Reason Foundation

http://reason.org
http://reason.org/news/show/cash-strapped-north-texas-citi

Reason Foundation

Cash-Strapped North Texas Cities Embrace Privatization

Leonard Gilroy
November 16, 2009, 1:45pm

Theodore Kim at the Dallas Morning News highlights the growing trend of municipal privatization/outsouring in North Texas cities:

Plano decided to eliminate its city printing and graphic design staff in September, farming out the work to Office Depot and Ricoh.

At Plano's Douglass Community Recreation Center, Kennedy Estrada, 10, runs in the gym. The Boys and Girls Club of Collin County may take over operating the center.

Leaders in cash-strapped Rowlett may contract out city planning services, tech support and other departments. [...]

In North Texas, Dallas officials hope to save some $1.5 million this year, as well as millions more later, by transferring the reins of the city zoo to the Dallas Zoological Society.

And Dallas County, by some estimates, could save up to $1 million by contracting out for certain legal services.

"In the environment we are in, cities are going to have to look at every option," said Chris Hoene, research director for the National League of Cities in Washington, D.C.

I couldn't agree more. Former Indianapolis Mayor and Harvard Kennedy School professor Stephen Goldsmith adds an important point—the trick for policymakers will be to ensure that the cost savings with privatization are accompanied by current or higher levels of service quality:

"The question becomes: How can you save money by outsourcing and managed competition while improving the quality of service, or at least keeping it the same?" Goldsmith said.

This is why performance-based contracting and good contract management and oversight are such critical skills for public administrators to cultivate internally, as these are the direct means through which to ensure that contractors deliver on performance. In a Governing column last month, Goldsmith offers similar thoughts from a different angle—the setting of arbitrary federal insourcing mandates by the Obama administration:

So rather than committing to insourcing 7 percent of existing contracts, let's ask some fundamental questions: What are the costs (activity-based costing) per unit of work accomplished? How are outputs and outcomes measured? How are high performing workers acknowledged and rewarded? How is citizen satisfaction measured and translated into accountability? What are the private and public benchmarks by which productivity is compared? Can a part of the service be tested in the marketplace for true comparisons?

In Indianapolis, we found that theoretical examinations of our public agencies were often way off the actual results produced by competition. For example, a consultant told us that we could save maybe 5 percent by privatizing our wastewater-treatment facility. We held a competition, and wound up saving 44 percent. Even in cases where we didn't contract out, public agencies that were exposed to competition found ways to reduce their costs.

Deciding what to contract out and what to do in-house requires hard facts. Are there private contractors or nonprofits that provide similar services? How recently was the market tested? Most important, many complicated services are neither wholly insourced nor outsourced, but rather are accomplished in partnership, with government responsible for quality management and a network of contractors providing the back-office and front-office support.

For the federal government, there will be certain activities that you may decide are inherently governmental. For reasons of national security, you may want to keep certain skill sets in-house, regardless of cost inefficiencies. That's fine. But as a general rule, a competitive process is the best way to discover whether insourcing or outsourcing makes sense. In every case, the goal should be "rightsourcing."

Read the whole thing for a sage perspective from a pioneer in competitive public service delivery.

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary


Leonard Gilroy is Director of Government Reform


Print This