CITY BOOSTERS

By ADAM COHEN/INDIANAPOLIS

Stephan Fantauzzo, head of Indiana's public-employee union, has seen a lot over the years, but nothing beats the day his auto mechanics came to him and said they didn't want their raises. Indianapolis had just put out to competitive bidding the business of repairing city vehicles, and that meant his workers had to bid against private companies to keep their jobs. Fantauzzo's workers were worried that they would be underbid. So they gave up their pay raises--and narrowly won the contract. The competition has brought a new efficiency to the operation: costs are down 29%, turn-around time on repairs has improved markedly, and customer complaints have fallen more than 90%. At the same time, the workers have more than made up for their lost raises, averaging 5% salary hikes in each of the past four years, well above the city average. Says a once skeptical Fantauzzo: "We found a way to make this a win-win situation."

Auto repair is only one of more than 70 municipal operations Indianapolis' Republican Mayor Stephen Goldsmith, the nation's leading exponent of "competing out," has spun off in five years in office. The city's wastewater-treatment plants are being run by a private company, at a projected savings of $65 million over five years. Indianapolis International Airport is now run by the British Airport Authority, which promises it will save $32 million over 10 years. Goldsmith even managed to privatize Indianapolis' 2,200-job Naval Air Warfare Center, which had landed on the Pentagon's base-closing list. With the Federal Government's permission, he brought in Hughes Technical Services to take over the operation and sell products and services back to the Navy.

Indianapolis is hardly alone among cities that have been quietly putting the fashionable buzz words "reinventing government" into practice. Municipal government has long been regarded as the great back-water of American democracy: a world of political patronage and special-interest jockeying in which policy discussions rarely move beyond synchronizing traffic lights. But a new breed of activist mayors, recently hailed by the New Republic as "the Pride of the Cities," has been turning city halls into hothouses of governmental innovation. They are challenging entrenched interests and butting heads with traditional allies in the pursuit of real reform: overhauling the school system in Chicago, reshaping labor-management relations in Philadelphia and privatizing municipal services all over.

The driving force behind this fresh approach to urban government is a handful of "new pragmatist" mayors--Indianapolis' Goldsmith, Cleveland's Michael White, Philadelphia's Edward Rendell, Milwaukee's John Norquist, Chicago's Richard M. Daley and to some extent Los Angeles' Robert Riordan and New York City's Rudolph Giuliani--who actively collaborate and compare notes on how to make cities work. Goldsmith visits Giuliani every few months to talk shop; Rendell and Goldsmith bounce ideas off each other at frequent joint speaking appearances. And good practices, big or small, travel fast. "You learn a lot from each other," says Republican Riordan, who used Indianapolis-style competing out to award cleanup contracts after the 1994 Northridge, Calif., earthquake. Goldsmith is using a silicone-based antigraffiti sealant he learned about from Daley. Says White: "If there's anything that binds us, it's simply that we pride ourselves on being result-oriented."

What makes these mayors' governmental pragmatism possible is that they have also developed a flexible, post-ideological approach to politics. Cities that once thrived on straight-ticket Democratic machine politics, where labor unions and social-welfare programs were considered untouchable, are led today by some of the nation's most nonpartisan and politically unpredictable politicians. On school vouchers Cleveland's White, an African-American Democrat, is sparring with his city's traditionally Democratic teachers' union and the N.A.A.C.P. Goldsmith alienated his party's establishment by firing patronage appointees who stood in the way of his efforts to privatize. Says New York's Giuliani, a Republican who broke with his party by lobbying to save rent regulations: "It's better to keep your constituents happy than to keep a political party happy." So far, it's been a winning strategy: all these mayors have been re-elected handily, except Giuliani--who is running this year and led his nearest rival by 23% in a recent poll.

The new pragmatism is at least partly a response to economic necessity. Mayors are operating in an age of sharply limited resources. Federal aid to cities has fallen sharply in the past 20 years, and urban tax bases have eroded as businesses and affluent residents have fled to the suburbs. Since the mid-1970s, when New York and other big cities teetered on the brink of bankruptcy, mayors have had to work hard just to stay afloat: they literally can no longer afford to preside over bloated bureaucracies or coddle unions at contract time. "There's just a different set of problems mayors are facing today," says Barnard College political science professor Ester Fuchs. "If they want to have cities at all, the name of the game is keeping their budgets balanced, keeping the business community and the middle class happy, and coming up with programs that work."

Few cities have been more buffeted by economic forces than Cleveland, whose hard times once earned it the nickname "the Mistake by the Lake." Cleveland has lost more than 400,000 people, almost 45% of its population, since mid-century, and in 1978 it became the first major city to default on its debts since the Great Depression. Along the way, city government all but stopped providing basic services. Building on improvements made by his predecessors in city hall, White has helped reverse Cleveland's slide. The hard-driving mayor, who gets to city hall before 7:30 a.m. and sometimes works past midnight, has adopted a business style of city management. "We serve a city of 500,000 people a day," says White. "If we don't serve them well, a lot of them are going to go somewhere else." The centerpiece of his strategy for improving service to his "customers" is a 60-page "People's Budget," setting out goals for the year and evaluating whether they have been met. The city has generally been able to give itself high marks: the report card cites such achievements as 40% more dead trees removed in 1995 than the year before and twice as many children screened for lead poisoning.

Cleveland's problems are not all behind it, but under White's administration, there is a clear sense that the city is on an upswing. Downtown boasts not only a new $72 million light rail line to move tourists along the lakeshore but also Gateway Complex, which features a new baseball stadium and a basketball arena that lured the Cleveland Cavaliers back from the suburbs. Most important, the city's long period of fiscal crisis has subsided. After a general fund deficit that grew to almost $7 million in 1990, the city has balanced its books and has accumulated a rainy-day fund of $25 million. Standard & Poor's, which suspended the city's bond rating after its 1978 bankruptcy, today gives the city an A.

A prime article of faith among the new mayors is that city employees must become more efficient. Rendell, a Democrat and a tough-talking former prosecutor, is widely credited with saving Philadelphia by going eyeball-to-eyeball with the city's powerful public-employee unions shortly after he took office in 1992. Rendell offered workers a contract that froze wages for 33 months and cut back on paid holidays. After a 16-hour strike, the unions capitulated. Under Rendell, a city that was cited five years ago by City and State magazine for setting "the standard for municipal distress in the 1990s" now has a budget surplus of $118.5 million.

Although a liberal Democrat, Milwaukee's Norquist has also taken a tough line with city workers. He was faced a few years ago with a standoff between his public-works and fire departments over the painting of firehouses. The fire department wanted the buildings painted in the summer, when its trucks could easily be kept outside, but public works said too many of its people would be on vacation. Norquist allowed the fire department to engage a private contractor to get the project done in the summer. "The good news for the public-works department is they learned from this and changed their procedures," says Norquist. "Competition didn't put them out of business, but it almost did."

In Chicago, Daley has taken on his city's most intractable problem: a $3 billion school system that former U.S. Education Secretary William Bennett once called the worst in the nation. Two years ago, Daley, a Democrat, convinced Illinois' Republican state legislature to hand him authority over the schools. He ousted the city's entrenched educational bureaucracy, installed a school board that put nearly 20% of the schools on probation for low performance and got approval for $850 million in bond issues to build new school buildings and renovate old ones. The Daley regime's hard-hitting reforms, which included cutting 1,700 nonteaching jobs, are particularly impressive in a town where, in the days when Daley's father reigned as mayor and political boss, politicians used to say that the purpose of the public schools was to provide jobs for the people who worked there.

Critics of the new-style mayors say many of their reforms are unproven. Goldsmith's detractors say privatization projects such as the wastewater-treatment plants may look better in press releases than in practice. "We don't even know if we're saving any money," says City-County Councilor Susan Williams. "Every time I blink, it seems they want $10 million to fix this or $8 million to fix that." And handing over government operations to the private sector can open the door to patronage and other kinds of malfeasance, the very reason the civil-service system was instituted more than a century ago. Indianapolis suffered through "golfgate" three years ago, when private operators of municipal golf courses were accused of improperly handing out renovation contracts. When Goldsmith made an unsuccessful run for Governor last year, Democrats attacked him for accepting contributions from companies that had won contracts for city services. "Privatization is just patronage in pinstripes," says former Marion County Democratic Party chairman Kipper Tew.

To some, the new pragmatism is only a pretext for tilting government away from the poor and racial minorities. In Cleveland, White's housing program has drawn criticism for its focus on building $100,000-to- $200,000 homes in neighborhoods where the median cost of a house is $35,000 and the poverty rate is 41%. Williams, who represents a poor Indianapolis district, says her constituents are too often left out of Goldsmith's market analyses. "An inner-city swimming pool shouldn't be a profit center," she argues. City halls are lowering expectations, says Barnard's Fuchs, because the money and political will for antipoverty programs are just no longer there. "It's not about doing more with less," she says. "It's about doing less with less."

Indeed, there are limits to what even the most pragmatic mayors can do for cities today, despite the most robust national economy in decades. The harsh truth is that even the best-managed big cities have problems too large to solve on their own. Just as Philadelphia has emerged from its gloom, it is facing the loss of $2.3 billion in welfare, Medicaid and other social programs over the next five years. As many as 40,000 welfare recipients could lose their benefits by the year 2000, and Rendell estimates that incentives to private industry will produce jobs for only 4,000 of them. Claiming that the federal cutbacks are "a runaway freight train headed our way," Rendell traveled to Washington this spring to urge the White House and Congress to help out by enacting a jobs bill. It is unlikely that federal relief will come anytime soon. Still, articulating the limits of what city government can accomplish is sometimes the most pragmatic step of all.

--With reporting by Erik Gunn/Milwaukee and Kevin Fedarko/Cleveland

With reporting by ERIK GUNN/MILWAUKEE AND KEVIN FEDARKO/CLEVELAND