Public Services on the Auction Block

Government officials and taxpayers are coming to realize that contracting out vital services not only doesn’t save money — it’s just bad public policy.

"Don’t sell out my city!” So read the sign held aloft by one of the hundreds of union demonstrators who had assembled at the St. Paul, Minn., City Hall on Aug. 25 to oppose Republican Mayor Norm Coleman’s plan to privatize municipal services.

It’s a cry heard across America.

The story of privatization is a chronicle of America on the auction block, offering up its multitude of functions and assets to the highest bidder.

“I think we’re in a time where public services — public operations generally — are under the gun, whether you’re talking about corrections or social services or health care,” says Tom Beer, political action director for Council 6 in Minnesota. “Evidently, almost anything is up for grabs.”

Hard-working public employees — clerks, corrections officers, welfare workers, sanitation engineers, you name it — pay the immediate price of privatization with their jobs.

Taxpayers in whose name privatization is advocated — also lose. They lose control over critical public services to companies owing their allegiance to their stockholders, not the public. They lose through the decline in working conditions as corporations shave corners to increase profits. They lose when experienced public-sector workers are replaced by cheaper, less-trained employees. They lose when public safety is put at risk, as in the case of prison privatization.

They also lose money.

Despite claims by some privatization advocates that contracting out is less expensive, independent researchers and even the federal government have found those assertions difficult to prove, if not illusory.

So why do some public officials still embrace it?

“There are two things that are motivating this drive for privatization,” says Jennifer Grondin, a lobbyist serving Councils 11, 24, 40 and 48 in Wisconsin. First, for-profit companies like defense contractor Lockheed Martin (which has diversified into the largest private contractor for social services in the United States) see the privatization of government services as a way to pad shrinking profit margins, she says.

Second, privateers are aided by “an element of right-wing ideology that says the private sector always does things better than the public sector, and tangentially sees unions as this big barrier to breaking down this work and getting it out-sourced.”

When the public has gone along with privatization, it’s because opponents have not adequately made the case against it, she says. “I think there’s a very distinct lack of understanding about what government should do and must do in order for us to have a healthy and productive society,” Grondin explains. “I think there’s this overwhelming and almost libertarian kind of view that we don’t need government for anything.”

AN OLD IDEA. There have always been privately run government services in America. Early in this century, municipalities let private companies run streetcar systems, collect garbage, fight fires and perform other services.

But corruption and cronyism gave privatization a bad name over the ensuing decades, and the public was willing to give the government a chance to prove itself.

It did.

During the New Deal, Pres. Franklin D. Roosevelt’s domestic program between 1933 and 1939, government services grew dramatically and enabled the country to get back on its feet after the Great Depression.

By the late 1960s and early 1970s, however, the Vietnam War and the Watergate scandal had eroded the public’s faith in government.

“You begin to get a lot of cynicism about what government can do,” says Elliott Sclar, professor of Urban Planning and Public Affairs at Columbia University and author of “The Privatization of Public Service: Lessons from Case Studies,” published by the Economic Policy Institute in Washington, D.C.

Public officials began looking toward the private sector with new zeal, and by 1980, state and local governments had paid an estimated $66 billion to private firms to provide public services.

Ronald Reagan’s election to the presidency in 1981 heralded an even greater era of reduced federal services, says Sclar. Cash-strapped state and local governments were forced to pick up the slack, and contracting out some public services to save money started to look good.

In a report to the congressional Joint Economic Committee in February 1996, economist Jerry Ellig said state and local governments own more than $227 billion worth of assets that could be privatized, including highways, airports and water operations.

The sale has already commenced.

PRISONS GO PRIVATE. If there is any one area of public service that most illustrates the folly and danger of privatization, it’s America’s correctional system.

The private sector now manages more than 120,000 prison beds, approximately 7 percent of the U.S. prison population of 1.8 million. There are now about 154 privately run prisons in 26 states and the District of Columbia.

The growth of prison privatization was fueled in part by promises by private companies that they could do the job better and cheaper than the public sector. But are taxpayers seeing any of those promised cost savings passed along to them?

The General Accounting Office (GAO), the investigative arm of Congress, reviewed public-private prison cost studies in five states in 1996 and determined it “could not draw any conclusions about cost savings or quality of service” because the studies “indicated little difference or mixed results.”

THE PROFIT MOTIVE. If money is not at the core of government’s reasons to privatize prisons, it is in the hearts of the privateers, who saw their revenue soar from about $650 million in 1996 to about $1 billion in 1997, according to a congressionally commissioned privatization study in 1998 by Abt Associates, Inc.

“The number one goal of a private facility is to make money, let’s face it,” says Gary Lonzo, outgoing chairman of the AFSCME Corrections United (ACU) Advisory Committee and a former sergeant at the Green Bay Correctional Institution in Wisconsin. “It’s a business. If they don’t make money, they don’t stay in business. There’s only one way of making money, and that’s by cutting the amount of staff that you have, and the amount of programs that you run.”

Corrections officers in private prisons have no recourse. Unlike those in the public sector who receive the protections of labor unions such as AFSCME — which represents more than 80,000 COs and corrections employees — guards at private institutions serve at the whim of their corporate bosses who know one sure way to make a profit is to eliminate jobs, slash pay and reduce benefits.

Such cost-cutting steps have grave consequences for the public and those who work in correctional institutions, however.

“It destroys morale” among the guards, says CO Herbert Royster, a member of AFSCME Local 3737 (Council 67), who works at the state-operated City Detention Center in Baltimore, Md.

“Morale in correctional facilities is everything, because you depend on your fellow corrections officer,” Royster explains. “And when they feel they’re not needed, not wanted, that they’re just another number on somebody’s chart, then they don’t work as diligently” as they would in the public sector.

If prison privatization comes to Baltimore, he adds, “I’m leaving.”

PRIVATIZATION STUMBLES. By shaping public opinion through education, taking political action by supporting sympathetic lawmakers and educating their own members, AFSCME and its affiliates are making headway in the war against privatization.

The Ohio Association of Public School Employees (OAPSE)/AFSCME Local 4, is just one of many success stories.

“For the most part, the trend toward privatization that gained so much momentum in the early and mid-1990s in Ohio public schools has faded” as a result of the union’s proactive efforts, says Joseph Rugola, executive director of OAPSE and an International vice president.

“We’ve been able to bring work that was privatized back in house far more often in the last couple of years than we’ve been losing work to privateers,” he adds.

OAPSE, which represents 32,000 public school employees who drive buses, work in food services, perform maintenance and a host of other tasks, relied on a “three-pronged strategy” to fight privatization:

• Legal action to prevent it.
• Political action to discourage school boards and lawmakers from considering it.
• Collective bargaining to secure contract protection against it.

“We made a tremendous effort to educate school board members, the public and our own OAPSE members about the problems that privatization presents,” says Rugola. “Because of those early efforts, by the time the privatization movement got legs in Ohio, we were well prepared for it.”

WINNING THE WAR. In Connecticut, Republican Gov. John Rowland’s dream of privatizing the state’s computer systems evaporated last June once officials actually sat down to look at what they were buying.

The numbers just didn’t add up to savings, says Council 4 Director and International Vice Pres. Mike Ferrucci. “The cost to privatize rose from $1 billion to $1.5 billion.”

Three years earlier, Rowland had promised that privatization of the state’s information services would revolutionize government operations and would save the state at least $50 million a year.

It was wishful thinking.

Once Texas-based Electronic Data Systems Corp. (EDS) put its numbers on the table, it was evident there would be no taxpayer savings.

Gregg Regan, the state’s chief information officer who oversaw Rowland’s privatization effort, concluded the cost — including services EDS planned to bill the state as extra expenses — was just too high. Entering into an agreement with EDS “on its terms is an unacceptable risk for the state to take,” he wrote to the governor.

Rowland has decided, instead, to overhaul the state’s computer system and continue running services using public employees. “We knew the privatization program was flawed,” says Ferrucci. “We knew the rationale behind it was really bottom-line profits for the business community. In order to deal with that, we had to be very convincing and very factual” when educating the public and the union’s own members.

Privateers lost this battle. But the effort to take work away from public employees continues around the country. One still-smoking battlefield is St. Paul, Minn.

ON THE FRONT. Council 14, clerical Local 2508 and technical Local 1842 are working through a broad coalition of unions called the St. Paul Works Alliance to fight a competitive bidding program called “Compete St. Paul.”

A task force appointed by Mayor Coleman in 1998 to look into competitive bidding of public services gave privatization the green light. Labor responded quickly, helping the city council draft an ordinance protecting workers.

On Aug. 25, about 1,000 people, including hundreds of AFSCME members, attended a rally to support the ordinance. U.S. Rep. Bruce Vento (D) summed up the general sentiment. “We don’t want to just send in the check and then have to check to see whether the low bidder does the job,” Vento told the crowd. “We want city officials to run the city — not run away from it.”

On Oct. 20, the council voted 5-1 for the union-backed ordinance, giving city workers two years to put together performance plans and find ways to cut costs before competitive bidding will be allowed.

Nevertheless, the fight over privatization of city services in St. Paul is expected to continue because Coleman vows to keep it going.

THE BOTTOM LINE. Saving money — if there ever were real savings from contracting out — may no longer even be what’s motivating government officials to jump on the privatization bandwagon.

In a report released in May, the pro-privatization Reason Public Policy Institute (RPPI) in Los Angeles claims that the “popularity of privatization has grown despite the fact that most state and local governments ran budget surpluses again in 1998.”

“Historically, privatization has happened in the shadows of budget axes and shortfalls,” according to Adrian Moore, director of RPPI’s Privatization Center. “In many ways, this is changing.”

If budget pressures have eased, then, why do so many state and local government officials still embrace contracting out of public services?

Because they still believe it works, says Sclar.

“The case for public contracting rests upon the belief that competition is the answer to public service’s failings,” Sclar writes in “The Privatization of Public Service.” “Privatization advocates rule out the notion that it is possible to correct the flaws of direct public service.”

“It’s not that it’s true,” Sclar adds in an interview. “It’s just what people believe.”

That’s why it’s so important for labor to make its case, loudly and repeatedly, that privatization simply doesn’t work, says Sclar. “If the unions can start to make clear to people what’s really at stake here, I think we can save the American taxpayers a lot of grief and a lot of money, and get better services in the bargain.”

Unions are doing just that.

In Wisconsin, for example, AFSCME has had “enormous success” fighting efforts to privatize its special-needs adoption program, says Grondin. After running the numbers and discovering it would be less expensive to operate the program within the public sector, they worked to get the word out.

“Our members did an absolutely unbelievable job of grassroots organizing’’ and getting members to lobby their respective legislators from both parties, says Grondin. “We beat the privatization.”

PUBLIC ATTITUDES CHANGING. The American public is beginning to get the message that privatization is bad public policy.

A poll conducted for AFSCME in October reveals that 45 percent oppose privatization of government services, while only 31 percent favor it.

In particular, those surveyed said government services that provide some kind of public protection should not be privatized. For instance, only 32 percent thought firefighters should be privatized, while a whopping 63 percent opposed that idea. An even greater percentage — 71 percent — opposed the privatization of law enforcement.

The public also has little appetite for publicly run prisons. Another AFSCME-commissioned poll conducted in August shows that 51 percent oppose privately run prisons. Only 28 percent support them.

“Simply put, private prisons don’t work, and the American people know it,” AFSCME Pres. Gerald W. McEntee declared at a Capitol Hill news conference in September.

STOPPING THE LOCOMOTIVE. Taking the initiative is the way AFSCME and its affiliates have been able to put the brakes on privatization.

“Individual school board and employer representatives, superintendents and board attorneys have told us over and over again in recent years that the single reason why they were discouraged from pursuing privatization as a possible alternative in public schools is because they did not want to engage OAPSE on this issue,” says Rugola, of OAPSE.

AFSCME has launched its own offensive:

• On May 6, 1998, AFSCME Corrections United’s Steering Committee met with reporters in Washington, D.C., to kick off a nationwide anti-privatization campaign, releasing a report showing how for-profit prison firms skimp on training, benefits, salaries and staffing. The campaign’s goals include crafting and supporting anti-privatization bills such as the Public Safety Act (H.R. 979), which would prohibit further privatization of federal correctional facilities, and make similar prohibitions a condition for state or local governments that receive federal prison grants.
• AFSCME has established a Task Force on Privatization, which is targeting select industries and corporations to halt further privatization; developing an “early warning system” to alert affiliates to upcoming bids and contract renewals by large privateers; shaping public opinion, educating union leaders, fighting privatization through the electoral process; and crafting legislation to prevent contracting out in various areas of public service.
• When privatization does take hold of a service, AFSCME councils and locals are working to make sure contract language protects employees’ wages and benefits, and retains the right to union representation. Where there is competitive bidding, AFSCME will work to win thosecontests. To make sure the deck is not stacked against public employees, the union and its affiliates will work to require legitimate cost comparisons before making contracting decisions.

The battle can be won.

“The unions have got to fully — and without hesitation — commit themselves to fighting privatization at every level,” says Rugola. “One thing we never did in Ohio — we never bargained. We never made deals. We never suggested to [former] Gov. George Voinovich, when he was pushing for privatization, that we would accept any kind of middle ground at all.

“We made it clear from the beginning that, as far as we were concerned, privatization would destroy education in this state” as well as the livelihood of OAPSE’s members, he adds. “When that became clear to the employers that we were serious about that, many of them simply lost interest in privatization.

“I think the single most important factor is you’ve got to commit completely from the very beginning,” he concludes. “You cannot hesitate, and you cannot negotiate on this issue with the other side.”

By Clyde Weiss