The Cost of Saving Money

Last year, In the Public Interest released a report that highlighted a harmful but frequently overlooked way in which our tax dollars are fueling income inequality.

Every time a city or state outsources a public service to a low-wage contractor, the community loses. Taxpayers have to make up the difference in the form of nutrition assistance, healthcare coverage, and other programs designed to help people working for minimum wage and living in poverty. The report included examples from across the country, including public servants in Costa Mesa and Fresno, CA, who either lost their jobs to – or were at risk of being replaced by – low-wage contractors.

There are a number of problems with government outsourcing–aka “privatization”–and a copious academic literature documenting those problems. When government provides services through surrogates–via third-party contracts–it needs different management skills (skills that are relatively rare in government agencies, meaning oversight is hit or miss). Mayors and governors often give in to the temptation to reward their cronies with lucrative contracts. (Indeed, privatization has become the current form of patronage). And the promised savings are rarely realized, even without accounting for the problem identified by the report.

There are certainly times when outsourcing makes sense, but far too often the decision has been made on the basis of a near-religious belief in the superior performance of the private sector. As this report suggests, those perceived “efficiencies” can end up costing us in less visible but no less expensive ways.

There really is no such thing as a free lunch.


  1. I recently heard the chair of Muncie DPW discussing their infrastructure upgrades. Specifically redoing their sewers and upgrading sidewalks. He discussed the city’s decision to do the work themselves citing that the city would be spending millions of dollars over a decade or so to upgrade. They had to buy new equipment and invest in training for their workers. But by doing it themselves rather than contracting it out all if that money will stay in their community. And their workers become experts in the type of forward thinking designs they’ve decided to implement. It was refreshing to hear a elected official of an Indiana city talking about the value they bring to the city government and citizens by doing the work themselves.

  2. Idea: May we please outsource the Governors function? Lets get someone who knows how to run an organization.

  3. I second Patmcc:) I would add Ballard to that list. I had to make a trip to Kroger yesterday morning about 10:00; no streets between 19th near Arlington and Shortridge Road and 10th had been plowed or treated. Shadeland was a disaster; extremely slick slush, couldn’t see lane markers so had to guess where you were. Remember that Shadeland is actually a section of 465; it is a primary traffic artery on the east side and should be one of the earliest to be treated. A repeat of last year’s road conditions. Per the Channel 8 weather report we got less than 2 inches of snow – but streets were dangerous everywhere. Doesn’t the City outsource street clearing in many areas during what was a brief snow storm yesterday?

  4. And our diminutive former governor is the gift that keeps on giving. He just gave Amazon the exclusive right to provide textbooks to Purdue. The bookstore that has been here forever, and who actually hires Purdue students is out of luck. But Amazon, who hires minimum wage employees, uses unheated warehouses, and chews up and spits out employees like gum have just provided the current governor with bragging rights that lots more jobs have come to Indiana–low wage no benefit jobs, just like the State provides through it’s own day labor pool called Workforce Development.

  5. Another key feature of outsourcing in the private sector is defusing responsibility when things go wrong. Wonder if this is also a motivation in some of the pubic settings?

  6. Does the Daniels/Amazon connection explain why we pay Indiana sales tax on everything we order from Amazon – including Kindle downoads – but products are not purchased from Indiana businesses?

  7. Most outsourcing is part of the Great Oligarchy Plot’s design to move current expenses to future generations. All these mistakes will have to be rectified so future generations will have to spend billions to get back to what we were handed. A fully functional government.

    There is nothing more expensive than selling your seed corn.

  8. One of the driversnof outsourcing is providing political cover to elected officials without the balls to defend the need for more revenue for critical public services….citizens energy

  9. Indiana State Senator Mike Young’s Indiana (IN) economic development plan or tax reform called “Flat Tax Lite” would completely eliminate homestead property taxes by constitutional amendment. It would reduce the State’s sales tax from 7% to 5.5%, a 21% tax cut on products imported from Communist China, Vietnam and North Korea as well as Mexico and India. The reduced sales tax would be extended to services on things like automobile repair, haircuts, landscaping and plumbing services which is a tax on American labor, wages, salaries and services. And Sn Young says that the revenue generated could eliminate business personal property taxes (more corporate welfare) and increase the renter’ deduction from $3,000 to $8,000.

    The question: which plan would create good paying IN jobs with good benefits for American citizens and why? Sn Young’s plan or a plan that would repeal all IN sales/consumption taxes. That “burns” the IN state individual and business/corporate income tax code and gives each income receiving American citizen a $50000 standard deduction while keeping current dependent exemptions. Tax the next $50000 at 2%, the next $50000 at 4%, the next $50000 at 6%, etc. A plan that places a “fair tax” with a standard deduction of $10 Million on ALL IN business and corporate sales/revenue including foreign after deducting compensation and benefits for American citizens’ labor; except for CEO’s and their immediate subordinates. Tax the second $10 Million at 1%, the third $10 Million at 2%, etc. until the government budgets are balanced. All standard deductions and exemptions would be adjusted for inflation.

    A plan with NO Corporate Welfare; OR, IN Sn Young and Miller along with St Representatives Thompson, Steurerwald and Behning need to sponsor a IN Bill that requires these corporate welfare kings to pay a living wage, minimum wage of $15/hour (2010) with good benefits, adjusted for inflation; that eliminates all economic development and redevelopment commissions, that collects mandatory impact fees (IN code: 36-7-4-1300, only infrastructure today), but, expands the code to collect mandatory impact fees (MIF) on NEW homes, apartments, retail & warehouse businesses for schools, libraries, police & fire; and that reinstates inheritance taxes with an exemption/deduction of $15 million.

    Search Brent Pittman Brownsburg, IN at and mbrentpittman on for more details and explanations.

  10. One concern with privatization is that there will always be profit built into the equation for the contractor. If they cannot do the job for a profit, they go out of business or bankrupt. Public services’ costs are increased as often the services have been neglected for a while and need to be upgraded or returned to normal. So, in addition to the projected savings promises not being realized, the government has the added burden of reinstating/rehiring to get the services/workers back to working order. The whole thing is a shell game perpetrated on the public by politicians and their cronies in order to fleece the taxpayers. Most reprehensible of all is when the for-profit companies are located off-shore and enrich themselves alone without even secondary benefit to the people paying them.

    Raising the wages of workers should be a no-brainer. It has been done in the past with remarkable success. The dire consequences predicted by opponents have never materialized.

    Corporations want us to supplement their workers’ living needs, train them to specialized tasks, cover their medical insurance, paying their executives obscene salaries and bonuses while demanding long term tax relief . It is unethical if not immoral behavior.

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