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Announcement | Audio | Transcript Transcript

Fixing America's Cities: Privatization and Community Empowerment
April 6, 1999
Stephen Goldsmith, Jerry Brown

Contents

Introductory Remarks

Good evening, ladies and gentlemen. My name is David Theroux. I believe I know many of you, here, and for those I haven’t met, welcome to our Independent Policy Forum this evening. This is a series that we hold two to three times a month on different issues, featuring many different policy analysts and experts from different walks of life on many different issues.

For those of you who are new to The Independent Institute, there’s a packet that, hopefully, you picked up when you registered, which describes many of our books and other studies and some of the upcoming events.

I might mention that a week from today, we’re going to have a program on schools, featuring three speakers. And the issue of educational choice, of course, is a rather hot topic for obvious reasons. In Oakland, the problem of schools is an enormously serious one, as it is in many major cities.

The Institute itself is an academic research institute. We have about 130 research fellows at different universities around the United States and elsewhere. The Institute produces many books, some of which you may have noticed upstairs, as well as our quarterly journal, The Independent Review. I wanted to point out a couple of things, though.

One of the areas that we take particular interest in is on urban issues, education being one, but many others, including crime, development issues such as housing and many other things. And our most recent book is on the issue of criminal justice, called To Serve and Protect. And for those of you who have not seen it, I’d highly recommend it to you.

Beginning roughly in the 1920s, American cities began being treated as economic and social systems. The claim was that they needed careful government planning and control. Such institutions as zoning, city planning, building codes, municipal transportation systems, port authorities, centralized police systems and many other institutions began to develop in a major way and continued to grow.

In the course of this development, city and county governments in most major cities had become enormously bureaucratic enterprises, some of which have owned and continue to own vast acres of land and other enterprises of many different types.

However, another important trend also began, primarily after World War II. And the trend was, in some respects—at least some of us believe—a response to this leviathan, on the local level, tendency. The trend began with the invention of the shopping mall, residential developments of different types and other proprietary developments.

Within recent years, this trend has led to the development of everything from large-scale gated communities to more localized, privatized urban enclaves and Neighborhood Watch programs and church-based and other community-based enterprises of many different types, all intended to enable the citizenry in place to control their lives.

And in fact we have a book—another plug—I’ll mention we have a book coming out that was just completed, called The Voluntary City, which is an examination of these trends in the areas I’ve mentioned and many other areas.

But our speaker tonight has been contending with these kinds of urban problems for years and has been pioneering what many of us believe to be some of the more far-reaching and progressive innovations anywhere around the country. His approach has simply recognized the fact that cities are centers for social, civic and commercial cooperation. That’s what a city is. If we allow governments to create artificial barriers to restrict such cooperation for whatever purpose—largely, empirically, it’s for special interest purposes—the function of cities suffers and the lives of the citizenry suffer as well.

So, it’s most fitting to have Mayor Goldsmith here, speaking in Oakland. We’re delighted to have the Mayor of Oakland joining with us, as well. As recent elections here can attest, including the election of Jerry Brown, I believe there is a trend in Oakland and in other cities toward a disenchantment, to put it mildly, of the old special-interest politics of economic stagnation. With our new mayor and other city officials, I think there’s a real opportunity for change, but it come from ideas and it comes from good people working to make a difference.

Stephen Goldsmith is the Mayor of Indianapolis, Indiana, the twelfth-largest city in the United States. He was first elected Mayor in 1991. He also serves as chairman of the Center for Civic Innovation at the Manhattan Institute. He’s co-chairman of the Domestic Strategy Group at the Aspen Institute. He’s honorary co-chairman of the National Council for Public/Private Partnership. And he’s a member of the advisory boards for the President’s Commission on Missing and Exploited Children and the Office of Juvenile Delinquency and Justice.

Most recently, he’s been courted by Texas Governor George W. Bush, to become his—some claim—top domestic policy advisor—one of three, at least. I mentioned to Steve, earlier, that I knew George W. years ago, back in the early ’80s, in Midland, when he was having a tough time with an oil drilling company. But for whatever reason, I think that whatever influence Steve can have could only be positive.

Steve is a graduate of Wabash College. He received his JD from the University of Michigan. He’s also served as Trial Deputy for the City of Indianapolis. He’s been a research fellow in criminal justice at Harvard University’s Kennedy School. He’s been a professor at Indiana University School of Public and Environmental Affairs, an adjunct faculty member at Columbia University School of International and Public Affairs.

His articles have appeared in many top newspapers and other publications. He’s also been editor of the journal, Prosecutor’s Perspective. So, I’m very pleased to present Steve Goldsmith.

Stephen Goldsmith

Thanks, David. I appreciate the introduction. It made me feel good, but actually Mayor Jerry Brown put me in my place when we were on MSNBC. Was that the show were on? Whatever it was.

Mayor Brown

Hardball.

Stephen Goldsmith

Hardball, about a month ago, and the host, Mayor Brown, was out here and I was in D.C. And the host turned to me and said, “I don’t want to hurt your feelings, but whenever I have Jerry on, our ratings go up. And nobody knows who the Mayor of Indianapolis is, so just give him all the time you can.” (laughter)

So, despite the introduction, I understand my place. I’m honored that Jerry could be here and spend a little time with us as we talk about these domestic issues. Let me issue my disclaimer here, first. I’m pleased to be here. I have a few thoughts about urban development. I don’t come with a recipe for Oakland or San Francisco or San Jose or anywhere else. I have a few experiences that we’ve applied, in Indianapolis, that have brought three to 4,000 mayors and governors and representatives of various foreign countries in to look at our small experiment. And I think the methodology has application in other urban areas, playing out in different ways in different cities.

Indianapolis is the twelfth-largest city in the country. We have just under 900,000 people. And we have all the same set of urban problems that any other large city has. We have different concentrations, but we face all those challenges.

I was delighted to receive David’s invitation. I’ve been a fan of the work of The Independent Institute for some time, starting with my slow read of Beyond Politics. I’m a lawyer by definition, which means I’m not an economist. And I began to read Beyond Politics, intrigued with public choice economics and trying to find out why it is that people like me did so much harm to the economy. And I was impressed.

There’s one paragraph in there that I’ve never had an opportunity to quote before. Let me just summarize it because I think about it, a lot. I get the story all wrong, so don’t straighten me out, but I like it better the way I tell it than the way it read, anyway.

So the idea is that you seat 100 people in a circle, each with 100 pennies. And a politician—surely not a mayor—a politician gets up and collects one penny from each person. And after he makes one tour, he keeps 50 cents and he gives 50 cents to a person he selects. And he does this 100 times until everyone is 100 pennies poorer, 50 pennies richer and happy. (laughter)

Now, this struck me as a bit similar to the way city governments were operated for a fair period of time, up to probably the early 1990s, when most cities attempted to tax their way out of poverty.

Mayors get elected, they have lots of problems of poverty and urban decay. They’re intent on doing good deeds. In order to do the good deeds, they need money. So they tax the people who have it in order to redistribute it to those who don’t.

Now, this process was particularly aggressive east of the Mississippi, where essentially mayors taxed their way further into poverty. And my office is on the 25th floor of our City County building and on a very bright, clear day I can see dollar bills float across the city line and land in the suburbs, where the tax rate is less, the regulatory burdens are less, the crime rate is less and the schools are often better.

Now, this process of these centrifugal forces were particularly aggravated in the ’70s and ’80s and scared a lot of people out of cities. In fact, in Midwestern and Eastern cities, some of the larger cities lost 40, 50, 60 percent of their population and even a greater percentage of their wealth, as those who left often had more wealth than those who remained.

I got elected seven plus years ago as Mayor of Indianapolis. And I had a predecessor who was a good mayor, had raised taxes a fair amount of times but was a good mayor. And I ran on an “I’m not going to raise your taxes” platform.

And the Chamber of Commerce, on the day I was elected, came to visit me and said, “We’re really delighted you pledged not to raise taxes because we have a billion dollar infrastructure deficit and we’d like for you to correct it at the same time you don’t raise taxes.” Now, a billion dollars, for a city our size, is—it’s real money—tough to scrape up.

So we had this dynamic, a lot of people were moving out of the city, the tax rates were too high, the infrastructure was decaying, and it was clear that we really couldn’t continue to do business the way we had done it. I then began to look at ways to change the way government functions.

Let me just say parenthetically, so you can maybe draw some comparisons, we have strong mayor form of government, relatively—very strong mayor form of government. So essentially I’m the mayor and the city manager for all practical purposes. And so change is possible in that environment, more possible in that environment than in a city manager form of government.

During the campaign, I announced that I was all for privatization. I met with my trash workers the first day I was elected. I was fearful they would walk out on strike.

I remember this guy, John Lindsey, who didn’t start his career particularly well and having the trash workers walk out on their first day in office would have been really quite bad. And I went to meet with him—and I don’t know what they’re like in Oakland, Jerry, but in Indianapolis these guys are all seven feet tall and 300 pounds. They’re really big and when they get angry, they really get quite angry. And they expressed themselves about my privatization platform in a really quite vivid way. And so I backed off, and I said, “OK, we’re going to do something different here. I’ll go out and do a different city job each week. Pick up the trash. Cut the grass. Repair the plumbing in the public housing. And let’s just see what I can learn.”

And it turned out, for a while, that each time I did this, the union workers, the city workers would have some pretty good suggestions about how to change their performance. The equipment was bad, the teams were disorganized, the supervision was in the way, whatever.

And a couple things struck me then. One is that surely the guy who’s doing this work shouldn’t have to shop his ideas to the mayor. There ought to be somebody between me and him or her that’s listening.

And secondly, the theory that public employees are inherently inferior to private employees is really not fair. Public systems are inherently inferior to private systems because they lack competition—they’re monopolies and bureaucracies and the people are trapped in those systems. So I wanted to see what I could do, structurally, to unlock these systems, to unlock the power of competition, to help the people who really wanted to do a good job perform better and buy the best I could from the private marketplace at the same time.

So we began this effort that we call marketization or competition. And we’ve done 80 of these. Without taking you through them all, let me just say the concept basically is: competition produces value and makes for more efficient delivery of public services. And we then created this model to let our public employees bid against the private sector.

So I reached an agreement on our labor contract and said, “I won’t privatize but I am going to submit a number of these transactions to the marketplace. You have a 90-day window in which to bid. We’ll provide you consultants. We’ll provide you help, but we want you to bid.”

Now, there were a couple of problems with this. One is that—again, I know everything’s perfect in Oakland but in Indianapolis, it wasn’t. I’m going to keep saying that enough times so that I don’t irritate you with my presentations here, but in Indianapolis and in most cities financial statements and accounting systems have nothing to do with management. They’re totally irrelevant to management. They are designed for the sole purpose of getting nice bond ratings. Right?

And when I was elected, I said, “OK, bring me the financial statements.” Now, I was a lawyer, I didn’t know what that meant but I saw that somewhere and it seemed like a neat thing to say. And so these guys look around and they bring me these financial statements.

The financial statements were terrific. They were on four-color paper with wonderful pictures and they really compared well to any Fortune 500 company, but there was nothing in any of these financial statements that reflected how much it cost to perform an activity of government; how much it cost to pick up a ton of trash; how much it cost to clean 100 yards of sewers; how much it cost to microfilm a piece of paper in the City Microfilm Department, etc. So there was no way we could know whether we were efficient because we didn’t even know what our costs were per activity.

So we brought in the outside auditors. We figured out I was running 200 businesses. I’d never run a business in my life. I was running 200 businesses with no cost data on any one of those businesses. So we did the activity-based costing. We tried to determine what our performance measures were. We began to bid them out.

Let me just make a couple of comments about that and then if you want more detail, in the questions in answers we can do that. I want to take one where the public sector won and one where the private sector won.

The first thing I did was announce I was going—“Boy, those guys that work for the regional waste water treatment system…“Unlike yours, ours was not quite so well run, is that right?” So, I said, “We’re going to privatize the waste water treatment system.” We had two large tertiary treatment plants.

The Indianapolis City Council said, “No, you’re not.” It was my first lesson that there were three branches of government, not just one, at the time. And they said, “No, you’re not.” And they said, “We’ll study it. So I said, “OK.” And they hired one of the Big Six accounting firms. And they came in and said, “Congratulations, Mayor. You have one of the most efficiently run waste water treatment systems in the country. And if you really managed it better, the best you can, you can save 5 percent.”

So I said, “Thanks. Let’s try this differently. Let’s ask anybody in the world who’s in this business to bid on the right to manage our plants. And then let’s let the market determine whether our prices were right, whether out costs were correct.”

And the winning bidder, a combination of a large French company and a local Indianapolis company won the bid, but they saved us 40 percent or $180 million dollars over the life of the contract.

Now remember, we were one of the most efficient in the country. And the moral of the story is when government benchmarks itself against other monopolies, it’s an irrelevant experience. It doesn’t make any difference.

Now, we can go back to waste water because many of the employees were the same, and the union was accepted and there are some interesting aspects to the story, but the point of matter is suddenly I had almost $200 million available for infrastructure I didn’t have the day before I did the transaction. And the competitive process brought out the best.

So I’m excited about this so I said, “OK, we’re going to go privatize the fleet management, the central garage.” And this seemed to be the thing to because in Indianapolis we have lot of garages. We have this race—we have a lot of race cars. We have a lot of mechanics. And so I said, “We’re going to privatize the garage.” Because in the Indy 500, they change the oil and tires on a car in 29 seconds. And it took us 29 days to change the oil on a police car. (laughter) So the chances of us being efficient were really quite limited.

But the union president comes in and says, “No, Mayor, you promised us we’d have this 90-day period in which to compete.” And I said, “OK, I did. Well, we’ll do it.”

And now, this is a group—they’ve been total quality management, rigorous total quality management for seven years. In the 90-day window, they figured out how to get rid of two-thirds of their own managers. This is the union and their consultants. They said, “We have almost twice many managers as we need. And Mayor, if we’re going to load the management cost into our bid, we don’t need all these managers.”

Second thing they said, “You know, by the way, we’re pretty well-paid mechanics. And if you’re really going to look at the cost, we can’t afford to be our own custodians, so what you really ought to do is outsource the custodial services because it will bring down our costs.” And then the union president came in—we were concurrently doing collective bargaining agreements—and said, “We’d like to freeze our wages.” Now, I’ve negotiated a number of agreements but none that began with, “We’d like to freeze our wages.”

So I said, “What’s up here?” And he said, “We’ll play this game by your rules, but if we bid and win and come in below our bids, we want a share on the upside. We want gain-sharing or profit-sharing. We’re willing to be more productive, but we want a share of the proceeds.”

So they did all those things, and 90 days later they won the bid, but they brought their costs down by about $2.5 million a year. And over the next year and a half, whenever one of the union workers would retire or change jobs, the union would come in, generally, and say, “We don’t want to fill that job because we can do that person’s work more efficiently.” Because they were now operating in a different environment, one where their productivity made a difference to their pay check and their customer satisfaction made a difference to their continuing in that line of business. These were the same individuals, same brains, same bodies, in a different system than they’d previously operated.

So we’ve now been through 80-plus of these, saved $400 million. And this effort is really not the end, obviously. The end is a higher quality of life for city residents. This was a way of freeing up capital to invest in either reducing taxes, more police officers, infrastructure, as the situation may be.

Now, that’s just a piece of the puzzle, obviously. Regulatory reform is important, as well. We fought the licensing issues and the permitting issues and the cab cartel issues and a whole range of the cab—

Let me tell you about the cab cartels. I don’t how you run cabs, but the cab cartel was a wonderful fight because—I’m a Republican mayor, but in this fight I had the Republican Council against me, the Democratic Council for me, and the NAACP on my side, because basically they were saying, “Our citizens are under served and we have a lot of folks who want to go in this business. And why is it the government is prohibiting small and minority-owned businesses from having an opportunity for enterprise in this community?

This was kind of a classic free market fight, one that we had actually lots of opposition and great fun in fighting and eventually won, and predictably, as the work of The Independent Institute would suggest, urban service went up; 60 new operators came into the marketplace, many of them moms and pops, and the configuration of services changed once the cartel was removed. So we fought a number of those battles, as well.

So tax reform has been issue. Costs had to be low. Marketization, competition, privatization has been an issue. Regulatory relief has been an issue. Crime control, as the Mayor here is fighting, is also an issue.

But basically, what we’re seeing across the country now is that cities are inherently great places. Diverse folks come together. There’s lots of reasons why people like to live in cities. If city governments can do—instead of doing lots of things badly, if it would do its core services well—streets safe—make sure that the basic services work, that the tax from regulatory barriers are low, then capital will be invested and people will again be excited over their cities. And we’re seeing this across the country.

In fact, just a kind of coincidence, while I’m here speaking in Oakland, John Norquist, the Mayor of Milwaukee, is speaking in Indianapolis on how we ought to fix our school system. So there’s an interesting series of—all sorts of different cities are doing different reform pieces. And I think we’ve seen a resurgence in cities in the last six or seven years and can anticipate that in the future.

I hope some of these examples might be relevant to your thinking in the Bay Area and I’d be delighted to both answer your questions and I’m sure the Mayor has somewhere else to go, as well. You want rebuttal or anything before you leave?

Questions from the Floor

AUDIENCE MEMBER #1

I’ve got one. I live in Palo Alto. Palo Alto is an upscale community, everybody encourages (inaudible). One of these frustrating things is that they take public property and make it private property by putting barriers on the streets, so that only certain people can go on those streets. By the way, Berkeley does the same thing only in a different way. They take the parking and reserve all the parking for the locals. What do you do about something like this?

Stephen Goldsmith

I don’t what you mean by—you mean barriers by closing the street?

AUDIENCE MEMBER

What they’ll do is partially close the street so there’s no through traffic and what they do is enhance the value in that neighborhood. Of course, the streets that are nearby get more traffic.

Stephen Goldsmith

I guess inherently a local issue that should be responded to by whoever the particular mayor is. Traffic—there’s a lot to be said, by the way. I said the answer facetiously but we are, I think, all increasingly learning that big systems can’t work—command and control systems can’t work nationally. Dictated mandates can’t work. And even those of us who are mayors—at least I do, in Indiana—believe that state government is too big and too bureaucratic, as well.

So the more things evolved—we’ve made a conscientious effort to push authority out to the neighborhood level to referee these disputes. These disputes—sometimes the barriers are there for crime control purposes, to disrupt drug markets. That’s not the purpose of your question but that’s obviously another way that streets are closed. Traffic calming devices and barriers are an issue that Mayor Brown will answer for you, later. It’s really quite localized and it’s hard to answer. Yes, sir?

Jerry Brown

The privatization of the airport. Does it help the community to increase revenue through your airport concessions?

Stephen Goldsmith

We had the first full airport privatization in the country, with BAA. They run Heathrow, Gatwick and Indianapolis—kind of a curious three. What they have done—the goal is to increase quality and decrease cost to the passenger. And there are various ways to do that. One is to decrease expenses, the other is to increase revenues, discretionary revenues.

And they have—some of you may have gone through the Pittsburgh Airport, for example, and seen the change over the last five or six years. So that what they’ve done is they’ve managed up the shopping, the retail, the opportunities for discretionary spending in a way that’s provided a big shot in the arm. Indianapolis is obviously a secondary market, in terms of air traffic, so our goal has been to get our cost per in-plane-ment as low as possible so we could attract more flights.
We’re not going to be an international departure city but we hope to have a lot of local traffic. And we’ve done very well.

The other thing that BAA has done but also the city’s airport managers have done well is to look at air freight as a source of economic stimulus. And we’ve moved up dramatically in air freight to the point where I think we’ll probably exceed Memphis in the next few years as most important Midwestern point for air freight, as well.

But the principle’s really the same in waste water and airport. I don’t know how to run an airport and I don’t know how to run a waste water system. And I can provide much better services to my citizens by buying management from somebody who’s got experience.

I still own the airport. I still own the waste water treatment system, generally, for tax purposes more than anything else. But we’re buying management ability and that’s helping us produce quality. Mayor?

I think this is an important question in a lot of areas.

Jerry Brown

My question is, could you take an asset like an airport and sell it, realizing capital infusion to the city without lowering quality?

Stephen Goldsmith

There’s actually about three or four parts to your question. Let me take them one at a time. I think for those of us who are closer to the libertarian—you used the word libertarian kind of facetiously—but those of us who are economically more conservative would think the government shouldn’t own these assets.

The U.S. tax laws make that not very feasible. I can borrow at tax exempt rates, BAA borrows at taxable rates, there are several other things in the water business and waste water business, as well. And then in airports—the FAA is all entangled in the airport. And the repayment issues for full privatization are also quite complicated. And besides that the average citizen is a bit suspicious about the sale of the crown jewels, whether that makes any sense or not.

Now, what we did in order to walk around those issues was we entered into a—both the airport and waste water—long-term contract. Let’s call it 10 years. And the amount of the contract was so many millions of dollars a year less than what we were spending. And we used the difference as a revenue stream to borrow against. So we essentially capitalized the savings in order to invest it into roads.

Originally, I wanted—really, [Los Angeles Mayor] Dick Riordan created most of the trouble, in a very well-intentioned way, when he proposed to dramatically privatize LAX, which caused the airlines to go to Congress to say, “No, you’re not,” because they didn’t want Mayor Reardon to take money off of LAX into LA. So we had to try to walk around the restrictions in order to capitalize.

It’s easier to do it in waste water, actually, than airports, which are really pretty socialist. Congress sets up a whole series of socialist-like rules.

So the answer is basically, although we have a reputation for being in the vanguard on privatization, most of our efforts have been turnkey leases, as contrasted to asset sales. And also, it does give us a chance to control policy. We still have an airport board. They still decide the rationing of the gates. They still make decisions on whether we’re going to acquire property. They still referee the noise disputes. We still have a policy obligation that we perform with the airport board.

And we control the rates on the waste water, for example. They run the business. We control the rates. Yes, ma’am?

AUDIENCE MEMBER

What does your city offer to you? There are those young people, who have no place to go. What can they do? What does your city offer to teenagers and that era?

Stephen Goldsmith

Well, we just did a survey where our teenagers say, “Not nearly enough,” by the way. And they were pretty adamant about it, both minority and majority youth view the city as lacking. And that may be the case.

The answer is a bit more problematic because—recreation is an interesting subject because you’ve got family recreation, you’ve got church recreation, you’ve got YMCA recreation, you’ve got school recreation. So at some point you have to say, “What is the role of city government?” And I think you could answer, “It’s to organize and encourage recreation, not just to provide it.”

AUDIENCE MEMBER

Could you please speak on how you’ve handled the community centers and parks?

Stephen Goldsmith

We have dozens of community centers and we’ve invested a lot of money rebuilding our parks and building playgrounds. But when all is said and done, I still think the YMCA is better at running a community center than I am. And they have an ability to also connect kids to other activities. So we have those things. The kids say we don’t have enough.

One of the interesting aspects of privatization I’ve had a lot of fun with is not the big airport and waste water privatization, it’s our little—we have 25 small park that are contracted to the neighborhood church. So we figured out how much it was costing us to maintain that park and we offered that amount of money to the neighborhood church.

Now, the park, which previously had been the site of drug deals or whatever, is really a neighborhood asset. Now, the church cleans it and they program in it. Not exclusively. You don’t have to be a member of the church, obviously, to play in the park, but it is a connection.

And then we hope that the kids in that neighborhood will form a relationship with a church. That’s not a requirement; we don’t incent that but we hope that relationship will occur. And we’ve now got—in addition to those church contracts, we have 800 partnerships with 400 faith-based, primarily faith-based organizations. Some micro, some very little, some not so little, but each one has a really wonderful effect, galvanizing effect on young people in that area.

So I think that we’d be criticized for not doing enough, but we’ve fairly dramatically increased the basket of recreational activities. Mayor, every time he raises his hand, we’ll take you next. OK?

Jerry Brown

I find it interesting that the City gave a public facility to a faith-based organization to operate?

Stephen Goldsmith

Yes, we’ve turned over operation of some and maintenance of some but never on an exclusive basis. That is to say, obviously, we don’t take a church or a synagogue or a mosque and say that you can control entry into this public space. We have said, like you would have a business adopt a median that instead of asking you to give us maintenance, we’ll take the amount of money we’re spending, you can program there and develop a sense of ownership, but not exclusivity as to that asset.

Jerry Brown

Does the city then pay the church?

Stephen Goldsmith

Yes, yes, sir?

Jerry Brown

What’s in it for the church? Is it some extra income or pride of neighborhood?

Stephen Goldsmith

Yes. It depends on the church, frankly. They’re not big contracts. They’re little contracts. They generally go to a 501(c)(3) affiliated with the church rather than the church itself because we’d like to keep the line there. The church may use it as a way to get neighborhood kids—small amounts of money to pick up litter. They may use it as a way to have so many amounts of time scheduled for recreational purposes.

And there’s, as you know, a fair amount of interesting literature here recently on a number of, especially inner city, faith-based activities. So the churches make a little bit of money, but we just rebid these contracts and we found out that—and the goal was to have neighborhood and church kids maintain the park.

We found at that some of the more entrepreneurial churches have figured out that they can take our contract and outsource the maintenance, keep the margin and subsidize other activities. (laughter) We now are into a very interesting conversation about whether we should encourage this or discourage this and this has split our little ranks. Yes, sir?

AUDIENCE MEMBER

Do you think the regulatory environment can be relaxed to encourage light manufacturing, at least, within a city? This seems to me the key to prosperity in the city. One has to create jobs beyond the public (inaudible). Light manufacturing seems to be an easy first step.

Stephen Goldsmith

Sure. We’ve eliminated about 60 percent of our building permits. And we have attempted to ease many of our zoning laws. And the theory here is that whatever it is we were trying to create with health and safety, we missed the mark and instead created regulatory burdens.

I want to go back to your zoning issues. But for example, building permits. Well, all we were doing was providing an incentive for—we were harming the legitimate guy who followed the rules, because if you followed the rules your prices went up because you had to comply with all of our stuff. And if you were kind of a pirate, just operated totally outside the system, you could actually do work more inexpensively than if you got mixed up in our regulatory situation. So we’ve tried to rationalize our regulation.

On investment in the city, we’ve done several things. We’ve looked at our downtown renovation, hospitality business and that mix, which now, and even in Indianapolis is a $1.8 billion a year industry, employing 45,000 people. It’s really very exciting.

The next ring out, where there are a fair number of these abandoned brown field sites that essentially either state or federal regulators have made impractical to invest in—And I know that the mayor has looked at these, as well. And we’ve tried to resolve for business the environmental obstacles and to often help aggregate the land because the developers are fearful of title ownership of the land. And we’ve had a number of successes.

I work with Michael Porter on this project called Competitive Edge of Inner Cities. There’s an Oakland effort, Oakland Advisors, that’s working as well. And there are some interesting successes. And Inc. magazine is actually going to release the top 100 of these successes on April 22. Some are in Indianapolis and some are Oakland. So we’ve been really aggressive because one way to reduce the taxes and create jobs is to make it easier for people to invest. Light manufacturing and commercial distribution are some of the ways we’ve done it.

Yes, sir? Have I over-stayed my welcome here?

AUDIENCE MEMBER

I’m not sure I’m going to ask this question correctly but I want to put it in a context of California and principally some of our cities here where there’s an underlying premise that there are disadvantaged groups. That because of the disadvantage, they really can’t compete, and; therefore, short of a quota, you’ve got to do something to level the playing field. And so there are set asides and so forth.

In your experience—and I assume that in Indianapolis you’re not burden with these sorts of programs, by and large—call it broad affirmative action—but we are here. Is it your experience that these groups that have been excluded in the past, if given the opportunity will be able to compete and so a certain number of contracts will go to the disadvantaged. But do these contracts fall into certain categories of work—semi-skilled, unskilled—and that the professionals are not able to compete and therefore are not getting a piece of that pie, the professional, managerial kinds of jobs?

Stephen Goldsmith

That question got more complicated as it went on. (laughter) Well, let me answer the first half of it and then attempt to answer the second half because a little bit depends on what business or profession you have in mind.

Our city is about 25 percent African-American. And it is important to me as mayor and generally, I think, for the good of our community that everyone has an opportunity to participate in the prosperity of the community. We don’t, as you suggested, have quotas or preferences, but I have spent a lot of time trying to rigorously excise out the barriers that prohibited participation. Some are subtle and some aren’t.

The size of a contract, we can insure that small companies can’t participate. If you have really large contracts, they can’t get the bonding. It’s impractical. So you have bonding issues and insurance issues and just bringing people to the table who often haven’t had a chance to participate because this groups of folks is generally one to bid. So we’ve also encouraged mentoring and found a refreshing response from our large contractors and providers, who are interested in bringing along participants on their initiative, as well.

Privatization. The guy that sells chemicals to the waste water private company is a wonderful minority businessman, who not only has had a chance to provide them chemicals because of this relationship, but now has opportunities all throughout the Midwestern United States that he didn’t have before. When government stops providing a service, that’s an opportunity for the marketplace to work. That’s an opportunity for a small businessperson, because essentially when we’re saying, “Monopoly is the only way,” we’re saying we don’t trust small business, minority business, women business. And actually our participation has gone up significantly in most areas.

Now, the professional services are more complicated, but in many—I don’t what it is like on the West Coast, but the Midwest, these generally tend not to be bid services. So they’re generally selected by some sort of referee process. And if sensitive, we’ve had a fair amount of minority participation, but some areas that are not well-represented in the marketplace with minority professionals have not had their share of participation. And we can’t create vendors if they’re not in place.

But now you go to cabs or other issues, as well, and all of those are opportunities to reach out into the marketplace. And I’m very pleased with what we’ve been able to accomplish. In fact, I would say that I think that quotas can be excuses for people not to take the tougher steps to open up the marketplace, in the long run. I think I’ve answered your question.

We’ll take a couple more and I’ll let everybody go. Yes, sir?

AUDIENCE MEMBER

Are you familiar with the two-rate property tax system that’s used in several cities in Pennsylvania, where they have a different property tax rate on the land and on the buildings and improvements, including Pittsburgh where they have—and some of the cities in Pennsylvania have been decaying, in the rust belt? And when they switched to two-rate, especially when they completely almost reduced the tax on the building part, they have renovated, compared to similar cities that didn’t do this? Are you familiar with what’s been going on?

Stephen Goldsmith

I’m familiar with the concept. I’m not familiar with Pennsylvania in particular. It is a bit problematic that you say that a mayor or economical development groups says, “Please invest in the city and we promise to tax you on what you invest.” So it is an impediment. It’s one of those things that’s led to a lot of tax abatements or tax increment financing—is to try to walk around that issue. But I’m not experience enough to comment. Our property tax system is fixed by our legislature. It’s arbitrary and capricious. That’s as far as I can understand. Anything more detailed is confusing. I’ll take this lady’s question, then we’ll adjourn.

AUDIENCE MEMBER

Can you give example or aspect of privatization with reduction in crime or violence prevention?

Stephen Goldsmith

Maybe this gives me an opportunity to close. I don’t think there’s a magic answer for any city. And I don’t think it’s in any one area. I think—I wanted to demonstrate, in our city, that a relatively large urban marketplace could succeed in the 21st century. And there had been lots of individuals whose neighborhoods had been neglected by city government even at the same time government raises property taxes. So this view in your mind of a decayed urban neighborhood was applicable in Indianapolis.

When I got elected I went to Baltimore and visited Mayor Kurt Schmoke, who was a friend and was elected the year before I was, and walked around some of his neighborhoods and looked at what they’re trying to do in reinvigorating one that was called Sand Town.

I came back to Indianapolis and I picked seven neighborhoods of eight to 20,000 people, each where these communities had been the most neglected communities. I said, “We’re going to do everything possible we can to fix these seven neighborhoods. We’re going to get this right.”

First thing we did was privatize in order to free up money to invest in capital, because it’s not really fair to go into a community and say, “You ought to be doing more” and then look around and the sidewalks are crumbling, the streets don’t work and the playgrounds are broken and there’s graffiti on the walls. It’s a sign that nobody really has any confidence or cares, including government itself. And we wanted to fix those, so we created this capital plan, $80 million for these communities.

Then we set out to train the neighborhood leadership because government had eclipsed neighborhood leadership, not only had people moved but government in its rush to come in and do good deeds had become the dominant provider of good deeds in those neighborhoods. So it is often difficult for the leadership to have authority because government was so dominant. We tried to change this relationship.

And then we tried to move to community policing. Indianapolis is a city that has a relatively low crime rate, but not a relatively low homicide rate. Our homicide rate’s been intractable. Our crime rate is quite low. And there is this mismatch. And we also had a police department that was very good at rapid response policing, which means seeing how fast you could get to the problem. Since you’re taping this, I’ll say this facetiously, but if you got somewhere really quickly and insulted a citizen, it would look on your performance data as if it were more successful than if you got there slowly and resolved the problem, because we were into rapid response policing. I’ve taught community policy. I’ve tried to move to community policing. And in some places it worked and some places it didn’t.

Now, seven years later, in these seven communities, half of them we’ve succeeded in and half of them, more or less, we failed in. And where we’ve succeeded is where we’ve had strong indigenous leadership, capital investment, community policing where the police really do it, not just say it, they really do it. And when all those things come together, we can attract back investment, people have confidence, property values go up, people are willing to stay in the neighborhood and things get turned around.

Where any one of the ingredients doesn’t work—decayed infrastructure, safety issues are deteriorating, no local ownership—then we haven’t succeeded. So I guess the answer is I think privatization plays a part because it’s allowed us to fix up those neighborhoods. But just fixing up the sidewalks, even fixing up the playgrounds—if you’re going to get mugged on a nice playground, it’s not a particularly fulfilling experience. So where it’s come together, we’ve succeeded. And I think there’s some hope and some lessons to be learned both in our successes and failures.

Appreciate your listening to my story. And I hope it’s provoked a little bit of thinking. And I’m delighted you all listened to me and particularly pleased that the mayor spent some time with us, as well. Thank you very much. (applause)

David Theroux

I want to particularly thank Steve for joining with us. For those of you who have not seen his book, this is the book that we recommend you get. It’s a rather unusual book. It talks about many of the experiences and the problems that he faced in pursuing a lot of these kinds of reforms. What Steve has done so unusual is that he bucked the trend. And I think the result is to set a certain number of precedents that can be built upon and expounded upon in many other ways.

I want to thank Mayor Brown for joining with us, also. Do you want to say anything, Jerry?

Jerry Brown

Thank you, but not at this time.

David Theroux

OK, great. Also, if I can put in one more plug. Steve was very kind to mention our book, Beyond Politics, which is a book that is published by HarperCollins. It’s an excellent book, of course. And if anybody is interested in seeing a copy, there are copies upstairs.

As I mentioned, next week we have a program on schools. Our Mayor has also expressed strong interest in charter schools. And this particular program looks—well, it will be exploring quite a wide range of options that people could look at and some of the problems that they can overcome.

At the end of the month we have program on the changes and problems in Africa, “The New Path for Africa: Establishing Free-Market Societies.” George Ayittey, from American University, has a new book, Africa in Crisis, out from St. Martin’s Press. If you have never heard George before, it’s quite a treat. And we hope you can join with us then, as well. Thank you all for joining with us and we hope to see you again, soon. (applause)

END OF EVENT



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