Talking Points

Privatization Costs Communities More

• Contracting out frequently costs more, not less, than in-house services. When governments are considering contracting out, the real costs to the jurisdiction are not usually taken into account. For instance, it costs more to administer the contract and to monitor the results; it takes additional money to train and supervise contractor personnel; and the use of public equipment and facilities is often not included in the costs of the contracted services.
• Even if the cost of the contract appears cheaper, the amount paid may be higher as the contractor renegotiates because of cost over runs or loopholes in the contract. Contractors often "lowball" the original bid to obtain the first contract and later raise prices significantly.

Privatization Often Leads to Layoffs, Which Costs the Workers and the Community

• When a state or local government lays off employees because of contracting out, substantial costs are incurred including:
• Unemployment Compensation. The employer pays the entire cost of unemployment insurance benefits during the first 26 weeks of unemployment, and half the cost of extended benefits paid through week 39 of unemployment. Some laid-off workers may also qualify for public welfare programs.
• Loss of Tax Revenues. Layoffs reduce a jurisdiction’s tax revenues because people without jobs do not generally earn taxable income and don’t spend as much.
• In-House Employee Morale. One hard-to-calculate cost of layoffs is the effect on the morale of remaining public workers. The threat of job loss reduces productivity and represents another hidden cost of contracting out.

Privatization Often Jeopardizes High-Quality Services

• The contractor’s goal is to maximize profits, which often leads to cutting corners on service quality — perhaps hiring inexperienced, transient personnel at low wages, skimping on contract requirements, or providing inadequate supervision.
• In bidding or negotiating for professional services contracts, many firms emphasize the expertise of their staff. The problem is that these "experts" are often spread thin, so the work may actually be done by inexperienced "generalists" rather than by experts.

Privatization Offers an Opportunity for Corruption

• Contracts for public services often become vehicles to reward cronies and campaign supporters, just as in the days when public jobs were doled out as patronage.

Privatization Leads to Loss of Flexibility

• When citizens complain about a contracted service, the government becomes only a "middleman" who can often do little more than complain in turn to the contractor or enter into costly contract renegotiations or termination proceedings.

Privatization Leads to Loss of Accountability

• Public officials are less accountable when services are privatized. They are still responsible for providing the service, but less able to meet their responsibility. As more public services are shifted to the private sector, we move from an open and accountable system to a closed, secretive society easily subject to manipulation.

Privatization Has a Harmful Impact on Women and People of Color

• Traditionally, the public sector has provided greater employment opportunities for women and minorities. Contracting out diminishes social and economic opportunities for these populations.

Labor-Management Committees Can Offer Alternatives to Contracting Out

• Some communities have used labor-management committees to improve services as an alternative to contracting out. A committee might examine work practices to identify opportunities to improve efficiency and quality. Improvements can include contracting-in work that previously has been contracted out.
• If public officials insists on moving forward with contracting, the public agency and the union should have an opportunity to submit a best-practice in-house bid. Depending on local labor-management relations this can be done jointly or by the union alone.

Contracting Out Will Change Local Labor Relations

• The local jurisdiction should review the contractors’ labor relations practices. The local jurisdiction’s and contractor should consider what the contingency plan is in event of a strike. Unlike many public employees, private-sector employees have the right to strike.

Talking Points — Privatization of Corrections

Private Prisons Don’t Save Money

• Advocates of prison privatization claim that for-profit firms can operate prisons less expensively than the government can. In reality, the promise of savings (in the range of 15 to 20 percent) turns out to be a big exaggeration. Numerous studies show little or no difference in costs associated with public and for-profit correction facilities.
• A 1998 study conducted by the United States Attorney General at the request of Congress (Abt Associates Inc. Private Prisons in the United States: An Assessment of Current Practice, July 16, 1998) found that there was no strong evidence to support claims that privately run facilities were more cost effective.
• Despite this evidence, supporters of prison privatization persist in claiming that private prisons are cheaper than public prisons. These claims tend to be flawed for a number of reasons. First and foremost, they tend to compare "apples to oranges." For instance, government costs are averages that include maximum-and medium-security inmates while only 2 percent of the inmate population in for-profit prisons are maximum-security inmates.
• Another flaw in most cost comparisons is the omission of the "hidden" costs associated with for-profit prisons. One such major hidden cost is the expense needed to capture escapees.
• Costs associated with the procurement process and indirect costs (such as legal work and administrative costs, including contract monitoring and other overhead costs) must be considered. These costs can range between 10 percent and 20 percent of contract costs.
• For-profit prison firms get plum contracts that wind up costing taxpayers more. Low bids by companies are tempting, but they leave governments to pick up the tab for unanticipated expenses and/or for costly mistakes.

Private Prisons are Bad Public Policy and Raise Quality Concerns

• For-profit firms can increase their profits by providing less programming than they are obligated to provide and by holding inmates longer than they should. A newspaper reported that some CCA guards in Tennessee say privately that they are encouraged to write up prisoners for minor infractions and place them in segregation. If a prisoner has another 30 days added to their sentence for an infraction, companies receive a bonus of nearly $1,000 at some prisons. (The Nation, January 5, 1998)
• For-profit prison firms too often get out of paying property and income taxes — taxes that should go toward improving the lives of citizens.
• The pursuit of profits jeopardizes public safety. Cost-cutting leads to dangerous conditions both within the walls of prisons and in the nearby community. Prisons must be staffed by professional corrections personnel who are dedicated to preserving public safety, not by corporate bigwigs who are beholden to their stockholders.

Private Prisons are Bad for the Local Economy and are Bad for Employees

• For-profit prisons offer low wages and inadequate benefits to employees. In for-profit prisons, the high salaries for corporate executives and returns to shareholders are paid for in part by low pay and benefits for prison employees, who put their lives on the line every day.
• This leads to constant employee turnover, which means understaffed prisons with untrained employees.
• For-profit prison companies further reduce their labor costs by giving employees stock instead of a real pension. These retirement benefits could be wiped out in the blink of an eye.

Private Prisons Endanger the Community

• The high turnover, poor training, and understaffing common in for-profit prisons are a recipe for disaster in corrections.
• According to a study by the National Council on Crime and Delinquency, for-profit prisons have lower staffing, lower salaries and a higher rate of assaults on staff and inmates than public facilities. (Tulsa World, December 13, 1999)
• The low wages and benefits paid by for-profit corrections firms can attract workers not qualified to work in a public correctional setting. For instance, published reports revealed that Cornell Corrections knowingly hired convicted felons to work as guards inside Santa Fe County’s juvenile jail. (Associated Press, April 27, 1999)
• High employee turnover also leads to a poorly trained staff because of the need to expeditiously fill empty positions. The danger of having improperly trained employees came to light when a prison guard was killed at a Wackenhut-run facility in Santa Rosa, New Mexico. It was discovered that the guard was not certified to work in an armed post as a corrections officer. Neither were five of his co-workers. (Associated Press, September 8, 1999)

The Public is Against Prison Privatization

A national survey by Lake, Snell, Perry and Associates of Washington D.C., 1999, shows that 58% of the public opposes private prisons. The same survey found that voters believe that government-run prisons do a better job of rehabilitating prisoners, are more accountable and protect public safety more effectively. By a strong margin, the public believes that for-profit prisons cut corners.

Talking Points — Privatization of Social Services

The Forces Driving Social Services Privatization

• Private Vendors Seeking New Markets: Before welfare reform in 1996, federal law limited private agencies’ roles in providing services. Now, states and counties may contract out their entire cash assistance programs. This federal policy change has opened up an annual market of $30 billion.
• Pro-Privatization Ideology: In an era heralding government downsizing and private sector ingenuity, too many state legislatures and public social services agencies view privatization as a worthy end in itself. Instead, decision-makers should rigorously assess what system reforms are needed and give specific, quantifiable reasons why a private agency would be a better, more cost-effective, provider of services.
• Inadequate Social Services Funding: Even in flush economic times like these, programs for poor and other vulnerable populations are under-funded at the federal, state and local levels. Not surprisingly, service provision often falls short of expectations. Instead of granting additional resources to public agencies so they can do their jobs well, state legislatures and local governments are increasingly tying budget increases to extensive privatization.

The Seven Common Myths of Social Services Privatization

Myth: Privatization improves quality of services and ensures equal treatment.

Reality: Quality is uneven at best, with many private companies limiting services to clients to protect their profit margins. This can lead to unequal treatment among recipients of services.

Myth: Privatization saves money.

Reality: The added layers of bureaucracy necessary to set up competitive bidding and monitor contracts is expensive, and cost overruns by successful bidders are common. Where money is saved, it is often due to contractors paying their employees low wages and benefits, or cutting corners on services. In child welfare, for example, cost savings can result in bigger costs (both financial and societal) when children who do not receive adequate services end up in juvenile or adult detention.

Myth: Privatization enhances flexibility.

Reality: Once a public agency divests itself of the employees, expertise and other capacities to deliver services, it becomes vulnerable and beholden to whichever private contractor is delivering services.

Myth: Privatization reduces bureaucracy.

Reality: Privatization necessitates new, costly bureaucratic structures including writing and evaluating Requests for Proposals (RFPs) and monitoring contractors’ performance.

Myth: Contracting is objective and fair.

Reality: Political connections and nepotism continue to distort the contracting process, giving companies multimillion dollar contracts that are not merit based.

Myth: Privatization prevents waste and abuse.

Reality: Contrary to popular belief, the private sector is more awash in waste and abuse than are public agencies, at least in part because the profit motive often distorts decision-making.

Myth: Privatization contributes to the greater good.

Reality: Privatization reduces public accountability and can result in contracts that cost more and deliver less than originally promised.

Public Administration of Social Services Provides:

• Greater accountability to the public
• Fair and equal treatment of often vulnerable social service recipients
• Direct control over quality of services
• Merit based civil service hiring which prohibits nepotism, political connections and favoritism unrelated to job qualifications

Key Public Sector Roles in Social Services Include:

• Gatekeepers to services
• Case management
• Ensuring due process for clients
• Oversight, measuring performance and evaluation

Talking Point — Privatization of Solid Waste Collection

Contracting Out May Lead to Inferior Services

When profit is the prime goal, services often suffer. For example, in December 1998, the District of Columbia had to dispatch its own crews and impose fines because a company had failed to collect leaves from households from across the city. In a newspaper article (Washington Post, 12/12/98), Christine Meket, a Waste Management spokesperson, admitted that the company failed to perform its responsibility, in part, she said, because it hired subcontractors who were unfamiliar with some sections of the city.

Contracting Out Can Cost More

• Public agencies do not have to pay taxes or make a profit. Given a level playing field that requires contractors to pay comparable wages and benefits, public costs for delivering the services should be less.
• The total cost of contracting out should include the contractors’ bid plus the cost of contract monitoring and administration and any costs associated with public employee displacement.

Contracting Out Means Loss of Control

• Once contracted out, solid waste collection is very difficult to bring back in-house. Trucks and equipment will be gone, as will in-house expertise.
• With contracting, elected officials lose control, but retain responsibility. Citizens will still hold elected officials responsible.
• Private contractors have extensive experience in negotiating solid waste contracts. Local jurisdictions may not have the expertise to not only negotiate the contract, but to manage and enforce it.

Contracting Out Means Loss of Flexibility

• Private contractors are obligated to meet the letter of the contract and no more. Changes in service or new services can be negotiated, but at an increased cost.
• Unless it is written into the contract, private crews and equipment may not be available to provide emergency assistance like snow plowing or support for special clean-up days.

Contracting Out Leads to a Loss of Public Accountability

• Elected officials and the public lose access to information about the operations of this critical service and about environmental protection when solid waste collection is privatized.

Contracting Out Presents Conflicts Between Public and Private Interests

• To stay in business the contractor must make a profit. Given a choice between the public’s interests and the company’s, the private interests of the company will prevail. Likewise, when there is a conflict between public and private goals, private employees will be held accountable to company goals.
• Contracting in this industry tends to be very political. Once the word is out that a public entity is considering contracting, contractors and their political consultants and attorneys will descend upon the community and decision-makers.

Today’s Contractor May Not be Tomorrow’s Contractor

The private solid waste industry is in flux. National firms are merging and seeking to expand market share through the purchase of regional and local companies. Assuming a contract runs five years, with the industry tendency toward consolidation, it is questionable whether the same management will be in control at the end of the contract.

There Is No Guarantee that Profits Will Stay in the Community

Instead of being reinvested in the community, private profits may flow to the company’s national headquarters.

The History of the Solid Waste Industry Includes Corruption, Price Fixing and Environmental Problems

The local jurisdiction may not have the ability to undertake comprehensive background checks on bidders with regard to service, environmental compliance and ethical practices.

Contractors May Lower Wages and Offer Inferior Benefits

If the contractor’s wages and benefits are not at least comparable to those provided public employees, consider the effect of lower wages and inferior benefits on the general economic condition of the community.

Contracting Out Can Have a Disproportionate Impact on Minorities and Women

Minority and women workers have found career opportunities and advancement in the public sector. It is not clear that these opportunities will continue in the private sector. The Wall Street Journal (5/4/99) reported that a routine compliance review of Waste Management’s hiring records in 1997 found that about five female and 10 African American and Hispanic applicants were allegedly denied jobs despite having qualifications that were equal to or greater than males and non-minorities who were hired. As part of settlement with 15 individuals who were allegedly turned down for truck-driving jobs, Waste Management agreed to pay a total of $756, 680 in back pay, less wages the individuals might have earned at other jobs since being turned down positions at Waste Management.

Talking Points — Privatization of Education Services

Contracting Out Costs More

• Contracting out costs more than advocates claim because indirect and "hidden" costs of service delivery are often ignored. It costs money to implement privatization. Some indirect and "hidden" costs include those related to the development of the Request for Proposal; bid solicitation and evaluation and negotiation of the contract; training of contractor staff; and monitoring and administration of the contract.

Contracting Out Doesn’t Improve Services

• The quality of services frequently deteriorates with contracting out. For private companies to deliver services and turn a profit they must often resort to purchasing inferior equipment, hiring fewer employees and paying lower wages. Inadequate equipment combined with over worked and under experienced employees is a recipe for disaster.

Contracting Out Changes the Dynamics Between the Community and the Schools

• America’s public education system is based on the principle of local control of school systems. Introducing large — in some cases, even multinational — corporations into the mix changes the dynamics in a negative way. The overwhelming majority of school-support employees live in the school district where they work and often have children attending those same schools. Incorporating a contractor from outside the school district disrupts the sense of community.

Contracting Out Can Lead to School Districts Losing Control of their Operations

• When school services are privatized, particularly student transportation, the contracts between the school district and the subcontractor often run for as long as five years. Typically, by the end of that contract all of the school buses previously owned by the school district have been replaced by buses held by the privateer. The school district, therefore, is a helpless captive of the contractor. No school district can afford to purchase an entire fleet of buses at one time; therefore, the privatization must continue regardless of company performance or community satisfaction.

Public Accountability is Diminished

• Public accountability is diminished because complaints from parents and students about the quality or level of service provided by the contractor cannot be directly addressed by the school district. When contractors are unresponsive, school districts are restricted by the terms and conditions of the contract or must engage in costly contract renegotiations in order to accommodate the concerns of the school community.