To Privatize or Not to Privatize, That is the Question

In an effort to raise the levels of discourse about pertinent issues facing the citizens of Wisconsin; one issue that continues to come up in the debate about state spending, is the issue of privatization of government services. With the new found emphasis of those on the right to push for smaller government and to cut spending; their inclination is to turn to the free enterprise system to provide the answer. But, is their argument substantive? So, to privatize or not to privatize, that is the question.

In discussions that I have had with those advocates of privatization, they almost universally take critical services off the table. When they speak of critical services, of course, they are speaking about law enforcement and fire protection. In their view, every other public service is eligible for privatization and serious consideration should be given to it. The first assumption is that by privatizing, that competition to provide the service will reduce the cost to the government entity, thus the taxpayer.  But, is this always the case? I will admit that certain services that are provided such as waste collection and recycling can probably be done cheaper by contracting out the service. This is why we have communities that already do this, but what about other services?

What one needs to realize is that the simpler the service, the easier it is to contract out. The government entity has a wider choice for selecting simple service providers. However, the more complicated the service; the field necessarily narrows as to the availability of qualified providers. It can narrow to such an extent that there may be only one qualified provider other than the government itself. For example, this is the situation for the state owned and operated power generation stations. Would the sale of these facilities generate savings to the state in the long run or not? By giving up control, what is to stop the provider from increasing costs and eventually making it more expensive?

There are a myriad of complicated services that government provides; from education, to social services, to transportation, just to name a few. I am going to stay away from education at the moment and discuss privatization of social services as an example.

The first issue to address in privatization is whether to allow “for profit” providers or restrict it solely to “non-profit” providers. In social service providers there are only a few for profit providers, but the vast majority is non-profit. This is positive when considering contracting for social service providers since there isn’t usually enough money in the contracts for profit. Funding is usually kept at the bare minimum restricting not only potential profits but also program growth. So what could the problem be with privatizing if the provider is a non-profit?

It involves the professional staffing levels and the overall capabilities of the contract provider. Without question, the state requirements for the people working in the state social service agencies are absolutely the most stringent. Most all state social work professionals have to not only have the educational credentials, but must meet the state’s high standard licensing requirements. This is not necessarily the case with the private provider. Some private providers perform front line services with non licensed paraprofessionals under the supervision of a licensed professional. The private contractor is often able to provide the service for less because they don’t have to meet the salary requirements that licensed professional’s require. Also, private providers do not offer the same level of healthcare and retirement programs, which also reduce their cost per service hour. It should be noted that most of the private provider’s workers are less experienced when compared to the state professional workers. In general, the private providers represent entry level positions for new workers wanting to acquire experience right after completing their education. This all adds up to getting less professional and experienced workers to work with some of the most difficult populations. However, that may not be the biggest issue that privatization represents.

The major challenge is to the government agency charged with administering the contracts. The difference between managing a government agency providing direct services compared to an agency managing a contract agency is significant. In the government agency providing the direct service, the operational management and control is seamless. The government agency is able to adjust in a timelier manner to changes in service conditions without having to work through varying levels of management bureaucracy to make adjustments. There isn’t the problem of having to refer to the contract to see if the adjustment is covered. Therefore, in government provided services, efficiencies are gained. In government agencies providing contract management, it requires a whole different management, control and supervision structure and skill sets.

The managing agency must have the ability to monitor the service provider’s performance. This requires the employment of staff attorneys, contract managers, quality assurance auditors, etc. All of which increase costs in hiring and retaining high cost professional and specialized staff; plus it adds additional layers of bureaucracy. This becomes a problem area due to the funding. Where many contracting government agencies fail is they short staff in order to remain within budgets. There have been some recent examples of this in Milwaukee County.

In 1996 the Bureau of Milwaukee Child Welfare was formed by the State to rectify a problem that was discovered with Milwaukee County Social Services. The County was short of qualified social workers and too many incidences were occurring where child abuse, child neglect and foster care cases were falling through the cracks and the target population was not getting the required services. Due to a lawsuit brought against the County and State, the State took over the services terminating the County as a provider. When they set up the bureau it was decided to make it a public/private program; Initial Assessment and Intake would be State direct service social workers and the foster care and safety services would be contracted out to private agencies. By the time the program came on line in 1998, the professional state staff immediately started making a significant impact on getting abuse and neglect cases assessed in a timely manner. That portion of the program has been a success. However, there has been continuing problems with the contract providers. Over the almost thirteen years that the Bureau has been on line, they have had to continually change providers. The deaths and injuries to children in Milwaukee County which occurred while under State custody have all occurred under supervision by the contracted agencies. The last child death resulted in Denise Revels Robinson, the Director of The Bureau of Milwaukee Child Welfare, leaving in 2010. It was a clear failure of the State agency not providing adequate supervision of the contract agencies. This is just one example of how risky it can be to contract out highly critical services, and it is more common than not.

To continually look to private providers to ease the budget woes, requires careful and considerate evaluation. The more complicated the service and the higher the need for highly specialized staff, may make privatizing a less than desirable option. Rarely if ever should potential cost savings be the deciding factor when choosing critical program service deliver.