Privatization Updates

While this may be familiar territory for readers of this blog, I have a post up at the Privatization blog on the history of private operation of public parks.  In this article I quoted one of my favorite over-wrought criticisms of private operation of parks, this time from the San Francisco Chronicle:

The question is, how will these agreements work over time? If parks remain open using donations, what is the incentive for legislators to put money for parks in the general fund budget? And who is going to stop a rich crook or pot dealer from taking a park off the closure list and using it for fiendish pursuits?

LOL.  "Fiendish pursuits?"

I also had an article there a while back about government accounting systems and how they make such privatization efforts difficult:

Back when I was in the corporate world, "Make-Buy" decisions -- decisions as to whether the company should do some task itself or outsource it to companies with particular expertise or low costs in that area -- were quite routine.  Even in the corporate world, though, where accounting systems are built to produce product line profitability statements and to do activity-based costing, this kind of analysis is easy to get wrong (in particular, practitioners frequently confuse average versus marginal costs).

But if these analyses are tricky in the private world, they are almost impossible to do well in the public sphere.  Grady Gammage, a senior and highly respected research fellow at Arizona State University's Morrison Institute, has as much experience with public policy analysis as anyone in the state.  Several years ago, he spent months digging into the financial numbers of Arizona State Parks, with the full cooperation of that agency.  A critical question of the study was how much it actually cost to operate a park, vs. do all the other resource and grant management tasks the agency is asked to perform.  Despite a lot of effort by Gammage and his staff, he told me once that the best he could do was make an educated guess --plus or minus several million dollars -- as to how much of the Agency's budget is spent actually operating parks vs. performing other tasks.

The reasons that this is so hard is that the parks agency's budgeting process was not set up to determine true net operating gains and losses at parks.  It was set up, like most public accounting systems, to enforce accountability to different pools of money that have been allocated by the legislature for certain tasks.  This tends to lead to three classes of problems that cause public make-buy decisions, as well as ex post facto third-party analyses, so difficult.  Since I am most familiar with the parks world, I will discuss these three issues in the context of parks:

  • me

    Cough. Thanks for calling a spade a spade - fear seems to be a pervasive theme in American politics these days. "What if a park could be used for fiendish purposes?", "What if people did something I don't approve of in the privacy of their homes?", "What if there's a terrorist in that neighborhood?", "What if we just allowed people to hang their clothes to dry on their own properties?". Imposing regulation and severe responses just because ones own fantasy chain of potential consequences includes negatives is the bane of this day and age.

  • Ted Rado

    In private industry, the whole budgeting process is a fraud. If a project is running over budget, the excess is buried somewhere else so as not to rile up the managemant. Managers also learn to bury inventory. Maintenance supplies are squirreled away so that if there is some serious problem in the plant, hidden materials can be used and no one is the wiser. Product is under reported so that, if necessary, shipments can be made out of old inventory, making current profits look betteer. In the USG, near the end of the fiscal year, if a department is under budget, they spend like crazy so there funds won't be reduced next year. The stories go on and on. Top management is routinely lied to to avoid hassles.

    In many types of work, a budget is really only a poor estimate. In R&D for example, accurately predicting what a program will cost is impossible. Thus, the original estimate is either padded to make sure there is no overrun, or the overrun is buried. If a plant startup is going badly, some of the costs are capitalized to hide the problem. Any resemblance between the accountants' figures and reality is accidental.

  • Agammamon

    The multiple pots of money problem is very familiar to me after years in the Navy. Can't take the open purchase credit card down to Staples to buy those office supplies because there's apot of money set aside to buy fromthe GSA catalog - even though the catalog has a limited selection and prices are 50-100% higher.

  • Smock Puppet, 10th Dan Snark Master and Gourmand

    >>> But if these analyses are tricky in the private world, they are almost impossible to do well in the public sphere.

    WHAAAAAT?

    In an organization with no accountability whose finances are not in any way constrained by GAAP?

    You gotta be shittin' me!

    Really?

    I don't believe it.

    Not for a moment.

    Nope.

    Not buying it.

    No Way, Ho-say!

  • Smock Puppet, 10th Dan Snark Master and Real Estate Entrepreneur (If we don't have it, we'll MAKE it!)

    >>> even though the catalog has a limited selection and prices are 50-100% higher.

    Yes, but they bid for the contract, so they're providing lower prices to the Navy Department.

    Yup.

    Hey, I'm selling some laaaand. Anyone want to buy some... laaaaand?

  • Sam L.

    Well, we just KNOW those evil capitalists are going to do something evil/illegal/wrong, but our completely trustworthy public servants are as pure as the driven snow.

    And I have bridges to sell before I sleep.

  • http://www.StopTaxingUs.com Brian Brady

    ”Fiendish pursuits?”

    You just KNOW that commenter had visions of Yellowstone turning into a Woodstock for home-schooling, gun owners and that, in his opinion, is a "fiendish pursuit"