Privatization of County for savings unrealistic

By Robert Miranda

Imagine waking up one morning to find Milwaukee County government as you knew it gone. After years of reported corruption and mismanagement by the local media, the blue-collar county of southeastern Wisconsin fired almost all of its employees, dismantled the sheriff’s department and contracted with a giant corporation to manage county tasks.

Let’s further imagine that after a referendum, officials announced that Milwaukee County will become the state’s first county to be fully outsourced.

The move is unprecedented.

Spurred by deficits and facing multiple lawsuits, county leaders saw outsourcing as a light at the end of a collapsing fiscal tunnel.

Now, let’s imagine that after a few years of privatization, officials are finding that the corporation they hired to run its services erupted with a pay and pension scandal, forcing several top corporate officials to resign. In fact, the scandal has grown so big, the corporation scrapped its contract with Milwaukee County, leaving the county to fend for itself and find new contractors for its outsourcing.

Is this far-fetched?  Could such a scenario occur?

The search for financial salvation is sweeping the country. The economic recession has strangled budgets, forcing layoffs and the disbanding of departments. Feeling pushed to the brink of bankruptcy, local governments are trying to find effective ways to make do with less.

For County Executive Chris Abele, outsourcing and privatization of government services is seen as the route to go. In theory, the idea of contracting public services to private companies to cut costs makes sense.

If someone is willing to fix streets for less money, that should be a plus for a government’s bottom line. Many state and local governments have identified hundreds of millions of dollars in savings by hiring outside contractors -- or a neighboring city’s services -- to handle government tasks like grass cutting, safety in the court house, etc.

But outsourcing is by no means a perfect solution. Some agencies don’t have the metrics in place to prove in advance that outsourcing a service will save money. Problems from poorly conceived contracts can create cost increases that surpass the costs of in-house services, and if there’s shoddy contract oversight, a government is vulnerable to corruption and profiteering.

The privatization of public services can erode accountability and transparency, and drive governments deeper into debt.

Any government at all levels is just desperate to balance its budgets, grasping at privatization as a panacea. But there are hidden costs and consequences when you turn over public service to a for-profit company.

Privatizing to Save Money and Time

The trend to privatize stems from the common belief that private companies can help governments save or make money by doing jobs faster and cheaper, or managing a public asset more efficiently. But this is wrong.

Let’s look at, for example, when New Jersey Gov. Chris Christie created the state Privatization Task Force to review privatization opportunities within state government and identify barriers. In its research, the task force not only identified estimated annual savings from privatization totaling more than $210 million, but also found several examples of successful efforts in other states. As former mayor of Philadelphia, Pennsylvania Gov. Ed Rendell saved $275 million by privatizing 49 city services. Chicago has privatized more than 40 city services. Since 2005, it has generated more than $3 billion in upfront payments from private-sector leases of city assets.

“Sterile philosophical debates about ‘public versus private’ are often detached from the day-to-day world of public management,” the New Jersey Privatization Task Force reported. “Over the last several decades, in governments at all levels throughout the world, the public sector’s role has increasingly evolved from direct service provider to that of an indirect provider or broker of services; governments are relying far more on networks of public, private and nonprofit organizations to deliver services.”

The report took careful note of another key factor: The states most successful in privatization created a permanent, centralized entity to manage and oversee the operation, from project analysis and vendor selection to contracting and procurement. For governments that forgo due diligence, choose ill-equipped contractors and fail to monitor progress, however, outsourcing deals can turn into costly disasters.

The Effects of Inefficient Outsourcing

No industry has gone through greater outsourcing catastrophes in the past year than government. Last year, Texas cut short its seven-year contract with IBM, an $863 million deal that called for IBM to provide data center and disaster recovery services for 27 state agencies. When an audit criticized the state’s Department of Information Resources for lax oversight, inadequate staffing and sloppy service, the partnership fell apart. In Virginia, the state’s 10-year, $2.3 billion IT contract with Northrop Grumman to run the state’s computers, servers, e-mail systems and help desk services also has been plagued by inadequate planning, and cost overruns.

“The problem is that outsourcing deals are really about risk,” says Adam Strichman, co-founder of Sanda Partners, an outsourcing consultancy. “You’re taking the risk of the unknown and dumping that on your supplier,” he says.  “You’re outsourcing a problem to a company that has limited control over the root cause of the problem.”

The only way for a public-private partnership to work, Strichman suggests, is to drive transformation from within the agency. And that’s the hard part. Red tape usually prevents governments from making significant modifications, and private companies lack the authority to enforce real changes.

Before governments hire outside contractors, it’s important to examine the cost-effectiveness. More times than not, it’s less expensive to use state workers instead of outside contractors.

Private companies may want to provide a service efficiently and well, but ultimately, a company’s motivation is not the common good; it’s profit. If they can cut corners in any way, they often will.

That is why the provider that offers the lowest bid will not be the best option for outsourcing.

Indeed, when price reductions for outsourcing contracts appear unrealistic, there’s no magic. They are unrealistic.

Editors Todd Alan Price; John Duffy and Tania Giordani explore the privatization of public schools in the new book, “Defending Public Education From Corporate Takeover.” Discussed in depth are the topics of the voucher system, corporate takeover with the implementation of charter schools, and other attacks on public schools. Robert Miranda contributed a chapter regarding Milwaukee’s fight against privatization. For more on this book, please visit: http://www.becksbooks.com/rent-buy-sell/book/0761860495-9780761860495

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Last edited by tyler schuster.   Page last modified on January 30, 2013

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