Chapter 2: What Other States Are Doing (Keon S. Chi)

Overview

This chapter, as the title suggests, provides a summary discussion of how some states are involving themselves in privatization activities. Chi categorizes the privatization activities of states into three categories: 1) implementation states that have implemented or are implementing privatization, 2) study states that are looking into the feasibility of privatization, and 3) reluctant states that have made little or no use of privatization. This chapter essentially discusses the accomplishments of those governments that could be characterized as implementation states.

Areas for Privatization

Chi identifies broad categories where privatization has already taken place in the United States. Among the more prominent categories are human services, corrections, transportation, and education. In addition, the use of contracting is discussed in delivering support services to government agencies such as computer system design and telecommunications.

Benefits of Privatization

The key issues for engaging in privatization activities are stated to emphasize the rationale for pursuing such an agenda. Cost-savings, lack of technological expertise, the short-term nature of some projects, and the need to meet deadlines imposed by courts are some that are cited. Employee opposition and legal barriers were identified as the two most frequently cited obstacles to privatization. This is particularly important for New York State as they have more of these impediments than any other state in the country.

Examples of Privatization

Activity in privatization has taken place in many fields across the United States. In the delivery of social services contracting has occurred to improve hospital operations, mental health facilities, child care, day care and employment training.

Prison management has benefited from privatization in five main areas: 1) services, 2) construction, 3) management, 4) take-over, and 5) operation. Responding to court orders to expand prison capacity, relieving financial burdens to jurisdictions that lack capital budgets, and unloading responsibility for non-violent inmates have all been cited.

Private sector involvement in transportation has been equally diverse. Administration, construction, maintenance, and operation of highways, toll roads, and public transportation facilities have taken place across the United States.

In education, states have utilized vouchers, private managers, private funds for teacher education, and private, contract teachers on an extremely limited basis.

Support services have also been an area where governments have been willing to experiment with contracting. Some examples include custodial services, maintenance, trash removal, security, snow removal and grounds maintenance.

Cost Savings from Privatization

A lengthy and detailed discussion of the nature and extent to which states have saved money by privatizing is contained in this section. The sources of these savings are varied and different in each case. The nature of the service, the degree of contract monitoring, the larger economic conditions at the time of privatization, and, most importantly, the method of comparison used between the private and public service providers are all factors that may contribute to an assessment of cost-savings. The Colorado Auditor's Office developed a practical guide to estimate the potential for cost savings for its agencies. Among the factors considered important to this assessment are market strength, political resistance, quality of service, impact on employees, legal barriers, risk, resources, and control.

Obstacles to Privatization

Some major obstacles are identified here in order to provide a rationale for why states may be reluctant to engage in privatization. Loss of control and inconclusive feasibility studies appear to be the most common reasons. Chi states that the majority of these barriers are either legal or administrative in nature which is characteristic of New York State. State constitutions, regulatory restrictions, federal grant conditions, and state purchasing practices are some of the obstacles cited by Chi.

Conclusion

This chapter provides an overview of some of the privatization activities states across the country are currently involved in. While there is very little depth provided in the examples, they do indicate the breadth of applications state governments have found appropriate for investigating privatization opportunities.