Trends

MORE URBAN CAPITALISM

More and more local government functions are being contracted out to private enterprise, saving significant sums for local taxpayers. Recent examples include the following:

• Parks and recreation: San Francisco has contracted the operation of some of its parks and recreation facilities to private operators. The Downey, CA city golf course is now being maintained by a private firm, at 20 percent savings. Arlington Heights, IL is contracting with a local firm for landscaping and park maintenance.

• School services: Dade County, FL has found that contracting with private day-care centers saves fifty percent of the cost of adding more county child-care facilities. The money-losing high school cafeteria service in Benton, AR is now being contracted to the McDonalds hamburger chain. The kids love it, and the firm is making a profit. Grand Rapids, MI high school officials are sending vocational education students to private institutions rather than setting up low-volume, special-interest courses within the school system.

• Garbage disposal: Increasing numbers of cities are getting out of the garbage business in favor of efficient private operators. Among the cities making the switch recently have been Milwaukee, New Orleans, and Portland, OR. Milwaukee also closed down its city incinerator (rather than comply with costly new pollution standards) and shifted (initially) to privately operated landfill disposal. But the contractor, American Can Company, had a better idea. It is now putting the finishing touches on a complete waste-recovery plant which will extract usable materials from the refuse. American Can plans to offer the city a share of the plant's ownership-and profits.

The general inefficiency of government bureaucracies ensures a large and growing market for public services contracting. Indeed, a recent study by the Washington-based Urban Institute concluded, "A large, untouched market for business exists in the local government sector." Creeping capitalism keeps creeping on.

SOURCE:
• "When Cities Turn to Private Firms for Help," U.S. News and World Report, Aug. 16, 1976.

POSTAL COMPETITION ABROAD

After demonstrating the benefits of private package delivery in the United States, highly successful United Parcel Service is now taking on the West German postal monopoly, too. On September 1, 120 brown UPS vans began operating in five of West Germany's 10 states. The firm plans to be operating nationwide by the middle of next year, delivering 125,000 parcels per week.

German businesses are now getting their first taste of efficient, innovative package delivery service. For starters, UPS is offering a six percent discount off Bundespost rates for packages going over 100 miles or weighing over 33 lbs. It is also not charging for home delivery (the Bundespost charges 60 cents). But most important, UPS will offer fast, reliable service. The Bundespost averages three days to deliver a package and sometimes takes up to a week. UPS is promising next-day delivery in most cases, with a three-day maximum in remote areas. (Note that it is not simply "skimming the cream" by ignoring remote areas.)

Already the Bundespost and its 45,000 union employees are talking about the need for protective legislation, anticipating UPS's success. Hopefully, German package mailers won't let them get away with it.

SOURCE:
• "UPS Starts Driving an Overseas Route," Business Week, Sept. 6, 1976, p. 39.

THANKS, BUT NO THANKS

Free Federal money? What local official can resist that offer? Belatedly, many such officials are beginning to count up the cost of this "free" largesse. It is not merely that Federal grants come out of the pockets of local taxpayers, anyway. More important to local officials, such grants impose increasingly complex paperwork burdens.

A case in point: the El Cajon, CA police department recently sought an $8000 grant from the Law Enforcement Assistance Administration to buy three portable burglar alarms. But as they began filling out the required forms, city officials received quite a shock. City Personnel Officer John Fitch calculated that some 200 employee man-hours would be required just to document such matters as police department hiring practices regarding women and minorities, promotion and transfer policies, seniority and disciplinary procedures, etc. By the time they got finished complying, the red tape would end up costing the city about $16,000—twice the amount of the grant. Concluded Councilman Howard Pierce in disgust: "I think we'd better buy the alarms ourselves. This thing is a ball of worms." Seems to be a lesson there, someplace.

SOURCE:
• "Federal Aid No Bargain for Town," Los Angeles Times, Aug. 27, 1976.

GUN CONTROL, REVISITED

Advocates of gun control claim that restrictions on gun ownership will reduce crime, while opponents claim that such restraints will only affect the behavior of the law-abiding, not criminals. The effects of last year's Massachusetts gun control law provide some mixed evidence. The law, which became effective in April 1975, provides a mandatory one-year jail sentence for anyone found carrying a gun without a permit.

The results, as measured by Harvard Law School's Center for Criminal Justice, have been as follows. For violent, impulsive crimes like assault, there apparently has been some change: since the law went into effect, only 18 percent of serious assaults have involved guns, compared with 25 percent previously. But for premeditated crimes like armed robbery there has been no change at all. It appears that professional criminals, as opposed to angry, violent citizens, have not been deterred at all by the harsh new penalty. Which tends to support the firearms rights advocates' point that it is people, not guns, that cause crime.

SOURCE:
• "The Guns of Boston," Time, Aug. 2, 1976, p. 41.

REGULATIONS BACKFIRE

New evidence of the failure of government regulations to accomplish their objectives (and their tendency to produce unwanted consequences) is turning up in two fields—pension reform and pollution control.

The Pension Reform Act of 1974 was intended to greatly increase the benefits of privately-operated company pension plans. In large companies it appears to be doing so, but it is simultaneously causing thousands of smaller firms to drop their pension plans altogether. The basic problem is that the mandated "reforms" are very costly. One such change requires vesting of pension rights after only one year of employment; many plans had required a five-year or longer waiting period. Legal costs of amending the plans have, understandably, ballooned. Thus, the cheapest way out for many firms is just to forget about the whole thing and let employees provide for their own retirement. Some 5000 companies have already done just that, according to the Pension Benefit Guaranty Corp., a Federal agency charged with paying limited benefits to employees whose plans have folded out from under them.

Another set of laws having unanticipated consequences is the flurry of pollution control acts passed in recent years. A Brookings Institute study estimates that the first decade's cost of compliance with 1970 air pollution laws and 1972 water quality laws will total $500 billion, with ongoing annual outlays of $60 billion by the late 1980's. As the study's authors, Allen Kneese and Charles Schultze, point out, these sums "represent real sources of labor, capital, and raw materials devoted to pollution cleanup, which otherwise would have been available for building homes, educating children," and all other types of goods and services. In addition to this cost of foregone alternatives, direct effects of the antipollution laws include the closure (to date) of 75 plants, involving 15,700 jobs, according to the Environmental Protection Agency. In addition, the regulations have led to reduced investment in new plant capacity in such key areas as papermaking (one reason for the soaring cost of paper, and REASON's recent price increase).

Once again, these examples serve to demonstrate a lesson that politicians and bureaucrats seem unable to learn: that there's still no such thing as a free lunch.

SOURCES:
• "Many Drop Pension Plans Because of Rigid New Laws," Robert Metz, New York Times News Service, Aug. 24, 1976.
• "Environment: The Price of Purity," Alan Reynolds, First Chicago World Report, Sept 1976.

OWNERS' VICTORY

For three years a group of self-help homebuilders in California's Mendocino County has been waging a battle against enforcement of the state's oppressive, rigid Building Code. The enforcement campaign involved "red tagging" of remote dwellings by the county government, which was alarmed at the influx of rural "alternative life stylers." Appearance of the red tag meant that the structure was in violation of the Code and that continued occupancy was punishable by law.

The settlers formed an organization called United Stand and fought back through conventional political channels. When it appeared that special dispensation from the Code required state legislation, rather than county, the group secured a post-midnight meeting with Governor Jerry Brown, who pledged his support. The leader of the United Stand was subsequently named to a state commission to revise the building code. United Stand also won an important victory when Mendocino County juries refused to convict two defendants charged with Code violations involving "inadequate" plumbing.

Now they have won another, ironic, victory. The California State Fire Marshal has red tagged the Mendocino County Court House, home of the local Code enforcers, for failing to meet state fire safety standards. The County Board of Supervisors—which authorized the earlier Code enforcement vendetta against the rural home builders—is irate. According to the Mendocino Grapevine, the Board was "disturbed by the cost of compliance" and "rebelled at having to take orders from the authorities." [!] The State Fire Marshal may order the court house closed and file a criminal complaint for failing to comply. Sauce for the goose.…

SOURCE:
• "Courthouse Gets Red Tag," Mendocino Grapevine, July 1, 1976.

MORE ADVERTISING PROGRESS

In the wake of this year's Supreme Court decision extending First Amendment protection to advertising (see "Trends," August), changes are occurring, both in practice and in law, regarding advertising by professionals. Two recent California developments illustrate the trend.

In the legal field the State Bar board of governors has approved new rules relaxing the traditional ban on advertising by California lawyers. The new rules, subject to approval by the State Supreme Court, would permit limited advertising in law lists, legal directories, and the Yellow Pages. Still forbidden would be ads in newspapers and magazines and on radio, TV, or billboards.

In the medical field, the California Department of Consumer Affairs has announced that the state law banning price advertising of eyeglasses would no longer be enforced. The department's director, Richard Spohn, said that advertising is "a means of getting critical information to the consumer trying to get the most for the shrinking dollar." Roy Alper, director of the California Citizen Action Group, countered an industry contention that buying eyeglasses is too complex a process to be left to mere commercialism. "If you have a prescription, shopping for glasses is less complicated than buying tires," said Alper, supporting advertising freedom. The consumer movement has come a long way from the days when advertising was denounced on principle.

SOURCES:
• "Attorneys' Advertising Proposals Win Bar OK," Gene Blake, Los Angeles Times, Aug. 27, 1976.
• "Eyeglass Prices May Soon Be Listed in Ads," Daryl Lembke, Ibid., July 31, 1976.

GOOD NEWS, BAD NEWS

The bad news is that New Jersey taxpayers have at last been saddled with an income tax. As bad as that may be, they may take a bit of comfort from two additional measures adopted in the same legislative session, aimed at controlling government spending. The first sets a limit on state government expenditures by means of a formula tied to per capita income. This is similar to the approach used in Ronald Reagan's tax limitation initiative proposal (developed by Milton Friedman and others), which failed to be enacted in California several years ago. The other measure places a five percent ceiling on annual spending increases by city and county governments. In cases of emergency, local officials can exceed the limit by three percent, but any greater amount is subject to voter approval by referendum. These are small steps, and they may not accomplish much, but at least they're a start in holding down the growth of government.

SOURCE:
• "New Jersey Places Ceiling on Budgets," UPI (Trenton), Aug. 19, 1976.

HANDS OFF ACCOUNTING!

One of accounting's "big eight" firms has stood up and told the Securities and Exchange Commission (SEC) to keep its hands off the profession. The courageous outfit is Arthur Andersen & Co., the firm whose audit of the U.S. government last year found the true Federal deficit to be 30 times greater than the official figures indicate (see "Trends," January 1976). The present controversy grows out of the efforts of the industry's Financial Accounting Standards Board to develop more uniform definitions and procedures for auditing company finances. Rather than leaving these efforts alone to be worked out within the profession (and by marketplace acceptance), the SEC has been gradually adopting rules that require auditors to follow FASB standards or prove why they shouldn't.

Most CPA firms, fearing the SEC's wrath, have meekly gone along. But late in July Arthur Andersen & Co. filed suit in Federal court to invalidate the SEC regulations. Its argument is that the feds are imposing an unwarranted burden on accountants, when the profession (especially Andersen) is making a good-faith effort to keep its own house in order. Andersen senior partner Russell Palmer sums up the company's case thusly: "You let the government in a little bit and they end up running everything." Right on!

SOURCE:
• "Gray Flannel Civil War," Time, Sept. 6, 1976, p.53.

TIME FOR A CHANGE

Despite tutting at those who shirk their social responsibilities, Time has just about decided to choose a private magazine delivery over the governmental kind. The reason seems to be financial: postal costs are on an upward curve, while private delivery costs appear to be going down.

According to the Time, Inc. vice president for magazines, Arthur W. Keylor, the intersection of the two cost curves may come within months, unless Federal subsidies are approved. But he thinks 1978 is a more probable date for the crossover. Once the day arrives, he says, Time, Inc. will begin delivering "a major portion" of its 350 million copies annually through private channels.

Already, in fact, the corporation has experimented with private delivery in six areas of the country. Keylor told a publishing group in June that the company now could deliver many of its magazines "through systems that only a few years ago seemed prohibitively expensive but are…becoming economically feasible by comparison with the Postal Service."

SOURCE:
• "Time, Inc. May Remove Many of Its Magazines From the Postal Service," Wall Street Journal, June 6, 1976.

MILESTONES

Skytrain Lives! British entrepreneur Freddie Laker may yet establish his long-planned no-frills transatlantic Skytrain air service, bringing intercontinental travel to the masses. The British High Court ruled in August that the Labor government's cancellation of Laker's license was against the law, thereby tossing the ball back to the U.S.'s Civil Aeronautics Board (which last year sidestepped approval of Skytrain due to the British license cancellation). The High Court further ruled that the Labor government's entire civil aviation policy of establishing monopoly routes was illegal, thereby reopening the U.S. market to privately-owned British Caledonian (rather than just state-owned British Airways). (Source: "U.K. Court Rules in Favor of Skytrain," Aviation Week, Aug. 9, 1976, p. 32.)

No on Towing. A U.S. District Court judge has ruled that New Orleans' policy of towing away illegally parked cars is unconstitutional. Why? Because it deprives owners of their property without due process of law, in violation of the 14th Amendment. The successful suit to overturn the law was brought by H.C. Remm, Jr., whose car had been towed. (Source: "Judge Hits New Orleans Car Towing," UPI, Aug. 16, 1976.)

No on Snooping. A telephone company is not required to cooperate with Federal agents who want to attach pen registers to phone lines to record numbers dialed by suspected gamblers. So ruled the U.S. Court of Appeals for the 2nd Circuit in a 2-1 decision. The Court cited a need to protect people's privacy against "excessive or overzealous" action by the government. New York Telephone Company argued successfully that it had a duty to protect the privacy of its customers and could be liable to a civil suit if it gave technical assistance to the Federal agents. (Source: "Court Overrules Wiretap Decision," New York Times, July 18, 1976.)

Greener Grass. Two more states have decriminalized marijuana possession, bringing the total to eight. The new additions are Minnesota and South Dakota. The former has adopted an Oregon-style law providing for citation and up to $100 fine for possession of up to 1½ oz. of grass, but no arrest and no criminal record. South Dakota legislators went a bit further, making possession of up to an ounce a traffic-ticket-like violation subject to a maximum fine of only $20. (Source: "Retiring the Marijuana Laws," The Leaflet, Vol. 5, Issue 2, May-Aug. 1976.)

Sovereign Indians. The sovereignty of the Seneca Nation has been reaffirmed in an historic treaty recently agreed to by the state of New York. The agreement provides for an easement (not ownership) across Indian land for right of way for an expressway. It was negotiated specifically without use of the state's usual eminent domain power, in acknowledgement of the Indians' equal status as a sovereign entity. The Senecas will be paid $2 million plus 795 acres of state park land for the state easement. (Source: "Seneca Indians Conclude Treaty with New York," Rutland Herald, July 11, 1976.)

Rent control setback. Citing unfairness to landlords, the California Supreme Court rejected rent controls imposed in 1973 by the Berkeley city council. The court noted that applications for rent hikes by landlords faced a lengthy and expensive review process, "making inevitable the arbitrary imposition of unreasonably low rent ceilings." While the court dispatched the council ordinance as "confiscatory," it left the door open to future rent control laws that have a somewhat softer edge. (Source: "High Court Kills Berkeley Rent Controls," Los Angeles Times, June 17, 1976.)

UPDATES

Two items in last month's "Trends" have been affected by subsequent developments. The preliminary finding in U.S. District Court in San Francisco that postal officials could be sued for late delivery of mail has been reversed by Judge George B. Harris, thereby settling the case. Judge Harris's ruling reversed the preliminary finding to the contrary by Judge Robert Schnacke. (Source: AP, Aug. 26, 1976.)

The other update concerns a North Carolina experiment in contracting the state's Medicaid program to a private firm. At last report the company, Health Application Systems, was short of money and was attempting to renegotiate its contract. Reason? Last year's recession caused many more people to sign up for Medicaid than had been anticipated when the contract was signed. (Source: U.S. News & World Report, Aug. 16, 1976.)