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The 99% Plan: The privatization trap

Grace — Mon, 13 Feb 2012 17:42:01 +0000

By Mike Konczal, Fellow at the Roosevelt Institute

Privatizing the government is one of the most active projects of the early 21st century.

Everything we once expected the government to do - from education to regulatory rule-writing to military operations to healthcare services to prison management - it now does less of, preferring to support markets in which these services are done through independent, profit-maximizing agents. Tools such as contracting out, vouchering and the selling-off of state assets have been used to remake the government during our market-worshipping era.

Privatization is one of the few political projects that enjoys bipartisan support: Conservatives cheer the rollback of the state, and liberals like to claim that the virtues of the free market are being used towards the egalitarian ends of public policy. The fraud and waste that often come with outsourcing these services has been well-documented. The private management in Iraq and the aftermath of Hurricane Katrina, and the lobbying efforts of corporate prisons have all provided horror stories of what happens when cronyism guides decision-making on behalf of the state. But privatization as standard government practice has problems that go far beyond the abuses of any single incident.

Rather than solving problems with government, privatization often amplifies those issues to new extremes. Instead of unleashing market innovation, it often introduces new parasitic partners into the decision-making process. Instead of providing a check on the power of the government, it allows the state to circumvent constitutional and democratic accountability measures by merging with the private sector. And ultimately, the practice replaces the set of choices and constraints found in democracy, with another set found in the marketplace. Today's political conversation is blind to these problems out of a mistaken faith in the efficiency and fundamental equality of markets, contrasted to the ineffectiveness and corruptibility of the state.

What advocates miss is that the logic of markets creates private-sector coalitions capable of extracting just as much from taxpayers as the state. Corporations, lobbyists and other market actors can have just as much political agency as the government, and privatization can mobilize businesses to rewrite market practices.

This political process plays out in the quality of the services provided and the structure of the companies providing them. Privatization has sometimes meant that the most lucrative and easiest parts of these government obligations go into private hands, creating private profit, while the most difficult and dangerous parts remain with the public. This can range from the "privatizing the gains, socializing the losses" of various parts of the financial sector to the "cream-skimming" that goes on in many other industries.

If privatization is meant to put a check on the size and power of the state it often backfires, as the practice can be used to circumvent normal mechanisms that exist to hold the state accountable. A whole array of transparency laws and constitutional checks don't carry over when the government outsources its responsibilities and activities to independent businesses.

Privatization as a way of avoiding constraints and accountability measures has two particularly troubling consequences. First, the government can use independent agents to do things that they themselves cannot do, betraying the whole point of keeping government in check. Especially in the world of surveillance, this practice can act as a way to get around constitutional protections enjoyed by citizens.

Second, accountability measures that have evolved through decades of public law are jettisoned when a service leaves the public sector, allowing companies to do the government's work in a network of secrecy. Ways the public keeps a check on the government, from the Freedom of Information Act to the Administrative Procedure Act to whole regimes of other transparency laws, do not bind outside businesses.

The Constitution prohibits the delegation of significant state powers, but the Supreme Court currently puts few constraints on the government to outsource many of its important duties. What today's discourse ignores is an understanding of the liberal conception of what public and democracy itself is good for - as a way to check private and government power, and promote accountability and responsiveness.

These blur into dark scenarios where private-public relationships give public agents maximum discretion in exchange for giving private agents advantages over their competition. For example, after FedEx's CEO announced that his company would be cooperating with the government following the Sept. 11 terrorist attacks, the firm received a number of rewards. Ranging from special access to security databases, to a prize seat on a regional terrorism task force (the only private company represented) and special state licenses, these benefits amplified the firm's power in the marketplace over noncooperative competitors like UPS, all in exchange for amplifying the power and reach of the state.

Defenders of privatization also argue that the marketplace creates innovation. Competition, the profit motive and the "creative destruction" of the market system can be deployed to increase the efficiency and effectiveness of government services. But what this outsourcing really does is move constraints from one space to another. It transforms the strengths and weaknesses, the limits and the constraints, from government to the market.

Privatization replaces the democratic role of citizens finding solutions to collective problems and transforms it into consumers trucking and bargaining in a marketplace. Finding solutions in a public space emphasizes accountability, voice, transparency, rules and claims through reasoning that goes beyond the self. The market emphasizes cost-benefit thinking, profit-seeking strategies, bargaining and the satiation of individuals' wants; good things in many circumstances, but not necessarily when it comes to the powers of the state.

A regime of privatization shifts the debate away from the functions of government towards the allocation of those functions. For all the talk about innovation by outside contractors, what privatization largely does is preserve the scope of government services while looking for efficiency gains. And since the scope of what the government does is held constant, the real gains come from minimizing costs.

Take prisons, for example. With the addition of privately run prisons, the debate narrowly focuses on how much to spend on prisoners. Minimizing costs here will often be the result of simply providing less of a good at a worse quality, and the debate will focus on the optimal extent of these privatization contracts. Meanwhile, the greater question of when the state should imprison people fades to the background.

What's actually public about these responsibilities disappears from the conversation. Privatization assumes that cost quantifying solutions are more fundamental to government than any discussion of ethics or values. The move away from democratic accountability is particularly worrisome because in many of these fields, the ultimate motivator of private markets, the profit motive, is in direct conflict with the public administration. The basic values, concepts and institutions of liberal democracy - political participation, elections, equal distribution of individual liberties, checks on concentrated power - do not work towards economic competitiveness.

The ideology that the government is just one among many providers of goods and services is a seductive one in this age of markets. But the government isn't simply just another agent in the market, and firms that are empowered to carry out the role of the state can be as abusive as the worst bureaucracy.

We need new arguments for the government, with all its strengths and weaknesses, to be allowed to do its jobs knowing that it won't always be perfect. The alternative is government by cronyism, delegated marketplace winners exploiting what works about markets with none of the normal checks we expect on a functioning democracy. There are no doubt weaknesses in the current functions of government, but for those who resist privatization, that is a call to political reform rather than one of abandoning the public arena altogether.

The 99 Percent Plan is a joint Roosevelt Institute-Salon series that explores how progressives can shape a new vision for the economy. This is the first essay in the series. This article was originally published in the Salon. For original post, see here.

The Privatization of Public Services, State by State

Grace — Thu, 02 Feb 2012 19:13:11 +0000

It seems there's no public service or piece of property that private companies are not eyeing as potential revenue streams. While funding anti-government think tanks like the American Legislative Exchange Council (ALEC), companies like Corrections Corporation of America, Waste Management, Maximus, Intuit, Laidlaw, Northrup Grumman, Koch Companies, Macquarie Capital Advisers, Pinnacle West, and UnitedHealthcare are hoping to use government as their candy store.

They want to take over our roads, bridges, parking lots, water systems, college dorms, and prisons. And they want to deliver public services like transit systems, school cafeterias, trash and recycling pick up, mental health services and many others. The following is a quick scan of just some of the proposals.

Water

The Emergency manager of Flint, Mich., is considering selling off its water and sewer systems to the highest bidder. The systems are currently generating revenues for the city.

Long Island's Nassau County Executive Edward Mangano's proposal is proposing to privatize the county's sewage treatment system. Mangano also announced the privatization of Long Island Bus company to Veolia Transportation.

The Texas Lower Colorado River Authority is selling 18 retail water and wastewater systems in the Hill Country and in its southeast service area to [Canada-based] Corix Infrastructure.

Schools

School districts across the country are planning to contract out custodial, clerical, cafeteria and bus services. In Michigan, home to the right-wing, privatization think tank, the Mackinac Center, lots of
school districts are moving forward with plans including Muskegon Heights, West Branch-Rose City, Rochester districts.

The real estate industry, seeing potential profits from the growth in charter schools, wants in. One company, Entertainment Properties, a real estate investment trust, primarily a movie theater landlord, now owns 34 charter-school properties and sees "a huge capacity to grow."

Prisons

The Florida Senate failed to vote on a controversial proposal to private prisons in South Florida. A labor community coalition including AFSCME, Teamsters, the Justice Policy Center, Grassroots Leaders and the Police Benevolent Association mobilized members and press opposition. Perhaps the Gainesville businessmen who were sentenced to federal prison for paying kickbacks to the former secretary of the state department of corrections official after the prison canteens system was privatized had an impact.

Liquor

The liquor industry is pushing hard to take control of state systems that now generate funds for cash-strapped governments. Ohio Gov. John Kasich is privatizing the state's liquor distribution system in a $1.4 billion dollar deal. The Idaho Federation of Reagan Republicans submitted a citizen's initiative to the secretary of state's office that would privatize liquor sales in Idaho and eliminate the state Liquor Division.

Michigan Gov. Snider is proposing to deregulate the state's alcohol distribution system. The Michigan Liquor Control Commission generates an estimated $330 million for the state's general fund. Snider's Liquor Control Rules Advisory Committee is stacked with representatives from sectors that profit from alcohol sales.

It's not all bad news. Record profits at state-owned liquor stores in Virginia "may have sounded the final death knell for Gov. Bob McDonnell's proposal to privatize" them.

Gov. Scott Set to Hand Florida’s Prisons to Corporate America

Shar — Thu, 26 Jan 2012 18:29:48 +0000

By Donald Cohen

Florida Gov. Rick Scott and the Republican-controlled legislature are moving fast to privatize all 29 prison facilities in 18 counties in southern Florida.

Last year, the GOP prison privatization proposal was ruled unconstitutional because it was wrapped into a budget proposal, a violation of Florida laws that requires policy changes be in separate laws. Tallahassee Judge Jackie Fulford ruled that the lawmakers rushed the process.

The privatizers aren't making the same mistake this time. Not only are they proposing to privatize the prisons but they are changing the law to be able to privatize any service as fast, as easily and as secretly as possible. Under the latest proposals, an agency would not have to report its privatization of a program or service until after the contract is signed. And they also would eliminate a current legal requirement to do a cost-benefit analysis before privatizing any government function.

In other words, don't let the public know what you're doing and don't bother to find out the costs.

Scott, former CEO of hospital giant Columbia/HCA, came into office on a mission to privatize Florida government. Scott left HCA as the company was being investigated for the "biggest Medicare fraud case in U.S. history." Columbia/HCA ultimately paid a record $1.7 billion in fines, penalties and damages.

Scott has already proposed privatizing the state's Medicaid system, state park campgrounds, the state's three remaining public mental hospitals, three centers for the developmentally disabled and six veterans' homes.

The two largest prison companies, Corrections Corporation of America (CCA) and GEO Group (formerly Wackenhut), are poised to strike, in what Judith Greene, director of Justice Strategies calls, "an unprecedented" expansion of the use of private prisons that no other state has undertaken.

GEO has been a consistent force within Florida politics. GEO Group alone gave more than $400,000 to the party in the past election cycle. Geo Group‘s lobbyist, Brian Ballard, hosted Scott at his Tallahassee home to watch the Super Bowl. GEO Group and CCA donated nearly $1 million toward the Scott's inauguration celebrations.

Stop For-Profit Prisons

Grace — Thu, 03 Nov 2011 15:01:28 +0000

By David Shapiro, ACLU National Prison Project

Today, the ACLU releases Banking on Bondage: Private Prisons and Mass Incarceration, an in-depth examination of the private prison industry.The report finds that mass incarceration provides a gigantic windfall for one special interest group - the private prison industry - even as current incarceration levels harm the country as a whole.

While the nation's unprecedented rate of imprisonment deprives individuals of freedom, wrests loved ones from their families, and drains the resources of governments, communities, and taxpayers, the private prison industry is expanding at an exponential rate, holding ever more people in its prisons and jails, and generating massive profits. Private prisons for adults were virtually non-existent until the early 1980s, but the number of prisoners in private prisons increased by approximately 1,600 percent between 1990 and 2009.In 2010, the two largest private prison companies alone received nearly $3 billion in revenue.

As detailed in the report, this year advocates of for-profit prisons trotted out privatization schemes as a supposed answer to budgetary woes in numerous states, including Arizona, Florida, Ohio, and Louisiana. But the evidence that private prisons provide savings compared to publicly operated facilities is highly questionable, and certain studies point to worse conditions in for-profit facilities.

Now is the time for serious criminal justice reform, not privatization schemes. The private prison industry feeds off the mass incarceration problem and cannot be part of the solution. The only real way to cut prison spending is to cut the number of people we keep in prison.

To learn more, listen to this new podcast with private prisons expert Alex Friedmann, then go here to read more about the ACLU's work to end reliance on private prisons.

Privatized Traffic Law Enforcement Has Familiar Problems with Red-Light and Speed Camera Ticketing

Grace — Fri, 28 Oct 2011 19:59:18 +0000

By Phineas Baxandall

In ancient times, rulers relied on a practice now known as "tax farming" in which tax collection was outsourced to other groups or individuals who maintained order in particular areas and passed on revenue to the monarch. The abuse that resulted from this system is thought to be one reason for the fall of the Roman Empire.

In modern times, governments are again turning to private companies to enforce certain laws and charge fees. A new report by the U.S. Public Interest Research Group, titled Caution: Red Light Cameras Ahead; The Risks of Privatizing Traffic Law Enforcement and How to Protect the Public details how as many as 700 communities across as many as 28 states contract out to private companies that install and operate automated red-light or speed cameras and then send tickets in the mail to the owners of cars caught on film for legal violations. According to the report, one in five Americans live in a jurisdiction that outsources traffic ticketing this way.

Drivers are finding this out the hard way by receiving steep tickets in the mail from a ticketing vendor. Drivers have sometimes felt unjustly fined if they were turning right at a red light or another maneuver they believe no human police officer would ticket them for. The industry claims that the cameras prevent crashes and save lives, and some studies suggest they do, but other studies find that red-light cameras increase injuries.

Like with the ancient Romans, the report finds a host of abuses. For example, the people of Baytown, Texas were confronted with a breach of contract lawsuit after they voted in November 2010 to terminate their camera system. A lengthy legal battle ensued, and the settlement required the town to pay $1 million in exchange for the removal of the cameras. Bell Gardens, California signed a contract with Redflex Traffic Systems that allowed the camera vendor to penalize the city if it decided to alter the duration of yellow lights at monitored intersections.

Since company profits depend on driving up ticket revenue, it's not surprising that companies also wield political power to influence local decisions. According to the Orlando Sun Sentinel, the company American Traffic Solutions spent over $1.3 million on lobbying activities in the past four years. Since 2006, Redflex hired over 100 registered lobbyists to represent their interests in 18 states.

These kinds of abuses have sparked a citizen backlash. Sixteen municipalities have held public referendum against these programs, all successful. Major cities like Los Angeles, Atlanta, Raleigh and Houston have rejected red-light cameras after initially approving them.

Almost every state with red-light cameras has spurred citizen opposition groups with mad-as-hell names like "BanTheCams," "Wrong on Red," and "Highway Robbery."

Drivers of course should obey the law and have always griped about tickets; but Americans rightly feel outraged when they believe others game the system to use the law as a way to pick their pockets. If people are forced to pay fines, they want to know that People want to know that police charges against them are fair. They get incensed to discover that contracts with private camera vendors can dictate policing and safety practices even when the public has weighed in against those practices. It's not that police are entirely removed from camera ticketing - they still must view the photo and stamp their final approval on the final approval - but the judgment of public officials is removed and after-the-fact.

People can also rail against camera vendor contracts that seem unreasonable or motivated by greed. For all their human frailties, police officers are expected to act justly, not merely to follow contractual limits when exploiting people. Back in 1980, social scientist Michael Lipsky coined the phrase "street-level bureaucrats" to describe how front-line public servants like police and firefighters inevitably must exercise judgment to decide how to translate the law. Police treat a driver that races through a red light at a crowded school zone differently from a driver that makes a right turn at a deserted corner in the middle of the night.

It's not that automated ticketing technology is fundamentally evil. If a city has recurrent problems with injuries from red-light running at particular intersections and they have already tried alternative measures such as lengthening yellow light intervals and improving visibility, then an automated deterrent may prevent future injuries. The program can even be operated fully by the public. The Illinois State Police operate their own program using cameras to ticket dangerous speeders near highway work sites. That program has been without controversy.

The report suggests basic reforms to prevent problems with automated traffic enforcement contracting. Local officials considering the use of red-light traffic cameras should:

Put public safety first in decisions regarding enforcement of traffic laws-this includes evaluating privatized law enforcement camera systems against alternative safety options without regard to potential revenues.
Ensure that contract language is free from potential conflicts of interest.
Avoid direct or indirect incentives for vendors that are based on the volume of tickets or fines.
Retain complete public control over all transportation policy decisions.
Retain the option to withdraw from a contract early if dissatisfied with service or its effects.
Ensure that the process of contracting with vendors is completely open, with ample opportunity for meaningful public participation.
Make information about the operation of privatized traffic law enforcement fully transparent and accessible online.
Not permit information about individual vehicles and drivers gathered by camera vendors to be used for any purpose other than the enforcement of traffic laws.
Consider establishing state standards to help cities avoid contracting for automated enforcement systems that are not justified or when alternatives make more sense.

If municipalities don't create better ground rules for privatizing traffic law enforcement, Americans may become even more cynical about government's ability to protect the common good. When powerful corporations line up to produce revenue from fines on citizens, we need strong public protections against abuse.

In the meantime, it's a little scary to think what the next frontier of modern tax farming will be. Contractors examining our individual garbage bins and taking a share of the municipal citations they issue for imperfect sorting of waste? Municipalities bragging that housing codes are better enforced since they've hired private companies to take pictures of our homes and fine us for discrepancies with zoning records? Perhaps companies will send roving vans to examine the tags on our dogs and cats or check for overdue library books. Send your ideas by email to Phineas at pirg.org

Zoo Story

Grace — Wed, 05 Oct 2011 20:33:05 +0000

By Donald Cohen

Zoos are complex places - literally. Each time I enter one, I'm filled with a nagging ambivalence between competing views and emotions. On one hand, I think about the animals forced to live in enclosed compounds far from their natural setting. But on the other hand, I'm filled with childlike awe and wonder as I watch gorillas, elephants, hippos and the many bird, amphibian, reptilian and mammalian specials that I'd never even heard of.

Zoos have made real progress in how they treat their captives. It's no longer standard practice - as it was in the zoo of my youth - to keep the animals in small oppressive cages. Today, zoo enclosures mimic natural animal habitats. They're bigger and have corners and caves where animals can hide from the crowds

So, I've come to the intellectual and emotional conclusion that zoos are good institutions that serve critically important public purposes. Seventy nine percent of all Americans live in urban areas, disconnected from nature, strangers to and unfamiliar with the flora and fauna with which we share the planet. In our increasingly gadget-immersed lives we have a greater understanding of the internet as a "place" with a nearly infinite number of sites to virtually visit and explore than we do of the nook and crannies of forests, savannah, oceans and deserts around the world.

A connection to nature has a huge impact on our lives and the future. Author Richard Louv writes about increased stress and greater incidence of ADHD from what he refers to as "nature deficit disorder." In zoos children can see biodiversity with their own eyes and come to profoundly understand the impacts of environmental destruction on our rain forests, our oceans and our lives. Zoos are one of the few urban experiences that help us all - adults and children alike - increase our respect for the natural world around us, understand that we aren't the Earth's only inhabitants and fully realize that it's worth saving.

An appreciation for the natural world around us is so important that we can't leave its future up to "the market." Some in L.A. City Hall, as well as reflexively anti-government activists elsewhere, are arguing that operating zoos is not an appropriate role of government. They are wrong. They are vital educational institutions that have underappreciated benefits for health, environmental sustainability and the good society.

Zoos are among the institutions that make us - well, us. They ensure that everyone - from low-income families to the wealthiest - at least occasionally share the same space and the same project of understanding and appreciating the world around us.

Public zoos open that space and experience for us all - not just those that can afford entrance fees or a vacation in the mountains - to become better stewards of the planet.

Privatization advocates argue that Los Angeles will save money if someone else - non-profit or for-profit - runs the zoo. Wrong again. We have few choices in how to pay for our zoos. We can raise admission and membership prices but the higher you raise the fees, the more damage you do to the public mission of making the zoo an accessible experience for low and moderate income Angelenos. You can increase the amount of philanthropic and corporate sponsorships but that is already happening in zoos across the country.

In fact, despite recessionary budget shortfalls in cities across the country, 40 percent of all zoo operating funds still come from local governments. L.A.'s Chief Operating Officer Miguel Santana has already said that the city's general fund will continue to need to support our zoo.

Money doesn't grow on trees and privatization doesn't change that. What it does do is jeopardize the very public role of one of our most valuable and important educational institutions.

*Original version was published in LAANE's new blog, The Frying Pan

ACTION NEEDED! We need to know more about “The Shadow Government”

Grace — Mon, 03 Oct 2011 15:24:09 +0000

While the full-time civilian federal workforce has remained relatively static at 2.1 million for the past three decades, a leading expert estimates there are about 7.5 million government contract workers, or more than three times the number of regular government workers.

The government can't monitor and assess this shadow federal workforce. They don't have the data.

There is no way to quantify the actual number of contracted employees who perform government work
Currently the federal government doesn't have information related to race, ethnicity, or gender make-up of the contracted workforce.
We know very little about the wages and benefits contractors pay their workers. The Economic Policy Institute estimates that 43 percent of all employees who do the government's work are employed by contractors and nearly 20 percent of contracted workers are paid poverty wages.

The Obama Administration has proposed to fix that that by creating a system to collect and analyze information about the legions of federal contract workers.

Add your voice for transparency in government

The federal government has published the proposal and is now seeking public comment. The Chamber of Commerce and others that oppose transparency measures have are started exerting pressure to kill down the survey.

Please send a letter supporting transparency in federal contracting. A sample letter of support can be found here . Urge the administration to establish a system that will:

Cover all contracted workers
Make information publicly available
Collect comprehensive information on wages and benefits
Improve review of companies before they receive contracts

Comments can be submitted online here or by mail to :

Debra Carr, Director
Division of Policy, Planning and Program Development
Office of Federal Contract Compliance Programs
200 Constitution Avenue, NW
Washington, DC 20210

Regarding: RIN 1250-AA03

If you have any further questions, please contact Shar Habibi at shabibi@inthepublicinterest.org

POGO Study: Contractors Costing Government Twice as Much as In-House Workforce

Wed, 14 Sep 2011 15:10:29 +0000

By Dana Liebelson, Project on Government Oversight

The U.S. government's increasing reliance on contractors to do work traditionally done by federal employees is fueled by the belief that private industry can deliver services at a lower cost than in-house staff.

But a first-of-its-kind study released today by the Project On Government Oversight (POGO) busts that myth by showing that using contractors to perform services actually increases costs to taxpayers.

POGO's new report is the first to compare the rate that contractors bill the federal government to the salaries and benefits of comparable federal employees. The study found that while federal government salaries are higher than private sector salaries, contractor billing rates average 83 percent more than what it would cost to do the work in-house.

The study comes at a crucial time, considering that Congress' special "Super Committee" is looking for ways to cut $1.5 trillion from the federal deficit.

"We're wasting tens of billions of dollars on a belief that it's cheaper to have contractors doing the work, without any hard evidence. The government should operate on evidence, not belief" said Paul Chassy, a POGO Investigator.

POGO's study compared 35 federal job classifications, covering more than 550 service activities. The occupations included everything from auditing and law enforcement to food inspection. The results surprised even POGO investigators, who for years had tracked a dramatic increase in the amount the government spends on contracts-from $200 billion in 2000 to well over $500 billion in 2011.

In 33 of the 35 job classifications POGO looked at, the average contractor billing rate was significantly steeper than the average compensation for federal employees. The two jobs where it was more cost-effective to hire contractors were groundskeeper and medical records technician. So when the White House needs its lawn mowed, it shouldn't hire in-house. Still, in every other case, it was cheaper for the government do the job itself.

In some occupations, the difference in price was so dramatic, any coupon-clipping soccer mom could easily have seen the government was getting ripped off. When the government hired a claims examiner for example, it paid the contractor nearly five times more than if it had gone with a federal employee.

"This is absolutely something taxpayers should be worried about. The government needs to be very careful about outsourcing work, especially work that is inherently governmental. It also costs so much more to privately contract," says Janine Wedel, a professor at George Mason University who specializes in the privatization of public policy and corruption.

POGO has expressed concern that the federal government routinely enters long-term contracts-as long as 10 years in some cases. The POGO report points to a 2009 Federal Times article where 16 intelligence agencies urged Congress to remove caps on staffing at intelligence agencies. Because of these federal employee ceilings, the agencies had no choice but to hire contractors as semi-permanent staff, which most likely results in a higher bill for taxpayers.

"How can a government that spends $500 billion a year on private contractors not be able to answer the question of whether or not they're saving money? Every private enterprise that I know of would be able to answer that question" Chassy said.

POGO's investigation found that the federal government is failing taxpayers in two key ways: first, the government is doing a poor job of obtaining genuine market prices, and therefore it is missing the savings that come with outsourcing services. Secondly, the government is failing to determine how much money it saves or wastes by hiring contractors because it simply has no system to do so (the exceptions are the OMB's A-76 process, which oversees competition between federal employees and the private sector on a small scale, and the Department of Defense's memorandum comparing the costs of service contracts.)

With these problems in mind, the report provides several solutions for stopping waste and salvaging taxpayer dollars. The report also highlights government actions that appear to be solutions-but actually contribute to the problem.

In regards to the latter, President Obama played the part of the Christmas Grinch last December, by signing into law a two-year freeze on federal employee salaries. Although this move was intended to save the government money (about $2 billion during fiscal 2011), policymakers failed to mandate a freeze on service contract awards or on service contractor billings rates, which can increase annually. The result of these kinds of pay freezes, according to the report, is that the gap between federal and contractor employee costs actually grows, increasing the cost to the government and taxpayers.

But enough of the bad news-POGO has compiled many recommendations for types of legislation Congress should introduce to help alleviate these problems. POGO suggests that Inspectors General at agencies that award $5 billion or more annually in contracts should be required to file an annual report on service contracts. Federal agencies should also be obligated to conduct pre and post award reviews to confirm that the cost of contracting is actually the cheapest route (imagine writing your neighbor a blank check to paint your house without checking his price, his hours and how long he'll take to do the job-that's what the government currently does.) POGO also recommends the Inspector General annually audit all the agency's contracts to determine whether the billing rates reflect fair and reasonable market prices.

This kind of legislation isn't as far-fetched as it may seem: Congress has recently indicated it's taking contracting waste more seriously. Early this month, the Commission on Wartime Contracting concluded its investigation into contracting waste in Afghanistan and Iraq. It found that conservatively, up to $60 billion dollars have been wasted through poor contracting decisions-essentially "confirming on an international scale what we've found domestically" Chassy said. At a press conference, the Commission urged Congress to take the Commission's findings into account. Rep. John Tierney (D-MA) has already announced legislation that would create a permanent Inspector General for contingency operations.

For average-Joe taxpayers wondering what they can do about contractor waste, Chassy recommends that they write their congressmen or senators and let them know that they are aware contracting is costing too much money. Additionally, citizens should request the kind of recommendations that POGO has mentioned and vie for more cost analysis.

"We know that this study isn't the end of the debate. Instead, the government should use it to take up a similar study and show that it's either saving money, or admit to taxpayers that it's spending more money on contractors-and here's why," said Scott Amey, General Counsel for POGO.

Dana Liebelson is POGO's Beth Daley Impact Fellow.

Private High-Speed Rail: A Dangerous Fantasy

Shar — Wed, 20 Jul 2011 15:30:04 +0000

By Phineas Baxandall, U.S. PIRG

The politics of high-speed rail can be bizarre. Few people actually oppose connecting our cities with fast intercity trains. Most of the industrialized world has already shown that the idea is popular and works well. The politicians that do the most to prevent high-speed rail generally claim to be fans of bullet trains who just want the task to be left to the private sector.

In Congress, chair of the House Transportation and Infrastructure Committee John Mica (R-FL) last week released a six-year blueprint for America's transportation system that failed to allocate a dime for high-speed rail. Yet Mica calls himself "the best cheerleader" for high-speed rail. He insists additional public money shouldn't be spent on it or that each public dollar must leverage many times more private dollars.

A new report released today shows why leaving high-speed rail chiefly to the private sector is a dangerous pipe dream. The study, High-Speed Rail: Public Private or Both? Assessing the Prospects, Promise and Pitfalls of Public-Private Partnerships by U.S. PIRG shows that private financing and operations can be a supplement to public commitments, but not a substitute. Moreover, without tough public rules and steady government oversight, private partnerships will yield costly problems.

The issue isn't whether public-private partnerships (PPPs) can play a major role in developing high-speed rail. They can. Foreign and domestic firms have capital and expertise that can be cultivated. Infrastructure projects entail major risks that can be shared with private investors.

But high-speed rail simply won't get built without the public taking the lead. No modern high-speed rail line has ever been built with only private capital. Advocates for private-only investment ignore this fact. In several recent and current European high-speed rail PPPs, the public sector has been responsible for more than half the capital cost of the high-speed rail line. And often the "private" partners have actually been state-owned companies or highly-regulated entities with government representatives on the board, much like Amtrak.

Moreover, the experience with high-speed rail PPPs has been mixed. While PPP arrangements have brought private capital and expertise to the task of building high-speed rail, PPPs have also sometimes resulted in cost overruns, government bailouts, and other serious problems for the public. Private investment entails a number of additional risks and costs. For instance, private companies must offset their higher costs for capital, as well as costs related to the profits they pay to private shareholders. Private-sector actors can hold projects hostage and demand increased subsidies or other concessions from the government. In negotiating and enforcing PPP agreements, government must count on additional costs of hiring and retaining the lawyers, financial experts and engineers.

In Taiwan, for example, in 1998 the government signed a 35-year private concession to build and operate service linking the Island from North to South, based on the promise that no public funding would be required. When the Asian financial crisis struck, the private operator was forced to take on large debt at much higher rates than a governmental body would. The private shareholders eventually balked at finishing the project, leaving it in financial limbo. The government had little choice but to accede to a costly bailout.

America must learn from these experiences. We should accept that the public sector will provide the anchor and pursue PPPs only in keeping with key principles designed to protect the public interest. Based on a variety of international cases in Europe and Asia, the report recommends ten common-sense principles to evaluate and guide public-private partnerships. These are:

1) Governments must not pursue PPPs for the "wrong" reasons, such as to avoid budgetary discipline or compliance with governmental standards. Instead, PPPs must be chosen for their ability to deliver a public project for lower price or with higher quality.
2) PPPs must deliver added value for the taxpayer, as measured by a comprehensive test that includes all the relevant costs of a high-speed rail project.
3) PPPs must align private sector incentives with public sector goals, ensuring that private sector partners experience penalties and rewards that forward the public's interest. Private partners shouldn't prosper for creating public misfortune.
4) PPPs must only be pursued where ample competition exists for the service being put out for bid.
5) PPPs must only be pursued by competent, well-prepared governments with the ability to defend the public interest in contract negotiations, monitoring and contract enforcement.
6) There must be clear public accountability in PPP projects, with one government agency responsible for oversight and holding contractors accountable for performance.
7) The public must retain control over key transportation-system decisions.
8) PPP projects must not impose unreasonable limitations on future government action.
9) PPP contracts should be of reasonable length.
10) There must be complete transparency in the PPP contracting process and in the execution of PPP contracts.

Government agencies considering PPPs should understand that even well-crafted PPPs are not a panacea - and that a strong government commitment to the project is likely necessary to draw productive private investment. Pretending otherwise is a political fantasy that will likely become a public nightmare.

Click here to see a copy of U.S.PIRG's report.

Ask the Right Questions Before Privatizing

Shar — Tue, 12 Jul 2011 21:31:58 +0000

Elected officials need to do a better job of asking the right questions before they make a decision that we'll live with for decades.

Too often, a mayor, governor or other public official proposes to sell off a public facility, privatize a public good or contract out a vital service, but fails to answer basic questions that decision makers and voters need to decide whether it's a good idea.

For example, former Chicago Mayor Richard Daley rushed the proposal to lease the city's parking meters for 75 years through the city council in just a few days after they (and the public) were given the details of the deal. Daley made the hard sell promising a buyer with $1.15 billion to fill Chicago's budget hole if they acted quickly. Only after the deal was done and the dust settled did they learn that they sold nearly $1 billion too cheaply and that they had given away their rights for 75 years to manage the city's traffic and land use to investment giants Morgan Stanley, Abu Dhabi Investment Authority and Allianz Capital Partners. [Note: Daley just joined Katten Muchin Rosenman LLP, the law firm that negotiated the deal to privatize Chicago's parking meters.]

There's an easy solution. Public officials, advocates and the media should ask these simple ten questions - and get the answers - before any final privatization decision. It's a test to see if these deals will help, or hurt, the public interest.

1. Does the contract limit our democratic rights?
Buried deep in the contracts and long-term private highway or parking lot leases are so-called "non-compete" clauses and "compensation clauses" that limit or eliminate our ability -- for decades - to make public decisions to improve our cities, our transportation systems and many other public services. Sell off the highway and the contract will prevent you from building mass transit that could compete with the private road operator - decades.

2. Will we still have the "Right To Know"?
The public often loses the right to know important details about public services when private contractors take over. Conservatives across the nation are publishing lists of "high paid" government workers as another tactic to turn voters against government. It's public information and the public does have the right to know. Privatize the health department, the library or the prison, and the CEO's salary - and lots more - becomes private and confidential.

3. Are there perverse incentives that could work against our public policy goals?
Private companies are focused on growing revenue, increasing market share and healthy "Return on Investment" for owners or shareholders. That's fine for the company that makes your breakfast cereal but privatization means that the goals of private interests may take precedence over the public good. For example, prison contracts are based on the number of full prison beds. So more people in prison is good for business - but may not be good for society.

4. How will we hold the contractors accountable to the public?
When public agencies don't have enough staff to regularly monitor the contracts, the public loses. Anyone who contracts for services - whether Boeing subcontracting the manufacture of jet components, a city contracting for tree trimming in public parks or a family hiring a contractor to expand the size of their kitchen - knows that if you don't watch the contractor closely, you get cost overruns, missed deadlines and mistakes.

5. Do we have a Plan B?
Contractors that fail to deliver costs taxpayers millions when contracts have to be cancelled. Legal fees and overtime for public workers or back-up contractors do fix problems add up. And, once a public agency downsizes the front line workers that know how to do the work, it takes time to re-create an in-house team with experience and expertise.

6. Will all the outsourced jobs have health care benefits?
Privatization proponents frequently promise cost savings that come from turning jobs with health benefits into ones that don't have health care. That's irresponsible and simply shifts costs to someone else - usually the taxpayers or local hospital emergency rooms.

7. If a private company thinks they can make money owning our parking lots, why can't we?
Desperate for cash, cities and states are selling off assets and programs that are actually money makers. Former California Governor Schwarzenegger proposed selling and leasing back state buildings that were free of debt and local governments are selling landfills and privatizing recycling programs that generate revenue for cash strapped cities and counties.

8. What are the limits on the private contractor's ability to raise fees, tolls or rates?
Public officials think that they don't get blamed when the private contractor raises rates. They're wrong. Private companies take over and raise rates to meet their financial projections. The result is that we pay higher fees, and the private company gets the money. If we have to raise rates, local governments should keep the money and fund libraries, parks or other public services.

9. 50 years? 75 years? You're kidding?
Indiana received $3.8 billion from a consortium made up of the Spanish construction firm Cintra and the Macquarie Atlas Roads (MQA) of Australia in exchange for the right to maintain, operate and collect tolls for the following 75 years. That's a long time and a lot could change - from where we live and work, to how much we drive and much more - all of which could significantly impact revenues and profits. Is this the next generation's bubble and bailout? Beware of financial projections that predict an unknowable future.

10. Have you read the contract? (the devil is always in the details)
Contracts often have provisions that impact things we all care about - from environmental protection to neighborhood services and everything in between. Take the time and read the contract because once it's signed, it's too late to change. Ask Chicago.

Local and state governments are scrambling to fill gaping budget holes. Multinational corporations offering cash and conservative politicians using the crisis as opportunity to downsize government are pushing hard and moving fast. The promise of privatization is always oversold - cost overruns instead of cost savings, information no longer available to the public, and corners cut that impact services. Asking the right questions is the first step to putting the public interest first and avoiding decisions that we'll regret - for seventy five years.