management outsourcing discovered that there were eight reported cases in the United States. Of the eight cases, the researchers were able to obtain information related to the previous systems of operation and contracted systems of operation for seven of the eight.
In terms of efficiency, the researcher must obtain the previous operating expenses for the agency during the time of direct local government control, and the new operating expenses in effect during the new contract period. In the seven cases under study, the various state laws related to the operation of public libraries in these states require that each of the public libraries shall report to their state libraries full financial information related to the ope- ration of their libraries, including both revenue and expenditure information by line item and staffing. This information is subsequently provided by the state libraries to the National Center for Educational Statistics (NCES), and is available in public records from both sources.
To measure use/satisfaction, the researcher must locate the previous an- nual performance measures of the agency during the local government control period, and the new annual performance measures in effect during the private contract regime. Once again, by state law this type of informa- tion, containing uses by categories of services, hours of operation, staffing levels, and units of collection inventory, must be reported annually to the various state libraries. Additionally, this type of information is also reported to the NCES, and is public record available through their data services.
Thus, for seven of the eight reported cases, the necessary information required to examine the impact that outsourcing had on accountability, efficiency, and use/satisfaction was available. Additionally, each of those seven cases was reported on widely in their local press, the professional trade journals, and even, in certain cases, national newspapers. Thus, supple- mental sources of contextual information are available to expand the ana- lysis of the various data sets for each one of the seven cases.
In order to foster this examination, we will group the cases according to their areas of administrative failure as previously specified.
WHY LIBRARIES HAVE OUTSOURCED
delivered and the costs of such services. The two examples of this type of problem involve the city of Calabasas and Riverside County, both in California.
In the first example, Calabasas, we see an issue arise over administrative accountability in terms of the fiduciary relationship. Calabasas did not exist as a city until 1991. Before 1991, it was part of the unincorporated area of Los Angeles County. As part of the unincorporated area of the county, the resi- dents of the area received library service through the County of Los Angeles Public Library system, paid for by a library tax applied to property within the County. In 1991, Calabasas incorporated as a city, and became independent of the Los Angeles County government. Since the county was no longer able to assess the property within Calabasas for library services, Calabasas had to contract with the Los Angeles County Public Library. The library contract funding came through a property tax within the City of Calabasas, which paid for County Library services. At this time, 1991, Calabasas was one of 50 cities within Los Angeles County that contracted with the county library system for library services.
The primary issue concerning fiduciary accountability revolved around the perception of the citizens of Calabasas that the city was not receiving a full measure of services in relation to the contract charge from the County Library. An internal study done by the City of Calabasas found that, in 1997, Calabasas paid Los Angeles County Library $530,000 in property taxes for library services, but only received $250,000 worth of services.
While Calabasas was claiming that it was not receiving full return on its contract payment, the County Library argued that the city was receiving a full return based on the costs incurred by the County Library. The dispute simmered without mutual reconciliation. Finally, in April 1998, Calabasas decided that it could maximize its resources by seeking an alternative method of library services delivery, and voted to withdraw from the contract with the County Library.
Since all the materials, staff, and a majority of the equipment belonged to the Los Angeles County Library, Calabasas needed to create a complete library from scratch. The city contracted the entire library operation out to a private company, which in turn oversaw the development of library services and collections, the hiring of staff, and the daily operation of the library (DiMattia, Lifer, & Rogers, 1998).
The issue of fiduciary accountability also emerges in the Riverside County, California library contract. From 1911 to 1997, Riverside County contracted with the City of Riverside to provide library service to county residents. Under the terms of the contract, the city-appointed Board of ROBERT C. WARD AND MICHAEL CARPENTER 148
Library Trustees served as both the city and county’s policy-making body, and the city library director served as the county library director. Addi- tionally, all library employees were employees of the City of Riverside, not the county. While the City of Riverside maintained control over all matters related to library policy and library employment, the County of Riverside retained exclusive ownership of all capital assets purchased with county funds such as the collections and buildings.
In 1993, a state-mandated change in property taxes used to support the county’s library service resulted in a major reduction in county property tax revenues. Because of the reduction in tax revenues, the City Library reduced library service levels by reductions in service hours, staff layoffs, and re- ductions in materials purchased. County residents complained that the City of Riverside refused to reduce administrative costs rather than service costs, while levying a 10 percent overhead charge for the county contract. Ad- ditionally, the county government charged that the City was providing less service than paid for by the contract, and was refusing to involve the County government in the decision making process. The issue of fiduciary accounta- bility to contracting governments became the central point of contention.
To respond to citizen demands for improved library services, the County government decided to withdraw from the Riverside City contract, effective July 1, 1997, and establish an independent County Library. In order to accomplish the transition without the loss of library service, the County contracted with a private company to manage the library operations and employ all staff working in the library. The contract for library service was overseen by a newly established County Librarian position, who served primarily as the Contract Administrator, and a newly established County Library Board of Trustees, who oversaw and approved all library policies (Baker, 1998).
Fiduciary accountability in public library management. As stated previ- ously, NPM advocates claim that outsourcing facilitates administrative ac- countability by advancing two critical elements within a principal/agent relationship. The first element is the clear identification and separation of the purchaser of government services (principal) from the provider of gov- ernment services (agent). The second element is the creation in both the separate purchaser and provider of a vested self-interest in finding and im- plementing the optimal way in which to deliver the government service. The second element leads to efficiency since both parties are interested in divid- ing the gain achieved and mutually reaping the benefits of this new ex- change. By advancing these two elements, NPM advocates claim that we create a clear contractual relationship between a service seller and a service
buyer (principal/agent). Such a separation allows for the introduction of competitive market principles into a non-competitive arena and assures economic efficiency by introducing pricing and profit incentives. Increased economic efficiency leads to greater user/customer satisfaction with services and products (Lane, 1997a, b, 2000).
Both the Calabasas and Riverside County incidents exhibit failure to fulfill fiduciary accountability because of information asymmetry and goal conflict.
Principals (elected officials) are at a disadvantage because agents (bureau- crats) possess a greater level of technical information and expertise allowing agents the opportunity to manipulate information in a manner advantageous to the agent, and detrimental to the principal. Agents are motivated to mani- pulate the information in this manner because their goals are different from the principal’s goals. While principals and agents are rational utility maxi- mizers, they seek to maximize different things. The principal (elected official) seeks to maximize constituent interests, while the agent (bureaucrat) seeks to maximize budgets. Since agents are in the stronger position in terms of in- formation, they are able to manipulate the information to maximize their budget interests, but at the expense of minimizing the principal’s constituent interests (Niskanen, 1971).
Underlying both the Calabasas and Riverside cases is the above assump- tion related to information asymmetry and goal conflict. Both the Calabasas City government and the Riverside County government claimed that the contracting libraries, Los Angeles County Public Library and Riverside City Library, were somehow manipulating information in order to maximize their budgets while minimizing the level of services delivered. Since the agents, Los Angeles County and Riverside City, had failed in their fiduciary accountability of advancing the interests of the principals over the interests of the agents, they no longer could be considered reliable agents. In such a situation, the principal is left with no other alternative but to seek another, more reliable, agent. Both Calabasas and Riverside County could have es- tablished their own local government agency, but they rejected that option based on the claim advanced by NPM advocates that outsourcing to the private sector would lead to both greater fiduciary accountability and a greater gain in the service/cost delivery ratio. If NPM advocates of out- sourcing are correct, then we should see these claims confirmed in the fi- duciary and service/cost measures that emerged in Calabasas and Riverside County since the contracts were implemented.
Both the Calabasas and Riverside contracts are forms ofservice contracts.
In general, service contracts are between governments and private sector firms to deliver predefined services for a specified time periods. Usually such ROBERT C. WARD AND MICHAEL CARPENTER 150
contracts involve the private firm not only delivering the service, but also having exclusive control over the management of the service, and the em- ployment of all workers involved in the service delivery. In the United States, service contracts are common tools for local government service delivery, and account for over 25 percent of municipal services (Rondinelli, 2003). Common examples of such service contracts are waste collection, hospital management, emergency medical services, and bus operations.
The first point to examine in terms of NPM principles is whether there is a clear identification and separation of the purchaser of government services from the provider of government services. In the case of both Calabasas and Riverside County, there is only a limited separation between purchaser and provider.
Calabasas contracts with a private firm to hire and supervise all staff. The contract also allows the company to have control over the automation of the library, purchase of supplies and book collections, and day-to-day operation and management of the library. On the other hand, the city created an advisory Library Commission that oversees, with the consent of the City Council, all library policies, overall budget allocations, hours of operation, public programs, and any major cost items. The City Clerk is the contract manager, who reports directly to the City Council on contract performance and issues related to non-compliance. In addition, under the terms of the contract, the City retains ownership of all buildings, equipment, furniture, and collections purchased for the Library (City of Calabasas, 2001).
The Riverside contract contains requirements relating to the hours of operation in the library branches, staffing levels at all branches, and levels of book purchases for each regional service zone covered by the library. As in the case of Calabasas, there is an advisory Library Commission which oversees all policies related to the library and its operations. The contract administrator for Riverside County is the County Librarian who is a county employee. The County Librarian supervises the private firm, and must ap- prove all operational policies and material purchases. While the employees of the library are employees of the private firm, the County Librarian must approve the hiring of all managerial and supervising staff. As in Calabasas, all buildings, equipment, and collections remain the property of the County government (County of Riverside, 1997).
Thus, the contracts in Calabasas and Riverside County marginally meet the first requirement of NPM. Although there is a clear identification and sepa- ration between purchaser and provider, that separation is severely limited.
The major functions one would associate with service contracts such as budgetary control and procedure setting remain under the control of the local
governments. The only clear separation appears at the level of employment, and here one sees that both the operational staff and the management staff are removed from the local government’s employment roles, and placed in a private sector employment status.
Overall, one can conclude that a major gain occurred in terms of the agent’s accountability to the principal. While the limitations within the contracts hamper the concept of complete and clear separation from prin- cipal and agent, the additional restrictions ensure that elected officials in both communities have a greater level of oversight and control of the agency than was previously in existence with either Los Angeles County or the City of Riverside. Thus, the introduction of outsourcing, in these two cases, did lead to a stronger level of legal accountability.
The second level of accountability that NPM claims will be strengthened by outsourcing is the political or citizen/customer level. Supposedly, a strengthening of legal accountability will be translated into better public services reflecting the true wants and wishes of the citizen/customer (political accountability). Thus, to measure a return to political accountability, we need to examine the service measures. These service measures also reflect the second element of the NPM philosophy, namely that, by creating both a separate purchaser and provider, we create a vested self-interest in finding and implementing the optimal way in which to deliver the government service. In the case of both Calabasas and Riverside County, we find some measures suggesting that the second element did have some positive, but qualified, effect.
While Calabasas saw an increase in staffing from 6.5 FTEs in FY 1998–1999 to 7.7 FTEs in FY 2001–2002 and, since the hours of operation between FY 1998–1999 and FY 2001–2002 remained constant, there was a positive impact in the level of staff to public service hours. Additionally, the materials held by the library also increased in the same period, rising from 16,025 items to 25,465 items, a 58 percent increase. The increase in items held also was reflected in an increase in items checked-out, rising from 78,511 in FY 1998–1999 to 113,687 in FY 2001–2002. During this same time period, reference services also increased by an impressive 222 percent, and visits to the library went up by 79 percent. Overall, total service units increased by 61 percent (National Center for Educational Statistics (NCES), 1999, 2002).
On the cost side of the service/cost ratio, the results are not as positive.
Budget figures for Calabasas show a very different picture of the gains achieved at the service levels. Initially, Calabasas saw an initial efficiency gain by contracting with a private firm rather than the Los Angeles County Library. The last year of contract with Los Angeles County, FY 1997–1998, ROBERT C. WARD AND MICHAEL CARPENTER 152
saw a contract figure of $530,000. The first year of contract with the private firm, FY 1998–1999, saw a total operating expense of $446,385, a net de- crease of $83,615. However, the operating expense decrease did not stabilize, and by FY 2001–2002 the operating expenses for the library rose to
$767,330. Additionally, the unit costs for service delivery rose by six percent (NCES, 1998, 2002). In the end, we can conclude that any gains in services were the result of increases in the budget for the library and not the result of changes in the operational efficiency of the overall system.
Riverside County also experienced some positive service results. FTEs rose from 62.97 in FY 1996–1997, the last year of the contract with River- side City, to 111.6 in FY 2001–2002. Hours of operation also increased from 507 h/week in FY 1996–1997 to 971 h/week in FY 2001–2002. Materials purchases also increased, with collection holdings rising from 917,348 items in FY 1997–1998 to 975,278 items in FY 2001–2002, a six percent increase in holdings. However, actual public use of the library declined. Comparing FY 1997–1998 to FY 2001–2002 circulation dropped from 2,704,794 to 2,033,578 ( 25 percent), reference services from 794,231 to 584,993 ( 25 percent), and library visits from 1,979,429 to 1,463,860 ( 26 percent).
Overall, total service units delivered declined by 25 percent. The drop in public use of the system is all the more disappointing since the expenditures for the system rose from $6,785,671 in FY 1997–1998 to $8,010,278 in FY 2001–2002, an 18 percent increase. The combination of an increase in the budget and a decline in use resulted in the unit costs for service and product delivery rising from one dollar and 24 cents in FY 1997–1998 to one dollar and 96 cents in FY 2001–2002, an increase of 58 percent (NCES, 1998, 2002). While the results in Calabasas might be attributable to an increase in the budget, in the case of Riverside County there is a clear measure of the outsourcing contract’s failure to improve service, and actually an increase in costs with a corresponding decrease in public use – just the opposite result than that predicted by the NPM advocates.
From the available data, it would appear that the second and third premises of NPM, namely locating the optimal way to deliver government services and increased public satisfaction, was not manifested in either case.
In the case of Calabasas, we see an increase in public use units, but with a corresponding increase in operational costs. In Riverside, we see major de- creases in service delivery units with major increases in operational costs, a clear sign of both service and productivity failures.
One last element to examine in both cases is a premise within NPM phi- losophy that outsourcing will lead to better performance by the introduction of self-interest due to an ability to mutually share the economic gain that is
achieved. Under the terms of the initial contract entered into by Calabasas, the private firm, in addition to its annual contract, was to receive a 7.5 percent handling fee on all collection resources purchased or licensed for the library.
In contrast to Calabasas, Riverside County was more cautious in its approach to handling charges. From FY 1997–1998 to FY 1999–2000, the county pro- vided no handling charges, and strictly limited the contract to a fixed amount.
After the firm successfully performed under the initial contract for three years, the county modified the contract. Under the new contract, the firm received a 2 percent handling fee on all material purchases.
This handling charge was never specifically defined as a performance bo- nus, but it does provide an incentive for the firm to increase the number of items owned by the Library and is indirectly evident in both the eight per- cent increase in holdings in Riverside and the 58 percent increase in holdings in Calabasas. When one compares the performance of the two libraries and takes into account that high performance only occurs in the library with the generous handling charge, one might conclude that the NPM premise re- lated to the division of gain might have some validity.
The evidence suggests that NPM principles in the area of fiduciary ac- countability have a positive impact. However, we see that an improvement in legal/fiduciary accountability does not, by itself, lead to either an im- provement in political (citizen/customer) accountability or to efficiency within the agency or service.
Although both Riverside County and Calabasas exemplify a perceived failure at the fiduciary level of legal accountability, two of our other cases, namely the public libraries of Hemet and Lancaster, also deal with a failure of legal (principal) accountability, but this time in relation to the provision of necessary professional knowledge.
Inability to Attract Qualified Candidates for the Director Position Although both the Riverside County and Calabasas cases represent classic information asymmetry and goal conflict in the principal/agent relationship, two of the other cases, namely Hemet and Lancaster, exhibit a problem in terms of information asymmetry, but not goal conflict. In both cases, the agents’ goals were not in conflict with the principal since the agents had already left their positions of authority. However, in the vacuum that was created by the agents’ departures, the issue of lack of information arose. In such an environment, proponents of NPM suggest that principals should design organizational structures in such a way that they can facilitate their ROBERT C. WARD AND MICHAEL CARPENTER 154