The Windy City Challenge – A Case for Managed Competition

Chicago examines options for its recycling program By: Brent Tarnow

The City of Chicago, despite its long history of dreadful recycling services, has recently instituted a “managed competition” between two private operators and its own Department of Streets and Sanitation to determine who should win the city’s recycling contract.  Mayor Rahm Emanuel designed a six-month competitive tryout with each provider responsible for the collection of recyclables in designated areas.  By pitting two private companies – Waste Management and Sims Metal Management – against the city’s Department of Streets and Sanitation, Mayor Emmanuel has set up a three-way race to determine who will win the next recycling contract.  The mayor doesn’t want to hear what each group can do; he wants to see it.  May the best team win.

Privatization is a touchy topic that has been debated for years in local government, but in this time of dwindling municipal coffers, the issue is being raised ever more frequently in city hall meetings across the country.  Just like private citizens or small businesses, cities face diminished revenues caused by the recession, the lukewarm recovery and rising costs for municipal employees.  Now, perhaps more than ever, municipalities facing enormous budget shortfalls and mired in debt are looking under the couch cushions for every last dime they can find (sometimes unsuccessfully, as the largest municipal bankruptcy in history was just filed this month by Jefferson County, Alabama).  One cost-saving measure, albeit a contentious one, is the privatization of municipal services such as waste management and recycling.  By instituting its managed competition, Chicago – a city far from the forefront of the green movement – has stoked the smoldering debate over privatizing waste services.

The sad state of Chicago’s current recycling program

The City of Chicago’s “Blue Cart” recycling program has been so underwhelming in recent years that only one-third of all Chicago households even have a blue cart.  In a city of nearly three million people, two million people have no convenient way to recycle household waste.  (By comparison, San Francisco recovers 77 percent of all waste it’s residents produce, with a goal of zero waste by 2020.)  Inexcusably, Chicago’s Department of Streets and Sanitation provides service to only 240,000 homes at a cost of $13.8 million.  So when bids from private sector companies came in at $6.6 million for the same service areas, the city had to escape the airy debate of privatization and ask itself a simple, concrete question:  which group can provide the safest, most environmentally sound solution for the cheapest price?

Privatizing public services is not a new concept and Chicago is by no means revolutionary in exploring this option.  Several cities have already privatized their waste management and recycling services with considerable success.  Chicago, itself, proved amenable to privatization when it handed out a 75-year, $1.1 billion contract to a private company to take over its parking meter operation.  What is unique to Chicago’s venture into privatizing its recycling program, however, is the managed competition approach.  Chicago and a select few other cities, such as Charlotte and Phoenix, have removed the theoretical issues from the private versus public service debate, and instead focus on the practical, quantifiable results.  In a style befitting Chicago’s blue-collar reputation, Mayor Emanuel put everyone to the test.  If private groups can indeed cut costs by over 50%, the city wants to see it.  If the municipal departments feel slighted, here is their chance to prove their worth.

The benefits of a managed competition

It is certainly more complicated to run a managed competition than to simply hand out a city contract.  In fact, the International City County Management Association ran a survey that found 75 percent of contracts are given to the incumbent without rebidding.  While the monopoly of public services can improve efficiency in some cases, establishing a merit-based system for assigning city contracts has little downside.  Competition between providers will breed efficiency and set a high bar for service levels.  Operators who win a contract based on excellent service during the trial period will be accountable to maintain that productivity over the course of the contract and stand by those numbers when the contract is up for renewal.  A six-month trial run, as is the case in Chicago, also allows evaluators to determine the efficacy of a number of factors.  Another incidental advantage that shouldn’t be overlooked, the managed competition approach allows the cities to enter the debate over privatization without taking a hardline political stance on the issue.  City officials can simply point to the numbers, and remind advocates of government-run services that everyone had an equal shot to win the business.

Critics of the managed competition have raised questions regarding issues such as fairness, transparency, the criteria for the cost-benefit analysis and whether six months is enough time to determine the effectiveness of each group.  Of course any competition involving city contracts should be strictly administered and overseen, and all steps should be taken to ensure that the process is fair.  But critics miss the bigger point:  the city is trying to gather as much information as possible to offer recycling services to the greatest amount of residents, while spending the fewest taxpayer dollars.  For the Windy City (named for its penchant for political blowhards, not the weather) to eschew politics in favor of cold, hard, quantifiable facts is noteworthy and commendable.  The managed competition is a gigantic step for Chicago, with its well-documented history of corrupt and crooked city contracts, and woefully inadequate recycling program.

Chicago is in the midst of its managed competition now and a winner will not be chosen for several months.  Perhaps the Department of Streets and Sanitation steps up its game and keeps the job.  Or maybe one of the private operators proves it can draw on its scale and expertise to provide the service at considerable savings to the residents of Chicago.  Though two of the contestants are sure to lose the competition, one group will come out ahead regardless – the people of Chicago, who finally will have a legitimate recycling program at the best price.

[Image credit: ifmuth, Flickr]

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