Tag Archives: privatization

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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Outsourcing Responsibility

Sometimes, I wonder why we bother to elect chief executives, since an increasing number of them are clearly uninterested in that boring activity called…what was it? oh yes…governing. Public administration. Management.

Yesterday’s news highlighted the latest in a series of missteps (a nicer word than “fuck ups”) by the Pence Administration. (Actually, I believe this one dates back to Daniels’ time.)

State officials threatened Wednesday to find a private developer in default of its contract for building a 21-mile section of the Interstate 69 extension in central Indiana after a major subcontractor stopped work over lack of payment.

The Indiana Finance Authority has issued a notice of non-performance to I-69 Development Partners LLC for the project upgrading the current Indiana 37 route between Bloomington and Martinsville.

According to bids submitted for the project in 2013, I-69 Development Partners consists of OHL Concesiones of Madrid, Star America Fund LLC of Roslyn, New York, and UIF GP LLC of Delaware.

The dispute comes after Crider & Crider Inc., the contractor responsible for the project’s earth-moving operations, halted work this week.

For the past several decades, public officials–especially but certainly not exclusively Republican elected officials–have had a love affair with so-called “privatization.” I say “so-called,” because genuine privatization involves government’s withdrawal from a given activity (Margaret Thatcher selling off steel mills to the private sector, for example.) In the U.S., what is usually called privatization is actually outsourcing–the practice of choosing a for-profit or nonprofit surrogate to manage a job or provide a service on behalf of a government agency.

I have written extensively about the issues involved in outsourcing, and I’m not inclined to belabor the issue here. Suffice it to say that agencies of government may contract with private entities to provide government services, but they cannot contract away their ultimate responsibility for seeing to it that the project or service is appropriately managed or delivered.

When government hires a contractor to perform a service–in this case, to build a road–it still has the obligation to supervise that contractor’s performance. Effective and competent outsourcing requires that the relevant government agency retain sufficient capacity to manage and monitor the contractor.

Some government functions, of course, simply should not be outsourced. (Private prisons come to mind.) Reasonable people can argue about the wisdom of contracting with private developers to manage the building of roads, but those reasonable people will usually agree that the state retains an obligation to supervise and control its contractors, who are, after all, being paid with tax dollars.

In this case, clearly, that supervision was lacking. And we all know who pays the price when government fails to discharge its most basic responsibilities, one of which is infrastructure:

State Rep. Matt Pierce, D-Bloomington, said many people are frustrated with the traffic delays on Indiana 37 caused by I-69 construction and that he’s not been able to get answers from state officials or the developer.

“People don’t understand why they’re driving through miles and miles of traffic barrels and seeing little, if anything, getting done,” he said.

About 95 miles of the I-69 extension have opened since 2012 between Evansville and Bloomington through southwestern Indiana. The total cost of the I-69 extension is estimated at $3 billion, but the cost of the final leg from Martinsville to Interstate 465 has not been determined.

When that cost is determined, we all know who will pay it.

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Privatizing Libraries

What with the wild and weird Presidential campaign, and the focus on the Supreme Court in the wake of Scalia’s death, there’s much discussion about the operation of the federal government. But Americans have really been engaged in a much longer debate–largely uninformed–over the role of government in general.

And that debate has “evolved;” a recent column from the LA Times brought me up short. It began:

The list of responsibilities that a local government must shoulder isn’t an especially long one. Typically it includes keeping the streets paved and the streetlights lit, maintaining adequate police and fire services, inspecting buildings, sometimes providing water. One hallmark of almost every local jurisdiction is the free public library.

So the proposal before the Kern County supervisors to turn over the county library system to a private company operating out of suburban Maryland marks a major step. If you’re looking for a sign that local political leaders are intent on giving up all pretense of working for the public interest, look no further.

As the columnist points out, the proposal to privatize the library system is part and parcel of the long slide in spending on public infrastructure, the result of viewing the public budget as an expense rather than an investment. The Kern County supervisors are choosing between turning the library over to a private, for-profit company, or imposing a sales tax increase of one-eighth of a cent to fund the libraries.

How, one might ask, does a company make a profit operating a library? According to the story, LSSI, the company in question, cuts down the number of employees, “squeezes” those who remain, and replaces existing pensions with cheaper 401K plans. Even then, the proposal defies logic.

Chronic underfunding and repeated budget cuts have allowed the Kern County libraries to deteriorate physically, while the county spends money instead on an 822-bed expansion of its jail. Library employees are among the lowest paid public workers in Kern County, the advocacy group says.

Turning management over to a firm that will add its own profits to all the other expenses incurred by a library system doesn’t seem on the surface to be a path to improved library services. The money will still have to be found to improve and maintain the physical plant, acquire books and magazines, and upgrade the system’s electronic access.

Something more fundamental is lost when a system such as libraries becomes privatized. The sense that government exists in part to provide infrastructure and services that should be immune from the influence of private interests.

Free public libraries create and nurture community. They cannot be replaced by bookstores (as former Mayor Goldsmith once advocated) or other for-profit ventures. Their importance in the age of the internet has actually grown, as they have moderated the digital divide and curated essential access to credible information.

Government isn’t a business. It exists to provide public goods– services that the private sector cannot and will not provide. When we starve and diminish it, we lose that which makes us a community–an “us”–rather than an assortment of winners and losers who simply occupy a common geography.

Privatized libraries are a step too far. Far too far.

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