Relying on Private Agencies has Track Record of Saving Money

Adoption agency in Tampa, FL
State and local governments across the country are contracting with private companies to handle family adoptions. Above, parents work with a contracted adoption agency in Tampa, Fla., to adopt a teenager who had been in at least nine different foster homes.
AP Photo/Steve Nesius

State budget negotiations got stuck last September over a plan that would introduce competitive contracting with private agencies into foster care and juvenile justice services currently performed by state employees. Opponents charged that the bill could raise the cost of these services, but supporters were correct to anticipate lower costs and better services. Ultimately, the state Legislature adopted a meager portion of the proposed reforms as part of its fiscal 2008 budget deal.

Under the proposed legislation, state government would contract with nonprofit and for-profit agencies to care for troubled youth who are now enrolled in such juvenile justice institutions as the W.J. Maxey Boys Training School. The state also would contract the supervision of foster care services to such private organizations as Lutheran Social Services of Michigan, which is already under state contract to perform some foster care functions. As part of the compromise, private groups may now receive state resources to help foster families get licensed by the state. Typically these families are related to the child in some way. Private groups were allowed to help before this new legislation but now they can receive state resources to do so.

There was vociferous opposition to the Senate version of the bill, in large part because more than 800 state employees could have lost their government jobs. The changes to the legislation that were made in a compromise to ensure the Governor would sign the bill ultimately included an additional 190 full-time state employees. While this legislation may have made modest improvements to the availability of foster care families it may have come at a steep price. Another reason for the opposition was concern over handing responsibilities for foster care and other human service-type functions over to the private sector.

But social services privatization is not new. Kansas, for example, is celebrating its 10th year of fully contracted foster care, family preservation and adoption services. Michigan’s Kent County relies almost entirely on private agencies for foster care and adoption services.

A 2006 literature survey financed by the Children’s Bureau of the U.S. Department of Health and Human Services reported that in the 1990s alone, "Between 50 percent to 80 percent of states had increased their reliance on contracted social services...." In fact, some state and local governments contracted with the private sector for social services as far back as the early 1800s.

Moreover, a 1993 Mackinac Center study found that 63 percent of children in regular state foster care were managed by caseworkers in private social service agencies under contract with Michigan government. The study also found that these private agencies were doing a job comparable to or better than state employees, even as the private groups maintained a lower child-to-worker ratio.

Opponents note that privatization would lead to higher state contract monitoring costs, but they ignore the offsetting reductions in service costs that usually result from privatization. While we can all sympathize with the government workers who would lose their jobs, they may well find employment with the new private service providers. In any event, state government is not a jobs program.

Obviously, simply delegating state social service responsibilities to community-based organizations will not automatically produce guaranteed savings and improved outcomes. The success of this privatization initiative — the details of which are under negotiation — will depend on a variety of factors, including the degree to which the state’s contracting process encourages many different private (and even public) bidders to compete for the contracts and whether the contracts are carefully designed and monitored to require quality care.

But there has been a dearth of bold ideas in Lansing for balancing the state budget and improving state services. The foster care and juvenile corrections privatization plan is innovative and deserves a chance. Done correctly, it could transform children’s lives and state government by improving services and saving money.

A version of this commentary was originally published in The Detroit News on Oct. 31, 2007.