Privatization of Federal, State and Local Services

The Bush administration’s Office of Management and Budget (OMB) continues to aggressively pursue a privatization scheme which has more to do with replacing hundreds of thousands of federal employees with contractors than with making federal programs more efficient. OMB is forcing agencies to use privatization quotas and a pro-contractor process to shamelessly reward private employers, many of whom have been big donors to GOP campaigns. OMB justifies this unprecedented privatization effort with unsubstantiated savings claims. In fact, numerous economic studies have demonstrated that when cost savings are achieved through privatization, those savings are not returned to taxpayers, but are turned into corporate profits.

Opposition to the Bush administration’s privatization schemes has grown since the 2006 midterm elections. This opposition is based on four principles:

1. Federal employees should have the same opportunities to perform new work and contracted-out work as private contractors. While OMB grudgingly acknowledges that federal employees routinely beat their contractor counterparts, it does not allow them to compete for new work or for work that has already been outsourced. If public-private competition is good for federal employees, then it should be good for contractors.

2. Federal employees should have the same appeal rights as contractors. When federal employees win a privatization review, private contractors can have the agency’s decision reviewed by independent third parties — by appealing to the Government Accountability Office (GAO) or the Court of Federal Claims — and possibly get it reversed. Federal employees have no such appeal rights.

3. Health care and retirement costs should be excluded from the cost comparison process of privatization reviews so that private contractors are not rewarded for providing inadequate benefits. The current privatization process does not require contractors to provide benefits comparable to the federal government’s modest health and retirement packages.

4. Federal employees should not be reviewed for privatization because of guidance, direction, requirement or encouragement from OMB political appointees and officials. OMB is still forcing agencies to review arbitrary numbers of federal employees for privatization merely to achieve quotas, despite the fact that Congress outlawed the use of such quotas. Federal agencies should be encouraged to use cost-efficient alternatives to privatization.

At the state and local levels, we have seen continued efforts by governments to use privatization as a short-term fix for their budget shortfalls. Public services that have been privatized include the collection of employer taxes, help desks for technical assistance, information technology, maintenance testing, corrections, wastewater treatment, welfare administration, education, fire protection, policing, solid waste management, toll collections and even food stamp programs.

The UAW believes that public services should be delivered by dedicated public employees acting in the public interest, not by vendors and other private contractors out to make a quick profit. Public employees have expertise and experience in providing government services. Privatization often leads to the replacement of good-paying union jobs (including those of UAW members) with jobs that have low pay and no benefits. Initial low-ball bids by private vendors tend to understate the real long-term costs of privatization, and often lead to significant overspending when the costs of contract auditing and supervision are considered. In addition, local economies are negatively affected when profits and jobs are exported to out-of-state contractors.

From the war in Iraq to the post-Katrina rebuilding of Louisiana, privatized government contracts are too often associated with corruption and the loss of accountability. Despite the resignation of Karl Rove in August 2007, the Bush administration continues to award private contracts based on political considerations, using them as payoffs to political donors and cronies. Kickbacks, price fixing, collusive bidding and charges for work never performed, all characterize federal, state and local privatization efforts in recent years and highlight the serious conflicts of interest that inevitably result from such an approach. We have also seen numerous cases where state and local officials have been indicted on corruption charges ranging from receiving free home improvements to accepting cash bribes from private contractors.

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