Transforming a Municipal Bureaucracy

City of Carrollton, Texas

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Introduction

Governments can improve the way they do business and provide services by adopting a competitive business model for their operating processes. By submitting themselves to competitive pressures, they force themselves to learn from the private sector how to serve residents better and more cost effectively.

In managed competition, private sector providers are encouraged to compete with city departments for the opportunity to provide public services. The aim of Carrollton’s version of managed competition, however, was not outsourcing or downsizing but rather to ensure that its residents receive the best value available through the public or private sector. For Carrollton, this involved four distinct initiatives:

• Internal support teams work with business unit managers and front line employees to eliminate waste and inefficiencies, evaluate workloads and staffing, reengineer business processes to improve service quality, ensure customer satisfaction, and reduce costs.
• Internal service units enhance their competitiveness by benchmarking against best-in-class competitors (both public and private sector), re-engineering operating practices, improving leadership capabilities, and empowering front-line employees.
• Divisions that are declared “substantially competitive” share some of the gains from cost reductions and revenue increases with employees.
• Interdepartmental service-level agreements are signed to ensure future accountability and maintain performance standards.

The Problem

Carrollton, an inner-ring community of the Dallas/Forth Worth metroplex, has faced increasing financial stress as its growth slowed during the last ten years. Inner-ring suburbs are the first layer around the city, separating downtown from outer-ring suburbs. Most of these communities have stable populations and are more ethically homogenous than the diverse inner cities. Outer-ring suburbs are typically fast-growing communities that started expanding rapidly in the 1990s. In many cases, they are home to light industrial and commercial business parks.

Inner-ring residents, led by the upwardly mobile, sometimes move further from town, for many of the same reasons they left the urban core in the first place – to escape high taxes and heavy congestion. There has also been a trend towards returning to the urban core, often because older residents no longer need the space they originally sought in the inner ring, or for the cultural advantages of the city.

This flight, combined with inner-ring communities’ dense development and inability to expand their boundaries, adds up to stagnation. For example, while the population of Carrollton grew from 14,000 to 100,000 residents between 1970 and 2000, it only added 6,000 new residents between 2000 and 2005. It is now nearing build-out.

Because of this deceleration in residential development, inner-ring communities share a variety of problems:

• Slow growth of the tax base – While decelerating residential development should mean a slower and more predictable demand for new services, the tax base will also grow at a much slower rate, meaning less new revenue to meet current and future needs.
• Retailer flight – Retailers view mature inner-ring suburban markets as less profitable, which encourages them to close or relocate their businesses. Inner-ring suburbs suffer from vacant shopping centers, abandoned service stations, obsolete buildings and sites, and sales tax leakage to newer retail centers.
• Migration of the wealthy – Upwardly mobile families with higher incomes tend to move out of inner-ring communities, and are often replaced by households or families with less disposable income, who both pay less in taxes and consume more municipal social services.
• Aging infrastructure – As the population and tax base are declining, the public infrastructure in older suburbs is often reaching the point of replacement or expensive refurbishing, requiring significant funding.

Inner-ring communities are finding it more challenging to reinvest, revitalize, and reinvent themselves in order to sustain a high quality of life for their residents.

The Solution

The City of Carrollton found one solution to its financial problems in managed competition, or the adoption of a competitive business model for its operating processes. In some service sectors, this meant outsourcing; in other cases it meant finding new ways to introduce competitive pressures within the organization. For example, comprehensive multi-year “service agreements” are signed with internal business units once they have passed through the managed competition process and have been declared “substantially competitive.” This relationship is analogous to outsourcing with private-sector companies.

Because almost three-quarters of the average city’s operating costs are related to personnel, a successful change management process must focus on managing human resources more effectively. The introduction of a competitive mindset within city government, utilizing tools like benchmarking and performance management, has contributed to significant productivity gains in city business units. Rather than simply cutting services or service levels in response to budget constraints, management is finding creative ways to restructure operations and maintain or improve services by doing more with less.

Carrollton rolled out its Competitive Services initiative slowly, giving each service sector a year to implement changes before the next sector was either put out to bid, or retained under contract after being declared “substantially competitive.” The sequence runs as follows:

• In 2002, solid waste collection and disposal was submitted to a bidding process and outsourced. In the first three years, cost savings, cash inflows from fixed asset sales and account transfer revenues amounted to $6.3 million.
• In 2003, traffic operations was evaluated, found competitive, and retained under contract. In the first three years, there was operating cost savings of $330,000.
• In 2004, parks maintenance operations was evaluated and retained under contract. In each of the first three years there was operating cost savings of $305,000.
• In 2005, water/wastewater operations was evaluated and retained under contract. The city expects to realize annual operating cost savings of at least $605,000 for each year of the fiveyear service agreement.
• In 2006, utility billing and collections was evaluated and retained under contract. This has resulted in operating cost savings of $50,000 in the first year.
• In 2007, facility services was evaluated and retained under contract. This should result in operating cost savings of $70,000 in the first year.

By opening up some service sectors to competition, the city government was also able to introduce competitive pressure throughout the organization to reduce unnecessary layers of supervision, eliminate surplus equipment, and empower employees. For example, in Parks Maintenance Operations (PMO) demonstrated substantial progress:

• Before managed competition, PMO had three first-level supervisors over its landscaping, irrigation, chemical application, and construction crews. Each crew of 4-5 employees also had a crew leader. PMO eliminated all three supervisor positions and created a parks manager who oversees all work crews in the division, empowering crew leaders to manage the daily activities of their assigned crews.
• Before managed competition, PMO had surplus equipment from so many manufacturers that mechanics could not maintain them. It eliminated many pieces, standardized the brands and types of equipment, and reduced its stock in 2003–2004 by 13 trucks, 12 tractors, 8 mowers, 6 mower attachments, and 21 trailers and farm implements.
• Field employees changed their reporting times in order to take advantage of daylight hours, suggested staging equipment in a more central location closer to work sites to minimize daily travel time, and redesigned and equipped trailers to carry more mowing equipment to the job site and allow for quick repairs.

The introduction of competition also brought about a greater sense of urgency and accountability in city employees. Of course, this is part of the culture of for-profit companies, with their quarterly revenue and profitability targets. Employees understand that managers who meet targets will be rewarded and that those who fail to do so will be replaced. The frequent measurement and monitoring of performance creates a greater sense of urgency and accountability, and a faster work pace than in most public-sector organizations. Carrollton’s introduction of competition has led to positive city-wide changes:

• Doing more with less. Rather than staffing for peak seasonal workloads, departments staff for average workloads and hire part-time and seasonal employees for peaks.
• Avoiding duplication of resources. Departments share fixed assets with others when not needed, or rent specialized equipment for short-term uses.
• Using time wisely. Team meetings start on time, with a clear agenda, and project deadlines.
• Focusing on essential services. Every department is challenged to quantify customer demand and the cost of providing various services and functions. With council approval, the city has gradually discontinued low-volume and low-priority services and functions.
• Cooperating more with more coordination between departments. While an internal focus often creates competition among departments for power, position, and budget resources, external competition often leads to more internal cooperation and coordination.

Over the last five years, the net cost savings from managed competition is estimated to be in the range of $12–14 million, or approximately 8 percent of the city’s general fund expenditures. Citizen needs are being satisfied with fewer employees. The number of full-time city employees is no greater than the number in 1995, while the city has added 25,000 residents during that time. However, in a 2006 telephone survey of 400 city residents distributed evenly through the city, 85.2 percent said that they were very or extremely satisfied with city services.

Application to Massachusetts

In Massachusetts, the Metropolitan Area Planning Council (MAPC) has been developing a plan under the auspices of the Inner Core Committee (ICC). The ICC consists of twenty-four cities and towns within the metropolitan Boston area: Arlington, Belmont, Boston, Braintree, Brookline, Cambridge, Chelsea, Everett, Holbrook, Lynn, Malden, Medford, Melrose, Milton, Nahant, Newton, Quincy, Randolph, Revere, Saugus, Somerville, Waltham, Watertown, and Winthrop. It fosters joint and cooperative action among these cities and towns and provides a forum for planners and municipal representatives to explore issues of mutual concern.

Inner-ring communities in Massachusetts share the same problems that plague Carrollton and many other inner ring communities: a slowing in the growth of the tax base, retailer flight, migration of the upwardly mobile to the inner city or outer suburbs, and aging infrastructure. Old industrial towns like Chelsea, Lynn, and Everett have already been through several cycles of deteriorating infrastructure and retailer flight.

The ICC would provide a perfect forum for discussing managed competition and adapting the Carrollton model to the needs of greater Boston’s older communities.

Considering its potential, it is encouraging that the cost of implementing the managed competition program is rather low. Carrollton calculated it at $170,000 in the first year, of which $40,000 was for overhead expenses, $10,000 was for travel, training, research, and consulting services, and $120,000 was for incremental staffing needs. These costs were categorized as 1.75 full-time employees (FTE):

• .75 FTEs for that part of the director of managed competition and strategic planning’s time dedicated to managed competition projects in the first year;
• .5 FTEs for that part of one budget and management analyst’s time reallocated to managed competition projects in the first year;
• .4 FTEs for that part of one internal auditor’s time reallocated to managed competition projects in the first year;
• .1 FTE for that part of one administrative assistant’s time reallocated to managed competition projects in the first year.

Conclusion

Entrepreneurial governments like Carrollton’s operate as skillful buyers, shopping around for service providers that offer the best combination of desired attributes like service quality, price, reliability, and capability. Today the city’s public services are delivered in a variety of ways: by public employees, by contractors, through joint ventures, business alliances, grants, intergovernmental agreements, contracts, and collaborations. According to City Manager Leonard A. Martin, “The City’s responsibility is not to provide all services internally but to ensure that reliable, quality services are provided to our customers in the most cost efficient and effective means possible. Our goal is to produce a value-driven government product—the highest quality service at the lowest price possible.”

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Resource List:

• The Privation.org Managed Competition/ Public-Private Competition webpage: http://www.privatization.org/database/practices andstrategies/managed_competition.html
• “Managed Competition—Proceed with Caution,” on the Deloitte Canada website: http://www.deloitte.com/dtt/newsletter/ 0,2300,sid%253D3666%2526cid%253D47404,00.html
• “Managed Competition in Indianapolis: The Case of Indianapolis Fleet Services,” on the Harvard Kennedy School of Government website: http://www.innovations.harvard.edu/showdoc. html?id=11043
• “Managed Competition in Florida,” on the Reason.org website: http://www.reason.org/commentaries/furney_20060720.shtml
• The Massachusetts Inner Core Committee (ICC) website: http:// www.mapc.org/metro_area/innercore.html