Social Service Privatization

Even though governments have for decades privatized a broad range of government social services, interest in privatization has been renewed because of its potential as a means of coping with limited public resources. Moreover, recent changes in federal welfare legislation have focused on privatizing, or contracting out, social services in particular. Four social programs affected by this legislation--child care, child welfare, child support enforcement, and new block grants to assist needy families--constitute a large share of the nation's welfare system. Debate has focused on whether privatization improves services and boosts efficiency and on what the appropriate role of the federal government should be. Yet little is known about the extent and the policy implications of privatizing these social services. This report addresses the following three questions: (1) What is the recent history of efforts by state and local governments to privatize federally funded social services? (2) What are the key issues surrounding privatization of state and local social services? (3) What are the federal policy implications of privatizing state and local social services? GAO summarized this report in testimony before Congress; see: Child Support Enforcement Privatization: Challenges in Ensuring Accountability for Program Results, by Mark V. Nadel, Associate Director for Income Security Issues, before the Subcommittee on Human Resources and Intergovernmental Relations, House Committee on Government Reform and Oversight. GAO/T-HEHS-98-22.

GAO found that: (1) since 1990, more than half of the state and local governments GAO contacted have increased their contracting for services, as indicated by the number and type of services privatized and the percentage of social service budgets paid to private contractors; (2) many experts GAO consulted expect privatization to expand further; (3) GAO's research found that the recent increases in privatization were most often prompted by political leaders and top program managers, who were responding to an increasing demand for public services and a belief that contractors can provide higher-quality services more cost-effectively than can public agencies; (4) in attempts to provide more cost-effective services, more states are contracting out larger portions of their child support enforcement programs; (5) state and local governments are turning to contractors to provide some services and support activities in which they lack experience or technical expertise; (6) state and local governments face several key challenges as they plan and implement strategies to privatize their social services; (7) first is the challenge to obtain sufficient competition to realize the benefits of privatization; (8) second, state and local governments often have little experience in developing contracts that specify program results in sufficient detail to effectively hold contractors accountable; (9) third, it can be difficult for states to monitor performance in some social service programs; (10) increased privatization raises questions about how the Department of Health and Human Services (HHS) will fulfill its obligation to ensure that broad program goals are achieved; (11) assessing program results presents a significant challenge throughout the government, yet it is an important component of an effective system for holding service providers accountable; (12) the difficulties the states have in monitoring privatized social services focus attention on the need to improve accountability for results; (13) some of the state and local officials GAO interviewed believe that HHS should clarify its program goals and develop performance measures states can use to monitor and evaluate contractor efforts; (14) the Government Performance and Results Act of 1993 requires federal agencies like HHS to focus their efforts on achieving better program results; (15) HHS' practice of holding states accountable primarily for compliance with statutes and regulations may make the transition particularly difficult; and (16) however, promising approaches are available within HHS in moving to a program results orientation.