Detroit Rescue Plan Leans (Lightly) On Privatizing City Services

Detroit Rescue Plan Leans (Lightly) On Privatizing City Services
February 24, 2014

The city of Detroit has published its plan of adjustment detailing how it intends to solve the city’s fiscal and other problems. It includes important references to privatization of certain services, though it doesn’t go far enough. A bolder vision might spare city retirees and creditors from deeper cuts.

Page 116 of the Disclosure document makes it clear Emergency Manager Kevyn Orr is prepared to contract out for some if not all the operations now provided by the Detroit Department of Transportation. This was a recommendation made by the Mackinac Center state think tank in late 2000. At the time, we estimated the city could save $60 million a year by doing so. If they had saved just half of that since 2000, Detroit would have accrued $360 million in savings by now.

The report also alludes to the possibility of outsourcing city airport work and redeploying city parking assets.

On balance the reforms laid out by Orr “give short shrift to outsourcing and asset sales,” according to Leonard Gilroy of the Reason Foundation, a national expert on privatization, although the city has just recently signed a contract for refuse collection.

‘Lots of Low-Hanging Fruit’

“While it’s encouraging to see proposals for sensible privatization initiatives in transit operations, parking, payroll administration, and airport operations, these are drops in the city’s fiscal bucket,” Gilroy said. “There’s still a lot of low-hanging fruit left untouched in terms of cost-savings opportunities through privatization, particularly in areas like public works, fleet operations, and various administrative support functions.”

In addition, the city could do much more to maximize revenue: It could sell more properties and other assets and aggressively contract out more services and end them where possible. Using such an aggressive program, Pontiac, Mich. cut its General Fund spending by 43.5 percent and its employment rolls from 495 to a proposed 20 in just five years.

Cutting 43.5 percent out of Detroit’s General Fund would mean a nearly $480 million decline in spending, which would go a long way toward reducing the cuts that may be imposed on the city’s retirees and creditors.