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Civic Report
No. 41 December 2003


Private Competition for Public Services: Unfinished Agenda in New York State

Endnotes

  1. Including taxes and fees, plus bond revenues, but excluding federal grants.
  2. Government Contracting Institute, 2002.
  3. Over 100 studies of cost savings from privatization are reviewed in John Hilke, Cost Savings from Privatization: A Compilation of Study Findings, Reason Foundation How-to Guide No.6, (Los Angeles: Reason Foundation, 1993), http://www.rppi.org/htg06.pdf. For an overview of research on cost savings in federal privatization, see General Accounting Office, DOD Competitive Sourcing: Savings Are Occurring, but Actions Are Needed to Improve Accuracy of Savings Estimates, Washington, D.C.: GAO/NSIAD-00-107, Aug. 8, 2000; General Accounting Office DOD Competitive Sourcing: Some Progress but Continuing Challenges Remain in Meeting Program Goals, Washington, D.C.: GAO/NSIAD-00-106, Aug. 8, 2000; and Center for Naval Analysis, “Long-run Costs and Performance Effects of Competitive Sourcing,” Washington, D.C., 2001 http://www.cna.org/research/studies/comsourc.html
  4. Keon Chi and Cindy Jasper, Private Practices: A Review of Privatization in State Government (Lexington, KY: Council of State Governments, 1998).
  5. Stephen Goldsmith, The Twenty-first Century City: Resurrecting Urban America, (Washington, D.C.: Regnery, 1997), p.26.
  6. See U.S. Office of Management and Budget, Office of Federal Procurement Policy for more information. http://www.whitehouse.gov/omb/procurement/fair-index.html.
  7. The latest revised version of OMB circular A-76 can be downloaded from www.whitehouse.gov/omb/circulars/a076/a76_rev2003.pdf.
  8. See http://www.vipnet.org/ccc/commercial.htm.
  9. Author conversation with Phil Bomersheim, executive director of the Commonwealth Competition Council.
  10. Lawrence Martin, How to Compare Costs Between In house and Contracted Services, Reason Foundation How-to Guide No.4, 1993, http://www.rppi.org/htg04.pdf
  11. Jonas Prager, “Contracting Out Government Services: Lessons from the Private Sector,” Public Administration Review, vol. 54, no. 2, 1994, p. 182.
  12. Office of Management and Budget, A Guide to Best Practices for Performance-Based Service Contracting, (Washington, D.C.: Office of Federal Procurement Policy, Office of Management and Budget, 1996).
  13. F. Warren McPharlan and Richard I. Nolan, “Outsourcing at Kodak,” Sloan Management Review, January 1995.
  14. E.S. Savas and E.J. McMahon, “Competitive Contracting of Bus Service: A Better deal for Riders and taxpayers,” Manhattan Institute Center for Civic Innovation, Civic Report No. 30, November 2002.
  15. Custodial services are contracted out in roughly 80 percent of the buildings managed by the state Office of General Services (OGS), according to OGS officials.
  16. Prior to 1995, about 80 percent of OGS facility design work was done by in-house staff. By 2003, roughly 60 percent of the work was done by private consultants, according to agency officials.
  17. Fleet’s selection was an outright privatization resulting from a competitive request-for-proposal (RFP) process involving a number of private firms. The state workforce previously involved in processing tax returns consisted mainly of seasonal employees, and there was no in-house staff bid.
  18. As defined in Article XI, Section 163.9(j) of State Finance Law: “’Best value’ means the basis for awarding contracts for services to the offerer that optimizes quality, cost and efficiency, among responsive and responsible offerers. Such basis shall reflect, wherever possible, objective and quantifiable analysis.”
  19. Initially, the state estimated it would save $76 million over the life of the Fleet contract. But a 1998 audit by then state Comptroller indicated the actual savings were less than half as large. Among other things, expenses were inflated by $41 million by the Pataki administration’s decision to move Fleet’s operation from Albany to vacated space in Kingston.
  20. The Public Employees Federation, the union representing engineers working for the state Department of Transportation (DOT), successfully sued to force the release in December 2000 of a KPMG study which found that engineering consultants were often more expensive than in-house DOT staff, a claim previously made by the comptroller’s office as well.
  21. In the case of DOT consultants, the greater expense may also be related to a provision in state procurement laws stipulating that architects and engineers are to be selected solely on a “most highly qualified” basis; their costs are thus a secondary concern and generally are negotiated only after a firm has been selected.
  22. A good example of a Sunset Review Commission is Texas’ Sunset Advisory Commission, http://www.sunset.state.tx.us/. “Since the first reviews, 44 agencies have been abolished and another 11 agencies have been consolidated. In addition, even as the scope of reviews has expanded, the Legislature has adopted a large majority of the recommendations of the Sunset Commission.”
  23. Carl DeMaio et.al., Citizens’ Budget 2003-5, (Los Angeles and San Diego: Reason Foundation and Performance Institute, 2003), pp. 47-48, http://www.rppi.org/citizensbudget.pdf.
  24. Bill Albaugh, Director of Highway Operations, Florida Department of Transportation, interview with authors, July 2002.
  25. Ibid.
  26. Op. Cit., Savas and McMahon.
  27. Geoffrey F. Segal and Adrian Moore, Weighing the Watchmen: Evaluating the Costs and Benefits of Outsourcing Correctional Services, Part 2: Reviewing the Literature on Cost and Quality Comparisons, Reason Foundation Policy Study No.290, 2002, http://www.rppi.org/ps290.pdf
  28. See “Prison Officers Are Taking Longer Leaves” in The New York Times, Nov. 28, 2003. As the article noted: “Lax oversight by the department played a role in the expanded use of workers’ compensation time, the audit concluded. But the main cause, the authors of the audit found, was a longtime provision in the correction officers’ contract with the state that allows six months’ leave with full pay.”
  29. Patrick A. Hazel, Privatize the Oregon DMV, (Portland: Cascade Policy Institute, 1997) http://www.cascadepolicy.org/bgc/dmv.htm
  30. At the state level, this figure consists of all spending on state operations and general state charges. Local figures are as reported in State Comptroller’s 2001 Special Report on Municipal Affairs for New York State, adjusted for subsequent inflation.
  31. For example, at least one-fifth of operational expenditures by local governments takes the form of federally subsidized income transfers to needy individuals, including welfare and Medicaid payments. Another 10 percent is spent on “public safety” functions that might be considered inherently governmental, such as courts and police.
  32. Letter from Carol E. Stone budget director, to all state agency commissioners, September 29, 2003.

 


Center for Civic Innovation.

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CR 41 PDF (77 kb)

SUMMARY:
The benefits of opening public services to private competition are potentially enormous, as George Pataki recognized when he first took office as Governor nearly a decade ago. Despite the Governor's early advocacy, however, competitive contracting has not taken root in New York.  Given the scope of the state's ongoing fiscal crisis, the Governor should pursue his original agenda by allowing private providers to challenge New York's entrenched public-sector monopolies.  Efficiency gains through competitive sourcing could provide state and local governments with annual savings totaling hundreds of millions or even billions of dollars.  By establishing an effective, permanent framework for competitive sourcing, government can benefit from the same efficiencies that fuel private sector success.

TABLE OF CONTENTS:

Executive Summary

About the Authors

INTRODUCTION

Figure 1. New York's Unfinished Competition Agenda

THE VALUES OF COMPETITION, TRANSPARENCY AND PERFORMANCE

The growth of competitive sourcing

Principles of an effective process

Doing it the right way

Taking stock: The all-important “inventory”

The federal model

The Virginia model

COUNTING, MEASURING AND MONITORING

The value equation

Performance-based contracting

Splitting purchasers from providers

Trends in New York State

Figure 2. Impact of Increased Outsourcing

Disputed results

CREATING A COMPETITIVE PROCESS FOR NEW YORK

Running the competitions

Keep pruning the undergrowth

Contracting opportunities

How much can be saved?

CONCLUSION

APPENDIX

ENDNOTES

 


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