The Heritage Foundation

Backgrounder #674 on Regulation

September 28, 1988

September 28, 1988 | Backgrounder on Regulation

Privatization Lessons for Washington Part II: Improving HumanServices

(Archived document, may contain errors)

674 September 28,1988 PRIVATIZATION LESSONS FOR WASHINGTON PART 11 IMPROVING HUMAN SERVICES INTRODUCTION Ronald Reagan entered the White House appealing for a renewed emphasis on volunWm and a mobilization of private groups to deal with Americas social ills.

Ridiculed at the time by many critics a s empty rhetoric, the privatization of local human services in fact has become a heartening success story of the Reagan years. Though mostly ignored by Washington, and overlooked by the press, today the private sector is spearheading an unprecedented numb e r of community-based programs to combat hunger homelessness, illiteracy, welfare dependency, drug use, teen pregnancy, and other pressing social welfare concerns These private efforts are so extensive that the total dollar value of assistance provided by v olunteers, churches, community groups, private charities, and for-profit usinesses rivals the estimated $160 billion in government aid devoted to fighting poverty. Last year charitable giving by American citizens and corporations for education, health, an d human 31 1 Private sector co&butions may even exceed government anti-poverty programs when the value of volunteered time and donated goods and services are included in the calculation Part I of this study, examhhg local government expe&nces with privatiz i ng municipal services, was published as Heritage Bucw No. 652 on May 31,1988. services reached a record $35 billion2 The meaning: it is the private sector, not govern ment, that is the primary fabric of the social safety net As significant, the privatizat i on revolution sweeping through American cities is no longer confined to routine commercial services, such as garbage collection. Increasingly, cities are contracting with private organizations to provide human services3,th about 55 percent of h- services s pending contracted out to private organizations. The most notable and en couraging characteristic of this trend is that local governments are beginning to spurn tradi tional commercial social service providers, who in many cases have become mere exten sio ns of the welfare state. Instead, local governments contract with voluntary community based organizations, such as neighborhood associations, private charities, and churches.

Several cities are even turning to the poor themselves as contractors for their own senrices as in the case of tenant management of public housing in Washington, D.C St. Louis, and other cities.

Examples of these new approaches to providing human services include Hamilton County, Tennessee, which contracts with nonprofit voluntary org anizations for the care and treatment of abused children Columbus, Ohio, which contracts with a neighborhood association for neighborhood cleanup campaigns St. Louis, Missouri, which contracts out its highly acclaimed homelessness services to area churche s and charitable groups.

Local governments are turning increasingly to the private sector for such services because private programs have been outperforming programs administered solely by government agencies. A 1986 study by the National Center for Policy Analysis, comparing private human services programs with those run by the government, finds that the private sector has been doing a superior job in such areas as treating alcohol and drug abuse, training we fare recipients for jobs, providing adoption s ervices, and managing public housing projects.

Marc Bendick, of the Washington-based Urban Institute pinpoints the inherent advantages of the private sector over government in these service areas: Through their small scale nonbureaucratic nature, local kno wledge, and personal relationships, [neighborhoods families, churches, and voluntary associations] can respond rapidly, accurately, and in a more acceptable manner to local and i dividual needs in ways that large formal institutions such as government age ncies cannot. s 2 3 4 5 American Association of Fund-Raisiing Councils, Inc New York, N.Y news release, June 23,1988.

Harry P. Hatry and Eugene Durman, Issues in Gmptitive CmtraCring for Social Services (Falls Church John C. Goodman and Michael D. Stroup, Trivatibng the Welfare State, Report No. 123, National Center Marc Ben Jr Privatizing the Delivery of Social Welfare Services, paper presented to the Project on Vi+: National Institute of Governmental Purchasing, 1985 p. 1 for Policy Analysis, Dallas, 198 6 the Federal Social Role, Washington, D.C April 1985, p. 37 2 Reinforcing Past Failures. Lawmakers in Washington, however, seem only dimly aware of such developments. In just the past twelve months, Congress has considered or enacted legislation to provid e federal subsidies forday care, job training, food assistance, and wel fare reform. Almost without exception these programs reinforce past failures of the wel fare state. Worse, these programs rely only minimally on the vast array of community-based priva te sector solutions that have documented success records.

Before appropriating any new federal funds for social welfare, Congress should inves tigate thoroughly the approaches to meeting human services needs that have proved most successful on the local le vel. Although widely varied in their strategies, the most encourag ing programs have the following characteristics 1) They maximize consumer choice and competition among service providers 2) They encourage neighborhood-based service delivery and the use o f local volunteers 3) They extend to private providers maximum flexibility in offering services to recipients while imposing few regulatory barriers, such as licensing requirements 4) Perhaps most important, they use government fhds to leverage increased p rivate sec tor contributions, rather than replace them.

Unless Congress designs its new welfare programs to meet these requirements, the programs are doomed to reproduce the disappointing failures of the Great Society PRWATE SECTOR ALTERNATIVES TO THE WEWA RE STATE Privatization of human services refers to a wide range of private sector approaches to solv ing social welfare problems. These initia tives generally fall into four categories: Figure 1 Local Government contracung With the Private Sector 1) Contr a cting Out to Private Organiza tions Local governments have used contracts with private firms increasingly as a strategy for reducing the cost of public services. Be of such contracts glimbed from $22 billion to over $100 billion. Typically, local govern m e nts contract out routine commercial-type services, such as garbage collection, street tween 1972 and 1987 the annual dollar value repair, and janitorial services. 1987 6 Estimate provided by the Washington, D.C.-based Privatization Council 3 The newest tr end is for local jurisdictions to contract out the provision of social services.

A&rding to a 1986 survey of Florida cities by the Law and Economics Center at the University of Miami and the Reason Foundation, the human services most commonly con tracted o ut ar le al services, alcohol and drug treatment, emergency medical services, and hospital care fg Improving Quality. In contrast to contracting for basic government commercial ac tivities, where cost savings are the primary objective, the major motivatio n for contracting out human services usually is to improve the quality of care or service. A landmark 1984 study of 57 county social service agencies in wmia found that the quality of service and care generally improved after contracting out. The study cit e s three reasons for this 1 local-based private groups are more effective in identifying the needy; 2) nonprofit or ganizations are less bureaucratic; and 3) the private sector is better able than government to attract highly skilled professionals. Althoug h it is a secondary concgm, several studies find cost savings to be a result of contracting out local social services.

Despite these benefits, however, cities are beginning to move away from contracting out with professional, commercial human services vendors. One reason is that large, profes sional service providers often come to depend almost exclusively on government for fund ing. In such cases private sector contra ors can become indistinguishable f r om the public sector, and their programs can suffer.l'Men the government is the principal source of funding, contractors typically compromise their private autonomy and adopt goveniment eligibility requirements and regulatory standards. All types of priva t e sector groups, includ ing charities, c n be coopted in this fashion, but it is most common among large, commer cial providers. fl Another danger is that private agencies can grow so dependent on public funds that they become vocal and influential lobbyi s ts for expanded government funding of flawed programs. They also may try to block private initiatives that require less money and lower skills. George Mason University economists James T. Bennett and Thomas J. DiLoremo in 7 KennethW.Clarkson,~~on~~eStrreM dLoccrlLevel(UniversityofMiami[Florida]:Lawand 8 9 Economics Center, 1988).

Paul Terrell and Ralph M. Kramer Contracting With Nonprofits hblic We

m, Winter 1984, pp. 31-37 id; Rockwell S. Schulz Diilferences in the Direct Costs of Public and Private Acute Impatient Psychiatric Services Inquiry, Winter 1984, pp. 380-393, and George S. Bonjas, et d Property Rights and Wages: The Case of Nursing Homes Joumd of Human homes, Spring 1983, pp. 231-2A6 10 Some have even charged that human services contracting all o ws for the extension of expensive and intrusive government programs. Social Scientist Eleanor Brilliant has warned of this by writing Effectively, the mixing of public and private [social service] activities masks or screens the growth of government inter ference with the private sector, and thereby makes it more palatable to average Americans. This illusion maintains the myth of less government, while government ady whittles away at the essential substance of private autonomy."

Eleanor L. Brilliant Private or Public A Model of Ambeties," D72 11 An excellent discusfion on this problem is contained in Goodman and Stroup, op. ut., pp. 31-33 4 1985 wr0t.e an entire book, Destroying Democracy, chronicling cases of human ervice or ganizations that use tax dollar s to lobby for increased social program funding In sum, contracting out human services generally does save money and improves the quality of services. But because money comes from government, some forms of contracting out actually may over time undermine s o me of the beneficial characteristics of private groups, limiting the potential of privatization. For this reason, commuiity-based contract ing and alternative privatization schemes are growing in popularity d 2) Service Delivery by Neighborhood Support Or g anizations Contracts with neighborhood-based service organizations can avoid many of the problems of contracting with commercial service providers. Since these organizations usual ly are staffed by those from the neighborhoods actually receiving the servi c es, they have the incentive to act in the interests of the beneficiaries and to provide services as effectively and efficiently as possible.13 Moreover, community organizations tend to be held in higher regard by those beneficiaries. As the report of the 1 979 National Commission on Neighbor hoods puts it, in a endorsement of neighborhood organizations as service providers, Neigh borhoods are human in scale, and they are immediate in peoples experience Neighbor hoods have built-in coping mechanisms in the f orm of churches, voluntary associations, for mal and informal networks. The neighborhood is a place where ones physical surroundings become a focus for community and a sense of belonging.

The National Association of Neighborhoods (NAN a Washington-based membership or ganization representing private community groups, estimates that today about 10,000 private neighborhood organizations, many located in low-income areas, are in operation.

These independent citizens groups provide a vast array of human service s either inde pendently or under contract with government agencies. NAN reports that these groups offer such widely differing services as health care for the elffrly and handicapped, neighbor hood cleanups, food drives, and drug prevention programs 3) Cha r ity and Voluntarism Private charities traditionally have played a major role in providing local welfare assis tance, but they are more important than ever today. Figure 2 shows the steady growth in donations to private charitable organizations in recent y e ars. Although almost half of these funds went to religious institutions, churches today play a major role in providing emergen cy welfare assistance to the needy, such as shelter and food for the homeless. In 1987, about 35 billion in private charity was d onated specifically to health and human services causes l2 James T. Benaett and Thomas J. DiLorenzo, Destroying Demowvrcy (Washington, D.C Cat0 Institute 13 Robert H. Netson, The PriVatization of Local Government: From Zoning to RCAs, pap presented at 198 5 Conference on Residential Community Associations, sponsored by the Advisory Commission on Intergovernmental Relations, Washington, D.C June 1988 No. 132,1907 14 Stephen Glaude, Neighborhood-Based Service Delivery: An Option for Today, The Heritage Lectur e s 5 Yet eve.n this significantly understates charitable activity because many Americans donate their time rather than their money As Figure 3 shows, the proportion of adult Americans volunteering their time to charitable causes has climbed steadily over t h e past twelve years reaching 49 percent in 1987 Figure 2 Figure 3 Charitable Giving by American Citizens and Companies 1982 Constant Dollars 1900 IDS6 Year m P a r 0 45 a n t v 'O a 0 I a n ass Percentage of Americans Volunteering to Charitable Causes Ik l i82 lb4 Year 4) Programs to Encourage the Poor to Help Themselves In many poor communities, neighborhood groups tackle social problems without any government assistance. Some focus on educational issues. For instance, College Here We Come, in Washington, D .C is a group of public housing tenants that encourages high school students to improve their grades to.qualify for college. Other self-help initiatives focus on services for the handicapped. In Huntsville, Alabama, handicapped and elderly residents bande d together in the early 1980s to purchase vans from the city, and they are now shpg the responsibility of providing cost-effective transportation services for them selves LOCAL SUCCESS STORIES IN PROVIDING HUMAN SERVICES Hundreds of pioneering privatizatio n initiatives now help to resolve social problems. In dicating the range of these activities are the following examples 15 'In Alabama, Communities Help Themselves to Transportation Rurrrl America, July-August 1983, p. 16 6 St. Louis, Missouri: Private Cha rities Develop a Cure for Homelessness Government officials groping for ways of solving homelessness should examine St.

Louis's Homeless Services Network.16 This program is funded predominantly by private charities, operates through the coordinated efforts of over 110 nonprofit community groups agd'churches, and is supported by the work of hundreds of local volunteers. Only one paid city employee is associated with the Network.

Launched in 1985, the Network maintains a centralized, round-the-clock in-take center run by the Salvation Army. Each day, the center monitors vacancies in dozens of private shelters. The American Red Cross then provides free transportation to take homeless people to the shelters. Prior to this system, many overcrowded shelters repo rtedly had to turn away up to 1,000 homeless a mbnth, while others had unused beds. Now, virtually all of the St. Louis homeless who come through the Network system, some 2,000 a typical winter night, receive shelter.

Yet the St. Louis Network program is f ar more than an information clearinghouse. Its constituent groups have developed a comprehensive program to reintegrate homeless families into the community. Catholic Charities and other voluntary nonprofit groups provide a full range of professional coun s eling to the homeless to aid in budgeting, parent ing, job training, and alcohol rehabilitation. In addition, the program places families in tran sitional housing and covers the rent for up to six months. Eventually, the Network tries to locate permanent h ousing and jobs for each family Of the estimated 500 families that have entered the Network program, 82 percent have made the full adjustment to permanent housing. Not surprisingly, tht$ Louis homeless ness program has received national acclaim for its ac complishments Hennepin County, Minnesota: Vouchers for Day Care As one of America's most liberal states, Minnesota would seem an unlikely location for privatization to be thriving. Yet the state has pioneered many forms of privatization.

Theodore Kolderie, professor at the Hubert H. Humphrey Institute of Public Affairs at the University of Minnesota, explains this apparent paradox For Minnesotans, privatization is considered a pragmatic, nonideological movement to improve the quality of public ser vices."1 8 An experimental day care voucher program in Hennepin County (where Minneapolis is located) is an example. Since the early 197Os, the county has subsidized day care for low-in 16 Most of the statistics in this case study were provided by Dorothy Ddey, St. Louis Homeless Services 17 The Network Program received an award in 1987 from the Rand Foundation and the Harvard University 18 Telephone interview with Theodore Kolderie, April 1988 Network Program Director, in a May 1988 telephone interview.

Kennedy Sch ool of Management for "innovation in state and local government 7 come families, originally by purchasing slots for eligible low-income families in about a dozen large day care facilities. But by 1982, a county commission identified many problems with tha t system A large number of eligible families were unable to get their children to the few county-subsidized centers; by placing all low-income children in a few subsidized centers, the system encouraged segregation; parents were captured by the subsidized d ay care centers and had no recourse against poor quality care Giving Parents a Choice. Under the day care voucher program, started in 1982, the countys 2,600 eligible families now receive a certificate from the county. Parents may use this voucher to purc hase day care services from any licensed center in the county, including family day care providers, religious day care centers, and large institutional centers.

Liability problems for the state forced the Community Services Department to exclude un licensed providers from the program after the first year of the program.

The voucher system is very popular. A survey of parents has found that an astonishing 96 percent are very or mostly satisfied with the voucher approach. James Slyman, the countys director o f purchased services, explains this popularity: We have given parents a real choice. If they dont like the service at a center, they are free to pick-up and go some where else. And if parents are happy with a center, we are happy. What we have developed i s a market-based solution to the day care problem.m A particularly gratwg result of the program is that many more low-income mothers wishing to work now are able to do so thanks to the convenience of family day care.

The Hermepin County Community Services Department hired independent consultants in 1985 to evaluate the effectiveness of the voucher program. They found that the number of day care centers in the county had climbed by 15 percent since vouchers were intro d uced, the average monthly cost of day care had dropped by $58.1 in real dollars and 15 percent more families had been able to find acceptable day care Chicago, Illinois: Lowering the High School Dropout Rate through Privatization In Chicago public schools , nearly half of all inner-city teenagers fail to complete high school. To reduce this high dropout rate, several districts have contracted with a private for profit teaching center, called Ombudsman Educational Services, to educate hundreds of high school dropouts and students at-risk of dropping out.

Teenagers entering the Ombudsman program typically exhibit high truancy, poor academic performance, drug use, and disruptive behavior. According to James P. Boyle, the programs founder and a former high schoo l principal, Ombudsmans approach is to tailor the curricula toward theppabilities of the individual students and place them back on track toward a diploma. The program is a mixture of the old and new: all of the instruc 19 Hennepin County Community Servic e s Department, Final Report of the Hennepin County Grant 20 Telephone interview with James Slyman, April 1988 21 Hennepin County Community Services Department, op. ck, pp. 11-35 22 Interview with James P. Boyle, June 1988 Furchase of Child Day Care Through a Voucher System, May 1985, pp. 1-2 8 tion takes. place in a one-room schoolhouse and focuses on the three Rs. Yet it also makes heavy use of such modem technology as computer-assisted learning systems.

The results are impressive. Over 80 percent of the m ore than 200 dropouts who have been through the program since it began in 1975 have earned a high school degree. Robert Jewell, Assistant Superintendent of Schools in Southwest Chicago, acclaims this as a phenomenal achievement: These are kids that get na u seated when they walk into a regular school. Without Ombudsman we expect that only about 15 to 20 percent of them would have graduated. Some of the kids even go on to college As a social investment, it is an ex tremely beneficial program.23 Ombudsman mixe s private and public funds. Tuition is paid jointly by the public school district and by parents. And despite the individualized attention there are about five stu dents per teacher tuition is less than $3,000 a year or about half the per-student educa tio n costs within the public school system. Assistant Superintendent Jewell attributes this lower cost and high success rate to the fact that at Ombudsman, there are no study halls or courses in gourmet cooking and ceramics. The program concentrates on just t h e basics things the kids did not learn before.24 Ombudsman has expanded its program into Arizona and other states San Francisco, California: Private Sector Courts of First Resort Derek Bok, former Dean of the Harvard Law School recently characterized the n ations justice system as strewn with the disappointed hopes of those who find it too complicated to understand, too quixotic to command respect, and too expensive to be of much practical use. One pioneering alternative to the frustrations of the tradition al court system is the sys tem of Community Boards of San Francisco, California.

Founded in 1977 and now operating in 25 San Francisco neighborhoods, the Community Boards program is a system of private dispute mediation that handles a wide range of cases l andlord-tenant problems, squabbles between neighbors, juvenile offenses, and consumer merchant disputes. Community Boards, notes urban affairs columnist Neal Peirce, does what the formal judicial system can resolve the sticky, nitty-gritty problems that a r e dismissed by the police and courts. Explains Raymond Shonholtz, a former law school professor and founder of the g ro gram, Community Boards is Americas first neighborhood based urban justice system Community Mediators. The lifeblood of the Community Bo a rds program is the volun tary participation of over 400 community residents, including doctors, lawyers, teachers, and even college students, who serve as mediators after receiving 32 hours of formal dispute resolution training. Panels composed of three t o five neighborhood volunteers listen to the cases and make recommendations 23 Telephone interview with Robert Jewell, June 1988 2A Ibid 25 Quoted in Craig Smith, winds of Change from the West, Foundation News, May/June 1985, p. 47 26 Telephone interview w i th Raymond Shonholtz, July 1988 9 The system works. Over 90 percent of the more than 4,000 Comm&ty Board cases to date have resulted in an agreement acceptable to both parties. The program has become so popular that currently there are more cases being re solved by the Community Boards than by jury trials in the city.

The volunteer program also has been more effective than the federally funded Legal Ser ices Corporation at providing access to legal services to low-income San Francisco resi dents. The Boards services are provided free to community residents, and the cost of providing the services is about one-fifth that of the Legal Services Corporation mainly because it relies on volunteers and the process is less time consuming and less bureaucratic.

The Community Boards program has won the enthusiastic endorsement of the local police department, the district attorneys office, and former Mayor Dianne Feinstein.

Sheriff Michael Hennessey admits that Community Boards handle important neighbor hood problems b etter than the courts could ever hope to. Other communities apparent ly agree with this assessment. Over 200 local groups throughout the country have developed or are in the process of developing private altemativs ispute resolution mechanisms many modele d after the San Francisco program. f Washington, D.C Transforming Public Housing Residents into Managers Just ten years ago the suggestion that low-income tenants could operate public housing projects themselves was thought absurd by most public housing au t horities. Today, more than a dozen are experimenting with the idea. One reason for this is the remarkable success story of Washington, D.C.s Kenilworth-Parkside projecta Before tenants took over management of the 464-unit project in 1982, conditions at Ke n il worth-Parkside could hardly have been worse: 70 percent of the residents were on welfare graffiti, drugs, and prostitution plagued the project; nearly one in five units was boarded up and most were in disrepair; and for two years many residents had liv ed without hot water.

Under tenant pressure, and as a last resort, the city agreed to allow a resident management board consisting of three college students, two welfare mothers, and two working women to replace the government public housing managers.

Cre ating Jobs, Slashing Welfare Dependency. By choosing strong-willed and respected managers, setting tough standards of conduct, imposing fines for rule violations, and enlist ing hundreds of residents in cleanup campaigns, Kenilworth-Parkside has undergone a transformation heralded by U.S. News urd WorldReport as something close to a miracle.29 Not only has the physical deterioration of the buildings been reversed, but crime, teenage pregnancy, and vandalism have been cut dramatically. The self-help manage 2 7 For a summary of local activities in this area, see Paul Gordon, Justice Goes Private, Ream, September 28 Many of the statistics in this case study are contained in Stuart M. Butler and Anna Kondratas, Our of the 29 When Tenants Take Over, U.S. World un d News RepH, August 4,1986, pp. 53-54 1985, pp. 23-30.

Pow* Tmp (New York Free Press, 1987 pp. 122134 10 ment team also has created over 100 jobs for residents, for maintenance work and to staff businesses established in the project. Perhaps most encouragi ng: the welfare dependency rate, once as high as 80 percent, has dropped to just 3 percent.

Kenilworth-Parkside tenant managers have established a record of diligence in respond ing to problems within the project. Resident manager Kimi Gray explains the p rompt level of.service in the complex by n tin When my maintenance man doesnt fix the boiler in the winter, he gets cold too dg In 1985 the accounting firm of Coopers Lybrand analyzed the financial impact of tenant management at the project. It found that rent collections have increased by 77 per cent and the vacancy rate has plummeted by two-thirds. The firm forecasts that savings to the city from tenant management through the year 1992 will amount to $4.5 million St. Paul, Minnesota: How Neighborhood-Bas e d Programs Keep the Elderly Out of Nursing Homes The U.S. General Accounting Office estimates that as many as 20 to 40 percen of all nursing home patients are not so disabled that they need to be institutionalized? They are in homes because no other form o f help is available. Neighborhood groups in the North End and Highland Park sections of St. Paul, Minnesota, have devised an effective program to keep some of these elderly residents in their homes and out of institutions. Called the Block Nurse Program, t his neighborhood-based support network currently serves about 75 aged clients who re uire personal care, nursing, and other services, but who do not wish to leave their homes. 39 The key to the success of the Block Nurse Program has been the mobilization o f hundreds of community volunteers into a dependable support network. The program matches each elderly program participant with a registered nurse, known as the primary block nurse, who formulates a comprehensive care plan, including such services as home nursing, counseling, transportation, physical therapy, and meal preparation. The nurse and trained aides supply the client with health services. Community volunteer organizations such as church groups, are enlisted to provide other support services. Fundi n g is derived from a mixture of public and private sources: Medicare, Medicaid, the county health agen cy, client fees (based upon ability to pay), and private contributions The Block Nurse Program significantly improves the quality of life of the elderly r esi dents it serves. Roughly 85 percent of these elderly clients would be placed in a nursing home without the community assistance. And unlike many federal programs to underwrite home. health care, the Block Nurse Program is unencumbered by expensive gov e rnment 30 Ibid 31 Coopers and Lybrand, Kdworth-Parkside Cost-Benefit Analysis, May 1986 32 Study quoted in Innovations in State and Local Gowmment, Ford Foundation and Harvard University 33 Most of the statistics in this case study were provided by Marjor i e Jamieson, Block Nurse Program Kennedy School of Management, 1986, p. 10 Director, in July 1988 telephone interview 11 regulations. The average monthly cost for each client is less than $300 compared with 1,500 to $2,OOO per month typically charged by ar e a institutions. The Block Nurse Program also is much less expensive than professional home care agencies because it receives the support of hundreds of volunteers and it provide clients and health professionals with an in centive to be cost-conscious LESS O NS FOR FEDERAL POLICY MAKERS These successful examples of human services privatization offer several critical lessons for federal policy makers. These include 1) Cities and counties are solving pressing and persistent social problems through privatization Across the board, the most effective antidotes to the social welfare problems that are now commanding public attention homelessness, child care, and the high school dropout rate have been initiated by the private sector, not government. These are programs in which government funding, if used at all, is supplementary to private funding and where costly government red tape is kept to a minimum 2) Voucher programs are an efPective alternative to government-operated services Local governments are demonstrating that voucher programs reduce service costs and are viewed favorably by program participants. In addition, vouchers create competition among human services providers. This typically invites new innovative private providers into the marketplace and tends to elevate the quality of services 3) Neighborhood-based service organizations consistently outperform publicly funded programs Private community groups have proved themselves extraordinarily proficient at identify ing needy individuals within their neighbor h oods and delivering help to them in a personal timely, and affordable fashion. An estimated 10,000 of these private groups are developing human services that traditionally are supplied exclusively by government. They also fill in the gaps in local social s ervice needs that go met by government programs 4) Volunteers form the backbone of effective human services programs A primary reason that private sector human services programs consistently outperform public programs is that private charitable organizati ons rely extensively on volunteers.

Volunteers enable private relief projects to operate with very low administrative costs, thus ensuring that private sector dollars primarily benefit program recipients rather than enrich ing program providers 12 WHAT WAS HINGTON CAN DO TO SPUR LOCAL INNOVATION To promote more of the locally based human services initiatives that are now flourishing in Americas cities, the federal government must begin to redesign its traditional role in wel fare and other social service ar e as. Current plans to spend tens of billions of dollars of addi tional funds to alleviate hunger, homelessness, illiteracy, and to insure greater access to child care, though filled with good intentions, are likely to yield disappointing results unless the s e f deral funds stimulate the kinds of local programs that have documented achieve ments The lesson from Americas communities is that federal programs will be most effective if they adhere to the following principles 1) Reduce regulatory barriers to neigh b orhood services. Federal programs should promote the concept of choice and should resist regulations that inhibit client choice, such as licensing requirements that require providers of services to obtain certain official creden tials, often forcing them t o enroll in extensive training programs. These requirements rarely have a significant effect on quality, but they often make it impossible for neighborhood groups or individuals to be eligible for service contracts. Under pressure from powerful groups of p rofessional providers, Congress often adds such regulatory impediments to anti poverty programs. Pending legislation to subsidize child care and home health care, for in stance, would limit consumers choices by requiring recipients to use expensive profes s ional service providers 2) Maximize local autonomy in deciding how federal hnds can be spent. Federal programs tend to demand uniformity in service provision, thereby smothering inventive private initiatives. To avoid this, the federal government should m o ve further in the direc tion of block grants. These pass money to states and cities with minimal federal strings and allow communities wide flexibility in tailoring social service programs to meet the distinc tive needs of local residents. The Reagan Admi n istration has folded many small categorical grants into such block grants. The remaining categorical grants, such as aid for the home less, should likewise be restructured into a block grant to encourage state and local innova tion 3) Create a federal inf o rmation clearinghouse. Federal policymakers should encourage cities to experiment in developing human services programs and learn from the mistakes and accomplishments of other jurisdictions. Several of the success stories described in this study are bein g replicated in other cities. To accelerate this learning process among states and cities, a legitimate role of the federal government is to act as a clearinghouse of infor mation on program approaches that are working and to provide demonstration grants t o stimulate program innovation. This should be located within the U.S. Department of Health and Human Services 34 This is the major theme of Butler ,and Kondratas, op. cit and is treated in greater detail there 13 CONCLUSION When in 1980 Ronald Reagan call e d fora revived spirit of voluntarism and greater par ticipation of the private sector in solving Americas social problems the media and the wel fare establishment loudly protested. Michael Kinsley of The New RepubZic attacke Reagans welfare agenda as an a bandonment of our notions of social obligation. But to the contrary, Reagan Administration policies emphasizing local and pdvate initiatives in the human services area have reawakened Americans sense of community obligation.

Record numbers of Americans are donating their time and money to the goal of uncovering lasting solutions to pressing social problems. This reignited sense of community respon sibility and empowerment explains the formation of hundreds of neighborhood groups akross the U.S Lessons for C ongress. Curiously, Washington policy makers have remained oblivious to the human services privatization success stories that are flourishing today in communities throughout the country. Worse, there is an imminent danger that new federal social welfare p rograms will stifle these initiatives by imposing rigid regulations on local authorities. Un less Congress learns these lessons, the next generation of federal social welfare programs is destined to duplicate the failures of the first.

Stephen Moore* Grover M. Hermann Fellow in Federal Budgetary Affairs 35 Quoted in Jack A. Meyer, Meeting Human Needs (Washington, D.C American Enterprise Institute, 1982 p. 33 Contributing to this study was Heritage researcher Eric Fisher 14

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