Privatization of Federal, State and Local Services
The Bush administration aggressively pursued a privatization scheme aimed at replacing hundreds of thousands of federal employees with private contractors despite numerous studies demonstrating that any cost savings from privatization become corporate profits rather than being returned to taxpayers. Ignoring a congressional prohibition, the Office of Management and Budget (OMB) forced agencies to use privatization quotas. Contracts to do work formerly done by federal employees were given to private employers as a reward for donations to Republican campaigns. The Bush administration’s privatization agenda encouraged contractors to provide inadequate benefits by including health care and retirement costs in privatization reviews. Federal employees were denied the opportunity to compete for new work or for work that had already been outsourced, even though private contractors had the opportunity to compete for work that had already been assigned to federal employees. Federal employees had no right to a third-party review (and possibly reversal) of a privatization decision even though private contractors had the right to third-party review of an agency’s decision to keep work in-house.
At the state and local levels, we have seen continued efforts 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, corrections, wastewater treatment, welfare administration, education, fire protection, policing, solid waste management, toll collections and even food stamp programs. We have 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.
At the Federal, state and local levels, initial lowball 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. 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.
In contrast, President Obama has said that public services should not be privatized for the sake of privatization. He has recognized that the benefits of privatization are often outweighed by the devastation caused by a loss of jobs and health care benefits. He has also recognized that contracted-out services often were being done well and efficiently by public servants. President Obama has promised not to contract out vital government services without first considering whether the private sector can actually provide a better service and whether hidden costs of privatization are fully accounted for in the cost estimate. He would also require consideration of the economic impact of every privatization proposal.
