Government for Sale: An Examination of the Contracting Out of State and Local Government Services

After decades of state and local government experiments with contracting out, the benefits of private delivery of public services have proven to be elusive. And now more than ever, the nation understands the importance of an experienced, dedicated public- sector workforce and the dangers of privatization.

Contracting out often results in higher costs, poorer service, increased opportunities for corruption and diminished government flexibility, control and accountability. Contracting out can compromise the security of information and public assets. In addition, the local economy and tax base may suffer as decent jobs with benefits are replaced with low-wage, no-benefit jobs.

Innovative and responsible government leaders know that joint labor/management partnerships are the best way to truly improve service delivery. Public resources are most efficiently and effectively deployed when front-line workers and managers work together for the public good.

Shortcomings of Contracting Out :

Resources are drained from the local economy as profits flow out of the community.

Examples:

Family Services: According to a report by the Florida inspector general, the Department of Children and Families was overcharged by at least $1.6 million for services related to mental health care and drug treatment in Miami-Dade County over a 2.5 year period. The department routinely forgave the overpayments despite knowing they had paid too much. Some reasons cited for ignoring the overpayments were fear of bankrupting the contractor and disruption of services to clients. (Associated Press, "Report: DCF Was Overbilled $1.6 Million," August 20, 2004)

Social Services: The state of Texas contracted with Accenture LLP last year to run its public assistance eligibility system. Following acknowledgment from officials of the Department of Health and Human Services that several components of the company's system were flawed, the state recently announced that state workers would once again process applications for public assistance. Advocates for children and the poor attribute a steep decline in participation in the Children's Health Insurance Program and Medicaid to problems with Accenture. (Express-News, "State Takes Back Aid Task," May 10, 2006)

Alternatives to Contracting Out:

Contracting out is a risky way to address the many demands and challenges facing state and local government. As various jurisdictions have found, when committed managers and elected officials recognize that workers are a valuable resource an asset to be developed rather than a cost to be cut these demands and challenges can be met without introducing the risks of contracting out.