An examination of the implementation of competitive contracting and privatization by Wisconsin’s government
This report is a comprehensive overview of potential privatization targets in Wisconsin state government. It focuses on privatization candidates, meaning the mere mention or consideration of a service for privatization does not represent a de facto call for its privatization. It only means it should be carefully considered for possible privatization. More specifically, the report advocates competitive contracting of identified services, which means that the current government provider of the service should also be allowed to place a bid if and when the service is identified and pursued for possible privatization.
This report identifies hundreds of privatization opportunities in Wisconsin. In nearly every case, it calls for privatization of management or operations, not ownership. The report recognizes that privatization is not a panacea. But the data show that privatization produces greater efficiency and savings — on average, a 20-50% reduction in costs. Depending on the service, it often brings in revenue for the government. Usually, it leads to better service quality as well. The key to ensuring quality is proper bidding and contracting. Because of these benefits, privatization is now remarkably bipartisan, with the biggest advocates often being big-city Democratic mayors. Facing new budgetary constraints, privatization offers Wisconsin a chance to cut costs rather than hike taxes.
The seeds are there for more privatization in Wisconsin. The receptivity is shown by the encouragement of the State Legislature and Governor Thompson, who together created the bipartisan Wisconsin Commission on Privatization, which in 1998 called for a comprehensive privatization plan. Numerous departments and agencies have done privatization, some on a large scale. One internal report found over 62,000 contracts for $262.9 million by state agencies in FY 1995/96. Counting strictly “significant examples” of outsourcing, the Department of Administration listed 140 services that have been outsourced in state government — the majority outsourced for at least 10 years, some 20-40 years. Merely a partial reporting of savings from just some of these “significant examples” found the state was saving $33.4 million annually from privatization. This is far from a full total of all savings from all out-sourcing. This across-the-board willingness to outsource ought to be seen as a strength and sign that Wisconsin has been receptive to outsourcing in the past, and perhaps may not be too resistant in the future. Privatization is nothing new to the state. The question is why much more isn’t being done when it could and should be, especially with so much of it done so successfully in the past.
- The Wisconsin departments and offices that have done the most privatization are the Department of Administration (DOA); Employee Trust Funds; the Gaming Commission; Industry, Labor and Human Resources; Insurance; Justice; Natural Resources; Transportation; and the University of Wisconsin System. Most impressive is the Department of Natural Resources, which by 1994 had privatized over 40 services throughout Wisconsin, generating considerable savings. These groups should be commended. At the same time, key opportunities remain in Administration, even though that department has been very innovative. Vast opportunities exist in Transportation and the University of Wisconsin (UW) System. The UW System is a gold mine of untapped privatization opportunities. An entire study should be done simply focused on identifying opportunities in the UW System.
- Among the impressive privatizations are the following: DOA’s Division of Building and Police Services contracts for custodial services at 20 state-owned facilities, with an annual savings of $1,304,600. Since March 1993, the Gaming Commission has contracted for the delivery of some instant lottery tickets to retailers, saving $335,000 per year. The Department of Health and Social Services contracts out claims-processing assessment and retrospective-drug-utilization review, saving $250,000 to $500,000 per year. By contracting actuarial assistance on financial examinations to evaluate reserve liabilities, the Office of the Commissioner of Insurance saves $50,000 to $100,000 annually. There are smaller privatizations that nonetheless are worthwhile. The Judicial Commission contracts out for legal help, saving $10,000 to $15,000 per year. By outsourcing janitorial services, the Department of Military Affairs is saving $14,000 annually.
- Based on their own self-reporting, the following 12 departments, agencies, commissions, and offices outsource very little: Aging and Long-Term Care; Banking; Employment Relations; Health and Educational Facilities; Judicial Commission; Lower Wisconsin State Riverway; Military Affairs; Personnel Commission; Public Instruction; Secretary of State; State Fair Park Board; and State Treasurer. Most of these groups could do much more.
- The Wisconsin Veterans’ Home at King represents a bonanza of privatization opportunities, from numerous support services to operation of recreational facilities to management of the home itself. Implementation would likely easily produce millions of dollars in annual savings.
- Wisconsin owns and operates 29 adult corrections facilities, none of which have privatized management. The state spends much more per inmate than government-operated facilities in other states, and nearly twice as much as privatized facilities in Texas and California. There are many privatization opportunities in Wisconsin’s prisons. Among these, privatized management is a highly attractive option that should be considered as a means to improve both service quality and efficiency. The average state expenditure per prison in 1999 was roughly $20.6 million. A standard savings from privatization of prison management would generate $2 to 4 million in savings per facility. Spread among a few or many of the 29 facilities, the savings to the state budget could be immense. This report implores the state to at least initiate a pilot project to privatize prison management among two or three Wisconsin facilities. The state already employs private prisons for many of its inmates, several thousand of which are exported to other states where some are kept in private prisons operated by private providers. In addition, any new prison construction must rely on private contracts, since private construction is vastly more efficient and inexpensive.
- Wisconsin owns and operates four juvenile facilities that employ 1,250 state workers. Little to no privatization has occurred in any area relating to the operation of these facilities, including even support services like medical and nursing staff, cleaning, cooking, and janitorial duties. Private management seems to have never been closely considered. The state spends large amounts of money on these facilities. Privatization could produce millions of dollars in savings.
- There are three state mental-health institutions in Wisconsin. They offer numerous privatization opportunities, especially among support services such as maintenance, food, laundry and housekeeping, security, medical and lab services, handling of biohazardous waste, and more. All three provide opportunities for private management, particularly by hospitals or non-profit organizations. A 20% savings from privatization of management (not ownership) would save taxpayers annually over $9 million with the Mendota Health Institute, nearly $8 million with the Winnebago facility, and almost $5 million from Wisconsin Resource Center. There are almost 500 private or non-profit/religious mental health institutions operating throughout the state. Surely, some would be interested in, and qualified to manage, one or more of the three state institutions. Again, perhaps Wisconsin could try a pilot privatization with just one of the three mental-health institutes.
- Other solid candidates for possible privatization include: processing of tax returns; copying and printing; computer and information services (MIS); architectural services; building inspections; state export promotion activities; microfilming and records management; multiple road services; payroll/paycheck processing; plumbing; painting; State Fair Park operations; Wisconsin telephone customer service; custodial services; processing of insurance claims; auto vehicle photo ID centers; fleet services; and more. This is only a partial list of services identified in this report.
- Wisconsin can learn a lot from neighbors and other states. The appendix of this report features a lengthy list of privatized services among all 50 states. If Wisconsin officials are serious about cutting costs, particularly through competitive contracting, they should circulate this list to department heads and managers in Wisconsin government. Those individuals could be asked to circle items on the lists that are currently done in-house in Wisconsin. Officials should then ponder why Wisconsin hasn’t considered privatizing these same services.
- This report also offers many practical tips for dealing with government employee and union opposition to privatization — a key thread throughout the report.