Many reasons explain the movement by cities and states toward privatization to restructure and "rightsize" government. Much of the impetus is the desire to inject competition into the delivery of state services in order to provide services to citizens in a more-efficient and cost-effective manner. If structured appropriately and sufficiently monitored, privatization can:

1. SAVE TAXPAYERS' MONEY

2. INCREASE FLEXIBILITY

3. IMPROVE SERVICE QUALITY

4. INCREASE EFFICIENCY AND INNOVATION

5. ALLOW POLICYMAKERS TO STEER, RATHER THAN ROW

6. STREAMLINE AND DOWNSIZE GOVERNMENT

7. IMPROVE MAINTENANCE

SAVE TAXPAYERS' MONEY

By applying a variety of privatization techniques to state services, infrastructure, facilities, enterprises, and land, comprehensive state privatization programs can reduce program costs.

Over 100 studies have documented cost savings from contracting out services to the private sector.[17] Cost savings vary but average between 20 and 40 percent, depending on the service. For some services, such as prison construction and operation, savings are generally less, while for others, such as asphalt resurfacing, savings are often greater. Competitive bidding whenever possible and careful government oversight are crucial to sustained cost savings.

States can also realize large one-time windfalls from the sale or lease of state infrastructure and facilities. Moreover, privatization can put an end to subsidies to previously government-run operations.

Privatization also creates a steady stream of new tax revenues from private contractors and corporations who pay taxes and license fees, while state units do not.

INCREASE FLEXIBILITY

Privatization gives state officials greater flexibility to meet program needs. Officials can replace the private firm if it isn't meeting contract standards, cut back on service, add to service during peak periods, or downsize as needed.

IMPROVE SERVICE QUALITY

A number of surveys have indicated that public officials believed service quality was better after privatization. In a survey of 89 municipalities conducted in 1980, for example, 63 percent of public officials responding reported better services as a result of contracting out.[18]

If competitive bidding is instituted for a service, service quality can improve even if the service is retained in-house. The reason is simple: competition induces in-house and private service providers to provide quality services in order to keep complaints down and keep the contract.

Service quality is not assured, however, by privatization. Contracts must be well-designed with performance standards that create incentives for high quality service. Furthermore, diligent monitoring of the contractor's performance through customer surveys and on-site inspections must also be performed by government in its oversight role.

INCREASE EFFICIENCY AND INNOVATION

Private management can significantly lower operating costs through the use of more flexible personnel practices, job categories, streamlined operating procedures, and simplified procurement.[19]

Private ownership can stimulate innovation. Competition forces private firms to develop innovative, efficient methods for providing goods and services in order to keep costs down and keep contracts. These incentives, for the most part, do not exist in the public sector.

ALLOW POLICYMAKERS TO STEER, RATHER THAN ROW

Privatization allows state officials to spend less time managing personnel and maintaining equipment, thus allowing more time to see that essential services are efficiently delivered.

STREAMLINE AND DOWNSIZE GOVERNMENT

Privatization is one tool to make bureaucracies smaller and more manageable. Large private corporations often sell off assets that are underperforming or proving too difficult to manage efficiently. Under new owners and leaner management, such divisions often receive a new lease on life. Entrepreneurial governments can replicate this experience.

IMPROVED MAINTENANCE

Private owners are strongly motivated to keep up maintenance in order to preserve the asset value of the investment in the facility. Public owners often defer maintenance due to political considerations, increasing overall long-term costs.