“Why can’t city government operate like a business?”

This is a question we’ve heard a lot lately, especially with cities struggling to make ends meet. In San Carlos, the severity of a projected $3.5 million budget shortfall is prompting the city council to look at fundamental changes. Proposals include shutting down one of two fire stations and replacing the San Carlos police force with hired guns from the San Mateo County Sheriff’s Department.

Maybe there’s another way. Maybe the council might consider the reverse option: Keeping the fire and police departments intact — and outsourcing city hall.

That’s already being done in Georgia, where several cities have hired a for-profit private company to run everything – and I mean everything – except public safety departments. One city, Sandy Springs, population 85,000, has operated in this fashion since 2005. According to the city’s website, “the result of this unique partnership has been a significantly higher level of customer service along with a focus on quality, increased responsiveness to individual needs, and dramatically lower operating costs with a total savings of approximately $20 million per year.”

Sandy Springs has an annual budget of $98.8 million and 380 employees. Even though San Carlos is just under one-third that size, with a $28.4 million budget and 110 staff, the prospect of saving millions might well provide an ongoing solution to the chronic financial problems that have plagued San Carlos for a decade.

The contractor for these services is an Englewood, Colorado-based company with a name that sounds like a Secret Service code: CH2M Hill. This firm operates everything from city wastewater treatment plants to public works departments. But, recently it began managing entire cities, mostly smaller municipalities with a population of 100,000 or less. Apart from Sandy Springs, it also runs Milton and Johns Creek which, like Sandy Springs, are suburbs of Atlanta. In Colorado, two places with private management are Centennial (population: 103,000) and Castle Pines North, a new residential community.

Under a hybrid arrangement, cities retain a skeleton staff that includes city manager, finance director and city clerk, who oversee the private management company and are accountable to the city council. Police and fire departments operate as they normally would, as arms of the city. But all other departments including Public Works, Community Development and Parks and Recreation are managed by CH2M Hill employees, who are situated in the cities they serve.

CH2M Hill says it can operate with lower costs and a smaller ratio of employees per capita because it can share services with other cities, rent rather than buy large pieces of equipment, utilize new management technologies, and quickly scale staffing levels up or down to match varying service demands — all without having to deal with employee unions, expensive public service retirement plans and entrenched bureaucracies.

How are the savings achieved? Here are some examples:

• Rather than buy and maintain costly Public Works trucks, the private management firm can use a pool of leased vehicles that might also be shared with other cities.
• Rather than have an IT staff always on hand and on the payroll, the firm can bring in contract employees as needed for specific projects or maintenance.
• Rather than have a large staff of planners, reviewers and engineers to process building applications and permits, the firm can add or subtract private planners as needed based on demand – and economic conditions.
• Parks and fields are operated like private stadiums, with teams paying facility rental fees and with private concessions offering food, beverages and rental equipment.
• Outside maintenance vendors – rather than designated city employees for each department – can mow lawns, tend the landscaping, clean storm drains and fix potholes in the streets.

Efficiencies in the public-private model can be increased with two or more cities involved, allowing resources to be shared. They don’t even have to be bordering each other. What’s more, CH2M Hill employees can operate from rented offices, thus consuming a smaller footprint than a city hall building. (Question: Would that allow space in city hall to be leased and thus generate more revenue?)

Of course, bringing in private management requires reorganization. Retaining and privatizing some existing city employees would not be without pain. Thus far, most of the whole-city programs that CH2M Hill runs were implemented when those towns were first incorporated. However, the company has other clients who outsource one or two departments, such as Public Works or Community Development. And there are still savings in that scenario.

What’s interesting about the Georgia cities that are using CH2M Hill is that public safety agencies are left alone. Local police and fire departments, along with 911 call centers, retain their direct municipal responsibilities, under the city manager and city council. And with the reduction of operating costs, these cities have the financial ability to support fully-staffed police and fire resources.

With the dire budget situation in San Carlos, if the city council is serious about looking at viable alternatives to cut costs, perhaps a hybrid public/private management company such as CH2M Hill is a concept whose time has arrived.