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April 22, 2014 > 2014 sees Major Momentum to Curb Reckless Outsourcing

2014 sees Major Momentum to Curb Reckless Outsourcing

Submitted By Richard Allen Smith

Bills promoting responsible contracting are now the law of the land in three states, and saw significant advancement in several others during 2014 state legislative sessions. In recent weeks, governors in Maryland, Nebraska and Oregon have signed laws that help reign in reckless outsourcing of public services to for-profit corporations, while proposals cleared key chambers in California, Iowa and Washington.Ê

ÒLawmakers are finally listening to taxpayers, who are fed up with handing over control of their schools, water and prisons over to for-profit companies,Ó said Donald Cohen Executive Director of In the Public Interest Action Fund. ÒWe look forward to this major momentum continuing as more state and local governments enact tough measures that promote accountability, transparency, shared prosperity and competition.Ó

So far, responsible contracting bills have been signed into law in three states:

* Maryland Governor Martin O'Malley signed SB 669, which protects taxpayers by prohibiting private contractors who have broken the law from holding contracts with the state.
* Oregon Governor John Kitzhaber signed HB 4122, which strengthens oversight of Information Technology contracts in the wake of the Beaver State's disastrous experience without outsourcing development of its health care website to Oracle.
* Nebraska Governor Heineman signed LB 371, whichÊrequires the Nebraska Department of Administrative Services to create and make public an annual report detailing the number and value of contracts awarded by the state to domestic and foreign contractors.

In addition to these new laws, there was significant movement toward responsible contracting in several other states:

* The California Assembly passed HR 29, a resolution that, among other things, calls for a ban on contractor language that guarantees corporate profits at taxpayer expense and demands that private entities that run public services open their books and meetings to taxpayers just as the government must. Though the resolution is non-binding, it represents a significant step in the largest state in the country toward restoring taxpayer control over public services.
* In Iowa, the state senate passed SF 2235, which would give Iowa taxpayers more power to cancel contracts if for-profit corporations fail to meet performance standards.ÊIt would also require companies that are paid with tax dollars to provide a public service to maintain open records just as public agencies do. Unfortunately, the Iowa house did not support the taxpayer protections in SF 2235.
* In Washington, the state house passed HB 2743, the Washington Taxpayer Protection Act, a proposal that would require a demonstrated cost savings of 10 percent before a service can be outsourced and ban contractors from using taxpayer resources for public gain. The proposal also requires private entities that perform public services and are paid by taxpayers to open their books, just as public agencies do. Unfortunately the Washington senate refused to move forward with the Washington Taxpayer Protection Act.
* After a public uproar, the Arizona state senate was forced to strip the state budget of a $900,000 corporate earmark dedicated to private prison giant GEO Group. The earmark was snuck into the budget by Arizona Rep. John Kavanagh, who has received significant contributions from GEO Group and who defended the giveaway by saying the private prison giant Òwant[s] to get more money.Ó

In all, at least 18 states introduced legislation to curb reckless outsourcing in 2014. The trend comes amid increased nationwide scrutiny of outsourcing deals, many of which have had disastrous unintended consequences for taxpayers. For example, in 2009 Chicago signed a 75-year contract with a consortium of companies backed by Wall Street giant Morgan Stanley for the operation of the cityÕs 36,000 parking meters. Though Chicago got $1.2 billion in the deal, Chicago drivers will pay the private companies at least $11.6 billion to park at meters over the life of the contract. Meanwhile, upon signing the contract, the company dramatically increased parking rates to $7 for two hours of parking in some parts of the city, and extended paid parking to seven days a week. Downtown businesses blamed the price increases for a decrease in economic activity. Residents complained that parking downtown was cost prohibitive. And taxpayers must reimburse the company whenever the city needs to temporarily close its streets, even for community parades and street fairs.

Across the country, cash strapped state and local governments have handed over control of critical public services and assets to private entities that often operate them slower, costlier and worse. Too often, these ÒdealsÓ leave behind only broken promises and undermine transparency, accountability, shared prosperity and competition. ITPI documented several of these broken promises in its recent report, ÒOut of Control: The Coast to Coast Failures of Outsourcing Public Services to For-Profit Corporations.Ó


In the Public Interest is a comprehensive resource center on privatization and responsible contracting.Êwww.inthepublicinterest.org

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