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Dear Friends:
As new legislators it is in your best interest to consider privatizing state assets and services. Why? Because just reviewing candidates for privatization will familiarize you with components of state government you probably never knew existed. It will also give you the opportunity to improve program effectiveness and remove unworkable or obsolete state duties. The savings from privatization can be used to meet other needs, such as cutting taxes or improving high-priority services.
"Privatization" is now firmly imbedded in the public policy lexicon of the 1990s. The privatization of government services takes many forms, the most common of which is "contracting out," whereby government agencies contract with a private firm to manage some particular aspect of an agency's operation.
"Commercialization" is another form of privatization. Commercialization of a government service occurs when government officials decide that a particular service is best left entirely to the private sector. Government gets out of the business altogether, neither performing the service nor contracting it out. Commercialization is sometimes referred to as "shedding."
Since 1992, Michigan has privatized or attempted to privatize many government services and assets. Some of these attempts have been greatly successful, such as the divestiture of the state Accident Fund and the sale of the Michigan Biologic Products Institute. These two instances resulted in one-time cash windfalls for the state treasury. In addition, each institution must now stand on its own two feet in the private sector. Other attempts have been half-hearted or poorly planned, and a number of promising privatization opportunities have been ignored altogether.
In 1999, the turnover in Michigan's legislature due to term limits opens even more possibilities for a renewed focus to correct old privatization pitfalls and seize new privatization opportunities. Because privatizationdone properlyhas a record of improving services while lowering costs, Michigan Privatization Report recommends that the new legislature work toward the following goals:
 Michigan's capitol building is home to important legislative action. Will new legislators seize the opportunity to facilitate and improve privatization initiatives? |
End state-mandated liquor price controls. In 1997 the Legislature reduced the state Liquor Control Commission's role in the distribution of alcoholic beverages; however, the Commission retained the power to artificially set the prices of liquor. These price controls force Michigan consumers to pay more for their beverages than consumers in neighboring states do. Indeed, liquor costs in northern Indiana are cheaper because prices are set competitively. This may be why Michigan liquor sales declined about 9% in 1996 as opposed to increasing 3% to 4% in surrounding states. Many Michigan border residents purchase liquor (and pay taxes) in Ohio, Indiana, and Wisconsin because it is cheaper to do so. (For more information, please see the spring 1997 issue of Michigan Privatization Report.)
Stop publishing magazines. For many years, the Michigan Department of Natural Resources (DNR) produced and distributed Michigan Natural Resources magazine. In 1992, the duty to produce and distribute the magazine was contracted to a private firm. That firm has since been criticized for the magazine's falling circulation and for not living up to the service contract. The DNR has been criticized for extending the contract. Few have questioned why the state is in the magazine business at all. The government should shed this duty as not being one of its proper functions. The countless private organizations devoted to conservation are capable of filling this market niche.
Eliminate fishy government services. The state of Michigan owns and operates its own fish hatcheries. Other states either contract with private firms for hatchery operation or they buy their fish directly from private hatcheries. Michigan is scheduled to spend over $6 million next year for the operation of state hatcheries and upwards of $18 million in capital outlays to improve the existing facilities. Leaving the business of hatcheries to the private sector could spawn millions of dollars in savings.
Do away with frivolous subsidies. The state provides money for the distribution of Michigan-grown food products at state highway rest areas. The actual size of these food subsidies is relatively small (just over $6,000) but the principle of the matter is large: Companies that do not receive special marketing favors from the state should not have to pay for those who do.
Let private firms create jobs unencumbered by the Jobs Commission. In April 1996, the Mackinac Center for Public Policy recommended the wholesale elimination of the Michigan Jobs Commission (MJC), calling it "Michigan's department of corporate welfare, and a clear manifestation of political society." The MJC is in charge of working with local communities and businesses to "retain and expand job opportunities and improve Michigan's overall business climate." The question is, can government "create" jobs in net terms? Research shows that, at best, government only shifts them around. Annual savings to Michigan taxpayers would exceed $110 million. (For more information, please see the Mackinac Center study, Advancing Civil Society: A State Budget to Strengthen Michigan Culture.)
Facilitate jail privatization. In 1989, State Senator Robert Geake introduced a set of bills that would have given Michigan counties the option of privatizing their jails. Unfortunately, the legislation did not pass. As a result, sheriffs are subject to state whims rather than working as independent problem solvers in cooperation with local officials. Legislation of this nature would allow close-to-home management of local affairs.
This small list of recommendations is intended as only a sample of the important privatization opportunities that await legislative action by creative and bold new officials. The people of Michigan would be well served if these issues were addressed by the new legislature.
Sincerely,
Michael LaFaive
Managing Editor
Michigan Privatization Report
