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Cash-strapped agencies get creative

Published 11:00pm Wednesday, August 14, 2013

Bankrupt Detroit is not the only city in the country facing financial woes. Recent news stories detailing these woes also offer examples of cities turning to innovative new funding sources to help pay for services. Necessity is the mother of innovation as well as invention, even in government.

My favorite tale of recent out-of-the-box thinking is from Louisville, which partnered with Kentucky Fried Chicken to fix potholes. KFC pays the cost of repairs in exchange for an acknowledgement sprayed in permanent paint into the patch. Baltimore avoided closing several fire stations by selling ads on city fire trucks. Instead of traditional red trucks with “Baltimore Fire Department” on the sides, the trucks now carry ads. Residents and firefighters agreed that although the ad-emblazoned trucks took some getting used to, keeping the stations open was worth it.

Cities and states will need such creative thinking to deal with the fiscal crisis I mentioned last week inevitably resulting from growing entitlement spending and interest on the national debt. We could take a cue from Louisville and Baltimore. Advertising could help Alabama communities (including Troy) fund school bus service. The traditional yellow buses might instead be painted a company’s colors or feature ads on the sides like city buses. Ads could be placed inside the bus or along with programming available to students while in transit.

The introduction of ads in new venues and other forms of commercialization often creates unease. While much of this discomfort is just the unfamiliarity of any change, today’s era of constantly changing corporate sports stadium names seems inferior to the days of Mile High Stadium, the Boston Garden, and Candlestick Park. And the prospect of announcements over loudspeakers that, “This eruption of Old Faithful is brought to you by …” makes me cringe. Ads directed at children while they are a captive audience might frighten some. Ads may not be the best way to keep school buses rolling in Alabama, but discussing the option may spur the creative juices.

Most national and state parks now charge fees for entry and different services. Like ads on fire trucks, the introduction of fees initially met resistance but helped offset budget cuts. Cities to date have not generally charged for community parks. But this might need to change if budget cuts at some point result in equipment not being replaced or the grass not being mowed. Indeed large planned residential communities will contain parks, bike trails and even fishing ponds for the use of residents.

Fees and ads provide alternatives to taxes for paying for services. While alleviating financial pressure on cities in the short term, they can prime the pump for privatization. Paying for a service using only fees and ads and not taxes provides a business model for firms looking to supply these services. Furthermore, once we start to think of these services on commercial terms: when we pay for something, we tend to ask ourselves if we are getting value for our money. If not, as consumers we look for another seller, which for government services results in privatization. Fees for use also allow businesses providing products similar to government services, like private resorts versus state parks, to compete on a level playing field.

Thus fiscal crises can serve as a trigger for privatization of city services. If KFC will pay to patch potholes, perhaps a company would take over road maintenance altogether in exchange for a payment or the opportunity to implement tolls. The advent of electronic tolling (EZ Pass systems) makes the possibility of privatizing streets a possibility today. In California, toll lanes have been built in the medians of freeways, and drivers willingly pay tolls to avoid some of Los Angeles’s famous congestion.

Economists have studied many private alternatives to local government services. Manuel Johnson, patron of Troy University’s Johnson Center, studied private trash collection back in his days as an economics professor at George Mason University. We know quite a lot about how trash collection, fire protection, parking, prisons, and even police have been successfully privatized. Options will be available when the financial crisis hits cities and states. Of course we don’t have to wait for more bankruptcies to explore privatization options.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University. Respond to him at dsutter@troy.edu and follow the Johnson Center on Facebook.

 

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