The standard conservative narrative is that private delivery of services and goods trumps government delivery. In Harrisburg, for example, Governor Corbett’s Council on Privatization and Innovation often presents its goal as privatization, taking for granted that this will be more efficient and cost-effective.
In fact, the record on privatization shows that in many cases privatization fails to deliver promised savings and can undercut service quality. That’s part of why Cornell Professor Mildred Warner has found that local governments often bring work back in house.
Earlier this week we released a report, Runaway Spending, which underscores that you can’t simply assume private is better. The report documents that private school bus transportation services in Pennsylvania cost more than when districts provide their own transportation. Even so, the Pennsylvania trend over time is towards slightly more privatization, from 64% in 1986 to 72% in 2008.
Why? One reason in Pennsylvania is that the state reimburses school transportation services more generously when districts contract than when they self provide. Districts may also be attracted by the upfront fee they receive for selling their bus fleet. The downside of that sale, however, is that contractors have more leverage when negotiating terms for unanticipated additional services (e.g., for school sports teams that make the playoffs) or for a new contract.
The factors that make private services more expensive in the case of school buses are also at play in many other cases of privatization. These factors include limited competition in the private sector, the transition costs associated with any change in contractor or switch back to public provision, higher private-sector manager and executive salaries, the need to charge enough to make a profit, and the costs of monitoring private contractors.
Bottom line: the state and local government — and the Governor’s Privatization and Innovation Council — need to do their homework when considering alternative options for delivering publicly funded services. That's actually a message that former Indianapolis Mayor Stephen Goldsmith brought to the council when he addressed its first meeting.
We’ll know that the Council has shed its ideological beginnings when it asks Matt Brouillette to give in his resig...I mean, when its recommendations include a balance of recommendations for in-sourcing, for contracting out, and for mixed public-private delivery — recommendations grounded in analysis of data, the dynamics of particular markets, and the value-added contractors provide compared to cost increases. And, oh yes, we do think that the quality of workers' jobs with public versus private delivery should be a consideration.
We look forward to the Council inviting us to present the findings of our study. We also look forward to being invited to join the Council — even if Matt hasn't left yet.