Tag Archives: privatization

A Hoosier Cautionary Tale

First Kansas. Now Indiana. One by one, the pillars of conservative fundamentalism are failing real-world tests.

Under then-Governor Pence, Indiana negotiated a much-ballyhood 35-year “public-private partnership” with the Spanish firm Insolux Corsan to build and maintain a portion of Interstate 69, between Bloomington and Indianapolis. The project has dragged on and on, making trips between Bloomington and Indianapolis slow and treacherous. (I know this from personal experience; faculty of IU routinely make the trip between campuses, and I’ve done my share of cursing while in transit.)

The original contract called for a completion date of October, 2016; that date has been pushed back four times amid media reports suggesting that the state’s private partner was as slow in paying subcontractors as it was in building the highway. Now, it appears the contractor is going bankrupt. The Indianapolis Star reports that the state “intends to take control of the troubled I-69 project from Bloomington to Martinsville as the public-private partnership used to finance and build the highway crumbles.”

It is a GOP article of faith that the private sector is always more efficient and more competent than government, and that contracting out–privatization–saves money. In the uncongenial place called the real world, it seldom works out that way. The collapse–or “crumbling”–of this particular partnership joins a long line of failed privatization schemes, some scandalous and corrupt, many simply ineffective and expensive, that have ended up costing taxpayers more than if government had done the job.

This isn’t to say that contracting out is always a bad idea. As I’ve said repeatedly, the issue isn’t whether to work with the private sector, but when and how. Public officials need to carefully evaluate proposed contracting arrangements: is this something government routinely does, or an unusual task requiring specialized expertise that the agency doesn’t have? If the motive is saving money, how realistic is that? (After all, private entities have to pay taxes, and their bids will reflect that expense.) Does the contracting agency have the expertise needed to properly negotiate the contract and monitor the contractor? Have all the risks been weighed, and due diligence exercised?

Do the officials making the decision recognize that contracting with a third party won’t relieve the government agency of its ultimate responsibility to see that the project is properly completed or the service is properly rendered?

Are there situations where public-private partnerships are both appropriate and competently structured? Of course. The Brookings Institution recently reported on the success of the Copenhagen City and Port Development Corporation in revitalizing Copenhagen’s waterfront. I was particularly struck by this description of that effort:

The approach deploys an innovative institutional vehicle—a publicly owned, privately run corporation—to achieve the high-level management and value appreciation of assets more commonly found in the private sector while retaining development profits for public use.(emphasis mine)

Two elements of this particular partnership stand out: (1) it was formed to execute a lengthy, difficult and highly complex project requiring skills that few municipal governments have in-house; and (2) it distributed risk and reward in a way that ensured taxpayers would benefit financially from the project’s success.

In contrast, virtually every American contract I’ve seen has socialized the risk and privatized the reward; that is, taxpayers have assumed the risks of cost overruns, unanticipated problems and project failures, while the private contractors have reaped the lions’ share of the profits.(Trump’s infrastructure plan–to the extent it exists–would take that formula to new heights. Or lows…)

I69 and the Indianapolis parking meter fiasco are just two of the more recent examples of what happens when privatization is a mantra–a semi-religious belief–rather than one of several strategically deployed tools in the public toolbox.

Personal P.S. Thanks to all of you who posted good wishes for my husband’s surgery. All went well, and he’s home (with a very rakish temporary eye patch).

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Another Assault Begins…

The Hill reports that Trump has rolled back the Obama Administration’s education measures intended to ensure adequate teacher preparation and assess school performance.

The teacher preparation regulations included training requirements for educators, and the school accountability rules were meant to gauge schools’ effectiveness.

The rules drew sharp criticism from Republicans, who argued states should have more control over the classroom. This falls in line with the philosophy of Education Secretary Betsy DeVos.

Republicans lawmakers earlier this month voted to strike down the two rules through the Congressional Review Act, which gives them the power to roll back certain regulations. In the Senate, the special procedure prevents the use of the filibuster.

Trump signed the bills Monday, not only eliminating the Obama-era education rules, but also prohibiting future presidents from issuing similar rules.

Repealing these rules will “encourage freedom in our schools,” Trump said.

Yes indeed. States like Indiana should be free to bleed resources from public schools without having to comply with pesky rules from Washington requiring that they actually evaluate the performance of the (primarily religious) schools that are receiving those resources.

Parents should be free to use taxpayer money to send their children to private schools without some bureaucrat requiring confirmation that the people teaching in those schools actually know anything about subject-matter or pedagogy.

Evidently, the respect for “freedom” shown by Trump and DeVos doesn’t extend to the freedom of taxpayers to demand accountability for enterprises being supported by our tax dollars.

In fact, a discussion about what elements of our social and physical infrastructure should properly be provided by citizens’ tax dollars is long overdue.

We have bridges failing and roads that look like those of third-world countries. We barely–and grudgingly– support public transit. Our tattered and insufficient social safety net is under unremitting assault by politicians who demean Americans who rely on any aspect of it, while ignoring their own dependence on the public purse. (Yes, Paul Ryan, I’m looking at you–but you have a lot of company.)

The public school system is a key element of our social infrastructure. At its best, it provides skills enabling children to escape poverty, a “street corner” through which diverse citizens come to know and understand each other, and an introduction to civic competency.

Do all public schools meet that standard? No. But we have an obligation to fix those that don’t–just as we have an obligation to fix our decaying bridges. Instead, the Republican response is to privatize education and let private interests build–and toll–our roads and bridges. That approach is a rejection of the very definition of an infrastructure–utilities that serve all citizens.

Trump and the GOP don’t want to fix either our schools or our bridges; their definition of “freedom” is enriching private interests at the expense of the public good.

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The Privatizer-in-Chief

Between tweets, Donald Trump is a big proponent of privatization, and those he has named to cabinet positions share his passion for turning government over to the private (for-profit) sector.

A couple of examples: Betsy DeVos wants to privatize public schools; Jeff Sessions is a fan of private prisons. (Neither of these ideologues is likely to let mounting evidence of their favorites’ poor performance persuade them otherwise; evidence is so last century!) So it shouldn’t surprise us that of the (many) really bad ideas being championed by our erratic new President—a man who has never worked in government and quite obviously never considered the meaning of “public service”—is using private companies to repair America’s decaying infrastructure.

This proposal raises all sorts of practical questions, of course, but when you peel back all of the reasons to suspect that our genuine need to repair our roads, bridges and electrical grid is being used to leverage another giveaway to the rich and connected, there is a more profound issue that generally gets ignored: who should own and benefit from the country’s infrastructure?

I was prompted to focus on that question by an article in Engineering News-Record, (not, I confess, a periodical I regularly read. My husband, a retired architect, is a subscriber.) The article described a legal challenge to the Gordie Howe International Bridge being built by  the United States and Canada. The challenge to the authority of Michigan’s Governor to acquire land for the approach to the bridge was brought by the Moroun family, private owners of an existing bridge, the Ambassador, also connecting Detroit with Windsor.

The Morouns claim that their own bridge could lose 75% of its traffic, and they have threatened to close it.

What is really being lost here is the public interest. Infrastructure should serve public needs; instead, the current bridge is a profit-generating enterprise owned and controlled by a family whose interests are the bottom line, not the common good. That’s not to say that private interests can never build roads or bridges to augment those constructed with our tax dollars, but those efforts should be undertaken with a clear understanding of the primary purpose of the network they join and the risks they assume.

This is not an isolated case.

America’s prolonged anti-tax hysteria has meant that local governments—desperate for revenues to provide public services—have increasingly sold off public assets. In my home city of Indianapolis, the city entered into a fifty-year “lease” of its parking meters in 2011, trading control of its curbsides and parking rates for up-front cash. The results—which haven’t been pretty—are an object lesson in why such infrastructure should be civically owned and operated.

After Indianapolis leased its parking meter operations to a private company, rates skyrocketed, hours expanded and the number of metered spaces increased. But when I last looked, the city was receiving only about a quarter of the revenues the private vendor projected when it paid $20 million to the city for the right to operate the meters until 2061.

Aside from everything else, the length of the contract was unconscionable. Decisions about where to place meters, how to price them, what lengths of time to allow and so on have an enormous impact on local businesses and residential neighborhoods. They are decisions requiring flexibility in the face of changing circumstances; they are most definitely not decisions that should be held hostage for decades to contracting provisions aimed at protecting a vendor’s profits.

The contract profited the vendor at the expense of citizens. More often than not, new  construction interrupts adjacent parking. If the city is managing its own meters, it can choose to ignore that loss of parking revenue, or decide to charge the developer, based upon the City’s best interests. Street festivals and other civic celebrations also require  that meters be bagged, and usually there are good reasons not to charge the not-for-profit or civic organization running the event. The Indianapolis contract requires the City to pay the vendor whenever such interruptions disrupt its projected revenue from those meters.

There was never a satisfactory response to the obvious question “why can’t we do this ourselves, make parking decisions based upon the public interest, and keep all the revenues to provide badly-needed public services?” Why couldn’t Indianapolis retain control of its infrastructure, and issue revenue bonds to cover the costs of the necessary improvements? (Interest rates were at a historic low at the time, making it even more advantageous to do so.) If the administration at the time was too inept to manage parking, it could have created a Municipal Parking Authority and hired that competence. There really was no compelling reason to enrich private contractors and reduce future (desperately needed) City revenues. (That “up-front” payment was very enticing, of course. Let subsequent administrations worry about the long term.)

There are times when so-called “public-private partnerships” are useful and appropriate. There are other times when they amount to theft from the public till. It behooves us to distinguish between those situations, and to remember that constructing and maintaining an infrastructure owned by and operated for the use of all our citizens, rich and poor, is one of the most basic obligations of government.

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And the Hits Keep Coming….

Well, so far we’ve seen no sign of Donald Trump becoming more “Presidential.” In between his appointments of truly horrifying men to his cabinet, he continues to tweet petulant rejoinders to criticism and to whine about “unfair” media coverage;  those childish behaviors have distracted attention from his equally disastrous policy agenda.

To the (very limited) extent that Trump advanced policy proposals during the campaign, those proposals centered upon privatizing government functions. When you drill down on his promise to address America’s decaying infrastructure, for example, what you find is a scheme to give huge tax write-offs to private contractors, who would be expected to finance and repair our bridges, roads and sewers; essentially, his plan sells infrastructure to private interests.

As Josh Marshall writes at Talking Points Memo, 

There will be a mix of tax giveaways and and corporate welfare to incentivize private sector infrastructure spending. And there is good reason to think that most of those giveaways will simply be pocketed for spending that was already happening. In other words, big giveaways, more budget busting without even getting the benefit of new stuff or spurring demand.

As depressing as that particular “bait and switch” proposal is–after all, America desperately needs a massive infrastructure investment–it pales beside Trump’s promise to spend twenty billion dollars on a school choice initiative.

Twenty billion dollars is a lot of money. Although Trump hasn’t been specific about the source of those dollars (surprise!), it appears he intends to take it from the $15.5 billion currently going to Title I grants for districts and the $12 billion currently going to state grants for special education.

Raiding those two pots of money would be devastating to districts serving poor children and those with special needs, and there are significant practical, political and legal impediments to such a program. Even if those impediments could be overcome, however, a massive new effort to privatize–or more accurately, abandon– the nation’s public schools is exactly the wrong thing to do.

I know I sound like a broken record, but voucher proponents fail to understand both the mission and importance of public education. They see schools as “vendors” providing a consumer product called marketable skills– as places to train the nation’s workforce.

Providing students with marketable skills is important, but it isn’t education. And it most definitely is not preparation for life in a diverse democratic culture. Public schools have a civic mission; as Benjamin Barber once put it, they are constitutive of a public.

Abandoning our public schools and privatizing other essential government functions is tempting to lazy legislators and administrators alike, because it’s easy. It doesn’t require actually knowing enough about the function or mission involved to accurately analyze the problems, marshal the necessary resources, or do the hard work of fixing what’s wrong.

Unfortunately, easy answers are almost never the right answers. It turns out that when  public officials contract out government functions, they are still responsible for the results, and they typically lack the resources and expertise needed to properly monitor the contractor. The ensuing mistakes are costly, both politically and financially.

It also turns out that privatized schools and ill-conceived public-private partnerships have just as many problems and failures as public schools and projects, if not more–and they have the added negative effect of hollowing out government’s ability to function in important dimensions of our communal life.

Having raised children doesn’t equip me to offer child development services. Having run a business doesn’t equip someone to manage–or even understand– government. Trump is proving that point.

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Connecting the Dots–Inequality Edition

I am one of those tiresome academics who has repeatedly criticized the so-called privatization of government functions.

I say “so-called” because what Americans call privatization is no such thing. Actual privatization would require government to sell off or otherwise abandon a particular activity, and let the private sector handle it. (Much like Margaret Thatcher selling England’s steel mills to private-sector interests.)

What Americans call privatization is more accurately described as contracting out; government retains responsibility for a service and the obligation to fund it, but delivers the service through a third-party surrogate, either for-profit or not-for-profit.

There are certainly instances where choosing such a surrogate makes sense; unfortunately, we Americans tend to embrace fads in government as elsewhere. So rather than engaging in analyses of risk and reward for each proposal to contract, too many public entities have accepted the argument that nongovernmental actors will do a better job, or be less expensive, no matter what is to be outsourced.

Research results strongly suggest otherwise. Sometimes, contracting is appropriate; often it is not.

With the publication of a new in-depth report, In the Public Interest has illustrated the often pernicious effects contracting can have on equality. The report centers on five ways in which contracting out exacerbates inequality:

User-funded contracting. Public budgets have tightened all across the country, largely due to the American public’s unwillingness to pay taxes to support services we continue to demand. As a result, some jurisdictions are allowing contractors to charge fees to end-users to subsidize or completely fund an outsourced service.

This is increasingly happening in areas where citizens have little to no political voice. In private probation, for example, offenders are expected to pay for everything from their own drug testing to the costs of ankle-bracelets, despite the fact that as a group they lack the resources to do so.

Rising rates. Residents of places that have privatized critical public services such as water or transit have experienced steep increases in their rates. Some of these increases can be attributed to the profit motive, but in other jurisdictions—like my own—the increases mask desperate, clandestine efforts to shift the costs of public infrastructure from taxpayers to ratepayers. (In Indianapolis, the city sold the water company, which—thanks to deferred maintenance needs—had a negative value of several billion dollars. As part of the deal, the purchasing entity, a nonprofit, “adjusted” its payments in lieu of taxes (PILOT) obligation, upward. That allowed the city to float bonds, repayable from the artificially increased PILOT, and use the proceeds to pave deteriorated streets. The result was to shift the costs of infrastructure repair from general tax revenues to utility ratepayers. It would be hard to think of a more regressive strategy.)

Cutting the social safety net. Programs like Medicaid and food assistance are often subjects to privatization experiments, and the report notes that the impact can be
tragic. Contractors have increasingly taken over critical social services like child foster care services, welfare, the distribution of food assistance, Medicaid, and child support services. But as the report details, the complex social problems faced by families and children who utilize these services are difficult to address using a privatization model, and many social services contracts have financial incentives that inadvertently perpetuate cycles of poverty and divert money from critical programs to corporate profits.

Indiana, again, provides an example. Then-Governor Mitch Daniels attempted to outsource welfare intake; as a result, many recipients were denied benefits to which they were clearly entitled, and others endured long waits and confusing, burdensome processes. The results were so negative that the effort was discontinued, but the ensuing lawsuits cost the state millions of dollars that might otherwise have provided needed services.

A race to the bottom for workers. One of the recurring criticisms of privatization has been that, when private companies take control of a public service, they often slash wages and benefits to cut costs, replacing stable, middle class jobs with poverty-level jobs. The report confirms the criticism.

Similarly, the report underlines increasing recognition that privatizing schools, especially, increases socioeconomic and racial segregation. As the text notes, introducing private interests into things like schools and public parks can—and often does–radically impact access for certain groups.

The report is a sobering reminder that there is a critical difference between procurement—government purchases of such things as street paving or computers—and contracting out delivery of core governmental responsibilities. It turns out that “Weakening democratic control over public goods and services increases economic, political, and racial inequality.”

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