Designing a Comprehensive State Level Privatization Program


Many states now face serious fiscal problems. The cumulative deficit of the states in 1991 was $31 billion. According to one estimate, over half the states are afflicted with —structural— budget deficits that will persevere long after the economy improves.

The fiscal crisis is prompting state policymakers to examine ways to fundamentally reshape and —rightsize— state government. Privatization, by injecting competition into service delivery and turning physical assets into financial assets, has emerged as a key component in such programs to rightsize state governments.

To obtain the full value from privatization, states should design comprehensive, forward-looking privatization programs rather than adopting piecemeal approaches. A comprehensive program achieves greater benefits in terms of cost savings, efficiency gains, and reining in the growth of government. It also puts the full weight of the governor and/or legislature behind privatization.

State policymakers should follow nine basic steps when designing a systematic, comprehensive privatization program.

The steps are:

  1. Develop the institutional structure for privatization
  2. Set up a program of adjustments and incentives for public employees
  3. Identify privatization techniques
  4. Identify state services and assets that offer opportunities for privatization
  5. Determine the legislative and executive barriers to privatization and revise or rescind these
  6. Consider introducing mandatory competitive incentives into the delivery of certain state and local services
  7. Evaluate the feasibility of privatizing identified privatization opportunities
  8. Determine the potential cost savings from privatizing services and assets selected for privatization
  9. Prepare a plan for implementing privatization.

Comprehensive privatization programs incorporate a variety of privatization techniques and identify numerous privatization opportunities in all aspects of state government. Such programs can save taxpayer dollars and permanently establish competitive incentives to keep the costs of government down in the long term.

*”Financial Squeeze May Pressue States Into Sweeping Budget Overhauls,”Los Angeles Times, July 26, 1992, A5. Reason Foundation “State Privatization Programs”.

Part two of a two part series on State Government Privatization. See also Reason Foundation Policy Study #154, “Privatization Opportunities for States.”