The recent State Privatization Study by the Zimmer Commission has thrust this concept back into the public square. But privatization is not news to local government officials who, for decades, have been using this tool, where appropriate, to deliver citizen services effectively, efficiently, economically and ethically.
While the term ‘privatization" is not widely used in municipal government, you will often hear discussions about ‘contracting-out,' ‘interlocal agreements,' ‘shared services,' and ‘professional service agreements,' at council meetings throughout the State.
Many municipalities contract with a third party to provide a service, or do so jointly through either a shared services agreement or a public-private partnership. These have been entered into as a result of the need to provide the service, the lack of personnel and/or the absence of a ready supplier. Typically an opportunity and a need have to present themselves.
New Jersey municipalities routinely contract-out for: solid waste, recycling collection, disposal and marketing services; street paving and reconstruction; snow and ice control; water treatment and distribution; sewerage collection and treatment; web master and maintenance services; other professional services, including engineering and design, architectural, municipal attorney and other legal services including labor, tax appeal defense, COAH defense, police officer liability defense, accounting and auditing; and a host of other services.
How can the private sector provide a service at a lesser cost than government can? Government does not pay income or corporate business taxes and does not need to provide for profit. However, there are other factors at play that periodically permit the private sector or even other governments to provide services in a more cost effective manner.
Other parties can sometimes effect economies of scale that a municipal government cannot. Some have vast experience with the service they provide and can therefore achieve much greater efficiencies. Often, private vendors have greater control over their workforces than do municipal governments.
Sometimes, contractors are able to pay their employees market wages for work. These are often less than the wages and benefits that are found in municipal collective bargaining contracts. Benefit costs are typically fixed in a privatization contract. The municipality contracting for the services knows what its costs will be. It does not have to worry about overtime or annual increases in health, unemployment and workers compensation insurances, pension, and other bills. Concern for workers compensation claims and lost work days are left to the contractor to manage and control.
Further, contractors who fail to meet contract performance terms can be dismissed, if the terms and conditions permit. Private contractors have standards established in a contract and they wish to have their contract renewed. Thus, there is usually strong accountability under a service contract.
Almost inevitably, however, local resistance arises, whenever privatization is considered. Whether the resistance comes from current employees, collective bargaining agents, outside forces, supportive residents or other local political efforts, it is very difficult for a local elected official to choose an alternative provider in the face of municipal employees who will lose their positions, wages and benefits, especially in our current economic down-turn.
And State laws and regulations can also serve as an impediment to privatization.
Civil service regulations impede municipalities from expeditiously pursuing privatization, outsourcing or shared services. While subcontracting is a non-negotiable managerial prerogative as recognized by the courts, public employers are required to negotiate the impact of the subcontracting decision. Legislation that would permit governmental employers to utilize private and non-profit vendors to supply municipal services, without the need to negotiate the impacts of these actions, would help municipalities to make the subcontracting decision.
We would support reforms that would eliminate the artificial controls that exist on contractors who provide municipal services. Prevailing wages regulations are really union wage regulations. These regulations directly and uniformly increase the cost of services and capital improvements needed to maintain the infrastructure of our municipalities. If the public is concerned about the cost of government, it is necessary to eliminate the artificial inflators that perpetuate the increased cost of governmental services.
The largest expenditure categories in almost all budgets are in the area of public safety. One reason for this is that wages and other costs of these services are typically not subject to market forces. One reason for this, among others is that municipalities are not able to contract for police or fire services from anyone other than another public agency. Municipalities can, however, contract with the private or non-profit sector for emergency medical services. There can be competition. Where market forces can be applied to the cost of labor in the provision of municipal services, there have been significant reductions in cost. Non-profit and private providers do not incur the same total personnel costs that the extant condition in government.
Reforms enacted by the Trenton establishment can help local officials use this tool more often and more effectively.
William G. Dressel Jr. is executive director of the New Jersey League of Municipalities.