We Have to Do Better: Fiscal Challenges Demand Creative Government



Tags: parking, ballard, because, government, public, significant, wastewater, improvements, private, million

Innovators in Action 2009

[This interview was originally featured in Innovators in Action 2009.]

Since taking office in January 2008 with the support of a citizenry frustrated by rising crime and taxes, Indianapolis Mayor Gregory Ballard has undertaken a variety of reform initiatives designed to control costs, improve government performance and address core city needs. In many ways, Mayor Ballard's policy and management agenda echoes the entrepreneurial approach to governance demonstrated by Indiana Governor Mitch Daniels and former two-term mayor and current Harvard University professor Stephen Goldsmith.

Reason Foundation's Director of Government Reform Leonard Gilroy interviewed Mayor Ballard in November 2009 on his broad-ranging reform agenda, the city's new public-private partnership initiatives and lessons learned thus far on institutional change.



Leonard Gilroy, Reason Foundation: Your administration is garnering attention for a wide-ranging set of government reform initiatives you've put into place. Can you describe what's driving these initiatives?

Mayor Greg Ballard: I think it helps to paint a picture of the challenges that we're up against. While we may have wanted to be creative, regardless of the challenges, the challenges here are significant enough that they demand tremendous creativity from my administration.

When I came into office in 2008, we had just come off a period of consistent tax increases, and we had a property tax crisis so tax bills were literally going through the roof, increasing by as much as 200% in some places. At the same time, the city suffered revenue shortfalls as early as 2007, and we had at least a $50 million projected shortfall by 2012. On day one when we walked in, we had a $20 million operating deficit on a budget that was passed on August 2007. That budget borrowed against the next year's revenues to pay for today, and our balances were precariously low. It's somewhat like the homeowner that maxes out their credit cards and has refinanced their mortgage too many times.

Not only was the financial house not in order, but we also faced a challenge of rising crime. One of the major things that affects economic development is public safety. The previous administration implemented a consolidation of the police department but unfortunately had delegated authority to an official falling outside the mayor's authority, so my first initiative was to regain control of the entire police department to bring crime down.

We really had operational challenges and excess government across the board. Many departments that we've since eliminated just weren't operating in sync with the rest of the city. For example, one in five citizen help calls were not just dropped or took a long time to get answered—they were just not answered. That's where citizens call in to report nonemergency problems like potholes. In 2003, they flatlined the budget for crack-sealing on roads. Well, it won't surprise you that when it rains and gets cold, potholes occur. In 2008, that manifested itself into a very cold, wet season of more potholes, and with one in five calls not answered by the call center we inherited, we started out well behind where the city should have been.

These huge challenges demanded a number of different solutions. We began slashing duplication and eliminating overlap, which helped lead us to a balanced budget for two years in a row with no tax increases. In fact, to the extent our state allows, we returned a tax back to the citizens. Our state law doesn't allow us to tax or return tax revenues without approval by the state legislature, but the one time that we've had the permission to do it, we've done it to the tune of roughly $12 million.

Gilroy: With seemingly so many challenges, where did you direct your staff to start?

Ballard: It was a two-stage process. The first few months of the administration, we spent a lot of time on kind of creating a baseline of performance measures, which is very important. If you're going to evaluate your performance, you've got to know what you're measuring against. You've got to know what your baseline is so you can tell the citizens whether or not you've improved or done worse. We spent time establishing financial performance measures that we would use to hold the departments accountable to expenses, revenues, overtime spent, and operating versus capital budgets. We also created a tool called Indy Stat, similar in some ways to the Baltimore City Stat tool developed under mayor, now governor, Martin O'Malley. The difference with our Indy Stat is that its purpose is to identify hard dollar savings that equate to budget savings, as well as driving service improvements using existing resources or fewer resources, not trying to expand our spending on services. We're trying to accomplish more with less.

Every month or so, we have an Indy Stat meeting with myself, our department heads and several cabinet members where we ask pointed questions and hold departments accountable to these performance measures. We don't use these meetings to embarrass people; rather, if a department's overtime spending has gone up in a particular quarter, for example, we talk specifically about ways we can drive that back down.

So that's how we started in the first half of 2008. It's been interesting because once we started down that road with performance measures—and the continuous revisiting of those performance measures—a number of competi­tion opportunities began to emerge.

Gilroy: Can you describe some of the competition opportunities the city is advancing right now?

Ballard: The first area that emerged was public utilities because there's simply so much potential there. Our water utility is owned by the city but operated and maintained by Veolia, the French company. The previous mayor bought the waterworks in 2002 for about $550 million. Fast forward to 2009, the water company has a debt of $920 million, which is more than the back of the envelope value of the enterprise itself. This is really serious because the only way, barring some kind of a major structural change, that you can turn that around financially would be through significant rate increases.

The wastewater system is also publicly owned but run by United Water, a subsidiary of Suez. The previous mayor entered into a consent decree with the U.S. Environmental Protection Agency that committed the city to spending more than $3.5 billion from 2007 to 2025 on sewer system improvements. So the wastewater is being managed in a separate silo from the water system, and we've got $3.5 billion of improvements to make to the system. That's significant because the rate increases necessary to make those improvements that the previous mayor entered into were so significant, it was taking us from a monthly sewer bill of about $20 a month for the average household in 2008 to over $100 a month in 2025 if we did nothing.

It's different than the situation Mayor Goldsmith faced in the 1990s, where he entered into a wastewater O&M contract that generated 50 percent in operating and capital savings, which was really significant. By contrast, we're dealing with a situation where you've already got part of the management outsourced, so it's not as clear-cut as "should this be in-house or should this be outsourced" because we already have two large contractors on the system. So we started looking at the "silo" nature of public utilities and how much they're costing the rate bearers. Water and wastewater have a lot of common management functions—such as vehicle fleet, human resources, customer service, and billing and collections—and we wanted to see if there might be synergies between water and wastewater that we could translate into millions of dollars of rate relief. If only our predecessor had combined water and wastewater when they acquired the waterworks, we might not be in the position we are in now.

We've been in discussions with our two incumbent providers—Veolia and United Water. We also started talking to the gas company, Citizens Energy Group, which is a not-for-profit charitable trust that shares a lot of the same functions as water and wastewater. In July these talks culminated in a release of our Request for Expression of Interest for the potential consolidation of the two systems. That document described the financial situation and asks potential suitors for operating savings in the tens of millions, potentially a hundred million dollars. We are also looking for construction savings and are open to alternative ownership, risk sharing and consolidation scenarios.

When we issued that request, I was hoping for perhaps a half-dozen quality responses, and the fact that we received 24 submissions the following month validated that there's a real opportunity here. It also shows that this really basic principle of bringing these things together—bundling services and finding synergies—is really powerful.

We're evaluating responses to the request now and are having detailed discussions with several of the respondents who had the most creative approaches. We think if you draw all of our options on a continuum, at one end of the continuum is status quo, do nothing. That's certainly not an option. On the other end of the continuum would be to take these utilities fully from public to private. Now, so far, we haven't seen a model that compensates for the advantages of tax-exempt financing in a government or a not-for-profit's ability to issue tax-exempt debt to get this massive scale of capital improvements done over the next 20 years.

What has emerged, though, is the concept of a new not-for-profit that would allow us to potentially combine water and wastewater with a private or not-for-profit partner who would assume a lot of the risks. A combined municipal utility would bring these separate utilities under one roof, would allow them to take advantage of all those operating synergies and would create a situation where you could refinance the debt. We could essentially create a new public-private partnership that would manage a consolidated municipal utility, and we could monetize tens of millions—if not $100 million or more—in savings that could be used for critical city infrastructure improvements and mitigate the water and wastewater rate increases over the next 15 years.

I realize that that's a tough sell, rate mitigation, because the improvements that we have to make to the water and wastewater system are so significant that it's not going to result in a rate decrease over time. Some rate increases are going to be necessary, but we can still in a meaningful way flatten the curve and create a significant capital infusion that could be used on general infrastructure, without raising taxes.

Gilroy: You're also considering the possibility of a public-private partnership involving city parking assets, along the lines of Chicago's recent parking meter system and parking garage leases.

Ballard: Yes, another initiative that's in development involves our parking facilities. It started off as a project where we were focused on the parking meters. Then we recognized that the Capital Improvement Board that runs our sports stadiums and the convention center has had its share of financial challenges in the last two years. The city and the Capital Improvement Board own parking lots and garages together. Then we started looking beyond that, and we saw that Health and Hospitals owns the parking garage, for example. So we began looking at a down­town parking transaction—a long-term operating contract—that would take advantage of the economies of scale and efficiencies that a private operator could bring to many of the publicly owned downtown parking facilities, including garages, lots and meters.

By necessity, it's a bigger deal in scope than Chicago because we simply don't have as many parking meters, and we don't have parking garages that could get us anywhere near as blockbuster as the billion-dollar deal Chicago entered. We're also dealing with a more price-sensitive shopper or visitor to our city than in Chicago. But we still think there's significant value there, and it's also quite frankly a business that we don't need to be in, operating our own garages and lots. We've talked to downtown merchants and businesses about the parking meters specifically, and they've all said that they really want us to increase turnover at the parking meters, as current parking is prohibitively cheap in the downtown. Now, they also want us to be careful because they don't want us to price the meters so high that people take their business out of downtown. Still, they would like to see increased turnover at the meters, period, because they think that metered parking is so cheap that people are almost using the parking meters as parking lots right now. It's a good example of a government's reluctance to price things where the market would normally price them.

For both of these opportunities—the water/wastewater and parking—we want to put any monies the city may receive upfront into long-term, critical infrastructure. We've made enough cuts in the 2009 and 2010 budgets that we don't have to resort to monetization of assets or monetization of savings to fund ongoing operating expenses. That's another difference between us and Chicago. We respect what Mayor [Richard] Daley's done—he's really been a leader in these types of things. But we continue to find cost savings to the extent that we don't need to put this money into operating, which Chicago has set aside some of its upfront revenues for. We want to put any one-time revenues into long-term streets, bridges, curbs, sidewalks and other types of city infrastructure.

Gilroy: Can you describe the infrastructure challenges Indianapolis is facing? Why is infrastructure such a priority for your administration?

Ballard: It's because we're spending a lot of money to maintain a failing infrastructure. For instance, the Department of Public Works estimates that to get the thoroughfares and residential streets up to fair condition, the cost is about $180 million. The cost to get the bridges up to fair condition in the county is about $290 million. Curbs and sidewalks add an astronomical number, and there are a lot of areas of the city that don't have curbs and sidewalks where there's a high demand. So there's demand for it, and we're spending so much money maintaining infrastructure that already should have been rebuilt. It's the same with a vehicle—once a vehicle gets past its useful life, if you lack the funds to replace that vehicle, you're still going to pay a lot of money to maintain it.

Our infrastructure has been neglected for a long time, and there was really no comprehen­sive plan in place to address that. If we go into the community and a hold a town hall, we're going to hear about the condition of streets, bridges, sidewalks. It's not something that we've decided is important. It's something the commu­nity is telling us is important.

Gilroy: What sorts of competition initiatives are you advancing on the general-services and activities front?

Ballard: First, we renegotiated some of our current contracts for immediate savings. For example, we saved a couple of million dollars off of our IT contract with Northrop Grumman through renegotiation. We did the same thing with United Water for our wastewater contract, and we removed performance criteria that were there that frankly were not important performance indicators, but rather were causing them to do things that they didn't need to do at higher costs.

Another tool we're using to meet our budget in 2010 is the competition of support services. For example, our parks and public works departments have three Requests for Proposals (RFP) on the street that deal with parks maintenance, including plumbing, HVAC and electrical work. We're working with the unions to try to help them identify significant cost savings in the area of mowing, trash pick-up in the parks, and forestry. And we're still looking for further savings there, so it could potentially result in an RFP for mowing, trash pick-up and forestry.

There are a number of other areas that we are looking at that will result in RFPs, including fleet management, which is a large operation. We're also profiling a number of other areas that could result in RFPs. The common thread is they're the support services, the background work that's still very important.

We've also rebid the golf courses. Mayor Goldsmith privatized the management of the 13 city golf courses in the 1990s. He kept them under public ownership but outsourced them to private operators and pros. We just did a massive RFP for 12 of the 13 courses where we're offering 10-year terms and giving them the incentives to provide significant capital improvements to the golf courses so we don't have to on property­tax-supported funds. By the beginning of next year, we'll have operators with new 10-year contracts with significant millions of dollars in capital improvements made to the golf courses on the operator's dime, not on the taxpayer. We hope that also drives higher revenues to the city that can support the parks and other functions.

We also hired a marketing firm called Third Street through a Request for Information process, and they're working with us to help find new revenues to fund the city's needs. We're actively pursuing not just naming rights and sponsorships, but also deals where corporations and not-for-profits would donate or sponsor specific city needs to help us offset our expenses. We have two really successful examples in the parks with Brightpoint, the cell-phone distributor, who donated a lot of money and made significant capital improvements to Watkins Park. We also have a great partnership with Citizens Energy Group, which donated approximately $50,000 and made significant improvements to Brookside Park. We're aggressively pursuing those types of partnerships to help us offset our expenses because we're finding that while a corporation isn't thrilled about just donating money to city government, a corporation will fund a specific need that works with the image that they're trying to market.

With the many types of public functions that could be jeopardized in a down economy, why not try to find through the not-for-profit sector or the corporate sector a willing sponsor for those services if they're in demand?

Lastly, implementing shared services—consolidating functions and then putting controls in place so that they simply must streamline and achieve the same levels of services with less people—is one of the critical tools that we have for doing more with less. For example, we've found that we had different types of code inspectors in many different departments across the city government, so we consolidated things like licensing, permitting, inspection and maintenance of violations—common functions undertaken separately by numerous agencies. We consolidated all of that into our new Department of Code Enforcement, which we're transitioning into a fully self-funded organization. This streamlined operation is keeping the city clean like never before and making it easier for businesses to quickly get what they need from city-county government. This is one example among many others, including our efforts to consolidate our township fire departments into our city fire department.

Gilroy: Indianapolis seems to be revisiting its roots, in a sense, as it has long been recognized as a leader in competition and competitive service delivery. Can you briefly reflect on how your administration's work ties back to a deeper lineage on government reform and privatization?

Ballard: I think that's true to a certain degree. We had a mayor in the 1990s who was definitely highly influential and was kind of a visionary in this area—Steve Goldsmith—and so in one sense, I think you've got an engaged citizenry who understands that there's a lot of money to be saved through competition. Many people recognize that government has its functions that should be limited and that it should do well, but that there're a lot of other functions of government that can be provided as well or better by the not-for-profit and the private sector. In a sense, then, all the changes that happened in the 1990s set people's expectations, and I believe that they have a real openness to it that you don't see in a lot of other places.

I think the other thing is that given where we are in this economy, it's really forcing us and a lot of other cities to look and ask "what's next?" Mayor Goldsmith did a lot by outsourcing the management of wastewater, for instance, and saved a lot of money. Now, we're looking at the fundamental structure of the ownership of our water and wastewater utilities and saying, "can we do something even more substantial in a public-private partnership or something similar there?"

Last, there's just an entrepreneurial culture of government here that I think we share with not only former Mayor Goldsmith, but also with Governor Mitch Daniels's administration. It's helpful to have an entrepreneurial governor down the street.

Gilroy: Could you reflect on some of the challenges or lessons learned thus far along the way in implementing your reform agenda?

Ballard: First, creativity is absolutely necessary to meet our challenges, and we cannot be afraid to take on the status quo. Creativity is nothing to be applauded. It's what you should expect from your mayor and your elected leaders. It's what we used to bring crime down in some categories by 20 percent. It's how we turned a $200 million shortfall projected for 2012 into a $50 million surplus. That doesn't happen by mistake. That didn't happen because of tax hikes. That didn't happen because property values went up. It happened because we're managing the city, thinking big and being creative.

Also, we cannot be afraid to make mistakes. We shouldn't be afraid to suggest the most radical or creative idea because of the politics of it. We don't want to see our department directors allow politics to cloud the best ideas. We'll have other people worry about the politics, so don't be afraid to make mistakes. Great deals make good government, and frankly, people tell me that's good politics too.

We also need to embrace transparency and being totally forthright with citizens on city government's performance. Transparency means sharing all the information—the good and especially the bad—and then engaging the community and the private sector to do something about it. For example, we adopted a Six Sigma Program involving corporations who embrace that particular kind of process. By the way, we're not partial to Six Sigma or any of these other methodologies; it's just a useful tool where you use data to drive decisions.

Our Six Sigma Program involves a pool of private-sector Six Sigma black belts trained in the approach who volunteer their time to spend with city employees on one problem, one initiative like potholes or trash complaints. Our potholes-resolution time went down from 13 days to 2 days now based on our last Indy Stat meeting. It used to take people five months, or 150 days, to get a new 96-gallon trash can from the Department of Public Works; now it takes 1.5 days. There are some significant process improvements that have been done just by partnering with Six Sigma black belts from the private sector who volunteer their time to work on one public problem. That necessitates being very open about how poor some of our processes actually are.

You can't be embarrassed about it. You just have to be very upfront and not blame individuals. I believe that governance demands a process of continuous improvement. Here in Indianapolis we're getting to the point where we really see people at the middle-management level embracing performance measurement and management. It's not easy to do and requires constant follow-up, but now that we start to see it being embraced at the middle-manager level, it's pretty exciting.

Another key lesson is that in finding efficiencies and better operations, improving service has to be a central priority. We have to maintain or improve the level of service that citizens expect. In many cases, we have improved it. But we have to have a clear focus on delivering services to citizens the way they should be delivered, and the end goal should really be to make government provide the core functions that it's supposed to provide.

Last, I try to remind my staff and city taxpayers that no matter where we are, we have to do better. Even for all the improvements we've made, we've still got a long way to go and have to do better. Our taxpayers deserve no less.


Gregory A. Ballard is the mayor of Indianapolis, Indiana. After earning his undergraduate degree in economics from Indiana University, Mayor Ballard entered the United States Marine Corps. During his time in the Marines, he served in the Persian Gulf War, and upon his retirement, was awarded the Legion of Merit. He retired as a lieutenant colonel after 23 years' service.

After leaving the Marine Corps, Mayor Ballard successfully transitioned to the corporate world. He worked for several years as North American operations manager for Bayer in Indianapolis. He also is the author of
The Ballard Rules: Small Unit Leadership. Mayor Ballard has been active in the community, serving as a tutor and an advisory board member for the Lilly Boys and Girls Club, as a contributing editor to both the Indiana Minority Business Magazine and the Indiana Parenting Magazine, and as founder of the Indianapolis Writers Group.

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