Policy Study

Privatization Opportunities for States

Executive Summary

The state fiscal crisis combined with the growing revolt against new taxes is forcing policymakers to search for ways to substantially cut the costs of delivering state services. Governors and state legislatures are seeking innovative approaches to fundamentally restructure, downsize, and “rightsize” state government in order to avoid continuing budget problems.

Privatization allows policymakers to avoid tax increases without eliminating essential services. Privatization is an increasingly important component of programs to restructure state government, as it serves policymakers’ short-term goals of cutting state deficits, while also furthering the long-term goals of rightsizing government and incorporating competitive incentives into state services.

Privatization is already a common practice in state governments. For instance, a 1992 Apogee Research survey found that of state agencies, 90 percent indicated they utilize privatization.’ Nevertheless, most privatization to date in state government has been sporadic, thus limiting the potential gains from privatization.

However, this is changing. To realize the full potential of privatization, states are beginning to explore the possibilities of applying various privatization techniques across the full range of state services, assets, infrastructure, and real estate. Over 20 percent of the states responding to the 1992 Apogee survey reported that they were preparing statewide or agency-wide privatization strategies, compared to none in 1989.

Privatization opportunities range from services such as road maintenance and childsupport enforcement, to sales or leases of state assets such as turnpikes and parks. Privatization can also be used to assist states in rebuilding infrastructure such as bridges, roads, and tunnels. Another privatization option is providing vouchers to poor and handicapped people to purchase social services on the open market, rather than relying exclusively on government agencies.

Applying privatization techniques to state services, assets, facilities, and other functions will yield privatization opportunities in every state. Privatization offers state policymakers a powerful kit of tools to begin getting their fiscal house in order.