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Privatization panel can get lots of ideas from other states

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Monday, Aug. 1, 2011

HARRISBURG -- A panel that will consider selling state assets and privatizing services in Pennsylvania can get plenty of ideas from similar commissions in New Jersey, Arizona, Louisiana and Virginia.

Gov. Tom Corbett soon will appoint a commission to examine whether it is more cost-efficient to allow private companies to run some public services. The effort tracks similar panels in other states headed by GOP governors.

Multibillion-dollar deficits in states across the nation have sparked interest in farming out additional services. Pennsylvania contracts for billions of dollars of services, including road construction and computer technology.

Commissions in other states are recommending a step beyond that by considering the placement of entire agency services under contract. In Arizona last year, a commission recommended that a private company be allowed to run the state lottery.

A report delivered in July to New Jersey Gov. Chris Christie included recommendations to offer long-term leases for private companies to operate state parks and to privatize turnpike toll collections, certain corrections services such as medical and food services, vehicle fleet management, child support services, state psychiatric hospitals and emergency service patrols on state highways.

The New Jersey commission identified $210 million in potential savings.

In Pennsylvania, Corbett places some limits on what should be privatized. He considers correctional officers a core service and off-limits, but he would look at ideas to privatize food services and additional programs within the prison system, said Kevin Harley, his press secretary.

"The bottom line is whether it is going to save taxpayers money," Harley added.

The Department of Corrections issues contracts for inmates' medical services, most of its halfway houses, and alcohol and drug treatment programs, said Susan McNaughton, an agency spokeswoman.

Corbett opposes the outright sale of state parks, but he would consider privatizing management services, Harley said.

A bill to sell state liquor stores, a concept Corbett supports, is pending in the House. A private study on the system's value is under way.

The criterion is whether an agency's services represent a "core function of government," Harley said.

"The reason privatization works is simple: it introduces competition into an otherwise monopolistic supplier of public service delivery," according to a recent report by the Commonwealth Foundation, a conservative think tank. That drives down costs and provides incentives for top performance, the report stated.

Matthew Brouillette, the foundation's president, was glad to hear Corbett would consider contracting for park operations while retaining ownership.

Asked what should be reviewed for potential privatization, Brouillette said "everything." The foundation called its report "Yellow Pages" because it suggests any state service or commodity available commercially should be considered.

Brouillette says the Pennsylvania Lottery and the Pennsylvania Higher Education Assistance Agency, the state's college loan agency, are examples of state services that Corbett's panel should review.

Those less than enthusiastic about privatization urge caution.

"There is this attitude in Harrisburg that 'If we say they'll be savings, there will be savings,'" said Mark Price, labor economist for the liberal-leaning Keystone Research Center. "There are always unintended consequences. Be careful and actually do some cost-benefit analysis."

Keystone does not take a blanket position against privatization. "There are certainly functions that can be privatized," Price said.

A study of privatization in the U.S. Department of Labor found "enormous costs" that had not been anticipated, said its author, Ellen Dannin, a professor at Penn State University's Dickinson School of Law.

A General Accounting Office report confirmed those findings in 2008.

Dannin points out that although it projects $210 million in savings, the New Jersey commission notes that its figures are not "precise."

The savings won't be fully known until after the competitive bidding process and because "New Jersey state government agencies have difficulty calculating with precision the full cost of functions currently performed at the state level," the report stated.

Christie's spokesman could not be reached for comment.

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