Imagine a bloated waste collection department overstaffed by political appointees, an outdated manual collection system, an annual $200,000 operating deficit and dozens of commercial and residential customers receiving free collection service. What do you have? The city of Colton, Calif., circa 1994.
Prior to 1994, city officials dutifully collected refuse across a 24-square-mile area from nearly 48,000 residents who produced approximately 41,500 tons of garbage annually.
But the "department's deficit was putting the entire city into a dire financial condition," says Nabar Enrique Martinez, Colton's former city manager. [Martinez is now Bell Gardens, Calif.'s city manager.] "Plus, the service to the community wasn't very good, although there were three people per truck. The trucks even were dirty," he says.
Faced with the threat of mounting financial losses and the difficult task of replacing the department's political appointees with more enthusiastic workers, Martinez looked outward for help, deciding to privatize the city's waste collection. The decision paid off.
Working with Seattle-based consulting firm R.W. Beck, Martinez and the Colton city council selected Taormina Industries, Anaheim, Calif., to own and operate its waste collection services. In turn, the switchover helped cut costs by 20 percent and created a $12 million surplus in the general operating fund.
"Of course we're proud of those accomplishments, but we're also really proud of the improvement in customer service," Martinez says, citing examples such as faster customer call-back times, fewer missed collections and even cleaner garbage trucks.
"Taormina has one of the cleanest fleet maintenance programs I've ever seen, and its trucks look good out in the community," says Richard Tagore- Erwin, R.W. Beck's main consultant on the project.
Over the course of seven months, Martinez and Tagore-Erwin solicited requests for qualifications and services - sometimes faxing each other at 2 a.m. with different proposals - and forged an unconventional path to success. The duo's focus on cutting costs and generating new income was a departure from the typical bureaucratic approach that simply looked for ways to lower rates.
"We're always hearing that government should be run like a private business," Martinez says. "So, that's how we approached this deal." In keeping with what he calls "the values of the profit margin," Martinez says the city paid R.W. Beck's consulting fee by charging every waste collection company that submitted a bid $5,000 to evaluate its proposal. "The garbage companies were surprised, but we said, 'This is a business, what do you want?'" Martinez says.
Martinez and the city were specific in what they expected from bidders, which included industry heavyweights such as Browning-Ferris Industries, Houston. Martinez says they expected "everything."
"We were requesting the whole range of services from collecting yardwaste, recyclables, refuse and disposables to handling public education, billing, customer service and staffing. We wanted the whole shot and someone who could do a complete takeover," Tagore-Erwin recalls.
He credits Taormina's experience in converting from manual to automated systems, and the fact that it owned its own materials recovery facility processing center as some of the determining factors that helped the company win Colton's business.
However, taking care of the city's disgruntled waste collection department employees was another matter. Martinez says many employees were afraid of losing their jobs in the privatization process, and although he believed that many deserved to, a compromise was reached with Taormina.
Martinez explains: "We included one of the department's most vocally opposed drivers to the project on the negotiation team. He really was against privatization in the beginning, but it diffused problems to have an employee representative being part of the process."
Taormina eventually agreed to employ every city employee who could pass standard screenings such as drug tests.
It was an important concession in winning the city's business, says Daryl Parrish, Colton's current assistant city manager. "That was something we really looked at when we went through the RFP [requests for proposals] process," he explains. "We asked the haulers to tell us what they'd do for our employees, and Taormina's was the winning proposal."
Other terms of Taormina's eventual 10-year contract with the city, which included a $4 million payout for its trucks and other equipment, held stipulations that called for:
* using only new trucks and bins to justify the length of the contract;
* automating the collection system;
* improving customer service by hooking up a direct telephone line and by providing services such as answering calls within three rings and responding to complaints within 24 hours;
* lowering rates from $18.45 to $15.96 a month;
* meeting curbside recycling goals of nearly 50 percent by 2000; and
* building a materials recovery facility in Colton or paying the city to build one [which has yet to be completed].
Still, these stipulations weren't enough to satisfy Martinez's determination to view the city's privatization process through the lens of free enterprise. Rather than just sell Colton's waste collection services, Martinez wanted to make the city some money in the process.
With the aid of Tagore-Erwin, Martinez negotiated to have Taormina pay a franchise fee for the city's business based on all gross revenue rather than just the standard account fee. Taormina also agreed to pay the city a contract management fee of nearly $70,000.
"At one point during the negotiations, the private-sector guys were just amazed because we often were working 21-hour days, sometimes even 24-hour days, and they had never seen a public entity work so hard before," Martinez says.
The hard work has paid off, Parish says. With Taormina running things now, "we get a lot fewer complaints than we did before privatization. There's a lot less down time, and it's definitely a successful program."
Fiscal Republic Industries Inc., Ft. Lauderdale, Fla., reported a 36 percent increase in earnings per share of 38 cents for the quarter ended September 1998.
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