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New Haven Under a Microscope
For the first time, the city takes a hard look at
the prospect of privatizing municipal services
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Business New Haven
6/4/1995
By: Michael C. Bingham
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Can municipal government be “re-invented” in the Land
of Steady Habits?
New Haveners may find out. The city has retained two consulting firms - Public Financial Management Inc. (PFM) of Philadelphia and the Reinventing Government Network (RGN) - to examine city services to see how they can be delivered most effectively and cost-efficiently.
Virtually all financially significant city facilities, from Tweed-New Haven Airport and Veterans Memorial Coliseum down to city-operated skating rinks, will be reviewed to determine whether they can be run more efficiently as public entities - or ought instead
to be privatized or even. No city department is off-limits to the
auditors' scrutiny, says Mayor John DeStefano Jr., “except the mayor's office.”
PFM has been working with city officials during the last year to develop a five-year financial plan, and helped to put together the city's first bond offering in three years. Over the next 90 days PFM consultants will review and recommend in which areas the city might most fruitfully focus its attentions. Their recommendations and an action plan will be presented to DeStefano by early fall.
Longer-range work to redefine and sharpen productivity initiatives will be handled by RGN, which was founded by Ted Gaebler and David Osborne, authors of the book Reinventing Government. The
two firms will be paid approximately $20,000 each for consulting services.
According to RGN project manager Paul Epstein, the purpose of the initiative is to “identify systemic changes that can make the city government more competitive. Are city [department] managers trapped in a maze of personnel or procurement rules that slow down operations and add costly administrative burdens? Can the city measure the performance of its services? Do your budget rules only give departments incentive to spend more money and not to save money. How can the public work force become more customer-focused?”
To link the administration and the consultants, DeStefano has formed a Committee on Innovation and Productivity. It includes city budget director Frank Altieri, chief administrative officer Janet Lindner and city controller Gregory N. Brown, as well as the nine members of the city's Financial Review & Audit Commission, which oversees the city's finances.
A preliminary report prepared for the committee by PFM estimates that implementation of efficiency measure could save the city between $3.7 million and $5.4 million per year over the next five budget years.
One city entity certain to attract close scrutiny is Tweed-New Haven Airport. In the wake of the departure of Airport Manager Bruce Lawson, PFM has already recommended that the city develop a non-binding request for proposal (RFP) for private management of the under-utilized flyway.
According to PFM's Thomas Huestis, part of its problem is that Tweed “is embedded in the city's financials and doesn't have its own P&Ls [profit-and-loss statements; revenues and expenditures are reflected instead in the city's general fund]. The opportunity has not been taken to bring market forces to bear on the airport and develop it as an economic-development asset.”
Tweed actually turned a modest profit ($96,500) in fiscal 1994, although it is budgeted to break even in FY 1995. Nevertheless, its inability to attract more than token passenger service remains a painful thorn in the side of city economic-development officials, who have visions of it as the Bradley of southern Connecticut. Others consider that vision naïve: Based on annual passenger boardings, Bradley (which, notably, is operated by the state) is 20 times busier than Tweed.
And the actual facility is beset by physical shortcomings that defy quick fixes. Already hypersensitive to noise issues, politicized East Shore and East Haven residents are opposed to expansion with almost religious fervor. And the flyway's main runway is too short for most commercial jets (one FRAC member recalled a harrowing downwind landing, after which he heard the pilot tell a crew member “I used every inch of the runway with the brakes on ten”).
In a memorandum to the Committee on Innovation and Productivity, the PFM consultants identify as “primary” goals for the airport the recreation of it as a stand-alone financial entity, improved quality of service to both passengers and potential carriers, and the operation of Tweed “in a competitive manner.”
The consultants' “secondary” goals for the airport include: “1) Meeting the needs of the greater New Haven community; 2) position the airport to capitalize on growth opportunities; 3) integration of the airport into the city's economic development efforts; 4) preservation and/or expansion of the airlines currently serving the airport; and 5) repay the city's general fund for its capital investments.”
To accomplish this, they're already looking at other smaller airports such as White Plains, N.Y. and Morristown, N.J. that are managed by such private operators as Lockheed Air Terminal and Johnson Controls World Services. They've drafted a request for qualifications to be sent to private operators for the purpose of evaluating the latter - and, PFM hopes, to solicit ideas about how Tweed can be better managed right now.
PFM has also recommended that the city commission an air-service study to assess actual market needs and potential - specifically, by querying travel agencies and airlines about the actual travel patterns are of people who travel to, from and through New Haven.
Looking elsewhere at major city-run entities, one is blinded by red ink. Veterans Memorial Coliseum loses about $1 million annually on operations, not counting debt service on the two bond issues that originally financed its construction. Lighthouse Point Park runs annual defiticits gradually approaching the six-figure benchmark. The city's solid-waste system, which necessarily loses money, costs beleaguered city taxpayers between $3 million and $4 million a year. Even the city-run skating rink, budgeted simply to pay for itself, managed to lose $20,000 in fiscal 1994.
The first question that comes to mind is, why? Are municipal entities simply unable to keep expenses in line with real revenues? And is the problem unique to New Haven, or is it typical of other cities?
“Not really,” says PFM's John de Jongh Jr., although he allows that “Most cities do have to provide some sort of subsidy to their operating authorities.He notes that, “other than the Coliseum,” the paper losses shown by such departments as wanter poolution control and the parking authority, appear “mainly” due to depreciation expenses. “The Coliseum,” he notes, “has a true cash loss.
“Subsidization is not unusual,” de Jongh says. “What may be unusual is that [in New Haven's case] it has continued over the time period that it has. Most cities are looking at ways to wean [authorities'] dependence off the general fund - which New Haven is now beginning to look at.”
An obvious place to start would logically be the Coliseum, which is disadvantaged by the lack of a sports franchise to occupy a healthy annual schedule of event-days.
The good news-bad news scenario is that the facility may beginning this autumn play host to a franchise in the National Professional Soccer League - if the local group trying to organize it can raise the $2 million or so they need to operate during an inaugural season. That's a big if. The bad news is the advent of a new amphitheater concert facility in Hartford scheduled to open this summer. Although it will seat 30,000 for outdoor shows - and thus host acts bigger than the Coliseum could even hope to attract - the 7,500 permanent indoor seats for year-round shows place it squarely in competition with the aging 10,000 New Haven venue.
Over the last decade, the most successful indoor arena in New England, in terms of event-days, has been the Worcester (Mass.) Centrum. A dozen-year ster in the building due to construction delays and political squabbling, the Centrum when finally opened in 1982 was an immediate success due to aggressive savvy management - by a private firm. Worcester officials contracted management of the Centrum to the Spectacor Corp. of Philadelphia (the firm that owns and operates that city's Spectrum). Shows by Frank Sinatra, Bruce Springsteen, U2, the Who and others were soon to follow.
What would be a reason not to follow that example here? Politics, for one. Coliseum Director James Perillo is one of the city's most savvy and best-connected Democratic politicians (and a sometime mayoral candidate). He would probably rather sit through a Michael Bolton concert than surrender control of a major city facility and the jobs it creates.
Politics aside, the building simply may not be sufficiently attractive to a private operator. With its poor location, in-between size and crumbling parking garage, successful arena management firms likely would not see sufficient upside to even bother.
But that's still in the future. For now, “What we would like to do is to look at each of the authorities and the airport,” de Jongh says, “and do an analysis based on finmancing and operations, then give the city options - including contracting out certain functions or leasing certain facilities - as an option. There is no preconceived objective. If you follow that process through, then contracting out of the Coliseum could be an option - assuming that there are actually firms that would be interested and see the potential.”
De Jongh admits to having “no feel” for the politics of the situation - and why should he? “We're not going into this with any preconceived notions,” he says, “and the city hasn't given us any. And at the end of the process, there might be no change.”
It will be interesting to see.
There are New Haven-area duffers who have never heard of Alling Memorial Golf Course, the picturesque city-owned links straddling the New Haven-East Haven city line. That's because no one has attempted to market it to the approximately ten percent of the population that plays the sport. As a result, it's a money-loser in the low five-figures. It seems reasonable that with some attention to promoting the course, Alling ought to generate at least twice the measly $280,000 it takes in each season.
Likewise with facilities such as the skating rink and Lighthouse Point Park, the only city-owned park that actually generates revenue (roughly $70,000 annually) by virtue of parking fees charged during summer months, concession sales and nominal fees from the operation of the park's beautiful, restorted carousel.
To an extent, it's a question of management outlook: Is the mandate from the top communicate that it's simply okay to simply stumble along, near or slightly under break-even, year after year? Or is their a firm message that the revenue-generating facilities ought to be run as profitably as possible?
And what of their ability to generate additional economic activity? De Jongh returns to the example of Tweed-New Haven Airport.
“I think if you approach the airport as more than just a facility for people coming in and out, but look at it more as an economic development generator,” de Jongh says, referring to Tweed's situation versus that of state-run Bradley, “then maybe one of the last things you want to do is to turn it over to the state, because it has such importance in terms of your economic future. So you may not want to turn it over to another entity.
“I think what New Haven has to do,” he continues, “and whether this is done by the government directly or is done with the assistance of contract management is begin to tap into the potential of the service area you have in terms of getting people to ultilize Tweed-New Haven Airport instead of Bradley, and then at the same time marketing it to the airlines.
“Between your primary and secondary service area, you've got between 700,000 and a million people who potentially could be customers and go through the airport. If somehow you could begin to tap into that, that would give you sort of stream that airlines need.”
The city has already taken baby steps toward privatizing some services that previously were public provided. Last month, for example, the city received four RFPs from what budget chief Altieri characterized as “major” firms to manage custodial services in public schools.
Of course, looking at the big picture, “you can't effect true structural change no matter what you do with the revenue side” of government, says one city economic developnment official. In other words, with city budget will be forever under severe stress as long as it remains over-reliant on an ever-shrinking property tax base.
Still, that's battle that will be won or lost on the state level. For now, city mayors like DeStefano can at least send a message to constituents that the businesslike, no-nonsense approach to spending is the most responsible course to steer.
“I believe we can govern better by tapping into the entrepreneurial process and taking a customer-service approach to how we do business,” said DeStefano. “This initiative will help us redefine what services the city can deliver - and deliver well - on its own, and which would function better through competitive contracting.”
Whether that will indeed reshape the way the city governs itself - or simply result in another dusty position paper - ought to be vastly clearer by year's end.
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