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Privatization is an umbrella term to describe techniques that increase competition in the public sector. Private sector entrepreneurs must constantly look for ways to cut costs and improve efficiency to maintain a competitive advantage. State agencies, on the other hand, are often the only service provider or, when there is competition with the private sector, they have unfair access to taxpayer funds. State agency personnel secure agency income, not by satisfying customers, but by satisfying special interest groups who lobby for and legislators who pass their agency budgets. Taxpayers and citizens alike benefit from privatization through lower costs and improved quality of services.
Competitive sourcing uses a bidding process to allow private sector service providers to compete with public sector agencies. Existing state workers submit a bid as do private companies. The lowest bid receives the contract.
Public Private Partnerships (PPP) are joint ventures between public agencies and private firms to provide services or perform functions. PPP is commonly used in construction. Private toll roads can be built to state specifications with users paying the costs. After a time, the road usually reverts to state ownership.
Contracting out involves the public sector contracting with private or non-profit firms to deliver a service that previously was provided by a government agency. The government maintains control through the terms of the contract. Common examples are DMV drivers' license testing, food service in schools and prisons, parks management, and wastewater treatment. The N.C. Department of Corrections currently operates four minimum-security prisons using contracts with private firms.
Asset sales are a way for governments to increase revenues by shedding nonessential property or commercial-type enterprises. Governments have sold buildings and then leased back needed space. The budget crisis in California has prompted the state to consider selling the LA Coliseum, San Quentin Prison, and a number of state fairgrounds. Estimates of asset sales (also called divestiture) in California range up to $1 billion.
The most effective way for North Carolina to save money through privatization is to create an independent body to recommend and manage state privatization efforts. Recent successes in New Jersey, Louisiana, Ohio, and Arizona are added to those of a long list of states that have proven the cost savings of privatization of state activities
Analyst: Dr. Michael Sanera
Director of Research and Local Government Studies
919-828-3876 • msanera@johnlocke.org
