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City Management, Inc.

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By Andrew Kleine
October 28, 2022

I’ve been reading Richard Rumelt’s business classic Good Strategy/Bad Strategy, and it has me thinking radical thoughts about how cities could be managed.

In the book, Rumelt writes of a case he likes to discuss with his business classes, about the rise of Walmart in the 1980s. Sam Walton’s genius was to break the traditional definition of a store. Kmart, the Goliath of discount retail at the time, gave each of its store managers the authority to choose product lines, select vendors and set prices. Walmart made integrated networks of stores, not individual stores, the operating units of the company, which is why it was able to profitably run stores in towns with populations as small as 10,000.

By standardizing purchasing, centralizing data, coordinating logistics and sharing best practices, Walmart became the largest company in the world, while Kmart spiraled into bankruptcy.

You probably see where I’m going with this. What if cities and towns were organized into networks and managed like Walmart stores? It seems like a crazy question, but local governments are facing some crazy challenges and may need a whole new business model to serve their residents in the future.

While the COVID-19 pandemic is receding as a public health emergency, it has disrupted cities in far-reaching ways. In the midst of the Great Resignation, inflation going up and the stock market going down, many cities are clinging to the lifeline of the American Rescue Plan. When that rope runs out, they will be looking across a wide gulf between what residents expect from them and what they have the resources to deliver. The urgencies of reducing racial disparities, fighting crime and saving the planet—not to mention collecting the trash—will overwhelm depleted workforces and budgets stretched by higher costs and lower investment returns.

Competent city managers are harder to find and more expensive than ever. This thought experiment of mine is about cities hiring a company to manage them so that, instead of being bureaucratic islands—each with its own peculiar processes and procedures—they would enjoy the benefits of standardization, innovation and economies of scale. The Walmart example, together with technology that is enabling people to work remotely, bots to answer 311 calls and data to be amassed and mined, makes this future vivid in my mind.

I am not advocating wholesale privatization, or even outsourcing, of government functions. I’m also well aware that governments are not businesses. I do, however, believe that the uber-decentralized model of local government is unfit for what lies ahead. Cities can have their own unique goals and policies and, at the same time, be administered in a way that consolidates and streamlines the many functions they have in common, from accounting and procurement to fleet management and tree maintenance.

Is this idea really all that far out? Local governments have long contracted for services that private companies can do better and cheaper, whether it be EMS or wastewater treatment or golf course management. Many regional councils offer cooperative purchasing contracts that provide volume discounts to members for basic commodities. In rare cases, neighboring governments share services. Englewood, Colorado, for instance, merged its fire service with the City of Denver. In Wisconsin, two counties consolidated their public health departments. In Oregon, three counties use an app to borrow heavy equipment from each other that would otherwise be idle.

Contracting out management of the entire enterprise may seem a next step too far, but it is not without precedent. In 1994, the Minneapolis Public Schools (MPS) hired a small consulting firm called Public Strategies Group (PSG) to serve as superintendent. Led by its president, Peter Hutchinson, PSG’s base salary in Year 1 was $5,000 per month, with a number of bonus incentives for performance and outcomes.

PSG ran the MPS for four years. It was credited with raising test scores, reducing the achievement gap between poor and wealthier students, and reducing absences and suspensions. The St. Paul Pioneer Press praised PSG for making “fundamental changes in a district that was desperately in need of direction and competence.”

Imagine City Management, Inc., a company that could make filling those stubbornly vacant positions unnecessary, purchase everything from paper to pool chemicals at rock-bottom prices, implement proven technology and process improvements to speed up permitting and be paid based on results. Fantasy perhaps, but the reality is that cities may need a new business model to meet the challenges of the future.

Author: Andrew Kleine is Senior Director – Government & Public Sector at EY-Parthenon, Ernst & Young LLP. He is the author of City on the Line: How Baltimore Transformed Its Budget to Beat the Great Recession and Deliver Outcomes (Rowman & Littlefield, 2018) and has served as Baltimore’s budget director. Email [email protected], and connect on LinkedIn at www.linkedin.com/in/andrew-kleine-1370 and Twitter @awkleine. The views expressed by the author are not necessarily those of Ernst & Young LLP or other members of the global EY organization.

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