Expert Commentary

Local government services and contracts: Best practices and key issues to watch

2013 study in State and Local Government Review on the nature of public-private service delivery and the potential benefits and risks of the various forms it can take.

City sky scape

Municipalities in dire straits are found all over the United States — from Detroit in the north to Stockton, Calif., out west, and Central Falls, R.I., in the east, to name just three. While each city’s case is different, the root causes have much in common. They can include the still-lingering impacts of the Great Recession, ongoing deindustrialization, tax limitations, and demographic changes that increase the costs of pensions and health care. Sometimes the end is spectacular: Jefferson County, Alabama, was hit with debt from an expensive infrastructure upgrade, a corruption scandal, and a drop in revenue. At other times it’s near-silent, including “zombie subdivisions” laid out during the real-estate boom that drain resources and resist solutions.

Even for cities in good financial shape, the current economic climate has increased pressure to trim expenses, keep costs under control and manage complex assets efficiently — expensive projects might once have been limited to roads and sewers, but now can include a 411 system, state-of-the-art hospitals or laptops for public schools. New ways of funding infrastructure upgrades have been developed, including tax-increment financing, but the benefits are often matched with substantial risks. Public-private partnerships have potential for service delivery, but serious problems can arise if they’re not properly structured and monitored. For example, in 2008 Chicago signed a 75-year lease of its parking meters to a private company for $1.15 billion. The agreement gave the city some much-needed cash, but also could have cost them as much as $1 billion in future revenue, according to the city’s inspector general. The entire deal has been mired in controversy since it was signed.

Covering these issues can be especially challenging for journalists. If your city proposes or announces a new public-private partnership, what’s the best way to judge if the right questions have been asked? If public assets are being sold to a third party or managed by them, is that decision really in the public’s interest? And what happens to issues of equity when all budgeting seems like a zero-sum game?

A 2013 study published in State and Local Government Review, “Collaborative Service Delivery: What Every Local Government Manager Should Know,” seeks to provide some of these answers. The authors — Cheryl Hilvert of the nonprofit Center for Management Strategies and David Swindell of Arizona State University’s Center for Urban Innovation — examine a wide range of literature in the field and also analyze the results of a survey of city managers conducted since 1982 by the International City/County Management Association (ICMA).

Service delivery is often thought of as being purely governmental (for example, policing), managed by private interests (a contract for snow removal) or left completely up to community groups or individuals (raising funds for a bike path, perhaps), but the report identifies 10 steps between the two extremes. Among those discussed are intergovernmental agreements, contracts with or grants to private firms, voucher systems, franchises and more. For journalists, understanding the benefits and risks of each option, and their use by cities, is crucial to covering these issues.

The study’s findings include:

  • In the 2007 survey of city managers, two primary motivations were expressed for exploring public-private service delivery: cost reduction (86.7%) and external fiscal pressures, including tax restrictions (50.3%). No other motivations expressed exceeded 16%. In the 2012 survey, however, interest had shifted to the need for better processes (69%), relationship building (77%), better outcomes (81%), leveraging resources (84%), and belief that collaborative service delivery is “the right thing to do” (86%).
  • The top five stated advantages of collaborative service delivery include economic benefits (84%), better public service (82%), relationship building (72%), “more and better ideas” (64%), and “synergy” (63%).
  • The provision of public services through contracts with private firms peaked in 1977 at 18% and has declined since. “By the time of the 2002 survey, private contracting dropped and public delivery (in-house or in partnership with other public units) increased.”
  • The most common form of shared service delivery now involves contracts between governments, growing from 17% in 2002 to 20% in 2007. “At the same time, approximately 22% of the local governments in the survey indicated that they had brought back in-house at least one service that they had previously provided through some alternative private arrangement.”
  • Definitions of public-private partnerships vary widely between municipalities. “Many public and private officials tout public-private partnerships for any number of activities, when in truth the relationship is contractual, a franchise, or the load shedding of some previously public service to a private or nonprofit entity.” A true partnership requires shared service delivery, requiring “interactions between the partners on an ongoing basis. This is a strength of collaborations, but is also a cost.”
  • Contract management is another crucial factor, and services that are more challenging to monitor or fully capture in contractual language often remain in municipal control. In the 2007 survey, the most difficult was judged to be the operation and management of hospitals, and the least difficult the cleaning of streets and parking lots.
  • The barriers city managers experienced when attempting to establish collaborative service delivery included resistance by government employees (46.6%), restrictive labor agreements (39.5%) and opposition from elected officials (39.3%).
  • Research indicates that communities often fail to sufficiently monitor collaborative agreements or other forms of service delivery. “For instance, in 2002, only 47.3% of managers involved with private firms as delivery partners reported that they evaluate that service delivery. By 2007, that was down to 45.4%. Performance monitoring is a general concern from these surveys and in the scholarly criticisms of these arrangements.”
  • The presence of sunshine laws and open-records requirements can actually give private firms an unfair advantage when negotiating with public officials. “Private firms can easily acquire documents related to a government’s financial position as well as strategies for the collaborative effort.”
  • Choosing the correct number of partners for any agreement is crucial. “Too many will increase the opportunity for individual partners to ‘free ride’ on the efforts of others and be able to ‘hide’ among a larger number of participants.”
  • Coordinating agreements between multiple cities can be both expensive and time-consuming. “Further, if one or more partners in a collaboration free ride on the efforts of the other partners, this can lead to a failure of the collaboration. In such circumstances … the collaboration might better be structured as a vertical arrangement in which the two cities also partner with the overarching jurisdiction (i.e., a county) that can enforce the agreement between the cities.”

“When structured properly, [collaborative service delivery can] have demonstrated benefits including cost savings, enhanced quantity and quality of services, as well as less tangible benefits such as addressing community needs, enhancing trust between participating entities, and increasing citizen support,” the researchers state in their conclusion. At the same time, it “can be problematic if not approached through formal transparent bidding/request for proposal processes and formalized agreements to begin the collaborative activity.”

Related research: A 2013 Brown University study, “Tax Increment Financing, Economic Development Professionals and the Financialization of Urban Politics,” examines a financing method often used in projects run by public-private partnerships. In part because of the complexity of TIF, it “creates a structural opening for a new kind of urban actor who is capable of acting simultaneously as an insider and an outsider: a city representative not formally tied to the city.” Such development professionals play “dual roles of stewards of municipal finance and central leaders within development initiatives,” a status that can have advantages as well as risks.

Also of interest is a 2013 study in the American Review of Public Administration, “Citizen Input in the Budget Process: When Does It Matter Most?” which examines the impact of public participation on organizational effectiveness. The researchers used survey data from state departments of transportation to examine the effectiveness of citizen input at four different stages of the budgeting process: information sharing, budget discussion, budget decision and program assessment. In certain cases citizen participation was found to be associated with higher organizational performance, and made a difference at all but the budget discussion stage.

Keywords: local innovation, collaborative governance, public-private partnerships (PPP), service delivery arrangements

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