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The Restructuring of Municipal Services: A Canada – United States Comparison, by Robert Hebdon and Patrice Jalette (Université de Montréal).

Presenting on April 21, 2006, Dallas, Texas, at the International Academy of Business and Public Administration Disciplines (IABPAD) conference, and June 12-13, 2006, University of Barcelona, Spain, Workshop on Local Government: Privatization, Public-Private Cooperation.

Executive Summary

This paper examines how cities and towns provide services in the United States and Canada. Comparative analysis focuses on the role of the private sector in service delivery and the factors that affect city managers' decisions to contract out services. The study of the selection of the most effective form of service delivery is particularly instructive at the local level of government because that is the level where change occurred first and where researchers have focused the most attention.

Based on research showing Canadians to have a greater faith in government, more communitarian values and higher unionization levels, we hypothesize that Canadian municipalities will offer more services but fewer through the private sector than their American counterparts. The paper also compares a little researched restructuring form — the contracting back in of previously contracted out services in terms of its frequency, reasons for approving it, and cross-border differences. Finally, we provide a comparative view of the forces that motivate city managers to change service delivery modes. The public choice view sees managers as acting more as monopolists than cost-effective decision makers. Alternative theories predict that city managers will be pragmatic and rational decision makers, motivated more by external and internal financial forces and less by pressures from citizen and political groups. The transaction cost theory, for example, predicts that city managers will privatize only when the savings from contracting out are less than the costs associated with managing the contracting out process.

The international comparative approach enabled a rich analysis of service provision and restructuring patterns in the United States and Canada. Here is a summary of results:

• As expected, Canadian municipalities provided more services after taking into account various factors.
• Contrary to our hypothesis, however, Canadian local governments had higher rates of privatized services and greater numbers of privatization plans. Privatization plays an important role in the provision of municipal services in both countries.
• The contracting back in of previously privatized services is also an important mode of restructuring in both Canadian and American municipalities. Its existence reveals municipal restructuring as more dynamic process than a simple shift from public to private provision. Moreover, the primary reasons for contracting back of poor service quality and unrealized savings challenge the theoretical foundations of privatization policies.
• American cities revealed greater opposition from elected officials, individual citizens and department heads. Analysis revealed that unionization was not a significant factor in restructuring.
• The factors explaining manager behaviour were remarkably similar in municipal entities in both the United States and Canada.
• An analysis of privatization and contracting back in factors revealed an image of the pragmatic city manager prepared to privatize or contract back in to the public sector based more on concerns about costs and service quality than political pressure. This finding does not support the public choice theory view of city managers as concerned only about parochial interests.

Finally, in the end we are left with an unanswered question. Why was there a higher rate of privatization in Canada? We have ruled out higher unionization rates in Canada as a factor. If managers are pragmatists why are they more pragmatic in Canada? It is possible that we have not adequately controlled for the pressures on city managers. Because of the devolution of services by Canadian provinces to the cities without the necessary funding, it is conceivable that Canadian managers may have been under more pressure to restructure than their American counterparts.

Survey details

The authors replicate in Canada a U.S. study of alternate service delivery by the International Cities/Counties Management Association (ICMA). The U.S. study was completed by the ICMA in 2003 and by the authors in Canada in 2004.

In the U.S. the 2002-3 ICMA questionnaire was distributed to chief administration officers in all municipalities with 10,000 or more citizens, to all counties with a population of 25,000 or over, and to a random sample of cities and counties from 2,500 to 24,999 population. Questions were asked about service delivery alternatives (for profit, not for profit, franchises, subsidized organizations, volunteers) for 67 defined services and about the recent experience with private service delivery. There was also a question on a little-researched phenomenon — the contracting in of services. The authors adapted the 2002-3 ICMA questionnaire to the Canadian context while as much as possible maintaining the integrity of the original survey questions.

The Canadian survey employed a mailed questionnaire sent in September 2004 to city managers in all cities and towns over 5,000 in population. A French version of the questionnaire was pre-tested and administered in Quebec. The survey was endorsed by both the Canadian Federation of Municipalities and the Canadian Association of Municipal Administrators. A total of 217 municipalities answered the questionnaire for a response rate of 28.1%. This rate compares to ICMA U.S. rates of 24% in 2002-3 and 32% in 1997. The survey was tested for its representativeness using the universe population data supplied by Statistics Canada.