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New Report Calls for Greater Transparency in State Privatization Schemes

December 14, 2007

On Thursday, the Progressive States Network (PSN) released a report entitled Privatizing in the Dark: The Pitfalls of Privatization & Why Budget Disclosure is Needed, which outlines the need for new state laws requiring greater accountability and transparency in the privatization of government services.

In the wake of the high-profile failure of several recent privatization schemes in multiple states, the report highlights the failure of almost all state governments properly to track the percentage of their budgets allotted to private contracts or to evaluate the effectiveness of the firms who receive them. Citing the conventional wisdom that privatization saves money and optimizes services, the report maintains that there is insufficient evidence to support such claims and that what evidence does exist actually suggests that privatization wastes tax dollars by fostering corruption, inefficient management, increased costs, and a disincentive to quality service.

According to the report's author, PSN Policy Director Nathan Newman, We've got this myth floating around that privatization is some kind of free lunch that's going to save us all from inefficiency. But the fact is that--like most promises of a free lunch--this just doesn't stand up to the test of reality.

The report paints a broad picture of failed state privatization schemes:

  • Lost Money and Degraded Services:Texas's outsourcing of social services to the Bermuda-based consulting firm Accenture, which resulted in massive infrastructure failures and 30,000 children being dropped from the state's Children's Health Insurance Program
  • Weak Oversight and Lost Expertise: Massachusetts's outsourcing of the infamous "Big Dig"? highway construction project to the firm Bechtel, resulting in the winnowing away of safety oversight procedures and leading to the wrongful death of motorist Milena Del Valle
  • Selling Off Public Assets for Short-Term Gains: Indiana's lease of its toll highway to an Austrailian-Spanish consortium, resulting in the projected loss of nearly $25 billion in toll revenues over the next 75 years in exchange for a $3.8 billion up-front payment
  • Corruption of the Political Process: Ohio's outsourcing of state investment portfolios to private firms with links to executive branch party fundraisers, resulting in massive corruption scandals and the theft of nearly $13 million from worker's compensation funds

In the wake of such failures, the PSN report emphasizes the need for vigilant oversight of private contracting yet finds such oversight to be severely lacking at the state level. Existing research all emphasizes the broad failure of states to accurately account for privatization within their budgets or to adequately measure the costs or benefits from privatization and outsourcing. State budget and procurement offices were specifically surveyed for the report and the results confirmed this broad failure of privatization accountability:

  • No states responding to the survey could provide data comparing the percentage of their budgets allotted to private contracts to the percentage allotted to public employees providing similar services
  • Only one state, Virginia, could provide data accounting for the total amount of money earmarked for private contracts across all service sectors

Said Newman, "Unless state leaders measure whether the extent of privatization within state budgets and its potential costs, they shouldn't even be talking about privatizing more public services."

In light of its findings, the PSN report concludes by calling for swift passage of legislation to establish standards for transparency and accountability with regard to government contracts. Included in these proposals are measures to ensure that states:

  • Create a budget line item to track the percentage of each public agency's funding allotted to private contractors
  • Put in place measures to test the cost effectiveness of private proposals before awarding government contracts
  • Make privatization data available online to researchers and the general public
  • Ban campaign contributions from companies bidding on government contracts.

In a conference call held Thursday in conjunction with the report's release, PSN Executive Director Joel Barkin discussed the problem of transparency with a number of state legislators, including Texas House Representative Garnet Coleman, a longtime advocate for increased scrutiny of state privatization projects. According to Barkin, "Until we've got more data out in the open, we're simply not going to be able to judge the extent to which our tax dollars are going to waste for private profiteering."