Against a background of a $150 million shortfall—largely a legacy of former Governor Bob Miller’s largess to his liberal cronies and special interests—Governor Kenny Guinn has put state agencies on notice that their bottom lines will be scrutinized, waste will be eliminated and privatization, where possible, will be employed. There is nothing like practicality and need to drive policy objectives. But how practical is a state-level privatization program? How can one be implemented without causing public employees and teachers to feel threatened? Are there any other states that have gone down this road before so we might learn from their successes—and more importantly, their errors?
It’s About Time
The fiscal crisis Nevada is now experiencing should never have happened in the present economy, but aside from being grist for another more philosophical discussion, what appropriate guidelines can help craft a comprehensive privatization program to help Nevada climb out of its financial hole?
First, to obtain full value from privatization, Nevada should design a comprehensive, forward-looking privatization program 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 legislature behind the privatization effort. Second, the governor should create a special privatization commission or task force to explore the possibilities for privatization across a wide range of government services. Nevada seriously lags behind the rest of the country in its privatization efforts. By 1992 the governors of Michigan, New York, Illinois, Indiana, Texas, Utah, Massachusetts, Arizona, Arkansas, Wisconsin and Maryland had already executed such commissions and by 1994 the same states had successfully privatized the services of a myriad of agencies, thus saving taxpayers billions of dollars. State-appointed commissions should use Indianapolis Mayor Stephen Goldsmith’s simple litmus test for privatization: If the job could be done by a company found in the Yellow Pages, it can be privatized.
Steps Down the Privatization Path
A comprehensive approach to privatization is essential. By encouraging numerous departments of government to become more efficient, a strategic privatization program ensures that cost savings in one department from privatization are not used to simply prop up inefficiencies in another area of government. In designing comprehensive privatization programs, policymakers should set certain goals and then tailor the privatization program accordingly. Such goals may include, for example: 1) bringing down service delivery costs by instilling competition in providing public services; 2) moving the state out of providing services that can be provided by the private sector; and 3) selling off certain state assets.
For years Bill Eggers and Robert Poole of the Reason Foundation, a national clearinghouse on state and local privatization, have done impressive research in the field of privatization. In 1991, at the behest of inquiring legislators, Nevada’s own Legislative Council Bureau sought the Reason Foundation’s advice on the topic—but no action was ever taken. However, the guidelines they proposed to Nevada then still apply:
Develop the institutional structure for privatization.
Set up a program of adjustments and incentive program.
Identify privatization techniques.
Identify state services and assets that offer opportunities for privatization.
Determine the legislative and executive barriers to privatization and revise or rescind these.
Consider introducing mandatory competitive incentives into the delivery of certain state and local services.
Evaluate the feasibility of privatizing previously unidentified privatization opportunities.
Determine the potential cost savings from privatizing services and assets selected for privatization.
Prepare a plan for implementing privatization.
The Program in Action
In the development of an institutional structure, Governor Guinn should consider not only the appointment of a commission but also the designation of a privatization czar. His job would be to ensure that the privatization goals are systematically carried out. He would also oversee individual privatization efforts in various agencies. It would be essential for the privatization czar to have wide authority to enforce compliance since he is sure to face considerable reluctance among bureaucrats.
It’s no wonder that public employees pose the biggest obstacle to privatization efforts. After all, whether perceived or real, their jobs are on the line. There are, however, ways to gain the support of some who would be affectted. Education is essential. Most public employees do not lose their jobs as a result of privatization. A 1989 survey by the National Commission on Employment Policy of 86 city and county officials reviewed the effects of privatization on public and private employment. A total of 2,213 government workers were affected by contracting out 34 city and county services. Of these employees, only 7 percent were laid off; 58 percent went to work for the awarded private contractor; and 24 percent were transferred to other government departments. For example, Los Angeles County eliminated 2,800 positions over a five-year period through contracting out, but laid off only 34 employees. Other employee amelioration programs include incentives such as a one-time bonus, inter-capital funds to supervisors to reward cost savings, severance pay and employee buyouts. Attrition is often used as a principle strategy.
Privatization at the state level in Nevada has been sporadic and limited. Ironically, the last time it was examined as a policy option was in 1991, during the last period of fiscal crisis. But many state policymakers are beginning to realize that a comprehensive privatization program is not only what the voters want, but such an effort would provide the right tools to "right size" government, cut budget deficits and taxes and increase efficiency and competition in service delivery. State privatization programs also offer an attractive alternative to common short-term solutions to budget shortfalls such as accounting gimmicks, tax increases and across-the-board spending cuts.
Judy Cresanta is president of NPRI and publisher of Nevada Journal. She can be reached at firstname.lastname@example.org, or through NPRI’s website, www.npri.org.