INDIANAPOLIS — WHEN Republican Mayor Stephen Goldsmith took office here in 1992, he staked his political future on a stark but compelling idea: Open up as many city services as possible to private competition, and watch the savings roll in.
Four years and one reelection later, Mr. Goldsmith's "comprehensive competition" plan - by some accounts the most ambitious privatization undertaken by a major American city - has bid out 68 city services and generated $230 million in projected cost cuts, a sum worth more than half the current city budget.
Today, the former Marion County prosecutor is scheduled to announce his candidacy for governor of Indiana with a pledge to expand privatization statewide.
"We'll see whether the fastest way to the governor's mansion is to save millions of dollars and improve services in Indianapolis," says Bill Reinhardt, editor of the monthly newsletter Public Works Financing in Westfield, N.J.
Goldsmith's candidacy will be an important gauge of popular support for the breakup of government monopolies. The idea emerged in the 1990s as a mantra of both profit-seeking businesses and financially strapped elected officials from across America's political spectrum.
Goldsmith faces at least two contenders in the May primary - former GOP state chairman and Indianapolis businessman Rexford C. Early and Bluffton, Ind., newspaper executive George Witwer. The winner would go head-to-head with likely Democratic nominee Lt. Gov. Frank O'Bannon.
A win or loss by Goldsmith will send a strong signal to other elected officials eyeing privatization. Officials from more than 300 cities and states have contacted Indianapolis about the strategy, mayoral aides say.
Competition is good
Already, Goldsmith is an aggressive maverick in a diverse pack of business-minded mayors who favor disciplining government with market forces. Champions of privatization now include Democratic mayors in Chicago, Milwaukee, and Philadelphia, as well as Republicans such as Rudolph Giuliani in New York.
Goldsmith has succeeded by pitting experienced, front-line public workers against private-sector employees. The contract goes to the most innovative, productive group.
"Goldsmith is the guy who's done it right," says E.S. Savas, a professor of public policy at City University of New York and an advocate of privatization. "Giving public employees a chance to win has given him a lot of respect."
Still, in Indianapolis and elsewhere, few experts see privatization as a panacea for urban ills. It is vital, they warn, to monitor contracts to ensure that services offered by profit-driven firms are of high quality, reasonably priced, and affordable to the poor.
This is especially true for "soft" services such as education and welfare - areas Goldsmith intends to tackle as governor - where quality is often intangible.
"These agreements need to be structured to preserve a fundamental sense of public purpose," says Janice Beecher, a senior researcher at the Center for Urban Policy at Indiana University in Indianapolis.
Other experts warn of the potential for corruption should elected officials exploit their control over lucrative contracts to win political contributions. As public monopolies are replaced with private ones, the wealth of private contractors could replace patronage by unionized city employees as the payoff for politicians. "The question I have is whether political contributions are expected in exchange for business," says William Hudnut, who served as mayor of Indianapolis from 1979 to 1991. Critics such as Indianapolis Democratic Party chairman Kip Tew have accused Goldsmith of "pin-stripe patronage," a charge the mayor denies.
The drive by US cities to privatize grew out of mounting fiscal pressure in the 1980s. Business flight, rising crime, decaying infrastructure, and soaring spending all contributed to the cities' budget crunch. Citizen tax revolts and calls for scaled-down government further propelled the drive.
By 1992, a survey of 3,042 US counties showed that more than a third of public services - ranging from sewage treatment and airport management to fire protection - were wholly or partially contracted. That figure was up from 24 percent in 1987, according to the survey published by the National Bureau of Economic Research in Cambridge, Mass.
Indianapolis, the nation's 12th largest city, has taken the lead so far.. After taking office in 1992, Goldsmith assigned a task force of executives to scrutinize the city's operations. The team targeted more than 150 services for competitive bidding.
Golf courses and garbage
To date, 68 services including garbage collection, street repair, the bus system, golf courses, and wastewater treatment plants have been contracted out for projected savings of more than $100 million over three to five years.
The city signed its biggest deal yet in October. It awarded a British firm a 10-year contract to run the Indianapolis International Airport, now the largest privately managed airport in the US. The city estimates it will save $105 million for the life of the contract.
As a result, Goldsmith has trimmed the city budget from $452 million in 1992 to $438 million this year while building up a surplus fund. The city has spent $500 million to upgrade the police force and hundreds of other programs without raising taxes, says deputy mayor Skip Stitt.
Still, Goldsmith admits privatization has produced some failures and says "there is no doubt" that there will be more. In 1994, for example, some 550,000 fish died as a result of high chlorine levels in the White River caused by a newly privatized water-treatment plant, according to Mike O'Connor, deputy commissioner of the Indiana Department of Environmental Management.
Overall, residents of this Midwestern city of 800,000 seem satisfied with the changes. "Buses are frequent enough, and fares haven't gone up for years," visiting nurse Lois Zollicoffer says before stepping onto a Metro coach.
Even the city's government union leaders, who initially fought the competitive bidding but have since won several contracts, now speak positively of the program.
"We are cautiously optimistic," says Linda Ard, assistant director of the American Federation of State, County, and Municipal Employees, which represents some 2,000 workers in Indianapolis.
Unionized city workers have accepted wage freezes and other concessions to clinch bids. But as a result, hundreds have kept their jobs, says Joseph Billerman, treasurer of the Amalgamated Transit Union in Indianapolis.