Services That Local Governments Can Privatize

An excerpt of Leonard Gilroy’s new policy brief Local Government Privatization 101:

Where Can—or Can’t—Local Governments Apply Privatization?

Local policymakers often ask a very simple question: “where can we apply privatization?” However, the answer is somewhat more complicated.

One obvious place to start is examining what other local governments are doing. The International City-County Management Association (ICMA) conducts a survey of alternate service delivery by local governments every five years, measuring service delivery for 67 local services across more than 1,000 municipalities nationwide. The 2007 survey shows that public delivery is the most common form of service delivery at 52 percent of all service delivery across all local governments on average (see Figure 1).4 For-profit privatization at 17 percent and intergovernmental contracting at 16 percent are the most common alternatives to public delivery. Non-profit privatization is next at 5 percent, and franchises, subsidies and volunteers collectively account for less than 2 percent of service delivery, on average.

Trends in levels of for-profit privatization and non-profit contracting have remained relatively steady over the last two decades (though the 2007 survey would not capture the likely uptick in local government privatization in the wake of the 2008-2009 recession and subsequent proliferation of state and local fiscal crises).

Table 1 shows the percentages of surveyed local governments using privatization across a range of public services. Among the most frequently privatized local government services are waste collection (residential and commercial), waste disposal, vehicle fleet management, hospitals, vehicle towing, electric utilities, drug programs and emergency medical services.

Those services are just a start; one privatization expert at the City University of New York identified over 200 city and county services that have been contracted out to private firms (including for-profit and non-profit).5 Some of the most prevalent areas of local government privatization include:

  • Accounting, financial and legal services;
  • Administrative human resource functions (e.g., payroll services, recruitment/hiring, training, benefits administration, records management, etc.);
  • Core IT infrastructure and network, Web and data processing;
  • Risk management (claims processing, loss prevention, etc.);
  • Planning, building and permitting services;
  • Printing and graphic design services;
  • Road maintenance;
  • Building/facilities financing, operations and maintenance;
  • 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 and non-instructional services;
  • Revenue-generating assets (garages, parking meters, etc.), and
  • Major public infrastructure assets (roads, water/wastewater systems, airports, etc.).

This is but a partial list. But more important, the question of “what can local governments privatize” is in many ways the wrong question to ask, as privatization is a policy tool that should be considered in most instances.

A better question is “where can’t local governments apply competition or privatization?.” Virtually every service, function and activity has successfully been subjected to competition by a government somewhere around the world at some time. When asked what he wouldn’t privatize, former Florida Governor Jeb Bush replied: “…police functions, in general, would be the first thing to be careful about outsourcing or privatizing. This office. Offices of elected officials … and major decision-making jobs that set policy would never be privatized.” Governor Bush used competitive sourcing more than 130 times, saving more than $500 million in cash-flow dollars and avoiding over $1 billion in estimated future costs.

Full Report: Local Government Privatization 101