How to Save Cities Millions

Fiscal corner

Many quotes have been attributed to Mark Twain over the test of time, such as this gem: "I saw a startling sight today, it was a politician with his hands in his own pockets." That bit of transcendent satire rings with truth because time and again, members of both major parties seemingly manage to extract more of what we earn. 

In the United States, taxes from such sources as state and local income taxes, sales and gross receipts taxes, motor fuel taxes, vehicle taxes and alcohol taxes all hit record peaks in the second quarter of 2013. In other words, not since 1962 — when the Census Bureau first started tracking such revenues — has government's take been this large in each category. 

One does not have to look hard to see how state and local officials want even more. Here in Michigan too many have argued that Michigan governments need even more money. There is a much better alternative: Bold policy reforms that reduce the cost of government and thus reduces the level of taxation needed.

The good news is that it has been done before and can be done again. Based on experience with privatization initiatives elsewhere, the Mackinac Center for Public Policy in 2000 published a conservative estimate of what could be saved in Detroit if it simply subcontracted for services in just six areas: Water, wastewater management, busing, garbage collection, inspections and ambulance services. Total annual savings would have exceeded $165 million. 

That figure excluded countless other possible savings from contracting with Wayne County for police, contracting with a private firm or another government for fire services, or selling off billions in city assets. It only requires the will and ability to make tough decisions. 

We need not speculate over what might have been. Many Mackinac Center ideas have been adopted in Pontiac under the three emergency managers who operated the city. The most successful, Lou Schimmel, has practically halved the city's operational budget through a combination of competitive contracting, the sale of assets and other reforms.

Since 2007, the city has reduced its official employment rolls from more than 500 to 20. Schimmel, who previously was director of municipal finance at the Mackinac Center, helped avoid a court-imposed tax increase by monetizing the city's water and wastewater assets. Police and fire services are now provided by other units of government and for millions less per year than in 2009. The city's golf course was sold to a private vendor. 

Governments across the country are probably spending at unnecessarily high levels to provide services that can be and are being provided better and less expensively elsewhere. This assertion includes services provided by nearby governments. 

Until they do more to sell off unnecessary assets and competitively contract services to private vendors, calls for even higher taxes than we pay now should be taken with a big grain of fiscal salt.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.