Nonprofit Conundrum: Support Government Privatization or Not?

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June 4, 2015; Military Times

Like the Energizer bunny, the privatization juggernaut just keeps going and going and going, regardless of the evidence that in many arenas, privatization hasn’t quite turned out to be all it was cracked up to be.

Chicago’s gung-ho privatization mayor, Rahm Emanuel, in 2014 privatized janitorial services in the Chicago Public Schools to two firms: Aramark for $260 million, and SodexoMagic, partly owned by basketball superstar Magic Johnson, for $80 million. The deal is actually more expensive than originally estimated, as the city has had to pledge another $7 million to Aramark because it miscounted the number of schools Aramark’s staff would have to clean. After Aramark’s dismissal of hundreds of janitors at the schools as a means of cost savings, exacerbating the dirt and grime in many, teachers at Oriole Park elementary school have filed a grievance to force CPS to hire back the dismissed janitors. To make their case, the Oriole Park teachers “started keeping a diary…about having to pick up a bloody paper towel in the washroom, mop up a sick kid’s vomit, or empty the garbage.”

The nonprofit sector is hardly a bystander in some moves toward privatization. In Wisconsin, for example, Republican governor Scott Walker privatized the state’s economic development department, creating the nonprofit Wisconsin Economic Development Corporation in 2011. Although a private corporation, WEDC’s chair was Governor Walker and the organization was in charge of overseeing and distributing over $500 million in economic development subsidies. Things haven’t gone particularly well for the new state-level nonprofit, which has had trouble accounting for its money and avoiding making funding awards to ineligible recipients for ineligible projects. It has also fallen short of job creation targets—and its own statistics—by a wide margin. For a two-year period, the corporation claimed to have created 60,000 jobs, but a review by the Center for Media and Democracy could only find 5,860 jobs in the WEDC data for FY2012 and FY2013. While WEDC created less than 6,000 jobs, the state lost over 13,600 to plant closures.

Among the currently most inviting targets for privatization is the Department of Veterans Affairs, whose serial screw-ups provide plenty of opportunities for critics to suggest that the agency be dismantled and its functions turned over to the corporate world. After the news that the VA had to go back to Congress for an extra $1 billion to finish the construction of a VA hospital in Colorado, the total cost to be $1.73 billion, or triple the VA’s estimates just a year ago, the Las Vegas Review Journal called for Congress to pass “a bill that would abolish all future VA construction and privatize the entire operation.” In February, a task force chaired by former Republican Senator Bill Frist and Democratic Congressman Jim Marshall, convened by the Concerned Veterans for America, a 501(c)(4) that reports to the IRS under the name Vets for Economic Freedom Trust, issued a report calling for significant privatization of some VA health care functions and services, essentially creating within the VA healthcare system a “private option,” sort of the flip side of the Obama administration’s effort during the Affordable Care Act run-up to create a “public option” to compete against private insurers.

Despite Mayor Emanuel’s privatization jag in schooling and the almost-constant calls for privatization of the VA, not every privatization proposal gets unanimous hosannas. For example, the U.S. Senate is seriously considering a proposal to privatize the operations of commissaries on military bases, but the idea is drawing opposition from a number of sources, including the Obama administration. The senate plan is to privatize the Defense Commissary Agency to some degree, though the Obama administration recommended that the senate wait until the results of an independent study are presented to make the determination of exactly how far commissary privatization should go.

However, the Obama administration didn’t object to the senate’s plan to raise the prices in all commissaries in order to reduce commissary operating costs, a plan that nonprofit critics believe will inexorably lead to privatization. The Coalition to Save Our Military Shopping Benefits argued against the price increase, given the low wages of people in the military, and objected to privatization: “Privatizing commissaries to outside profit-making grocery chains places military families’ relied-upon savings at the whim of private industry and squanders billions of dollars worth of commissary stores that military families have paid for out of their own pockets,” the Coalition said in a statement.

It is a reasonably predictable pattern: Governmental inattention, underfunding, and mismanagement of a function (like janitorial services in the Chicago schools or healthcare services through the VA) lead to calls for privatization. Privatization of the function through government outsourcing then doesn’t deliver as planned, so then the call arises from the public to dismantle the government agency entirely and hand the responsibility over to the private sector. As in the case of the VA and public schools, nonprofits might be the direct beneficiaries of privatization schemes, with opportunities to assume some aspects of the governmental agencies’ former responsibilities. In the instance of the commissaries, they might not be. But the question isn’t whether nonprofits can get a slice of government largesse by participating in the privatization of government functions, but whether privatization is as good for American voters and consumers as it is cracked up to be by its adherents.—Rick Cohen