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Policy termination: A conceptual framework and application to the local public hospital context

Dissertation
Author: Ke Ye
Abstract:
The improvement of government performance requires that government carry out periodical reviews of its policies and terminate those that are inefficient and ineffective. The existing literature nevertheless reveals that the termination process has been severely understudied. The paucity of knowledge has left many important questions unanswered, thus limiting our capability to evaluate and guide government reforms. The consequence is most acutely perceived at a time when governments are struggling to do more with less and more terminations are expected to take place. The main purpose of this study is therefore to develop an analytical framework of the policy termination process by integrating theories from the policy termination, decision-making and organization theory literature. With an emphasis on local government, this study develops a two-stage model of the termination process: the triggering factors, which include fiscal problems, perceived policy failures and ideological change, and the local decision-making context, which encompasses government structure, policy characteristics, the influence of interest groups and community characteristics. The model is then empirically tested using binary and multinomial procedures with data on California public hospitals over the period from 1981 to 1995. The results of the binary procedure show that state and local fiscal conditions, the local private service market, the organization of interest groups, the size of the beneficiary group, the local commitment to public service delivery, and preference homogeneity are important determinants of policy termination. The multinomial procedure reaches similar conclusions, but further reveals that different termination forms are associated with different sets of factors. More specifically, the conversion decision is affected by state and local fiscal conditions, the organization of anti-termination interest groups, the private service market and local commitment to the target services. The closure decision, however, is affected by local fiscal conditions and the target program's performance. Furthermore, the multinomial results suggest that some factors distinguish the choice of conversion versus closure form. Better operating efficiency, a less developed private hospital service market and a weaker community commitment favor a conversion rather than a closure decision. These findings highlight the importance of the termination form when examining government termination decisions.

iv Table of Contents

Acknowledgments

ii List of Tables

vii List of Figures

viii Abstract

ix Chapter One: Introduction

1 1.1. Government Reform Efforts

2 1.2. Policy Termination: A wrongly Under-attended Topic

6 1.3. Organization of the Dissertation

8 1.4. Significance of the Study

9 Chapter Two: Theoretical Development

12 2.1. Policy Termination Literature

12 2.2. Model Development

18 Triggering Factors

19 Fiscal Problems

20 Perceived Policy Failures

21 Ideological Change

22 Decision-Making Context Factors

22 Government Structure

25 Policy Characteristics

25 Interest Groups

27 Community Characteristics

29 Summary

32 Chapter Three: Application to the Termination of Public Hospitals

34 3.1. Termination of Public Hospitals

34 3.2. The Role of American Public Hospitals

38 3.3. The California Public Hospital System

40 3.4. Termination Hypotheses

43 Triggering Factors

44 Fiscal Problems

44 1) Federal Fiscal Conditions

45

v 2) State Fiscal Conditions

47 3) Local Fiscal Conditions

48 Perceived Failures

49 Ideological Change

49 Decision-Making Context Factors

50 Government Structure

50 Policy Characteristics

51 Interest Groups

53 Community Characteristics

54 Chapter Four: Empirical Testing with a Binary Procedure

58 4.1. Data, Variables and Measures

58 Data Source

59 Dependent Variable

60 Independent Variables

60 Triggering Events

61 Decision-Making Context Factors

63 4.2 Analysis Method

68 4.3 Results and Findings

70 Descriptive Results

70 Multivariate Analysis and Discussion

73 Summary

81 Chapter Five: Distinguishing the Termination Form -- Hospital Conversion and Closure

83 5.1. Hospital Conversion versus Closure

83 5.2. Hypotheses

85 5.3. Empirical Testing

91 Methodology

91 Results and Findings

92 Conversion versus Open Decision

95 Closure versus Open Decision

96 Conversion versus Closure Decision

100 Chapter Six: Conclusion

104 6.1. Summary

104 6.2. Contribution

106 6.3. Implications

109 6.4. Limitations

112

vi Bibliography

117 Appendix

126

vii List of Tables Table 1: Variable Definitions and Sources

67 Table 2: Descriptive Statistics by Dependent Variable Value

72 Table 3: GEE Analysis of the Decision to Terminate Public Hospitals

75 Table 4: Multinomial Logit with GEE Approach on the Decision to Terminate Public Hospitals (Total Profit Margin)

93 Table 5: Multinomial Logit with GEE Approach on the Decision to Terminate Public Hospitals (Operating Profit Margin)

93

viii List of Figures Figure 1: A Decision-Making Model for Policy Termination

33 Figure 2: The Termination Trend of Pubic Hospitals (comparing US and CA)

36 Figure 3: A Decision-Making Model for Termination for Public Hospitals

57 Figure 4: Trends in the Number of California Public Hospitals, 1981- 1995

71 Figure 5: Factors Distinguishing Hospital Closure and Conversion

90

ix Abstract

The improvement of government performance requires that government carry out periodical reviews of its policies and terminate those that are inefficient and ineffective. The existing literature nevertheless reveals that the termination process has been severely understudied. The paucity of knowledge has left many important questions unanswered, thus limiting our capability to evaluate and guide government reforms. The consequence is most acutely perceived at a time when governments are struggling to do more with less and more terminations are expected to take place.

The main purpose of this study is therefore to develop an analytical framework of the policy termination process by integrating theories from the policy termination, decision-making and organization theory literature. With an emphasis on local government, this study develops a two-stage model of the termination process: the triggering factors, which include fiscal problems, perceived policy failures and ideological change, and the local decision-making context, which encompasses government structure, policy characteristics, the influence of interest groups and community characteristics. The model is then empirically tested using binary and multinomial procedures with data on California public hospitals over the period from 1981 to 1995. The results of the binary procedure show that state and local fiscal conditions, the local private service market, the organization of interest groups, the size of the beneficiary group, the local commitment to public service delivery, and preference homogeneity are important determinants of policy termination. The

x multinomial procedure reaches similar conclusions, but further reveals that different termination forms are associated with different sets of factors. More specifically, the conversion decision is affected by state and local fiscal conditions, the organization of anti-termination interest groups, the private service market and local commitment to the target services. The closure decision, however, is affected by local fiscal conditions and the target program’s performance. Furthermore, the multinomial results suggest that some factors distinguish the choice of conversion versus closure form. Better operating efficiency, a less developed private hospital service market and a weaker community commitment favor a conversion rather than a closure decision. These findings highlight the importance of the termination form when examining government termination decisions.

1 Chapter One: Introduction

Governments in recent years have been trying hard to improve performance, which requires periodical reviews of government policies and termination of those that are inefficient and ineffective. Yet compared to other policy processes such as agenda setting, policy formation, policy implementation and policy evaluation, the process of policy termination may be the least understood. The limited amount of research and inconsistent findings available at the current stage pose great difficulty for us to realistically evaluate government reform efforts and shed little light on guiding how the government should carry out termination and harvest the expected benefits of a more efficient, effective and responsive government. More importantly, integrative frameworks for policy termination are almost completely lacking, further adding to the difficulty in advancing our understanding of the termination process.

The purpose of this study is therefore to develop an analytical framework for the termination process by integrating theories from different disciplines and testing the explanatory power of the model. More specifically, a two-stage model of termination determinants is proposed to include triggering events and the decision-making context. An empirical test of the model is then conducted with California public hospitals data over the 1981-1995 period.

In this chapter, the first section presents a brief introduction to the trend of governance reform and the challenges that governments face. The second part evaluates the

2 current situation of termination research and identifies related research questions. Finally, the organization of the dissertation and the significance of the study are discussed.

1.1. Governance Reform Efforts:

In recent years, increasing attention has been focused on reforming the existing governmental policymaking structure (Kettl, 2002; Stoker, 1998). Critics argued that, compared to the private sector, government has distinctive characteristics that prevent it from functioning efficiently and responsively (Weimer and Vining, 1991; Wolf, 1979). For example, government agencies operate in environments that lack competition, have conflicting objectives, or an inflexible civil service system, just to name a few. Some scholars even contend that the US government is designed to be inefficient (Wilson, 1989; Moe&Caldwell, 1994). Much of the existing empirical research supports that government production costs more than that in private and nonprofit sectors (Savas, 1987; Ferris, 1986; Brooks, 2004). Therefore, it is argued that in order to improve government performance, governments should conduct governance reform and shift the focal point of service delivery to the private and nonprofit sectors.

The new governance mode challenges the concepts of traditional public administration in fundamental ways. Traditionally, government is both the rule maker and the service provider. The new governance mode, however, seeks to fundamentally redefine the

3 role of government and its relationship with society. It argues that government should do more steering rather than rowing (Osborne&Gaebler, 1992); government’s primary role is not public service delivery, but rather coordination of the actors in different sectors to jointly provide services in a more efficient and responsive manner. Therefore, government is proposed to reduce its share of service provision, transfer service delivery to the private sector, and engage in active collaboration with private and the nonprofit organizations (Gaudin, 1998). Correspondingly, the existing governance structure should be replaced with alternative ones that involve more of the private sector. In particular, government is urged to commit to the practice of privatizing, contracting out and establishing partnerships with both the for-profit and nonprofit sectors (Krahmann, 2003).

The ideas of governance reform have been well embraced by both the Republican and Democratic parties in the United States. Vice President Gore has sought to evaluate agency performance on a nationwide scale and downsize the government accordingly (Gore, 1993), while Congressional republicans passed the “Contract With America” Plan, which proposed to eliminate a large number of selected programs. In practice, governments have entered the action networks with private/nonprofit sector partners more frequently; partnering or contracting out with private/nonprofit organizations as an alternative form to carry out social services has become a common practice (Ferris and Graddy, 1991).

4 The determination to carry out governance reform and take advantage of the more efficient production mode in the private sectors is further influenced by two problems that governments face. First, governments at different levels are plagued by financial difficulties. In the past two decades the federal government has consistently had a budget deficit (OMB, 2004). At the state level, 46 out of 50 states in the United States had budget deficits in 2002 (CLA, 2002). A more dramatic case took place in California in October 2003 when voters recalled Governor Gray Davis, mainly due to a fiscal crisis of a more than 10 billion budget deficit. A similar situation is happening at the local level. For example, Los Angeles County was projected to have a $700 million budget deficit by the end of 2005 (Cousineau, et al., 2003).

Second, while the public demands more services on the one hand, they are unwilling to pay for them on the other. For example, a recent poll revealed that a majority of respondents wanted to balance the federal budget and wanted tax cuts (Beneditto, 1995). Such a typical public mentality poses a great challenge and has important implications for government officials. On the one hand, they have to appeal to the voters by satisfying their new service demands. On the other hand, they may be in political trouble if they want to levy more money from the taxpayers to pay for them.

Faced with such difficulties, government is forced to do more with less. What this implies is that government has to sustain effective programs, eliminate ineffective ones, and transfer the services it cannot provide efficiently to the private sector. Indeed, the governance and public management reforms in the past decades carried the

5 expectation that governments regularly evaluate their programs and terminate those that are ineffective or inefficient.

Though the expectations on governance reform are keen, the commitment is strong, and more terminations are expected to occur, the results are less clear. There are arguments that government is entangled in politics and the program cuts do not work like those in the private sector. For example, most program cuts are inevitably faced with intensive resistance from the beneficiaries (Bardach, 1976; Behn, 1978). Furthermore, a termination decision has to overcome the often formidable political and institutional constraints within the government system (deLeon, 1978). Actually, one of the biggest warnings on the high profile “reinventing government” movement is “don’t forget politics” (Kettl, 1997).

According to a study conducted by Kaufman (1976), out of the 421 agencies existing between 1923 and 1973, only 27, or 15%, had been terminated. The mortality rate is less than half that of private organizations calculated in the same manner. What the result suggests is that public agencies tend to live long after they no longer serve their original function. This finding, if true, can have important implications for governance reform. To a large degree, how successfully government can reap the benefits of reform depends heavily on how it goes through the termination process. If the termination is so difficult to carry out in the public sector, then many outdated agencies and programs may not be able to be eliminated in a timely manner, and the benefits of governance reform may have been overestimated. Is the termination of

6 government agencies really so difficult? If so, what are the factors that make it difficult? Why do some organizations survive the termination efforts while others do not? What are the determinants of the termination process? Do efficiency and effectiveness criteria play a role in the termination process? With many program cuts planned and possibly implemented in the near future, it is of critical importance that we understand the termination process well.

1.2. Policy Termination: A wrongly Under-attended Topic

Unfortunately, despite the fact that policy termination, a generic term for the termination of government policies, functions, programs and organizations, is a vital component of the policy process, it has been long under-studied. Since 1976, there have been only three symposiums on policy termination. The number of publications on this topic is small and the writers amount to only a handful. As observed by Daniels (2001), policy termination continues to be under-attended, a term first applied to the study of this field three decades ago (Biller, 1976).

The under-attention is said to be the result of the following reasons (Daniels, 2001; Bardach, 1976; deLeon, 1978): First, there are relatively few examples of termination available for study, which makes the phenomenon seemingly unimportant and the generalizations difficult. Second, researchers tend to focus on new and innovative policies, rather than outdated, flawed, or ineffective polices. Third, there are challenges in the operationalization of the concept of termination, such as whether to

7 categorize policy events as termination or partial termination or just adjustment. Fourth, policy termination is often the political expediency that attracts more attention during political campaigns and economic downturn but gets ignored when the situation has improved. Fifth, the lack of communication between different disciplines inhibits the proliferation of policy termination research.

The lack of scholarly attention on policy termination has severely limited our understanding of the termination process. The current literature has left many important questions unanswered or answered with conflicting results. For example, is policy termination a premeditated process with careful planning, or it is just a random event? Are there any regular patterns of policy termination? If so, what are the factors that lead to such patterns? Is there any way we can tell which factor is more important than another under certain circumstances? What kind of termination strategy should we employ under different conditions?

The lack of knowledge on termination is especially troubling at a time when governments are concurrently facing increasing financial constraints and increasing public service expectations, and more program cuts are expected to take place. For instance, if government wants to cut a program, what kind of program will it cut? Is it really the inefficient one that will be cut? Will the targeted program be cut smoothly? When government wants to increase efficiency, will the inefficient programs be terminated in a timely manner? For government decision-making in such a highly politicalized arena, will the political considerations dominate the economic and

8 efficiency ones? The answers to these questions will fundamentally affect what benefits government reform can bring about, how we evaluate the reform efforts and the strategies we should adopt to improve government performance. For government efforts to result in a better effect, it is a great necessity that we accumulate better knowledge on this subject.

This dissertation seeks to advance our understanding of the termination decision by developing a two-stage termination decision model based on termination literature, decision-making theory and organization theory, and empirically test it with 1981-95 data on California public hospitals.

1.3. Organization of the Dissertation:

The study is organized into six chapters. The next chapter reviews the related literature on termination phenomenon with a focus on the triggering factors and contextual factors during the termination decision process. A two-stage theoretical model is developed and corresponding propositions are generated.

The third chapter applies the theoretical model developed in chapter 2 to the public hospital context, with an emphasis on the state of California. Testable hypotheses are developed for the termination decision of local public hospitals.

9 The fourth chapter discusses the operationalization of the model specified in chapter 3. The dependent variable, independent variables, and the data sources are identified and the results of empirical testing with binary procedure presented.

Chapter 5 makes the distinction between two different termination forms, conversion and closure, and explores the effects of important factors. The results of multinomial logistical regression are reported.

Chapter 6 concludes the study with a discussion of the implication of the findings, the limitations of the study and the suggestions for the direction of future research.

1.4. Significance of the Study:

This study attempts to make several important contributions to the existing literature. First, it is one of the few attempts to develop a process model to explain the policy termination decision. The model is unique in that it involves two stages, which is expected to be closer to the reality of the complex nature of termination phenomena. At the same time, the theoretical framework includes a more comprehensive set of factors such as governmental structure and community environment that are often absent in previous research, thus allowing the empirical exploration of a broader range of influences on the determinants of policy termination decisions, and their relative importance. The model also integrates the theories from different theoretical perspectives, such as policy termination, decision-making, and organization and

10 interest group theory, thereby facilitating the communication between different academic fields and contributing to the proliferation of policy termination research.

Second, given that most existing termination research focuses on the state or federal level, this article makes a first attempt to develop a theoretical model under local decision-making settings. Such knowledge of termination is particularly important because more and more termination decisions are taking place at the local level. The model and the empirical findings in this study help improve our understanding of local government’s behavior and the impact of community factors on the termination decisions.

Third, this study adds to the few quantitative studies that overcome the limitations of typical case studies and makes the conclusions more generalizable to termination phenomena in other settings. The multivariate analysis method employed in this study enables us to better evaluate the relative importance of each factor by including them in the same model. In addition, a GEE approach is adopted to control the repeated measure bias that is often found in clustered data analysis. Compared to non GEE methods, this approach produces more accurate estimates and generates more reliable conclusions.

Fourth, this study is also the first one to make the distinction between different termination forms in policy termination research. The analysis of California hospital data shows that different forms of termination are associated with different sets of

11 determinants, and certain conditions favors one form of termination versus another. For example, a conversion decision of public hospitals is affected by the state and local fiscal conditions, the organization of anti-termination interest groups, private service market and the local commitment to the target services, while a closure decision is only affected by the local fiscal conditions and the target program’s performance. Thus, this study not only helps decision makers to think about a change, but also enables them to foresee the problems associated with specific types of changes, thus enabling better preparation to overcome the challenges during the termination process.

Finally, with the particular emphasis being on the termination of public hospitals, the model developed in this study is also a first attempt to systematically examine hospital behavior from a public sector perspective. The testing of ideological, governmental and interest group factors that are often neglected in private decision models helps advance our understanding of hospital conversion and closure in public settings. The fact that factors often found important in private hospital conversion or closure were not found significant in this study illustrates the fundamental difference between public and private decision-making. Therefore, the conceptual framework developed from a public perspective in this study contributes to the theoretical integration and synthesis of health service research and serves as a bridge between the health field and public administration.

12 Chapter Two: Theoretical Development

This chapter aims at developing a 2-stage decision-making model for the policy termination process. The first section briefly reviews previous research on policy termination. The second section develops a new model based on the literature of policy termination, decision-making theory, and organization theory.

2.1. Policy Termination Literature

Policy termination has been regarded as an integral part of the policy process. In a policy cycle, a policy process typically includes agenda setting, policy formation, policy implementation, policy evaluation and finally, termination (May&Wildavsky, 1978). No matter how perfectly a policy was originally designed, it may lose its validity after it accomplishes its goal, or may meet with other problems due to environmental changes or implementation difficulties. In other words, policies can become inefficient, out of date, or dysfunctional. Consequently, periodical review and termination of government policies becomes an important step to safeguard the quality of public policy and ensure government efficiency, effectiveness and responsiveness. Although we tend to treat policy termination as the last step of a policy cycle, policy termination can be both viewed as an end and a beginning – an end to the existing policy, and a beginning for the alternative new policy and re-deployment of the resources.

13 While there is agreement on the importance of the policy process, the term has been defined in different ways. The major challenges to define the term come from two sources: First, the termination can mean either a full stop of services as commonly understood, or a partial termination, such as changes in policy emphasis, jurisdiction or level of funding ( Daniels, 2001), thus making identifying the case and timing of termination challenging. Second, related to the inherently complex nature of government decisions, termination can refer to different targets under different occasions. While some scholars focus on specific policies, others also include the termination of programs or organizations. For example, deLeon (1978) examined four major types of termination decisions in government and argued that f unctions are presumably the most enduring of public activities, followed by organizations, policies and finally programs (Daniels, 1997). Following deLeon, the policy termination in this study is broadly defined as the cessation of specific government functions, programs, policies, or organizations, for the purpose of analysis convenience, as it is usually possible to identify cessation.

No distinction is made between different types of termination, because in practice different kinds of terminations are often intertwined with each other. Moreover, as argued by Bardach (1976), any efforts to terminate any type of them would generate similar political contests, thus making it unnecessary to differentiate between them in the context of policy termination.

Most of the existing literature has focused on identifying the patterns and factors of policy termination. In his seminal work, Kaufman (1976) argued the deaths, or terminations of government organizations are more likely attributed to chance, or bad

14 luck, than to any other factor, as the incremental government decision-making process insulates government organizations from a natural life cycle. Although Kaufman (1985) later speculated that the organization’s death results from the system’s failure to evolve and adapt to the new environmental conditions, he insisted that the timing of termination appeared to be random. In contrast to Kaufman’s view, some others scholars assume that termination is a deliberated, highly political but still rational policy process, and much effort has been invested in identifying the common patterns and determinants. DeLeon (1978) developed the first general conceptual framework for analyzing the factors that inhibit policy termination: 1) intellectual reluctance; 2) institutional permanence; 3) dynamic conservatism; 4) anti-termination coalitions; 5) legal obstacles; 6) high start up costs. He argued that due to these constraints, termination is typically difficult to plan and carry out. The model was found useful in empirical case studies conducted by other researchers, despite some modifications (Frantz, 1992; Daniels, 1995).

While deLeon’s model (1978) is useful in explaining why policy termination is a rare phenomenon, it fails to answer why terminations do take place on many occasions. The efforts to explore the latter question suggest that factors contributing to the termination decision fall into three main categories: financial imperatives, governmental efficiencies and political ideology, with different perspectives emphasizing the different relative importance of different factors ( deLeon, 1983).

15 The financial model emphasizes the role of budget deficits and revenue shortfalls in the policy termination decision. It argues that since p ublic programs are supported with a government budget, when there is a budget deficiency or revenue shortfall, government may be forced to terminate certain programs. Findings from e mpirical research have lent support to the role of budget deficits (Kirkpatrick, Lester & Peterson, 1999). This suggests that cost savings play an important role in the termination process. Financial models, however, offer at best a partial explanation, as they do not explain which programs will be cut when financial problems occur. Moreover, they cannot explain why some government programs survive even under severe governmental financial insufficiencies while other terminations take place when there are no financial difficulties. Finally, cutting in response to short-term financial stress may be counterproductive as cutting is itself costly. Considerable costs may be incurred to compensate the parties negatively affected by the termination policy (Frantz, 1997).

The efficiency perspective, on the other hand, argues that the poor performance by public programs is the main reason for termination. This approach insists that a public program has the mission of providing services in an efficient and responsive way; failing that, the program will lose legitimacy for existence and thus become the target of program cutbacks. One case in point is that a Comprehensive Employment and Training Act (CETA) program was terminated after it proved to be inefficient. Another example is the decision made by Secretary of Defense Robert McNamara to discontinue the Skybolt missile program because there were more efficient alternatives for maintaining strategic deterrence (deLeon, 1983). Efficiency models, though

16 desirable, have difficulty explaining why public programs, whether efficient or not, tend to exist for a long time (Kaufman, 1976), and many inefficient programs do survive inefficiency complaints. Furthermore, there are considerable challenges associated with estimating both costs and efficiencies, thus making applying efficiency criterion difficult in many situations. More fundamentally, it seems unlikely that such an argument would be persuasive unless it is put in the context of a more effective way to achieve the desired goal. Therefore, this motivation might be more usefully subsumed in a broader focus on ineffectiveness or failure. Public programs could be judged ineffective either because they are inefficient (could be done more cheaply by others), ineffective (there are better ways to achieve the same goal), or obsolete (the goal is no longer worthwhile).

The political perspective, however, contends that policy termination is a political process (Bardach, 1976). The fundamental reason for program termination, it argues, lies not in the economics or efficiencies of the program, but in political beliefs (deLeon, 1983; Harris, 1997). The examples cited by deLeon include President Nixon’s assault on the Office of Economic Opportunity and President Reagan’s attack on the California Rural Legal Assistance program. Several empirical studies support the relative importance of political factors over economic ones in explaining termination. Lewis (2002), for example, in his study of 426 federal agencies existing between 1946 and 1997, found that political factors are a primary cause of termination. Franz (1992), in a case study of federal policy with respect to leprosy, provides evidence against cost savings and policy ineffectiveness as reasons for termination.

17 She concludes that the role of politics dominates, citing a 50-year effort to terminate thwarted by a coalition of patients, staff, and the community that housed the leprosarium. Political models highlight the importance of political dynamics in policy termination in such a highly politicalized arena. However, they fail to explain why some termination cases happened without obvious political ideology changes. Furthermore, economy or efficiency assessment is usually carried out before government makes a termination decision. If the decision is purely a political one, such economic analyses would not have been needed.

Full document contains 138 pages
Abstract: The improvement of government performance requires that government carry out periodical reviews of its policies and terminate those that are inefficient and ineffective. The existing literature nevertheless reveals that the termination process has been severely understudied. The paucity of knowledge has left many important questions unanswered, thus limiting our capability to evaluate and guide government reforms. The consequence is most acutely perceived at a time when governments are struggling to do more with less and more terminations are expected to take place. The main purpose of this study is therefore to develop an analytical framework of the policy termination process by integrating theories from the policy termination, decision-making and organization theory literature. With an emphasis on local government, this study develops a two-stage model of the termination process: the triggering factors, which include fiscal problems, perceived policy failures and ideological change, and the local decision-making context, which encompasses government structure, policy characteristics, the influence of interest groups and community characteristics. The model is then empirically tested using binary and multinomial procedures with data on California public hospitals over the period from 1981 to 1995. The results of the binary procedure show that state and local fiscal conditions, the local private service market, the organization of interest groups, the size of the beneficiary group, the local commitment to public service delivery, and preference homogeneity are important determinants of policy termination. The multinomial procedure reaches similar conclusions, but further reveals that different termination forms are associated with different sets of factors. More specifically, the conversion decision is affected by state and local fiscal conditions, the organization of anti-termination interest groups, the private service market and local commitment to the target services. The closure decision, however, is affected by local fiscal conditions and the target program's performance. Furthermore, the multinomial results suggest that some factors distinguish the choice of conversion versus closure form. Better operating efficiency, a less developed private hospital service market and a weaker community commitment favor a conversion rather than a closure decision. These findings highlight the importance of the termination form when examining government termination decisions.