Executive Summary

Municipalities all across Michigan are experimenting with privatization of many types of local services, from trash collection to law enforcement. Led by Michigan Governor John Engler, state government is also pursuing opportunities for privatization. This extensively documented 16-page study of privatization of child foster services in Michigan marks the Mackinac Center for Public Policy's first analysis of family and social issues.

Few issues are more emotional and controversial than how a state cares for children who are removed from their families because of neglect, abuse or abandonment. The Mackinac Center study finds it is less costly for Michigan taxpayers to place children in foster care environments supervised by private agencies than for this service to be provided directly by the state Department of Social Services (DSS). The vast majority of Michigan private child care agencies deliver care at a rate lower than the $21.82 daily per child cost of DSS child foster care service provision.

But cost alone should never be the sole criteria by which private foster care is judged. Most national child care accreditation agencies recommend child-to-worker ratios of 25:1. It is well documented that DSS continues to fall well short of this ratio, while private agency ratios currently range from 19:1 to 23:1. Using this measure, Michigan taxpayers are receiving more foster care supervision at a lower cost through private agencies than through direct DSS supervision of foster care placement.

Private agency provision of child foster care services is a privatization success story. From 1981 to 1991, the number of children placed in foster care for reasons of abuse and neglect rose 62%. During this time, the number of children supervised by private agencies rose 200%. In 1991, private agencies provided services to 65.6% of such children.

But public policy decisions, such as continued use of private contractors to supervise the majority of child foster care placements, are not merely a matter of economics; politics also plays a major role. The Mackinac Center authors use a "public choice" model of government behavior pioneered by James M. Buchanan, recipient of the 1986 Nobel Prize for economics, to explain the process by which many interests, including those of taxpayers, collide to shape policy decisions.