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Morning Feature – State Changes, Part II: Who Gets Paid?

January 20, 2012

Morning Feature

Morning Feature – State Changes, Part II: Who Gets Paid?

Conservative state government isn’t only about who pays taxes. It’s also about who those taxes pay. Specifically, private business owners. (More)

State Changes, Part II: Who Gets Paid?

This week Morning Feature looks at state and local government. Yesterday we examined the regressive nature of state and local taxes, and a proposal to make Florida taxes even more regressive. Today we see how state and local taxes increasingly go to private contractors who operate schools, prisons, and other formerly-public agencies. Tomorrow we’ll conclude with how these state and local efforts are part of a coordinated, nationwide plan.

The Google Test

If you can find a good service on the Internet, then the federal government probably doesn’t need to be doing it,” former Minnesota Governor Tim Pawlenty argued back in June.

A Republican presidential hopeful at the time, Pawlenty had only slightly updated a long-standing theme from the right. A 2009 report by Pennsylvania’s Commonwealth Foundation and the Cato Institute’s Reason Foundation called it the “Yellow Pages Test,” as did Indianapolis Mayor Steven Goldsmith in the 1990s. The theory is simple. Private businesses must compete for customers, so they must offer a better product or service at an equal or lesser price. Government, by contrast, does not face competition and thus will provide inferior products and services at greater cost to taxpayers. Thus, if a private business already provides or can provide the product or service, government should hire the private business to do it.

Note: We discussed privatization at length last March, with a two-part debate in Evening Focus, a HEMMED In column on privatizing public libraries, a three-part series in Morning Feature, and an Evening Focus summarizing the issues and progressive responses.

Attractive stories … and facts

The Private Business Must Compete So They Do It Better And Cheaper narrative is a coherent story of cause and effect. And as we saw in December, most of us find those kinds of stories very attractive, and we tend to accept them without asking for evidence. And that’s a problem … because many coherent and attractive stories of cause and effect are false.

For example, earlier this month Republican presidential candidate Mitt Romney criticized federal social welfare programs, saying “You have massive overhead, with government bureaucrats in Washington administering all these programs, [with] very little of the money that’s actually needed by those that really need help, those that can’t care for themselves, actually reaches them.” That story feels like it should be true. Federal, state, and local governments combined employ over half of the U.S. work force. We spend lots of money on social welfare programs, yet we still have poverty. Obviously, the answer is that most of those tax dollars disappear in government overhead, and government should get out of the way and let more efficient private charities take care of the needy.

But the Center for Budget and Policy Priorities fact-checked Romney’s story and found that 91-99% of total federal spending on these programs reaches beneficiaries in the form of benefits or services, as does 90-99% of combined federal and state spending for these programs. By comparison, the Charity Navigator found that only seven of ten charities “spend at least 75% of their budget on the programs and services they exist to provide.” That is, the government’s overhead is far less than most private charities.

That’s not as surprising as it seems to conservative ideologues, because competition is only one part of the picture. There are also economies of scale, where government programs can and often do make up the difference … and then some.

Florida’s rush to privatize:

And yet the Florida Legislature are considering Senate Bill 7170, titled Outsourcing or Privatizing of Agency Functions:

Providing that certain information relating to the outsourcing or privatization of an agency function that is expressly required by law is not required to be included in the agency’s legislative budget request until after the contract for such functions is executed; providing that procurements for outsourcing or privatizing agency functions that are expressly required by law are exempt from the requirement that they be evaluated for feasibility, cost-effectiveness, and efficiency, etc.

Translated from Legislativese, this bill would allow agencies to sign contracts for outsourcing or privatizing services before submitting their funding requests, and without conducting feasibility, cost-effectiveness, or efficiency studies. As Tampa Bay Online reported, this would allow privatization to be done in secret.

The bill responds to a court decision that blocked a prison privatization plan because it was buried in the annual budget rather than debated independently. One of the bill’s supporters, Republican state senator JD Alexander, says agencies would still have to show that privatization would save money. When asked how that could happen in secret, without evaluations for feasibility, cost-effectiveness, or efficiency, he replied: “I didn’t draft the bill. I haven’t looked at all the language.”

But the bill would also make it easier to privatize schools, and if a county school board doesn’t jump on the privatization bandwagon, the Parent Empowerment Act would encourage and allow parents to force the issue:

And if that doesn’t get enough taxpayer money into private education coffers, the proposed Amendment 7 – the Florida Religious Freedom Amendment – would replace this language in the Florida Constitution …

No revenue of the state or any political subdivision or agency thereof shall ever be taken from the public treasury directly or indirectly in aid of any church, sect, or religious denomination or in aid of any sectarian institution.

… with this:

No individual or entity may be discriminated against or barred from receiving funding on the basis of religious identity or belief.

That would enable religious schools to get taxpayer funds.

More attractive stories … and facts….

Again, the stated rationale is “giving parents more choices” on the theory that competition will increase school quality. If parents can choose the schools that offer the best education, the story goes, all schools will try to offer better education. It’s another attractive, coherent story of cause-and-effect.

Except for the part about facts. A 2006 study by the National Center for the Study of Privatization in Education focusing on mathematics scores among public and private school students found:

Without controlling for student background differences, private schools scored higher than noncharter public schools, as would be expected. However, this study examines these patterns further, determining whether they are due simply to the fact that higher proportions of disadvantaged students are enrolled in public schools, and the extent to which the gaps persist after controlling for potential student- and school-level confounding variables, including measures of socioeconomic status, race/ethnicity, gender, disability, limited English proficiency, and school location. Overall, the study demonstrates that demographic differences between students in public and private schools more than account for the relatively high raw scores of private schools. Indeed, after controlling for these differences, the presumably advantageous “private school effect” disappears, and even reverses in most cases.

The study focused on mathematics because “math is more heavily influenced by school than home experiences, so studying math achievement provides clearer insights into the relative performance of different types of schools.” And what they found is … private schools are no better. But private schools are very lucrative for investors, as the Miami Herald reported:

But while charter schools have grown into a $400-million-a-year business in South Florida, receiving about $6,000 in taxpayer dollars for every student enrolled, they continue to operate with little public oversight. Even when charter schools have been caught violating state laws, school districts have few tools to demand compliance.

Charter schools have become a parallel school system unto themselves, a system controlled largely by for-profit management companies and private landlords – one and the same, in many cases – and rife with insider deals and potential conflicts of interest.

Maybe that’s why the Florida Legislature wants to enable privatization in secret. When there’s money to be made, who needs facts?


Happy Friday!

  • winterbanyan

    Great article. This explains very clearly the problem with privatization, leaving out only the cost of “for profit.” For profit has nearly killed our healthcare system. I can’t think of a worse place to privatize than in the schools.

    At a bare minimum, we need to realize that nothing can be done “for profit” more cheaply than it can be done for no profit. There’s a jarring gap right there.

    And if private contractors are free of oversight, and free to claim savings without proving them, we will be in serious trouble indeed across the board.

    The numbers on government “overhead” versus charitable overhead ought to make us all stand up and take notice.

    • NCrissieB

      Ironically, Dan Pollatta argued in the Harvard Business Review that the overhead percentage is The Worst Question to Ask About Charity:

      In 2002 the Better Business Bureau Wise Giving Alliance commissioned a study that asked respondents what information they wanted when considering donating to a charity. Seventy-nine percent wanted to know what percentage of their donation went to charitable programs. Remarkably, only 6% wanted to know if the donation would make a difference. How can that be, you ask? Well, the media, the watchdogs, and the sector itself have done an amazing job of training the public to think that the two things are the same, i.e., that if a charity has low overhead, it must be making a difference. Major studies on the relationship between organizational strength and impact find otherwise.

      In a followup article, Pollatta offers an example:

      Letʼs get unhypothetical. In 1995, Physicians for Human Rights had revenues of approximately $1.3 million. They spent approximately $750,000, or 58 percent of revenues, on programs. Today that organization would fail all of the watchdog standards for “efficiency.” It would be ineligible for a BBB Wise Giving Alliance seal of approval. The Nobel Peace Prize committee felt differently. Physicians for Human Rights won the Nobel Prize in 1997 for its work as a founding member of the International Campaign to Ban Landmines.

      The important question to ask, Pollatta argues, is the per-dollar impact in helping people. As it happens, the U.S. government adopted that metric in 2009 … but many charities still have not.

      Good morning! ::hugggggs::

      • winterbanyan

        I agree that’s the important question to ask. 🙂 There are charitable organizations that by their very nature will have higher overhead, so the question is indeed one of impact.

        But the point is still well-taken. The government has a huge impact with comparatively low overhead. And when you start talking privatization I start seeing those high CEO salaries….

  • addisnana

    Private businesses must compete for customers, so they must offer a better product or service at an equal or lesser price.

    Whether the competition in privatized services is for students (schools and universities) or patients (health care and pharma) the one thing that the conservative argument neglects to mention is the costs of advertising to get those customers. Those dollars are not going to direct benefits to the consumer either.

    Most casual TV watchers can relate to this part of the privatization business model. Ads for schools, universities, doctors, hospitals and tons of drugs litter the screen. How can privatization be cheaper when they are spending gobs of money advertising?

    Ourbodiesourselves dissects these costs in terms of Direct to Consumer drug ads which were allowed by the FDA starting in 1997. Want to know why prescription drugs are so expensive in the US?

    I googled “healthcare + advertising dollars.” There is a whole industry devoted to this. The costs associated with getting consumers is not mentioned by people like Pawlenty and others who just mention the “Yellow Pages.”

    • winterbanyan

      Excellent point, addisnana. Advertising alone would kill a lot of the supposed “savings” from privatization. And one of the things I find interesting is that you don’t even need competition to need advertising. Phama is a great example. They come out with a new drug, have the only one on the market, and they still spend countless millions trying to persuade people to “talk to their doctors” about it.

      Why would it be different for schools, foodstamps or anything else?

    • NCrissieB

      Advertising and marketing costs are another reason “more choices” does not always translate to “better product or service at equal or lesser price.” There is also what behavioral economist Barry Schwartz calls The Paradox of Choice, where having too many options can lead to poorer decisions and less satisfaction. In fact, studies show that substandard providers benefit when there are too many choices, as people get confused and are less likely to make choices that maximize their stated interests.

      In other words … the “more choices” mantra makes sense for mythical Econs, but it doesn’t fit how Humans behave in Realworldia.

      Good morning! ::hugggggs::

  • Gardener

    The next logical question for JD Alexander would be, “If you didn’t write it, who did?”

    This whole “Privatization Is Good” meme is a new religion for the RW nuts. They’re true believers! The goal is to get more government money flowing into private hands, so they can employ low-wage, non-union workers, AND make a fat profit. Remember too, government doesn’t need a profit margin, private corporations do…..

    • NCrissieB

      There are many ideological reasons behind the conservative push for privatization. It’s partly about getting rid of the union employees who often staff government programs. It’s partly about giving wealthy people – rather than We the People – more control over how those programs are run. And it’s partly that they see government providing lots of goods and services … from which investors can’t get a percentage of the action.

      Good morning! ::hugggggs::

  • trs

    The problem is that Federal-run programs don’t put money in the campaign coffers of Republicans. That’s what it comes down to.

    • NCrissieB

      That’s definitely a part of it, trs. There are also other privilege-based issues, as I noted in reply to Gardener above.

      One issue that I left out of that list, but that is very relevant in education and some social welfare programs, is the role of religion in government. The decades-long push for taxpayer funding of religious schools is, in part, a response to Supreme Court decisions of the 1960s and later that ended mandatory prayers and similar religious observances in public schools. Many Christians believe they have a God-given right and a divine duty to enforce their religion on others … and see any government rule that prevents that as “persecution.”

      Good morning! ::hugggggs::

      • trs

        I know that argument well. When I worked at the college, they rented out the theatre for a couple years at Easter to a church. I thought that was wrong, and told the administration so. They said, “just do your job.” I did, but also let it be known that as an atheist, I thought it was wrong that I was required by them to run the theatre for a religious group. I treated it like a concert of music I don’t like – listen for balance and block out everything else.