Chapter9.docx

Chapter 9
SERVICE DELIVERY STRATEGIES AND INNOVATION
The word government is from a Greek word, which means “to steer.” The job of government is to steer, not to row the boat. Delivering services is rowing, and government is not very good at rowing. —E. S. Savas (Osborne & Gaebler, 1992, p. 25)
Previous chapters have discussed the mismatch between the jurisdictional boundaries of local governments in the United States and the scope of the problems they confront. It is clear that many contemporary problems ignore municipal and county boundary lines and call for intergovernmental and intersectoral collaboration in to be effectively addressed. The challenge for the local manager is to find ways to develop scale capacity to tackle service needs and challenges while demonstrating to citizens and elected officials that their community is still viable and continues to add value to residents’ quality of life. This balancing act is difficult, but there are both traditional and nontraditional tools available to assist this effort.

Chapter 4 reviewed the traditional procedural or institutional approaches to cross-boundary service delivery, ranging from informal cooperation to functional transfers to new or renewed entities such as regional and multipurpose special districts and public authorities. This chapter builds on that discussion by focusing on the promising public and private collaborative alternatives to service delivery (ASD) that are being practiced by local governments. The advantages and disadvantages of a range of major alternatives will be considered. In addition, local governments are often considered laboratories for innovation, where successful initiatives taken by one jurisdiction can be diffused to other localities as well as to state and federal agencies. The chapter will provide guidance on how local managers can create and sustain an organizational culture that promotes and sustains innovation in service delivery.
WHO DOES WHAT? GOVERNMENT-TO-GOVERNMENT APPROACHES
There is no standard or set formula for dividing the job of service delivery among local governments and the local, regional, state, and national levels. Instead, the arrangement is messy. As noted in Chapter 3, there is wide variation from state to state in how local units are organized, their powers, and their scope of responsibilities. Strategies that work well in one city, county, region, or state may not be applicable elsewhere. This section examines common government-to-government strategies for delivering services.
Interlocal Contracts and Agreements
In terms of usage, formal and informal interlocal contracts and service agreements are the oldest and most popular ways to work across boundaries. Examples of this approach to pragmatic regionalism include mutual assistance pacts between police or fire departments, construction and provision of water and sewer infrastructure, and 911 call centers. Contracts are voluntary and usually involve two jurisdictions and a single service or activity. They often emerge from the informal conversations among managers about cooperative opportunities. Some 45 states authorize local governments to use this instrument, and even in Dillon’s Rule states, the grant can be quite broad. Chapter 160A of Article 20 of North Carolina’s General Statutes, for instance, states:
Any unit of local government in this State and any one or more other units of local government in this State or any other state (to the extent permitted by the laws of the other state) may enter into contracts or agreements with each other in other to execute any undertaking. The contracts and agreements shall be of reasonable duration, as determined by the participating units, and shall be ratified by resolution of the governing board of each unit spread upon its minutes. (North Carolina General Assembly, 2016)
Contracts and agreements are sometimes criticized on the grounds of their voluntary nature, single-function focus, and potentially limited duration. However, they make an important contribution to regional collaboration by enabling public officials from participating jurisdictions to get better acquainted and begin to build trust. This rapport is an essential foundation on which other regional initiatives could be built. According to David Warm (2011), executive director of the Mid-America Regional Council serving Greater Kansas City (Kansas/Missouri), “The most important aim of local government managers is not to run local government; rather the aim is to build trust—with one another, with citizens, and with community institutions” (p. 64). As such, contracts and agreements are the “low-hanging fruit” that could enable regional partners to eventually embark on more ambitious undertakings.
Service-sharing arrangements exemplify the key role the city or county manager plays in intergovernmental negotiations. As former Catawba County, North Carolina, manager Tom Lundy points out:
Managers have to set the tone; set expectations. A lot of times managers see a much bigger picture. I remember contracting for capacity in a new sewer plant and we got stuck on how much the technical staff in the other jurisdiction wanted to charge; our staff didn’t want to pay that, so we got stuck on a number. I finally just said, “What if we leave it the way it is and we agree that they will fund a water line sometime in the future?” The most important thing is that we were able to side step an issue that would have destroyed the agreement. Because technical staff is so good and so precise, sometimes the managers can see the bigger picture or set something for later to facilitate another agreement. Sometimes reaching agreement is as important as reaching total equity. (Perlman, 2015, pp. 119–120)
Reformed Urban County
County governments are readily available to address problems or needs that are of an areawide nature, and often, they are partners in interlocal contracting. As noted in Chapter 3, the county structure is in place in all but two states—Connecticut and Rhode Island—and can provide the geographic scope requisite to achieving scale economies. The chief limitation is the traditional role counties have played as arms of the state government responsible for performing a limited range of functions—law enforcement, tax assessment and collection, road maintenance, and elections—in unincorporated areas. Another impediment occurs when the governing body of many counties (such as part-time commissioners or supervisors) head departments and the chief administrator is weak or nonexistent. And in some metropolitan areas, boundaries of a single county may provide insufficient geographic coverage to deal effectively with regional issues and wicked problems (described in more detail in Chapter 11).
States such as California, Georgia, New York, Florida, Virginia, and Maryland have authorized their counties to perform municipal-type functions and, in some cases, given them home rule. Led by county executives who are separately elected or by chief administrative officers or county managers who are appointed by the governing board, these urban counties possess the structure, powers, and scope to serve as areawide or regional governments. But the urban county movement has not swept the country, due in part to concerns of municipal officials about usurpation of their authority and competition for public recognition and respect.
It was also noted in previous chapters that among the many prescriptions offered for improving local government and state–local relations, home rule for municipalities and counties usually ranks high on the list. Local empowerment is a crucial condition for achieving effective collaboration. Independent of the extent of jurisdictional or functional fragmentation, if local governments lack the authority to modernize and strengthen their form of government, manage their personnel, levy and adjust taxes and fees, and deliver a wide range of services—directly or collaboratively—they will be unable to meet the expectations of citizens and businesses. Empowerment also can produce strong local partners to regional collaborative arrangements that are key to competing successfully in a global marketplace.
Achieving this goal has been a stiff challenge for counties. Despite authorization given to counties in some states to modernize their form of government and assume a range of municipal-type responsibilities, many counties in the United States continue to play their traditional role as the arms of the state government for limited purposes. They were dubbed “the dark continent of American politics” in 1917 (Miller & Cox, 2014, p. 155), and for some, this characterization still applies. While municipalities deal with important functions such as police and fire protection, public transportation, and street and sidewalk repairs, “the image of county government as a sleepy, patronage-riddled organization resistant to change is frequently reinforced in the eyes of the public” (Miller & Cox, 2014, p. 155).
Especially where b s of the metropolitan area and a single county are coterminous or where a core county serves as the work destination of many residents of fringe counties, the county is a logical areawide performance unit. Reorganizing these counties to enable them to carry out functions that cross the boundaries of constituent units and that are amenable to achieving greater efficiency, effectiveness, and equity as a result of scale of delivery offers a number of advantages. Most urban counties usually require no local structural reorganization; they are derived from a unit of local government that is well-known to citizens and valued by state legislators and public administrators, and they have the capacity to facilitate interfunctional coordination and transfers among municipalities within their boundaries. They also promote a more systematic approach to sorting out local from areawide services and enable municipalities and other general-purpose units to contract with the county to deliver desired services while they continue to perform other local functions (Delabbio & Zeemering, 2013).
As an illustration of intrastate challenges to sorting out functions, counties were established under state constitutions or statutes as first-tier administrative subdivisions of the state. In North Carolina, counties provide state-supported public health, mental health, and social services as well as schools, roads, jails, deed registration, and law enforcement. Municipalities were created for regulatory and infrastructure maintenance purposes, especially in urban areas. These functions include streets and sidewalks, lighting, traffic control, and cemeteries. Over time, the list of services that both counties and municipalities are authorized or mandated to perform has grown, as shown in Table 9.1. Interestingly, the only state-mandated municipal function is building code enforcement; the others indicated in the table are discretionary.
Government-to-Government Contracting
The general trend in the past 50 years has been for counties to be authorized to perform more services traditionally provided by municipalities, and so one answer to the “Who does what?” question within the public sector is county governments. There are three practical reasons for this expansion: inefficiency of intracounty functional duplication, capacity to achieve economies of scale in some services, and personnel and capital cost increases. One of the pioneers in interlocal contracting was Lakewood, California, which when incorporated in 1954 chose to contract with Los Angeles county for most of its services. This arrangement has been replicated elsewhere, with cities selecting from a cafeteria plan the services they would like the county to perform for them and agreeing to reimburse the county. This is a win–win arrangement in which the county achieves scale economies and efficiency is increased by the reduction of service duplication, while cities save money by not having to invest in their own personnel, equipment, technology, and space. An additional advantage of such government-to-government purchasing is public accountability, as the participating units must operate under established procurement, reporting, and other regulations.

Table 9.1 Chief Services and Functions Aut

horized for City and County Governments in North Carolina

Services and Functions Authorized for Counties Only

Agricultural extension

Forest protection

Public schools

Community colleges

Juvenile detention homes

Register of deeds

County home

Medical examiner/coroner

Social services

Court system support

Public health

Soil and water conservation

Drainage of land

Services and Functions Authorized for Both Municipalities and Counties

Aging programs

Economic development

Parks

Air pollution control

Fire protection

Planning

Airports

Historic preservation

Ports and harbors

Alcoholic rehabilitation

Hospitals

Public housing

Ambulance services

Human relations

Railroad revitalization

Animal shelters

Industrial promotion

Recreation

Armories

Inspections

Rescue squads

Art galleries and museums

Jails

Senior citizens’ programs

Auditoriums and coliseums

Law enforcement

Sewage treatment

Beach erosion

Libraries

Solid waste management

Public transportation

Manpower

Storm drainage

Emergency management

Mental health

Urban redevelopment

Community action

National Guard

Veterans’ services

Community appearance

Off-street parking

Water

Community development

Open space

Watershed improvement

Drug abuse programs

Services and Functions Authorized for Municipalities Only

Cable TV/communications

Gas systems

Streets

Cemeteries

Sidewalks

Traffic engineering

Electric systems

Street lighting

Source: Author-created based on Lawrence, David M. 2014. An Overview of Local Government. In Frayda S. Bluestein, ed. County and Municipal Government in North Carolina, 2nd ed. Chapel Hill, NC: UNC School of Government.

Research has shown that “intergovernmental contracting yields similar efficiency gains as for-profit privatization but performs better in terms of equity and citizen responsiveness” (Warner & Hefetz, 2009, pp. 19–20). The extent to which counties are willing and able to engage in interlocal contracting varies from state-to-state, as does the number of so-called contract cities, but unquestionably, this tool will continue to be very popular.
While offering economies of scale and other advantages, public sector contracting and sharing involves other units than counties. A 2007 survey (called the ASD Survey) of 6,095 municipalities with populations over 10,000 and counties with populations over 25,000 and a random sample of smaller jurisdictions by the International City/County Management Association (ICMA) shows a wide range of services that local governments purchase from one another. The list in Table 9.2 indicates services that require specialized staff to deliver, incur high capital costs, or call upon government coercive powers.

Table 9.2 Public Services Most Commonly Purchased from Other Local Governments in 2007

Service

Number of Respondents Who Outsource Service

Percentage Purchased from Other Local Governments

Workforce development/job training

409

59%

Welfare intake/eligibility determination

388

59%

Mental health/retardation programs/facilities

369

58%

Child welfare programs

411

53%

Public health programs

512

52%

Drug and alcohol treatment programs

395

49%

Prisons/jails

648

44%

Bus/transit operations/maintenance

403

40%

Hazardous material disposal

615

38%

Paratransit operations/maintenance

366

37%

Homeless shelters

288

37%

Insect/rodent control

597

35%

Libraries

792

34%

Airports

422

34%

Source: Warner & Hefetz, 2010, Table 3/3, p. 22. Total number of usable responses = 1,474.1

Many of the contracted-from-government services are clustered in the health and human services area. Therefore, it is likely that the purchasing jurisdiction can receive that service at a lower cost than if it provided it directly. Indeed, that is among the top expectations for intergovernmental contracting reported by survey respondents, who were chief administrative officers. The four top motivators were saving money (80%), achieving economies of scale (77%), strengthening collaborative intergovernmental relations (64%), and promoting regional service integration (59%). Among the top obstacles to intergovernmental contracting were loss of community control (64%), employee and elected official opposition (43%), and monitoring difficulties (32%) (Warner & Hefetz, 2009, p. 19). Other research has found that council–manager governments were more likely to engage in service contracting than municipalities operating under the mayor–council form (Carr, 2015, p. 681).
Reorganizing counties as full-service jurisdictions for planning, problem-solving, and functional performance requires adoption of home rule charters, broadening of functional and fiscal powers, and replacement of the commission form of government with elected county executives and/or appointed county managers or chief administrative officers. While philosophical, political, and cultural differences will be difficult to overcome, municipal officials will need to put aside historic concerns about competition from empowered counties and demonstrate a willingness to collaborate in to avoid duplication and to promote coordination of efforts. At the same time, county officials will need to put aside parochial mindsets and overcome fears of the big city.
As indicated earlier, municipal and county managers are key players in efforts to identify ways their jurisdictions can work together. They serve as barometers of readiness to collaborate, as negotiators, and as monitors and evaluators. Their professional expertise is critical to ensuring win–win contractual arrangements, realistic and equitable contractual terms, and attainment of expected outcomes. The prevalence of part-time elected officials (albeit an important part of the citizen legislator tradition in the United States), the growing technical complexity of the problems confronting localities, the widespread intergovernmentalization and private-sector provision of services, and the explosion of networks and collaborative arrangements all underscore the critical need for professional local managers to be transcending leaders.
WHO DOES WHAT? PUBLIC–PRIVATE PARTNERSHIPS
Although the most common method for delivering local services continues to be in-house provision, local governments are not confined to contracting with other governmental entities. Services provided through arrangements other than in-house are called ASD methods. These include the government-to-government arrangements discussed in the previous section and public–private arrangements.
Contracting versus Privatization
Many people confuse the terms contracting and privatization. Even those who work in government may erroneously say a service was privatized when it was, in fact, contracted out. The terms are not synonymous. When a government service is privatized, it is permanently transferred to the private sector. There is no contractual agreement for monitoring or an ongoing fee system that is established. The private sector agency takes over the service previously provided by government.
In the United States, there is not a great deal that can be transferred to the private sector because most industries were founded by private sector entities. So, while the UK and Australia privatized their coal industries in the 1990s, the U.S. coal industry has always been a private industry. Most of the privatization that occurs today in the United States involves the sale or long-term lease of government assets to the public sector. Local or state governments may sell the rights to tollway administration and maintenance or to parking meter provision (i.e., as in Chicago).
When a government service is contracted out, there is a contractual agreement that covers the arrangement. The private sector agency may be granted long-term control over the service. However, the public organization does not relinquish ownership or responsibility for provision of that service. For example, although there are a number of private prisons in the U.S., these prisons are run through a contractual arrangement with the state or federal government. Were it not for those contracts, the private prison would no longer be in business. The contracts govern many aspects of how the prisons are designed and run. Were these prisons truly privatized, it would be up to the private sector agency to decide how to provide the service.
Private Sector Contracts
Arrangements between governments and private organizations to provide services or run public facilities can be simple or complex, long term or short term. Government facilities that are now commonly administered by private sector corporations include prisons, public hospitals, sports facilities, and convention centers. Services that are commonly provided by the private sector include trash collection, utilities maintenance, and recreation services.
Since the 1980s, there has been considerable interest in using the private sector, including both nonprofit organizations and private firms, for services once provided by public employees in to achieve efficiency (Warner & Hefetz, 2009). A local government that decides to purchase rather than produce a service still has a public obligation or responsibility regardless of the performing entity, which involves a trade-off between sovereignty and efficiency:
When state or local governments outsource services, they must be careful to safeguard . . . sovereignty. If a local government encounters a private vendor who is unable to, will not, or prefers not to comply with standards that governments must respect—whether for freedom of information, access, equity, record keeping, or process—then it cannot be allowed to win a contract. Compliance with basic standards for state and local government in the areas of ethical performance of public servants, open processes, and full exposure of public decisions must be a ground condition of actual contracting for the delivery of public services and not just something left to auditors or evaluators. (Perlman, 2013, p. 181)
Two contributors to the surge in interest in private sector contracting were the election of Ronald Reagan in 1980 and the Reinventing Government movement of the 1990s. Citizens have historically been averse to big government and expect more for less and quicker, better, cheaper in their service delivery. Politicians at all levels have campaigned in support of smaller, less expensive, and more efficient and businesslike government and against fraud, waste, and abuse—and bureaucrats. The election of Ronald Reagan put downsizing government high on the domestic agenda.
Thanks to contracting, more than 30 years later, the federal government’s civilian workforce is about the same size as during the Kennedy administration, even as outlays have soared. Contractors have been called the “shadow of government” and are found across the spectrum of federal civilian and defense programs (Light, 1999). They conceal the true size of government and raise accountability and transparency concerns.
A second contributor to increases in government contracting was the Reinventing Government movement of the 1990s. The quote from privatization and public sector competition advocate E. S. Savas at the beginning of this chapter captures the spirit of reinvention. Savas served as an assistant secretary in the Department of Housing and Urban Development during part of the Reagan administration. A 2003 ICMA survey revealed “significant implementation” of the Reinventing Government principles relating to budgeting, including partnering to provide a program or service (68%) and contracting out a municipal service (68%) (Gaebler, Hilvert, & Holt, 2014, p. 37).
Contracting Out with For-Profit Organizations
As indicated in Tables 9.3 and 9.4, local governments purchase several services from private companies and nonprofit organizations. With respect to the former, vehicle towing and storage was reported as the most common service purchased from for-profit companies. Over 50% of the ICMA’s ASD Survey respondents purchased gas utility operations and management, solid waste collection, and day care facilities from the for-profit sector. According to Gordon Whitaker (2007), some of the common features of these services are that they are also offered to private customers and they are “packagable” in the sense they can be purchased in measured units. Therefore, the marketplace should have a large number of providers, it should be competitive, and it should offer opportunities to benchmark or compare prices (p. 371). Another aspect of these services that facilitates contracting is that it is fairly easy to monitor performance. For example, when a resident’s trash is not picked up, they are likely to call the local government and complain. These points are backed up by research that shows that the least contracted out services are those in which monitoring is difficult to perform (Warner & Hefetz, 2009).
A newer trend in contracting out for services involves hiring a private company to do most of the business of running the government. So far, this has only been implemented in municipalities, but county governments may adopt this model in the future. Unlike in Lakewood, California, where the county is the contract agent for provision of city services, in the private model, a for-profit company provides the services. For example, Sandy Springs, Georgia, incorporated in 2005, has only seven government employees. The others are employees of a set of private corporations contracted with the city to provide services such as building permitting, business licensing, and court operations. Cities that rely on contracts to run their governments may encounter problems, however, due to inadequate oversight. In 2016, three Beaumont, California, contract employees and several city employees were arrested for embezzling money from the city to enrich their company, Urban Logic Consultants. The employees of the private company were hired to direct the planning, economic development, and public works departments (Keltman & Macy, 2016).

Table 9.3 Public Services Most Commonly Purchased from For-Profit Companies in 2007

Service

Number of Respondents Who Outsource Service

Percentage Purchased from Nonprofits

Homeless shelters

288

56%

Museum operations

433

38%

Operation/management of hospitals

253

38%

Drug and alcohol treatment programs

395

36%

Cultural and arts programs

567

35%

Day care facilities

320

33%

Mental health/retardation programs/facilities

369

32%

Programs for the elderly

799

29%

Job training programs

409

25%

Animal shelters

772

22%

Paratransit operations/maintenance

366

18%

Child welfare programs

411

15%

Source: Warner & Hefetz, 2010, Table 3/3, p. 22. Total number usable responses = 1,474.1

Contracting out for a service, whether to another government or to a private firm, is one form of ASD that undoubtedly will continue to grow. However, there are a number of considerations that managers should take into account before moving forward with collaborative service sharing arrangements or outsourcing. These include (1) examining the rationale for collaboration, such as leveraging resources, better relationships, and improved processes and outcomes; (2) determining the most appropriate public–public or public–private arrangements in view of the goals to be achieved; (3) deciding on the correct number of partners; (4) analyzing whether the service should remain in-house based on financial considerations, service delivery models, and private partner profit expectations; (5) identifying and assessing the barriers to collaboration, including turf, political culture, trust, and management capacity; and (6) assessing the benefits to be gained through collaborative arrangements (Hilvert & Swindell, 2013, pp. 244–248).
Partnerships
Public–Private Partnerships (PPPs) have been in vogue for some time and have been defined as follows by the National Council for Public–Private Partnerships:
A contractual agreement between a public agency . . . and a private sector entity. Through this agreement, the skills and assets of each sector (public and private) are shared in delivering a service or facility for the use of the general public. In addition to sharing resources, each party shares in the risks and rewards in the delivery of the service and/or facility. (Gabris, 2014, p. 118)
These expectations—sharing and risk—are not found in the other ASD approaches.
PPPs may be informal or formal and long term or short term and involve a variety of service planning, coordination, sharing, and/or execution relationships. Economic development initiatives (such as downtown revitalization) and real estate ventures (such as sports arenas) are popular areas for PPPs. Other interesting examples include a joint venture with a private company to burn trash that the city collects to produce steam, which is sold as heat; companies adopting a park or library and helping the locality to fund, staff, and maintain the property or facility; and holding public school classes on company sites for children of their employees (Osborne & Gaebler, 1992, pp. 335–336).
PPPs have management challenges and uncertainties associated with them. Restating these challenges positively, among the components of a successful partnership are (1) clarity of vision for the project; (2) a governing board that focuses on the long-term public good; (3) trust, teamwork, communications, and transparency among the staff, governing board, and partners; (4) two-way sharing of expertise between the local staff and private partners; (5) a flexible agreement that the partners can modify and fine-tune as they gain experience with the project and one another; and (6) a method for measuring outcomes and evaluating results (Gabris, 2014, pp. 131–135).
OTHER ALTERNATIVE SERVICE DELIVERY TOOLS
In addition to contracting, other forms of ASD are available to municipal and county managers. This section reviews three of the most common tools managers have available to use as nongovernmental alternatives to the in-house production: grants to subsidize services, franchises, and managed competition. The emphasis will be on the intersection between the local government and a private provider. Each tool will be highlighted, together with the advantages and cautions associated with it.
Most ASD methods discussed in this section involve the introduction of market competition into the provision of government services. Conceptually, the idea is to lower costs through competition. However, there must be adequate existing competition in the private market for this to work. Research has found that there is an inadequate supply of private sector firms offering many governmental-type services to sufficiently lead to lower costs and better quality than would be achieved through in-house service provision (Warner & Hefetz, 2009). This factor means that it is much easier to implement alternative service delivery in large urban areas than in small rural or suburban areas.
In addition to the needed awareness of competitive market conditions when considering ASD, it is also important to consider where opposition may arise. Since the most substantial portion of the costs of providing local government services comes from personnel, layoffs often accompany ASD arrangements. Elected officials may be concerned about the political ramifications of staff reductions. In states with collective bargaining, union opposition may also be an impediment to the introduction of outsourcing.
Grants to Subsidize Services
Another ASD tool local managers can use is grants to assist the provider in achieving the public purpose. This could be particularly helpful if a nonprofit organization is responsible for the service and it has a limited budget or staff expertise. The subsidies may take the form of an in-kind contribution from the local government, such as office space, staff support, and equipment or technology in addition to cash. Generally, grants are broader and less specific than purchasing transactions, so accountability problems could result.
Franchises
Franchise agreements allow companies to sell their services using public property or rights-of-way in exchange for fees to the local government. Franchises are popular in that they involve revenues instead of expenditures. The customers pay the private provider, not the locality, for the service. In some cases, the local government will franchise a sole provider or, in other cases, multiple companies will be allowed to compete with one another for customers. Usually, however, competition is restricted.
A common example is commercial and residential trash and solid waste collection. While some localities bundle trash and solid waste pickup with other services covered by property taxes or contract directly with private companies, others permit particular private companies such as Waste Industries and Waste Management to contract directly with citizens. The customers can choose among private providers based on cost, frequency of service, types of waste collected, and other factors. In addition to customer choice at the outset, if the provider fails to meet expectations, the citizen can select another vendor. With franchising, only customers who consume a service pay for it, such as recreation facilities. Other service areas where franchising is common include utilities, cable television, bus transportation, parking meters, and restaurants on turnpikes.
Managed Competition
The Reinventing Government movement encouraged public organizations to move from monopolistic to competitive practices. One such practice is managed competition, spearheaded by Phoenix, Arizona, in 1979, which required local departments to compete against private bidders for certain services. Competition could be citywide or could focus on certain districts or neighborhoods. Phoenix’s Public Works Department divided the city into districts and started bidding them for five- to seven-year contracts on a one-district-per-year basis. Due to union concerns, the city adopted a no-layoff policy and required private contractors who were successful bidders to hire public works personnel who were displaced. Those who wanted to remain with the city were transferred to other departments. Initially, public works lost the first three bids, causing senior managers and employees to redesign routes and work schedules and purchase one-person trucks with mechanical arms instead of the traditional three-person vehicle. A suggestion program was established that gave employees 10% of the savings resulting from their idea, up to $2,000. Gradually, public works became more competitive and the city saved money—about $20 million during the first decade. Employee morale increased instead of declined, as was originally predicted. Based on its success with sanitation, Phoenix’s managed competition spread to landfill operations, street repair, golf course management, printing, and security (Osborne & Gaebler, 1992, pp. 76–77).
Another bold effort was initiated by former Indianapolis Mayor Stephen Goldsmith, who used managed competition in some 80 services, such as street resurfacing and pothole filling. Public works staff worked with the mayor’s office to apply activity-based costing methodology to determine delivery costs and establish a level playing field for all bidders, and strategies were employed to reduce expenditures. Between 1992 and 1995, the city saved about $100 million, thanks to managed competition (Nelson, 2014).

Managed competition can be an effective way to encourage or pressure public agencies to review and revamp their rules, procedures, and productivity. Not all services are amenable to the “Yellow Pages test” that Mayor Goldsmith used, whereby if an in-house provided service was also advertised in the Yellow Pages as a private service, managed competition was possible. While competing with private sector providers can threaten job security and undermine staff morale, it can also boost confidence if the public agency prevails.
At the same time, if the government constantly wins the competition, private companies might believe the bidding is tilted toward the local agency or that it is rigged in favor of public personnel. After all, public agencies do not need to make a profit or pay taxes, incur risk, or adhere to some regulations (Nelson, 2014, p. 56). If these concerns are valid, the number of potential private providers can dwindle, as was the case with the Charlotte–Mecklenburg Utility District (CMUD). During the early competition, CMUD invited private companies to compete with its staff for district waste treatment plant operation and in nearly all cases, staff won the bid, which had a chilling effect on the provider market (Gullet & Bean, 1997).
Adding to the complexity is whether the service requires a comprehensive or multifaceted provider network in to be efficiently and effectively provided. For example, when the Indianapolis airport went through managed competition, consideration was given to whether requests for separate proposals (RFPs) should be sent to specialized providers for parking, concessions, and other airport operations or if a single source for managing all aspects of the airport’s business should be hired:
After more careful analysis, the city determined that the real benefit would derive from a single organization managing all the pieces, thereby maximizing the experience for the passenger. From this model, BAA, the British company that manages Heathrow Airport and seven other U.K. airports, successfully competed for and won the contract. (Goldsmith & Eggers, 2004, p. 86)
KEY QUESTIONS
Before deciding on a service delivery alternative, local managers need to ask a number of important questions (Whitaker, 2007, pp. 377–380). First, what potential producers are available? It might be difficult to find many private companies who are experienced in comprehensive airport management, for example, compared to trash collectors. As with CMUD’s experience, if the competition record weighs heavily in favor of the public agency, private firms might be reluctant to invest the time and staff to prepare bids. And managers in rural communities may find relatively few interested competitors. If the number of bidders is limited, the potential for driving down costs and improving quality through ASD is diminished.
A second question involves packageability, whether a service can be divided into distribution units for the citizens who use them. Water and sewer use can be readily measured, for example, compared with public parks. Packageable services enable managers to know how much of a service they are purchasing. If this is an important consideration, then franchises, managed competition, and some public–private partnerships work well. On the other hand, grants are less specific with respect to services to be produced and performance levels to be attained.
Accessibility and equity are the third considerations. If equal access to a service regardless of a customer’s ability to pay is sought, then franchises are a less desirable option. The other alternatives can specify service availability as a condition of the agreement. Regarding equity, the local government can decide whether to subsidize the provision of a service by a company or nonprofit organization, such as covering a portion of bus or light-rail fares or water and sewer user fees.
A fourth factor to be considered is how much control over the production, delivery, quality, and cost of the service the local government desires. Some services, such as law enforcement, are considered inherently governmental due to their potential use of coercive power (such as deadly force) and are not amenable to delivery by nongovernmental agencies. The growth of prison contracting has also raised questions about the use of such power by private firms as well as the appropriateness of the ways in which company profits are made, such as reduced pay and benefits for corrections personnel and reduced quality of food and medical services for inmates.
But for the most part, the use of one or more of the alternative approaches covered in this chapter assumes that the local government is willing to relinquish direct control over service delivery, with franchises and grants allowing the greatest flexibility to providers. At the same time, managers are responsible for monitoring the provision of services, evaluating the performance of contractors and making needed contractual modifications, and ensuring transparency as well as for the sovereignty factor. These efforts can be challenging, as data might not be available to help determine service quality and managers might not be able to devote the time needed for effective oversight or possess negotiating skills required for successful contract bidding and renewal. A critical component of negotiations is determining mutual accountability obligations for the duration of the agreement, which entails a more collaborative relationship than a typical one-way er–seller arrangement.
At the 2013 ICMA National Conference, a special session was held in celebration of the 20th anniversary of the Reinventing Government movement. Managers on the panel indicated that while progress had been made on several fronts, including contracting out services, continuing work was needed in a number of areas. One of these is

letting go of programs and services that can be better supplied by others in to focus on the things that really matter. The important message for managers today is that government is not the sole solution provider, even though citizens often want it to be. With limited resources, managers must look to alternative methods for service delivery (and possibly shedding services altogether) so that they can direct those resources where they are most needed. (Gaebler et al., 2014, p. 39)

BUILDING CAPACITY FOR INNOVATION
Using the nontraditional approaches described above will be an important part of meeting the above challenge, but more creative approaches will likely be needed as well. In view of the disconcerting fiscal and intergovernmental trends that lie ahead for local governments, innovation will be critical to success and possibly survival. Moreover, while the future is difficult to predict, it is clear that technology has had a profound effect on how most local governments conduct business and will continue to have significant impacts. Many local governments now routinely use websites and social media to inform and engage their citizens. But consider other emerging technologies that could prove disruptive to local personnel and finances: For example, unmanned aerial vehicles (UAVs) or drones could be used in providing emergency services, surveilling high-crime neighborhoods, and delivering local products. Who should regulate drones and how should they be regulated? Automated vehicles are being tested in communities and will be mass manufactured in a few years. These vehicles obey speed limits, don’t consume alcohol or text message while driving, and monitor parking meters. How will local governments absorb the significant loss of revenue from these sources even as citizen safety and health rates increase? The sharing economy that is now evident privately in Uber and in efforts by some local governments and universities to make bicycles and automobiles available for temporary rent call into question the long-term need for large municipal parking garages and public transit systems. And some local governments are experimenting with robots to carry out routine tasks such as building cleaning. In the not-too-distant future, humans may no longer be involved in routed traffic such as collecting trash or driving school buses. While these possibilities are speculative, they underscore the need for local governments to step up their innovation game and “rethink their design, strategy, operations, and processes in fundamental ways” because “the outlook for current governance models is exceedingly bleak” (DeSouza et al., 2015, pp. 1–2).
In light of these current developments and emerging trends, it is imperative for municipal and county managers to cultivate an environment that is conducive to “out of the box” thinking and acting and supportive of risk taking. This section reviews steps that could be taken to create and sustain an organizational culture that celebrates and embraces innovation.

Innovation has become a nearly ubiquitous term to describe high-performing organizations. However, the definition of innovation is not clear-cut. One definition of innovation is “the generation, acceptance, and implementation of new ideas, processes, products, or services” (Kanter, 1983, in Frost & Egri, 1991). Some scholars define innovation as the adoption of an existing idea by an organization or the improvement of such idea, while an invention is the creation of an original idea or breakthrough (Damanpour, 1991; Rogers, 2003). Generally accepted characteristics of innovation are that they are new to the organization and are intended to improve organizational performance. So an innovation does not have to be an invention, but it must be new to the organization and it must be intended to improve the organization in some way.
While everyone agrees that innovation is good for organizations, there is less likely to be consensus about how to build capacity for innovation into an organization. Challenges that are unique to the public sector make building innovation capacity even more difficult for local governments. Chief among these challenges is the fact that public organizations tend to be risk averse. Implementing new programs or ways of doing things often comes with some discomfort accompanying change. While private organizations take chances with the money of investors who have chosen to participate as shareholders in profits, governments use funds generated through taxes and fees paid by citizens. Some elected officials may be reluctant to take chances for fear of the political ramifications of failure.
Another challenge that is more likely to be experienced in public organizations than in the private sector is that there are fewer incentive opportunities for staff. Private companies can give bonuses and other types of cash awards. While financial rewards have been used to some degree in the public sector, there is less flexibility given revenue constraints, civil service rules, and public sensitivities.
Innovation requires creative thinking—thinking beyond what is done every day to develop new ways of doing things. Unfortunately, the rules and regulations that are in place in public sector organizations (intended to insulate the organization from political forces and biased actions) can also hinder creativity. Osborne and Gaebler (1992) argued that these industrial-age rules and regulations were similar to straightjackets that stifled entrepreneurship and innovation. Of course, bureaucracies were not originally designed to facilitate creativity and instead emphasized the importance of following rules and treating citizens fairly. Today, municipalities and counties are seeking ways to restructure human resources management and are changing their hiring practices and workplace policies and procedures to encourage creative thinkers to pursue careers in local management. Employee selection practices can be tailored to support greater innovation capacity. For example, testing assessments designed to evaluate creativity and risk acceptance may be used to determine which candidates may be more innovation ready.
The key question, then, is this: How does a municipality or county increase organizational capacity to innovate? Research has provided some answers to that question (Damanpour & Schneider, 2009; Franzel, 2008; Gabris, Golembiewski, & Ihrke, 2001; Jun & Weare, 2011; Nelson, Gabris, & Wood, 2011; Nelson & Svara, 2012). Some factors that have been linked to higher propensity to innovate are not those that government managers can influence. For example, larger communities and those with more higher-income residents are more likely to innovate. Also, municipalities with a council–manager government have also been found to adopt more innovations than those using other forms.
There are factors related to innovation capacity that the manager can help affect. First, the quality of leadership, both elected and administrative, is essential. The leadership of the organization must be able to handle some level of risk. In to accept risk, there must be a positive working relationship among elected officials and a supportive and trusting relationship between elected officials and staff.
Evidence also supports the idea that managers who are innovation-oriented lead organizations that are more likely to innovate (Damanpour & Schneider, 2009). While this may seem to be obvious, even managers who embrace innovation may not know where to start. Organizations such as ICMA and the Alliance for Innovation provide support to managers with this orientation, helping to spread information about new ideas, best practices, possible pitfalls, and thought leaders that can be helpful in implementing programs to support innovative practices (Swindell & Thoreson, 2014). Some local governments, such as Durham, North Carolina, have set up an Idea Lab and have created staff positions to encourage and embed innovation in their organization.
Municipalities and counties can be run satisfactorily without being innovative, but they will not reach their full potential. Innovation and finding new ways of providing services or carrying out the functions of government, whether through an ASD option or some other method, will permit local governments to perform at their best. Both elected officials and citizens appreciate the recognition that comes with a local government that outperforms its peers.
NOTE

1. Services purchased to support governmental service production (such as legal services, tax assessing, title records, and vehicle maintenance) were excluded from Tables 9.2, 9.3, and 9.4.
REFERENCES
Carr, J. B. (2015). What have we learned about the performance of council–manager government? A review and synthesis of the research. Public Administration Review, 75(5), 673–689.
Damanpour, F. (1991). Organizational innovation: A meta-analysis of effects of determinants and moderators. The Academy of Management Journal, 34(3), 555–590.
Damanpour, F., & Schneider, M. (2009). Characteristics of innovation and innovation adoption in public organizations: Assessing the role of managers. Journal of Public Administration Research and Theory, 19(3), 495–522.
Delabbio, D. J., & Zeemering, E. S. (2013). Public entrepreneurship and interlocal cooperation in county government. State and Local Government Review, 45(4), 255–267.
DeSouza, K. C., Swindell, D., Smith, K. L., Sutherland, A., Fedorschak, K., & Coronel, C. (2015). Local government 2035: Strategic trends and implications of new technologies. Brookings Issues in Technology Innovation, 27. Retrieved March 22, 2017, from https://www.brookings.edu/wp-content/uploads/2016/06/desouza.pdf

Franzel, J. M. (2008). Urban government innovation: Identifying current innovations and factors that contribute to their adoption. Review of Policy Research, 25(3), 253–277.
Frost, P., Jr., & Egri, C. P. (1991). The political process of innovation. Research in Organizational Behavior, 13, 229–295.
Gabris, G. T. (2014). Public–private partnership. In K. Thurmaier (Ed.), A handbook of alternative service delivery for local government (pp. 117–138). Washington, DC: International City/County Management Association.
Gabris, G. T., Golembiewski, R. T., & Ihrke, D. (2001). Leadership credibility, board relations, and administrative innovation at the local government level. Journal of Public Administration Research and Theory, 11(1), 89–108.
Gaebler, T. A., Hilvert, C., & Holt, T. (2014). 100 years . . . and we are still reinventing government! In The municipal year book 2014 (pp. 33–42). Washington, DC: International City/County Management Association.
Goldsmith, S., & Eggers, W. D. (2004). Governing by network: The new shape of the public sector. Washington, DC: Brookings Institution Press.
Gullet, B. M., & Bean, D. O. (1997, Winter). The Charlotte model for competition. Popular Government, 19–22.
Hilvert, C., & Swindell, D. (2013). Collaborative service delivery: What every local government manager should know. State and Local Government Review, 45(4), 240–254.
Jun, K.-N., & Weare, C. (2011). Institutional motivations in the adoption of innovations: The case of e-government. Journal of Public Administration Research and Theory, 21(3), 495–519.
Keltman, B., & Macy, J. (2016, May 17). DA: Former Beaumont officials siphoned $43 million. The Desert Sun. Retrieved March 22, 2017, from http://www.desertsun.com/story/news/crime_courts/2016/05/17/six-beaumont-officials-charged-embezzlement/84500932/

Lawrence, D. M. (2014). An overview of local government. In F. S. Bluestein (Ed.), County and municipal government in North Carolina (2nd ed., pp. 3–14). Chapel Hill: University of North Carolina School of Government.
Light, P. C. (1999). The true size of government. Washington, DC: Brookings Institution Press.
Miller, D. Y., & Cox, R. W., III. (2014). Governing the metropolitan region: America’s new frontier. Armonk, NY: M.E. Sharpe.
Nelson, K. L. (2014). Managed competition. In Kurt Thurmaier (Ed.), A handbook of alternative service delivery for local government (pp. 43–68). Washington, DC: International City/County Management Association.
Nelson, K. L., Gabris, G. T., & Wood, C. H. (2011). Innovation management in local government: An empirical analysis of suburban municipalities. International Journal of Organization Theory and Behavior, 14(3), 301–328.
Nelson, K. L., & Svara, J. H. (2012). Form of government still matters: Fostering innovation in U.S. municipal governments. The American Review of Public Administration, 42(3), 257–281.
North Carolina General Assembly. (2016). NC general statutes. Retrieved March 21, 2017, from http://www.ncleg.net/gascripts/statutes/Statutes.asp

Osborne, D., & Gaebler, T. (1992). Reinventing government: How the entrepreneurial spirit is transforming the public sector from schoolhouse to statehouse, city hall to the Pentagon. Reading, MA: Addison-Wesley Publishing Company, Inc.
Perlman, B. J. (2013). The ins and outs of outsourcing. State and Local Government Review, 45(3), 180–182.
Perlman, B. J. (2015). Trust and timing: The importance of relationship and opportunity for interlocal collaboration and agreements. State and Local Government Review, 47(2), 116–126.
Rogers, E. M. (2003). Diffusion of innovations (5th ed.). New York, NY: Free Press.
Swindell, D., & Thoreson, K. (2014). Spreading innovation. In The municipal year book 2014 (pp. 77–86). Washington, DC: International City/County Management Association.
Warm, D. (2011). Local government collaboration for a new decade: Risk, trust, and effectiveness. State and Local Government Review, 43(1), 60–65.
Warner, M. E., & Hefetz, A. (2009). Cooperative competition: Alternative service delivery, 2002–2007. In The municipal year book 2009 (pp. 11–20). Washington, DC: International City/County Management Association.
Warner, M. E., & Hefetz, A. (2010). Service characteristics and contracting: The importance of citizen interest and competition. In The municipal year book 2010 (pp. 19–27). Washington, DC: International City/County Management Association.
Whitaker, G. P. (2007). Service delivery alternatives. In C. W. Stenberg & S. L. Austin (Eds.), Managing local government services: A practical guide. Washington, DC: International City/County Management Association.
RESOURCE LIST/TO EXPLORE FURTHER
Books/Articles
Hecht, B. (2015). Breaking through barriers to innovation in local government. Governing. Available at http://www.governing.com/cityaccelerator/blog/Breaking-Through-Barriers-to-Innovation-in-Local-Government.html

Jacob, N. (2015). City accelerator guide for embedding innovation in local government. Living Cities. Available at https://www.livingcities.org/resources/286-city-accelerator-guide-for-embedding-innovation-in-local-government

Thurmaier, K. (Ed.). (2014). Alternative service delivery: Readiness check. Washington, DC: ICMA.
Web Resources
Alliance for Innovation. (2014). [Website]. Available at http://www.transformgov.org