oversight

Privatization: Lessons Learned by State and Local Governments

Published by the Government Accountability Office on 1997-03-14.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                United States General Accounting Office

GAO             Report to the Chairman, House
                Republican Task Force on Privatization



March 1997
                PRIVATIZATION
                Lessons Learned by
                State and Local
                Governments




GAO/GGD-97-48
             United States
GAO          General Accounting Office
             Washington, D.C. 20548

             General Government Division

             B-271979

             March 14, 1997

             The Honorable Scott Klug
             Chairman, House Republican Task
               Force on Privatization

             Dear Chairman Klug:

             State and local governments have increased their use of privatization over
             the last several years, and Congress and the administration have indicated
             an interest in having the federal government also increase its use of
             privatization. In light of this interest, you asked us to identify major
             lessons learned by, and the related experiences of, state and city
             governments in implementing privatization efforts. This report, which
             responds to your request, discusses privatization lessons learned by, and
             the related experiences of, the states of Georgia, Massachusetts, Michigan,
             New York, and Virginia as well as the city of Indianapolis, Indiana. Each of
             these governments made extensive use of privatization over the last
             several years.


             Privatization is commonly defined as any process aimed at shifting
Background   functions and responsibilities, in whole or in part, from the government to
             the private sector. Privatization can take various forms. The most common
             form is contracting, which typically entails a competition among private
             bidders to perform government activities. With contracting, the
             government remains the financier and has management and policy control
             over the type and quality of services to be provided. Another form of
             privatization occurs when a government transfers ownership of assets,
             commercial type enterprises, or responsibilities to the private sector. This
             is called an “asset sale,” and generally the government would have no role
             in the financial support, management, or oversight of a sold asset.

             Another, more recent variation of privatization is “managed competition.”
             Under it, the contracting process permits an agency (e.g., the highway
             department) of the government to prepare a work proposal and submit a
             bid to compete with private bidders (e.g., highway construction
             contractors). The government may award the contract to the bidding
             agency or to a private bidder. (App. I shows various forms of privatization
             and the frequency of their use by state governments as reported by the
             Council of State Governments in 1993.)




             Page 1                               GAO/GGD-97-48 Privatization Lessons Learned
B-271979




Over the past several years, state and local governments have increased
their use of various types of privatization. The 1993 Council of State
Governments’ survey found that state agencies responsible for social
services, transportation, mental health care, corrections, health, and
education had all increased privatization activities since 1988. The Council
reported that the survey results indicated a trend toward expanded
privatization across major state agencies.1 According to the International
City/County Management Association, city governments have also
increased the number and types of services contracted, such as child
welfare programs, health services, street maintenance, and data
processing.2

Recent federal laws, rules, and initiatives—especially the Government
Performance and Results Act of 1993 (GPRA);3 the Clinger-Cohen Act of
1996;4 the revised handbook to Office of Management and Budget (OMB)
Circular A-76;5 and the Clinton Administration’s major management reform
initiative, the National Performance Review (NPR)—have given new
impetus to federal agencies to operate more effectively and efficiently.
One helpful approach in reaching this goal, according to NPR, is
privatization. Certain of the cited laws and initiatives direct federal
managers to review their programs by first considering whether
government should be performing an activity, a step that can lead to
privatization.




1
 State Trends and Forecasts: Privatization, Vol. II: No. 2 (Lexington, KY: November 1993).
2
International City/County Management Association Municipal Year Book 1994: Alternative Service
Delivery in Local Government, 1982-1992 (Washington, D.C.: 1994), p. 28.
3
 GPRA requires agencies to develop strategic plans, obtain input on desired goals from key
stakeholders, and measure and report progress toward achieving those goals.
4
 The Clinger-Cohen Act was originally the Federal Acquisition Reform Act of 1996 and the Information
Technology Management Reform Act (ITMRA) of 1996. It was renamed by section 808 of Public Law
104-208, enacted on September 30, 1996. ITMRA introduced new requirements for how information
technology-related projects are to be selected and managed. These requirements closely parallel
investment practices of leading organizations.
5
 OMB Circular A-76 sets forth federal policy for using commercial services. In March 1996, OMB
revised the A-76 supplemental handbook to enhance federal performance through competition and
choice, seek the most cost-effective means of obtaining commercial products and support services,
and provide new administrative flexibility in agencies’ decisions to retain services in-house or contract
them out.



Page 2                                              GAO/GGD-97-48 Privatization Lessons Learned
                   B-271979




                   The six governments we visited tailored their approaches to privatization
Results in Brief   to their particular political, economic, and labor environments.6 On the
                   basis of our literature review, the views of a panel of privatization experts,
                   and our work in the six governments, we identified six lessons learned, as
                   shown in figure 1, that were generally common to all six governments in
                   implementing privatization initiatives.




                   6
                    The predominant form of privatization that occurred in these six governments was contracting for
                   goods and services, followed by asset sales and managed competitions.



                   Page 3                                            GAO/GGD-97-48 Privatization Lessons Learned
                                            B-271979




Figure 1: Lessons Learned From Our Review of State and Local Privatization Efforts




                                                      Political champion
                                                      Privatization can best be introduced
                                                      and sustained when a political
                                                      leader champions it.




                                                      Implementation structure
                                                      Government leaders need to
                                                      establish an organizational
                                                      and analytical structure to ensure
                                                      effective implementation.




        Legislative and                 Reliable cost data                     Strategies for                 Monitoring and oversight
        resource changes                                                       workforce transition
        Governments may need to         Reliable cost data on                 Governments need                 More sophisticated
        enact legislative changes       government activities                 strategies to manage             monitoring and oversight
        and/or reduce governmental      are needed to support                 workforce transition.            are needed to protect the
        resources to encourage          informed privatization                                                 government's interests
        greater use of privatization.   decisions and to assess                                                when its role in the delivery
                                        overall performance.                                                   of services is reduced
                                                                                                               through privatization.




                Implementation




                                            Source: GAO analysis.




                                            First of all, privatization can best be introduced and sustained when there
                                            is a committed political leader to champion it. In the six governments, a
                                            political leader (the governor or mayor), or in one case several leaders
                                            working in concert (state legislators and the governor), played a crucial
                                            role in introducing privatization. These leaders built internal and external




                                            Page 4                                                GAO/GGD-97-48 Privatization Lessons Learned
B-271979




support for privatization, sustained momentum for their privatization
initiatives, and adjusted implementation strategies when barriers to
privatization arose.

Second, governments need to establish an organizational and analytical
structure to implement the privatization effort. This structure can include
commissions, staff offices, and analytical frameworks for privatization
decisionmaking. For example, five of the six governments established
governmentwide commissions to identify privatization opportunities
among government activities and to set policies to guide privatization
initiatives.

Third, governments may need to enact legislative changes and/or reduce
resources available to government agencies in order to encourage greater
use of privatization. Georgia, for example, enacted legislation to reform
the state’s civil service and to reduce the operating funds of state agencies.
Virginia reduced the size of the state’s workforce and enacted legislation
to establish an independent state council to foster privatization efforts.
These actions, officials told us, enhanced privatization and sent a signal to
managers and employees that political leaders were serious about
implementing privatization.

Fourth, reliable and complete cost data on government activities are
needed to assess the overall performance of activities targeted for
privatization, to support informed privatization decisions, and to make
these decisions easier to implement and justify to potential critics. Most of
the governments we surveyed used estimated cost data because obtaining
complete cost7 and performance data by activity from their accounting
systems was difficult. However, Indianapolis and more recently Virginia
used new techniques to obtain more precise and complete cost data. While
the use of estimated cost data can save a government the time and cost
associated with preparing more accurate data, the resulting imprecision
can have negative consequences. For example, in Massachusetts, the State
Auditor questioned savings reported from privatized activities because an
“inadequate cost analysis” was done before the privatization.

Fifth, governments need to develop strategies to help their workforces
make the transition to a private-sector environment. Such strategies, for
example, might seek to involve employees in the privatization process,

7
 Complete costs are generally defined as the fully allocated costs of an activity. These include all direct
and indirect personnel costs, as well as the costs of materials and supplies, equipment, capital
depreciation, rent, maintenance and repairs, utilities, insurance, personnel travel, operations overhead,
and general and administrative overhead.



Page 5                                               GAO/GGD-97-48 Privatization Lessons Learned
                        B-271979




                        provide training to help prepare them for privatization, and create a safety
                        net for displaced employees. Among the six governments we visited, four
                        permitted at least some employee groups to submit bids along with
                        private-sector bidders to provide public services. All six governments
                        developed programs or policies to address employee concerns with
                        privatization, such as job loss and the need for retraining.

                        Finally, when a government’s direct role in the delivery of services is
                        reduced through privatization, a need is created for enhanced monitoring
                        and oversight that evaluates compliance with the terms of the privatization
                        agreement and evaluates performance in delivering services to ensure that
                        the government’s interests are fully protected. For example, Indianapolis
                        officials said their efforts to develop performance measures for activities
                        enhanced their monitoring efforts. However, officials from most
                        governments said that monitoring contractors’ performance was the
                        weakest link in their privatization processes.


                        Our objective was to ascertain the lessons learned by, and the related
Objective, Scope, and   experiences of, state and local governments in privatizing government
Methodology             activities. To meet this objective, we went through a multistep process to
                        identify the governments to survey, developed an information collection
                        framework refined with the assistance of a panel of experts, and then
                        contacted various officials from the selected governments to obtain
                        information and insights on their privatization experiences.

                        To develop a list of potential states and cities to survey, we first surveyed
                        50 individuals whom we identified as knowledgeable on privatization
                        topics from congressional testimony, studies, and other published
                        literature on the privatization of government activities. We asked the 50
                        individuals to name states and cities that had undertaken notable
                        privatization efforts, and 33 of the individuals responded. From their
                        responses, we compiled a list of 10 state governments and 10 city
                        governments that the respondents had named most often as undertaking
                        notable privatization efforts.

                        As agreed with your office, we focused the rest of our selection process on
                        state governments rather than city governments. We focused on states
                        because data indicated that states were generally involved in privatizing a
                        wider variety of activities than were cities, and because lessons learned by
                        state governments would be more likely than local government
                        experiences to be instructive in the federal context. However, as agreed



                        Page 6                                 GAO/GGD-97-48 Privatization Lessons Learned
B-271979




with your office, we included the city of Indianapolis in our survey
because it was cited more frequently than any other city or state named by
our experts.

A panel of 8 privatization experts reviewed our list of state governments
and agreed that the 10 state governments and Indianapolis were the most
appropriate candidates to survey. The panel members, most of whom were
drawn from among the 33 respondents to our survey, are listed in
appendix II. They were selected on the basis of their practical knowledge
of privatization or their scholarly knowledge on the issue of privatization.

We contacted the 10 state governments to update privatization data that
were reported on them and other states in a 1993 Council of State
Governments report. On the basis of information in the 1993 report and
the updated data from the 10 states, we selected Georgia, Massachusetts,
Michigan, New York, and Virginia for visits and further research. We chose
these states because they had the most extensive privatization efforts
involving activities that correlate with those performed at the federal level.
Their privatization efforts, and those of Indianapolis, covered a variety of
mission-related activities, such as prison health care, delinquent tax
collection, and vehicle maintenance.

Before meeting with various officials from the six governments, we
developed from the relevant literature a list of key privatization factors
that our panel of eight experts agreed were critical or important when
considering whether to privatize public functions. These factors gave us a
framework for collecting information on privatization experiences. We
pretested this framework and data collection approach and made minor
adjustments.

Using our framework of privatization factors as a guide, we interviewed,
and obtained documents from, 117 officials in the 6 sites that we visited.
These included policymakers (such as cabinet officers and directors of
privatization offices), agency managers, and labor representatives who
were involved with or knowledgeable about the privatization efforts of the
six governments. To obtain an independent perspective, we interviewed
audit and legislative oversight officials who had knowledge of their
governments’ privatization efforts. We obtained from these various
officials information on such topics as (1) the reasons for using
privatization; (2) approaches taken to introduce, implement, and manage
privatization efforts; and (3) barriers to privatization and strategies
employed to overcome the barriers. In our interviews and document



Page 7                                GAO/GGD-97-48 Privatization Lessons Learned
                         B-271979




                         reviews, we focused attention on privatization efforts that occurred since
                         1991, were reported to have had high cost savings, were reported to have
                         resulted in continued or improved service, and involved activities similar
                         to those performed by the federal government.

                         In addition to our interview data, we reviewed such state, city, and agency
                         documents as commission reports, planning documents, policy and
                         procedural guidance, budget documents, legislative analyses, agency
                         performance reports, audit reports, and pertinent legislation. From our
                         analysis of the information obtained, we distilled a list of major lessons
                         learned in privatizing state and local government activities. The list was
                         not intended to be an exhaustive compilation of all possible or actual
                         lessons learned or experiences in privatizing government activities.

                         Because our objective was to identify lessons learned by the six
                         governments we visited, we relied on their own evaluations and
                         assessment of their experiences. Using information they gave us, we
                         summarized a number of the six governments’ privatization projects that
                         they selected (see app. III). We did not evaluate privatization results or
                         independently verify the accuracy of the information provided by the
                         governments. Because this report uses a wide variety of privatization
                         terms, we also prepared a privatization glossary so that the types of
                         privatization we refer to in this report can be understood in the context of
                         the range of privatization efforts that can occur. The glossary appears at
                         the end of the report.

                         We did our work at the selected states’ capitals, Indianapolis, and
                         Washington, D.C., from April 1996 through December 1996 in accordance
                         with generally accepted government auditing standards. In February 1997,
                         we provided the chief executives of the six governments with a draft of
                         this report for review and comment. These governments concurred with
                         the message of our report and provided clarifying comments, which we
                         have included where appropriate.


                         According to our panel of experts and officials of the six governments we
Privatization Requires   surveyed, privatization can best be introduced and sustained when a
a Political Champion     political leader champions it. The panel and officials said that, in
                         introducing and sustaining privatization initiatives, political leaders should
                         anticipate a need to develop and communicate a privatization philosophy
                         and to garner public, business, and political support.




                         Page 8                                GAO/GGD-97-48 Privatization Lessons Learned
B-271979




According to the government officials that we interviewed, the chief
executive (the governor or mayor) was the political champion for the most
recent privatization efforts in Georgia, Massachusetts, Michigan, New
York, and Indianapolis. In Virginia, key state legislators and the Governor
worked together to introduce new privatization initiatives. The political
champions faced a variety of political and economic environments. In
some cases, the political leaders introduced and built support for
privatization within government workforces that were unionized and, in
other cases, within workforces that were not unionized. Similarly, some
political leaders introduced and built support for privatization during
times when their respective governments were experiencing fiscal
problems, and other leaders did so during times when their governments
were stable financially. For example, the Governor of Massachusetts
introduced privatization during a period when the state, which had a
heavily unionized workforce, was experiencing a severe budget crisis. On
the other hand, Virginia’s leaders introduced privatization into a largely
nonunionized workforce and saw it as an approach that could help the
state government more effectively deliver services and maintain its sound
fiscal condition.

While forceful leadership was reported to be an important ingredient in
the success of privatization initiatives by the six governments, they also
came to recognize a need for flexibility. When implementing privatization,
political leaders found that they could encounter barriers that might
require them to adjust their privatization strategy to maintain support. For
example, when Indianapolis’s initiative encountered early opposition from
employee unions, the Mayor began formally involving the unions in the
privatization process. In doing so, he moved from an approach that solely
emphasized competing public activities among private-sector firms to one
that included using managed competition, which gave city employees the
chance to compete with the private sector. This change in approach,
according to city and union officials, won employee support and allowed
the privatization initiative to proceed.

According to Indianapolis officials, competition in the marketplace rather
than privatization per se produces the most value for the taxpayer. This
view was shared by most state officials we spoke with. A top Indianapolis
official said that the primary advantages of managed competition were
reduced costs, improved services, improved employee morale, and
increased innovation. Massachusetts, New York, and Virginia now permit
government agencies to bid on certain contracts that are open to the
private sector.



Page 9                                GAO/GGD-97-48 Privatization Lessons Learned
                      B-271979




                      According to officials in the six governments, once political leaders
Implementation        introduce privatization, they need to establish a formal structure to ensure
Structure Needed to   effective implementation. Such a structure can include a governmentwide
Guide Privatization   commission to identify privatization opportunities and set privatization
                      policy, a staff office that can support agencies in their privatization efforts
Efforts               and oversee implementation, and a framework for making privatization
                      decisions.

                      Five of the six governments used governmentwide commissions to
                      promote privatization, identify privatization opportunities, and establish
                      policies and procedures to guide privatization initiatives. Massachusetts
                      did not use a commission; instead, cabinet secretaries selected the
                      government activities to privatize. The commissions were created either
                      by the chief executive (Georgia, Michigan, New York, and Indianapolis) or
                      jointly by the state legislature and chief executive (Virginia).

                      The memberships of the four state commissions included representatives
                      of both government and the private sector. Indianapolis’s commission was
                      composed of private sector representatives, assisted by both private and
                      public-sector employees. Although officials in the five governments saw
                      commissions as useful, a former senior official from Michigan who studied
                      his and other states’ commissions8 cautioned that a commission’s
                      effectiveness can be limited if it does not have a clear mission and a
                      membership that reflects a balance between the public and private
                      sectors.

                      Five of the six governments established offices or support staffs, which
                      were attached to the privatization commissions, to provide guidance and
                      technical assistance to agencies in the day-to-day implementation of
                      privatization.9 New York’s office, the Empire State Development
                      Corporation, was unique among the supporting organizations in that it was
                      a government corporation. Massachusetts did not establish a separate
                      support office. Instead, individual departments initially used internal
                      teams to design and implement specific initiatives. Later the Executive
                      Office for Administration and Finance provided guidance to departments.



                      8
                      John M. Kost, New Approaches to Public Management: The Case of Michigan (Washington, D.C.: The
                      Brookings Institution, July 1996).
                      9
                       Michigan established a Privatization Division as part of its Department of Management and Budget in
                      1991, before the governor established a public-private partnership commission in 1992. The
                      Privatization Division provided staff support to the commission before the commission was abolished
                      in late 1992.



                      Page 10                                           GAO/GGD-97-48 Privatization Lessons Learned
                     B-271979




                     These support units, according to officials and documents we reviewed,
                     typically used an analytical framework to evaluate the costs and
                     performance of government activities and the risks and benefits of
                     privatizing a particular activity. These analytical frameworks typically
                     included a step-by-step decisionmaking process. Having a framework that
                     provides a consistent approach for analyzing government activities was
                     considered highly desirable by key officials in all six governments. Many
                     of the frameworks established by the six governments shared common
                     elements such as providing criteria for selecting activities to privatize, an
                     inventory of privatization candidates, cost comparison and evaluation
                     methods, and procedures for monitoring the performance of privatized
                     activities. The frameworks used by Michigan, Virginia, and Indianapolis
                     are described in more detail in appendix IV.


                     According to some officials, governments may need to enact legislative
Legislative and/or   and/or resource changes to encourage or facilitate the use of privatization.
Resource Changes     These changes, the officials said, are necessary to signal to managers and
May Be Needed to     employees that the move to privatization is serious and not a passing fad.

Promote the Use of   All five states and the city of Indianapolis used some combination of
Privatization        legislative changes and resource cuts as part of their privatization
                     initiatives. For example, Virginia enacted the Virginia Government
                     Competition Act of 1995, which created a permanent independent state
                     council to promote privatization. The state also initiated an effort to
                     reduce its workforce by 15 percent over 3 years. According to state
                     officials, some departments, such as transportation, began facing work
                     backlogs following this reduction. To ease this backlog, Virginia looked to
                     the private sector to perform the work. Virginia officials said enabling
                     legislation and staffing cuts together signaled the seriousness of Virginia’s
                     effort to increase the use of privatization and managed competition.

                     Georgia’s legislature, with the Governor’s support, passed civil service
                     reform legislation that made it easier for the state to hire and fire
                     employees. Georgia officials told us that this measure facilitated the use of
                     privatization by state managers. In addition, the Governor instituted a
                     budget redirection program in 1996 that required all agencies to prioritize
                     their current programs and activities and identify those programs that
                     could be eliminated or streamlined to the extent that the agencies would
                     be able to make at least 5 percent of their total state-funded budgets
                     available to be redirected to higher priorities. Each agency was asked to
                     recommend how the 5 percent would be redirected to existing programs



                     Page 11                               GAO/GGD-97-48 Privatization Lessons Learned
                     B-271979




                     or to new programs within the agency. According to the Executive
                     Director of Georgia’s Commission on Privatization, the Governor, as part
                     of his budget development process, reviewed these recommended
                     redirections, as well as other statewide priorities, and shifted those
                     identified funds within and among the agencies as determined to be most
                     cost beneficial. This budget redirection initiative, according to the
                     Executive Director, will continue for the remainder of the Governor’s
                     term, which ends in early 1998. According to a Georgia Privatization
                     Commission official, agencies were given a 6-month notice that their
                     budgets would be cut. State officials said these cuts required managers to
                     rethink how they could perform the same activities for a lower cost. This
                     led to contracting out more activities, such as vehicle maintenance and
                     management services for a war veterans facility.

                     In Indianapolis, the Mayor eliminated selected middle-level management
                     positions. According to the remaining supervisors with whom we spoke,
                     this action sent a clear message that the city’s privatization program was
                     serious and that the city workforce would have to work differently and use
                     new methods if it were to successfully compete to retain city work. Union
                     officials said that these selective management cuts helped to build union
                     support for the competition initiatives.


                     According to officials in the six governments and our panel of experts,
Reliable and         reliable and complete cost data on government activities are needed to
Complete Cost        ensure a sound competitive process and to assess overall performance.
Information Needed   Reliable and complete data, they said, simplify privatization decisions and
                     make these decisions easier to implement and justify to potential critics.
to Support
Privatization        All six governments developed information on the cost of government
                     activities. Four governments made “best estimates” of a service’s or
                     function’s cost because obtaining complete cost and performance data by
                     activity from their accounting systems was difficult. Indianapolis and
                     Virginia attempted to go beyond best estimates by making extensive
                     efforts to identify all costs associated with performing a government
                     function or service.

                     Indianapolis was nationally recognized for using an activity-based costing
                     (ABC) approach. Indianapolis used this approach to help analysts derive
                     the complete costs of providing a service or performing a function.
                     Following ABC procedures, analysts were to identify all activities
                     associated with producing a service or function and to evaluate the



                     Page 12                              GAO/GGD-97-48 Privatization Lessons Learned
B-271979




resources these activities consumed to achieve various levels of
performance.

Virginia introduced a comprehensive cost analysis method based on the
federal government’s A-76 program and the state’s contracting experiences
to try to capture the complete costs associated with performing a service
or function. Virginia reported that in fiscal year 1996 it was able to identify
complete costs for 45 percent of the government activities identified as
privatization candidates. Since 1995, Virginia has piloted an ABC approach
in a number of agencies as a possible replacement for its existing analysis
method. According to officials in Indianapolis and Virginia, obtaining more
complete data was more time consuming but enhanced their governments’
ability to identify cost savings and evaluate bid proposals.

Indianapolis officials told us they were able to obtain the information they
needed to do ABC analyses from their current accounting system even
though it did not provide cost data by activity. Officials used a system that
took cost data (e.g., salaries, overhead) associated with a function (e.g.,
street maintenance) and assigned it for cost analysis purposes to activities
(e.g., filling potholes, cleaning streets, repairing curbs). The city was
assisted in this exercise by a private-sector firm with cost-analysis
expertise.

Indianapolis and Virginia officials also said that working before
privatization occurs with private firms with expertise in an activity slated
for privatization was very beneficial in getting a better understanding of
the cost and performance issues likely to be encountered during a
privatization. For example, when Virginia’s Department of Corrections
planned its prison privatization project, the department publicly discussed
its plans with private firms to better understand the issues that needed to
be addressed and resolved in order to successfully privatize prisons.
According to the Director of Virginia’s Commonwealth Competition
Council, after the department consulted with private firms, it better
understood what the needs of the private sector were in terms of writing
specific statements of work and better realized the potential cost-benefit
to the state of the proposed prison privatization.

Attaining precision in cost data has tradeoffs, according to a number of
government officials that we interviewed. In general, while cost estimates
can be made more quickly and at less cost than more precise approaches
such as ABC, their use also may have negative consequences. For example,
Massachusetts, according to senior state administration and audit officials,



Page 13                                GAO/GGD-97-48 Privatization Lessons Learned
                       B-271979




                       used estimates because complete cost data on state activities were
                       difficult to obtain from the state’s accounting system. However, reports by
                       the Massachusetts State Auditor called into question the reported savings
                       of some privatization activities, citing inadequate cost analysis before
                       privatization as well as a lack of substantiating data on the benefits
                       claimed following privatization.


                       According to most officials in the six governments and our expert panel,
Strategies Needed to   moving governments into privatization requires (1) employee involvement
Manage Workforce       in the privatization process, (2) training to provide skills for either
Transition             competing against the private sector or monitoring contractor
                       performance, and (3) creating a safety net for displaced employees. Most
                       officials said these strategies were necessary to mitigate employees’
                       concerns with, and to bolster their support for, the privatization changes
                       as well as to aid in the transition to a competitive environment.

                       All six governments developed workforce transition strategies to
                       complement their privatization efforts. These strategies varied depending
                       on local political factors and the relationship between the governments’
                       top leaders and employee groups.


Employee Involvement   In the six governments, management of employee involvement in the
                       privatizations was not only important to initial efforts but also set the tone
                       for future privatizations. For example, Massachusetts officials said that
                       their initial failure to involve state employee unions in their privatization
                       plans led the unions to contest and block these plans. State officials said
                       that following this initial confrontation, Massachusetts sought to improve
                       labor-management cooperation by allowing unions to compete for several
                       highway maintenance contracts. Nevertheless, according to state officials,
                       union and state legislature concerns that employee protections were not
                       being observed under privatization contributed to the passage of
                       legislation in 1993, over the Governor’s veto, that made privatization more
                       difficult.10 For example, the law required private firms that win state
                       contracts to offer jobs to qualified state employees who were terminated
                       because of the contracts and to compensate them at a rate comparable to
                       their government pay and benefits. The Massachusetts State Auditor said
                       that in the 2 years before the law, 6 Massachusetts departments privatized
                       approximately 20 services, but only 2 privatizations occurred between the
                       law’s enactment and December 1996.

                       10
                         Commonwealth of Massachusetts Privatization Law, Chapter 296 of the Acts of 1993.



                       Page 14                                          GAO/GGD-97-48 Privatization Lessons Learned
           B-271979




           According to privatization experts, Indianapolis presents a comprehensive
           example of how a government benefited by engaging employees and their
           unions in the privatization process. Indianapolis’s management employees
           were involved in the privatization process when it began but union
           employees were not formally involved. Soon after introducing
           privatization, the Mayor moved to address employee concerns raised by
           unions about not being formally involved in the city’s privatization efforts.
           According to city and union officials, the city used a multifaceted
           approach to effectively address the unions’ concerns. This approach
           included the use of new management tools (such as ABC), training in use of
           the tools, a cooperative union-management effort, and permitting and
           enabling the workforce to compete against private vendors. This
           cooperative effort, we were told, was built on (1) empowering frontline
           workers to make decisions and act on their own initiative, (2) providing
           training and pay incentives for performance, (3) fostering a partnership
           with unions, and (4) establishing an employee safety net for displaced
           workers.


Training   The majority of the top government officials and experts whom we
           surveyed said that having qualified employees with specific skills related
           to privatization was important to successfully implementing privatization.
           However, some officials said the need for new skills should not impede
           privatization since the skills could also be contracted for if not available
           within the government workforce.

           Officials from the states and Indianapolis pointed out that to move into a
           more competitive environment, their governments had to improve the
           skills of their employees so they could (1) participate in managed
           competition and/or (2) prepare for and monitor contracting efforts. Public
           and union officials identified the following as helpful to employees
           involved in privatization: (1) knowledge of the existing government
           program, (2) ability to analyze work flows and processes, (3) ability to
           develop methods to eliminate inefficiencies, (4) knowledge of
           cost-estimation techniques, (5) ability to apply methods of financial
           analysis, (6) ability to determine and write concise and specific contract
           requirements to delineate exactly what the contractor is responsible for,
           and (7) knowledge of methods for monitoring the performance of
           contractors.




           Page 15                               GAO/GGD-97-48 Privatization Lessons Learned
                        B-271979




Safety Net              Providing a safety net for displaced workers was a component of the six
                        governments’ workforce transition strategies. These strategies included
                        offering workers early retirement, severance pay, or a buyout, or, if the
                        activity was taken over by a private firm, ensuring that employees’
                        concerns about compensation issues involved in this transition were
                        addressed.11 Other strategies included placing workers in other
                        government units if their jobs were eliminated and offering job transition
                        assistance, such as career planning and training, to workers moving to the
                        private sector. According to Virginia officials, for example, employees’
                        concerns were one of the biggest barriers in that state’s privatization
                        efforts. The Governor directed state officials to examine and recommend
                        measures to provide the opportunity for departing state workers to
                        compete in the private sector. According to state officials and employee
                        representatives, this led to the passage of the Workforce Transition Act,
                        which mitigated some of the employees’ concerns with privatization, such
                        as job loss, training, and benefits.

                        In New York, according to state officials, new collective bargaining
                        agreements were negotiated that allowed the state to lay off affected
                        employees, provided they were accorded certain considerations such as 60
                        days written notice of intended separation, placement on a redeployment
                        list, and an offer of redeployment if a fillable vacancy became available
                        elsewhere in state government. If redeployment was not possible and the
                        employee had no displacement rights under the state’s Civil Service Law,
                        the employee had the option of receiving a financial stipend for an
                        identified retraining or educational opportunity, severance pay, or
                        preferential consideration for employment with the contractor.
                        Redeployment would ensure that the affected employees maintained their
                        salary and titles comparable to former positions.


                        According to officials with the six governments, monitoring and oversight
Enhanced Monitoring     that not only evaluates compliance with the terms of the privatization
and Oversight of        agreement but also evaluates a private firm’s performance in delivering
Performance Is          services is needed when a government’s direct role in the delivery of
                        services is reduced through privatization. This is necessary to help ensure
Needed When             that the government’s interests are protected and that accountability of
Privatization Is Used   both the government and the private party is maintained.




                        11
                          To the extent that resources are provided by a government for services such as severance pay or
                        training, the net financial savings resulting from the privatization may be diminished.



                        Page 16                                           GAO/GGD-97-48 Privatization Lessons Learned
                           B-271979




Monitoring Privatization   Officials in all six governments told us that monitoring of privatized
                           activities is critical. According to experts, such monitoring consists of
                           contract auditing and technical or performance monitoring. Contract
                           auditing aims to ensure that contractors are paid as mandated by the
                           contract and that all contractual obligations are fulfilled. Contract auditing
                           also serves as an independent check on contractors and on the
                           government’s contract managers. Technical and/or performance
                           monitoring aims to ensure that contractor-provided services are meeting
                           contract specifications for quantity and quality.

                           The majority of the state and city officials we interviewed said that
                           performance monitoring is more difficult than contract auditing and that
                           their governments faced a much greater need to develop employee skills
                           for performance monitoring than for contract auditing. Officials at all of
                           the governments we visited said that one of the most important—and
                           often most difficult—tasks in privatizing government activities was writing
                           specific work statements for the privatization contracts. Officials noted
                           that when contract requirements were vague, contractor performance was
                           not easily evaluated, even if the government used sufficient and effective
                           monitoring techniques. Given the importance of being able to specify work
                           requirements and outputs, most of the six governments reported that they
                           took steps to mitigate their risk. For example, Georgia and Virginia’s
                           guidance for evaluating whether a service should be considered for
                           privatization focused on the ease with which the service’s objectives could
                           be defined and measured for monitoring purposes. Indianapolis officials
                           said that its use of performance measures enhanced the writing of
                           contract terms because they focused at the activity level (e.g., air and
                           water quality assurance) and measured each activity’s outputs (e.g., water
                           samples collected and evaluated).

                           Officials from all but Indianapolis said that performance monitoring was
                           their weakest link in the privatization process. Officials from all the
                           governments said that they were working to enhance their employees’
                           skills so that they could undertake more sophisticated monitoring. For
                           example, officials said that monitoring the performance of complex
                           activities, such as wastewater treatment or the medical care of prisoners,
                           can require analytical skills that go beyond compliance checklist-type
                           reviews. Monitoring performance, they said, sometimes required new or
                           innovative approaches. For example, Virginia used a newly designed
                           approach to measure the performance of its two contractor-operated child
                           support enforcement offices. Because the offices were newly created,
                           Virginia could not compare pre- and post-privatization costs. Instead,



                           Page 17                               GAO/GGD-97-48 Privatization Lessons Learned
                             B-271979




                             Virginia established quarterly and semiannual reporting requirements in
                             the contract and used sophisticated statistical measures to compare the
                             performance of its child support offices with a hypothetical average office
                             with similar characteristics, such as size and demographics. In addition to
                             having performance measures, the new system required new data
                             collection skills for state employees, such as doing customer satisfaction
                             surveys.


Oversight of Privatization   Officials in all six jurisdictions and our expert panel told us that
                             independent oversight of privatization efforts was critical. Independent
                             oversight by an office that is outside the control of the unit responsible for
                             operating the activity provides a more objective and unbiased evaluation
                             of privatized activities than is possible by senior government managers or
                             program-level monitors. Virginia’s Auditor of Public Accounts, for
                             example, said that independent oversight can focus on such areas as
                             automatic contract extensions to ensure that costs do not escalate without
                             limit and that the program manager attempts to maximize competition in
                             the award of contracts.

                             Each of the six governments had independent oversight functions, and
                             these functions played different roles in the privatization process and
                             provided varying degrees of oversight coverage. For example, beginning in
                             December 1993, the Massachusetts State Auditor had formal review and
                             approval powers related to proposed privatizations for activities costing
                             over $100,000. Virginia’s legislative and executive branches, according to
                             officials of both branches, provided extensive oversight. In the executive
                             branch, Virginia had an agency network of internal auditors, coordinated
                             by the Department of the State Internal Auditor, to review privatized
                             activities within their respective agencies. Virginia’s legislature had the
                             Joint Legislative Audit Review Commission (JLARC) and the Auditor of
                             Public Accounts. JLARC’s actions on a proposed privatization demonstrate
                             the value of independent oversight. In 1996, JLARC raised concerns about a
                             proposed computer systems privatization that was begun before the state
                             government established its current privatization process. As a result of
                             these concerns, the General Assembly subsequently delayed the proposed
                             privatization and directed JLARC to conduct a more complete study of the
                             project.


                             We are sending copies of this report to the Chairman and Ranking
                             Minority Member of the Senate Committee on Governmental Affairs and



                             Page 18                               GAO/GGD-97-48 Privatization Lessons Learned
B-271979




the House Committee on Government Reform and Oversight; the Director,
Office of Management and Budget; the Director, Office of Personnel
Management; and other interested parties. Copies will be made to others
upon request.

The major contributors to this report are listed in appendix V. Please
contact me on (202) 512-9039 if you have any questions.

Sincerely yours,




Michael Brostek
Associate Director, Federal Management
  and Workforce Issues




Page 19                              GAO/GGD-97-48 Privatization Lessons Learned
Contents



Letter                                                                      1


Appendix I                                                                 22

Forms of Privatization
and Frequency of Use
in State Programs and
Services
Appendix II                                                                24

Expert Panelists on
GAO’s Review of State
and Local
Privatization Efforts
Appendix III                                                               25

Overview of Recent
Privatization Efforts
in the Six
Governments
Appendix IV                                                                34

Analytical
Frameworks Used by
Indianapolis,
Michigan, and Virginia
Appendix V                                                                 43

Major Contributors
and
Acknowledgments




                         Page 20   GAO/GGD-97-48 Privatization Lessons Learned
                        Contents




Glossary of                                                                                         44

Privatization-Related
Terms
GAO Privatization                                                                                   48

Products Related to
State and Local
Governments
Figures                 Figure 1: Lessons Learned From Our Review of State and Local                 4
                          Privatization Efforts
                        Figure IV.1: The Indianapolis Approach: Costing and                         36
                          Competitiveness in the Delivery of Public Services
                        Figure IV.2: Michigan’s PERM Process for Analyzing Functions                39
                          and Services
                        Figure IV.3: Virginia’s Commonwealth Competition Council                    42
                          Process




                        Abbreviations

                        ABC        activity-based costing
                        CCC        (Virginia) Commonwealth Competition Council
                        CEO        chief executive officer
                        DMB        (Michigan) Department of Management and Budget
                        ESOP       employee stock ownership plan
                        GPRA       Government Performance and Results Act of 1993
                        GSE        government-sponsored enterprise
                        ITMRA      Information Technology Reform of 1996
                        JLARC      (Virginia) Joint Legislative Audit Review Commission
                        NPR        National Performance Review
                        OMB        Office of Management and Budget
                        PBO        performance based organization
                        PERM       (Michigan) privatize, eliminate, retain, or modify


                        Page 21                             GAO/GGD-97-48 Privatization Lessons Learned
Appendix I

Forms of Privatization and Frequency of
Use in State Programs and Services


                                                   Administration/
               Forms of privatization             General Services          Corrections
               Contracting out                                91.67%            92.09%
               Grants                                          0.56                1.19
               Vouchers                                        3.06                0.40
               Volunteerism                                    1.39                3.56
               Public-private partnerships                     1.67                2.37
               Private donation                                0.56                0.40
               Franchise                                       0.28                  .00
               Service shedding                                0.28                  .00
               Deregulation                                      .00                 .00
               Asset sales                                     0.56                  .00




               Page 22                       GAO/GGD-97-48 Privatization Lessons Learned
                                Appendix I
                                Forms of Privatization and Frequency of
                                Use in State Programs and Services




       Agencies’ frequency of use
                               Mental Health/                                                               Average by form of
Education        Health          Retardation         Social Services                Transportation                privatization
    81.29%         69.57%                 64.67%                 71.32%                        83.51%                    78.06%
     8.63          14.13                  15.63                  12.48                          4.50                      8.48
     0.72           4.89                   5.35                   9.31                          0.43                      4.11
     1.44           3.26                   3.64                   2.98                          5.35                      3.32
     5.04           5.43                   3.85                   2.23                          2.57                      2.95
     0.72            .00                   2.57                   0.19                          1.28                      0.96
     1.44           1.09                   1.71                   0.37                          1.50                      0.91
     0.72           1.09                   0.86                   0.74                          0.43                      0.58
      .00           0.54                   1.50                   0.37                          0.21                      0.46
      .00            .00                   0.21                     .00                         0.21                      0.17
                                Source: State Trends and Forecasts: Privatization, Council of State Governments, 1993.




                                Page 23                                          GAO/GGD-97-48 Privatization Lessons Learned
Appendix II

Expert Panelists on GAO’s Review of State
and Local Privatization Efforts1

               Keon S. Chi, Director, Center for State Trends and Innovations, Council of
               State Governments. Author, State Trends and Forecasts: Privatization,
               1993, and Privatization and Contracting Out for State Services: A Guide,
               1988, The Council of State Governments.

               John D. Donahue, Professor, John F. Kennedy School of Government,
               Harvard University. Author, The Privatization Decision: Public Ends,
               Private Means, 1989.

               William D. Eggers, Director of Privatization and Government Reform,
               Reason Foundation. Coauthor, Revolution at the Roots: Making Our
               Government Smaller, Better, and Closer to Home, 1995.

               David Seader, Senior Manager, Privatization and Infrastructure Group,
               Price Waterhouse. Former Executive Director, Privatization Council, Inc.,
               a nonprofit educational organization devoted to developing and expanding
               the concept of privatization and public-private partnerships.

               Dennis Houlihan, Labor Economist, Department of Research and
               Collective Bargaining Services, American Federation of State, County, and
               Municipal Employees.

               Ronald W. Jensen, Private Consultant. Former Public Works Director,
               Phoenix, Arizona. Developed city program on privatization; specifically
               initiated the innovative process of various city operations competitively
               bidding against private contractors.

               Linda Morrison, Private Consultant. Former Director of the Mayor’s
               Competitive Contracting Office, Philadelphia, Pennsylvania, and former
               competitive contracting advisor to the State of New Jersey.

               Larry Gupton, Deputy Auditor, State of Colorado. Coauthor of
               Privatization in Colorado State Government: Performance Audit, 1989, and
               the follow-up performance audit report, 1993.




               1
                The panel helped us identify governments to visit and validated our framework of privatization
               factors, which we used as a guide in data collection.



               Page 24                                           GAO/GGD-97-48 Privatization Lessons Learned
Appendix III

Overview of Recent Privatization Efforts in
the Six Governments

               This appendix provides an overview of selected recent privatization efforts
               in the six governments we surveyed. Officials from the six governments
               provided the following key initial actions, primary reasons for
               governmentwide privatization efforts, and an overview of select projects.




               Page 25                              GAO/GGD-97-48 Privatization Lessons Learned
                             Appendix III
                             Overview of Recent Privatization Efforts in
                             the Six Governments




                                                                            Primary reasons for governmentwide
Government      Key initial action                                          privatization efforts
Georgia         Governor created commission on privatization of             Limit growth of government.
                government services in 1995.
                                                                            Reduce scope of government.

                                                                            Improve government efficiency.




Massachusetts   Governor called on department managers to privatize         Reduce state budget deficit.
                functions and services in 1991.
                                                                            Reduce costs of government services.

                                                                            Improve quality of government services.




                             Page 26                                       GAO/GGD-97-48 Privatization Lessons Learned
                                          Appendix III
                                          Overview of Recent Privatization Efforts in
                                          the Six Governments




                                         Overview of governments’ select projects
                                                    Type of
Project               Primary reason                privatizationa        Reported resultsb
Milledgeville War     Privatization Commission      Outsourcing           • Estimated cost savings of 57 percent for 5 years.
Veterans              analysis showed that costs                          • Staff are more responsive to family concerns and
Home                  were much higher than in                               inquiries.
                      six benchmark states.                               • Quality of life enhancements include: cleaner home,
                                                                             better food, and cable television.

State maintenance     Not a core function of state. Outsourcing           • Estimated cost savings of $300,000 per year. Estimated
of autos                                                                     savings represent a projected 40 percent savings over
                                                                             government provision of service.
Lake Lanier Islands   Not a core function of state. Outsourcing           • Projected revenue of $300 million to $350 million over
recreational area                                                            the 50-year contract.
Prison health care    Reduce prison health care     Outsourcing           • Estimated annual cost savings of $8 million over 5-year
                      costs and improve medical                              contract.
                      care and access to care.                            • Expenses for state employee benefits have been
                                                                             reduced.
                                                                          • State shielded from liability because single vendor has
                                                                             become responsible for all inmate patient care and
                                                                             held responsible for all malpractice awards and legal
                                                                             costs.
                                                                          • Ten of 20 state prisons now meet National Commission
                                                                             on Correctional Health Care accreditation standards
                                                                             (previously none of the prisons met these standards).
                                                                          • Trips by prisoners to outside hospitals have been
                                                                             reduced from over 100 every day to 100 per week.
                                                                             This has reduced personnel and transportation costs.
Essex County          Improve quality of highway    Outsourcing/          • Dollar savings from the first year of the contract were $2
highway               maintenance.                  managed                 million in direct operating costs, $1 million in
maintenance                                         competition             reallocated equipment, and $1.5 million in
                                                                            reallocated personnel.
                                                                          • Maintenance overtime costs reduced by $252,000 in the
                                                                            first year of the contract.
                                                                          • Highway maintenance services have improved and
                                                                            include new bridge washing service, increased
                                                                            mowing of grass, roadway sweepings, and
                                                                            guardrail maintenance.
Social services       Apply private-sector          Outsourcing           • Overall increase in collections of $87 million during
revenue               technology to increase                                 first 2 years of contract (federal fiscal years 1994 and
management            revenue collections.                                   1995).
operations                                                                • Before privatization an estimated $49 million to $70
                                                                             million was not collected annually.
                                                                          • Agency has increased its annual level of revenue
                                                                             generation by 40 percent and reduced its per-dollar
                                                                             cost of revenue collection by 30 percent.
                                                                          • Additional revenue has been used to boost the
                                                                             agency’s preventive services, adoption, foster care
                                                                             and other child welfare initiatives.
                                                                                                                           (continued)




                                          Page 27                                       GAO/GGD-97-48 Privatization Lessons Learned
                          Appendix III
                          Overview of Recent Privatization Efforts in
                          the Six Governments




                                                                         Primary reasons for governmentwide
Government   Key initial action                                          privatization efforts
Michigan     Governor created public-private partnership                 Reduce the state’s budget deficit.
             commission in 1992.
                                                                         Shrink size and scope of government.




New York     Governor established an advisory commission on              Reduce size and scope of government.
             privatization and a research council on privatization in
             1995.                                                       Reduce cost and improve the quality of
                                                                         government services.




                          Page 28                                       GAO/GGD-97-48 Privatization Lessons Learned
                                            Appendix III
                                            Overview of Recent Privatization Efforts in
                                            the Six Governments




                                           Overview of governments’ select projects
                                                      Type of
Project                Primary reason                 privatizationa        Reported resultsb
Workers                State determined that the      Asset sale            • The state gained $261 million from the sale of the
Compensation           fund should no longer be a                              Accident Fund.
Accident Fund          government function.                                 • The private Accident Fund Company has reduced rates
                                                                               by an average of 9.2 percent in the first year of
                                                                               operations.
                                                                            • Quality service at competitive rates.
                                                                            • Removes potential for political interference in the
                                                                               ratemaking process.
                                                                            • The private Accident Fund Company has introduced
                                                                               new products for participants, such as group
                                                                               dividend programs which offer the potential for
                                                                               rebates on insurance premiums if the overall loss ratio
                                                                               for the group remains low.
Physical security at   Cost savings.                  Outsourcing           • Estimated savings of approximately $1.2 million over
military facilities                                                            fiscal year 1996 costs from contracting security
                                                                               programs at Camp Grayling, Alpena Combat Center,
                                                                               and Battle Creek Air National Guard Base.
                                                                            • Estimated cost savings represent a savings of 70
                                                                               percent over fiscal year 1996 costs.
                                                                            • Allows the state’s Department of Military Affairs to meet
                                                                               federal security requirements at all three sites within
                                                                               the limitations of available federal funding.
                                                                            • Camp Grayling increased level of security with
                                                                               enhanced monitoring coverage.
Sales of armories      Excess, unused armories        Asset sale            • State gained $407,900 from the sale of the St. Joseph
                       that resulted from national                             and Benton Harbor armories.
                       defense downsizing were                              • Sale proceeds from armory asset sales deposited in
                       no longer needed.                                       Michigan National Guard Armory Construction Fund
                                                                               to be used for acquisition and construction of facilities
                                                                               and other purposes, thereby offsetting future1
                                                                               general fund expenditures.
                                                                            • State no longer responsible for oversight of vacant
                                                                               facilities.
Vista Hotel            Owning/operating hotel         Asset sale            • Hotel was sold in 1995 by the New York-New Jersey
                       was not considered                                     Port Authority for $141.5 million.
                       to be a governmental
                       function.
Tax form processing    To enhance cost savings        Outsourcing           • Estimated annual savings of $7.5 million.
                       and the efficiency and
                       effectiveness of processing
                       tax returns.
Economic development Reduce costs and improve         Outsourcing           • Approximately $3 million estimated annual cost savings.
and housing loan     services.
portfolio servicing
                                                                                                                             (continued)




                                            Page 29                                       GAO/GGD-97-48 Privatization Lessons Learned
                            Appendix III
                            Overview of Recent Privatization Efforts in
                            the Six Governments




                                                                           Primary reasons for governmentwide
Government     Key initial action                                          privatization efforts
Virginia       Key legislators and governor created a competition          Improve service and productivity of
               council in 1995.                                            government services.

                                                                           Reduce cost of operations.




Indianapolis   Mayor created a private-sector advisory group in 1992.      Reduce size and scope of government.

                                                                           Increase the quality and decrease the cost
                                                                           of services.




                            Page 30                                       GAO/GGD-97-48 Privatization Lessons Learned
                                             Appendix III
                                             Overview of Recent Privatization Efforts in
                                             the Six Governments




                                         Overview of governments’ select projects
                                                       Type of
Project              Primary reason                    privatizationa        Reported resultsb
Delinquent tax       Increase collections.             Outsourcing           • Estimated $6.8 million in collections in first year.
collection                                                                   • Improved collection of previously uncollectable
                                                                                accounts.

Education loan       Not considered to be a            Asset sale            • State gained $62 million from sale of loan portfolio and
authority            government function.                                       building facilities that housed loan authority staff
                                                                                operations.
Child support        Need to respond to                Outsourcing           • Administrative cost of private office to collect $1 dollar
enforcement          increased caseload and                                     support was 60 percent lower than public office
                     take advantage of private                                  during an 18-month period.
                     sector technology.                                      • Improved customer service satisfaction.
                                                                             • Increased number of clients served.
Wastewater           Cost savings.                     Outsourcing           • Estimated $65 million cost savings between 1994 and
treatment                                                                       1998.
                                                                             • Estimated cost savings represent a 42 percent savings
                                                                                over government provision of service.
                                                                             • Increased capacity to treat effluent with fewer staff.
                                                                             • Improved effluent quality.
                                                                             • Better maintenance program resulted in improved
                                                                                equipment reliability.
                                                                             • Combined sewer overflows reduced by 50 percent.
Airport management   Promote economic                  Outsourcing           • Estimated $105 million in cost savings or new revenues
                     development.                                               between 1995 and 2004.
                                                                             • Estimated cost savings represent a 28-percent savings
                                                                                over government provision of service.
                                                                             • 16.5 percent reduction in the cost per enplaned
                                                                                passenger from 1994 to 1995.
                                                                             • 22 percent reduction in airline landing fees from 1994 to
                                                                                1995.
                                                                             • Increased retail selection and quality for passengers.
Street maintenance   Cost savings.                     Outsourcing/          • Estimated $700,000 in cost savings between 1992 and
                                                       managed                  1996.
                                                       competition           • Estimated cost savings represented a 30-percent
                                                                                savings over previous costs.
                                                                             • Increased chuckhole crew daily productivity by 68
                                                                                percent.
                                                                             • A 200-percent annual average increase in lane miles
                                                                                repaired (cracks sealed) between 1993 and 1996
                                                                                compared to 1993 baseline.
Audio-visual/        Cost savings.                     Outsourcing           • Estimated $1.5 million in cost savings between 1992
microfilm services                                                              and 1995.
                                                                             • Estimated cost savings represented a 54-percent
                                                                                savings over government provision of service.
                                                                             • Eliminated prior 3-year backlog of service requests.
                                                                             • Consistent achievement of turnaround requirements.
                                                                             • Improved service to citizens using microfilm archives.
                                                                                                                               (continued)




                                             Page 31                                       GAO/GGD-97-48 Privatization Lessons Learned
                                        Appendix III
                                        Overview of Recent Privatization Efforts in
                                        the Six Governments




                                                                                       Primary reasons for governmentwide
Government                 Key initial action                                          privatization efforts
Indianapolis (continued)




                                        Page 32                                       GAO/GGD-97-48 Privatization Lessons Learned
                                       Appendix III
                                       Overview of Recent Privatization Efforts in
                                       the Six Governments




                                       Overview of governments’ select projects
                                                    Type of
Project               Primary reason                privatizationa            Reported resultsb
Maintenance of city   Cost savings.                 Managed                   • Estimated $4.2 million in cost savings between 1995
vehicles                                            competition                  and 1997.
                                                                              • Estimated cost savings represent a 21-percent savings
                                                                                 over government provision of service.
                                                                              • Fewer labor grievances in first year of contract
                                                                                 compared to prior 1-year period.
                                                                              • Cost of workers compensation claims decreased by
                                                                                 two-thirds since 1994.
                                       Note: The six governments selected the projects to illustrate the range of activities that they have
                                       undertaken in their recent privatization efforts.
                                       a
                                        See the end of this report for our glossary of privatization terms.
                                       b
                                           All results are as reported by the governments. We did not verify these results.

                                       Sources: Georgia, Massachusetts, Michigan, New York, Virginia, and city of Indianapolis
                                       government officials.




                                       Page 33                                               GAO/GGD-97-48 Privatization Lessons Learned
Appendix IV

Analytical Frameworks Used by
Indianapolis, Michigan, and Virginia

                           Most of the state and local government officials and experts we surveyed
                           said that having a framework or process was key to implementing
                           privatization because it provided a consistent approach for analyzing
                           government activities. All six governments used some form of analytical
                           framework to guide their decisionmaking. Some said that the repeated use
                           of such a framework shortened the learning time in analyzing government
                           functions.

                           These analytical frameworks typically included a step-by-step
                           decisionmaking process. Many of the frameworks established by the six
                           governments shared common elements, such as providing criteria for
                           selecting activities to privatize, an inventory of privatization candidates,
                           cost comparison and evaluation methods, and procedures for monitoring
                           the performance of privatized activities. Indianapolis, Michigan, and
                           Virginia had the most formalized frameworks and they are described
                           below.


The Indianapolis Costing   After introducing competition into government in 1992, Indianapolis
and Competitiveness        included city employees through their union in the process for competitive
Model                      bidding for contracts to deliver city services. Once a number of activities
                           had been identified as candidates for competition, city officials developed
                           a three-phase approach to implementing a managed competition process.
                           The three phases were (1) determining the costs of government services
                           using activity-based costing, (2) openly and competitively bidding for
                           functions or services and contracting with either a city agency or
                           private-sector firm to provide those functions or services, and
                           (3) evaluating the level of performance of functions and services delivered
                           using a system of citizen and customer satisfaction surveys and measures
                           of cost and performance. The costing and competitiveness model is shown
                           in figure IV.1 and worked as follows.

                           First, city officials, after a discussion with the affected unions, decided
                           whether or not to open competitive bidding for an activity. If the decision
                           was to compete, the city then issued a request for proposals. City officials
                           provided a bid package to the union at the same time as other potential
                           bidders.

                           Second, to ensure that city employees were equipped to participate in the
                           process, the city provided managers and union members with the
                           analytical training they needed to spot inefficiencies, and with the




                           Page 34                               GAO/GGD-97-48 Privatization Lessons Learned
Appendix IV
Analytical Frameworks Used by
Indianapolis, Michigan, and Virginia




knowledge needed to analyze and reduce costs. The city also provided
consultants to help city employees prepare their proposals.

Third, a union-management bid team reviewed the bid document and
determined (1) the number of employees and hours needed to perform the
function as well as the amount of equipment and materials needed and
(2) the necessary financial and performance information, which was
provided by management. The team then worked to streamline the work
processes and rewrite the workplan. Often with the help of consultants
provided by the city, the team then prepared the bid package which was
submitted along with private bids.

Fourth, at a public forum, all public and private-sector bids were opened
together and the winning bid was announced.

Finally, if the public sector won a competition and the union-management
team performed the activity at the desired level of performance for less
than it bid, the team received a share of the savings at the end of the year.
The city, after it tracked performance over a period of years, could place a
moratorium on bidding for areas for which city employees had
demonstrated performance excellence and in which they consistently
outbid private competitors.




Page 35                                GAO/GGD-97-48 Privatization Lessons Learned
                                     Appendix IV
                                     Analytical Frameworks Used by
                                     Indianapolis, Michigan, and Virginia




Figure IV.1: The Indianapolis
Approach: Costing and
Competitiveness in the Delivery of
Public Services
                                               Step 1         Decision to compete

                                                                City discusses work with affected union.
                                                                City issues request for proposals.
                                                                City provides bid package to union.




                                               Step 2         Training

                                                                City provides training to give
                                                                managers and workers knowledge
                                                                needed to cut costs.




                                               Step 3        Bid preparation and submission

                                                                Union determines number of workers and
                                                                hours and amount of equipment and
                                                                material needed.

                                                               Management provides financial
                                                               information.

                                                               Union and management streamline
                                                               workplan and submit bid.




                                               Step 4         Bid opening

                                                               Bids opened and announced at a
                                                               public forum.




                                               Step 5         Gainsharing and bidding moratorium

                                                                 City workforce earns share of cost
                                                                 savings if it performed function
                                                                 under bid price.
                                                                 City may place a moratorium on
                                                                 bidding in cases where city workforce
                                                                 demonstrates constant superiority.




                                     Source: City of Indianapolis.




                                     Page 36                                             GAO/GGD-97-48 Privatization Lessons Learned
                          Appendix IV
                          Analytical Frameworks Used by
                          Indianapolis, Michigan, and Virginia




Michigan’s PERM Process   Michigan established its framework in 1992. The framework provided a set
                          of procedures for analyzing government activities to determine if they
                          should be privatized, eliminated, retained in current form, or modified
                          (PERM). To accomplish these objectives, the PERM process included the
                          steps described below. Michigan’s operating agencies, Privatization
                          Division, and private contractors have performed PERM studies of state
                          activities and functions. Figure IV.2 illustrates this process.

                          Initially, agency directors used the Public-Private Partnership
                          Commission’s list of suggested activities1 to choose functions and services
                          to be analyzed. The analyses were to be done using a three-part analytical
                          model developed by the Privatization Division in Michigan’s Department of
                          Management and Budget (DMB). First, an historical analysis of the activity
                          was done to identify factors that caused the state government to become
                          involved in the activity and whether those factors have changed. This
                          analysis also tracked the state’s level of responsibility throughout its
                          involvement.

                          Second, the agency prepared a report which recommended whether the
                          function should be privatized, eliminated, retained in current form, or
                          modified. This included evaluating the potential effects on customers and
                          other state activities of changing a function or service. It also included a
                          quantitative assessment of activity operations, as well as results to be
                          achieved and in what time frames. Issues involved in resolving potential or
                          pending issues (legal, liability, confidentiality, etc.) were also assessed.

                          Third, the agency prepared an analysis of the function or service’s current
                          costs, as well as a basis for determining the cost of operations if they
                          would be changed. For example, if the initial decision were to privatize an
                          existing state activity, the third part of the analysis would include both the
                          cost of the current program as well as an estimate of what the privatized
                          activity would cost. The latter would include estimates of the costs
                          associated with the transition from government operation to privatized
                          status. Agency management then reviewed the PERM analysis and decided
                          what action was to be taken. This decision was forwarded to the DMB’s
                          Privatization Division for review. Each recommendation was either agreed
                          to or, if not, it was renegotiated or studied further.

                          Since 1995, the focus has shifted from agency-initiated PERM studies to
                          Privatization Division-initiated PERM studies, particularly on functions and

                          1
                            Final Report-PERM: Privatize, Eliminate, Retain or Modify, Michigan’s Public-Private Partnership
                          Commission, December 1992.



                          Page 37                                            GAO/GGD-97-48 Privatization Lessons Learned
Appendix IV
Analytical Frameworks Used by
Indianapolis, Michigan, and Virginia




services that cross agency lines. Thus, the process changed in that DMB’s
Privatization Division would conduct studies, using the three-part
analytical model described above, after obtaining approval from DMB and
the Governor’s office. Privatization Division staff would then submit their
PERM analysis to the affected agency for review and comment. After DMB
and the affected agency negotiated the recommendation made in DMB’s
PERM study, both parties agreed on a decision to implement.


Michigan has also contracted out to have PERM studies conducted. The
state’s Office of Information Technology maintains a list of preapproved
PERM contractors, which agencies can contract with to perform PERM
studies. These are usually done in consultation with the Privatization
Division staff and the affected department and address issues outlined in
the three-part analysis model outlined above.

According to Michigan officials, most decisions calling for privatization,
elimination, retention, or modification could be implemented by executive
branch administrative actions. When privatization was recommended,
Michigan’s Civil Service Department reviewed agency proposals to
contract for personal services.2 A proposed privatization also could be
subject to legislative approval if authorizing legislation needs to be
created, changed, or repealed.




2
 As defined by Michigan’s Civil Service Commission Rules, personal services are services that the state
contracts for with persons who are not classified as employees of the state.



Page 38                                            GAO/GGD-97-48 Privatization Lessons Learned
                                       Appendix IV
                                       Analytical Frameworks Used by
                                       Indianapolis, Michigan, and Virginia




Figure IV.2: Michigan’s PERM Process
for Analyzing Functions and Services

                                                              Identify potential activities
                                                                   to be analyzed.




                                                             Perform PERM analysis.




                                                              Decide if privatization,
                                                             elimination, retention, or
                                                            modification is appropriate.




                                                                 Department of
                                                            Management and Budget
                                                           (DMB) and affected agency
                                                            discuss and review PERM
                                                                    analysis.




                                                                    Do DMB and                     No
                                                                  affected agency
                                                                      concur?



                                                                                    Yes



                                                             Implement based upon
                                                              disposition decision. a




                                                                 Monitor and evaluate
                                                                  privatization effort.




                                       Page 39                                             GAO/GGD-97-48 Privatization Lessons Learned
                        Appendix IV
                        Analytical Frameworks Used by
                        Indianapolis, Michigan, and Virginia




                        a
                         Submit decision information to appropriate entities as required (e.g., Attorney General, Civil
                        Service, Contract Management, Facilities, Purchasing).

                        Source: Michigan’s Department of Management and Budget, Privatization Division.




Virginia Commonwealth   Virginia’s framework, known as the Commonwealth Competition Council
Competition Council     (CCC) Process, was used to implement governmentwide privatization
Process                 efforts for the first time in 1996 (see figure IV.3). State officials told us that
                        most of the previous privatization efforts used a similar approach. This
                        process is dynamic as state government organizations may be at different
                        steps depending on their respective agency performance requirements.

                        In step 1, the Council held hearings to solicit input from citizens, business
                        interests, and government employees. Using this input and information
                        from functional departmental reviews, the CCC developed an inventory of
                        functions or services that could be opened to competition with the private
                        sector. The inventory for future years is published in the Council’s annual
                        report.

                        In step 2, agencies conducted a public-private performance analysis of
                        selected activities to determine whether they should be opened to
                        competition with the private sector. The performance analysis consisted of
                        five parts. The first part evaluated an activity’s potential for competition,
                        assessing such aspects as the private sector’s capacity and the state’s
                        ability to measure performance for evaluation purposes. The second part
                        assessed the full cost of operating the current activity as well as the
                        estimated cost of the contract for the function or activity considered for
                        privatization. The third part focused on public policy issues related to
                        public safety and welfare. The fourth considered issues involved in
                        planning the competition, such as personnel and transition considerations,
                        as well as contract administration. The fifth component considered
                        implementation issues such as procurement requirements and quality
                        assurance evaluation procedures.

                        In step 3, the agency requested proposals from private-sector firms and, in
                        certain instances, state agencies. The Council staff oversaw the cost
                        comparison evaluation process. An interagency team did an independent
                        review of in-house costs to ensure the government costs were complete,
                        accurate, and reasonable. The team was selected by and reported to the
                        Council and included officials from the offices of the Attorney General,
                        Planning and Budget, Purchases and Supplies, State Internal Auditor, Joint
                        Legislative Audit and Review Commission, the Virginia Institute of



                        Page 40                                            GAO/GGD-97-48 Privatization Lessons Learned
Appendix IV
Analytical Frameworks Used by
Indianapolis, Michigan, and Virginia




Government, Auditor of Public Accounts, and Council of Higher
Education.

In step 4, the agency received sealed proposals from the private firms, and
if a managed competition was used, from public employees, and
announced a tentative decision to continue in-house performance or to
award the contract to a particular bidder. Contracts were awarded for a
period not to exceed 5 years.

Step 5 required that the agency establish an ongoing quality assurance
program to ensure that quality and cost standards established in the
contract were met. The agency was required to conduct a
postperformance review at the end of the contract period.




Page 41                                GAO/GGD-97-48 Privatization Lessons Learned
                                       Appendix IV
                                       Analytical Frameworks Used by
                                       Indianapolis, Michigan, and Virginia




Figure IV.3: Virginia’s Commonwealth
Competition Council Process
                                                 Step 1         Input                                       Inventory of
                                                                                                            competition/
                                                                Gather input from                           privatization
                                                                  Public hearings                           opportunities.
                                                                  Business interests
                                                                  Government agencies.




                                                 Step 2         Selection

                                                                   Further determine the feasibility
                                                                   of the competition/privatization
                                                                   candidates by conducting a
                                                                   public vs. private performance
                                                                   analysis.




                                                 Step 3         Competition

                                                                   Under the VA Public
                                                                   Procurement Act, conduct cost
                                                                   comparisons through the
                                                                   issuance and evaluation of
                                                                   requests for proposals.

                                                                   Have independent reviewers
                                                                   conduct evaluations.




                                                 Step 4         Award
                                                                   Make decisions to continue
                                                                   in-house performance or award a
                                                                   contract to a private-sector
                                                                   bidder. (These decisions are
                                                                   tentative and are subject to
                                                                   review and appeal by all affected
                                                                   parties.)

                                                                   Award contracts for no more
                                                                   than 5 years.




                                                 Step 5         Monitoring

                                                                  Establish an ongoing quality
                                                                  assurance program to ensure
                                                                  required standards of quality
                                                                  and cost effectiveness.

                                                                  CCC must conduct a
                                                                  postperformance review at the
                                                                  end of the contract period.


                                       Source: Virginia’s Commonwealth Competition Council.




                                       Page 42                                            GAO/GGD-97-48 Privatization Lessons Learned
Appendix V

Major Contributors and Acknowledgments



Major Contributors

General Government           John K. Needham, Assistant Director, (202) 512-5274
Division, Washington, D.C.   Donald L. Bumgardner, Project Manager, (202) 512-7034
                             Debra L. McKinney, Senior Evaluator
                             Hugh J. Ripper, Jr., Senior Evaluator
                             Anthony J. Wysocki, Evaluator



Acknowledgments

Staff Acknowledgments        Anthony Assia, General Government Division, provided assistance in
                             reviewing report drafts and in communicating this report’s message.


State and City Government    The following officials in the six governments provided us with assistance
Acknowledgments              to learn about their governments’ privatization efforts and provided
                             comments on this report:

                             Charles D. Baker, Secretary, Executive Office of Administration and
                             Finance, Commonwealth of Massachusetts.

                             Phil Bomerscheim, Director, Virginia Commonwealth Competition
                             Council, Commonwealth of Virginia.

                             John E. Buttarazzi, Senior Vice President, Privatization Group, Empire
                             State Development Corporation, New York State.

                             Chere Calloway, Director, Privatization Division, Department of
                             Management and Budget, State of Michigan.

                             Skip Stitt, Deputy Mayor, and David Lips, Special Assistant for Policy
                             Development, City of Indianapolis.

                             Joe D. Tanner, Executive Director, Commission on Privatization of
                             Government Services, State of Georgia.




                             Page 43                              GAO/GGD-97-48 Privatization Lessons Learned
Glossary of Privatization-Related Terms


Asset Sale                An asset sale is the transfer of ownership of government assets,
                          commercial type enterprises, or functions to the private sector. In general,
                          the government will have no role in the financial support, management, or
                          oversight of a sold asset. However, if the asset is sold to a company in an
                          industry with monopolistic characteristics, the government may regulate
                          certain aspects of the business, such as the regulation of utility rates.


Competition               Competition occurs when two or more parties independently attempt to
                          secure the business of a customer by offering the most favorable terms.
                          Competition in relation to government activities is usually categorized in
                          three ways: (1) public versus private, in which public-sector organizations
                          compete with the private sector to conduct public-sector business;
                          (2) public versus public, in which public-sector organizations compete
                          among themselves to conduct public-sector business; and (3) private
                          versus private, in which private-sector organizations compete among
                          themselves to conduct public-sector business.


Contracting Out           Contracting out is the hiring of private-sector firms or nonprofit
                          organizations to provide a good or service for the government. Under this
                          approach, the government remains the financier and has management and
                          policy control over the type and quality of services to be provided. Thus,
                          the government can replace contractors that do not perform well.


Divestiture               Divestiture involves the sale of government-owned assets or
                          commercial-type functions or enterprises. After the divestiture, the
                          government generally has no role concerning financial support,
                          management, regulation, or oversight.


Employee Stock            Under an employee stock ownership plan (ESOP), employees take over or
Ownership Plans           participate in the management of the organization that employs them by
                          becoming shareholders of stock in that organization. In the public sector,
                          an ESOP can be used in privatizing a service or function. Recently, for
                          example, the Office of Personnel Management established an ESOP for its
                          employees who perform personnel background investigations.


Franchising of Internal   Under the franchising of internal services, government agencies may
Services                  provide administrative services to other government agencies on a



                          Page 44                               GAO/GGD-97-48 Privatization Lessons Learned
                          Glossary of Privatization-Related Terms




                          reimbursable basis. Franchising gives agencies the opportunity to obtain
                          administrative services from another governmental entity instead of
                          providing them for themselves.


Franchising-External      In the franchise-external service technique, the government grants a
Service                   concession or privilege to a private-sector entity to conduct business in a
                          particular market or geographical area, such as concession stands, hotels,
                          and other services provided in certain national parks. The government
                          may regulate the service level or price, but users of the service pay the
                          provider directly.


Government Corporations   Government corporations are separate legal entities that are created by
                          Congress, generally with the intent of conducting revenue-producing
                          commercial-type activities and that are generally free from certain
                          government restrictions related to employees and acquisitions.


Government-Sponsored      Government-sponsored enterprises (GSE) are privately owned, federally
Enterprises               chartered financial institutions with a nationwide scope and limited
                          lending powers that benefit from an implicit federal guarantee that
                          enhances a GSE’s ability to borrow money in the private sector. They are
                          not agencies of the United States but serve as a means of accomplishing a
                          public purpose defined by law.


Joint Ventures            See public-private partnership.



Leasing Arrangements      Leasing arrangements are a form of public-private partnership. Under a
                          long-term lease, the government may lease a facility or enterprise to a
                          private-sector entity for a specified period. Maintenance, operation, and
                          payment terms are spelled out in the lease agreement. Under a
                          sale-leaseback arrangement, the government sells an asset to a
                          private-sector entity and then leases it back. Under a sale-service contract
                          or lease-service contract, an asset sale or long-term lease is coupled with
                          an arrangement with the purchaser to furnish services for a specified
                          period. Leases in which the government leases a facility (e.g., a building
                          lease) are considered a form of contracting out, rather than a
                          public-private partnership.



                          Page 45                                   GAO/GGD-97-48 Privatization Lessons Learned
                             Glossary of Privatization-Related Terms




Managed Competition          Under managed competition, a public-sector agency competes with
                             private-sector firms to provide public-sector functions or services under a
                             controlled or managed process. This process clearly defines the steps to
                             be taken by government employees in preparing their own approach to
                             performing an activity. The agency’s proposal, which includes a bid
                             proposal for cost-estimate, is useful to compete directly with
                             private-sector bids.


Outsourcing                  Under outsourcing, a government entity remains fully responsible for the
                             provision of affected services and maintains control over management
                             decisions while another entity operates the function or performs the
                             service. This approach includes contracting out, the granting of franchises
                             to private firms, and the use of volunteers to deliver public services.


Performance Based            Under a performance based organization (PBO), policymaking is to be
Organizations                separated from service operation functions by moving all policymaking
                             responsibilities to a Presidential appointee. The service operations are
                             moved to an organization to be headed by a chief executive officer (CEO),
                             hired on a competitive contract for a fixed term. The CEO’s contract
                             defines expected performance and in exchange for being held accountable
                             for achieving performance, the CEO is granted certain flexibilities for
                             human resource management, procurement, and other administrative
                             functions. As of March 1997, several PBOs had been proposed but no PBO
                             had been authorized in the federal government.


Privatization                The term privatization has generally been defined as any process aimed at
                             shifting functions and responsibilities, in whole or in part, from the
                             government to the private sector.


Public-Private Partnership   Under a public-private partnership, sometimes referred to as a joint
                             venture, a contractual arrangement is formed between public- and
                             private-sector partners, and can include a variety of activities involving the
                             private sector in the development, financing, ownership, and operation of
                             a public facility or service. It typically includes infrastructure projects
                             and/or facilities. In such a partnership, public and private resources are
                             pooled and their responsibilities divided so that each partner’s efforts
                             complement one another. Typically, each partner shares in income
                             resulting from the partnership in direct proportion to the partner’s



                             Page 46                                   GAO/GGD-97-48 Privatization Lessons Learned
                       Glossary of Privatization-Related Terms




                       investment. Such a venture, while a contractual arrangement, differs from
                       typical service contracting in that the private-sector partner usually makes
                       a substantial cash, at-risk, equity investment in the project, and the public
                       sector gains access to new revenue or service delivery capacity without
                       having to pay the private-sector partner.


Service Shedding       Divestiture through service shedding occurs when the government
                       reduces the level of service provided or stops providing a service
                       altogether. Private-sector businesses or nonprofit organizations may step
                       in to provide the service if there is a market demand.


Subsidies              The government can encourage private-sector involvement in
                       accomplishing public purposes through tax subsidies or direct subsidies,
                       such as the funding of low-income housing and research and development
                       tax credits.


User Fees              User fees require those who use a government service to pay some or all of
                       the cost of the service rather than having the government pay for it
                       through revenues generated by taxes. Charging entry fees into public
                       parks is an example of a user fee.


Volunteer Activities   An activity in which volunteers provide all or part of a service and are
                       organized and directed by a government entity can also be considered a
                       form of outsourcing. Volunteer activities are conducted either through a
                       formal agency volunteer program or through a private nonprofit service
                       organization.


Vouchers               Vouchers are government financial subsidies given to individuals for
                       purchasing specific goods or services from the private or public sector.
                       The government gives individuals redeemable certificates or vouchers to
                       purchase the service in the open market. Under this approach, the
                       government relies on the market competition for cost control and
                       individual citizens to seek out quality goods or services. The government’s
                       financial obligation to the recipient is limited by the amount of the
                       voucher. A form of vouchers are grants, which can be given to state and
                       local governments that may use the funds to buy services from the private
                       sector.



                       Page 47                                   GAO/GGD-97-48 Privatization Lessons Learned
GAO Privatization Products Related to State
and Local Governments

               Child Support Enforcement: Early Results on Comparability of Privatized
               and Public Offices (GAO/HEHS-97-4, Dec. 16, 1996).

               Airport Privatization: Issues Related to the Sale or Lease of U.S.
               Commercial Airports (GAO/RCED-97-3, Nov. 7, 1996).

               Child Support Enforcement: States’ Experience With Private Agencies’
               Collection of Support Payments (GAO/HEHS-97-11, Oct. 23, 1996).

               Private and Public Prisons: Studies Comparing Operational Costs and/or
               Quality of Service (GAO/GGD-96-158, Aug. 16, 1996).

               Child Support Enforcement: States and Localities Move to Privatized
               Services (GAO/HEHS-96-43FS, Nov. 20, 1995).

               District of Columbia: City and State Privatization Initiatives and
               Impediments (GAO/T-GGD-95-194, June 28, 1995).

               District of Columbia: Actions Taken in Five Cities to Improve Their
               Financial Health (GAO/T-GGD-95-110, Mar. 2, 1995).




(410032)       Page 48                               GAO/GGD-97-48 Privatization Lessons Learned
Ordering Information

The first copy of each GAO report and testimony is free.
Additional copies are $2 each. Orders should be sent to the
following address, accompanied by a check or money order
made out to the Superintendent of Documents, when
necessary. VISA and MasterCard credit cards are accepted, also.
Orders for 100 or more copies to be mailed to a single address
are discounted 25 percent.

Orders by mail:

U.S. General Accounting Office
P.O. Box 6015
Gaithersburg, MD 20884-6015

or visit:

Room 1100
700 4th St. NW (corner of 4th and G Sts. NW)
U.S. General Accounting Office
Washington, DC

Orders may also be placed by calling (202) 512-6000
or by using fax number (301) 258-4066, or TDD (301) 413-0006.

Each day, GAO issues a list of newly available reports and
testimony. To receive facsimile copies of the daily list or any
list from the past 30 days, please call (202) 512-6000 using a
touchtone phone. A recorded menu will provide information on
how to obtain these lists.

For information on how to access GAO reports on the INTERNET,
send an e-mail message with "info" in the body to:

info@www.gao.gov

or visit GAO’s World Wide Web Home Page at:

http://www.gao.gov




PRINTED ON    RECYCLED PAPER
United States                       Bulk Rate
General Accounting Office      Postage & Fees Paid
Washington, D.C. 20548-0001           GAO
                                 Permit No. G100
Official Business
Penalty for Private Use $300

Address Correction Requested