APWA REPORTER, NOVEMBER 1992
The article entitled “Infrastructure for sale” [August 1992] by Stephen T. Pudloski is outstanding. More needs to be written on the interesting and critical subject of privatization. Although the United States lags behind most other countries in the world when it comes to privatization, progress is being made slowly.
As was cited in Pudloski’s article, “user fees are more efficient than general taxes” in a free market economy at fairly assigning costs. Federal financing of infrastructure and other historic practices have acted as barriers to the achievement of economic efficiency. Economic efficiency elevates our collective standard of living; inefficiency does the converse. The issue for true public works managers is not how to get more funding so much as it is how to accomplish the most with what is available.
When the National Council on Public Works Improvement concluded its 3-year investigation into the nation’s infrastructure crisis, the conclusion was clear: infrastructure decisions are economic decisions. Viewing infrastructure decisions as economic decisions, however, involves significant revisions in how we as public works practitioners view the work we do. As part of this self-examination, I believe the profession should support two very important trends.
The first trend is privatization. Yes, privatization is a management tool to be used selectively. Yes, contract costs are sometimes frightening because all costs are visible. Yes, contract management is difficult because a cadre of qualified suppliers is not always available. And yes, mechanisms of control and fair payment have yet to evolve. But as we can see from examples in such distant places as Singapore and Argentina, privatization can foster a strong national economy by shifting the management burden for day-to-day service operations to private suppliers. This has left industry and local leaders free to focus on larger issues such as infrastructure management.
The second trend is cost identification. Every single thing that can be done to identify true and total costs of services and to properly assign those costs will help American public managers at all levels make better, quicker, and more effective management decisions. If government accounting cannot give the answers, then alternative or supplemental accounting systems must be installed.
The tax exemption has become a travesty. Originally intended to avoid double taxation, it now robs taxpayers by encouraging governments to rob each other of needed revenues while simultaneously operating at growing levels of inefficiency. The tax exemption should be eliminated. Only when governments pay the rightfull taxes to each other will the proper revenue be generated for services delivered.
In viewing infrastructure decisions economically, we have a duty to become increasingly aware of the true costs and benefits of the decisions we make. As we become attuned to creating value, as opposed to creating additional overhead costs, two decision parameters emerge.
The first of these parameters is the value test. When an infrastructure decision cannot stand this value test, the activity should not be executed. Always, the value created should exceed the cost of the facility investment. This value test should be applied both globally, for example when deciding to build new airports or expand mass transit, and also locally, in instances such as deciding to patch potholes or paint a water tank.
The second priority is maximizing value. When priorities are set on the basis of highest value created, policy decisions are greatly simplified. Those items that add the most value are developed first. Maximizing value has many obvious benefits: lower long term cost, higher operating efficiency, enhanced tax base and revenue, and a diminished need for tax revenue.
How does all this discussion about economics relate to privatization? If governments do not know the true cost of providing a service, that in itself is sufficient argument for contracting out a service. To be a good manager, one must first know what one is managing and also the costs.
Any public works manager that does not know his or her costs or who is not in control of these costs is not a competent manager. The argument that “the system does not allow me to know my true costs” is insufficient. As a public works manager, leadership is incumbent upon you. In the business sector, a manager is forced out of business by the competition as soon as he or she loses touch with costs.
Many deserve to be commended for recognizing the way privatization, when implemented wisely, can help move public works into the future. Working together, we can help brighten the future and improve the efficiency of public works services for all.
Dennis Polhill, Senior Fellow Independence Institute, Denver, Colorado