The Privatization Backlash

But when the goals are fuzzier or competition is lacking, the picture gets cloudier. Is the purpose of municipal parking meters to maximize revenue, or is it to provide a low-cost amenity to citizens and the businesses they patronize? How do you value the various objectives of a prison system—justice, rehabilitation, social order—when the financial incentive is to lock more people up? In many cases, Donahue said, privatization and contracting save governments money not through increased efficiency but by undercutting public-sector wages and pensions or, as in the case of the parking meters, by effectively robbing the future to pay for the needs of the present. (By mid-2011, the city had spent all but $125 million of the $1.2 billion parking-meter payment.)

These are the kinds of questions policymakers are demanding answers to as they evaluate government contracts with an eye to getting the most bang for the taxpayer's buck. In Oregon, the legislature this month approved by overwhelming margins a bill tightening oversight of information-technology projects. It was an easy sell in the wake of the failure of the state's healthcare-exchange website, which was such a disaster it made Healthcare.gov look successful by comparison. To this day, Cover Oregon's website cannot accept online applications, forcing Oregonians to use paper applications or go through an insurance agent instead.

The new legislation will require third-party reviews of the quality of IT contractors' work. One of its sponsors, Representative Nancy Nathanson, a Democrat from Eugene, believes such a requirement might have prevented the exchange debacle had it been in place while the site was being developed. "I think it's important when you're spending public money, whoever is doing the work needs to have their books open," she told me. "We need to see how the money is spent. We need to see performance measures to determine whether something is working. We need accountability." In the next legislature, Nathanson plans to continue her push on contracting issues, she said.

Most of the privatization skeptics are Democrats, who tend to be sympathetic to the labor unions fighting to save public-sector jobs. (In the Public Interest is partly funded by unions, though Cohen said it has other funding sources, mainly foundations, and operates independently.) When California Governor Jerry Brown proposed, in his latest budget plan, to "reduce [the state's] reliance on contractors" by bringing formerly outsourced functions back in-house, critics largely saw the move as a sop to labor.

But some Republicans have also turned against privatization out of a desire for fiscal responsibility. In Ohio, Republican Governor John Kasich recently abandoned his push to lease the Ohio Turnpike to a private operator, deciding instead to have the state issue bonds backed by future toll revenue. The decision may have been influenced by the experience of nearby Indiana, which leased a 157-mile state road to an Australian-Spanish consortium and drew public criticism when toll rates doubled in five years. As with the Chicago meters, the government quickly spent most of its lump-sum payment and now faces decades bound by a restrictive contract that gives it little control over a major roadway.

"Privatization has potential rewards, but a lot of it is really just about shifting money around for political reasons," said Phineas Baxandall, a senior analyst at the U.S. Public Interest Research Group and author of a report on toll roads called Private Roads, Public Costs. "There are a lot of dangers in terms of loss of control over public policy, not getting enough revenue for these assets, as well as a lack of transparency."

Many of the ideological proponents of privatization are libertarian conservatives who believe tasks like operating roads and schools are better performed by the private sector. But in Texas, one of the most prominent activists against private toll roads is a San Antonio Tea Party activist named Terri Hall. She has started a petition to change the city charter to require that any toll project be put to a vote, and she blogs relentlessly on toll-related issues. "If there's anything Texans hate, it's big government and cronyism, and toll roads deliver both," she wrote recently.

A worry about handing over American public assets to foreign companies also crosses partisan lines. Last month, the Republican-dominated Nebraska legislature passed, and Republican Governor Dave Heineman signed, a bill to increase transparency in state contracting by requiring contractors to report where the money was going—whether the goods and services the state was purchasing were coming from Nebraska, from other states, or from foreign countries.

"We're spending close to $2 billion on contracts out of a roughly $8 billion budget," said Heath Mello, the Democratic state senator who authored the bill. "The public and the legislature need to know where our contracting dollars are going and whether the state of Nebraska is seeing any economic benefit." Nebraska lawmakers may also be warier of privatization since the state's effort to privatize its foster-care system fell apart amid scandal in 2012.

Privatization proponents say contracting horror stories are overblown. Leonard Gilroy, director of government reform for the free-market Reason Foundation and editor of its comprehensive Annual Privatization Report, noted that other cities, such as Indianapolis, followed Chicago's lead by privatizing their parking meters without a problem. (On the other hand, other cities, such as Pittsburgh, shied away from privatizing their meters.) "Is privatization a magic wand? Is it always going to come in and save you money? No," Gilroy said. "You have to do this well. You have to do your due diligence. You have to do a good contract and then you have to monitor and enforce that contract."

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Molly Ball is a staff writer covering national politics at The Atlantic.

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