Privatization in Sandy Springs, Georgia

Cities have dabbled for years with privatization, but few have taken the idea as far as Sandy Springs. Since the day it incorporated, Dec. 1, 2005, it has handed off to private enterprise just about every service that can be evaluated through metrics and inked into a contract.

To grasp how unusual this is, consider what Sandy Springs does not have. It does not have a fleet of vehicles for road repair, or a yard where the fleet is parked. It does not have long-term debt. It has no pension obligations. It does not have a city hall, for that matter, if your idea of a city hall is a building owned by the city. Sandy Springs rents.

The town does have a conventional police force and fire department, in part because the insurance premiums for a private company providing those services were deemed prohibitively high. But its 911 dispatch center is operated by a private company, iXP, with headquarters in Cranbury, N.J.

And:

Applying for a business license? Speak to a woman with Severn Trent, a multinational company based in Coventry, England. Want to build a new deck on your house? Chat with an employee of Collaborative Consulting, based in Burlington, Mass. Need a word with people who oversee trash collection? That would be the URS Corporation, based in San Francisco.

Even the city’s court, which is in session on this May afternoon, next to the revenue division, is handled by a private company, the Jacobs Engineering Group of Pasadena, Calif. The company’s staff is in charge of all administrative work, though the judge, Lawrence Young, is essentially a legal temp, paid a flat rate of $100 an hour.

The full story is here.  The article has many interesting points, such as this:

Town leaders say race had nothing to do with it. Mayor Galambos said, “A 94 percent vote in favor of incorporation speaks to the broad community support for self-government and a desire to have local dollars remain local.”

And this:

To dissuade companies from raising prices or reducing the quality of service, the town awarded contracts to a couple of losing bidders for every winner it hired. The contracts do not come with any pay or any work — unless the winning bidder that prevailed fails to deliver. It’s a bit like the Miss America pageant anointing the runner-up as the one who will fulfill the winner’s duties if, for some reason, Miss America cannot.

In a stand-alone sense, the town seems to be working quite well.

Comments

One step closer to David Friedman's vision.

"Applying for a business license? Speak to a woman with Severn Trent, a multinational company based in Coventry, England"

Huh? Severn Trent's a water utility. Why would it be dealing with business licenses?

Perhaps multinationals can both walk and chew bubblegum.

Because it is a British Utility.

It's the same reason I payed electicity bills to Scottish Gas, when I lived in London.

In spite of all this, I would have prefered to pay democratically accountable my local council for electicity. Scottish Gas basically makes a living by sending everyone an inflated electricity bill, if you complain they send you a bill for half the amount. If you don't, they just pocket the money.

The trouble is that Scottish Gas had almost no ability to maintain my
local electricity supply. Voltage comes from all over the UK, thanks to efforts of the blokes who keep the local power lines working, those guys also serve my neighbour, who for all I know gets her electricity from Thames Water.

So Londoners can't exert market discipline on those who provide their services, but they can do so over a bunch of essentially interchangeble companies whose only service is to read their meters -- a job they perform with spectactular incompetence.

So I can't exert market discipline on those who

"In spite of all this, I would have prefered to pay democratically accountable my local council for electicity."
Wait, you think your local government is democratically accountable?
LOL! I didn't realize that people where still this naive. I guess state education has its uses.

Yeah, I know it's British but having a water company deal with offshore queries relating to business licenses makes as much sense as Apple delivering pizza.

Maybe the article writer meant Capita, another British company that has a call centre based in Coventry.

Similarly I cannot understand why Jacobs would handle a law court.

"the town seems to be working quite well"

SOMALIA SOMALIA! Libertarians want to live in SOMALIA! You can't SOMALIA! privatize public services (SOMALIA! YOU'LL LIVE IN SOMALIA!)

Sorry, had to get that out of my system. :) I'm glad the folks in Sandy Springs are having a good run of it... good for them.

We am Somalia, and you can too!

One small distinction. The idea of a libertarian heaven does keep in place strong protection for property rights. In Somalia currently, you pay off the local warlord or join a defence co-op and go outside in armoured limos with private bodyguard escorts. Why? Because you're worried about your neighbour appropriating your possessions or violating your person. In *libertarian heaven* your neighbour wouldn't even think of doing that because he would be sued up the wazoo, possibly with jail time.

Of course it also helps if you get rid of the poor people, so that property rights enforcement can have effective methods of punishment (prison as it works in the US is too cush tod disincentivize; bring back Soviet era gulags where you work for your cell+board). Why do poor people commit more crimes? They have less to lose if caught, of course. One way I've thought of changing that is to structure transfer payments to the poor (food stamps, general assistance, subsidized housing) as cash payments (ideally if to all citizens and taxpayers with no means testing) instead. Then if you are convicted of a crime, your tax rates go up (affecting both transfer payments and any job you may have). Conveniently this also disincentivizes well against white-collar crime.

In a free society there would be no licenses required to be in a profession or business, nor would there be a real estate raj demanding a kickback to build on one's property.
Everything the State does should be done privately or not done at all.

Building permits are reasonable when you consider many utilities run under people's yards. People should consult with gas, water, and power companies before they dig a giant hole or pour a concrete slab and disrupt services for thousands of your neighbors. If you object to that, move to a sufficiently rural area.

Or just dig those buggers' pipes. I they object to that, they shouldn't have put them under the property of free citizens.

Easements...

It's not that it is unreasonable to say you can't cut a pipe or power line. In fact, it could be part of the contract, although you have little choice aside from a generator and a rain barrel (but at least that is something, better than taxes for which you are welcome not to use the service but by gosh will pay the bill). But by treating these implicit contracts in a wishy-washy way rather than as a rigorous contract leads to inefficiencies like the utility having no incentive to keep it reasonable. For example, the electrical line is something like 15-20 feet into my yard. It doesn't really have to be that far in. I don't know if this is spelled out anywhere. They are just sloppy because they can be. Partly that is because they are a utility with a natural monopoly and I'm just one of a million customers. It's partly because they have the backing of the government. And it's partly because the assumption is that because they are a utility with the backing of government they don't have to lift a finger for an individual property owner. Whereas the city made individuals move all kinds of improvements so they could cut wider ditches, we could never expect the power line to be moved.

Any utility company running pipes which aren't part of my service on my property has obtained an easement against my property, which is something I am legally bound to be aware of, and I should know that I don't have the right to dig up their pipes. I should also know that as part of that easement, the utilities would have the right to dig up the slab I've poured over their line if they need to perform repairs.

Also, (in California) I don't need a permit to dig a hole which may impact a utility line. There is a service which will contact all the utilities which may have lines where I'm digging, and they will come and mark out the lines.

I agree. Having to ask for permission to associate is an infringement on the right of association.

If it were a social norm would that be bad? (No.) There is no reason that this can't be the most Efficient equilibrium for the specific time and place.

"If it were a social norm would that be bad? "
Yes. Many social norms are defined by those who can use violence, threats of violence or power to make everyone accept those norms. A good example for this: The outrage over the Muhammed cartoons. Many western papers censored the story, because they were afraid of violence.

But they need to limit the town residents and businesses to those that aren't poor so everyone pays their share of the costs without incurring more costs than their share. Keeping out low income housing for families with kids is required to ensure the city doesn't need to support such things as parks for the poor to keep them from hanging out in the retail spaces which would lead to more police services, and more maintenance to clean graffiti from public spaces.

"Keeping out low income housing for families with kids is required to ensure the city doesn’t need to support such things as parks for the poor to keep them from hanging out in the retail spaces which would lead to more police services, and more maintenance to clean graffiti from public spaces."

When was the last time you saw poor people "hanging out" at the park? At my town, except for organized events, its almost all middle class young people (often with dogs) in the richer parks.... and no one at all in the poorer parks.

Almost all city public amenities that are "for the poor" other than say busses end up being disproportionately for the upper middle class. (Bikeshare is a good example of this).

Higher population cities usually have a good number of poor people in the parks and retail areas. I've lived in Detroit, Boston and DC in the last few years and this is certainly true in those places. Yes, you have yuppies in those places too, but a lot of jobless or homeless people are hanging out.

I'm not sure what you mean by "richer" and "poorer" parks. Are you referring to whether the park happens to be in the pricier part of town? Nice little suburban towns don't generally have many poor people, and they therefore don't have many of them in the parks.

Bikeshares are not intended "for the poor." The program here in DC, for example, wasn't conceived as being for the poor-- it is for anyone who wants to sign up (yes, there are annual and per usage fees that are not insignificant; those fees cover the majority of the costs). It has been criticized recently because all the customers approached for a survey claimed to have earned a college degree. Big deal, those people would have otherwise taken city buses or the Metro for these trips--those transport services aren't criticized as being unnecessary subsidies for yuppies. Can't a city put a program in place that encourages exercise and lower energy use for anyone who wants to participate?

Almost all the programs or public amenities that a city really intends to be "for the poor" are means tested, like Medicaid or public housing.

Parks for the poor, bored and homeless is kind of like how we use our "emergency rooms" now.

Playgrounds are for kids. Emergency rooms are for emergencies.

If you don't provide these things because they are abused, and the people then go abuse retail establishments, the problem is not a lack of parks.

"Bikeshares are not intended “for the poor.” The program here in DC, for example, wasn’t conceived as being for the poor– it is for anyone who wants to sign up (yes, there are annual and per usage fees that are not insignificant; those fees cover the majority of the costs). "

Actually they sold it to the city as being "for the poor." Read the documents they presented to the city.

"Can’t a city put a program in place that encourages exercise and lower energy use for anyone who wants to participate?"

The human body is a terribly inefficient machine, so I am not sure I buy the 'lower energy use' story.

Because Alta may have tried to talk up some benefits of the service for low-income people, doesn't mean that that was or is the purpose of the program. Alta's website certainly doesn't display much or any info on this feature of their bikeshare programs: http://www.altabicycleshare.com/ And the DC user survey actually found that the incomes of bikeshare users are lower than the DC average.

In any case, it is transportation and is structured the same was as the buses and the Metro are. Anyone can use it and there is a fee, but it is subsidized by local government.

Instead, there are strip malls with plenty of usual-suspect franchises — although one strip mall, oddly enough, includes a small museum that tells the story of Anne Frank.

Not odd. It's pheromonal protection.

What does this mean?

Protection of what?

"In a stand-alone sense, the town seems to be working quite well"

What does this mean?

Meaning it works well, but Tyler is too wishy-washy to take a stand about whether it this town's decisions are bad on net for society.

FYI ReasonTV covered this last year: http://reason.com/blog/2011/04/12/reasontv-sandy-springs-georgia

I like this concept but it seems to rely heavily on the town executives being extremely competent in their issuing and enforcement of contracts. That seems to be the major problem in a few of the more unfortunate privatization incidents mentioned in the article (e.g. the Chicago parking thing I'm sure involved the parking company being well-versed in the art of contract writing, and the city being either complicit or incompetent).

I wonder if city government itself could possibly be privatized entirely in a market-competitive way. Aren't there a few examples of this in India? It seems to me the concept would work pretty well if metro areas had a minimal number (5?) of private municipalities competing with one another for businesses and residents... but things could get pretty ugly if one started to really slide. Also there's the problematic fact that usually in reality there's one centralized location (the central business district) that already has all the infrastructure.

(e.g. the Chicago parking thing I’m sure involved the parking company being well-versed in the art of contract writing, and the city being either complicit or incompetent).

It was pure corruption, giving a comically (now that I only need to park in the city once or twice a year, anyway) favorable deal to people who knew people. Something the city recently realized: it can still tax the parking spots for its own revenue. This is going to be really, really ugly before it makes it to the 25% mark.

"it seems to rely heavily on the town executives being extremely competent in their issuing and enforcement of contracts."

Yes, but it's hard to conceive of any form of government that doesn't require competence on the part of those governing (unfortunately). Arguably this setup requires a narrower range of competence than actually having to run all of these services oneself. In addition, the temporary nature of contracts limits the damage if mistakes do occur.

"to rely heavily on the town executives being extremely competent in their issuing and enforcement of contracts."

But OTOH, it requires less competence in the things that you can effectively outsource. A national dog-catcher service doesn't make a lot of sense because you have to catch dogs locally, but outsourcing your accounting makes a lot of sense because your neighbor may not be the best accountant available.

Off topic, but if self-driving cars catch on there will be far less need for parking spots. Chicago may yet get the last laugh on this 75-year contract.

You should be aware that Sandy Springs, Ga and several of the new-ish suburban communities nearby are some of the wealthiest areas in the state. Is a community of (relatively) high income suburbanites the best test of this model? These people have very little demand for public services.

Sandy Springs is a larger and far more diverse than places like Johns Creek or Milton, just north of here. The population is 15 % Hispanic and 20% black and there are plenty of middle class areas and clusters of poverty and more crime than you would associate with a city with an undoubtedly affluent GDP per capita. Services like schools, health centers, libraries (pretty good), senior centers (quite good) are provided by the County so I don't have much contact with the city government because I'm not a business owner and the services that are left like water department (through city of Atlanta) and waste (through a private contract -the NYT article is wrong on this and several other key facts) dont involve the city.

I can tell you that the parks are vastly improved, the police response time is fast and patrols are very visible, and emergency services have a good reputation-all of these were neglected and scandalous when they were under a County government that is wasteful and deeply corrupt at its core.

Adam's concern was about class, not race, so racial diversity has little do with it. And the poverty rate is still 1/3 the national average for families (and Georgia has the 3rd highest rate in the nation...). The apparent quality of their services also doesn't speak to the demand for the services. And the crime rates appear to be much lower than the state as a whole, and the surrounding area in particular. So, the details you mention don't really speak to Adam's concern.

Property crime index in 2010 (higher means more crime-City data.com)
Property crime 2010 Sandy Springs:281.7 U.S. Average:275.9
Roswell GA 159.8 Alpharetta GA 156.3. Those are neighboring comparables in wealth although they are more bedroom suburbs and have fewer business areas -the property crime rate in Dunwoody next door is vastly inflated by the huge Perimeter shopping complex in that city. Other neighbor cities are much poorer and have high crime rates.

Adam's concern was not class per se. It was about wealth effects on need for public goods.

Town leaders say race had nothing to do with it. Mayor Galambos said, “A 94 percent vote in favor of incorporation speaks to the broad community support for self-government and a desire to have local dollars remain local.”

In what sense is what is this either self-government or local?

More money remains local instead of being filtered to Savanna and to DC, because the contractors are MUCH cheaper. The second place method for runner-ups is also good and fixes one of the biggest problems relating top contractors.

Tyler should not have let stand the label of "privatization" instead of "contracting out". Matthew Yglesias correctly points out that there is a real and important difference.
Maybe Sandy Springs has done a good job of contracting out services it cannot provide through its own arms, and if so good for them. As suggested above, it is a testament to their government's competence at contracting which cannot always be assumed. Governments incompetent to provide services are also apt to poorly provide contracted services, to the citizenry it is all the same where you have no right to Exit and must use the rather ineffective Voice mechanism. With genuine privatization the citizens are the customers and choose a firm to give their money rather than having it funneled through taxes. Vouchers are a sort of half-way version of that.

semantic hair-splitting

Not at all - TGGP's comment makes a crucial distinction. Contracting out means that the decisions over how much to spend, who to collect it from and who to give it to, are still under the control of voters, ie. the majority decision applies to everyone. This can never devolve as much freedom to individuals as in privatisation.

The state is just the collection of institutions funded by taxation and ultimately answerable to the voter. Under the "contracting out" approach, rather than the state shrinking, it effectively expands to include all the supposedly "private" companies who've won the contracts. It's really not even close to privatisation from the perspective of consumers - they still only exercise blunt control by voting on election days, and not by voting with their feet on all the other days.

In former Communist countries, state-run enterprises were privatized and then left to the control of private owners. If they failed, or if the owners wanted to sell off the physical assets and close up, that was nobody else's business. Contracting out means that you actually expect some level of service from the company you sign the contract with. Companies you contract out to have to be monitored just as rigorously as government departments must be. Anyone who has ever dealt with contracting knows that it can take a while to find a reliable company and there is a genuine possibility the first company or two you deal with will turn out to be lousy but not bad enough to threaten a lawsuit against them for poor performance.

The efficiency of contracting depends partly on the assumption of low transactions costs. In the real world, the assumption of low transactions costs for contract enforcement is a cruel joke.

Actually, I am waiting for the other shoe to drop.

Today, it is easier to identify costs and usage for goods and services electronically, rather than, for example, having someone man a tollbooth, or dispense something, or monitor a persons usage of an asset.

Just think.

Corporations which have done all sorts of things to avoid paying taxes will begin to have to pay usage fees. Corporate execs who say we need a stadium and the amenities of a corporate booth will have to pay for the stadium, parking and roads. If a corporation hires someone from the local university, or benefits from university research, it will be charged for it. If the Exxon refinery has a fire, it will pay for the firefighters, equipment, etc, or contract for coverage. If the surbanite wants to use the city parks, we'll be able to charge them. If the suburbanite living in the bedroom community who commutes in to the central city, uses the streets, police, fire, rescue services...we'll be able to charge them.

Won't it be great.

As you know, many people are dreaming of just this: letting people keep the money that now supports public services, but be charged for the use of those services. But to charge for usage is to disincentivise the usage, which might be fine for roads that can get jammed, but isn't so good for playgrounds, because full playgrounds are more fun (network effects). There are places in Europe that charge you to piss in a public toilet, though bushes are nearby. I always thought it was strange to disincentivise the use of public toilets.

The sort of nickel-and-diming you describe isn't necessarily bad, because it could be a tool to discourage harmful behavior. Suburbanites who work in the city should punished financially for remaining suburbanites, and rewarded for moving to the city. That punishment could justifiably exceed the cost of operating the roads and air pollution from their commute, and partly fund pro-social things like parks, libraries and public toilets, whose use has positive social externalities. My point is that the sort of monitoring and micropayments you envision could serve the social good, not just privateer firms.

"There are places in Europe that charge you to piss in a public toilet, though bushes are nearby."

Is that a full analysis? It is probably illegal or at least improper to piss in the bushes. And free toilets (a price control of zero).not be supplied by the market. So, free to the consumer might be supplied by The State, but they would be put in the wrong places anyway without some form of "pricing." That is, unless you had a dog go around and sniff bushes, which come to think of it is a good idea, but those kind of ideas come out of private enterprise.

People always ask for stadiums. The government doesn't have to give in to them. They do this under the guise of economic development and for various mundane rules I can't recall at the moment, like how the Major League Baseball farm system revenue works.

"If a corporation hires someone from the local university, or benefits from university research, it will be charged for it."
This already happens, except maybe for when someone at a corporation reads a paper, but then again that is exactly why we have publicly funded fundamental research.

Yes, it will be great.

David,

I was trying to point out the duality of the problem, and completely agree on the problem of public goods, and having too few. At the same time, we should begin to track the cost of corporate America--how much it costs to defend sea lanes to benefit traders, the costs of embassies to handle commercial transactions or lobby for corporate interests, the costs of infrastructure and basic research....when you add them up, you begin to see that corporate America pays little for the overhead, variable costs, etc. it consumes or the externalities it might create.

The article says the city now has budget of $90 mln and it's $38 mln more than before incorporating.

So on budget of 73% more than before, you can provide sensible level of government services pretty much any way you want... That's huge news!

Anyway, it's government subcontracting not privatization.

But they are probably spending less than the county was...

As if counties don't expand in order to expand their revenues. As if they don't do everything they do in order to expand their revenues.

The point is it's possible. Aside from it can be done, to me, the rest is mundane details.

I think you misread the article. They get to keep $90 Million in taxes for themselves, and the county estimates that they get $38 Million less each year as a result of the incorporation.

This could be tried on a larger scale -- indeed, since legal rights are tradeable (a point made by Coase in his social cost paper), then the right to create and enforce rights could also be traded on markets -- see:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1568905

I was wondering if someone was finally going to mention Coase, here. Surely -- political ideology aside -- there's a Coasian argument to be made about which services it is efficient for a town government to do internally and which it is efficient to outsource.

One thought. What would it be like if citizens directly vote on (and only on) how much to tax themselves (winning amount the arithmetic mean?) and which private corporation will provide a "bundle" of government services. The winning contractor will have a limited (2-4 year) window to provide those services in return for the amount of tax given. Each "election" would thus be a contest between rival government service corporations trying to undercut each other while still providing an acceptable level of service.

I can already see the headlines:
Dynacorp - Trusted with your freedom since 2001
Wal-ment - Everyday low prices, now for city hall
GCM - Friendly efficiency
Jersey Corp - Award local

“A 94 percent vote in favor of incorporation speaks to the broad community support for self-government and a desire to have local dollars remain local.”

How does hiring out-of-town and out-of-country companies to run your services keep local dollars local?

BPG
Some further comments from a long term resident of Sandy Springs in no particular order:
1. The big issues driving incorporation were allocation of taxes from the area and control over zoning. Sandy Springs and North Fulton long felt they were an open checkbook for the rest of the county yet got precious little in terms of service. The commission routinely overrode the wishes of the citizens in zoning matters and two commissioners as I recall were convicted of taking bribes from developers.

2. The most overlooked part of this is the administration and delivery of services. We waited ~ 10 years to get speed bumps on nearby street prior to incorporation. This year it was scheduled for repaving. Residents were notified that they would be a test case for a new lower cost process and when that didn't work a regular repaving was scheduled an implemented.

Contrast this with the CIty of Atlanta water department (who supply water and sewer for part of the city of Sandy Springs). It took them nearly a year to resolve a n over billing problem at my home. They were completely responsive, cut off my water days after acknowledging a $300 credit balance and threatened to have me arrested for turning it back on.

3. There are two phone numbers to deal with the city- 911 for emergencies and another that will direct you to the appropriate person/ department. they even follow up to see if the issue was resolved.

4. I deal with city of Atlanta for building permits and inspections etc. This can take weeks to get and frightfully expensive. Sandy Springs is less expensive, much faster and less hassle. While many of the firms are headquartered elsewhere most of the folks the notion that they workers are out of state or the country is misleading, most of the folksI speak to at the city are actually locals.

5. I agree with the point BGP made this is not a homogeneous suburban utopia- there are some areas of Sandy Springs I won't drive through or live in.

6. Other recently incorporated locales have gone with varing degrees of contractor supplied services. It might make for an interesting research project it appears the more traditionally democratic the city the less likely they are to use contractors. Not sure just an observation.

7. I often say that the city government is just like APPLE they are managing a supply chain for various goods and services. Some they do internally- police, fire- others externally.

8 FYI Mayor Galambos was an Economics professor at Ga State University.

How many HOA areas, private well kept up business parks. HOA housing fees will take care of trash, park, swimming pool, streets, non home landscaping, street lights and private patrols. Depends on how much homeowners are willing to spend.

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