8844 EXTENSIONS OF REMARKS April 26, 1988 EXTENSIONS OF REMARKS PRIVATIZATION OF PUBLIC for Touche Ross and Co., an accounting bage collection, submitting its own bids for SERVICES firm. Almost 80 percent of the cities re­ contracts. It lost the bids at first, but in the sponding to a recent Touche Ross survey past two years it has won. "We went say privatization will be a primary tool used through quite a learning process in doing HON. PHILIP M. CRANE to provide local government services and fa­ that," says Ron Jensen. Phoenix's public OF ILLINOIS cilities over the next decade. works director. "Each time, we analyzed the IN THE HOUSE OF REPRESENTATIVES The reason is clear: Private firms can de­ operations or the private contractor and de­ liver public services from 20 to 75 percent termined ways to improve methods, technol­ Tuesday, April 26, 1988 more cheaply than cities, studies show. ogy, operations, whatever it might be, to Mr. CRANE. Mr. Speaker, I am a strong pro­ Caught in a fiscal full nelson, cities see pri­ where we gradually improved our oper­ ponent of privatizing public services. Indeed, vatization as one of the few ways out. ations. Then we started winning the bids." facts have proven that the free market system The squeeze is coming from all sides. The City worker morale has improved. "We federal government no longer doles out bil­ have broken the stereotype" of the patron­ is most efficient. The transfer of public serv­ lions in revenue sharing. The estimated gap ices from Government monopoly to free age-ridden sanitation departrment, says between actual and needed spending on in­ Jensen. "Our employees are not treated as market competition will stimulate economic frastructure-highways, sewage plants, mass second-class citizens by the community, be­ growth, by both reducing costs and improving transit-will reach $450 billion by 2000. cause it is recognized that we have high pro­ efficiency. Furthermore, competition will lead Bumping up against their own borrowing ca­ ductivity and are very competitive." to the creation of more productive jobs. Pri­ pacity and loath to raise local taxes, even as City department managers often face per­ vate firms are generally more flexible and in­ constituents demand more services, cities verse incentives: the bigger their budget and are running out of places to turn. the larger their staff, the higher their novative than public firms, thus public services "That's how we get into the picture," says under private management would not inherit salary and status. Phoenix, in contrast, John Turner of Rural/Metro Corp. in bases salaries on productivity. So when con­ the stagnation that characterizes the present Scottsdale, Ariz., the nation's largest fire system. Therefore, I commend the following tractors lowball bids, quoting rockbottom protection company. with revenues expected prices to get into the market, "instead of us article by Carolyn Lochhead, which points out to top $50 million this year. Operating with saying that's unfair, we say the taxayers the advantage of privatization, for the careful higher productivity and economies of scale, win," says Jensen. "That's our ultimate consideration of my colleagues: private companies are offering huge savings goal." [From Insight, Feb. 22, 1988] in fire protection, custodial work, vehicle Three years ago, when paying a crushing towing, park maintenance, garbage collec­ CITIES FINDING PUBLIC SERVICES BETTER­ tion-almost any service a city provides. $600,000 annual subsidy to its bus line RUN BY PRIVATE FIRMS Research in economics has uncovered forced South Lake Tahoe out of the busi­ Summary: Whether transit or trash col­ something called the "bureaucratic rule of ness, the California city donated the line to lection, school lunches or sewage treatment, two," according to Steve H. Hanke, profes­ its employees. Mike Dooley, a former em­ almost any service provided by local govern­ sor of applied economics at Johns Hopkins ployee and now partner in Area Transit ment can be done by private companies. University. Management, says the bus line has operated And, the record shows, for less. Competition "If you want to find the public cost of at a profit ever since, because it has to. and the quest for profits help keep costs doing something, you just find the private "We couldn't operate the system at a down and service up. As tax revenues are cost and then multiply by two, and that'll profit if we had taken it over exactly as the squeezed tighter and demands rise, privat­ get you pretty close," he says. city was operating it," he says. "They had ization will be a major factor in government Labor costs are often why, Gary Jensen, service that we, I'm sure, for the conven­ servcies. president of American Emergency Services ience of the public, but there were routes A bridge is rising over the Red River at Corp. in Elk Grove, Ill., says in city fire de­ that were losers.'' Fargo, N.D., on the promise of a 25-cent toll. partment fire fighters work 40 to 53 hours a The city had discounted its $1 fare. Built, owned and operated by the Bridge Co. week, which includes time spent sleeping on "Hardly anyone actually paid $1," says and the Municipal Development Corp., it 24-hour shifts, while private fire companies Dooley. "Seniors paid 25 cents, juniors paid will be the first privately built major U.S. run on 60 or 72 hours a week. "The cities 50 cents. Now they pay $1. We feel every­ bridge in more than 40 years. just give away the store," Jensen says. As a body pays their fair share." A private fire company fights fires in Elk result, private costs are 20 to 50 percent All employees took cuts in paid vacation Grove, Ill. A private organization mediates lower. and wages, although Dooley says wages civil disputes in San Francisco. A $1 billion Rural/Metro's equipment costs are gener­ remain competitive in the local market. The privately built highway may soon encircle ally lower, too. "To quote the founder of the city is now saving itself the $600,000 and it Denver. Private schools teach dropouts company," says Turner, "'Chrome doesn't gets bus service. under state contract in Tacoma, Wash. And put out a fire.' You see these great chrome­ "The city, being a government body, has real estate developer Donald J. Trump decked chariots going down the street­ certain handicaps in running the business, became something of a folk hero among they're very pretty -but you don't need all even at break-even," Dooley says. It could New Yorkers in 1986 when he renovated the the excess cost that's built onto those not make quick purchase decisions, for ex­ Wollman Memorial Skating Rink in Central things." ample. "Nobody would say that private en­ Park ahead of schedule and $750,000 under City monopolies on garbage collection or terprise can't do it more efficiently than the his $3 million budget. This after the city street paving, for example, pose the same city did, and even the city will agree with had spent $12 million and six years trying to problems private monopolies do, economists that.'' get the rink operating, to no avail. say. Service declines and prices rise. A mo­ Volunteer groups, such as Community Private firms are now delivering city serv­ nopoly provider does not have to be pleas­ Board Program, have privatized even jus­ cies from school lunches and garbage collec­ ant to customers. Departments become po­ tice. Based in San Francisco and funded by tion to wastewater treatment and mass tran­ liticized and patronage-prone. Among pri­ corporate and foundation grants, the orga­ sit. Virtually all the country's large engi­ vate companies, the profit motive tends to nization operates in some 40 cities around neering firms have expanded into municipal drive costs down and to enforce discipline. the country. Citizens volunteer to be trained work. New firms, such as Graffiti Removal The more competitive the industry, the in mediation, after which they donate time Inc. in Los Angeles, are springing up. By more this applies. each month to hear disputes. Users pay some estimates, spending on privately pro­ Phoenix has been dubbed the "petric dish nothing. Individuals and groups-say, home­ vided government services is running as of privatization" for its long-running experi­ owners vs. teenagers using a local park-go high as $100 billion a year. mentation with contracting out services. before the board to talk through their con­ "I don't think we've reached a quarter of Since 1978, the city's own sanitation depart­ flict, says founder Raymond Shanholtz. the potential" market, says Irwin T. David, ment has competed against private contrac­ "Tensions are reduced dramatically. People national director of public sector services tors for half of Phoenix's residential gar- get tQ disgorge their hostile emotions in a e This "bullet" symbol identifies statements or insertions which are not spoken by a Member of the Senate on the floor. Matter set in this typeface indicates words inserted or appended, rather than spoken, by a Member of the House on the floor. April 26, 1988 EXTENSIONS OF REMARKS 8845 neutral and safe setting, rather than on the also breeds corruption. AFSCME runs na­ waiter where the pay phone is. Back on street, where it may escalate." tional ads that Phoenix calls "erroneous." April 6, 1986, she had lots to be excited Shonholtz says the program has proved Proponents agree that abuses will arise if about. A star on Broadway for three dec­ successful. "It's very clear that it's quite a city trades its own monopoly for a private ades, since West Side Story, she was back possible to set up a whole other justice monopoly.