Privatization and the Constitution

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Budget pressures and concerns for efficient administration have led governments increasingly to consider privatizing functions that have traditionally been conducted by public agencies. Many correctional facilities are now operated by private corporations, for example, and private police often supplement and sometimes replace public police. Privatization raises interesting constitutional issues, only a few of which the Supreme Court has addressed.

The government's power to privatize even the most traditional public functions is probably unlimited by the federal Constitution. (Privatization may be limited by state constitutions, but those limitations are not considered here.) One might think that public security was an essentially government function, but there is a long tradition of private policing and private provision of fire protection services, sometimes in places where there were no public police or fire services. Similarly, there seems little reason to think that the federal Constitution bars a state government from eliminating its public school system. The Court has sometimes referred to "core government functions" of the states when discussing Congress's power to regulate state governments, but those references probably have no implications for governments' decisions to eliminate even core functions.

The Constitution may not limit the government's power to privatize, but it might limit the actions of the entities conducting the activities that previously were done by the government. The state action doctrine holds that only government action is subject to the limitations expressed in the Constitution. Privatization places pressure on the state action doctrine: If a state contracts with a private operator of correctional facilities, may the prison guards beat prisoners without violating the Eighth Amendment's prohibition of cruel and unusual punishment because the guards are employed by a private company, not the state? The Court has not yet comprehensively confronted the question of privatization.

Privatization of public functions occurs in two forms: through quasi-public corporations and through contracting-out. The government may set up a corporation to conduct some activity that previously had been done by the government itself. The United States Postal Service and Amtrak are good examples. These quasi-public corporations typically have boards of directors appointed by public authorities, but they operate without substantial direct public supervision. Their operations are financed not by appropriations in the government budget but by fees they charge the public and funds they borrow in the general market. Further, no legislative committee regularly conducts oversight hearings on their operations.

The Court initially addressed the legal status of quasi-public corporations in a series of cases involving the use of such corporations to build warships, but those cases did not raise questions about whether such corporations had to comply with the Constitution's individual rights provisions. In 1995 the Court in lebron v. national railroad passenger corp. held that Amtrak had to comply with constitutional requirements. The case involved a decision to exclude a political advertisement criticizing the Coors beer company for its alleged support of conservative causes. Amtrak took the position that, like any owner of private property, it could exclude the advertisement without considering any possible constitutional concerns. The Court said that Amtrak was "not a private entity but the Government itself," in large part because the President appointed a majority of Amtrak's board of directors. The decision's scope is unclear because the degree of public control over Amtrak remained unusually substantial. The result might differ if the quasi-public corporation's board of directors had only minority representation from public appointees. (The President has the power to appoint a minority of the board of directors of Comsat, the corporation that operates communications satellites.) Yet political constraints may limit extensive privatization without public control. Legislators may be unwilling to privatize unless they are assured that public appointees will have a substantial role in the quasi-public corporation's decisions. When they do have such a role, Lebron suggests that constitutional restraints will apply.

The Court has discussed contracting-out extensively in two cases. Rendell-Baker v. Kohn (1982), the more important, involved a privately owned and operated school that contracted with the state to instruct "problem" students. The school received over 90 percent of its budget from public funds, and nearly all its students were referred to it by public institutions. Rendell-Baker, a teacher, was fired by the school for disagreeing with school policies. The Court held that the school was not a "state actor," and that the first amendment therefore did not restrict the school's ability to discharge its employers, as it would in the public school system. According to the Court, the school's decision to fire Rendell-Baker was not "compelled or even influenced by any state regulation."

West v. Atkins (1988) involved a private doctor who contracted to provide medical services to prisoners. The Court held that the state was subject to liability based on the doctor's failure to provide medical care that satisfied constitutional requirements. Contracting out the state's constitutional obligation to provide adequate medical care to those whose lives it controlled in its prisons did not relieve the state of responsibility. The difference from Rendell-Baker was apparently that the state had no federal constitutional duty to provide an education to problem students.

Rendell-Baker 's approach, emphasizing whether the state directed the action in question, suggests the importance of political constraints on privatization. Those conducting activities formerly performed by the government are limited by the provisions of their contracts with the government, and by whatever other regulations the government chooses to enact. The Constitution comes into play only when the action in question is not prohibited either by the contract or by other regulations. In many circumstances, however, public officials have political reasons to include restrictive provisions in their contracts. For example, state teachers' unions may insist that schools receiving vouchers provide protections to their employees roughly equivalent to the protections public school teachers receive from the Constitution. In other circumstances, however, these political restraints may be less important. For example, legislators may face few political pressures when they contract out correctional services.

Privatization of public functions seems likely to increase, and the Court will be asked to clarify its constitutional implications. At this point, however, one can say only that privatization has constitutional implications, but not what those implications are.

Mark Tushnet


Froomkin, A. Michael 1995 Reinventing the Government Corporation. University of Illinois Law Review 1995:543–634.