The Financial Times recently reported that the small southern California city of Maywood, population 28,137, is handling its budget woes in a rather unusual way: by firing all of its employees and contracting out essential services, including its police force.

Maywood, a city chronically troubled with its police departments insurance program, was finally driven to the edge when its insurance rates and pension obligations increased, while its property and sales tax revenues declined. In response, the city has pulled out all the stops in an effort to find cost-savings and identify unnecessary expenses in everything from school buildings to fire departments.

From the looks of things, it appears city officials are taking to heart an oft-repeated slogan in national politics: Treat government more like a business.

The citys distress shows that a government need not provide all those services itself – and in fact, it shouldnt. Every organization has a comparative advantage – a service it is best suited to providing. When local government acts as the direct provider of public goods, it foregoes the comparative advantages of private firms. If a local government instead simply acts as a bargaining agent on behalf of citizens, it can capitalize on the comparative advantages of the private organizations to provide services to citizens more efficiently.

Local governments can go further, of course, and use opportunities like this to make long-needed reforms of labor and pension rules. At the very least, they should recognize that Maywoods reaction to its fiscal distress is a viable strategy to improve municipal services while reducing costs.

– Andrew Glidden Intern, Armstrong Center for Energy and the Environment