Government-to-Government Contracting: Stewardship,Agency, and Substitution

ABSTRACT

This paper provides empirical evidence detailing the distinctive nature of service delivery provided through contracts with other governments. The results of a survey of Ohio city and county managers both confirm and stand in contrast to implications derived from stewardship theory. Consistent with stewardship, our data demonstrate that contracts with public sector service partners generate less intensive monitoring by contracting governments than do services contracted with private entities. In contrast to stewardship theory, we find that contracting governments do not use other governments for services requiring intensive monitoring. In an era of accountability and results-oriented management, reliance on trust may not satisfy constituents who seek evidence of effective service delivery. The inability of the contracting government to affect another government's service delivery reduces the attractiveness of that government as a contracting partner. If the tools of stewardship prove to be inadequate, the imposition of carrots and sticks appropriate for a principal-agent relationship could undermine the trust central to stewardship. Given these tensions, it is not surprising that governments are contracting less with other governments.     

Public Finance,Governance, and Cash Transfers in Alleviating Poverty and Inequality in Chile

As the Chilean government seeks to reduce poverty and inequality through cash transfers to poor households, local governments are responsible for both identifying the poor and allocating transfers. Until recently, however, evaluating the effectiveness of local governments in enacting these policies has been restricted by data limitations. This paper builds on recent evidence that cash transfers have highly variable impacts on poverty and inequality at the county level. In particular, we explore how local public finance and the strength of the governing mandate influence the efficiency of cash transfers. With a richly specified model, we find that public spending on goods and services, the fraction of available subsidies claimed by the local government, and the share of county land that is zoned for industrial purposes are all correlated with considerable reductions in poverty and inequality. In addition, the strength of the governing mandate weakly influences the efficiency of transfers in reducing poverty, but not inequality. These results demonstrate that a better understanding of such institutions can lead to more efficient targeting for social programs.     

Unfunded Mandates and Fiscal Structure: Empirical Evidence from a Synthetic Control Model

An unfunded expenditure mandate occurs when governments are required to provide a good or service by a higher level of government without an accompanying revenue source. There are no empirical studies providing causal evidence on the fiscal influence of intergovernmental mandates. This article examines Florida's 1990 constitutional Amendment 3, which sought to limit unfunded state mandates on municipal and county governments. The synthetic control method, an empirical technique for drawing causal inferences from case studies, estimates the effect of Amendment 3 on state expenditures and total transfers to local governments. The results indicate that state expenditures increased by an annual average of 9.5 percent, while state transfers to all local governments were unaffected. However, the municipalities protected by Amendment 3 saw intergovernmental revenue from the state decrease by 10 percent annually, which suggests that remaining mandates likely targeted special districts, encouraging the fragmentation of local public service delivery.     

Employment,privatization, and managerial choice: Does contracting out reduce public sector employment?

We examine the effects of governments' use of alternative service provision on public employment using panel data from a nationally representative sample of local governments. We model the effects of alternative service provision on the size of the public workforce and hypothesize that alternative provision jointly impacts both full‐ and part‐time employment. We find evidence of an inter‐relationship between these employment types. Our results from seemingly unrelated and 3SLS regressions indicate that full‐time employment in the public sector declines when additional services are provided by for‐profit providers, while part‐time employment increases. The net employment effect in the public sector is negative when government services are moved to the for‐profit sector. These combined effects result in a compositional shift toward more part‐time public sector employment. © 2006 by the Association for Public Policy Analysis and Management     

Wakeup Call: Strategic Management,Network Alarms,and Performance

New empirical evidence suggests that service performance is shaped by the strategies adopted by public organizations and the networking behavior of public managers. Strategy captures two central behavioral aspects of public organizations: the way in which objectives and actions are selected (processes), and an organization’s approach to service delivery (content). Networking is similarly concerned with the behavior of public managers as they interact with others. These twin themes are linked in an integrated study that explores the relationship between strategy, networking, and service performance within a sample of English local governments. The results show that strategy processes based on rational planning offer long‐run positive effects on public services, as does a strategic proactive stance.     

Outsourcing Public Health Laboratory Services: A Blueprint for Determining Whether to Privatize and How

In a continuing effort to reform and reinvent the way public organizations do business, the outsourcing of services has become a popular tool, particularly as resource constraints limit options available to governments. All too often, the decision is made, for reasons of ideology or resource constraints, to outsource services without giving careful consideration to the impact of privatization on the core missions of an agency, or whether privatization, in fact, offers real cost savings. Purchasing tools designed for traditional commodity purchases are often grossly unsuited for making decisions on specialized technical services.
This article suggests a process for the evaluation of an option to outsource laboratory services. It suggests that, prior to contracting or privatizing services, the concerned agency should evaluate:
the impact on the agency's core mission
the availability, stability, and reliability of private sector service providers
the relative costs of internal and external (public or private sector) service providers
the potential impact on regulatory enforcement
the ability to monitor the performance of external providers
potential conflicts of interest
Based on this model, the ongoing internal evaluation of services offers public agencies management tools to obtain the best value for the taxpayer dollar, not only in terms of the raw cost per test, but also in managing the quality of the services.     

Does the Charter Form Improve the Fiscal Health of Counties?

The public administration literature has paid attention to the relationship between the structure of a government and its ability to provide public services, reflected by its fiscal health. Although this literature has provided a useful understanding of government structures, it has largely ignored the charter form of government. As a formal written document that grants counties the power of self‐governance, a charter frees the county from state control. Included in this freedom is the ability to establish its own tax policies and services. In this article, the effects of charter adoption on fiscal health are tested using Florida county data from 1980 to 2012. The results show that the presence of a charter can improve the fiscal health of a county, which, in turn, can affect overall service provision.     

The Mythology of Privatization in Contracting for Social Services

States and municipalities have privatized services in an effort to improve their cost‐effectiveness and quality. Competition provides the logical foundation for an expectation of cost savings and quality improvements, but competition does not exist in many local marketplaces—especially in the social services, where governments contract primarily with nonprofit organizations. As government increases its use of contracting, it simultaneously reduces its own public‐management capacity, imperiling its ability to be a smart buyer of contracted goods and services. This article examines two questions about the privatization of social services based on interviews conducted with public and nonprofit managers in New York state: Does social services contracting exist in a competitive environment? And do county governments have enough public‐management capacity to contract effectively for social services? The findings suggest an absence of competition and public‐management capacity, raising the question of why governments contract when these conditions are not met.     

Outsourcing Oversight: A Comparison of Monitoring for In-House and Contracted Services

The public sector contracting literature has long argued that outsourced services need to be and, in fact, are subject to a more elevated level of scrutiny compared to internally delivered services. Recently, the performance measurement and management literature has suggested that the twin themes of accountability and results have altered the management landscape at all levels of government. By focusing on performance monitoring, the implication is that monitoring levels for internally provided services should more closely approximate those for contracted services. The analysis provided here yields empirical comparisons of how governments monitor the same service provided in-house and contracted out. We find evidence that services provided internally by a government's own employees are indeed monitored intensively by the contracting government, with levels of monitoring nearly as high as those for services contracted out to for-profit providers. In contrast, however, we find strong evidence that performance monitoring by the contracting government does not extend to nonprofit and other governmental service providers, each of which is monitored much less intensively than when comparable services are provided internally. For such service providers, it appears that monitoring is either outsourced along with services, or simply reduced.     

Isolated counties,administrative monitoring,and the misuse of public funds in China

This article empirically investigates the effects of administrative monitoring on the misuse of funds by local governments and provides a representative model of fiscal decentralization with political centralization, where administrative monitoring relies on the top‐down hierarchy of the bureaucratic system in China based on a unique data set from audit programs. We show a double effect between distance and monitoring in local China. The incentive for misusing public funds can be strengthened if the county (a) is governed by a leader whose tenure is longer than 3 years, (b) is governed by a politician from outside the county, or (c) receives more transfer payments. These findings suggest that the administrative monitoring of local governments can be vital to remedying the misuse of public funds.     

中国地方政府公共服务标准化探索与思考

在服务型政府建设过程中,标准化作为一种科学的工作方法逐步被地方政府采用。由于没有国家统一标准,各地政府基于本地实际情况开展公共服务标准化实践呈现出多种模式。公共服务标准化价值不言而喻,但由于标准化作为促进公共服务均等化的一种路径选择,其根本属性在于统一性,在有限政府的前提下,中国基本的公共服务标准化有必要建构指标体系,为实现基本公共服务均等化提供现实的指引。     

Local government grants and income tax revenue: Redistributive politics in Norway 1900–1990

An important aspect of the welfare state is public provision of private goods, primarily education and health care. In Norway the provision of these services has been organized through the local public sector. The development of the welfare state has to a large extent been the development of welfare communes. The important revenue sources of the local and county governments, grants and income tax revenue, have been controlled nationally, and the paper addresses the determinants of these revenues during 1900–1990. The approach combines a demand model of local public services emphasizing price and income-elasticities with a political economy model of central government ideology and strength. The decision making is understood as bargaining between the government and interest groups, and the political structure consequently is of importance for the policy outcome. The analysis shows how politics matter, and the results indicate that a minority coalition government implies 30% more grant and income tax revenue to local and county governments than one party majority in the long run.     

Is There a Future for Contracting in the Australian Public Sector?

Contracting has moved from the margins to the centre of public management. Significant sections of the public workforce, from benefits delivery to corporate services, now find their functions open to tender. Governments prefer to concentrate on policy analysis and development, leaving service delivery to the market. As purchasers rather than providers, governments are redefining the role and scope of the state. But are Australian governments ready for this shift to contracting? Do they possess the full array of control and reporting mechanisms necessary if contracting is to deliver its promised benefits? There are significant difficulties finding evidence that answers such questions. Yet on the basis of concerns discussed across Australian jurisdictions, it appears contracting has developed so quickly it outstrips the capacity of government to monitor what is happening, and so learn from mistakes. In time governments will become better at maintaining accountability for contracted functions, because experience reduces the risks of moral hazard.     

International Comparison of Public and Private Employees’ Work Motives,Attitudes, and Perceived Rewards

This article presents a conceptual perspective on the distinctive characteristics of public organizations and their personnel. This perspective leads to hypotheses that public organizations deliver distinctive goods and services that influence the motives and rewards for their employees. These hypotheses are tested with evidence from the International Social Survey Programme in order to compare public and private employees in 30 nations. Public employees in 28 of the 30 nations expressed higher levels of public‐service‐oriented motives. In all of the countries, public employees were more likely to say they receive rewards in the form of perceived social impact. In most of the countries, public employees placed less importance on high income as a reward and expressed higher levels of organizational commitment.

Practitioner Points

• The findings presented here add to previous evidence that public employees seek and attain more altruistic and public‐service‐oriented rewards than private sector employees. In particular, we add evidence that these differences hold in many different nations and cultural contexts.
• Compensation and incentive system reforms in many governments have often concentrated on financial incentives and streamlining procedures for discipline and removal. Such matters are important but should not drive out concerns with showing public employees the impact of their work on the well‐being of others and on the community and society. Leaders and managers should invest in incentive systems that emphasize such motives and rewards.
• Leaders and managers should invest in the use of altruistic and socially beneficial motives and rewards in recruiting systems.

     

Homeowners Associations as Private Governments: What We Know,What We Don’t Know,and Why It Matters

Homeowners associations (HOAs) are private governments that are reshaping urban governance and service delivery in large parts of the United States. Despite the fact that millions of Americans are HOA members, the field of public affairs has paid scant attention to these new governance entities. The essays in this symposium call attention to HOAs’ potential effects on urban services and civic life in the hope of sparking interest among scholars and public managers to include HOAs in our understanding, research, and teaching of contemporary urban governance.     

Managing contract performance: A transaction costs approach

Managing contracts is a complex process, often exacerbated by high transaction costs inherent in negotiating, implementing, and monitoring contract relationships with vendors. Through analyses of data from a 1997 International City/County Management Association survey of municipal and county governments, the way in which municipal and county governments respond to transaction cost factors inherent in contract service delivery is examined. The results of the analyses demonstrate that when governments contract for services in contexts that risk contract failure, they engage in a variety of monitoring techniques to improve their ability to monitor and correct vendor performance. © 2003 by the Association for Public Policy Analysis and Management.     

Local Government Restructuring: Privatization and Its Alternatives

Local government restructuring should no longer be viewed as a simple dichotomy between private and public provision. A 1997 survey of chief elected township and county officials in New York shows that local governments use both private and public sector mechanisms to structure the market, create competition, and attain economies of scale. In addition to privatization and inter‐municipal cooperation, two alternative forms of service delivery not previously researched—reverse privatization and governmental entrepreneurship—are analyzed here. Logistic regression on the 201 responding governments differentiates the decision to restructure from the level and complexity of restructuring. Results confirm that local governments are guided primarily by pragmatic concerns with information, monitoring, and service quality. Political factors are not significant in the restructuring process and unionization is only significant in cases of simple restructuring (privatization or cooperation used alone). Fiscal stress is not a primary motivator, but debt limits are associated with more complex forms of restructuring. Restructuring service delivery requires capacity to take risks and is more common among experienced local officials in larger, higher‐income communities. Restructuring should be viewed as a complex, pragmatic process where governments combine public and private provision with an active role as service provider and market player. © 2001 by the Association for Public Policy Analysis and Management.     

Life at the Bottom of the Fiscal Food Chain: Examining City and County Revenue Decisions

Any shifting of responsibilities from the state or federal governmentsto local governments would fall mostly on the shoulders of general-purposegovernments, namely, cities (municipalities) and counties. Thisstudy explores city and county revenue decisions associatedwith general funds—the governmental fund most likely tobe affected by state requirements for greater local financingresponsibility for new or devolved programs. The results suggestthat state control over local revenue authority affects decisionsregarding the imposition of financial burdens on residents,and that intergovernmental aid to cities and counties does notnecessarily mitigate those burdens. Despite evidence of healthyfinancial reserves, especially for cities, shifting responsibilitiesfrom the state to city or county governments could place citiesand counties in difficult fiscal positions. Given the importanceof own-source revenues to current budgets, and in view of thequestionable impact of intergovernmental aid on city and countyresidents' revenue burdens, questions persist about the abilityof city and county governments to maintain (and, if necessary,to expand) services during economic recession.     

County Service Delivery: Does Government Structure Matter?

Very little systematic research has been conducted to determine the policy effects of changing the form of county government. The findings of this study suggest that efforts to modernize county government structure may enable county officials to respond successfully to increasing citizen demands for a higher level of current services as well as expand the menu of services. Specifically, there is a strong association between the type of county government (non-charter commission, non-charter commission/appointed administrator or elected executive, or charter commission/appointed administrator or elected executive) and county spending for all types of services. In addition, there is a strong linkage between type of county government and three categories of county services representative of the service roles of the modern American county—that is, traditional, local, and regional services.     

A Comparative Study of the Effects of Institutional Arrangements in Municipal Solid Waste Services in Korea

In Korea, local governments are primarily responsible for providing municipal solid waste services to citizens. This paper examines the effects of different institutional arrangements and characteristics on cost savings, efficiency gains and productivity in the delivery of municipal solid waste services to citizens. In order to carry out this research, a hybrid cost function approach was employed, and cross-sectional time-series data from local governments of Korea covering a ten-year period (2000–2009) were used for empirical analysis. Empirical findings indicated that there were no effects of contracting-out on cost savings, efficiency and productivity gains in Korea. Specifically, the solid waste service costs were not significantly lower under contracting-out than under direct public delivery. In addition, contrary to the arguments of the proponents of privatization or contracting-out, efficiency and productivity gains were actually higher under direct public delivery than when contracted out.