Privatizing: Is it really the way to go?


Snowplowing is one place the city is looking for savings by contracting service to private companies. - COURTESY CITY OF COLORADO SPRINGS
  • Courtesy city of Colorado Springs
  • Snowplowing is one place the city is looking for savings by contracting service to private companies.

Placing city services in the hands of contractors isn't always the deal it's cracked up to be.

That's the finding in a new study by Daphne Greenwood, professor of economics and director of the Colorado Center for Policy Studies at the University of Colorado at Colorado Springs.

Released today, the 43-page study explores the extent of social and economic impacts from outsourcing public services, including reduced accountability and transparency. In addition, quality often suffers, the study found.

From a news release about the study:
The study found that contracting with private corporations generally reduces worker wages and benefits, which leads to a host of negative effects for the community at large:

• Reduced spending in local communities and declining retail sales

• Risks to public health and safety with less experienced employees and more bureaucracy

• Fewer opportunities for middle-class jobs and upward mobility

• Higher wage gaps between men and women and blacks and whites

• More workers and retirees on public assistance, especially in female-headed households

• Larger share of “at risk” children in low-income families

To help leaders assess the full impacts of outsourcing decisions on their own communities, the report includes a guide for calculating the social and economic consequences to a state or community. Examples of statutes that address broader economic and social issues are included.
”There is a wealth of evidence that outsourcing public jobs often diminishes quality without substantial cost reduction," Greenwood says in the release. "Unfortunately, few states and cities have a serious oversight process to let citizens evaluate what is happening. Elected officials often talk about wanting to boost the economy and create opportunity. But many don’t realize how the decisions they control can contribute to the problem... or be part of the solution.”

The study was funded by the Jobs with Justice Education Fund, Washington, D.C. and is available here:
See related PDF Greenwood_study.pdf
It's worth noting that one source cited in the study is the Independent's story ("Cold Comfort," Jan. 22, 2014) about the city's efforts to outsource snow plowing.

From the study:
Governments across the country are exploring more outsourcing based on long‐term pension obligations. Getting out of pension obligations is the reason city officials in Colorado Springs give for contracting out many services this year. Following a one year experiment in contracted snowplowing where audited costs were 489% higher than in areas the city plowed, the mayor’s office plans to expand the experiment and make it longer
term to get “enough data to analyze it.” All this, for some savings on pensions?
Greenwood goes on to note there's a cost to everyone for slashing pensions:
State and local governments need to keep the big picture in mind. Terminating or sharply reducing worker pensions will have a whole series of negative effects on local economies, well‐being and the sustainability of existing pension funds. The short‐term effects of eliminating or reducing pensions may appear quite small, since many workers will not be immediately affected. But the movement away from traditional ‘defined benefit’ pensions has already put more senior citizens at risk. 16.4% of older households without a defined benefit pension received food stamps, rent subsidies, energy assistance or supplemental social security (SSI), averaging $6,494 per household. This was over triple the rate (4.7%) of cash transfers for older households with a defined benefit pension.

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