Is competition with private businesses better than government for public services?

Moderated by Rick Badie

Today, we ask if free-market competition can trump government planning and public service delivery. Cash-strapped state governments are turning to public-private partnerships and outsourcing to save money and, it is hoped, improve efficiency. One writer praises proposed legislation that would set guidelines for such agreements in Georgia. A privatization proponent writes about the trend growing nationwide, while another author suggests governments should proceed cautiously.

Control public contracting services

By Donald Cohen

Cash-strapped state and local governments have handed over control of public services and assets to corporations backed by Wall Street banks that promise to handle them better. Not only has outsourcing these services failed to keep this promise, but too often it undermines transparency, accountability, shared prosperity and competition.

Atlantans have seen this firsthand in the agreement that turned water services over to French-owned United Water. After being plagued by scandal, brown water, “boil only” alerts and unacceptably poor performance, the city terminated the agreement just four years into a 20-year contract.

Outsourcing disasters like this mean taxpayers have very little say over how tax dollars are spent and no say on actions taken by private companies that control public services. Outsourcing means taxpayers cannot vote out executives who make decisions that hurt public health and safety. Outsourcing means taxpayers are contractually stuck with a monopoly run by a single corporation and contracts that often last decades. And outsourcing too often means a race to the bottom for the local economy.

That’s why In the Public Interest supports proposals from state Reps. David Wilkerson, D-Austell; Dewey McClain, D-Lawrenceville; Scott Holcomb, D-Atlanta; Brian Prince, D-Augusta; James Beverly, D-Macon; and Wayne Howard, D-Augusta. The measures — House bills 932 (“Contract Cancellation”), 936 (“Open Records”) and 941 (“Taxpayers First”) — will rein in predatory contracting of government services in Georgia.

This legislation, based partly on practices Public Interest developed in our Taxpayer Empowerment Agenda, helps taxpayers reclaim control of communities and makes sure tax dollars are invested right here at home, not sent away to pad some giant corporation’s profits or to Wall Street bank accounts. It is a common-sense agenda we can all agree on.

These proposals would:

Require any company paid with tax dollars to open its books and meetings to the public, just as government does.

Ensure every contract includes language that allows government to cancel the contract in a timely manner if the company doesn’t live up to its promises of quality and cost savings.

Require a thorough cost analysis of all bids and guarantee taxpayers a minimum 10 percent savings before any service is privatized.

Georgia taxpayers are not the only ones fighting to reclaim control of vital public services. Similar measures are to be introduced in some other states as well.

In an era of outsourcing, it is essential lawmakers remain watchdogs for the public interest. Elected leaders should sign on to support the Taxpayer Empowerment Agenda. The lawmakers championing these proposals stand on the side of taxpayers and plain common sense.

Donald Cohen is executive director of  In The Public Interest, a national resource center on outsourcing public services and responsible contracting.

Privatization offers innovation, savings

By Mary Scott Nabers

New, innovative concepts always breed skepticism. If the concept involves public officials and money, there is even more doubt, cynicism and scrutiny.

That’s the environment in America today where public-private partnerships are analyzed and evaluated. There is a general lack of understanding about such partnerships despite the fact many describe them as the best funding option available in America today for large public projects.

This type of collaboration has the potential to deliver an immediate positive impact to the country’s economic prosperity. The Great Recession resulted in huge cuts in federal and state revenues and in cities and counties. Educational systems, especially, have had budgets slashed. Public-private partnerships offer an attractive source of funding as well as private-sector expertise. The trend toward them is sweeping the country.

Lawmakers in 33 states have passed statutes that provide encouragement and basic guidelines for such collaborations. Cities, counties and state agencies can no longer kick the can down the road when it comes to maintaining and building new roads, constructing new schools and widening and deepening port channels. America must also launch public projects to ensure safe and adequate drinking water, conserve energy, provide upgrades to public health care facilities and expand rural broadband Internet networks.

So, taxpayers should make an effort to understand public-private partnerships.

When a public entity is ready to launch a large project and there is no funding, a private source of capital is often required. Numerous highly specialized firms are interested in government engagements, so competition is keen. Public officials are able to carefully select the type of partner they require. Outside companies are willing to put up the capital required for a project, accept the risk and enter into agreements with public officials to design, build, finance, maintain and occasionally even operate new facilities or systems.

A contractual agreement between the partners sets benchmarks for success. Public officials oversee the private-sector partner and ultimately own the new facility or system. Almost always, however, there is a period when the private-sector partner is responsible for maintenance and/or operation with oversight from government officials.

Public-private partnerships offer many benefits. Projects that otherwise would languish can be started immediately. And while all large projects have some degree of risk, in a public-private partnership, risk gets shifted to the private-sector partner. Transparency is mandatory. The governmental entity owns the new facility after the initial investment is repaid. Additionally, new jobs are created, and a region’s economic vitality is boosted.

Not all public-private partnerships are successful. Most are. Such partnerships are gaining traction with decision-makers at all levels of government. One-time skeptics are quickly becoming advocates. This is a trend worth watching.

Mary Scott Nabers is president and CEO of Texas-based Strategic Partnerships Inc.

Going private is no fast fix

By David Adkins

Candidates love to extol the need to make government run like a business. The alliteration of “public-private partnership” is often offered as the tonic. It is all so seemingly sensible and polls as popularly as motherhood and apple pie.

It’s argued that all we need to do is replace expensive, out-of-touch bureaucracies with inherent efficiencies of customer-focused, cheaper, faster and more efficient private firms. This siren song of privatization runs deep in current political discourse.

Increasingly, states are turning to public-private partnerships and privatization in a quest to downsize government, address budget shortfalls and meet infrastructure needs. Services such as caring for prisoners, finding foster parents, managing state parks, building highways, operating airports and providing education are contracted out.

While politicians have been quick to embrace privatization, the practice has met with mixed success. Governments often reflect political priorities aligned with the common good; those priorities may not easily align with free-market incentives. The profit motive can, in fact, interfere with public policy goals.

Privatization should be pursued with caution. It should never be perceived as the default for achieving efficiencies. I know too many able and creative public-sector leaders and employees whose success in achieving savings and enhancing performance easily matches the performance of the private sector. State leaders have often achieved success by empowering public-sector employees to find solutions.

The success of some privatization efforts and the failure of others leads one to ask, “When does privatization work best?”

Contracting with private firms to provide government services or to operate government assets is a complicated undertaking. Since many such contracts are designed to give the state upfront savings, the long-term costs and consequences can be overlooked. A contract that seems like a “win-win” today can become an unexpected burden.

The successful efforts to privatize government services provide insight into when the private sector will outperform government. When the task is crystal clear, specific goals are easily defined. Rewards can be offered for meeting those goals, and the private sector is most able to succeed. When government objectives are diffuse and complex, privatization is less likely to succeed.

Anyone who tries to sell privatization on budget savings alone isn’t doing the public any favors. While many privatization initiatives have achieved savings, those who care about providing government services aligned with advancing the common good will craft contracts that clearly define the tasks, balance risks, set objectives and provide appropriate reward for success.

David Adkins is the executive director of the Council of State Governments.

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