Competitive Instinct

Indianapolis Mayor Stephen Goldsmith is serious about cutting back city hall.

The Indianapolis Department of Parks and Recreation had a problem. The end of the 1992 fiscal year was fast approaching and the department still had money in its budget. Rather than return the "extra" money to the general fund and risk having next year's budget cut by at least that amount, the department decided to buy a few supplies for a rainy day. The end result: It's a chilly day in February and sitting in the department's warehouse is a towering 40-ton mountain of chalk. The four-year supply of chalk—enough to line a baseball field with 101 miles between the bases—is now useless. To save money, the department recently switched to spray paint for lining ball fields.

When the heap of chalk was brought to his attention, Indianapolis Mayor Stephen Goldsmith didn't dress down park officials for wasting taxpayer money. He issued a press release. Calling attention to the perverse incentives that make it rational for bureaucrats to purchase 1,600 50-pound bags of chalk, the 46-year-old Republican mayor said, "The problem is they are trapped in a system that punishes initiative, ignores efficiency, and rewards big spenders."

Changing that system is what Indianapolis's mayor of 18 months is all about. Goldsmith is trying to do for big-city government what Wal-Mart's Sam Walton did for retail—revolutionize it. To survive in the 21st century, he believes Indianapolis and other big-city governments must become smaller and more efficient and foster an environment of "chaos." Job classifications, descriptions, and hiring forms will have to be tossed. " All city government really ought to be is a series of 100 projects around different clusters. We finish a project and we move on to the next one," declares Goldsmith in a statement that would be considered radical even in the private sector.

In most of America's big cities, the need for change is not too tough a sell. The signs of crisis are everywhere—decayed infrastructure, rampant crime, poor-quality basic services, fleeing businesses, and soaring taxes and spending. Philadelphia almost went bankrupt in 1991; Detroit has lost more than 40 percent of its population since World War II—most of those who remain are city employees; and a year after experiencing the country's second-worst riots, Los Angeles faces a $500-million budget shortfall.

For Goldsmith, getting people to "buy in" to radical change is more difficult. His problem: Indianapolis is an honor student in the classroom of big cities. It is not facing a fiscal crisis or any other kind of crisis. Taxes aren't as high as in other big cities, the bond rating is triple A, the streets are clean, and it's among the safest of all large cities.

Goldsmith's predecessors, Sen. Richard Lugar and William Hudnut, both moderate-to-conservative Republicans, made national names for themselves while mayor. Lugar annexed the city's suburban townships (all of Marion County), bringing local services under city control and making it possible to have a Republican mayor in the nation's 12th largest city. Hudnut put Indianapolis on the map as the amateur sports capital of America by leveraging public money with private dollars and erecting a slew of fancy stadiums, domes, and arenas.

When Goldsmith—Marion County's former high-profile prosecuting attorney—was elected mayor in 1991, few really expected much change. "I thought that by voting for Goldsmith we would be getting the status quo. I voted for more of the same. Now I feel betrayed," says a former campaign volunteer and longtime suburban Republican. Why fix what ain't broke? If we wait, says the mayor, Indianapolis will suffer the same fate as Philadelphia, Detroit, and other troubled big cities.

Those who followed the young mayor's previous career more closely haven't been as surprised by the radical change he is bringing about. He has always been somewhat of a visionary—doing preventive maintenance on organizations most people view as working just fine. Despite no experience in criminal law, he was elected district attorney at the ripe age of 31. In his 12 years as prosecutor, Goldsmith earned a reputation not only for being tough on corruption and crime—he prosecuted more people than ever before in Indianapolis—but also for being innovative.

When he became chief prosecutor, the child-support office was collecting only $900,000 a year from deadbeat fathers. He turned the office around. Goldsmith established bonuses and productivity raises for the staff, upgraded the computer system, and contracted with a private collection agency to locate hard to-find fathers. After 12 years, collections jumped to $36 million a year.

Since his inauguration in January 1992, the workaholic mayor has put his ideas into practice at a blistering pace that has left little time for building consensus or indulgences like sleep (though when he fell to below five hours of sleep a night he found it to be "counterproductive"). "We have only four years of our lives to make the city better for everyone in Indianapolis," says Goldsmith, who is unable to sit through an hour-long interview without frequently sneaking impatient peeks at the e-mail messages coming across his lap-top computer screen.

Goldsmith is gaining a national reputation for having the most ambitious privatization program in any large city in the United States. But he says he doesn't have a privatization program; he has a competition program. His goal is not to privatize for its own sake but to break up the government monopoly. As long as there's competition, he doesn't care whether a private firm or a city department delivers the service.

"There is no great value in and of itself for privatization, as contrasted to the competitive process," says the mayor. And that process must be approached "as the fundamental aspect of change in order for a city that is successful to stay successful."

To drive that change, Goldsmith created a private-sector advisory group called SELTIC (Service, Efficiency, and Lower Taxes for Indianapolis Commission). SELTIC is not your typical task force of corporate government-relations types who produce reports that end up unread and forgotten. Comprising nine of the city's leading entrepreneurs and more than 100 volunteers, SELTIC has not produced a single report—nor will it in the future. It is looking for results.

SELTIC's chairman, former Reagan White House political director Mitch Daniels, describes the commission's work as "antitrust for government." It is examining everything the city does and asking two questions: First, should government even be involved? If the answer is no, SELTIC recommends that the city get out of the service. If the answer is yes, SELTIC asks a second question: How can we make the service subject to competition from the private sector? More than 150 competition opportunities have been identified; more than 40 government services have already been opened to competition.

Many of the examples are small but telling. Take window washing. Previously, windows on city buildings were washed by city crews exactly three times a year—whether they were dirty or not. The service was totally focused on inputs. Now a private company washes the windows—not three times a year, but when the windows are dirty. Microfilm operations were also moved into the marketplace. The private contractor has cut the city's cost by 61 percent, $40O,000 a year, and the quality of the microfilm documents has improved.

Competition does not always result in privatization, however. To beat out private competitors, a Transportation Department crew discovered they could fill potholes with four workers, rather than eight, and one truck instead of two. The crew also asked the mayor to relieve them of the 32 Republican-patronage supervisors above them. The supervisors were laid off (the mayor took a lot of heat from his fellow Republicans), and the city crew came in with a bid thousands of dollars under the closest private bidder, cutting costs by 25 percent.

Total savings from competition run $10 million to $20 million in Goldsmith's first 18 months, says Skipp Stitt, the spirited 30-year-old lawyer who runs the mayor's competitiveness office. Stitt is a true believer, one of the young idealists around Goldsmith who share the mayor's vision of leaner, more competitive government. He says the mayor is more interested in hiring people who share his political philosophy than those who merely have technical expertise. Goldsmith regularly assigns required reading to his top staffers—the 800-plus-page tome Liberation Management, by management guru Tom Peters, was on a recent reading list—and staff meetings move easily from garbage collection to political philosophy. "Working for the mayor, there's a sense you're part of something larger," says Stitt.

Stitt goes on to explain that while businesses have to tightly manage their assets, governments have a giant-sized attic full of potentially valuable holdings. On a tour of the transportation department facilities, SELTIC commissioner Jean Wojtowicz, a venture capitalist who manages a $70-million portfolio, was shocked at the piles of what she calls "stuff" just lying around. "The government mentality is: If we don't use it, we better hold onto it, we might need it next year," she explains. "The problem with stockpiling all this stuff is that it takes up expensive real estate."

With the blessing of the mayor, a SELTIC team has established periodic "garage sales" of city-owned furniture, equipment, and materials. By reducing inventories, Goldsmith hopes eventually to eliminate more than 40,000 square feet of leased space, saving as much as a third of a million dollars a year. Another SELTIC team is busy trying to sell off about 750 parcels of surplus real estate—$300,000 worth has been sold so far. The mayor is even exploring selling or leasing some of the city's "family silver," such as the wastewater treatment plant (the country's largest), the City-County Building, and the airport.

Could government officials have achieved these savings without SELTIC? It's possible, but doubtful. "I think if you are inside government you're too close to the forest. Sometimes you need someone from the outside to come in and take a fresh look. Private businesses sometimes need this also," says Wojtowicz, who has advised many private companies on restructuring.

Still, line-level employees can see government waste and inefficiency that outsiders might miss. To encourage employees to expose this waste, Goldsmith created the "Golden Garbage" award, presented each month to the city employee who finds the most egregious examples of government waste. The winning employee gets a toy plastic truck glued to a piece of wood and lots of press coverage.

The first award went to an employee who found a garbage truck that broke down so often and was so expensive to repair that it cost the city $39 for every mile it operated. "Taxpayers could have hired limousines to carry away their garbage and it would have cost less than using this 'Golden Garbage' truck," declared Goldsmith when he announced the award. The truck has since been sold to some sucker.

Not everyone is thrilled about Goldsmith's top-to-bottom downsizing of city hall. The new mayor did, after all, eliminate about 450 of 4,700 full-time employees from the city's payroll in his first 16 months, including 160 mostly managerial-level employees within the first three months. The layoffs of the patronage positions angered some Republican council members and party officials. "They were upset with Goldsmith because he broke up the old boy network," says a Democratic councilman.

The driven mayor concedes he will have to spend more time building consensus in the future, which will likely slow the brisk pace of change. He's not very happy about this. Schmoozing with other politicians is just not something the technocratic Goldsmith—who friends and foes alike say is incapable of b.s.—appears very comfortable doing.

Even more of a problem has been the city work force. "Abject fear," is how one city employee described his initial reaction to Goldsmith's downsizing. In the public works department, about 20 engineers left the first year. "No good engineer wants to work for this city anymore," former public works administrator Pete Chavol told the Indianapolis News in December 1992. A Parks Department employee admitted that "a lot of people coasted under Hudnut. Now they have to work and many people feel miserable and threatened."

Mitch Roob, the city's 31-year-old Transportation Department director, wants to show me that not all employees have been demoralized. He takes me out in the field to see the department's pride and joy: a city crew that underbid private firms for a contract to seal cracks in the city's roads. I'm supposed to hear from them how empowered they feel and how competition has energized them. Instead, with their boss standing not more than five feet away, I'm greeted with a torrent of complaints. They're "much more stressed," "always afraid" of losing their jobs, and their "sense of security has disappeared." One crew member sums up the feelings of the group: "The mayor has rocked our boat."

Goldsmith worries about the morale problem. "Without successful buy-in from the employees of our efforts, we can't succeed," he says. To bring employees into the fold, he has set up an array of programs, including once-a-month department brown-bag lunches with the mayor, so the employees can "get the vision," and an electronic mailbag system in which employees can send him messages directly. "I have 4,000 new pen pals," says Goldsmith.

Some employees have indeed caught the entrepreneurial fever. The crack-sealing crew, for all their griping about increased stress and tougher conditions, say their major complaint is that it takes them a week to get supplies. The delay slows us down and decreases our productivity." In fact, the crew is talking about taking their unit private. "I'm ready to do it right now," says David Walderop, the alternate crew leader, "There's money to be made out there and we all know it."

Downsizing, quantifying performance, measuring productivity, competing services, and eliminating waste are only half the revolution Goldsmith is trying to bring about in the way big cities are run. The other half is decentralizing government and empowering neighborhoods. The mayor believes governments at all levels have over-centralized decision making and superseded more important non-governmental organizations such as churches, families, and neighborhoods.

"You cannot ignore the populations in neighborhoods, do things for them, to them, and then think you're going to solve their problems in the long run," says the mayor. "You need to have a theory that empowers the people in those communities."

He has publicly embraced the outlines of a radical proposal developed at the Indiana University School of Public Affairs called "municipal federalism." It would allow for the voluntary establishment of neighborhood councils to make decisions now made in city hall. Neighborhoods would have the right to contract with the city to maintain their own parks and sweep their own side streets and sidewalks. The people in the neighborhoods, not city bureaucrats, would determine which vacant lots are fixed up with housing rehabilitation money. Implementing this Tocquevilleian vision of getting people to seize control of public services and decision making at the neighborhood level has been Goldsmith's greatest challenge so far.

Upon becoming mayor he had hoped to duplicate in other areas of the city a successful neighborhood effort to revitalize a local park. Holiday Park, located in an upper-middle-class neighborhood, had degenerated to the point where drug dealers and male prostitutes had set up permanent shop there. Community residents were afraid to go anywhere near the park. Neighbors, fed up with the situation, received permission to take over the park and proceeded to raise $300,000 in private donations for new equipment, a security guard, and better upkeep. The former drug-infested park is now filled with picnicking families on weekends.

But SELTIC Parks Commissioner Tom Reilly hasn't found it easy to duplicate that success. The straight- shooting chairman of Reilly Industries, a multi-million-dollar, international chemical company, Reilly says most community groups just aren't interested in adopting "orphan" parks. "We haven't been particularly successful," he says, shaking his head. "It's been a very frustrating process."

Reilly points to a troubled park where there were recently two shootings. Within 200 yards of the park are six churches. If they worked together, he says, they could turn that park around. But "there's a great deal of envy between the various groups," he explains. "If you talk about turning over a park to one group, the other ones go crazy. Sometimes they'd rather the park be in bad shape than see it turned over to someone else."

And many neighborhood groups aren't very organized. They can't take on some of the repetitive functions involved in managing parks, such as weekly grass cutting, youth programs, and maintenance. But Reilly, who is known to sometimes bulldoze his way through hurdles in the business world, is not giving up. "We'll get some them done," he pledges. "It's just happening too slowly."

Goldsmith is also bringing his vision of self-governance to two of the city's two most troubled housing projects. The management of the projects will be turned over to private firms—chosen by the residents themselves—for an 18-month period. At the end of the 18 months, the residents of Barton Towers and Concord Village will have the choice of staying with the private contractor, going back to the housing authority, or taking over management themselves. What makes this plan unique is a built-in work incentive: Rents will go up if incomes go up, giving the private manager motivation to find jobs for project residents.

Following the cue of Jack Kemp, whom he admires, Goldsmith criticizes regulatory barriers to home ownership and entrepreneurship. He is fond of telling the story of Paul Veyer, an artist who owns a small graphic-design shop downtown. After 20 years, Veyer decided to replace his storefront awning. The materials cost him about $15O, and he figured he could put it up in a day. By the time he had gotten five different permits, hired an attorney, and submitted two plans to myriad officials, however, it was six weeks later and his bill was more than $1,000.

To identify and remove such unnecessary regulations, the mayor created a deregulatory SWAT team called the Regulatory Study Commission (RSC). The RSC also does cost-benefit analyses on all proposed regulations.

While poring through the municipal code, deregulators have found reams of outdated ordinances. Shuffleboard operators were required to obtain special licenses—as were residents who happened to keep milk cows in their back yards. The RSC's biggest first-year success was getting the Asbestos Abatement Commission to abandon proposed regulations which would have made the city's asbestos standards far more stringent than current state and federal regulations. Regulatory reform will save government and business $16 million to $50 million a year.

The RSC is beginning to move into more politically controversial areas. A few of the city's 28 different development-permission processes have been eliminated, but bureaucratic roadblocks have hindered progress on this front. Deregulating prices and market entry for taxicabs is on the drawing board, as is the idea of giving regulatory breaks to start-up businesses in distressed areas now designated enterprise zones.

Goldsmith has also targeted poorer neighborhoods for substantial infrastructure improvements. So why is Goldsmith, a Republican mayor whose political base is in the suburbs, expending so much time and effort on the heavily Democratic inner city? "Over the next 20 years, if we write off 100,000 people into poverty and abandon them from the marketplace, the rest of the community cannot be economically successful," he says. Right now the city's poorer neighborhoods are not in terrible shape, but he points to cities like Chicago and Detroit as warnings of what will happen unless Indianapolis takes steps to reverse the decline.

Goldsmith's attention to the inner city has won him accolades from some unlikely circles. "Steve Goldsmith is the first person to come along and actually ask my people what it is they want from the mayor," says Orlando Jones, who spent 10 years in public housing and now heads up the Black Family Forum. Jones likes Goldsmith's emphasis on community policing and says privatization "will open up the door for a lot more economic opportunity" for minority-owned businesses.

Democratic City-County Council Member Jeff Golc, who represents a district where only 42 percent of the residents over 25 have graduated from high school, also praises Goldsmith. Under the previous administration his district was ignored, says Golc. "I got two calls from Hudnut [the former mayor] in four years." In a little over 16 months, Golc had already collaborated on two inner-city development projects with Goldsmith and supports the mayor's downsizing of city government and philosophy of empowering neighborhoods.

Some Republican leaders are less enthusiastic. I sat down with a group of prominent spokespeople from suburban neighborhood groups (most of them Republicans) and was somewhat taken aback by the harshness of their criticism of the mayor they helped elect. On Goldsmith's top-to-bottom restructuring of city government: "He wants to be known for reinventing what need not be reinvented." On their access to the mayor: "We know more about neighborhoods than him or his group of young CPA and corporate attorney advisers. You'd think he would listen to us, but he doesn't." On municipal federalism: "A way to shove the grunt work, the everyday essential housekeeping services, to the neighborhoods."

The criticism reflects in part a split in the Republican party between the empowerment, free-market, enterpriser types and the moderate country-clubbers. The principal concerns of these self-appointed neighborhood leaders have little to do with free-market economics. They worry about building code and zoning violations and dislike people who operate businesses out of their homes. Their access to the mayor and their interaction with city regulators are their traditional sources of political clout. Under Hudnut they had more regulators and more access. They have lost both under Goldsmith. One of his first official acts was to lay off more than half the code-enforcement officers. And if they're mad now, they'll go ballistic when his deregulating team starts attacking restrictions on development, signage, and landscaping.

But the mayor is unlikely to back down. He is still very popular with Joe and Jane Suburbanite, who have better things to do than run around screaming about building and signage violations. And he's stubborn. "After a while most politicians get worn down into the soft solution that accommodates all the various interest groups," says SELTIC commissioner Reilly. "It can take the best Folks and wear them down to the point of moral compromise, but not Stephen Goldsmith. He just keeps bullying ahead."

If Goldsmith is successful in turning Indianapolis into the country's first 21st-century city, what will city hall look like? The mayor ponders this one for a minute. "You'll have obviously smaller government, more outsourcing [privatization], dramatically increased neighborhood-based service provision, and a much higher percentage of people involved in protecting and developing their own areas. Government will act more as a skilled purchasing director, rather than a service provider."

Henry Kissinger once said, "The task of the leader is to get people from where they are to where they have not been. The public does not fully understand the world in which it is going. Leaders must invoke an alchemy of great vision." The average Indianapolis resident isn't yet aware of it, but Stephen Goldsmith is taking the city where no large American city has gone before. His vision, which combines the new and the old—a lean, service-oriented, computer-age city hall mixed with the 19th-century New England township—just may be the best hope for the future of our big cities.

William D. Eggers is director of the Reason Foundation's Privatization Center.