Colm’s columns

Colm Rapple
Westport local authority conference, May 19, 2006

The conference has set itself a wide agenda. Should local authorities be providers of public services or regulators of the private sector? It’s a catchy title and covers the whole range of local authority roles. The truth is, of course, the local authorities must be both providers of pubic services and regulators of the private sector.

But highlighting the distinction between the two is as good a way as any of highlighting the diverging views of what local authorities should be doing – views that are increasingly informed by ideology rather than practicality. This is particularly evident among those who express an unquestioning belief in the market place as the best and most efficient way of allocating resources but who are often blind to the fact that human welfare extends far beyond what can be bought and sold.

I have been asked to zone in particularly on the privatisation of public services. Is it inevitable? Is it desirable?

I will be arguing

• That all too often decisions on contracting out services are taken without an appreciation or consideration of all the potential costs involved.

• That in the interests of encouraging citizenship and a community spirit rather than a selfish consumerism, authorities should be expanding their range of services not ceding their supply to the private sector and the market.

• That this will require new forms of local financing – a property tax seem the best option. In justifying a extension of their remit, local authorities will have to eliminate the aura of abuse and misconduct that has for too long surrounded them. They will have to become more accountable.

• The aim should be to give people more control over their lives and over the environment in which they live – environment in the largest possible sense of the word.

Those are major views to try and justify in the space of fifteen minutes or so. But let me try to at least prompt an acceptance that they can be backed by a consideration of the facts.

So back to my initial question.

Is the privatisation of public services inevitable or desirable?

The answer depends to a large extent on your attitude to local democracy and, in particular, to the funding of services. Other speakers will be dealing specifically with these areas but the privatisation question cannot be treated in isolation so I will touch on the promotion of local democracy and the financing of local authorities.

There are two distinct elements to the privatisation issue – two different types of privatisation. They are often inter linked in people’s minds and the distinction is not always clearly recognised. But it is important to see the difference between the two.

One type of privatisation involves contracting out work that was previously done by local authority employees. The decision on whether or not to privatise is an administrative one rather than a ideological one. The local authority decides on the level and quality of service and seeks to provide it in the most effective and efficient way. All too often effectiveness and efficiency is measured in a narrow accounting fashion that doesn’t take account of all the costs and benefits involved.

Cost savings may be shown both in the budget and in the annual accounts but the community ends up worse off.

I’ll come back to that.

The other type of privatisation involves totally relinquishing responsibility for the supply of a service, leaving it to the private sector to meet whatever demand there is. Consumers pay the full market price and those who can’t afford the service go without. It is the ideal favoured by those who believe in self reliance, which too often translates into every man for himself and the divil take the hindmost. At its extreme this view holds that the State should limit itself to providing safety nets for the very poor and the most unfortunate.

Because of its ideological basis the debates over this type of privatisation is more likely to be tinged with emotion. It is hard to achieve common ground between someone who believes in community and someone who believes in individualism.

My own preference is towards community. Central and local government should be extending the range of services they provide rather than limiting them or transferring responsibility for their supply to the private sector to be determined by what the market demands and can pay for.

As we get wealthier we tend to value more those things that can’t be bought for money. You can’t buy a clean, healthy environment for instance. You can’t buy the feeling of belonging to a caring community and the security that goes with it. We mourn the demise of the meithea l, the ability to leave the front door unlocked, even having the time to stop and talk a while to a neighbour.

The world is becoming a more hectic, selfish place but it’s a trend that could be reversed by encouraging a more participatory society and a willingness to provide and pay in common for a larger range of community services rather than pushing it back on individuals to provide for themselves.

Local authorities should be moving to enlarge their role not reduce it. The range of possible services is wide. I’ll suggest a few later.

But back to the privatisation debate. There are, as I said, two types of local authority privatisation

• The first involves contracting out the work to private companies while retaining control over the quality and quantity of service provided, while

• The second involves leaving it to the private sector to decide whether or not to supply a service – a decision that will depend on the potential profitability.

In the second case the cost of the service will be borne totally by the consumer. The market or some regulator decides the price and the consumer pays. But if the job of supplying a service is simply contracted out there is no restriction on the ways that it can be paid for.

The contractor may be paid directly by the local authority or else the service maybe financed partly or totally by charges imposed either by the contractor or by the local authority.

It’s nothing new for local authorities to use sub-contractors in the provision of some of its services. It can obviously be very cost effective particularly where the work is of a specialist, once-off or seasonal nature. Employing sufficient permanent staff to cover peak demands can be a very expensive and wasteful approach if during the troughs these permanent staff have no work to do.

But the case is less convincing with an ongoing service such as waste collection. This is an area which has commonly been contracted out to private operators although some local authorities have simply ceded it to the private sector and opened it to competition.

There is no doubt that local authorities save money by contracting out services, even more by totally withdrawing from the supply of a service and leaving it to the private sector. But we need to look beyond the impact on the local authority accounts to get a full appreciation of the total mix of costs and benefits involved.

A local authority can save most of the cost of waste disposal by leaving it to the private sector. But the cost is simply transferred to households and businesses who now have to pay directly rather than through their taxes and rates while the council is left filling the gaps, monitoring the activities of the private operators, and dealing with illegal dumping.

The same applies when the service is simply contracted out. A simplistic comparison of the local authority account before and after the change may reveal significant savings. Contracting out the operation can appear to be a lot cheaper than employing permanent and pensionable local authority staff while carrying the capital and maintenance cost of expensive equipment.

But the saving in the annual accounts reveals only a part of the overall picture. There are other costs involved. Let me suggest just some of them.

• There is a cost of either re-deploying staff or making them redundant. One early study of contracting out waste disposal found that in six out of nine authorities all of the refuse collection crews were re-deployed. That’s only costless if they were fully employed after the re-deployment. I wonder were they. It wasn’t a management decision to re-deploy them but a trade union one. If cost there was, it would be shown under some other budget item rather than waste disposal.

• Then there is the cost of actually arranging the contract, going to tender, evaluating proposals, monitoring and enforcing performance. One US study estimated that these costs absorb between 20% and 40% of the procurement spending.

• Competition can’t always be assumed to produce the cheapest possible tender. High costs of entry may deter some would-be suppliers. There may not be sufficient suppliers in a locality to create adequate competition and cartel arrangements can be hard to avoid.

Those are some of the costs that may show up in the local authority accounts although not necessarily under the heading of waste disposal or whatever other service is contracted out.

There are other costs that are borne elsewhere in the community.

• Private contractors pay lower wages and expect their workers to endure poorer working conditions than their local authority counterparts. Some may see that as a cost saving but it represents a cost on the community. There will be a cost in money terms, higher social welfare, health costs etc but also an intangible cost in terms of diminished social cohesion.

All of these factors also apply to the full privatisation of services . Indeed even more so because competition among suppliers is likely to result in a race to the bottom in terms of pay, working conditions and the quality of service. Local authorities still have to bear the high cost of regulation while over time, as with contracting out, the supposed advantage of competition in reducing costs may be eroded.

The major drawback, of course, is the ceding to the private sector control over the supply of services that communities should ideally be providing for themselves.

That comes back to the ideological question, of the vision you have of society, Boston or Berlin – although I’d prefer Bergen. I take the view that we are still not that far removed from the spirit of the meitheal to adopt the community view despite strong efforts to push us in the opposite direction. Communities should be willing to work together and contribute to creating a pool of local services into which everyone can dip.

So let’s have more services, not fewer. Some may be a lot more practical than others but let me suggest a few.

• Care centres, creches – apart from the obvious benefit, their availability would enhance the attractiveness of an area to establishing businesses.

• Special local transport facilities – bringing people into town or simply down and home from the pub. That latter suggestion could greatly improve some people’s quality of life.

• Lifetime mortgages – local authorities are in the housing loan business. Why should it be restricted to that section of the market that is not attractive to the private sector. An obvious expansion of housing and social policy would be the facility to provide lifetime loans with no repayments to elderly people.

• Energy – private companies have been building power stations and putting up windmills and investing in other alternative energy sources for some time now. Why shouldn’t local authorities get in on the act? What about the retail sale and distribution of gas?

• Security – I’m thinking of possible add-ons to running a CCTV operation.

• There are plenty more possibilities including tendering for private sector work in areas in which local authorities have special expertise – the laying out and maintenance of gardens, parks and sports facilities, paving, road building.

• The record in promoting tourism ventures has been mixed I know but there have been successes and it is a proper role for local authorities. Since we are in Mayo let me suggest a pet idea of mine that Mayo County Council promote the establishment of a walk-way along the route of the Bord Gais pipeline by seeking the support of landowners for the provision of stiles when fences are being reinstated and tackling concerns over public liability. Some of the route passes through spectacular countryside. A walkway would be a great attraction and ensure that the Corrib Gas provided some benefit to the county.

So course the obvious and all too easy way of poo pooing those suggestions is to point to the inefficiency of local authority operations. The image may be correct but it doesn’t have to be. New financial accounting systems have been implemented although the recent Indecon report stressed the need for major accounting changes including multi-annual budgets and the establishment of audit committees. It criticised the current system as providing too little detail.

Change is under way and hopefully in the not to distant future there will be systems in place that will be capable of providing management with the information necessary to understand and control costs and the ability to compare performance between local authorities in order to zone in on best practice. A report prepared in the Institute of Public Administration seems to indicate that the financial information is being generated but not being used to full effect. But the Indecon report seems to suggest otherwise.

Changes has been slow in coming. Ten years ago a predecessor to the Indecon Report from KPMG outlined the need for local authority accounts to show the sort of detailed cost information that is still being sought.

But inefficiency is not inevitable and if it continues we can blame management rather than the workers. While the unions will always fight their corner they have accepted flexibility and change as part of the benchmarking deal. It’s up to management to ensure that they deliver. The unions, indeed, would say that they are delivering.

So managers must be accountable. Local authority managers have always been open to more public scrutiny than most public servants having to answer to councillors at regular public meetings. But there are limitations. Councillors don’t like to wash all the dirty linen in public and local media are not as questioning as they might be partly because their journalistic functions are under resourced and partly because they are owned by or heavily dependant on local business. Personality clashed tend to be more interesting than accounts but that might be less so if there was a closer link between the services people get and what they pay. Business ratepayers do understand the link although they have been partially protected by the Government cap and others are taking a greater interest in the cost and delivery of those services that they pay for directly.

Encouraging a greater link between cost and delivery is the way to encourage greater interest by the public in what their local authorities are doing and greater accountability by managers and councillors.

That is not an argument in favour of charges but rather for a greater reliance on local sources of finance. Money coming from the exchequer or from Brussels can all too easily be seen as “free”. People would take a greater interest in how locally raised money was spent, whether it be from a local tax or charges.

Charges

With business rates capped and the contribution from the local authority fund externally determined, local authorities have all too often had to rely on charges to balance their books. To my mind charges should only be used to ration access to scarce resources or to influence behaviour, for instance encouraging recycling. The primary aim should not be to raise money.

What is needed is a local source of finance, not as an addition to the current level of national taxation but as a substitute for some of it. To gain acceptance any additional local tax would have to be very clearly linked to a reduction in central taxation. At the same time local authorities would have to seen to be much more open to scrutiny.

I said at the beginning that in justifying the granting of greater powers from the centre local authorities will have to eliminate the aura of abuse and misconduct that has for too long surrounded them.

A couple of years ago former Taoiseach Garret FitzGerald said he believed that the failure to devolve authority to local bodies lay as much in experiences of local authority misconduct as in an active desire by central government to retain power for its own sake.

I have my doubts, not about the misconduct but that in its absence power would have been ceded. Far from devolving power local authorities have been stripped of their roles in many areas. Rates were abolished, housing finance centralised, enterprise and development roles passed to new bodies, local health boards abolished and decisions on waste disposal centralised. It can be argued that some of those were necessary on the basis of efficiency or the failure of local authorities to take unpopular decisions.

A local tax would be a first step in a new devolution. The case for a local property tax has been made in report after report. My own preference would be for a tax on the notional rental income that people enjoy on their property. If you had €500,000 you could put it on deposit or buy a house. On deposit could earn over €17,000 and you’d pay tax of about €3,500. But invest the money in buying a house and you pay no tax on the benefit you get from living in it.

That benefit is far from notional. The Central Statistics Office estimates what’s it’s worth and it is included in the national income figures.

Such a tax paid to local authorities would encourage a greater public questioning of how the money was spend and a greater interest in the views and voting records of councillors. Combined with the direct election of mayors, it might encourage a move away from a rigid party system of representation with the mix of councillors more representative of the electorate. The self-employed, particularly professionals, currently predominate and only about 17.5% of councillors are women.

In summary I argued that the costs and benefits of contracting out services needs to be looked at in a wider context than has been common up to this.

That local authorities who opt out and leave the supply of services to the private sector are adopting an ideological approach out of keeping with traditional values of community solidarity and local democracy.

That Local authorities should be endeavouring to expand, rather than reduce, their range of services.

I argued that the achievement of this ideal requires a greater degree of accountability than currently exists, a greater public input, more local democracy. I suggested that this would be greatly encouraged if a larger proportion of local authority finance was raised locally. And I briefly outlined the case for a property tax, the tax favoured by practically every report on local finance since domestic rates were abolished.