Shawn Vestal: Who wins when cities privatize?

Once upon a time, an enthusiastic, reform-minded mayor took office.

The mayor had concerns about the city’s business climate. He was eager to apply the benefits of the private sector to government. The enthusiastic, reform-minded mayor started small, contracting out a few street projects.

If you think this sounds familiar, I should point out that this mayor is not David Condon in the year 2012. He was Stephen Goldsmith in the year 1992, and he was mayor of Indianapolis, a city whose pursuit of privatization has drawn the interest and emulation of cities across the country. Condon often cites The Nap as a city with ideas worth emulating, and he personally invited the controversial chief of police there to apply for the job here.

But Indy’s infatuation with privatization provides at least as much reason for caution as admiration. And Goldsmith’s story is a good place to start.

During the course of his first four years in office, Goldsmith expanded rapidly into privatizing city services and sending city workers packing. When he took over, the city was in good financial shape, but the new mayor foresaw the possibility of someday having to raise taxes to keep up with the cost of city services, according to the authors of “Privatization in Indianapolis,” Daniel Mullins and C. Kurt Zorn. The men were public affairs professors at Indiana University.

Within four years, Goldsmith’s administration turned to private contractors for 76 city services, from road repair to wastewater treatment. Goldsmith’s administration said it saved $92 million – at least when it wasn’t claiming to have saved $200 million – and claimed to have reduced the city’s overall budget in four years.

But when Mullins and Zorn dug into the record, they found it did not match the rhetoric.

“While there have been successes in each of these areas, they have not been quite as dramatic as asserted and it is difficult to pinpoint how taxpayers have benefited,” they concluded.

Among the problems was this: It was almost impossible to say how much money the initiatives saved. In fact, the study’s authors put the word savings into quotation marks – the “savings” were more rhetorical and political than actual.

For example, when calculating its much-touted “savings,” the administration did not include the cost of developing, managing and monitoring contracts. It sometimes “double-counted” the cost of items that had a dual use, such as dump trucks used as snowplows. It did not account for inflation in the costs of multiyear private contracts.

In many cases, the authors assert, “it is reasonable to believe the benefits (the estimated savings) from privatizing many of these services do not exceed the total costs of providing the privatized service (cost of the contract bid plus costs associated with contract development).”

The impression the report leaves is that the talk far exceeded the walk. Some savings here, some costs there, and at the end of the day the budget stayed the same or got a little bit bigger.

Whether citizens benefit from privatization, though, it’s certain that certain companies and politicians do. And those benefits can flourish over time, nourished by mutual relationships and the revolving door.

When Goldsmith left office in 2000, he went to work for Affiliated Computer Services Inc., a subsidiary of Xerox. ACS is a huge government contractor, providing services in 50 states ranging from processing Medicaid payments to parking enforcement.

It also gives money to candidates, like Republican Mitch Daniels. Daniels was elected governor of Indiana in 2005. He almost immediately moved to privatize the state’s welfare system and brought in an ACS vice-president, Mitch Roob, to oversee the process, according to an investigation by the Los Angeles Times.

The privatization of Indiana’s welfare system was a disaster for poor people – and a multimillion-dollar boon for ACS, along with other well-connected companies. At first, IBM was given a 10-year contract to lead a group of subcontractors, including ACS; thousands of people were improperly denied benefits, IBM was fired, and ACS was given the whole contract, according to the Times.

Goldsmith went on to teach at Harvard, work as an adviser to President George W. Bush and develop a reputation as an innovator among those who see tax cuts, union-busting and privatization as innovation. The Nap’s economy did well under his tutelage – and the city’s debt ballooned and he attracted a lot of criticism for cronyism and conflicts of interest.

In 2010, he was hired by Mayor Michael Bloomberg in New York City to oversee several critical city departments – and left after a tumultuous 14-month tenure.

“You don’t come in and say, ‘I was in Indianapolis, and this is what we did there,’ ” one union official told the New York Times. “That doesn’t work in New York.”

Meanwhile, back in Indianapolis, the revolution continues. A couple of years ago, facing serious budget problems that privatization had somehow not fixed, the city leased its parking-meter business to a private company. The Nap got millions up front and will get more over time; that money will go toward fixing a crumbling infrastructure that the city couldn’t keep up with.

A private company got a 50-year deal, put in fancy new meters, raised fees and started ticketing aggressively. It is providing more money to city coffers and taking lots more from motorists to do it.

See if you can guess the name of the company that was handed this 50-year monopoly:

ACS.