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It’s time to rein in predatory contracting of government services

© Minnesota House of Representatives
In an era of outsourcing, it is essential that lawmakers remain watchdogs for the public interest.

All over the country, cash-strapped state and local governments have handed over control of critical public services and assets to corporations backed by Wall Street banks that promise to handle them better, faster and cheaper. Unfortunately for taxpayers, not only has outsourcing these services failed to keep this promise, but too often it undermines transparency, accountability, shared prosperity and competition.

Donald Cohen

Minneapolis taxpayers have seen this firsthand. In 2012, Minneapolis learned that Unisys, its information 
technology contractor, did not provide the city with favorable 
pricing on technology-related equipment and services, as 
required by the contract. The contract cost taxpayers $143 
million over nearly a decade and was extended twice without seeking competitive bids. Upon discovery of the pricing 
problems, a member of the city’s audit committee expressed
 her surprise at the automatic contract renewals, stating that competitive bidding is just a “basic control” for ensuring that the city gets the best deal.

Outsourcing means taxpayers have very little say over how tax dollars are spent and no say on actions taken by private companies that control our public services. Outsourcing means taxpayers cannot vote out executives who make decisions that hurt public health and safety. Outsourcing means taxpayers are contractually stuck with a monopoly run by a single corporation — and those contracts often last decades. And outsourcing too often means a race to the bottom for the local economy, as wages and benefits fall while corporate profits rise.

Reclaiming control

That’s why In The Public Interest is supporting H.F. 2459, a new proposal from state Rep. Frank Hornstein, DFL-Minneapolis, that would give Minnesota taxpayers some of the strongest outsourcing protections in the nation. The measure will rein in predatory contracting of government services in Minnesota.

This legislation helps taxpayers reclaim control of their communities, and ensures that tax dollars are invested at home, not sent away to pad some giant corporation’s profits or to Wall Street bank accounts. It is a common-sense agenda that, left or right, we can all agree on.

Specifically, H.F. 2459 would:

  • Limit the length of outsourcing contracts to two years.
  • Require outsourcing contracts to demonstrate at least 15 percent cost savings for the service being outsourced.
  • Require companies to disclose if and when they broke the law or failed to pay taxes.
  • Require outsources to pay employees a similar wage to public service employees, so that savings aren’t achieved by shortchanging local workers.

Fortunately, Minnesota taxpayers are not the only ones fighting to remain in control of their vital public services. Similar measures have been introduced in states as diverse as Vermont, Tennessee, Oklahoma and California.

Public beats private

But Minnesota should be a leader on this issue, as it has been for years. Each year, the state Department of Transportation’s (MnDOT) eight districts solicit bids from private contractors as well as MnDOT’s own striping division to paint lane stripes on every highway in Minnesota. Without fail, MnDOT’s public striping crew beats the private competitors by a large margin. The public striping division is able to quote a flat price statewide of 15 cents per foot to paint an epoxy stripe. Private contractors charge 32 cents – more than double – per foot.

All too often we are told that the private sector can do things better, faster and cheaper than public service workers. Just as often, that claim turns out to be flat out wrong. 

In an era of outsourcing, it is essential that lawmakers remain watchdogs for the public interest. Elected leaders should support H.F. 2459. Lawmakers championing these proposals, inluding Hornstein, stand on the side of taxpayers, and plain common sense.

Donald Cohen is executive director of In the Public Interest, a national resource center on outsourcing public services and responsible contracting.

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Comments (10)

  1. Submitted by James Hamilton on 03/26/2014 - 09:25 am.

    HF 2459 sounds like a job protection bill,

    not a public protection bill.

    What other justification can there be for requiring private contractors to pay comparable wages, yet deliver a product or service for 15% less?

    What provision is made for services and products which the local government does not have the current capacity to provide? Must they create new positions?

    Absent questions of special abilities or expertise, local governments should always consider the most efficient and cost effective means of providing services, whatever that may be.

  2. Submitted by John Reinan on 03/26/2014 - 10:12 am.

    Look no further than Chicago’s privatized parking meters

    You can find all kinds of stuff online about this. Here’s just one excerpt:

    “The price of parking—and the intensity of enforcement—skyrocketed. The terms were negotiated in secret. City Council members got two days to study the billion-dollar, seventy-five-year contract before signing off on it. An early estimate from the Chicago inspector general was that the city had sold off its property for about half of what it was worth. Then an alderman said it was worth about four times what the city had been paid. Finally, in 2010, Forbes reported that in fact the city had been underpaid by a factor of ten.”

    And don’t get me started on for-profit prisons, which give the company owners an incentive to lobby lawmakers and government officials to ensure a continuing supply of fresh customers.

  3. Submitted by Dennis Tester on 03/26/2014 - 11:37 am.

    Bottom line

    Hiring contractors is ultimately a better deal for the taxpayers who aren’t then on the hook for health insurance and pension benefits for 30 years after the employee is no longer on the job.

    • Submitted by Steve Sande on 03/26/2014 - 02:56 pm.

      People are not commodities

      Public employees spend their prime years performing work that allows the rest of us to get on with our lives. In doing that work, some of those workers put their own health and safety at risk.

      I would strongly reject the notion that we should abandon our obligation to these fellow citizens once they become old and sick.

      • Submitted by Dennis Tester on 03/26/2014 - 03:34 pm.

        I have neighbors

        all around me (it seems) who retired from their government jobs in their mid-50s with very comfortable pensions. I wouldn’t deny them their money but it would be prudent to limit or minimize those kinds of situations in the future.

        Farming out services to the private sector requires the private employer to pick up those retirement-related costs, not the taxpayer. People who don’t see that obviously don’t pay enough taxes.

    • Submitted by Robert Gauthier on 03/26/2014 - 03:46 pm.

      Wrong

      Outsourcing is the conservative panacea that is used to excuse the grab for public dollars at the taxpayers expense. Mr Tester has stated in the past he contracts for state entities as a software consultant. I would suggest his analysis is self agrandizing.

  4. Submitted by Todd Hintz on 03/26/2014 - 01:08 pm.

    Outsourcing

    This American Life did a great piece on outsourcing government services a few years ago. My favorite segment was a story on Colorado Springs, which outsourced anything and everything, including their street lights.

    After letting the Grand Experiment run for a while the producers went back to ask them just how much money they had saved from the outsource effort. No one could tell them if they had saved anything at all.

    http://www.thisamericanlife.org/radio-archives/episode/459/transcript

  5. Submitted by Karen Sandness on 03/26/2014 - 10:14 pm.

    For seven years, I lived in an Oregon town,

    which although otherwise very conservative, had a municipal power company.

    When I told people in Portland (in the domain of PG&E/Enron) what my monthly electric bill for a spacious two-bedroom apartment with all-electric appliances and electric heat was, they didn’t believe me. In that area’s mild summers, with air conditioning rarely needed, my monthly electric bill was sometimes in the single digits. The Portlanders paid two or three times as much, sometimes for smaller apartments.

    During those seven years, we had ONE power failure. The first year I lived in Portland, it seemed as if the lights went out at least once a month.

    What was the difference?

    We know now that Enron was deliberately price gouging and engineering power failures and brown-outs, all in the interest of making more and more and more money for its top echelon, no matter who got hurt.

    During the notorious blackouts and brownouts in California in 2001, despite the private companies’ claims that the problems were unavoidable, one city was spared the problems. Los Angeles, with its municipal power company, sailed through that summer with nary a flickering light.

    The municipal power companies are required only to break even, not make a profit. Their executives are paid specific salaries, not whatever their boards of directors can be persuaded to vote for.

    By the way, another thing I observed in Oregon was that whenever a member of its strongly libertarian-leaning Republican party proposed privatizing a public service, he or she always just happened to have a friend with a proposal.

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