Privatizers' Predicament

States face a Congress increasingly hostile to outsourcing.
September 1, 2007 AT 3:00 AM
By Jonathan Walters  |  Senior Editor
A Senior Editor of Governing, Jonathan has been covering state and local public policy and administration for more than 30 years.

The current state penchant for contracting out social services -- a subject I discuss at length elsewhere in this issue -- is part of a larger privatization question that may turn out to have a profound impact on federal-state relations in a variety of significant program and policy areas.

Sometimes known as the "yellow pages" approach to government, the privatization push at the state level operates on the premise that if the public sector is providing some service that's offered in the phone book by a private company, then that service is a potential candidate for contracting out.

After several years of relatively little congressional interest in this subject, the premise is coming under new scrutiny in a Congress newly controlled by Democrats. That is in no small part because of the string of recent privatization disasters that have befallen a variety of states in areas ranging from child protective services to Temporary Aid for Needy Families.

Language in the recently passed House farm bill, for example, specifically delegates to public employees the job of determining eligibility for food stamps, language clearly designed to preempt any state's inclination to turn that job over to the private sector. Meanwhile, James Oberstar of Minnesota, who chairs the House Transportation Committee, and Peter DeFazio, chairman of the Highway and Transit Subcommittee, sent a letter to state officials expressing serious concerns about public-private partnerships in the whole area of transportation. The letter specifically addresses recent state actions that have turned publicly built and managed toll roads over to private companies. Such partnerships, Oberstar and DeFazio wrote, run the risk of giving too much control to the private sector at the expense of the public.

The chairmen weren't shy about how they expressed their concern. "The Committee," their letter vowed, "will work to undo any state PPP agreements that do not fully protect the public interest."

The letter caused enough alarm among state officials that the National Governors Association took the unusual step of issuing a response, arguing that "Congress must work with states to advance our national transportation needs in a way that respects federalism and the states' role as the primary steward of our national transportation network."

That modest expression of concern wasn't enough for Republican governors Mitch Daniels of Indiana and Rick Perry, perhaps the two most aggressive privatizers of government projects and services anywhere in the country. Daniels dismissed the Oberstar and DeFazio letter as "congressional posturing." Perry asked the chairmen to "examine the fundamental question of why the states are looking to engage the private sector in the first place. I will tell you that the answer in Texas is that we could no longer wait for anyone else to solve our problems." That was the reason, Perry said, that his state had led the push to privatize a vast portion of social services administration.

Despite that kind of pushback, it won't be at all surprising if language expressing concerns about privatization (or preempting the practice outright) begins to appear in more congressional legislation involving federal grants. Both organized labor and human service advocates have decided that outsourcing is public enemy No. 1. They have a receptive audience in the Democratic House and Senate majorities.

In fact, though, the NGA letter and the Daniels-Perry offensive raise legitimate concerns, ones that go well beyond the transportation realm. Without the flexibility to try new ways of building major infrastructure projects or delivering complicated social services, states may find themselves stuck in past practices that no longer serve the public efficiently.

But if states want the right to use federal money to continue experimenting -- on privatization or any new strategy for doing the public's business -- then it's crucial that those experiments produce some tangible successes that can be demonstrated to the public. Otherwise, at least as long as the Democrats control Congress, there will be increased scrutiny in all program areas where states want to let their fingers do the walking and let the private sector do the work.