P rivatization is a broad term that generally refers to the transfer of public or governmental functions or services to private entities. Other types of privatization include government-funded voucher programs or other subsidies that allow individuals to purchase private goods or services. In other contexts, Congress has empowered private entities or created entities in a variety of forms to (1) deliver services or perform functions previously provided by governmental entities or (2) advance legislative objectives. Congress has created numerous corporations, including Amtrak and the Communications Satellite Corporation (COMSAT). More recently, in the 114th and 115th Congresses, legislation was proposed to create a nonprofit corporation to provide air traffic control services that are currently administered by the Federal Aviation Administration. While the federal government employs various forms of privatization, the transfer of government functions and services to other entities has its constitutional limits. Judicial Review of Privatization

To define what constitutional limits could apply when Congress delegates authority to an entity to perform a governmental function, courts must first determine whether the entity in question is a private or governmental entity. For example, constitutional provisions, such as the Due Process Clause, apply only to governmental entities, while the private nondelegation doctrine that prohibits the delegation of governmental functions to nongovernmental entities is relevant only if Congress improperly delegates authority to private entities. While certain entities such as federal agencies can be readily characterized as governmental entities, the distinction between a public and a private entity is often unclear for government-created corporations. Courts cannot rely on the legislative origins of these corporate entities because the Supreme Court has held that a legislative declaration that an entity is either a private or governmental entity is not dispositive for purposes of determining the entity's status. Applying Constitutional Principles to Privatization

Congress's authority to delegate and privatize governmental functions and services is potentially limited by constitutional principles, including the nondelegation doctrine, the Due Process Clause, and the Appointments Clause. The "nondelegation doctrine" has traditionally been applied to limit Congress's authority to delegate "legislative power" to the other governmental entities. Delegations to Private Entities

In contrast to the relative latitude given to delegations to official governmental entities under the "intelligible principle" test, the Supreme Court has limited the types of authority and functions that Congress can delegate to a purely private entity. The increased use of corporations that have both public and private aspects has complicated how courts have analyzed challenges to the authority delegated to these entities. The court then focused its review on whether the delegation of authority to Amtrak as a "public-private enterprise" violates the Due Process Clause. Appointments Clause

Privatization of government services and functions may also implicate the Constitution's requirements regarding the appointment of certain federal officials under the Appointments Clause. The Appointments Clause of Article II of the Constitution requires "Officers of the United States" to be appointed by the President "with the Advice and Consent of the Senate," although Congress may vest the appointment of "inferior" officers "in the President alone, in the Courts of Law, or in the Heads of Departments." In contrast, non-officers are not subject to any constitutionally required method of appointment. Accordingly, a crucial threshold question respecting the Appointments Clause is thus who constitutes an "officer" of the United States.
Privatization is a broad term that encompasses various types of public-private arrangements, including contractual relationships with private entities for goods or services and government-funded voucher programs that allow individuals to purchase private goods or services. In other contexts, Congress has empowered private entities or chartered corporations to deliver services previously provided by governmental entities or to advance legislative objectives. Congress has created various corporations, including Amtrak and the Communications Satellite Corporation. More recently, in the 114th and 115th Congresses, legislation was proposed to create a corporation to provide air traffic control services that are currently administered by the Federal Aviation Administration.
While the federal government employs various forms of privatization, Congress's authority to delegate governmental functions and services to other entities has its constitutional limits. Constitutional principles, such as the nondelegation doctrine, the Due Process Clause, and the Appointments Clause, may constrain Congress's authority to delegate federal authority to private, governmental, or quasi-governmental entities.
Courts have defined these constitutional limits when reviewing Congress's efforts to privatize public services or functions. When reviewing privatization issues, a court must first determine whether the entity in question is a private or governmental entity. While certain entities such as traditional federal agencies can be readily characterized as governmental entities, the distinction between a public and a private entity can be unclear. For example, corporations established by Congress are not always treated as private entities by the courts. The Supreme Court has held that a legislative declaration that an entity is either a private or governmental actor is not dispositive for purposes of determining the entity's status. Therefore, courts have weighed various factors in making this threshold determination.
The court's determination of an entity's governmental or private status typically guides its review of delegations of authority. Courts have applied different tests for private versus governmental entities in reviewing challenges under the "nondelegation doctrine." This doctrine, as interpreted by the courts, limits Congress's authority to delegate its legislative power to the other entities. In general, courts have upheld delegations of authority to governmental entities such as federal agencies. However, courts have subjected private entities to a higher level of scrutiny and limited the types of services and functions that Congress can delegate to them.
Congressional delegations of power to government entities, including government-created corporations, may implicate other provisions of the Constitution. For instance, case law has explored whether delegation of power to quasi-governmental actors violates the Due Process Clause of the Fifth Amendment. The increased use of corporations that have both public and private aspects has complicated how courts have analyzed due process challenges to the authority delegated to these entities. Further, the Constitution's requirements regarding the appointment of certain federal officials under the Appointments Clause may be relevant to government privatization efforts. The Appointments Clause of Article II of the Constitution generally requires "officers of the United States" to be appointed by the President "with the Advice and Consent of the Senate," although Congress may vest the appointment of "inferior" officers "in the President alone, in the Courts of Law, or in the Heads of Departments." In contrast, non-officers are not subject to any constitutionally required method of appointment. A crucial threshold question respecting the Appointments Clause is who constitutes an "officer" of the United States.
This report focuses on the constitutional principles and judicial decisions that may constrain certain types of privatization that involve private and government-created entities.