State and local governments have turned to private providers for a wide range of services, from routine matters such as road maintenance and garbage removal to sensitive undertakings such as fire protection and the operation of corrections facilities (Sclar 2000). A 1997 survey by the Council on State Governments documents the use of privatization by state agencies of at least 15 different types, as varied as environmental protection, education, and the treasury (Chi and Jasper 1998).
This diversity of privatization experience applies within the sphere of welfare and related services as well. Under contract with public agencies, private organizations and corporations supply job training and placement, child support enforcement, child care and child protection, the administration of cash assistance programs, and other services.
This chapter describes the current state of social service privatization. It first reviews data from surveys on state and local contracting. It then highlights the types of social services privatized and, finally, describes the types of nongovernmental organizations that provide these services.
Survey Findings on the Extent of Social Service Privatization
While a number of surveys have collected information on state and local governments' use of privatization, few focus specifically on social services. These assessments employ a variety of methods and definitions, making comparisons among them difficult. They do reveal, however, a general trend toward increasing privatization for social service delivery. The findings of three previous studies are particularly informative:
- Survey data collected in 1992 and 1993 by the Reason Foundation summarize the extent of social service privatization in the period before welfare reform. Agencies in 29 states and 15 counties responded to the survey, with almost all (94 percent of state agencies and 88 percent of county agencies) confirming that they used some form of privatization in providing social services. Nonprofit organizations were the usual provider of these services, receiving about 80 percent of all contracts. Services most commonly privatized included day care, drug and alcohol treatment, child welfare and adoption, programs for the elderly, and employment training (Eggers and Ng 1993).
- Although the Council on State Governments 1997 privatization survey elicited responses from social services agencies in only 27 states, more than half of those who responded indicated that they had privatized at least 15 percent of their programs and services, and nearly nine out of ten reported that privatization activity had increased since 1992. Indeed, an analysis of the survey's findings concluded that "social service agencies were the most likely to raise their level of privatization" among the 15 types of agencies covered by the study (Chi and Jasper 1998). Only three state agencies reported that they had privatized "welfare services," but eight said they had contracted for "client assessment" and 10 or more had outsourced services such as child care, drug and alcohol treatment, employment, and Food Stamp issuance. Three-quarters of the agencies responding to the survey expected the trend toward increased contracting out to continue.
- Research by the GAO (1997b) also found increased privatization of social services. Experts from organizations such as the National Governors' Association, the National Association of Counties, and the National Conference of State Legislators told the GAO that the percentage of state and local social service budgets paid to contractors had grown in recent years. Representatives of state and local governments concurred, noting that since 1990 contractors had both received an increased share of social service budgets and performed a greater number of government functions. The GAO report highlights wide variation in the share of specific program budgets paid to contractors, however, because individual localities operating similar programs make different decisions regarding the extent of privatization.
Types of Services Privatized
A review of state and local governments' experience with privatization suggests that outsourcing of social services takes place, broadly, in two forms. Under one method, government agencies contract with private providers to deliver single components of a larger program--job training and placement for TANF recipients, for example. Alternatively, agencies may look to private contractors to deliver a comprehensive set of program services in a specific location--a full-service operation for child support enforcement, for instance, or a complete TANF program, including intake and assessment, eligibility determination, and case management. To date, governments have employed the former strategy more often than the latter. The rest of this section describes privatization in individual service areas.
Types of Nongovernmental Organizations That Provide Welfare Services
State and local agencies are contracting with a variety of organizations to provide welfare services and related employment and ancillary services. The types of nongovernmental organizations providing these services fall into three main categories: (1) for-profit corporations, (2) large, national nonprofit organizations, and (3) small community-based nonprofit organizations.