Published  July 1999, in the Miami Herald

New cities cut costs, taxes by hiring private firms

South Florida Goes For Contract Operations

LYCIA NAFF
Herald Staff Writer

Contract cities concept catches on in a big way across country

PRIVATIZING CITY SERVICES


Pros and cons advantages advocates of contract cities point to these benefits:

No overhead or start-up costs: Contractors buy all equipment and pay for upgrades, maintenance and repair, as well as their employees' salaries and insurance, as is the case in Weston and Wellington, which contract with their counties for police, fire and rescue services.

Less infrastructure: If a city outsources its water and sewer services, it has no need to build its own utility, as is the case with Weston and Davie.

No labor disputes: Outsourcing police and fire eliminates a city's need to involve itself in union negotiations or salary disputes.

Less risk: If a contracted employee does something wrong and is sued, the contractor, not the city, assumes full financial and legal liability.

Guarantees: Good contracts include performance standards and completion guarantees.

Tangible results: Residents can measure whether contracts are working by results: Low crime rates and fast ambulance response times, clarity of drinking water, athletic fields in top shape, reliable trash pickups.

Pay for what you want: A contract can be tailored to the needs of the residents. Weston estimates that build-out will occur in a few years, thus eliminating the need for an in-house building department and staff. Instead, Weston contracts for a much smaller version of that service.

Economy of scale: A city can piggyback on other cities' existing contracts for items ranging from light bulbs to lawn maintenance. Buying in bulk reduces cost.

Also, if a city contracts high-end computer services, it doesn't have to keep an expensive computer expert on staff, or the accompanying computer infrastructure.

DRAWBACKS

Age: Older cities might find it too expensive to scrap a whole department -- which may include a city-owned building, employees and their severance packages -- in order to start fresh with a private firm. When Wellington looked at the costs of outsourcing its water utility, it found the cost savings were minimal and opted instead to operate the plant more efficiently.

Union resistence: Strong, politically influential unions will surely lobby against losing their jobs to an outsourced firm.

Competition and public input: Some contracts are not openly bid, but privately negotiated by the city or routinely awarded by the city manager, which limits competition and public participation. In Weston, many of the same engineering firms are rewarded contracts repeatedly without much public awareness.

Rate hikes: Outsourced departments could raise rates at renewal time.

Departments far away: Almost all of Weston's departments are based in Coral Springs or Hollywood, forcing residents to travel if they want to visit or see public records.

Public records: Public documents may exist in off-site departments, and per-hour staff charges may apply if private firms choose to bill for research and gathering documents.

Forfeits: If a contractor forfeits the job or goes out of business, the city may have to scramble for a replacement, possibly inconveniencing residents.

No home base: Some residents may feel displaced if no centralized government exists. Weston leases an office for its three employees, to whom the public has minimal access.

Some of South Florida's newest cities, created by residents demanding more for their money, are finding that it pays to hire private firms to run city departments.

Weston, Aventura and Wellington, all newly incorporated, are boasting the lowest tax rates in their counties and less red tape in getting things done.

They have structured bare-bones governments that keep costs and taxes low by hiring others to run police, fire, emergency rescue, water, parks and recreation, zoning and other departments.

This approach has allowed them to reduce staff, overhead, labor negotiations, the need to build and maintain city buildings and legal liability.

As a result, these ''contract cities'' spend less per resident on a given set of services than do older, traditionally-run cities.

In 1998, state reports on local government spending show Weston spent $666 per resident; Wellington, in Palm Beach County, spent $584; and Aventura, in Miami-Dade, spent $907. For the same services, Hollywood spent $1,577 per resident; Sunrise spent $1,566; and Pembroke Pines spent $1,127.

''Contracting permits us to operate like a business corporation, with private and public entities competing against each other for our business,'' said Weston Mayor Harry Rosen. ''When you only have city departments and employees, there's no competition and they spend what they spend. But we  can terminate a contract and say, 'Look, you're too expensive. We're going to get proposals elsewhere.' ''

But critics say money isn't everything and contend that contract cities have their drawbacks, including the lack of a centralized government and accompanying community spirit, and less input from residents who must travel to other cities to transact business with their own city's departments or access public records.

Weston, which incorporated in 1996 and now has about 40,000 residents, operates as the quintessential contract city, operating out of a leased building with three city employees. Everything else is run by private firms based in Coral Springs or Hollywood or through contracts with Broward County.

''It's safe to say we take contracting to the extreme,'' Weston City Manager John Flint said. ''If you can contract for the police and fire departments, why not others? Why stop there?''

Weston has kept its tax rate at its pre-incorporation rate of $1.52 per $1,000 of taxable assessed value, while offering more and better services. But residents and businesses pay a fee for drainage and roads that ranges from a few hundred to several thousand dollars a year, depending on the location and zoning of the land. Residents also pay almost $1,000 a year in maintenance association dues, and hundreds more to their homeowners associations each year.

Yet residents of contract cities say that outsourcing works because they pay for only the services needed, with no startup costs, labor disputes, costly computer upgrades, in-house politics, lawsuits or employees' salaries and benefits.

''If a policeman is sued, the sheriff is financially and legally responsible -- not us,'' Flint said of Weston's contract with the Broward Sheriff's Office. ''When police cars or computer systems need upgrading, the contractor -- not residents -- pays for that. We just pay the prenegotiated price of the contract.''

Aventura and Wellington, both of which incorporated in late 1995, have tax rates of $2.20 per $1,000 of taxable assessed value.

''We like to keep the bacon at home,'' said Wellington Village Manager Charles Lynn, whose city of about 30,000 residents contracts for police, fire, garbage-collection and drainage services. ''We operate on the Slim-Fast plan. That's how we keep taxes so darn low.''

Lynn and other contract-oriented managers say their motivation is twofold: to cut costs and to control their city's land and tax use.

''We were a donor city, sending more money to the county than we were getting back in services, like police, control over zoning and capital improvements to parks,'' said Aventura City Manager Eric Soroka, whose city has a population of 22,000. ''We've contracted out every function we can, but some made more sense to develop in-house, like police, since Dade gave us 12 officers, and now we have 61 without raising taxes.''

But the privatization of services comes at what cost?

Lawyer and Weston resident Alex Rosenthal was told it might cost him hundreds of dollars to get public records from the city because the documents are at private firms outside the city that bill by the hour to retrieve them.

The fee for gathering and researching records from Weston's private planning and zoning, engineering, surveying and construction departments is $45 to $200 per hour, depending on who is researching the request at their offices in Hollywood.

CLICK HERE for actual similar municipal costs

''What if you're poor and can't afford these private companies' charges to research, or I can't drive to another city to look at your city's files,'' said Rosenthal, who has sued Weston on another issue. ''Sit me at a computer or show me the file cabinet, and I'll do the research. I mean, isn't the whole purpose of public records that they're for the public?''

Older cities such as Hollywood, Miramar and Davie keep most public records at city hall. Few Broward cities charge for gathering or researching records.

CLICK HERE FOR REAL MUNICIPAL COSTS

Weston resident Ned Reubens criticizes contract cities for lacking ''the consent of the governed.''

''Contractors are usually unwilling to incur the costs and risks of variations and tend to go by the book, but that 'book' is not available to citizens,'' said Reubens, a retired economics professor. ''In contrast, a city with staffed departments is open to citizen complaints and can make adjustments.''

Weston City Commissioner Eric Hersh disagrees. ''It's also hard to terminate or downsize a city employee,'' he said. ''Once you've got a big department up and running, and it's entrenched in a city, it's very hard to make real changes.''

City managers, who often draft and award contracts, say outsourcing works only when contracts are specific and private department heads meet once a week.

''Our mind-set around the table is that we're not running a city, we're managing a municipal corporation where even the private sector makes business decisions, taking into account how the public is going to be satisfied and view them,'' Flint said of Weston.

Weston recently mailed all of its property owners a glossy report on the city's fiscal health. Complete with pie charts and corporate lingo, the report is addressed to the ''stockholders'' of Weston, mimicking the annual reports of Fortune 500 corporations.

But doing business with businesses has its risks, especially if a contractor that is the only service provider around either closes or raises its rates. With no alternatives, a city could be held hostage by the provider.

This almost happened to Weston, which buys fire and emergency rescue services from Broward County. When the county announced a rate hike of 24 to 39 percent last month -- which would have forced Weston to pay $7.1 million instead of its budgeted $4.8 million a year -- the city wasted no time in looking elsewhere for a service provider.

Request for bids were drafted, dated and ready to be mailed, but on Tuesday, the county and city reached a tentative agreement to reduce the rate hike to 13 percent.

''People might think the city has only the choice to start up its own department, but there are always options,'' said Flint, who negotiated the smaller rate hike while requiring the county to add comparable services for the increase.

A tougher problem may be the emotional response some residents have to ''city functions performed by a variety of personnel who have no attachment to each other, our city or us,'' Reubens said.

''The most pervasive defect of the contract kind of city is the lack of a sense of community, a feeling of not belonging to a real entity or organism,'' Reubens said. ''As for those of us who would like to participate in our city's decisions and operations, we are told repeatedly, 'Trust us, we know what's best.' ''

Weston activist Roy Oppenheim says resident advisory boards might help. Other than a constitution-mandated charter review committee, Weston has none.

''I believe that increasing the amount of input -- even if it requires additional bureaucracy by creating a new board -- is a better process than having four or five elected officials try to micromanage the growth and development of the city,'' Oppenheim said.

Some managers of older cities say outsourcing departments has merit, but that any switch would be difficult. There are longtime employees to consider, the availability of private firms to handle large city contracts, and, again, the emotions of residents.

Hollywood City Manager Sam Finz said his 75-year-old city, with a population of 130,000, is entrenched in traditional ideas that make the prospect of contracting out for the services now performed by larger departments, such as public safety, upsetting to residents.

For instance, when the city brought in an interim police chief from the Broward Sheriff's Office last year, some residents and commissioners said they feared it would open the door to a BSO takeover of the police department.

''Our citizens really had a very negative response to the thought of BSO coming in. They wanted their own police,'' said Finz, whose city has a tax rate of $6.29 per $1,000 of taxable assessed value. ''Public safety is the obligation of government, and they may have a really difficult time accepting us privatizing other things.''

And contracts don't always work.

In Davie, politically influential union firefighters lobbied officials and residents to get rid of the city's contracted emergency rescue service.

''Emotions did have a lot to do with it, and the numbers bear that out,'' said Davie Finance Director Chris Wallace. ''The decision was not based on facts, or at the time, financial sense.''

A good contract contains performance standards and completion guarantees, monetary penalties and escape clauses, city managers say. And cities are reluctant to hire a company unless it has a stellar track record.

Residents can measure contracts' success in the quality of services: Are crime rates and ambulance response times low? Are the ball fields at the parks in good shape? Are trash collections reliable?

''My experience is if they're not satisfied, they let us know pretty quick,'' Flint said. ''But we want superior standards, not just satisfactory ones from our contracts. If you don't demand that level of service in the contract, you're not going to get it.''