The Business of Government Today: Public, Private or Nonprofit Providers?

A note for our readers: the views reflected by the authors do not reflect the views of ASPA.

By Alicia Schatteman 

Everything old is “new” again. For a long time, in times of need, local governments turned to their neighboring communities for assistance such as during a crisis, unexpected decreases in budgets or increased demand for services. This informal cooperation existed because of established relationships and trust. Communities felt a mutual dependence and therefore could call upon mutual aid as needed.

As communities grew in size and complexity, residents requested broader and higher quality services. Competition for property and sales tax put communities in competition with each other, and moved them a little further away from the ideals of mutual dependence. Local governments sought to provide all of the goods and services for their residents within a municipal jurisdiction, which often meant increasing municipal budgets and corresponding increases to property and sales tax. This formula worked in many locales until the Great Recession.

The Great Recession of 2008-2010 taught us all a few lessons. It was the wake-up call many of us needed to reassess our own spending habits and long-term goals. For government, the lesson was clear. The public would not accept expanding budgets and higher property taxes. If families had to tight their belts, then so did government. Almost daily, newspaper headlines called for government to prioritize, maximum resources, cut spending, eliminate waste.

According to the National League of Cities, 48 percent of cities had reduced the size of the municipal workforce to address fiscal stress on revenues during the recession. With staff reductions, local governments could not continue the same level of services without looking at alternative ways to provide those services at a lower cost. The elephant in the room that is rarely discussed is public employees are the most expensive workers due to public pensions and other benefits. Therefore, if private or nonprofit workers could provide the same services, then the overall cost of that service would be reduced to lower human resource costs. The cost savings of reducing the public workforce could be passed on to residents through stable taxes or budgets. I recently wrote about the tension between government and nonprofit organizations under contractual agreements to provide public services in PA Times.

Although alternative delivery options occurred before the recession, municipalities during and after the recession were looking at all of these options much more seriously.

Alternative Service Delivery Options

• Contracting out.
• Managed competition.
• Interlocal agreements (shared services).
• Service consolidation.
• Public-private partnerships.
• Privatization.

The International City-County Management Association (ICMA) has a variety of resources available to local governments to learn more about contracting out. Read more about the use of nonprofits to provide public services through contracts in a paper by Richard C. Feiock and Hee-Soun Jang. ICMA also offers information about shared services (interlocal agreements) which can be found here.

Clearly, there are many considerations before government pursues alternative service delivery options. However there are several tips to keep in mind. 

Are you ready to consider alternative service delivery?

• Municipalities must communicate consistent messages to residents and involve all the stakeholders in the process of alternative service delivery options. Communication needs to be ongoing throughout the process so that government is completely transparent.
• Organization culture and the community culture must factor into a decision to pursue alternative service delivery. Certainly, the broader community has a culture as well, which must be considered. Some communities will want reinvestment, others lower taxes, others higher quality services.
•  Find the right opportunity to make changes to service delivery. The recession of 2008-2011 certainly made difficult conversations possible and palatable given the devastating impact of the recession on municipal budgets.
• If contracting out is a preferred option, then the municipality will need to invest in good contract managers on staff. In order to have successful contracts, the municipality needs to understand their in-house contract capacity.
• Alternative service options are likely to be more successful if there are a number of alternative providers (public, private or nonprofit).
• Successful alternative service delivery works best when the service is tangible (clear specifications), monitoring costs are not excessive and a competitive market exists for the service.

 

Bio:  Alicia Schatteman is assistant professor in the School of Public and Global Affairs, Department of Public Administration and the Center for NGO Leadership and Development at Northern Illinois University. She received her Ph.D. from the School of Public Affairs and Administration at Rutgers University, Newark. The author can be reached at www.nonprofitscholar.com. 

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