With the clock ticking last fall, Centennial, Colo., officials had a tough decision to make. For the first time since it incorporated in 2001, the Denver-area city soon would be responsible for its own public works services, which previously were provided by Arapahoe County. City leaders had to make a choice: go it alone or hire out the operation to a contractor.
So, Public Works Director Dave Zelenok opened his spreadsheet and calculated the options. He could either build his department from scratch, buy all the equipment and hire a staff, or he could outsource the whole operation to a third-party provider. After running the numbers, he and other city leaders decided to outsource. “I was pleasantly surprised,” he says. “The outsource option was competitive against the public sector model in a large city.”
On July 1, 2008, Englewood, Colo.-based CH2M HILL OMI began conducting all public works functions for the city of 110,000 residents, from water and wastewater system optimization and operation to community development and public works administration. “This is a turning point,” Zelenok says. “Outsourcing has now moved into a major city of over 100,000 people. There’s never been a conversion of this size.”
Centennial is just the latest city to contract with a private firm to take on traditionally public responsibilities. While Centennial is contracting with a single provider, others have chosen to use a variety of vendors. But in all the cases, cities are motivated to consider the move in an effort to improve service and control costs through competition and reduced overhead. Whether more cities will outsource may depend on economics, community acceptance and potential political opposition.
Picking and choosing services
The trend toward outsourcing entire public works departments is more of a trickle than a gusher at this point. While acknowledging that there have been cities that have moved to the private sector model, Dennis Houlihan, a labor economist for the Washington-based American Federation of State, City and Municipal Employees, says that the number has been “tiny” and mostly among smaller communities. Public works remains primarily a municipal department, Houlihan says, because of conflicts between the goals of the private and public organizations and lack of control of the public works function.
However, Richard Norment, executive director of the National Council for Public-Private Partnerships (NCPPP), says the concept of privately run public works departments is attracting increasing interest, nationally and internationally. “This started out popping up here and there,” he says, “but now this is a serious emerging trend.”
The model for outsourcing public works operations has been around for decades in the Los Angeles area. Lakewood, Calif., has relied on public works services supplied by outsiders for more than 50 years, ever since it incorporated in the early 1950s. Rather than allowing themselves to be annexed by Long Beach, homeowners in the development chose self-government. But that meant the new city could no longer rely on Los Angeles County to supply its services.
Initially, in 1954, the city contracted with the county for all of its services, including law enforcement, fire and public works. By 1957, the city had moved to a “hybrid” arrangement that meshed services from the county and private vendors, says Don Waldie, Lakewood’s assistant to the city manager. “We learned early to mix services,” he says. “We pick and choose which route is the most efficient and lowest cost. It depends on the character of the work.”
The city of 83,000 residents has only 170 employees and a budget of $60 million. Rather than a large work force, the city has 20 people who manage vendor contracts. Waldie says that 25 percent of California cities now are organized following Lakewood’s hybrid model. “I can’t say whether this is a better way of performing these services or not,” he says. “We have always done it this way. It would be impossible to change. We would be another kind of city.”
Pleasant Ridge, Mich., a community of about 2,500 residents near Detroit, decided one year ago to end its 10-year public works contract with a single private company to move to a hybrid model that now depends on five different companies and services from neighboring municipalities. The city contracts with nearby Royal Oak for water and sewer services and with Oak Park for its curbside leaf pick-up. For landscaping and tree maintenance, it contracts with a local company. “After working entirely with one company, we realized there are strong areas and weak areas, as any other department under city auspices,” says City Manager Sherry Ball. “This way, we have each provider’s strong suit. We can capitalize on the best of the best.”
Pleasant Ridge has no public works employees or legal costs, no overhead, no equipment or maintenance building; it just has to manage the contracts. The city is discussing with other communities the possibility of regionalizing public works services. “There’s no reason not to form more of an alliance and share services,” Ball says.
Given the same choice, though, Sandy Springs, Ga., leaders decided to hire a single provider when their city of 90,000 residents incorporated in 2005. Residents had been receiving services as an incorporated area of Fulton County, which includes Atlanta, but decided they could do better on their own.
The city hired one private firm for all city services — everything except police and fire, which the city provides. Since then, other nearby cities, including Johns Creek and Milton, also have adopted the sole-source model. Sandy Springs Mayor Eva Galambos says the ability to work with a single vendor has given the community “more flexibility than working through a civil service system.”
One improvement has consolidated all city information on a single database that allows residents to expedite their permits. An application for a home-owner to build a new deck can take 10 to 15 minutes, instead of the previous three weeks, and business permits are approved much faster. “We’re sticking with this model,” Galambos says. “It’s definitely more efficient.”
According to Norment, the Sandy Springs decision to use outsourcing for the whole city was a breakthrough for the model of providing public works services. Previously, he says, cities contracted just for pieces of their operation, like water systems. But difficult times are making cities rethink how they deliver services, he says, noting that renewal rates on contracts for private sector services are more than 95 percent.
In theory, nothing is preventing a much larger city from outsourcing its public works functions, Norment says. “The only impediment is developing the public consensus,” he says.
NCPPP has developed keys for successful private-public partnerships, and the list includes establishing the laws to allow such an operation, developing a receptive political environment and strong political leadership. “Cities are in a declining revenue stream,” because of falling tax revenues, he says. “This allows them to maximize their revenue and maintain control.”
Maximizing revenue and maintaining control were among the key objectives of Centennial, Colo., leaders as they debated whether to build their own public works department or hire an outside company to perform and manage the city’s daily operations. Zelenok, the city’s public works director and the key staffer behind the ultimate decision, came to the position from a unique perspective. Previously, as public works director for Colorado Springs, a city with about 375,000 residents, he had managed a department that performed everything from paving streets to operating a local toll road.
When Zelenok joined the city staff, Centennial had about eight months to figure out how to deliver public works services to the community. “I compared a fully burdened in-source model with an outsource model,” he says, “and outsource won, but not by a huge amount.” In comparing the two formats, Zelenok considered costs such as training, retirement plans and insurance. “Apples to apples,” he says.
In the end, other considerations entered into the decision to use the private sector alternative. Zelenok points out that there is now a call center that will respond to residents’ questions around the clock, seven days a week.
The final five-year contract, which includes a number of built-in penalties and performance incentives, is worth about $4 million for the second half of 2008 and about $8.6 million in 2009. The city will review the contract annually.
Most importantly, the outsourcing model gives the city more control, Zelenok says. “I don’t have to worry about the budget for the next five years,” he says.
For Zelenok, the outsource model allows him to spend less time on personnel issues, like hiring and firing, and more time crafting a strategic vision for the city. “It’s what I really want to do,” he says, “charting a way ahead for the community.”
— Robert Barkin is a Bethesda, Md.-based freelance writer.