Municipalities with professional management and weak mayors are less likely to outsource public services

Local governments in the United States often have the option of providing services in-house or outsourcing them to other governments, private companies, or non-profit organizations. But what determines whether a municipality outsources its services? Wenchi Wei examines the importance of local political institutions in public service outsourcing and finds that the type of people in leadership positions in a municipality – “weak” mayors and managers with professional backgrounds – as well as local electoral rules can all affect the level of service outsourcing.

Public administration scholars and government policymakers have long focused on public service outsourcing, including its causes and consequences. Existing studies have mainly focused on the impact of budgetary stress, economic efficiency, political interests, and ideological attitudes of officials and citizens on local outsourcing decisions. However, the importance of local political institutions remains under-researched. Elected politicians and appointed bureaucrats in different institutional contexts are likely to have substantially different career paths and reward incentives. In addition, local political institutions provide the basis for the allocation of public power, the organization of local politics, and the enactment and implementation of public policies.

Our research addresses how institutional contexts matter to the way US municipalities make their outsourcing decisions. To do this, we use data from multiple rounds of surveys conducted by the International City/County Management Association on local institutions and service delivery choices. Our work focuses on seven key local institutions dealing with management professionalism, mayoral strength and electoral rules. Furthermore, based on the local institutions studied, we were able to construct a composite index that measures the general nature of the municipal structure at the political-administrative level. Our estimates use initiatives and referendums that allow voters to change local statutes, which in turn affect local institutions.

We find that communities with a council chief, a professional manager, a weak mayor, and impartial and universal elections for council members outsource fewer services. Professional managers can mitigate the impact of the other factors that can influence a local government’s outsourcing decisions. In addition, communities with a more political or less administrative community structure outsource a greater proportion of services.

photo through Pascal Bernhardon on Unsplash

We used data on local government service outsourcing obtained from the International City/County Management Association’s 2002-2003, 2007, 2012 and 2017 Alternative Service Delivery Surveys. The surveys were mailed to all US municipalities with a population over 10,000 and all counties with a population over 25,000. The survey questionnaire asks questions about whether the stated core services are provided and, if so, how they are provided, including those that are considered service outsourcing: contracts with other governments or agencies, private companies and with not-for-profit organisations.

Outsourcing in US Municipalities

We consider outsourcing by looking at the ratio of the number of services outsourced to other governments, private companies or non-profit organizations to the total number of services provided by local government.

Figure 1 shows the distribution of the total number of services provided by the sample municipalities with an average of around 37 services. Figure 2 shows the distribution of the outsourced service shares of the example municipalities that outsource up to around 100 percent of their services. Most of the sample municipalities outsource no more than two-thirds of their services to third parties. Figure 3 shows that both the overall level and the structure of service outsourcing changed significantly during the period under study.

Figure 1 – Distribution of the total number of services provided by the sample municipalities

Note: Quoted from Wei, Zhang, and Yang (2022). DOI: 10.1111/puar.13525

Figure 2 – Distribution of the shares of outsourced services in the sample municipalities

Note: Quoted from Wei, Zhang, and Yang (2022). DOI: 10.1111/puar.13525

figure 3 – Alternative modes of delivery of public services by year

Note: Quoted from Wei, Zhang, and Yang (2022). DOI: 10.1111/puar.13525

Why might professional managers hinder outsourcing of public services?

First, public choice scholars have long argued that bureaucrats seek to maximize control over government budgets and the delivery of public services to generate rents. Outsourcing of services can largely limit managers’ direct control or manipulation of budget allocation, thereby limiting their ability to engage in the search for pensions. As a result, city administrations can resist contracting out public services to external providers.

Second, the existence of a professional manager within local governments can improve the soundness of local fiscal conditions, as professionally run cities are more likely to resolve fiscal issues such as high debt, fiscal deficits, short-term liquidity problems, and low credit ratings, which in turn makes service outsourcing less compelling.

A third explanation relates to the possible career motivations of city managers. City managers are likely to seek to advance their careers by improving their managerial performance and demonstrating their managerial skills and reputation among peers in the profession. This motivation may encourage city managers to demonstrate that in-house delivery of public services under their leadership can deliver the same or better quality of service more effectively than externally through market competitors, making service outsourcing unattractive.

Influences on the outsourcing of municipal services

We find that the legally mandated form of city government, the existence of a professional manager, a weak mayor, and impartial and broad elections of councilors all mean that outsourcing of government services is less likely. Second, professional managers in communities can moderate the influence of important contextual factors such as population size and tax burden on local outsourcing decisions. Third, a more political or less administrative structure of municipalities has a positive impact on the outsourcing of government services, especially outsourcing through interlocal cooperation. Fourth, the driving factors differ in different forms of public service outsourcing, including outsourcing to private companies, non-profit organizations and other governments.

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Note: This article reflects the views of the author and does not represent the position of USAPP – American Politics and Policy or the London School of Economics.

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About the author

Wenchi Wei – Renmin University of China
Wenchi Wei is Assistant Professor and Associate Director of the Institute of Public Finance and Public Policy at Renmin University of China.