to raw land, parks, and open space, King County owns numerous buildings and other facilities throughout the County that are in various states of repair and occupancy. In 1996 about $1.6 million was spent by the Property Services Division, the unit responsible for real property management. About $2.24 million was collected, primarily in space rental charges. The division employed 27 FTE staff and paid salaries totaling $1.2 million.

The County should evaluate the potential benefits of contracted property management services, as well as review its inventory of real estate holdings for potential sale or owner-ship transfer.

Additional Suggestions for Privatization

In this report we have reviewed only a few of the privatization opportunities that exist and that have been implemented successfully around the country. Several additional possibilities are discussed briefly below:

Health and Human Services

Health care costs that escalated rapidly in the late 1980's and early 1990's prompted many local governments to look for alternatives ways of accomplishing their traditional responsibilities. Two examples illustrate the possibilities:

Orange County, California, now buys only the hospital bed-days that it needs for its indigent health care program from 28 contracting hospitals. It paid $816 per day for inpa-tient service, excluding physician charges, in 1993-94.
Amarillo, Texas sold its community hospital to Universal Health Services. By doing so, it created a $200 million trust fund; repaid $13 million in bonds; eliminated Amarillo tax burden of $8.5 million; received property and other local taxes of $3 million annually -- a net gain of more than $11 million; and paid, ongoing, hospital-related costs for indi-gents at the hospital and primary care clinic.

Permit Review and Building Inspections

Like many local government services, building and development permit review and the related building inspections, which are necessary as a development progresses to completion, are functions whose staffing requirements experiences peaks and valleys that track the economic cycle of a given region. Rather than hire staff to fill the fluctuating need for review and inspection services, cities and counties could contract with local planning and engineering firms for these services. Not only would there be savings associated with benefit and pay differentials between public and private planners, but as demand for these services retracted to normal levels, government could reduce its use of review and inspec-tion services without the disruption of eliminating positions.

Window Washing

King County's Harborview Hospital attempted to contract for window washing in the late 1980's, and place its one full-time window washer in charge of managing the contract. The union sued and won under a Washington State law that does not allow private con-tracting of positions customarily held by public employees.

In Chicago, however, significant savings were realized by contracting for private win-dow washing. Where the city had been spending $500,000 in 1991, the new, private con-tract cost the city $150,000, saving $350,000 and eliminating the need to warehouse chemicals and other cleaning supplies.

Parking

Chicago, under Mayor Richard Daley, also contracted with a private firm for operation of its O'Hare Airport parking garages starting in 1993. Savings totaled $2.5 million as costs of operation dropped from $15 million to $12.5 million.

Other

In addition, the 1984 HUD-sponsored analysis of 20 southern California cities found substantial cost savings with private contractors in the areas of traffic signal maintenance, asphalt overlay construction, and street tree maintenance. For asphalt construction over-lay, in particular, superior productivity overcame the private contractor's larger work crews, higher wages, and more expensive asphalt costs.

About the Author

Economist Elaine R. Davis has spent more than 20 years in public policy research and program development. She is a Senior Research Fellow for the Washington Institute Foundation.