Pennsylvania: For Sale to the Highest Bidder?

As we learned with “cash for kids,” privatization isn’t always for the best

Last Thursday Governor Tom Corbett named two dozen members to his Advisory Council on Privatization and Innovation—referred to less officially as his “Privatization Panel”—which is tasked with conducting a sweeping assessment of state government to identify public services and assets that would presumably benefit from being sold off to the highest private bidder.

That’s not necessarily a bad thing. Some services, such as liquor sales, should never have been under state control to begin with and are long overdue for reform. It’s simply unfortunate that the group charged with making those determinations is comprised of people that Muhlenberg College political science professor Chris Borick correctly noted have a “very clear interest in the ultimate decisions that are made.”

According to press reports, more than half of the panel bought their way onto the commission with contributions to Corbett’s campaign, which is not especially shocking; politicians from both parties routinely reward their supporters with patronage positions.  What Pennsylvanians should be concerned about is that there isn’t a skeptic in the bunch, nor a single academic with expertise on the nuances of government service delivery.

Instead, the Governor cherry-picked leading members of industry, conservative activists and GOP loyalists to sit on the panel. Some, like Matthew Brouillette, president of the Commonwealth Foundation, and Joe Watkins, a former adviser to the Bush-Cheney campaign and chairman of the pro-voucher group Students First, are unabashed cheerleaders of privatization.

Other, no less partisan members include:

  • Former U.S. Rep. Melissa Hart, whose voting record shows a consistent distaste for government regulations (including those governing diet supplements and swimming pools), and whose most recent claim to fame involves leaving her car parked for years in a taxpayer subsidized U.S. Capitol parking space—a violation of House rules since she is now a registered lobbyist for the banking industry.
  • Dennis Yablonsky, chief executive of the Allegheny Conference on Community Development, who was recently accused of pressuring Pittsburgh City Council members to vote against a bill that would let citizens decide if they wanted to ban natural gas drilling within city limits.
  • And, attorney John A. Barbour, who is chairing the panel and is chief executive officer and managing director of the law firm of Buchanan Ingersoll & Rooney, which maintains the largest state government lobbying practice in Pennsylvania and holds hundreds of thousands of dollars in state contracts.

In other words, the governor has created a panel of advisers that he knows will tell him what he wants to hear: that the state will benefit financially by instituting what the pro-privatization Commonwealth Foundation (which used to be headed up by Sen. Pat Toomey) has referred to as “Yellow Pages Government.”

More troubling, as an advisory board with no formal policy-making power, the panel is exempt from state ethics laws that oversee conflicts of interest. Responding to concerns on Tuesday, the Governor’s office released a statement instructing the panel members to abstain “from any decisions from which they have a personal or financial interest.” But simply in its lack of a single dissenting voice, the panel as a whole already presents a conflict of interest.

Unlike some in the GOP, I do not see privatization in purely black-and-white terms. Privatization itself is not necessarily a bad thing and in many cases it makes complete sense. It’s not necessary, or even reasonable, for example, for municipalities to own and operate fitness centers, but county-run nursing homes and libraries (which the Commonwealth Fund thinks should be put in private hands) are another matter entirely.

What troubles me is that the Governor’s commission is a “what and how” panel rather than a “whether” panel, as the Philadelphia Inquirer has noted. In other words, the question of “if” privatization is viable has already been settled, and the answer is a resounding yes.

The problem as I see it is that conservatives have turned privatization into an ideological mantra (not unlike their refusal to even consider raising taxes), undertaken out of principle rather than practicality and informed by a narrow-minded belief that profit motive is the only incentive pure and unadulterated enough to evade corruption, inefficiency and budgetary excess. They venture forward with a blind faith in the invisible hand of the free market, unwilling to concede that the drive for profit can often turn that invisible hand into a fist, determined to maximize the benefits to shareholders at the expense of stakeholders.

Part of the social contract that democratic republics like ours are founded on involves giving government the authority and means to provide and manage certain services that, taken as a whole, form the cement that holds society together. These are things like access to water, security (i.e. police, firefighters and the military) and certain social services that cannot and should not be governed by profit motive. Yet all of these have been (and will continue to be) the target of privatization efforts either at the federal or state level.

Expecting the private sector to deliver the same services, better—for less money—while still turning a profit requires the kind of fiscal slight-of-hand that frankly shouldn’t factor in to providing something like child protective services, critical infrastructure like roads and bridges, and clean drinking water. I may not have much faith in government, but my trust in multinational corporations is just shy of nonexistent. Take adequate regulation out the equation, as neo-cons are apt to do, and we’re left with unaccountable profit machines telling us where we can drive and what it will cost us.

What’s more, the argument that privatization saves money is spurious; and where it does, the savings are more often than not negated by rising consumer costs. Examples from California to Australia show that contracting out essential services—like health care or public welfare benefits—often leads to less accountability and oversight and has not been proven to consistently save money, while putting public assets like roads and bridges into private hands regularly leads to higher costs to drivers.

The privatization of the Chicago Skyway toll road, which the Commonwealth Foundation cites as an example of a successful privatization effort, led to a 50 percent increase in tolls within four years of it being sold to foreign investors.  (Foreign firms have outpaced domestic ones in buying up U.S. critical infrastructure like roads, bridges and highways—which has raised eyebrows at the Department of Homeland Security).

Last year when voters in Trenton were fighting a proposal to privatize the city’s water infrastructure, Food and Water Watch reported that private operation of water systems already adds 64 percent, or $153 a year, onto the typical New Jersey household’s water bill.

But to see what can happen when essential social services are put into the hands of private companies, one need look no further than Pennsylvania’s own Luzerne County.

In December 2002 the county—at the behest of County Court of Common Pleas President Judge Michael Conahan—closed down its municipally managed juvenile detention center, the River Street center, saying it was too run-down to accept new charges. Exactly two months later, a new private facility,  PA Child Care, began accepting juveniles from the county. Harsh sentencing by Conahan and another judge, Mark Ciavarella, ensured the facility was fully stocked with young offenders—at least one who was guilty of nothing more than creating a MySpace page mocking her principal.  The new jail was so successful that two years later construction was completed on a sister facility, the Western PA Child Care center, and that too was soon populated with kids from Conahan and Ciavarella’s courtrooms. In 2007, thanks in part to the aforementioned MySpace defendant, the Philadelphia-based Juvenile Law Center began an investigation into the sentencing practices in the county that revealed what is now known internationally as the “cash for kids” scandal.

In 2009 both Conahan and Ciavarella pleaded guilty to receiving $2.6 million in payments from PA Child Care and kickbacks from one of its owners, Robert Powell, in return for sending children to the privately run juvenile centers. Thousands of cases were subsequently overturned, and both judges are now serving long prison sentences for their roles in the scandal; Powell is scheduled to be sentenced in November.

Cash for kids may represent the worst of privatization, but it should serve to caution all Pennsylvanians that when it comes to some services and assets, sometimes the invisible hand of the free market is not the fix-all solution privateers would have us think it is.

To quote Stephen Herzenberg, an economist with the Keystone Research Center: “In the real world, one size doesn’t fit all: Privatization is sometimes a good idea and sometimes a bad one. But it’s hard to be optimistic that this panel will be discerning about when to outsource and when to bring some privatized work back in house.”

Writer and photographer Christopher Moraff is a news features correspondent for the Philadelphia Tribune and a contributing writer for the Chicago-based magazines Design Bureau and In These Times, where he serves on the board of editors.

  • Phillyboy

    Is this the same Joe Watkins who use to be on WPHT radio? He once said that SEPTA should be privatized and had to be reminded that Septa was formed because all of the corporations ran their systems into the ground and walked away from them. Remember the Reading, Penn Central, Red Arrow, the Pioneer Line, etc. Is it that Joe Watkins?

  • http://www.commonwealthfoundation.org Elizabeth Stelle

    This diatribe against Gov. Tom Corbett’s Privatization Panel includes factual errors and draws broad conclusions with little evidence.

    Contrary to the above statement, Sen. Pat Toomey never “headed up” the Commonwealth Foundation; rather he served as a board member. Moraff flippantly describes everyone as “partisan” for disagreeing with him, regardless of groups with no party affiliation, or individuals with different party backgrounds (e.g. Dennis Yablonsky, a cabinet secretary under Gov. Rendell).

    And while the article cites our report on “Yellow Pages Government” it fails to mention the section warning that privatization is not a panacea, but something that can be done well or done poorly. Privatization advocates do not want to “privatize everything,” but rather see privatization as a powerful tool that, when implemented properly, will improve service while reducing taxpayer costs.

    The author criticizes toll increases following the lease of Chicago’s Skyway, failing to mention that this was how the city structured the deal to fix its budget deficit and pay off millions in debt, raising the city’s credit rating. And he neglects to note that when lawmakers chose to keep government running the Pennsylvania Turnpike, tolls went up as well. The Pennsylvania Turnpike raised tolls 25 percent in 2009, 3 percent in 2010 and 2011 (and 10 percent more for cash paying drivers), with future increases on tap every year in perpetuity—hardly a story of government success.

    Instead of wasting energy on individual attacks, let’s focus on how to properly implement privatization to improve life for all Pennsylvanians.

  • Rotton Ralph

    You have some good points, but in the past 8 years the Rendell administration had plenty opportunity to address meaningful privatization, but their adamant refusal to cross their union friends means that the Democratic side lost all credibility. Lets not judge to Repubs until they prove they are as one sided as Rendell.

  • george

    please try to get one thing straight in your mind… people who hold public office… they need new cars, their children have to go to college… they are not going to pay for this… that means you and i must pay… it is as simple as that…

  • Christopher Moraff

    The author responds:

    Ms. Stelle:

    Merriam Webster defines a diatribe as “a bitter and abusive speech or piece of writing.” In pointing out fairly universally recognized weaknesses with both the composition of this board and ideological privatization in general (as well as providing copious links to the original sourcing of many of the findings) I hardly think I was being either bitter or abusive. However, I ultimately leave it to the readers to make that determination.

    To your points:

    1.) The last time I checked, a board of directors was the governing body of a company or organization — unpaid though it may be — with a fiduciary duty to the group, that institutes and directs overall policy, including the hiring and firing of management. While, on reflection, to say Sen. Toomey was one of eight people who headed the Commonwealth Foundation may have been technically more explicit, since the intent of mentioning it at all was simply to draw an ideological link between a group many readers are likely not familiar with to someone they are familiar with who shares that ideology, the semantic distinction is hardly relevant to the message of the piece and, sadly, was brought up solely as a gratuitous attack on my credibility.

    2.) To suggest the governor’s Advisory Council on Privatization and Innovation is not partisan is frankly laughable and I considered not even entertaining this point, but here goes: Of the 24 members, the Pittsburgh Post Gazette identified 17 who contributed to the governor’s campaign either personally or through PACs. (I already noted in my piece that I don’t find anything particularly striking about that fact in itself; but registered Democrats don’t typically contribute to GOP candidates – especially those that fall to the right side of their party’s line). Of the remaining seven members of the panel not identified as donors by the Post, a rudimentary Internet search turns up GOP campaign finance records or other evidence of Republican Party affiliation for six of them (including, by the way, Dennis Yablonsky, whose party affiliation was misidentified as Democrat in an early story on the panel). Only Varsovia Fernandez, of the Greater Philadelphia Hispanic Chamber of Commerce, could not be easily tied to the GOP, and I didn’t really dig that deep. The point is, simply, we are not talking about a bipartisan commission here.

    
3.) You rightly point out that privatization is “not a panacea, but something that can be done well or done poorly.” But that applies to just about everything. The question that is not raised by you or your report, as far as I can tell, is should it be done at all. You go on to say privacy advocates don’t want to “privatize everything,” (which, by the way, I never suggested) yet the report itself states: “Virtually every service, function and activity has successfully been subjected to competition by a government somewhere around the world at some time.” To a reasonable person that suggests nothing is off the table. Further, I make it very clear that I agree with your group on a number of areas, like golf courses, fitness centers and liquor stores (please, can we get that one done first?) But where we disagree is when it comes to essential life- and health-sustaining services that I believe are too important to be left to the profit motive for guidance. That’s what we pay our government to do. If they do it poorly, it’s up to us voters to fire them. That’s part of the social contract. How exactly do I go about firing a private corporation with which I have no contract?

    And yet, even with essential services, I will concede that I am not entirely convinced privatization is not sometimes the way to go. I am not, nor do I pretend to be, an expert on the subject; my point is simply that I (and from the looks of it many other Pennsylvanians) would feel more comfortable if there were a few dissenting skeptics on the panel. My problem is with ideological privatization (or anything in which ideology replaces critical discourse to solve a problem) because it typically begins with a solution and then creates the dialogue that leads to that solution, when it should be the other way around.

    4.) You cite some information on the details of the Chicago Skyway lease and then some comparative numbers regarding the PA Turnpike presumably to show me as a dullard that has not done his homework. What you forget is that I am not the expert on privatization. I don’t have to be. My job is simply to point out the red flags and weaknesses, which I believe have done. Further, I don’t work for government. I don’t have to prove that government works; it’s up to you to prove that privatization works better. To show that under both scenarios the costs to consumers go up doesn’t especially make that case regardless of the details of how or why, especially when you add in the element of accountability (remember, my objections are not all cost based).

    5.) As to your final assertion that we focus on “how to properly implement privatization” you have made my point better than I could have myself. The governor’s panel is tasked with “how” not “if” to institute privatization. I repeat: I believe some things should be privatized. I only suggest that a reasoned assessment takes place that includes a range of experts representing the various (and conflicting) positions on this issue. To create a panel of people who already believe something works and then present a plan showing it does won’t convince me. And I don’t think I’m the only one who feels that way.

    Sincerely,
    Christopher Moraff