Academic journal article Journal of Private Enterprise

Is Contracting out Government Services the Great Panacea? Evidence from Public School Transportation in Louisiana

Academic journal article Journal of Private Enterprise

Is Contracting out Government Services the Great Panacea? Evidence from Public School Transportation in Louisiana

Article excerpt

Many advocates of markets point to the inefficiencies of government bureaucracy and offer privatization plans as their solution (Cato Institute, 2003, 327-335). But in many cases their privatization plans are not pure privatization in which government sells its assets and exits an area completely. Instead, many of the so-called privatization plans simply replace government contracts with its own employees with government contracts with third parties. The services are still funded by taxes (as opposed to user purchases), and the people providing the service are still selected and hired by government, so the situation is far from a free-market. While many imply that competitive outsourcing must lead to lower costs, this is not necessarily the case.

Although the goal of outsourcing of government services is to harness the benefits of competition by making many groups compete for a contract, the situation is far from a free-market When government hires its own employees, it selects from a competitive pool of people, but this does not guarantee anything close to a good outcome. Benson (1994, 46) writes,

Private firms in free markets must persuade consumers to buy their products. Individual consumers are the source of demand, and they are free to choose where to spend their money. If government provides services, whether through direct bureaucratic production or through contracting out, individual 'buyers' (taxpayers and/or voters) have virtually no influence on what they buy.

Studying the contracting out of certain transportation services allows us to do a nice case study. While many propose "privatization" of bus services as a way of decreasing costs, whether one type of government arrangement is better than another government arrangement is far from clear. In this article we investigate examples of "privatized" bus routes for public schools in Louisiana. We report statistical cost comparisons from the production of public school transportation in Louisiana during the 2002-03 academic year. Louisiana school parishes (districts in other states) provide student transportation via four systems or methods: contract-owned, mostly contract-owned, board (school)-owned, and mostly board (school)-owned buses. After adjusting for the number of students, the miles transported, and other factors, our statistical comparison shows that board-owned and mostly board-owned systems operate at a statistically significant lower cost than do contract and mostly-contract systems. This finding contradicts our previous research for Tennessee public school districts during the academic 1992-93 year (Hutchinson and Pratt). According to that research, 15 of 19 contract systems in Tennessee operated at a savings that equaled 27 percent of the average contract cost. The remaining four districts operated at a cost that was 21 percent above the average. The Louisiana versus Tennessee contradiction may result from institutional, location, regulatory, or structural factors, as previously noted by Ott and Hartley (1991) and Vickers and Yarrow (1991). Both indicate that the best (or cheapest) method of production remains inconsistent between private and public and, hence, is an empirical issue. Thus the different outcome between the two states is not surprising - although we had hoped to be able to generalize the results to other states, as has been suggested by more recent studies in other areas (Mueller 2003, and Megginson and Netter 2001).

Background

Public school bus transportation in Louisiana provides a cross-sectional setting for a comparison of public versus private production of student transportation. Each school system in Louisiana has the option of producing its own bus transportation, of contracting with private producers for that transportation, or choosing a combination of the two.

Our research focuses on identifying which system has the lowest transportation cost. The answer, from an education and taxation perspective, is relevant to the fiscal needs of public school systems. …

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