High-Performance Cities show Calgary a Better Path

Alberta, Commentary, Frontier Centre, Local Government

No one was surprised when Calgary’s city council approved a 4.4% budget increase a few days ago. It costs money to run a thriving city, right? But as a Herald editorial noted on Wednesday, Calgary’s budget projects spending to rise 56% over 8 years, far in excess of the 38% combined rate of inflation and population expansion assumed for the same time span. It projects a further 21% increase in city staffing when the population is forecasted to rise by only 17%.

These figures are not unusual and reflect a persistent bias towards unnecessary spending increases embedded in the municipal culture of big Canadian cities. But it’s unfair to blame politicians, city managers or employees. There are powerful forces working to push budgets ever upward. These can be addressed if we understand and then address the root causes of the spending culture.

Incentives within typical municipal governments are tilted towards feeding more revenue into traditional delivery models, as opposed to seeking better approaches to service delivery, increasing productivity or instilling a customer-service focus in operations. Managers and employees are rewarded for increasing spending, not increasing productivity. That explains the politically perilous budget recommendations routinely pushed forward, where city politicians are presented unpalatable “minimum gain, maximum pain” budget choices that voters will reject. Inevitably they go with the system’s flow and increase spending.

It’s known, in many circles, as the “Washington Monument” syndrome, where government officials offered to save nickels and dimes by closing a popular tourist landmark instead of more obvious, but internally inconvenient efficiencies like trimming middle management. The recent call in Calgary to have the cops write an extra million dollars a year in traffic tickets to increase revenue is a classic example.

In a normal marketplace, consumers are kings and queens because they can choose among competing services and products. This creates relentless pressure to improve service and lower costs by using the latest technologies and methods. Inefficient suppliers go out of business, while efficient ones with the best product and smartest delivery prosper. The challenge is to bring this powerful dynamic into all areas of public policy by creating an environment that rewards politicians, employees and managers for rising productivity and superior customer service.

That environment doesn’t exist now for several reasons. Among them:

  • Rewards are tied to spending, not results. Government managers are paid more money if department budgets and internal staffing increase. Larger empires mean more prestige and higher pay.
  • Budget systems track spending, not results. Traditional “line item” budgets record some components of service spending, typically salaries. But they fail to define units of service and how much each unit costs. Without a fully loaded cost per unit of service—trash collection at $20 per house per month, for example—no basis exists for a transparent comparison of internal costs with outside alternatives.
  • Monopoly service delivery. Without good information for benchmarking the price of city services against other suppliers, competitive pressure to restrain the costs of in-house production is weak. Old methods, technologies and internal red tape flourish in this environment, excessive overheads accumulate with expensive assets typically being less than optimally deployed.
  • Politicians meddle in operations. Modern corporate governance holds that the board of directors should set the broad strategic direction but not involve itself in day–to-day operations. Delivering the product falls to professional managers who should be employed on a performance basis. Not in municipal government, where politicians are not properly separated from operations, with predictably disastrous results—including a demoralized and distracted staff frequently reduced to catering to fleeting political whims. Worse, it opens the organization up to subtle cronyism and favoritism where campaign donors have a vested interest in cozy, non-transparent decision-making, sweet heart government contracts, and back-room deals.
  • These four structural deficiencies, the root causes of low-performing government, result in unnecessarily expensive municipal services. Costs will perpetually rise unless the system’s incentives are realigned to focus on results, bring competitive forces into the delivery of services and force politicians to focus on the forest, not the trees. Indeed, structural reforms of these sort are advancing across a broad front in countries like Australia, Britain, New Zealand and the U.S.

    Reforms of local government in New Zealand, an acknowledged leader in high-performance government, are perhaps the best example for Calgarians to consider. By legislation, city council can hire and fire one employee, the CEO, who is held responsible for delivering a set level of outputs in the most efficient way possible. Councillors cannot involve themselves in hiring and firing or other aspects of operations like asset management or sales. Paid on a performance basis, the CEO controls staffing and is rewarded for maximizing outputs and minimizing inputs. Transparent accounting is mandated, with budgets displaying outputs and unit costs, to facilitate objective cost comparisons.

    Services are purchased from outside suppliers when they can be provided for a better deal. Sophisticated systems handle customer-service issues and measurements and guarantees of performance are routine. Achieving concrete performance goals—consistently turning building permits around in 48 hours or less, for example—results in bonuses for managers and employees. Complaints about potholes are tracked and response times monitored via the Internet. Ultimately, if performance guarantees are not met, partial tax rebates may kick in. Don’t bother talking to your councillor about these issues; bureaucrats are incentivized to expedite responses. Councillors focus on broad policy issues, as they should, not the minutiae of day-to-day operations.

    In North America, booming places like Phoenix, Indianapolis and Charlotte, North Carolina, stand out among the many cities that use “managed competition” to deliver high-performance government. City departments operate as real business units and bid against private vendors to provide a wide array of services. Excessive middle management and internal red tape have been squeezed out because they raise internal costs and risk the loss of bids from in-house providers to competition. In a 1997 interview with the Frontier Centre, union leader Stephan Fantauzzo describes “gain sharing,” where municipal workers kept 25% of any savings below bid price. At the time, his membership had achieved the highest rate of pay increase of municipal workers in the U.S. for six years running.

    The main casualties from the competitive process? Middle managers who were useless overhead. The winners? His high performing union and ordinary citizens who benefited from widespread infrastructure improvements funded by hundreds of millions in savings.

    All of this is just the tip of the iceberg. According to Geoffrey Segal, the Director of Government Reform at the Los Angeles-based Reason Foundation, the scope for savings is substantial. A rule of thumb is that half of a city’s spending can be “competed,” which typically produces a 30% saving. Applied to Calgary’s $1.8 billion budget, the competitive policy model should generate $270 million in annual savings, without any reduction in service.

    Ultimately the place to embed high-performance city government is Alberta’s Municipal Government Act. With some leadership, a willingness to change and an understanding of the benefits available in creating a “win-win” model of high-performance government, Calgarians will no longer be confronted by ideas like juicing traffic ticket revenues. Lower taxes, better services, and superior infrastructure await those who dare to visit the policy frontier of local government.