Fiscal pressures and the privatization of local services
Abstract: The privatization movement appears to have lost some momentum in the United States over the 1990s. Although local governments continue to look for ways to deliver services more efficiently by using private contractors, the pace at which they are issuing contracts has slowed. In part, the trends may reflect political realities. Public employees naturally are concerned about losing their jobs, and they constitute a sizable share of the electorate. The limited role of outside contractors may also reflect economic pragmatism, especially in the face of greater scrutiny of past efforts to privatize services.> Another influence may be the improving fiscal position of local governments. To the extent privatization has been a response to fiscal pressures, the growing fiscal comfort of local governments would lessen the degree to which they seek out low-cost providers. The author reviews trends in outside contracting by cities and towns between 1987 and 1992 and uses regression analysis to sort out the various influences. The results confirm that fiscal pressures, as evidenced by heavy debt burdens, did spur privatization in the early 1990s. She then examines localities' decisions to drop services altogether, and finds that contracting out and reducing services appear to have been alternatives, over this period. Cities and towns tended to choose one or the other course of action, not both.
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Provider: Federal Reserve Bank of Boston
Part of Series: New England Economic Review
Publication Date: 1998