Privatization

January 31st, 2013
   
 
Privatization – the sale of public assets or services – has been a go-to approach in the current budget period. The expansion of charter schools and vouchers, privatization of ancillary services on college campuses, sale of prisons, outsourcing of prison management, sale of the state wholesale liquor profits for the privatized economic development agency, JobsOhio – these are all forms of privatization or even of privateering, a term coined by George Lakoff to describe using public funds to allow private companies to take over critical functions of government.[12] The private companies will make a profit from the delivery of their services.

Bids of private firms may look cost-effective up front, but troubles from loopholes or contractual obligations can emerge over time. For example, Chicago faces a lawsuit from its parking contractor over permits granted for new parking facilities.[13] Indiana got a $400,000 bill when residents were allowed to flee rising floodwaters without pausing to pay the toll on the privatized turnpike.[14] Services may turn out to be poor – as in Indiana, where privatized public assistance contractors had to be booted. And it may be hard to attribute technical problems to the contractor – in Texas, oversight of development of an ultimately defective information system was obscured by contractual stipulations.[15] The Government Finance Officers Association estimates that hidden and indirect costs can add up to 25 percent to the contract price; a 2007 survey by the International City/County Management Association found that 52 percent of governments that brought services back in-house reported that the primary reason was insufficient cost savings.[16]

Transparency and accountability are also key issues when public services are privatized. For instance, JobsOhio, the state’s new economic development entity, is not subject to the same transparency standards as the agency it has replaced. Accountability problems are illustrated by the difficulties of the Ohio Department of Rehabilitation and Correction in correctly tabulating cost savings of privatized prison operations over time. Policy Matters Ohio found the state’s calculations over the past decade were not only riddled with errors, oversights and omissions of significant data, but also were tainted by controversial accounting assumptions that many experts considered deeply flawed.[17]

Public opposition to the privatization of the Ohio Turnpike has caused Gov. Kasich to back off and opt instead for a plan to issue bonds based on future toll revenue to pay for road projects now. However, as much as Ohio needs more funds to support its transportation infrastructure, it needs a more permanent solution, not just a one-time infusion of funds. 

Other one-time infusions from privatization are likely to be part of the state budget, such as the renewed attempt to lease the state’s wholesale liquor operation. Raising funds this way exposes the state budget to long-term risk. It may create an immediate windfall, but it often reduces an income source for the state, makes it difficult for the state to control costs, and cloaks the delivery of public services in secrecy. It is not a sustainable way to fund services.  What is needed is comprehensive fair, adequate and sustainable tax policy. 

 
Other sections:
Executive summary
Introduction
Budget baseline
Local government
K-12 education
Higher education
Health and human services
Workforce and training
Tax policy
Summary and recommendations


[12] Lakoff, George, “The Political Mind: Why You Can’t Understand 21st Century Politics with an 18th Century Brain,” Penguin Books, 2008. Page 133.

[13] Dan Milhalopolos & Chris Fusco, “Chicago faces $200 million claim over Aqua parking garage,” Chicago Sun Times, April 16, 2012 at http://bit.ly/Wz4eub.

[14] U.S. Public Interest Research Group, “Private roads, public costs: The facts about privatization,” http://bit.ly/TRK1Ey.

[15] In the Public Interest, “Debunking Privatization Myths” at http://www.inthepublicinterest.org/node/457.

[16] Ibid.

[17] Paynter, Bob, “Cells for Sale: Understanding Prison Costs and Savings,” Policy Matters Ohio, April 2011 at www.policymattersohio.org/cells-for-sale-understanding-prison-costs-savings.