Public administration scholars and schools of public affairs increasingly use the term ?governance? to describe the processes they study and teach. Governance?rather than the older word ?government??is thought to be a more accurate descriptor of the reality of contemporary state structures, where an ever-increasing percentage of the work of the state is outsourced to for-profit, non-profit and faith-based organizations. It is the intent of this article to suggest that before policymakers and public managers accept third-party government as a fait accompli, to be reconceptualized and relabeled accordingly, we be sure that we really understand the implications for public administration theory and practice.
Holding ‘Governance’ Accountable
Public administration scholars and schools of public affairs increasingly use the term ‘governance’ to describe the processes they study and teach. Governance—rather than the older word ‘government’—is thought to be a more accurate descriptor of the reality of contemporary state structures, where an ever-increasing percentage of the work of the state is outsourced to for-profit, non-profit and faith-based organizations.
The reasons for this growth in “government by proxy” are varied, but all are rooted in a distrust of government and an often-reflexive preference for markets and/or civil society. Whatever the merits of these various ideological positions, this article is intended to suggest that—before policymakers and public managers accept third-party government as a fait accompli, to be reconceptualized and relabeled accordingly—those concerned with constitutional principles need to understand the implications of these practices for public administration, especially at the state and local government levels.
Scholars and practitioners have focused significant attention on issues of fiscal and political accountability implicated by outsourcing, but with few exceptions have paid little attention to the growing disconnect between the new ‘governance’ paradigm and the basic constitutional norms that have structured American government and public management for two hundred years. While the literature generated by privatization and the ‘reinvention’ movement is copious, it has dealt almost exclusively with the management challenges and accountability issues raised by contracting. More recently, serious scholarly attention has turned to the effects of outsourcing on nonprofit partners of government, and concerns about the transformation of organizations within the voluntary sector resulting from their increasing dependence on government dollars. Public administration scholars have paid very little attention to the constitutional implications of government by proxy, however, and that is a troubling omission, because the issues here are foundational. Public administration theory is grounded in constitutional values; furthermore, public managers’ efforts to keep government responsible and accountable—politically, fiscally and constitutionally—depend upon their ability to identify government and to recognize when the state has acted. “Governance” may be robbing us of the ability to make that crucial threshold identification.
The Constitutional Bases of Public Administration
Woodrow Wilson wrote that “it is getting to be harder to run a constitution than to frame one.” (Rohr 1986) Wilson meant to call attention to the importance of constitutional values to questions of administrative legitimacy, and the dangers of forgetting that critical link under the pressures of day to day management challenges.
John Rohr, David Rosenbloom and other public administration scholars have emphasized the normative role played by the constitution. As Rohr wrote in an introduction to Constitutional Competence for Public Managers (Rosenbloom, Carroll and Carroll 2000)
[W]e are witnessing the gradual reintegration of constitutionalism and public administration. I say re
integration because of the obvious connection between public administration and constitutionalism in The Federalist Papers.
So integral was administration to the intent of the framers that the authors of The Federalist Papers
made more frequent use of the word administration
and its cognates they did of the words Congress, President
or Supreme Court.
The book itself makes explicit the connection between “public values” and the “daily decisions and operations of public managers.” (xvi)
Political theorists and public administrators alike emphasize the importance of legitimacy, defined as operational rules rooted in constitutional norms, to public administration. As Michael Spicer has noted, “in the absence of consensus surrounding the role of government, bureaucracy becomes increasingly seen simply as a tool by which some groups gain benefits and privileges at the expense of others.” (Spicer 1995). A legitimate exercise of authority, no matter how coercive, is different from the exercise of raw power unrestrained by adherence to codes of normative values, and it is seen differently by members of the polity. That difference is especially critical to those on the “front lines” of state and local government, who must make and implement policies that are anything but abstract to the citizens they affect.
The importance of tying public administration to constitutional values has been summed up by one author thusly:
“The central question of both political philosophy and public administration [is]: What is the role of the state, and how should that role be managed? What are the convictions that should animate public service, and how should that service be defined?” (Kennedy 2003)
The United States Constitution incorporated very specific understandings of human nature, the role of the state and natural and human rights. Those understandings led the founders to sharply limit the power of the state. To put it another way, the original American concept of liberty was in the negative: liberty was seen as an individual’s right to be free from state control.
In order to limit government, however, one must first define it. And increasingly, such definition is problematic. D.D. Raphael has summarized the contemporary idea of the state by defining it as “an association having universal compulsory jurisdiction within territorial boundaries” (Raphael 1990). The two elements of that definition—territoriality and a monopoly on the right to use certain types of force or power—are arguably integral to popular understanding of the concept of statehood—of government. And both are undergoing redefinition.
That redefinition cannot be attributed solely to the growth of contracting out, of course: in industrialized nations, and perhaps elsewhere, the growth of the global economy and the worldwide penetration of the Internet are increasingly challenging traditional notions of territorial jurisdiction. In America, the steady expansion of government since the New Deal has already required us to rethink the relationship between government power and fundamental rights. (As previously noted, rights were traditionally defined as limitations on the coercive power of the state; today, lawyers and political philosophers speak of both negative and positive liberties and debate the propriety and nature of affirmative “entitlements.”) More recently, the advent of widespread contracting, where a growing number of services are provided by and paid for by government but delivered by contractors, has raised a host of new questions: are partnerships with businesses and nonprofit organizations creating a new definition of government? Is ‘privatization’ extending, rather than shrinking, the state? Does the substitution of an independent contractor for an employee equate to a reduction in the scope of government, as proponents believe? Or does the substitution operate instead to shift the locus but not the scope of government activity (Kettl 1993; Smith and Lipsky 1993), and thereby blur the boundaries between public and private, making it ever more difficult to decide where “public” stops and “private” begins? If we are altering traditional definitions of public and private by virtue of these new ‘governance’ relationships, what is the effect of that alteration on a constitutional system that depends upon the distinction as a fundamental safeguard of private rights? And finally, if the constitutional system is being altered, what are the implications for public management theory?
State Action and Constitutional Accountability
However we understand government, a central tenet of democratic regimes is that the state must be accountable to its citizens. Contracting out complicates accountability in a number of ways (Gilmore & Jensen 1998). Smith and Lipsky were among the first to explore some of the issues for the nonprofit sector inherent in the transfer of state power to private providers (Smith and Lipsky 1993); more recently, legal scholars have addressed the issues of constitutional accountability raised by the emergence of what some now call “third-party government” (Minow 1999, Kennedy, 2001, Metzger, 2003).
One traditional way to enforce government accountability is through the courts. But just as a lack of transparency in contracting relationships can impede political accountability, the failure of state action jurisprudence to keep pace with the political reality of government contracting—the inability of current legal theory to identify government action for purposes of assessing government responsibility—has significantly undermined constitutional accountability. We are in danger of losing an important constitutional check on the exercise of administrative power, because we rely upon our understanding of the state action doctrine in order to know when we may ask the courts to restrain government agencies. If we do not have comprehensible rules defining those actions we may legally attribute to the state, the efficacy of constitutional litigation is undermined. If we are unable to convey to citizens the boundaries of government’s legal responsibilities, our ability to fashion appropriate political remedies will also be compromised.
In order to understand the dimensions of the problem, and its importance to public administrators, it is necessary to engage in a brief review of the genesis and history of the state action doctrine. “State Action” was first defined by the Supreme Court in 1883, in the Civil Rights Cases
Passage of the Fourteenth Amendment had prohibited states from denying, to persons otherwise entitled to them, the “privileges and immunities” of citizenship. The Court was addressing the scope of that prohibition.
“The Fourteenth Amendment expresses prohibitions (and consequently implies corresponding positive immunities), limiting State action only, including in such action, however, action by all State agencies, executive, legislative, and judicial, of whatever degree.
It is State action of a particular character that is prohibited. Individual
invasion of individual rights is not the subject-matter of the amendment. It has a deeper and broader scope. It nullifies and makes void all State legislation, and State action of every kind, which impairs the privileges and immunities of citizens, or which injures them in life, liberty or property without due process of law, or which denies to any of them the equal protection of the laws”(Civil Rights Cases
As the Court recently restated the doctrine,
“[E]mbedded within our Fourteenth Amendment jurisprudence is a dichotomy between state action, which is subject to strict scrutiny under the Amendment’s Due Process Clause, and private conduct, against which the Amendment affords no shield, no matter how unfair that conduct may be (National Collegiate Athletic Association v. Tarkanian
The Court has thus established a distinction between invasions of rights that are constitutionally forbidden (“public” invasions) and those that are not (“private” invasions), and that distinction rests upon the identity of the actor. As one legal scholar has noted, “a central premise of U.S. constitutional law is that the Constitution imposes limits on the actions that governments can take.” The corollary premise is that “the rules governing private actors should be politically, rather than constitutionally, determined.” (Metzger 2003)
The Bill of Rights was initially designed to limit the reach of the federal government; the Fourteenth Amendment later extended those limitations to bar similar action by the states. Over the years, by the process known as “selective incorporation,” most of the provisions of the original eight amendments have been held to apply to state and local government units as well as to the federal government, (Twining v. New Jersey
1908; Palko v. Connecticut
1937; Adamson v. California
1947; Berger 1977; Ely 1980). But the citizen’s protection is against the public actor only. Discriminatory acts, or denials of due process, or restrictions on speech by private parties, are all constitutional; indeed, they are entirely legal unless prohibited by virtue of legislation like the Civil Rights Act of 1964 or the Americans with Disabilities Act.
This distinction between public and private acts loses clarity in a number of contexts (indeed, it has been referred to as a ‘conceptual truth’) (Stone, Seidman, Sunstein & Tushnet 1986). Accordingly, the Court has been obliged to develop rules allowing certain private acts to be attributed to government. As Robert Gilmour and Laura Jensen (1998:247 ) have noted,
“When the relationship between government and citizen becomes more complex than that between a mere commodity or service provider and its customers, more than marketplace efficiency is required to hold the government and its proxies and surrogates accountable for their exercise of authority on behalf of the state.”
Acknowledging the need for such rules and actually fashioning them have proved to be very different matters. As one commentator has wryly noted, the Court’s ‘sifting’ and ‘weighing’ in state action cases “differs from Justice Stewart’s famous ‘I know it when I see it’ standard for judging obscenity mainly in the comparative precision of the latter ” (Brest 1980:1296-1330). On one hand, the mere fact that a regulatory agency exercises oversight of a licensee and has thus implicitly approved the licensee conduct at issue has been held insufficient to attribute an action to the state (Jackson v. Metropolitan 1974). On the other hand, where government intentionally funds an unconstitutional program conducted by private actors, the Courts have generally found state action (Norwood v. Harrison 1973).
In Jackson v. Metropolitan Edison Co. (1974) Justice Rhenquist summarized what has been called the “nexus theory” of state action jurisprudence.
“While the principle that private action is immune from the restrictions of the Fourteenth Amendment is well established and easily stated, the question whether particular conduct is “private” on the one hand, or “state action” on the other, frequently admits of no easy answer…[The] inquiry must be whether there is a sufficiently close nexus between the State and the challenged action of the regulated entity so that the action of the latter may be fairly treated as that of the State itself” (ibid., 349).
The nature and degree of interrelationship sufficient to establish such a nexus remains uncertain. As commentators have noted (Barak-Erez 1995:1169; Gilmour & Jensen 1998; Rosenbloom, Carroll & Carroll 2000) there are three general theories pursuant to which the courts have found a sufficient nexus to support a finding of state action: the public function test; the government ‘entanglement’ theory, and cases where there has been specific authorization or encouragement of the challenged activity. The public function test was established in Marsh v. Alabama (1946). Marsh involved the distribution of religious literature on the streets of a so-called “company town,” where all property, including the streets, was privately owned. In language that arguably foreshadows the issues raised by ‘privatization,’ the Court found state action in “permitting a corporation to govern a community of citizens so as to restrict their fundamental liberties.”
Marsh was subsequently so strictly limited as to leave a very narrow scope for the public function test. In Flagg Bros. v Brooks (1975) the Court considered whether action taken by a New York warehouseman, explicitly permitted by the New York version of the Uniform Commercial Credit Code, was attributable to the state by virtue of that statutory authorization. Plaintiffs, not unreasonably, had argued that when a state legislature passes a law expressly authorizing a private party to take an action previously reserved to the state, that authorization should be held to be state action. The Court held that “mere acquiescence” with a private action by government was insufficient to make that action attributable to the State, and further held that the state action doctrine would not necessarily apply to private parties exercising “a number of state and municipal functions,” among them education, fire and police protection, and tax collection (ibid., p. 163).
In a footnote that is prescient for purposes of the current inquiry, the dissent in Flagg protested that, under the majority’s theory,
“[T]he State can shield its legislation affecting property interests from due process scrutiny by delegating authority to private partners” (ibid., 169).
The Court has found state action when cooperation between the public and private sectors is so close as to render them substantially inseparable. This is inevitably a fact-sensitive inquiry, and relatively minor factual distinctions have produced very different results. In Burton v. Wilmington Parking Authority (1961) for example, the Court noted the “public aspects” of a restaurant charged with racial discrimination, primarily attributable to the fact that it was a lessee in a publicly owned building. However, the ruling made it clear that not every lease of public property would be considered a sufficient entanglement to justify a finding of state action. Licensing and regulation have sometimes been held sufficient, but only when these activities are deemed “intensive” (Barak-Erez 1995). The mere approval of a liquor license has been held insufficient (Moose Lodge No.107 v. Irvis 1972), as has regulation of and payment for nursing home care (Blum v. Yaretsky 1983), and the grant by government of a monopoly to represent the United States in the Olympics (San Francisco Arts & Athletics v. United States Olympic Committee 1987).
Blum v. Yaretsky (1983) is an excellent example of the inadequacies of current state action doctrine. The case involved an alleged due process violation arising out of involuntary discharges and transfers of Medicaid patients in a nursing home. Rhenquist, writing for the Court, declined to find state action. He articulated the standard to be met in the following language:
“…a state normally can be held responsible for a private decision
only when it has exercised coercive power or has provided such
significant encouragement, either overt or covert, that the choice must in law be deemed to be that of the State.”
Acknowledging that over 90% (and perhaps as many as 99%) of the patients in the facility were Medicaid patients, and that the nursing home was subject to pervasive governmental regulation, the Rhenquist majority nevertheless held
“That programs undertaken by the State result in substantial funding of the activities of a private entity is no more persuasive than the fact of regulation of such an entity in demonstrating that the State is responsible for decisions made by the entity in the course of its business.”
In dissent, Justice Brennan underscored the superficiality of this analysis.
“In my view, an accurate and realistic appraisal of the procedures actually employed in the State of New York leaves no doubt that not only has the state established the treatment levels and utilization review in order to further its own fiscal goals, but that the State [has] set forth precisely the standards upon which the level-of-care decisions are to be made, and has delegated administration of the program to the nursing home operators, rather than assume the burden of administering the program itself.”
Rendell-Baker v. Kohn
(1982) raised similar concerns. That case involved a private school for “problem children” referred to it by state officials. Nearly all of the school’s funding came from the state, the facility was heavily supervised and regulated, and almost all its students were sent by the state. Nevertheless, the Court declined to find state action, holding that “the school’s fiscal relationship with the State is not different from that of many contractors performing services for the government.” Critics of current state action jurisprudence would agree—and would note that this is precisely where the problem lies.
The inequities extend beyond service recipients, to differential treatment of employees. In Richardson v. McKnight
(1997), a prisoner brought action for a federal constitutional tort against guards at the Tennessee South Central Correctional Center; the Court declined to find that the guards were entitled to qualified immunity, despite the fact that such immunity would clearly have been available to them had they been employed directly by the state.
While the Court’s decision in Richardson was limited to the immunity issue, and did not explicitly address the question of state action, lower courts have not hesitated to find state action in private prison and institutional detention cases (Blumel v. Mylander 1996), often noting that the power to deprive an individual of liberty is a quintessentially governmental power (Plain v Flicker 1986). This line of reasoning is persuasive, but it is difficult to reconcile with Richardson, or with cases like Wade v. Byles, where a private company providing security to a public housing project was held not to be a public actor despite the fact that the guards had authority to carry guns, arrest people, and use deadly force.
Complicating matters even further is the tendency of reviewing courts to apply different standards of analysis depending upon the nature of the constitutional right involved, without, however, articulating the basis for those differences. Commentators have noted that, in cases involving racial discrimination or religious liberties, the Court has been much more willing to find—or assume—state action. (Finding a violation of the Establishment Clause requires the presence of state action, whether that requirement is articulated or not, since a private party cannot violate the constitution.)
If state action jurisprudence is so complicated that lawyers often disagree on the presence or absence of governmental liability for particular actions, how can state and local managers avoid outsourcing practices likely to embroil them in litigation? How should the concept of state action be understood? Or, more broadly, when should we hold the state responsible for actions taken by a contractor? What would a coherent jurisprudence, capable of providing direction for public managers, look like? How might we safeguard constitutional accountability without sacrificing the administrative flexibility necessary to manage today’s third-party government?
Certain characteristics of the relationship between government and private entities will always be relevant to the inquiry whether an action can be fairly attributed to the state. Among those elements will be the existence, nature and extent of government funding; the nature and extent of government control of the activity in question; the extent to which government has authorized a contractor to exercise government powers; and a functional (holistic) analysis. All of these tests have been used to determine the presence or absence of state action, and none would require a paradigm shift in either public management practices or the law in this area.
- Money: Where government money passes to a presumptively private entity, a threshold inquiry should be whether the transaction is a purchase of goods or services, which should not constitute state action, and other types of funding, which may. Purchase involves a product or service that is generally available and relatively standardized, where production of the good or performance of the service is substantially, if not entirely, controlled by the vendor. When the state goes into the market looking for computer support or engineering services, for accountants to perform an audit, for asphalt to use in paving projects, or similar widely traded goods and services, it is relatively clear that government is simply making a purchase. Even where the transaction is apparently a purchase of services, however, a significant long-term relationship between a contractor and government, where the government’s business constitutes a majority of the contractor’s income, should be held to raise a rebuttable presumption of state action. When a single “customer” accounts for most of a contractor’s income, that customer clearly has the power to dictate behavior. The existence of that leverage justifies raising the presumption, which can be rebutted by evidence that no delegation of governmental authority in fact occurred.
- Control: Where government has the authority to control the manner in which work is done, government should be held accountable for the results, without requiring a finding of explicit authorization of the disputed act. This rule is consistent with the Court’s current articulation of the law, if not its practice. Mere regulation should continue to be insufficient, but something less than direct control should implicate the state. Where a regulatory scheme substantially limits the options available to the private entity, prescribes the goals and limits acceptable methods for achieving them, the state should bear responsibility for the results. Courts might helpfully analogize with existing tests to determine whether a worker is an employee or an independent contractor. Many of the same considerations will be relevant.
- Agency. When the state authorizes a private entity to act on its behalf, it creates an agency relationship. When the agent is authorized to exercise powers that are essentially, even if not exclusively, governmental, we are justified in finding that government has acted through that agent. Whether we justify the finding by reworking state action doctrine or, as Metzger has suggested, by finding that the state has delegated a governmental power, is for lawyers and jurists to determine; the important issue is reaching a result that accords with the reality of the relationship involved. The law of agency and partnership could be particularly helpful and relevant here, and it is curious that those principles have not been applied, even by analogy. When government cloaks a contractor with real or apparent authority to act on its behalf, the ensuing actions should be deemed governmental.
- Function: Each of these inquiries is an attempt to determine whether a private entity is acting as a proxy for government under the facts of the case. If the contractual relationship involved has replaced government employees who were previously providing the service, common sense suggests the contractor is a government proxy. Where government is responsible for delivery of the service, there should be at least a rebuttable presumption of state action. The issue is not whether the activity is one that only government does or has ever done, or should do. The issue is whether it is government that is actually “doing” the activity in question. Where government undertakes an activity, funds it, authorizes a contractor to act on its behalf, and effectively dictates the manner in which it is done, that activity should fairly be attributed to government.
One reason for the tortured jurisprudence has been the reluctance of Courts to burden governmental units—and ultimately taxpayers–with liability for the actions of private contractors, but that concern is arguably misplaced. Government can protect tax dollars by contracting for hold harmless or other indemnification provisions. Liability is a recognized cost of doing business, and the allocation of risk is a proper subject for contractual negotiation. Indeed, it could be argued that a refusal to allow government to evade its constitutional responsibilities through contracting will force an explicit recognition and accommodation of the real costs of doing business—including assumption of potential liability risks. Such a result would benefit everyone: private contractors, public managers, and most of all citizens who have a right to demand fiscal, political and legal accountability from public servants and those they elect to office.
When government acts, government should be accountable. The instrument government chooses should not alter that result. Whether government delivers drug counseling or job placement or any other service through a state agency, a for-profit or nonprofit provider, or a faith-based organization, the program is state action—the empowerment of a third party to act for and on behalf of the state. Courts should recognize that reality and require adherence to constitutional standards—and, in the process, provide state and local government actors with clear and welcome guidance.
Sometimes the most obvious rules produce the most tortured applications. It is a truism of every high school and college government class that the Bill of Rights applies only to the government, that there must be state action in order to find a constitutional infringement. But by “reinventing” government, by sharing “governance” responsibilities with third parties and their subcontractors, we have created a mutant that is neither public nor private. The courts have encountered those mutations much as the blind men encountered the elephant: one finding a snake, one a wall, one a tree trunk.
Unless we can come to grips with the whole animal, protean and evolving as it is, and refashion both our jurisprudence and our public management theory to safeguard the distinction between public and private action—a way to protect constitutional liberties without allowing “governance” to engulf truly private enterprises—constitutional accountability will be relegated to a quaint and dusty corner of public management history.
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