The Messy Politics of Privatization

Outsourcing government services can save money. But governments need to bring their own expertise to bear to de-politicize the process.
by | August 3, 2011

With most states facing fiscal crises and governors of both parties demonstrating a new willingness to push back against public-employee unions, efforts to privatize state- and local-government service delivery are on the rise. The issue made headlines last week in Florida, where the union representing state corrections officers sued to block a plan to privatize prisons in 18 south Florida counties, claiming the state had failed to conduct the required cost study to see if the move would save money.

Done properly, privatization can save taxpayers money, shift risk to private contractors and provide access to better technology or other capabilities that government lacks. Contracts often include performance incentives that are rarely permissible within the typical public-employee labor environment.

But whether it results in ill-advised proposals or setting the bar so high that privatization is virtually impossible, politics remain the biggest impediment to privatization achieving its potential as a tool for government efficiency.

Florida Gov. Rick Scott, who signed the prison-privatization plan into law, received a $25,000 contribution for his inaugural celebration from the GEO Group, the nation's second-largest private-prison operator. Prison privatization was one of the issues Scott campaigned on, and his support may have pre-dated any contributions. But they nonetheless opened the initiative to accusations of corporate influence.

At the other end of the spectrum, in Massachusetts it's almost impossible for the private sector to compete for any service delivered by state employees under a 1993 anti-privatization law. Between 1991 and 1993, the Bay State privatized 36 state services. In the almost 18 years since passage of the so-called Pacheco law, only seven services have been privatized, most of them involving small dollar amounts. Seventeen of the 20 political action committees that contributed the most money to candidates for Massachusetts state and county offices during the last election cycle for which we have data were unions or other labor organizations.

One promising approach is for states to establish a centralized office with expertise in performance measurement and performance-based contracting to help agencies develop and use the performance and outcome measures that are the cornerstones of successful privatizations.

Since 1995, Virginia has had the Commonwealth Competition Council, which makes recommendations to the governor and the legislature about alternatives to traditional public-sector service delivery. And last year, New Jersey Gov. Chris Christie created a Privatization Task Force, which identified dozens of privatization opportunities that the task force said could provide state taxpayers with over $200 million in annualized savings and other benefits. Unfortunately, the task force went out of business after issuing its report and will not provide state agencies with ongoing guidance.

The challenges governments are currently facing also bring opportunity. Privatization is now a realistic possibility in places where it wasn't politically palatable just a few years ago. But while there is no surefire way to de-politicize it, creating a transparent process administered by procurement experts gives taxpayers the best opportunity to realize privatization's potential to make government more efficient.

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