Until recently, most state-level privatization was implemented on a piecemeal, ad hoc basis. Few states have systematically identified and implemented privatization across the range of state departments and agencies. Many state agencies individually contract-out at least some services, but until recently privatization was not a major or even minor policy goal of any governor or state legislature. However, state fiscal problems and growing favorable experiences with privatization are changing this.

Numerous state legislatures and/or governors have created special privatization commissions or task forces to explore the possibilities for privatization across a wide range of government services. In a recent survey on state privatization by Bethesda, Maryland-based Apogee Research, Inc., over 20 percent of responding state agencies said they have or are preparing a state-wide or agency-wide privatization strategy.[4]

One of the first states to release a comprehensive report on privatization was Virginia, which released "Contracting Services in Virginia" in 1984. Since then numerous other state privatization reports and commissions have appeared. (see Figure 1)

Figure 1

Notable State Privatization Task Forces

  • Utah created a Privatization Policy Board in 1989 to undertake privatization feasibility studies.

  • The Texas Comptroller of Public Accounts in 1991 recommended privatizing many services and creating a new agency called, the “Privatizing Approval Council of Texas,” in a study entitled, “Breaking the Mold: New Ways to Govern Texas.”

  • The House republican Caucus in Michigan and Michigan’s Department of Management and Budget both released in the Summer of 1992 reports recommending extensive privatization.

  • The New York State Senate’s Advisory Commission on Privatization released in January 1992 a 303-page report titled, “Privatization for New York: Competing for a  Better Future.”


By 1992, several governors had made privatization a significant part of their approach to governing and had developed comprehensive approaches to implementing privatization throughout state government. For example, William Weld of Massachusetts made privatization a centerpiece of his program to restructure and downsize Massachusetts government. John Engler of Michigan and Jim Edgar of Illinois both appear ready to embark on wide-ranging privatization programs.

WHY A COMPREHENSIVE APPROACH?

Adopting a comprehensive approach to privatization offers a number of advantages over privatizing on a piecemeal basis. First, it increases the likelihood that privatization will be successfully implemented. Strong backing for privatization from the governor or the legislature makes it more difficult for agencies to oppose streamlining. Second, more extensive privatization is likely to be implemented through a comprehensive approach, thereby increasing government cost savings. Third, 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 assessment of the state out of providing services that can be provided by the private sector; and 3) selling off certain state assets to the private sector.

While the specifics of each comprehensive privatization program will differ in each state, certain standard guidelines can Figure 2 be followed. These consist of nine main steps. The nine steps are shown in Figure 2.

Figure 2

Nine-Step Privatization Program

  1. Develop the institutional framework for privatization. 

  2. Design public employee adjustment and incentive program. 

  3. Identify privatization techniques.

  4. Identify privatization opportunities. 

  5. Identify legal and regulatory barriers to privatization.

  6. Consider introducing mandatory competitive contracting for the delivery of certain state and local services.

  7. Evaluate the identified privatization opportunities.

  8. Conduct a financial feasibility assessment of privatization opportunities.

  9. Prepare a plan for implementing privatization.