Why, What, & How to Privatize City Services

(Page 3 of 3)

Revenue-generating assets (garages, parking meters, etc.); and

Major public infrastructure assets (roads, water/wastewater systems, airports, etc.).

How to Privatize?

Privatization must be implemented well for it to work. A successful privatization process will ensure transparency, accountability, and the delivery of high-performance services through a strong, performance-based contract. By utilizing best practices and lessons learned from experiences of other governments the likelihood of achieving those results is greatly enhanced. Among them:

Rethink the status quo, and ask the "make or buy" question. Taking a page from management guru Peter Drucker, every "traditional" service or function should have to prove its worthiness and proper role and place within government.

Think big. The central question on the subject of outsourcing should not be, "What can we privatize?" but, rather, "What can't we privatize?" Outside of public safety services, the courts, and policymaking functions, the private sector has proven repeatedly most things can be privatized.

Bundle services for better value. Local governments may find greater economies of scale, cost savings and/or value for money through bundling several-or even all-services in a given department (e.g., public works) or departmental subdivision (e.g., facility management and maintenance) into an outsourcing initiative, rather than treat individual services or functions separately.

Focus on contract-management expertise. Successful privatization initiatives require good contract negotiation, management and monitoring skills on the part of city managers. The more that local governments use privatization, the greater the degree to which the city manager's role will center on contract administration-monitoring and enforcing contracts to ensure that the contractor's performance lives up to their contractual obligations.

Establish a Centralized Procurement Unit. Governments should maintain an expert team of procurement and competition officials to guide individual departments in developing their privatization initiatives.

Apply the "Yellow Pages Test" through Regular Commercial Activity Inventories.  Local government managers should regularly scour all government agencies, services and activities and classify each as either "inherently governmental" (i.e., should only be performed by public employees) or "commercial" (i.e., services routinely undertaken by private sector vendors) in nature.  This famous "Yellow Pages Test" helps government concentrate on delivering core, "inherently governmental" services while partnering with the private sector for commercial activities.

Utilize Performance-Based Contracting. It is crucial that local governments identify good performance measures to fairly compare competing bids and accurately evaluate provider performance after the contract is awarded. Performance-based contracts should be used as much as possible to place the emphasis on obtaining the results the city wants achieved, rather than focusing merely on inputs and trying to dictate precisely how the service should be performed.

Establish Guidelines for Cost Comparisons. Local governments should establish formal guidelines for cost comparisons to make sure that all costs are included in the "unit cost" of providing a service so that an "apples-to-apples" comparison of competing bidders may be made.

Utilize "Best Value" Contracting. Initiatives that are considered best practices for government procurement and service contracting utilize "best value" techniques where, rather than purchase based on cost or "lowest bid" alone, governments choose the best mix of quality, cost, and other factors in selecting a service vendor.

Ensure Contractor Accountability through Rigorous Monitoring and Performance Evaluation. Regular monitoring and performance evaluations are essential to ensure accountability and transparency, and that the local government's management and the service provider are on the same page.

Len Gilroy is director of government reform at Reason Foundation. This story is part of Reason Saves Cleveland With Drew Carey: How to Fix "The Mistake on The Lake" and Other Once-Great American Cities. Watch the documentary series here. For downloadable iPod, HD, and audio versions of this episode go here.

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • ||

    The reason for the widespread appeal of privatization is simple: It works.

    And yet, a significant portion of the populace profess horror at the notion of privatization. Which indicates, to me, that the thing we need most desperately to privatize are the government schools.

  • ||

    And yet, a significant portion of the populace profess horror at the notion of privatization.

    Maybe because those of us who aren't naive rubes know that privatization in this context is a synonym for crony capitalism.

    We've got plenty of privatization going on here in Chicago and the results haven't been that great.

    And when the IRS outsourced collections activity for tax deadbeats, it wound up costing more than if they would have done it in house.

    Privatization is great...for politically connected connected firms. They get to profit from tax dollars, aren't any more accountable than a public employee and don't give a whit about quality because they have a contract.

    No thanks.

  • ||

    Gotta go with Tom on this one. If there's no competition, "privatization" has no benefit. There may be a slight benefit in that private firms, even acting as government contractors, are going to be more efficient than the government itself, but other than that, what's the gain?

    If any company that wanted to could offer DMV services, we'd see an improvement. But if the government "chooses" only one to offer these services, very little will change.

  • dave b.||

    Never thought I'd say this, but I agree with ChicagoTom. Just look at 'privatization' of prisons to see how well this works.

    I'd also argue that this arrangement is the worst of both worlds, because not only does the gov't-connected 'private' company get taxpayer dollars and no accountability (Blackwater, Halliburton, etc), they also form lobbies to keep the gravy train rolling. Witness the newly formed correctional officers lobbies who shut down diversionary programs for nonviolent first-time offenders.

  • CrackertyAssCracker||

    I like what Rothbard had to say about prisons specifically: There are "public goods" and there are "public bads". Prisons are "public bads", and because privatization is more efficient, you don't want to privatize these.

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  • DJF||

    Wouldn’t real privatization include the private decision of people to pay for the services. So if you want a Zoo you and your fellow Zoo lovers would pay for the Zoo.

    What the article is advocating is not privatization but contracting of government jobs using tax money. Instead of the city treasury department sending you a tax bill you now have the politicians hiring Goldman Sach to send you a tax bill which is then given to the Zoo division of Lockheed Martin

  • ||

    Preach on brother! Some years ago Atlanta flirted with privatization of garbage collection. Just outside the city limits you could get backyard pickup of your garbage for about half of what the city charged for curbside pickup. Once the unions and civil rights crowd got ginned up, that was the end of that. Can't have those poor inner city folk paying half price for better service.

  • ||

    What the article is advocating is not privatization but contracting of government jobs using tax money

    Exactly. The privatization being advocated is nothing but a way to transfer public monies to politically favored private firms.

    Every time I see this type of privatization it's followed up with no-bid contracts or the winner of the bidding process just happens to be someone who used to be or has connections to a major political player.

    I'm all for getting the government out of doing certain jobs altogether, but in most cases, contracting government work to a private firm doesn't tend to be a good deal for anyone except the contractor.

  • Jersey Patriot||

    Writ large, this is neo-liberalism. Raise taxes, spruce up public facilities, then sell them either to political cronies or western capitalists for pennies on the dollar. The public, who has paid taxes for years, even decades, and had free access, suddenly has it sold out from under them, at a loss, and now pay for access.

    As additional insult, government regulation is altered to favor the newly private companies. Government money flows to the new company explicitly, or the government cartelizes the new industry, protecting it from competition.

    Down with schmibertarianism.

  • anonymous||

    "privatization" is politician-speak for stealing (from taxpayers, eminent domain victims, nationalized businesses, etc.) and then instead of nominally letting the government administrate it for the public good, instead just handing it over to whoever gives you the most favors.

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    Privatize? We need to get the government - local and state and Federal - out of most of the things they do now.

    "Park operations and maintenance; Zoo operations and maintenance; Stadium and convention center management; Library services; Mental health services and facilities; Animal shelter operations and management; School construction (including financing), maintenance & non-instructional services"

    Parks, zoos, stadiums, convention centers? Whose purposes is served by the cities, counties and states building those things? How about golf courses? Why can't cities and counties and states build chess clubs? How about model railroads? None of those things are properly governmental; the governments do them because powerful factions in the politics of the areas want them done with "government" money instead of paying for whatever-it-is themselves.

    Mental health facilities? Libraries? Animal shelters - true name: dog pounds, where the animals are kept then killed? What is all this? Stuff that those who are in charge want to have, either out of ego or misplaced charity. It's charity when I reach into my pocket to pay for it; when I reach into your pocket(s), it isn't charity any more.

    The well is dry, stop using the water to help your friends and hurt your enemies. Leave the tax money in the pockets of those who earned it, where they can do some good with it. So, maybe they don't want to pay for an opera house or a world-class symphony? Use your own money, thieves!!

  • ||

    I see I left out schools. Swell; I get to wear the uniform for 24 years, getting shot at and hit and killing other folks without much that looks like a good reason, and while I'm away supposedly "defending the country", you bastards are letting Bill Ayers and other communist and/or anti-Americans re-organize the schools to destroy what I thought I was defending? Bull. Get all governments at all levels out of education, everywhere. Damned idiots!

  • ||

    When privatization means sale, lock, stock, and barrel, then I like it. You wanna privatize the zoo? Great. Sell it.

    When privatization is just a polysyllabic euphemism for leasing and/or subcontracting, I'm really much less impressed.

    I guess the upside is that the operation is now staffed by non-civil service employees, which is a plus, no doubt, but I can't think of any other advantages.

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  • ||

    Mixing social necessities with the profit motive is always a recipe for disaster. Corners are cut to maximize profits and services suffer. Privatization should be reserved for wants alone.

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  • Andrew||

    Expirical data shows that privatization doesn't work, at least for the type of services currently provided by the goverment. Large businesses generally have their own accounting, IT, security,even ganitorial services for the same reason it is more cost effective to perform those functions internally. The author is a idiot!

  • ||

    We can do even better. Total privatization of education: get the government totally out of the mix. End compulsory attendance laws. Give pink slips to the administrators, the teachers, the regulators. Sell the facilities. Let parents, teachers, and entrepreneurs create cheaper and more effective solutions. Education typically takes up about half of local government spending, and it has become more expensive and less effective for decades.

  • Libertarian extremist||

    Let's privatize security. We can carry own guns and shoot criminals and get rid of corrupt courts all together.

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  • Tom||

    Hey Reason,

    What's with all the corporatist articles lately?

    The "privatization" they're talking about is just crony corporate welfare.

    Seriously. This is such bullshit.

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    Expirical data shows that privatization doesn't work, at least for the type of services currently provided by the goverment.

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    Our (and the world's) economic meltdown is the direct result of the 'free market' that is espoused over and over because it benefits weathy people and corporatio­ns. Do we ALL care so little about our fellow man that we do not want them to have what we have? Do we think it is beneficial to all to keep people as little more than slaves to drive the profits of the 'free market'?

    Call Obama a 'socialist­' if you will, but if 'spreading the wealth around' is his agenda, I'm all for it!

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