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PRIVATIZATION OF GOVT. SERVICES.
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History, capital funding, cost effectiveness, efficiency, bid concept. Examples.... More...
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Paper Abstract:
History, capital funding, cost effectiveness, efficiency, bid concept. Examples.
Paper Introduction:
EXPERIENCES WITH THE PRIVATIZATION OF GOVERNMENT SERVICES IN THE UNITED STATES
Introduction
This study examines the experiences with the privatization of government services in the United States. The history of privatization in the United States, which is addressed after this introduction, is followed by an assessment of the issue of the privatization of government services.
Privatization in the United States: A Brief History
For a wide variety of reasons (desires to keep government spending in off-budget accounts, a philosophical preference by elected officials for private sector implementation, lack of a specific expertise in government, and so forth), an increasing volume
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"Walking the High Wire: By Developing Their Own Telecommunications Networks With the Help of the Private Sector, Cities and Counties Can Provide Enhanced Services to Their Citizens While Reaping Millions in Revenues." American City & County 1 9 (July 1994): 39-44.McEntee, G. Meacher, "Market Stalls," New Statesman and Society 7 (26August 1994): 24. Turner, "Colorado Aims Against the Tradition to Keep Cities Outof Privatization Niche," Nation's Cities Weekly 17 (3 October 1994): 8. The jurisdiction's legislative mandatedetermines which of these competing objectives or groups of objectivesgovernment managers must address and with what priority such objectivesmust be addressed. 16. L., Jr. At the same time, some private sector interests have pressed formandatory privatization or extensive public notice and hearing processesbefore governments initiate new services or expand existing ones. The history of privatization inthe United States, which is addressed after this introduction, is followedby an assessment of the issue of the privatization of government services. Floyd, and J. Government managers then must choose between thedifferent means available for achieving those objectives. [4 ]Ibid. In a contracting out process, governmentretains responsibility for the provision and funding of public services,but hires private sector companies to perform the actual work. BibliographyAchs, N. D. Evidencefrom this extensive privatization effort, however, indicates that toopening of public services to competition from the private sector hasneither saved money in the delivery of public services nor improved thelevel of the quality of public services delivered-two of the major claimsmade for privatization by the proponents of the process.[24] Evidenceindicates that high transactions costs are associated with the contractingout of services, and that accountability deteriorates under the process.Non market alternatives are now being considered in Britain for thedelivery of public services. These private governments provide what amount topublic services. All electricity provided in Nebraska isproduced by public entities, which supply lower cost electricity thanconventional for-profit electricity providers. [29]Ibid. [2]G. The private police also conduct investigations forcases handled in private courts. [9]R. This, in turn,benefits the town, because it receives a percentage of revenues."[35] City-delivered utility services are common in the United States.[36]Many cities in the United States provide electricity, water, natural gasand/or sewage-treatment utilities to citizens in their communities.Nebraska is a public power state. Thus, if theprivatization of one or more public services by a governmental jurisdictiondoes not cause the entire process of government to become more efficient,there appears little reason to bother with the privatization process. Jr. [21]Ibid. Henderson, "Public Services in Private Hands," ChristianScience Monitor (15 August 1994): 9. Paul, "Privatization and the Public Sector." FinancialDevelopment, (December 1985): 42-45. A combination of societal and economic factors led to an increase inthe delivery of public services by private sector organizations beginningin the late-197 s and early-198 s.[1] The issue of the contracting out ofservices is of great significance for both the public administrator and thegeneral public, as it involves (1) the quality of public services, (2) thelevel of public services, (3) fiscal policy, (4) fiscal management, (5) therights of public employees, (6) the status of organized labor, and (7) theconcepts of equality and equity. [3 ]Ibid. [32]Ibid. [39]Ibid. Kultner, "The Private Market Can't Always Solve PublicProblems." Business Week, (1 March 1986): 14. purchase, acquire, lease ... "Colorado Aims Against the Tradition to Keep Cities Out of Privatization Niche." Nation's Cities Weekly 17 (3 October 1994): 8.Waugh, W. A variety of societal and economic factors coalesced in the late-197 sand early-198 s, and led to demands for changes in the way in which publicservices are delivered. Manyindividuals and organizations, both inside and outside of government, feltthat service quality deteriorated in the wake of the contracting out ofservices.[12] Others felt that any cost savings resulting from thecontracting out of services were only transitory.[13] In this context, itwas pointed out that the contracting out of services is often characterizedby low entry prices, which gradually increase, as public organizations losetheir capacity for service delivery.[14] It was also noted that publicorganizations often failed to consider the costs of contract preparation,negotiation, and monitoring, when assessing the benefit-cost relationshipsof the contracting out of services.[15] Public decision makers and vendors often argue that the quality ofpublic services are improved through the contracting out of suchservices.[16] Employees and organizational clients, however, oftenindicate that the quality of services delivered deteriorate, when deliveredthrough private contractors. Public services also may be privatized, however, throughthe contracting out of services. Gramann, "Effects of Acculturation andStructural Assimilation in Resource-Based Recreation," Journal of LeisureResearch 25 (First Quarter 1993): 6-21. The BID concept is the ultimate manifestation of theprivatization concept that is leading some American cities down the path tothe past-War Lord ruled early-China, the baronies of Medieval Europe, andthe bandito realms of Mexico-where no public accountability exists; onlyprivate accountability to the business firms paying the bills. "Privatization and the Public Sector." Financial Development (December 1985): 42-45.Schine, E. Funding the delivery of public services is an issue with significancewell beyond a narrow perception of facilities and programs. Koester, Public Management Systems, 5th ed.(New York: AMACOM, 1994), 24. Lindsay, and L. [33]Ibid. In some cities in the United States, business improvement districts(BIDs) have been permitted to hire private police.[27] These privatepolice perform investigations, and submit their findings to public lawenforcement agencies. "America's New Watchword: If It Moves, Privatize It." Business Week (12 December 1994): 39.Seader, D. [15]Mercer and Koester, 31. [38]Ibid., 42. L. [24]M. White, "Competition: A Privatization Strategy," American Cityand County February 1994, p. Johnson, "Walking the High Wire: By DevelopingTheir Own Telecommunications Networks With the Help of the Private Sector,Cities and Counties Can Provide Enhanced Services to Their Citizens WhileReaping Millions in Revenues." American City & County 1 9 (July 1994): 41. [19]Ibid. Organizational employees tend to be somewhat non-committal on the topic.[18] Organizational clients, however, often feelthat service levels deteriorate more under the contracting out of servicesthan does service quality.[19] Public decision makers and vendors also tend to indicate strong levelsof agreement that cost effectiveness is improved through the contractingout of services.[2 ] Organizational employees, however, typically indicatethat cost effectiveness deteriorates through the contracting out of publicservices.[21] Organizational employees, however, have vested interests inpromoting such contentions. Public serviceprograms affect broad sociological and economic factors in a community.The reduction of the level of gang activity, as an example, may be soughtthrough the provision of recreation alternatives for at-risk youth.[1 ]Another example is the positive effect that public parks have on theacculturation and assimilation of immigrant populations, a factor ofsignificance in Los Angeles County.[11] A successful solution to thefunding problem for public services at the local-level of government,therefore, may be expected to yield dividends well beyond the narrowperceptions of municipal services. [6]W. [8]J. The section on costing "stresses thattraditional public-sector accounting practices are ill-suited to the taskand the true cost of providing public services is often underestimated.Moreover, private firms incur costs that government do not, such as taxes.There may also be one-time conversion or start-up costs incurred whencontracting out, as well as offsetting revenues from the sale of facilitiesand equipment, for example. F. Krohe, Jr., "Why Reform Government? Parks andRecreation," American City & County 1 8 (October 1993): PR6. "Contract Sports: Privatizing Parks and Rec." American City & County (October 1991): 54, 56.Carlile, J. "Easing the Strain of Fiscal Limitations." Parks and Recreation 18 (August 1983): 53-55.Turner, L. Under theagreement, businesses were also asked to notify the jurisdictions of theirintent to offer services in competition with government."[33] Frisco, Colorado privatized its Nordic Center and Frisco BayMarina.[34] With an economy heavily dependent on recreation and tourism,Frisco has a private labor pool of recreation specialists who can provideservices which also meet municipal program needs. Privatization to most members ofthe general public means the selling of public operations to privateinvestors. One 1993 legislative proposal in Colorado called for governments tonotify the local chamber of commerce and appropriate trade associations sothat alternatives to government-provided services could be considered.[29]Another bill (had it been enacted) would have required governmentscontemplating providing a service that a business also indicated interestin providing to accept that service regardless of cost or quality. McEntee, "City Services: Can Free Enterprise Outperform thePublic Sector?" Business and Society Review, (Fall 1985): 43-47. The city, however, has not signed up any additionalcorporate sponsors. Frisco cityadministration reported that "privatizing saved Frisco money, particularlyin areas such as liability insurance costs. [5]D. The handbook provides criteria for considering privatization,such as cost and quality of services, the potential for revenue-generation,and the future of municipal employees whose functions would be contracted-out to the private sector. A1994 study compared the overall efficiency of contracting cities (definedas governmental jurisdictions making widespread use of privatization) withfull-service cities (defined as jurisdictions depending primarily on thedelivery of public services through traditional municipal governmentdepartments).[26] The study found no convincing evidence that indicatedthat the functional areas of contractual cities were more efficient thanthe full-service cities. [18]Ibid., 4 . [26]J. [35]Ibid. [11]M. Mercer and E. 16. The practice of contracting out services by public organizationsgained public acceptance in great part because the practice was stronglysupported by the popular Reagan Administration in Washington. Public service production decisions often must considerseveral objectives simultaneously-as an example, trash collection may bedesigned to satisfy public health goals and an aesthetic goal of cleanerstreets, while simultaneously meeting specific minority employment goals orminimizing adverse environmental consequences stemming from the disposal ofgarbage and street litter. L., and Koester, E. "Why Reform Government? Jurisdiction over utilities is often granted in stateconstitutions.[37] The Colorado Constitution, as an example, gives citiesthe power to "construct ... "Packaging A Park: The Economics of Recreation." American City & County (January 1991): 2 , 22-24.Cooper, J. [14]McEntee, 43-47. [22]Ibid., 43. Theprocess has slowed only slightly under John Major's leadership. The privatization of public services in the United Kingdom has beenextensive since the election of Margaret Thatcher 15 years ago. was unfair competition and sprung from thephilosophy held by a portion of the business community that governmentshould provide only the most basic services, like police. Cooper, "Proposition A Provides Needed Funds for L.A. This trend began almost two-decades ago. W. [3]R. H. [1 ]J. The Colorado Constitution says that thestate may use the franchises of incorporated companies for the publicgood."[4 ] Within this context, some Colorado cities are consideringstarting their own communications partnerships.[41] Conclusion The contracting out decision is just a matter pure economicefficiency. Public Management Systems, 5th ed. "Proposition A Provides Needed Funds for L.A. The league reports that communities have begun implementingimproved processes with business input and are adopting such resolutions.Lakewood joined with other Jefferson County jurisdictions to develop anotification process designed to involve the business community in decidingwhether government should provide services in competition with thosealready being provided or that could be provided by the private sector.The issue in this instance ... Most studies of the relative efficiency of the privatization ofgovernmental services are narrowly focused to examine the efficiency ofonly the delivery of a specific service. H. "Does Privatization Make A Difference: The Impact of Private Contracting on Municipal Efficiency." International Journal of Public Administration 17 (June 1994): 1299-1325.Henderson, K. One response by government was a return to the practiceof contracting out of services. [4]E. "Market Stalls." New Statesman and Society 7 (26 August 1994): 24.Mercer, J. (The city chose to invest in newequipment and increase fees in order to continue providing the serviceitself."[32] The book contains a model resolution for cities to publicly andformally "pledge to evaluate the impact of new public services onbusinesses and the economy and explore opportunities for those services tobe provided by the private sector, as well as be receptive to communityinput. As an average in the United States, approximately5 percent of capital funding at the local government level comes fromgeneral tax revenues, with somewhat more than 15 percent derived from bondreferendums, 12 percent from user fees, eight-percent from stategovernments, three-percent from the federal government, three-percent fromprivate gifts, and nine-percent from miscellaneous sources.[8] Asincreased pressures are placed on the generation of general tax revenues,the funding problems being confronted by local governments are exacerbated. A thirdapproach to privatization is to allow private companies to compete withgovernmental departments in bidding to deliver specified services funded bygovernment.[5] Yet another option for local governments is to enter intopartnerships with private sector companies to deliver publicly-fundedservices.[6] Privatization: An Assessment of the Experience Tightening budgets are causing local-level governments in the UnitedStates to either curtail public services or to seek alternative fundingsources for such services.[7] Capital funding is a particular problem formunicipal governments. EXPERIENCES WITH THE PRIVATIZATION OF GOVERNMENT SERVICES IN THE UNITED STATES Introduction This study examines the experiences with the privatization ofgovernment services in the United States. Togain credibility with the private sector, the League approached the state-wide business organization, Colorado Association of Commerce and Industry(CACI), for assistance in preparing information on privatization criteriaand costing of services. The Republican electoral victories at all levels of government in the1994 general election presage attempts to privatize such services as watersupply, fire safety and protection, road construction, and otherservices.[4] There are several options, however, for the local governmentthat wants to privatize public services. "Regionalizing Emergency Management: Counties As State and Local Government." Public Administration Review 54 (May-June 1994): 253-258.----------------------- [1]S. The practice did not, however, receive unanimous approval. "Public Services in Private Hands." Christian Science Monitor (15 August 1994): 9.Krohe, J. The private operator hasinvested in advertising, resulting in increased usage. The practicegained acceptance from many public administrators because it often appearedto be the only alternative which would permit their organizations tooperate within budget constraints. [13]Ibid. [23]Ibid. The privatization of a singlepublic service or a few public services within a governmental entity ispresumed to affect the functioning of the entire city. Many contemporary politicians also embrace this perception ofprivatization. [28]L. Thus far, a shift back to non market deliveryhas not occurred on a wide scale in the United States. "City Services: Can Free Enterprise Outperform the Public Sector?" Business and Society Review (Fall 1985): 43-47.Meacher, M. The Colorado Municipal League has opposed such efforts and severalyears ago established a Public-Private Cooperation Committee to guidepolicy development and response to legislative proposals.[3 ]Privatization also has been on the agenda at the League's annualconventions and covered extensively in its publications. [25]K. [16]Ibid., 35. Serious funding problems for public services generally began to berecognized across the country in the early-198 s under the policies of theReagan Administration.[9] The problem began to be recognized at an evenearlier date by local-level governments in California in the wake of thepassage by voters of Proposition 13 in 1978. [17]Ibid., 38. H. "Cities Wrestle for the Best Deal." American City and County (May 1994): 16.Toalson, R. [41]Ibid. The strategy is not one that can berelied on to form the basis of any community's parks and recreation fundingstrategy; however, the approach should be included as a part of any suchstrategy. Carlile, "Packaging A Park: The Economics of Recreation,"American City & County 1 6 (January 1991): 2 , 22-24. operate waterworks, light plants, power plants, transportation systems, heating plantsand any other public utilities or works."[38] Most state constitutions also give cities the right of eminent domainto provide such utilities.[39] Cities governed under home rule statusacquire many of the same rights as the parent state, including the power toprovide, regulate, conduct and control utility systems. W. F. If privatesector alternatives can meet the stated service objectives, then and onlythen should public managers compare each alternative delivery method inrelation direct costs, indirect costs, and social costs. Replace It." Across the Board 29 (December 1992): 4 -45.Kultner, R. Whether or not true, there was a widespread publicperception that the delivery of services by public organizations wasinefficient.[3] Rising tax burdens led to such actions as "Proposition 13"in California, look alike actions in other states, and reductions infederal tax levels. Reduced taxes meant reduced public revenues, which, inturn, meant increased pressure on public organizations in the delivery ofmandated services. D. The BIDconcept, however, is one alternative approach to the delivery of fireprotection and safety services through the private sector. The committee decided to produceeducational material for use by both local officials and businesses. Privatization in the United States: A Brief History For a wide variety of reasons (desires to keep government spending inoff-budget accounts, a philosophical preference by elected officials forprivate sector implementation, lack of a specific expertise in government,and so forth), an increasing volume and variety of governmental services,previously delivered directly by governmental organizations, are beingdelivered by private sector entities under contract with a government body. [34]Ibid. The privatization of somepublic services through the process of contracting out such services beganin California in the 1979-1981 period. Toalson, "Easing the Strain of Fiscal Limitations," Parks andRecreation 18 (August 1983): 53-55. Strong resistance to the privatization of government services isexperienced in the United States from public sector employees.[25] Whilesuch reactions are both predictable and understandable, such reactions arealso justification for concern by local government officials and thegeneral public who must continue to depend upon the performance of publicemployees for the delivery of many services even in the face of widespreadprivatization. New York: AMACOM, 1994.Paul, S. [31]Ibid. If thegovernment elected to provide the service itself, it could be held liablefor damages to the private firm. In 1993, thecommittee chose to become more proactive and encourage officials to addressthe issue at the local level, hopefully undermining private sector supportfor future legislative proposals. Greene, "Does Privatization Make A Difference: The Impact ofPrivate Contracting on Municipal Efficiency," International Journal ofPublic Administration 17 (June 1994): 1299-1325. Schine, "America's New Watchword: If It Moves, Privatize It,"Business Week 12 December 1994, 39. [37]Ibid. Both incorporatedcities and incorporated businesses operate "within specific boundaries, yetonly the city, on behalf of its citizens, has the power of eminent domain.This power can be exercised when other entities conduct their business insuch manner as to infringe on the equal rights of individuals or thegeneral well-being of the state. This finding implies that motivations other thanefficiency must justify privatization. CACI co-sponsored the handbook Public Private Cooperation.[31] Thehandbook is designed to assist local officials in evaluating the most cost-effective, efficient manner of delivering services, as well as guide themtoward a better communication process with their local businesscommunities. Such a strategy is highly dependent upon cooperativecorporations committed to active and positive community involvement. Parks and Recreation." American City & County (October 1993): PR6.Floyd, M., and Gramann, J. [12]J. Achs, "Contract Sports: Privatizing Parks and Rec.," AmericanCity & County 1 6 (October 1991): 54, 56. "The Private Market Can't Always Solve Public Problems." Business Week (1 March 1986): 14.Lindsay, H., and Johnson, L. Manysuch corporations are around; however, they represent a relatively smallproportion of the total corporate population, and they are unevenlydistributed among jurisdictions. [27]J. In the post-World War I period, scandals and corruption in thedelivery of public services by private sector organizations led to demandsfor improved services and improved efficiency through public delivery ofsuch services.[2] By the 196 s, virtually all public services in theUnited States were delivered by public organizations. [36]H. "Effects of Acculturation and Structural Assimilation in Resource-Based Recreation." Journal of Leisure Research 25 (First Quarter 1993): 6-21.Greene, J. Included are examples, such as that of Lamar,which in 1989 had to decide whether to privatize trash collection when itsequipment became old and inefficient. [7]N. Seader, "Cities Wrestle for the Best Deal," American City andCounty May 1994, p. The issues of privatization and "unfair competition," interpreted asgovernments competing with their tax-free status against the privatesector, have been major concerns in Colorado for the past severalyears.[28] Colorado municipalities report an increased use ofprivatization-either in the form of contracting with a private entity todeliver a service or shedding the service and selling off publicly-ownedassets. Replace It," Across theBoard 29 (December 1992): 4 -45. Private governments are also emerging inmany cities through BIDs. Similar disagreements exist with respect tothe level of public services delivered.[17] Public decision makers andvendors typically indicate strong levels of agreement that the level ofpublic services delivered does not deteriorate through the contracting outof such services. Again, the public decision makers and vendors indicate that thecontracting out of services results in increased efficiency.[22]Government employees and, most especially, clients, feel that efficiencydecreases as a result of the contracting out of government services.[23] The strategy followed by the City of West Long Beach in obtaining whatamounts to corporate sponsorship of specific parks and recreationactivities is certainly successful with respect to ARCO's adoption ofAdmiral Kidd Park. H. [2 ]Ibid., 42.
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