Pennsylvania Governor Launches Statewide Privatization Initiative
A "strategic sourcing" initiative launched by Pennsylvania Governor Ed Rendell (D) in late February has saved the state $50.5 million to date, although a Harrisburg-based nonprofit research organization says it's too soon to judge the program a success.
The Department of General Services (DGS) estimates Pennsylvania can use "strategic sourcing" to reduce costs by $100 million in 2004 alone for 20 commodities purchased to operate state government.
Matthew J. Brouillette and Grant R. Gulibon, writing in an April 5 Policy Brief for The Commonwealth Foundation, note, "the examples provided to date by the Rendell administration appear to indicate that strategic sourcing can generate such reductions, but the administration has acknowledged its projected level of savings ... is subjective and has a lot of gray areas."
Brouillette and Gulibon caution, "any cost reductions achieved will not necessarily translate into lower levels of state taxes and spending," unless the sourcing program is closely monitored and enforced.
"[I]f the new contracts are not strictly enforced by both state government and the provider, little if any cost reduction can reasonably be expected to materialize, and small business participation of any type cannot be assured," noted Brouillette, who is president of Commonwealth. "Even worse, any cost reductions achieved will not translate into lower levels of state taxes and spending if Gov. Rendell's proposed budget increases are enacted."
Small business owners and some state legislators have expressed concern about the impact of Rendell's sourcing proposal. To address those concerns, the Commonwealth report summarizes several studies that have evaluated the impact of strategic sourcing (also known as "contract bundling") at the federal level.
"Though most of the findings and recommendations generated by these studies are oriented toward concerns about small business access to government contracts, not a lack of savings or service quality for taxpayers, data exist to suggest that taxpayers failed to realize the promised cost reductions in at least one federal government agency where contract bundling was employed," said Gulibon, who is a senior policy analyst with Commonwealth.
Past Support for Privatization
Rendell has shown his support for privatization in the past.
"When Rendell became mayor of Philadelphia in 1992, he inherited a fiscal disaster, painfully underscored by a $200 million deficit and a bond rating lowered to junk status. Within five years of his mayorship the deficit became a surplus. A sizable chunk of the savings came from privatization," noted Paul Kengor, associate professor of political science at Grove City College, in a 2003 article for the Pittsburgh Post-Gazette.
While mayor, Rendell privatized 49 services, generating $275 million in savings. Privatization of a Philadelphia nursing home, for example, cut the facility's annual operating cost by 54 percent and saved the city $26.6 million.
"Privatization has historically been viewed as a conservative Republican idea," noted Kengor. "In recent years, however, some of the biggest practitioners of privatization have been big city Democrats like Richard Daley of Chicago and Michael White of Cleveland.
"In a way, that's not a surprise: American cities, long the stranglehold of Democratic politicians, long bloated and debt ridden, are a target-rich environment for slashing government and turning many of its functions over to the private sector. Philadelphia was no exception," Kengor added.
Rendell's strategic sourcing initiative is "fully consistent with his track record in Philadelphia," Kengor wrote.
Though they cautioned against too quickly deeming Rendell's initiative a success, Brouillette and Gulibon gave him credit for moving in the right direction ... and offered advice on the next steps to be taken.
"Although reining in spending in the Department of General Services (DGS) is hardly the beginning and end of taming state government's wasteful ways, at least the governor is starting somewhere," they wrote.
"In order for strategic sourcing to deliver on the promise of lowering the cost of government to Pennsylvanians," they continued, "the Rendell administration and the General Assembly need to inject competition into the provision of goods and services provided by state government, not just the ones it purchases."
John Skorburg is managing editor of Budget & Tax News. His email address is firstname.lastname@example.org.
For more information ...
The April 5 Policy Brief, "The Rendell Strategic Sourcing Initiative: An Analysis," by Matthew J. Brouillette and Grant R. Gulibon, is available on the Commonwealth Foundation Web site at http://www.commonwealthfoundation.org/issues/nr20040405.shtml.