POLITICAL

posted : Jan 22, 2016

Privatized government: a trillion-dollar industry funded by federal, state and local governments to provide services governments either can’t or don’t want to provide.

Call for privatized government carries its own problems. Former City Manager Marie Garrett warned last year that she has long been suspicious of some vendor contracts. She told the City Council she has seen vendors charge as much as double for services that a fully-vested city employee would cost to perform the same job.

 By: the Investgative Reporters of Georgia weekly Post.

 

If you live in Johns Creek, Sandy Springs, Dunwoody or Brookhaven, chances are that guy fixing the pothole on your street is not a city worker but a private contractor the city has hired to staff its public works department.

The same is likely true of the man or woman sent to inspect your house for a building permit or a property assessment.

These people are part of a trillion-dollar industry funded by federal, state and local governments to provide services governments either can’t or don’t want to provide. 

Long before the computer meltdown at healthcare.org two years ago, governments in the United States had been placing their trust in private contractors.

 

▲ Georgia was the second state, behind Virginia, to consolidate and privatize most of its IT operations. The action, which occurred in 2008 under Gov. Sonny Perdue, consolidated 11 agencies with a combined annual budget of $617 million into one operation that was outsourced to AT&T and IBM for $873 million over eight years. In all 1,100 state workers were effected. About 500 were absorbed into the outsourced operation, some retired, but about 200 were laid off.

 

The trend to “trim down” government with the notion that the private sector could do the same work more efficiently and at less cost began in earnest at the federal level during the Reagan years and has trickled down to state and local governments. But the practice has been losing its luster in the wake of recent embarrassments, such as the monumental security breach perpetrated by Edward Snowden, an employee of NSA contractor Booz Allen Hamilton.

▲The outsourcing practice has been losing its luster in the wake of recent embarrassments, such as the monumental security breach perpetrated by Edward Snowden, an employee of NSA contractor Booz Allen Hamilton.

 One of the major reasons for outsourcing at the federal level is the caps placed by Congress on the number of government employees and the salaries they can make. Because of the salary caps especially, much of the scientific and technical brainpower is outsourced to private firms who can hire the best minds.

According to the Federal Procurement Reports, the U.S. Government spends a little over $400 billion a year on outsourcing, most of it on defense. That’s about twice the amount spent on contracts 15 years ago, although the amount has declined in recent years.

States have gotten into the act also. 

 

The Center for Media and Democracy estimates that $1 trillion of the $6 trillion spent annually by federal, state and local governments goes to private contractors.

Georgia was the second state, behind Virginia, to consolidate and privatize most of its IT operations. The action, which occurred in 2008 under Gov. Sonny Perdue, consolidated 11 agencies with a combined annual budget of $617 million into one operation that was outsourced to AT&T and IBM for $873 million over eight years. In all 1,100 state workers were effected. About 500 were absorbed into the outsourced operation, some retired, but about 200 were laid off.

Several states have followed suit and so have many counties and cities.

Even so, the idea has had its share of problems, most notably in Virginia, where the state delayed payment of millions of dollars to contractor Northrup-Grumman for sub-standard performance and cost overruns associated with its 10-year, $2.3 billion IT contract. 

There are other horror stories.

 

One of the worst happened in Chicago, where city officials in 2008 signed a 75-year lease for the rights to collect parking meters to a group headed by Morgan Stanley. The private group paid the city $1.2 billion. Immediately, the new management team quadrupled parking rates. Some of the meters didn’t even work properly.

But the city was helpless to intercede.

Not only that, the meter contract prohibits the city from interfering with the private group’s ability to make a profit. So municipal actions, like building parking decks, are not allowed. 

Auditors with the city later determined the $1.2 billion the city received for the contract was almost half what the meters could have generated in local coffers. 

Back in Georgia, a number of the newer cities incorporated over the past 10 years used outsourcing to get established.

Sandy Springs, the first of metro Atlanta’s new cities, employed the services of CH2M Hill (now just CH2M), an engineering and consulting company, to set up and administer the agencies.

Based in Colorado, CH2M has annual revenues of $5.8 billion and employs about 26,000.

With the successful launch of Sandy Springs in 2005, other metro cities sprang up, and most relied on CH2M to set the table. 

Some, like Johns Creek, still do.

Although the company’s administrative footprint is less than what it once was, CH2M still receives about 18 percent of the city’s $53 million budget. Whereas it once blanketed operations at City Hall, it now specializes in public works and community development. Most other government departments, with the exception of municipal court, are composed of city employees. While the court clerk and staff work for the city, the solicitor, city attorney and probation services are outsourced.

 

▲Former City Manager Marie Garrett warned last year that she has long been suspicious of some vendor contracts. She told the City Council she has seen vendors charge as much as double for services that a fully-vested city employee would cost to perform the same job.

 

Milton, another young city in north Fulton County, also used CH2M for its initial administrative tasks when the city incorporated in 2006. At one point early on, the company was receiving more than $7 million annually for its services, almost half the city’s budget. That figure fell gradually, and the city severed all ties to CH2M in 2011, saving an estimated $2 million over the following two years, city officials said.

 

Sandy Springs followed suit the same year, opting to break down and farm out its administrative functions to private firms of its own choosing, who successfully outbid CH2M. City officials said the move would save the city close to $5 million in expenses. Nevertheless, Sandy Springs, a city of 100,000, continues to garner international attention for its use of private firms to perform most municipal services. Outside the police department, the city of 100,000 has seven full-time employees. The rest all work for contractors.

 

Dunwoody, founded in 2007, was also established with a mind to privatize most government services. However, rather than hire one company, the city took bids from various firms for an array of services. 

Today, all but two of Dunwoody’s department heads are city employees, with support staff hired as private contractors. The city’s communications and IT departments are the only operations completely outsourced.

The chief judge and four deputy judges are appointed by the mayor and City Council and are city employees. The city attorney and solicitor are privately contracted. 

In the spirit of public-private partnership, Dunwoody also launched a redevelopment initiative in 2012 establishing a partnership to develop 35 acres in its Georgetown area. The plan called for the city to add parks, open spaces, multi-use trails and a municipal complex on about 17 acres.

The plan has drawn critics who charge the city has committed tax dollars to enhance an area primarily operated by a for-profit, private developer, John Wieland Homes.

 

▲ CH2M paid a $19 million settlement with the government for gouging taxpayers for its work at the Hanford Nuclear Reactor site by falsifying timecards. It paid another $1.5 million to settle charges that two of its employees had directed tax dollars to companies operated by their spouses.

 

Six years after it incorporated, Dunwoody government remains small. Outside of its 64 police positions, the government has nine full-time employees, primarily occupying department head posts. It has a city administrator and assistant, a city clerk, city attorney, public works director and four people employed in the city court system.

By contrast, Brookhaven, which incorporated in 2012 and has about the same population as Dunwoody, has moved away from relying so heavily on private contractors. It now has about three dozen city employees. Most recently, the city brought on its own accountant and human resources director.

 

When it was founded, Brookhaven followed the same tack as other new cities by adopting a plan to outsource most of its services. One of its first actions was to partner with InterDev, an Alpharetta-based security IT company, to help equip its new police force with the latest communications equipment. 

But the young city has had second thoughts about contracting out city services and has worked slowly to bring more positions in-house.

Former City Manager Marie Garrett warned last year that she has long been suspicious of some vendor contracts. She told the City Council she has seen vendors charge as much as double for services that a fully-vested city employee would cost to perform the same job.

Garrett has managed to appoint city employees as department heads to oversee most vendor contracts. Nevertheless, she said, some of the contracts are not as transparent as she would like. Some contractors, she added, have flatly refused to provide some detailed information about profit margins. Those vendors have not had their contracts renewed.

Brookhaven’s 2016 budget calls for fewer privatized services and more city employees, including adding four IT positions at an estimated savings of $45,000 a year. The city is also considering adding 21 part-time seasonal employees to take over management of municipal 

 

While conservative think tanks, such as the Reason Foundation, espouse the virtues of privatized government, pointing out cost-savings and greater control over hiring and firing, the practice is not without its detractors.

To be sure, federal, state and local governments have racked up hundreds of millions of dollars in savings by contracting private firms to handle many municipal operations.

 

However, some advocacy groups are calling for more stringent standards for private contracts. They argue private contractors are motivated by profit, not public service. As such, private contractors can be less responsive to citizen complaints and laws regarding government operations. 

 

Kansas Gov. Sam Brownback dismantled the branch of the Department of Children and Families dealing with child support services, opting to contract out the work.

 

Private contractors have run into trouble with open records laws, a subject most public servants are familiar with.

One private contractor hired to videotape city meetings in Truth or Consequences, N.M. in 2011 claimed the tapes were not public records. A state appeals court set the company straight.

 

In 2013, a Central, La., newspaper had to file suit against CH2M for public records because the company was, in essence, acting as the city government. The case was eventually settled with the contractor turning over the documents.

And that’s not all.

In 2011, the same company, CH2M paid a $19 million settlement with the government for gouging taxpayers for its work at the Hanford Nuclear Reactor site by falsifying timecards. It paid another $1.5 million to settle charges that two of its employees had directed tax dollars to companies operated by their spouses.

 

Wisconsin Gov. Scott Walker pushed through legislation to privatize the Department of Commerce’s economic development operation.

 

Aside from internal corruption within contracting companies, the Center for Media and Democracy has chronicled a litany of cases where governors have privatized whole departments and awarded the contracts as possible political or personal payback.

Here are just a couple:

--Kansas Gov. Sam Brownback dismantled the branch of the Department of Children and Families dealing with child support services, opting to contract out the work. The big winner was YoungWilliams, which received two-thirds of the caseload, worth about $50 million. When Brownback was running for governor in 2010, Rob Wells, CEO of YoungWilliams and his wife each contributed $2,000 to Brownback’s campaign, the most allowed by law. Brownback also appointed Trish Thomas from YoungWilliams as director of child support enforcement after firing her predecessor.

-- Immediately after taking office, Wisconsin Gov. Scott Walker pushed through legislation to privatize the Department of Commerce’s economic development operation. The quasi-public agency, run by a 15-member board chaired by Walker, is responsible for the awarding of millions of dollars in grants, tax credits and loans. Its stated goal was the creation or retention of 50,000 jobs in 2011. After two years and some $205 million in grants, loans and bonding authority, a Department of Commerce audit credited the agency with the creation of 5,840 jobs. 

 

The Wisconsin State Journal newspaper tracked one loan for $6 million to a furniture store with a provision not requiring the company to create any new jobs. Instead, the action granted the company permission to lay off half its 3,800 employees in exchange for an enterprise zone tax credit. Not long after the loan was signed, executives from the furniture company contributed  $20,000 to Walker’s campaign. 

 

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