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Matt Singer on August 14, 2006 - 10:08am
Monday, August 14, 2006
In Today's Dispatch:
Stopping Privatization Profiteering
A number of state leaders have been promoting what seems like a free lunch. Hand over control of government services to private industry and those companies promise better service at a lower price. Like most promises of a free lunch, privatization has mostly ended up being a deceptive boondoggle, a point the non-partisan news sourceStateline.org emphasized this past week:
The poster child for the failure of privatization has been Texas' attempt to hand over management of social services in that state to Accenture, a Bermuda-based consulting firm. Computer systems have failed, costs have mounted, and, worst of all, the result has been tens of thousands of children being dropped from health insurance rolls because of bungling by the private contractor. After the initial takeover of the system by Accenture, 30,000 children were dropped from CHIP [the children's health program] just since last December with the total enrollment in the state health system seeing its lowest numbers ”“ below 300,000 ”“ since the program's earliest stages five years ago.
If degraded services is one problem, the other damages are back-room deals and private profiteering that seem all too common when large private companies lobby for these kinds of deals. As this Dispatch will highlight, whether in Texas, Massachusetts, or Indiana, opening the public contracting system to privatization has too often been a recipe for corruption.
TX: Accenture and the Billion-Dollar Texas Boondoggle
How bad is the Texas social services deal? Republican State Comptroller Carole Keeton Strayhorn began investigating the deal and declared, "The Accenture contract appears to be the perfect storm of wasted tax dollars, reduced access to services for our most vulnerable Texans, and profiteering at the expense of our Texas taxpayers."
Faced with massive backlogs and endless waits for people needing help, state Health and Human Service Commissioner Albert Hawkins had to tell Accenture to reverse gears and return to older procedures for approving social service benefits. 1,000 state workers slated to be laid off were held onto to help clean up the mess.
And the root of the problem is that corruption flowed from the top.
When public officials know that favors for private contractors means a sweatheart job when they leave government service, it's hardly surprising that privatization is often a ripoff for taxpayers.
MA: Bechtel and the Big Dig Debacle
When ceiling panels came loose in a Boston tunnel, part of the multi-billion dollar "Big Dig" construction project, and killed motorist Milena Del Valle, it brought to a head two decades of questions over the role and power of the Bechtel corporation, which oversaw much of the work done on the project.
"State agencies and auditors were like fleas on this big giant," said State Senator Marc R. Pacheco, who convened a panel in 2003 to investigate Bechtel whose report criticized conflicts of interest, secrecy, and weak state supervision of the Big Dig project. Attorney General Thomas F. Reilly has launched a criminal investigation into the company's negligence in Ms. Del Valle's death.
The $14.6 billion reconstruction of Boston's downtown roadway system overseen by Bechtel has been mired for years in cost overruns, a leaky tunnel, and now a death due to poorly designed ceiling panels. As far back as 1994, the Boston Globe detailed criticisms of the privatization of supervision of the project:
This kind of independent power over public projects is par for the course for the company, one of the largest private construction and engineering companies in the country. Like the Halliburton Corporation, Bechtel has been a vanguard player in the political trend of private actors taking over supervision of government money. It was those political connections that helped Bechtel get the job back in the 1980s. For example, former Secretary of State George Shultz was president of the Bechtel group before he went to Washington under President Reagan and then returned to that job after he left DC. Former Secretary of Defense Caspar Weinberger was also a Bechtel alumni, a vice president and general counsel of the Bechtel Group before going to Washington in 1980.
Bechtel has never been shy about using political money to grease local political wheels. Peter Berlandi, who was chief campaign fund-raiser for William Weld, the Massachusetts governor William Weld in the 1990s, was hired at the same time by Bechtel. Berlandi made $200,000 dollars working for the construction company, money that was billed to the state government. De facto, public money was being funneled to the chief fundraiser of the state Governor to help lobby the government to funnel more money to Bechtel. Only in 2000 when a memo emerged detailing the arrangement was the money paid back to the state. This is on top of the hundreds of thousands of dollars contributed by Bechtel executives to government officials in the state -- a small price to pay for a company that, despite multiple scandals, has landed government projects that netted its shareholders over $18 billion in profits last year alone.
IN: Highway Privatization and Social Services Scandals
This year, Indiana looked to be going for a twofer: conducting a massive privatization of its highway system and handing over control of its social services system to private contractors a la Texas.
Despite large protests, the state did vote to hand over control of its toll highways to an Australian-Spanish consortium for $3.8 billion, part of a trend across the country of decades-long leases of highways to private corporations. The Indiana deal was sold based on the state getting the $3.8 billion up front, but the catch is that the new corporation gets to keep all tolls for the next seventy-five years, meaning the company will recoup the purchase price in seventeen years, then make $21 billion in profits over the next 58 years. So the state has given away tens of billions of dollars in future toll revenues in exchange for less than $4 billion up front-- typical of the short-sighted in many privatization deals.
Texas is also moving forward on an even larger privatized toll road project, the so-called Trans-Texas Corridor, a network of tens of billions in roads, trains, pipelines and related projects all sold to private corporations. Since 2004, private companies have bids on about $35 billion in toll roads across the country, with 17 states pursuing privatization of highways in some form.
However, when Indiana looked ready to duplicate Texas' social services privatization, opposition derailed the scheme, at least temporarily. When Indiana received bids from two consortium, both were tainted with scandal. One was Accenture, mired in scandal from Texas. The other was led by IBM and a partner, Affiliated Computer Systems (ACS), which had lost part of a Georgia contract two years earlier because of problems in dealing with customer claims.
And the real controversy erupted when it emerged that ACS was the former employer of the state's Family and Social Services Administration head, Secretary E. Mitchell Roob, who had overseen the privatization bidding. In the face of public backlash, Gov. Mitch Daniels ordered the bidding process to be delayed and reviewed, both at the state level and by various federal agencies.
While these delays haven't ended the attempt to privatize Indiana's social services system, it's a first step to taking a hard look at the solutions needed to avoid the endemic corruption of privatization.
Avoiding Corruption in Privatization
As we detailed in our April issue on Ending "Pay to Play" on Government Contracts, there are a number of ways to stop these kinds of privatization scandals.
These are basic reforms, but the larger question the public has to ask of the trend towards privatization is not just the costs to taxpayers of corruption but the loss of democratic accountability when oversight of essential public services is put in the hands of private companies operating largely in secret and not subject to most open meetings laws.
Businesses pay out millions in campaign contributions to get these public contracts because they know they can make large profits, often at the expense of the taxpayer and government clients. Recent scandals should be a wake up call to legislators and advocates to take the steps needed to stop this privatization profiteering.
AFSCME Privatization Update has day-to-day excerpts from relevant news articles from around the nation.
Eye on the Right
The Reason Foundation is one of the biggest promoters of privatization around the country, backed by a range of rightwing foundations and corporate funders. David Koch of the Koch Family Foundations, a prime source of funding and support for rightwing institutions, serves on the Reason board of directors as well as serving as the chair of the board of directors of FreedomWorks, another institution funded by conservative corporate money and dedicated to scaling back social services. If the Reason Foundation sounds familiar, it should. The Dispatch has previously highlighted their efforts to exploit concern over the Kelo decision to push a hard-right regulatory takings theory and their efforts at the local level.
Outrages of the Week
South Carolina's Governor outsources his gift bags, Romney causes another Big Dig headache, Colorado proves the high cost of uninsuring children, and Schwarzenegger is trying a Nixonian approach to health care.
It's all in the latest Outrages of the Week.
Three Steps Forward
Events at NCSL (Starred Events are Hosted by the Progressive States Network):
Monday, August 14
National Labor Caucus Annual Meeting
Lincoln D-E Room
Progressive States/AFL-CIO/AFT Reception
Tuesday, August 15
Center for Policy Alternatives Leadership Circle Communications Training (legislators only)
Tennessee Ballroom B
SEIU & NEA Dessert Reception
Wednesday, August 16
Progressive States Network Briefing
Jackson A/B, Level M
National Caucus of Environmental Legislators/Meeting with American Nurses Association
Delta Island E
State Issues Forum on Fair Share Health Care
Thursday, August 17
NCSL Business Meeting -- Federal Min. Wage Resolution
Gaylord Opryland Resort
State Issues Forum on Health, Morality, and Reproductive Rights
State Issues Forum Workshop on Building Relationships Between Legislators and Advocates
Jobs & Internships
Progressive States' policy department is hiring for new policy positions and is also looking for interns. For details, visit the Jobs & Internships Page.
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