What Happened
As part of a state mandated effort to deal with its chronic budget deficit—which totaled $8.4 million in the last fiscal year—The City of Pontiac, MI has privatized its entire Department of Public works, for a savings of over $500,000 a year.
So What?
Faced with chronic city budget overruns and a Public Works building in need of major renovations and environmental remediation, Pontiac’s Emergency Financial Manager Lou Schimmel has laid off ten of the department’s 15 employees and contracted all Public Works responsibilities out to private vendors. Schimmel’s extreme-seeming move is part of a sweeping effort by the state-appointed financial manager to get the city of Pontiac into the black. While Pontiac’s position is by no means enviable, the city’s drastic efforts to cut costs—including privatizing public works—could provide some pointers and inspiration for reform-minded city officials. Pontiac’s story could also serve as a cautionary tale pointing to the limited efficacy of public cost-cutting and revenue generation efforts when not coupled with sound strategies for economic development
Background
Pontiac’s budget has been overseen by a state-appointed Emergency Financial Manager since 2009. Schimmel was appointed to the position in 2011, by Michigan Governor Rick Snyder. According to reports, privatizing the city’s public works department will help solve two problems for Pontiac:
It will save the city $516,701.69 a year in personnel costs and allow the city to resell its Public Works building to former owner Consumer Energy, and avoid paying for the intensive rehabilitation and environmental remediation that property requires.
Five Public Works foremen, who will work out of City Hall, are staying on the city payroll under the privatization plan. But all major Public Works responsibilities will be handled by private vendors. Those include:
- Snow clearance
- Traffic signal and light maintenance
- Street sign maintenance
- Roadway and railway repair
- Street sweeping
Other Savings
Schimmel’s powers as Emergency Financial Manager under Michigan’s Local Government Responsibility Act are sweeping. In addition to privatizing the Public Works Department, he has taken a number of other steps to streamline Pontiac’s budget, including:
- Renegotiating collective bargaining agreements
- Restructuring waste water treatment operations
- Moving to sell off other major municipal properties
- Contracted firefighting services out to the nearby Township of Waterford, for an annual savings of $3,000,000
- Consolidated city healthcare plans for an annual savings of $5,00,000
Despite those and other initiatives, Schimmel still predicts that Pontiac will continue to face major deficits for the foreseeable future, particularly because of a shrinking property tax base and rising public pension obligations.
Research
Pontiac’s efforts and information about the city’s efforts to get its books in order is available here.