Sunday, April 29, 2012

"Reason Foundation" Plugs Governors Who Embraced Privatization in 2011

The "Reason Foundation" has posted on its website an overview from its annual report - Jindal, Christie, Kasich and Other Governors Pursue Privatization, with the subheading "Annual Privatization Report examines how state governments are enlisting the private sector to reduce spending on health insurance, roads, lotteries, alcohol, prisons and more."  The 2011 report is here.

I disagree with the Foundation's fanatical enthusiasm for privatizing-no-matter-what, but the report has very useful data, examples, and statistics for researchers on both sides of the issue.  I have no problem with some of the Foundation's other positions - more fiscal accountability and transparency for government (I believe contracting out government services undermines transparency rather than enhancing it), and selling off unnecessary state-owned assets.  

- Dru Stevenson

Saturday, April 28, 2012

Privatized Education: The NYT Editorial

Gail Collins has a new op-ed piece in the New York Times about the privatization of public school education - A Very Pricey Pineapple is actually an intentionally misnamed analysis of the private for-profit companies that own charter schools, publish the curriculum, and run the standardized testing in several states.  The numbers are impressive - tens of millions for running the testing in New York, hundreds of millions for doing the same in Texas.

Personally, I do not believe profit motives are evil - it is a fundamental principle of economics that exchanges or trades (or any type of commerce) can make both parties better off - the buyer gets something they value more than their money, and the seller gets money they value more than their product. Profit-earning is not necessary exploitative. I don't really understand the idea, hinted at in the editorial, that "for-profit" means evil or sinister.  Then again, Frank Knight's theories convinced me a long time ago that most of what people call "profit" is not profit at all, but merely net revenue, which (often meagerly) compensates the investors and entrepreneurs for their time, talent, and opportunity cost.  The founders of Facebook and Google make Knightian "profit," which is mostly by happenstance, not by careful design.  I'm not sure Knight would think the Pearson company was anything more than a break-even operation; the amount of time, energy and talent invested in lobbying for federal legislation (No Child Left Behind), then lobbying for state contracts, then setting up a sprawling octopus corporation to provide wraparound services in the field, could have been spent on any venture, and might otherwise have yielded a better return on such a colossal investment  And if profit is part of the definition of evil, then entrepreneurs who fail (as most do) are automatically saintly and virtuous, even if their failure was due to an overly-aggressive business plan or simple bad luck; and plenty of horrific evils are perpetrated by nonprofit entities, where profit motives were absent. But this is all theoretical economics and semantics. 

I heartily agree with Collins that privatized education is bad.   It's neither sound government nor free-market capitalism.  It's bad governance because the government is notoriously goofy about hiring contractors - many contracts involve little or no competitive bidding, the government employees making and monitoring the contracts lack expertise in procurement or contractual drafting, and the lack of transparency undermines political accountability for those doing the governmental task (and those who were supposed to be doing it).  Once a contractors locks in their contract, it is difficult - sometimes impossible - for a state entity to switch contractors when the performance is substandard or the price suddenly skyrockets.  From the side of advocating free markets, the government as your customer is not competing in the marketplace - government contractors derive their income from taxpayer dollars, with purchasing decisions run through a complex, inefficient bureaucracy.  This is very different than competing with other firms for individual customers in the free market - instead, it ends up resembling the very type of state-sponsored monopolies that Adam Smith decried in The Wealth of Nations.  Worse, government contracts distort the free market.  Firms obtain contracts with less-than-usual competition, then lock them in and start cutting corners to save costs, maximizing their income stream - which then allows them to subsidize any private-sector selling or competition they actually do.  In other words, if a large firm that competes in the marketplace obtains a lucrative government contract, it can use that guaranteed income stream to  engage more easily in predatory pricing in its other divisions, running competitors out of the market; and it can expand its operations around the government contract so that it becomes a more formidable market player (grabbing greater market share) without having to take the usual competitive route to that goal.  Privatization, therefore, dilutes the public-service mission of the government at the same time that it undermines the free market system by subsidizing some firms and not others.

-Dru Stevenson

Friday, April 27, 2012

Feds: Private Contractor Execs Should Get $723, 029

The Federal Times has run a new lead article, Government to Pay Contractor Executives More, explaining the increase in what government contractors can expect their executives to receive in compensation. It casts a little doubt on the politicians' mantra about how much money privatization and outsourcing will save, no?  Here's an excerpt (but the entire article is worth reading):

The government is raising the cap on what it pays contractors' top five executives to $723,029, a 10 percent increase, federal procurement officials announced Monday.  The cap, up from $693,951, applies to contract costs for compensation — including wages, salary, bonuses and deferred compensation — incurred after Jan. 1, 2011, according to a notice published in the Federal Register. It applies only to a contractor's top five executives; other contractor employees can earn more.  The cap is based on a federal executive compensation formula that pleases neither the administration nor federal employee unions.

Here is the union perspective (good point, I thought):  
"Current federal employees have had their own salaries frozen for two years and new employees will have to pay four times as much in retirement contributions, saving the government $75 billion. Yet nothing is being done to trim out-of-control contractor spending," said John Gage, national president of the American Federation of Government Employees.

And here is the exec's perspective (a little harder to sympathize):
Industry advocates oppose efforts to tie contractor compensation to federal employee salaries. That would hurt contractors' ability to find talent in the competitive private sector, much like low federal pay has been a barrier to attracting and retaining highly skilled federal workers, Stan Soloway, president of the Professional Services Council trade association, said in a statement.

But wait, I thought privatization was supposed to be cheaper than having government workers do the same task.  Why is it a crisis that the contractor might have to work for as low a wage as government workers?

Here's Obama's Appointee (being sensible, I think, but the point made is disturbing): 

"This rate of growth in the cap (both from 1995 onward, and in this most recent year) has far outpaced the rate of inflation, the rate of growth of private-sector salaries generally, and the rate of growth of federal salaries — forcing our taxpayers to reimburse contractors for levels of executive compensation that cannot be justified for federal contract work," Lesley Field, acting administrator of the Office of Federal Procurement Policy, said in the notice.

Wednesday, April 25, 2012

More From Sasha Volokh: Prison Privatization and the Employer-Contractor Distinction

Alexander Volokh Lecturing
Professor Alexander Volokh (Emory Law School) has another forthcoming article about privatization available on SSRN: Prisons, Privatization, and the Elusive Employee-Contractor Distinction, forthcoming in the UC Davis Law Review.  Again, this is a great contribution to the literature - two of the Supreme Court's decisions this term about privatization touched on the very issue that Volokh highlights, the problem with distinguishing between (or conflating) contractors and government employees - for purposes of both their rights and their liabilities for wrongdoing.  Volokh's article, therefore, it particularly timely and relevant; the high SSRN download count confirms this. Highly recommended reading.  Here is the SSRN abstract:  

Does it matter whether prisons are managed publicly or privately — that is, whether prisoners are kept by state employees or by private contractors? Yes, for all sorts of empirical reasons. Chiefly, we reasonably expect and observe and public and private providers will act differently and otherwise affect the real world.  But is there any inherent, normatively relevant difference between employee- and contractor-managed prisons, independent of such data-driven concerns?  No.
The state is an abstract set of relationships; therefore, to act, the state must use agents of some sorts. Both employees and private contractors are private individuals; both do things for the state in exchange for money; both have private purposes, as well as the discretion to follow those purposes sometimes, even contrary to the desires of the state. Private contractors can be unaccountable, but so can public employees; private contractors can lack legitimacy in the eyes of the public; but so can public employees.  The extent to which the public and private sector differ is an empirical, contingent question. It makes sense to favor or oppose privatization, and to treat the public and private sectors differently in the law, but the reasons for doing so must be based not on any inherent difference between sectors but rather on the empirical — and hotly contested — difference in how the two sectors will act in the real world.
It is great to have prominent legal scholars making helpful contributions to the literature in this field.  This is a very useful article.

- Dru Stevenson 

Foundation: Overview of Annual Report on State Govt Privatization

The "Reason Foundation"  has a handy overview of its new annual report: The Year 2011 in State Government Privatization and Public-Private Partnerships, in which it provides at-a-glance statistics, examples, and anecdotes about state government privatization in 2011.  Note that the Foundation uses the term for both selling off unnecessary government assets (buildings, parking lots, vehicles, etc.) and outsourcing or hiring private contractors to provide government services, thereby conflating actions that shrink the government with those that tend to expand it over time (hiring contractors diminishes political accountability and enables governments to do more without increasing the state payroll or growing the state unions).  The actual report is here.

While I strongly disagree with the Foundation's blind faith in outsourcing-everything-no-matter-what, the report does provide very useful data and research for policy advocates on both sides of this complex issue.

- Dru Stevenson

Tuesday, April 24, 2012

Firm Leaves Miss. After Its Prison Is Called 'Cesspool'

The Geo Group leaves Mississippi after encountering problems. See article here:

Privatization Litigation: the Case of the Outsourced School Maintenance

A new court decision provides an interesting vignette into privatization of government services: Merges v. Aramark Corp., Slip Copy, 2012 WL 1113627 (W.D.N.Y. March 30, 2012), which is a denial of a motion for summary judgment. The case involves a privatization contract between Churchville–Chili Central School District (“CCSD”) in New York and Aramark Corporation for the latter to take over all custodial work, plant and grounds maintenance.  Neither bothered to remove snow and ice from the walkways, resulting in slip-and-fall accidents and serious injuries among the staff.  The School District sued the contractor for not keeping the walkways clear.  Aramark claimed it was merely a consultant and had no duty to do any actual work, and filed a motion for summary judgment, asking the court to rule in its favor without a trial.  Here is an excerpt from the court's discussion:

In sum, Aramark's argues that CCSD agreed to pay Aramark over a million dollars over five years for nothing more than “general oversight and expertise in facility management”and hence Aramark can not be held liable to third parties like plaintiff for any negligence it may have committed in the snow and ice removal processes at the School District's facilities . . . The Court does not find Aramak's argument persuasive. A review of the contract as a whole supports a finding that the intent of the contract was to privatize the management and responsibility for maintenance of the District's facilities during the contract term. In other words, a fair reading of the contract confirms the parties intention to substitute Aramark for the District as being the entity responsible for the overall management and safety of the School District's grounds and facilities. The contract was comprehensive and gave Aramark exclusive responsibility to control and manage the day to day facility maintenance requirements of the School District's buildings and grounds. Pursuant to the terms of the contract Aramark was required to provide and pay for an “Operations Team” Manager to serve as “management of the custodial and maintenance departments of the [School] District,” including the location where Merges fell. [emphasis added]
I applaud the court's decision in this case - government contractors have an income stream from taxpayer funds, and need to be accountable to do their work.  The case must still go to trial, so it is still unclear which way a jury would go in this case - but it is a bit galling for a million-dollar contractor to move for summary judgment on the grounds that it couldn't be expected to actually do anything under its contract besides serve in a "consultative capacity."  We can only hope that cases such as this serve as a warning to other municipalities that imagine privatization or outsourcing will bee a panacea for their budget problems.  CCSD now has litigation on two fronts.

- Dru Stevenson

Monday, April 23, 2012

New Article: Prison Vouchers, by Sasha Volokh

Alexander Volokh (Emory Law School) has an innovative article forthcoming in the University of Pennsylvania Law Review - Prison Vouchers, which makes a unique contribution to the field of academic literature on privatized prisons.  While most of the published articles about privatized prisons (including those featured on the Privatization Blog) focus on the policy concerns about the prisons themselves - their relative cost to the taxpayer, the perverse incentive that the private prison firms have to lobby for longer sentences, and the problems with legal redress for prisoners injured by private prison guards - Volokh takes the discussion in an entirely new direction, asking what prisoners would select if they had the choice.  Here is the abstract from SSRN:

School vouchers have been proposed as a way to bypass the political pathologies of school reform and improve school quality by transforming students and parents into consumers. What if we did the same for prisons - what if convicted criminals could choose their prison rather than being assigned bureaucratically?
Under a voucher system, prisons would compete for prisoners, meaning that they will adopt policies valued by prisoners. They would be more flexible as a constitutional matter - faith-based prisons would be fully constitutional, and prisons would also have increased freedom to offer valued benefits in exchange for the waiver of constitutional rights. As far as prison quality goes, the advantages of vouchers would plausibly include greater security, decent health care, and good educational and vocational opportunities - features that are also valued by prison reformers and have rehabilitative value.
The counterarguments are twofold. “Market failure” arguments hold that, because of informational or other problems, prisoner choice would not succeed in improving overall prison quality. “Market success” arguments, on the other hand, hold that prison choice would improve prison quality too well, satisfying inmate preferences that are socially undesirable or diluting the deterrent value of prison. These counterarguments have substantial force, but it is still possible that these disadvantages are outweighed by the socially desirable improvements.  I conclude with thoughts about the politics of prison vouchers, both before and after their adoption.
As much as I doubt the prudence of privatized prisons - mostly because I think they end up being a bad deal for taxpayers, and present legal issues that our courts are not yet prepared to handle - I have to agree with him about the voucher proposal.  Allowing individual choice disaggregates the decisionmaking in this policy area somewhat, thereby lowering the risk of systemic error.  One problem with the private prison industry is that there is often little or no competition for the contracts from the state to build the prisons; without true competition, there is no "market discipline" to improve efficiency or quality.  Vouchers introduce competition from the other end, providing both state and private institutions incentives to improve their internal conditions and their efficiency in providing the associated services.  I could see a similar model being applied to immigrant detention centers.

UPDATE: Giovanna Shay has a thoughtful response piece to Volokh's article on PENNumbra.  Both are very worthwhile reading.

 - Dru Stevenson

Zaffirini v. United Water Services: Litigation Provides Glimpse Into the Black Box of Privatization

A new decision from a Texas appellate court provides a glimpse into the murky world of privatization decisions and how firms, in order to obtain lucrative contracts, convince the government entities to outsource essential services.  It also illustrates how easily such arrangements can collapse.  The case is Zaffirini v. United Water Services, LLC, 2012 WL 1364984 (Tex.App.-San Antonio April 18, 2012).  Here is the fact summary from the court:
In the year 2000, United learned that the City of Laredo (“City”) intended to privatize the operation of its water and wastewater facilities. In order to increase its chances of being awarded the contract, United retained Zaffirini as its attorney for an initial one-year term to assist in United's negotiations with the City. United and Zaffirini signed a Retainer Agreement on January 17, 2002. The essential terms of the Retainer Agreement provided that Zaffirini was to earn a one-time $50,000 payment upon execution of the Retainer Agreement and an additional $50,000 payment if and when United and the City entered into a contract. The Retainer Agreement further provided that if United was awarded the contract with the City, then Zaffirini would receive a contingency fee consisting of monthly payments of $3,000 for “the life” of the City contract.  The City subsequently awarded the contract to United . . . The initial contract term between United and the City was for five years. Pursuant to the agreement between United and Zaffirini, United paid Zaffirini the $50,000 payment when the Retainer Agreement was signed and another $50,000 at the time the Service Agreement was signed by the City. United also began paying the contingency fee of $3000 per month. However, a dispute between the City and United eventually caused the parties to agree to a mutual dissolution of the Service Agreement in 2005. As part of the dissolution, United paid the City $3 million dollars to obtain an early termination of the Service Agreement. A few months after the dissolution of the Service Agreement, United stopped paying Zaffirini the monthly payments. As a result, this fee dispute arose over whether Zaffirini was still due monthly fees under his Retainer Agreement with United.
In other words, United wants a lucrative government contract; it hires a lawyer as a "fixer" to get the contract, through what appears to be a no-bid, non-competitive process; and the fixer's service is valuable enough for the company to pay $100,000 plus another $180,000 in contingency fees over the next five years.  The lawyer's total price tag ($280k) for arranging the contract suggests something about the stakes involved and the incentives for the parties involved - the lawyer has excessively high incentives to persuade the government officials to give his client the contract; the price is worth it to the contractor because the ultimate contract promises to be incredibly profitable; and the officials making the outsourcing decision come under intense pressure from self-interested fixers and firms.  It's also interesting to note that the privatization relationship fell apart - given that United paid the city $3 million to get out of the contract early.  Privatization nightmares take two general forms: either the contractor end up being much more expensive than anticipated (e.g., doubling the price after the contract is locked in), leaving the government with a bad deal, or the contractor discovers that providing government services is really not very profitable - their costs exceed their projections, and they bag on the contract early.  Examples abound of both scenarios.  This case illustrates the second type.

But wait, there's more!  The lawyer, Carlos Zaffirini, has been at the center of privatization controversies before.  See this article about Zaffirini's representation of GEO, the nation's largest private prison operator, and the allegations of impropriety around State Sentaor Judith Zaffirini (Carlos' wife) helping get the lucrative contract pushed through for GEO - and her husband.  In other words, the "fixer" who gets hundreds of thousands for convincing government officials to give outsourcing contracts to his clients is married to an influential politician who could, in theory, help get things approved or can pressure lower-level officials into acquiescence.  The triangle of highly-paid fixer, soon-to-be-disappointed government official, and solicitous contractor is enough to create doubts about privatization as a sure-fire way to save taxpayers money.  Add to the mix an entrenched politician with a vested financial interest - married to the fixer - and the situation becomes rather alarming.

- Dru Stevenson

Sunday, April 22, 2012

New Article: Are Shomrim State Actors? Public Funding for Religious Security Forces

Sarah Sternlieb (Emory Law School) has posted a fascinating new article on SSRN entitled, When the Eyes and Ears Become an Arm of the State: The Dangers of Privatization Through Government Funding of Insular Religious Groups, which provides a useful contribution to the literature on privatization and government outsourcing.  The piece is very impressive for a law student comment.  Here is Sternlieb's abstract:

The Shomrim, Hebrew for ‘guards,’ operate as an ancillary police force in Hasidic communities. Defined by devout adherence to traditional norms, Hasidic Jews confine themselves to insular communities within America. However, like many insular or inherently religious communities, they appear to have a propensity to discriminate against outsiders in their attempts at seclusion. Although the Shomrim hold themselves out as their community’s primary police force, they frequently commit bias crimes and other discriminatory acts. This Comment advances the novel argument that the Shomrim are state actors, and that government funding to the Shomrim may also violate the Establishment Clause. The Shomrim receive substantial government funding, maintain close ties and connections with the police and the state, and perform a public function. Because these connections constitute a ‘close nexus,’ the Shomrim’s actions are fairly attributable to the state. As state actors, the Shomrim would be held accountable to constitutional limitations, and would be prohibited from discriminating against outsiders. However, remedying this attribution of state action implicates additional constitutional problems. This Comment proposes that under current state action doctrine and Establishment Clause jurisprudence, the only permissible solution in this context is to remove government ties and funding.
Using the Shomrim as a case study, this Comment addresses the problem of privatization through government funding of insular religious communities and organizations. The Shomrim demonstrate that when the government funds inherently religious providers of social services, a constitutional grey area is met in the attempts to reconcile state action with the Establishment Clause. This Comment asserts the government should be careful in funding inherently religious providers of social services because of an increased likelihood of discrimination.

The question of private contractors being state actors has come up in two recent Supreme Court decisions (both going the wrong way, in my opinion).  Very happy to see this new article.

 - Dru Stevenson

Privatization of Santa Monica College - Opinion Piece

Ankur Patel has published an interesting op-ed entitled The Problem with Two-Tiered Tuition, Privatization ofEducation and Pepper Spray, in which he addresses problems with the recent privatization of Santa Monica College (student body of 35,000).  

Tuesday, April 17, 2012

Filarsky v. Delia: Supreme Court Gives Immunity to Municipal Contractors

The Supreme Court today issued a decision that has important implications for privatization/outsourcing of government functions.  In Filarsky v. Delia, __ S.Ct. __, 2012 WL 1288731 (April 17, 2012) a unanimous Court held that an attorney who was retained by city to assist in investigation into firefighter's potential wrongdoing was entitled to the same qualified immunity as a government official.  A city firefighter was under investigation for fraudulent sick leave, having been observed purchasing bulky home improvement items while he was supposed to be unable to come to work.  The city hired a local employment attorney to officiate at a hearing about the matter, and the attorney used legal threats to coerce Delia to retrieve the items from his home for inspection by fire department officials.  Claiming that this imposition was intrusive enough to violate the Fourth Amendment, Delia filed a Section 1983 action against several city officials, as well as the attorney, Filarsky, whom the city had hired and who arguably was most the most culpable person involved.  The district court granted summary judgment, holding all the defendants immune from liability, but the Ninth Circuit reversed, holding only the city employees immune, and not the contractor (Filarsky).  The Supreme Court reversed again, holding that the long history of outsourcing government functions in this country meant that sovereign immunity must apply equally to government contractors.  

I find this decision disappointing.  First, the Court fails to recognize that privatization or outsourcing is occurring on a scale never before seen in American history, and that government officials have perverse incentives to use outside contractors to avoid political accountability for inappropriate actions - and also to blur the lines of Fourth Amendment protections for individuals.  It is not always clear that defendants can assert Fourth Amendment rights against private parties who are under government contract - it is fairly easy for the government agency involved to deny that it ever instructed the contractor to do the illegal action, whereas this argument usually fails if the over-aggressive investigator is an actual employee of the state (for example, courts will not uphold an illegal search merely because a police officer violated precinct protocol - but they might find no government activity where a private investigator does things the police would not do).  In addition, the Court's historical argument looks back to the frontier era in American history, when many local governments were simply too embryonic to have full-time personnel.  Today the situation is much different, and municipalities regularly employ their own staff attorneys to do the functions that Filarsky did here.  Finally, the Court's concern is misplaced when it muses that high-caliber talent will "think twice" about accepting a government contract if they could face liability.  That highlights the very danger of privatization - contractors do not have to think about legal consequences if they violate citizens' constitutional rights.  And if a municipality is concerned about this, it can simply include an indemnification agreement in its contract with the private party - problem solved.

-Dru Stevenson

Sunday, April 15, 2012

FWIW: Optimal Levels of Private Sector Involvement in Setting Policy Goals

Jeroen Van der Heijden has just posted the abstract for an innovative empirical article on entitled, Smart Privatization: Lessons from Private-Sector Involvement in Australian and Canadian Building Regulatory Enforcement Regimes (published in Journal of Coparative Policy Analysis, Vol. 12, No. 5, 2010).  Here is the abstract from SSRN:

Various scholars stress that traditional regulatory regimes will benefit from greater private sector involvement. There has been little empirical study, however, on the impact of the "amount" of privatization on certain policy goals. This paper aims at filling that knowledge gap. Based on an analysis of private sector involvement in the enforcement of Australian and Canadian building codes, it argues that a certain threshold exists after which more privatization no longer results in effectiveness and efficiency gains. It furthermore discovers that the relationship between the public and private sector within a regime matters in reaching certain policy goals.

Tuesday, April 10, 2012

GAO Report Documents Over $1 Billion in Improper Payments to Contractors and Vendors

According to this article from the Government Contractor website, the Government Accountability Office released a troubling report at the end of March about improper payments from federal agencies - billions - both to individual beneficiaries (welfare recipients, loan recipients) and contractors/vendors who have government projects outsourced to them.  Favorite quote:

Further, OMB reported that agencies recaptured $1.25 billion in improper payments to contractors and vendors. [Note: how much was not recaptured?]  The federal government continues to face challenges in determining the full extent of improper payments. Some agencies have not reported estimates for all risk-susceptible programs, while other agencies' estimation methodologies were found to be not statistically valid.  

- Dru Stevenson

New Article: Bringing Citizen Suits In-House

Standing as Channeling in the Administrative Age, which we posted recently on SSRN (co-authored), addresses a subject that some scholars categorize as a species of privatization - citizen suits, which mostly commonly allow private parties to bring enforcement actions against polluters for violations of federal law.  The rules for which parties should have standing to bring such suits have become a complete mess in the courts.  The basic proposal of the Article is completely new: first, whatever agency has primary enforcement responsibility should promulgate rules defining the standing parameters for citizen suits.  Second, citizen suits against the agency itself (usually brought under Section 7 of the APA rather than a "citizen suit" provision of another statute) should be channeled toward state Attorneys General under the "special solicitude" rule announced by the Supreme Court in Massachusetts v. EPA. While citizen suits do not involve the government contracting out - the primary focus of this blog - they do constitute a type of delegation of governmental authority to private parties, which is a big part of the underlying concern I have about privatization generally.  We hope other scholars will download the paper and send us comments or critiques before we complete the process of publishing it in a law review.  Here is the SSRN abstract:

For several decades, courts have approached citizen suits with judicially created rules for standing. These requirements for standing have been vague and unworkable, and often serve merely as a screening mechanism for docket management. The use of standing rules to screen cases, in turn, yields inconsistent decisions and tribunal splits along partisan lines, suggesting that courts are using these rules in citizen suits as a proxy for the merits. Numerous commentators, and some Supreme Court Justices, have therefore suggested that Congress could, or should, provide legislative guidelines for standing. This Article takes the suggestion a step further, and argues that Congress has implicitly delegated the matter to the administrative agencies with primary enforcement authority over the subject matter. Courts regularly allow agencies to fill gaps in their respective statutes, meaning congressional silence on a point often constitutes discretionary leeway for the agency charged with implementation of the statute. Agencies already have explicit statutory authority to preempt citizen suits or define violations for which parties may sue. The existing statutory framework therefore suggests agencies could promulgate rules for the injury-in-fact and causation prongs of standing in citizen suits. Moreover, agencies have an advantage over courts in terms of expertise about the harms involved and which suits best represent the public interest. On the more delicate question of citizen suits against agencies themselves, agencies could default to the “special solicitude for states” rule illustrated in Massachusetts v. EPA. Finally, this Article explains how standing can function as a beneficial channeling tool rather than an awkward screening device, by allowing agencies to align citizen suits more closely with the larger public interest and established policy goals.

- Dru Stevenson

Monday, April 9, 2012

The Nation - Arizona's Privatized Prisons Yield No Savings

This terrific article, Arizona's Private Prisons: A Bad Bargain  (from The Nation) discusses in detail the failures of Arizona's privatized prison scheme, which has resulted in overpayments to contractors of $10 million in a two year period.  [I sympathize with fiscal conservatives who want the government to spend less; it would seem that they would therefore oppose privatization, as it so often ends up being more expensive than the government doing the task itself].  One chilling quote from the article is this:  

One might think that, faced with evidence that the state isn’t getting enough bang for its buck, Arizona legislators would rethink their commitment to putting ever more prisoners into private facilities. Instead, in a move Orwellian even by the gutter standards of Arizona politics, they’ve simply tried to bar the state from collecting the evidence. On February 27 the legislature proposed a budget bill eliminating the requirement for a cost and quality review of private prison contracts. According to the AFSC, “The move would ensure that the public would have no way of knowing whether the state’s private prisons are saving money, rehabilitating prisoners, or ensuring public safety.”

Why have Arizona’s politicians taken this route? Part of the explanation may be that many of them have received large campaign contributions from private prison companies like GEO Group and Corrections Corporation of America. 

Sadly, this is a typical part of privatization stories.  Another point from the article that is worth highlighting is this: 

Arizona’s privatization schemes have become wackier in the face of recession budget woes. Legislators have sold off and then leased back the State Capitol building and pushed for the wholesale privatization of the prison system. The industry, however, is not interested. Private prisons profit only when they can cherry-pick the inmates—setting the conditions for those they’ll accept and rejecting violent or seriously ill inmates—and can make the state cover the hidden costs of running a prison, such as training drug-sniffing dogs and processing release paperwork.

- Dru Stevenson 

Simon Chesterman on the Outsourcing of US Intelligence

Simon Chesterman, Professor and Dean of the National University of Singapore Faculty of Law, has posted a new article on SSRN entitled, The Turn to Outsourcing in U.S. Intelligence.  Here is the posted abstract:

Though it lagged behind the privatization of military services, the privatization of intelligence expanded dramatically with the growth in intelligence activities following the September 11 attacks on the United States. Privatization of intelligence services raises many concerns familiar to the debates over private military and security companies (PMSCs). One of the key problems posed by PMSCs is their use of potentially lethal force in an environment where accountability may be legally uncertain and practically unlikely; in some circumstances, PMSCs may also affect the strategic balance of a conflict. The engagement of private actors in the collection of intelligence exacerbates the first set of problems: it frequently encompasses a far wider range of conduct that would normally be unlawful, with express or implied immunity from legal process, in an environment designed to avoid scrutiny. Engagement of such actors in analysis raises the second set of issues: top-level analysis is precisely intended to shape strategic policy — the more such tasks are delegated to private actors, the further they are removed from traditional accountability structures such as judicial and parliamentary oversight, and the more influence those actors may have on the executive.

I think this is a valuable contribution to the literature on government outsourcing/privatization of government functions, and related to an area where the stakes are quite high.  As he observes, outsourcing of such traditional governmental functions creates a scenario that our legal system is not prepared to handle well, so the result is a lack of accountability and tolerance of unlawful activities on behalf of the state that the state actors themselves normally would not undertake.  Very worthwhile reading.

- Drury Stevenson

Sunday, April 8, 2012

NH Considering Prison Privatization

This article from the Boston Globe describes the current call for proposals by the Governor of New Hampshire for privatizing the state's prisons.  Fortunately, the Governor has not fully committed himself to the plan, but says he is merely exploring options.  The problem with this tactic is that bidders are aware that they can low-ball on their initial offer, get the administration committed enough to it to invest political capital on the idea of privatizing the prisons, and then without much scrutiny get a contract.  Once they have the state locked in, they can raise their price significantly the first time the contract is up for renewal, and the state will be in a much weaker bargaining position, as it no longer has the personnel on the payroll to bring the prisons back in-house in order to save money.  In addition, four bids from contractors who likely know each other (private prison operators is a small industry) is not likely to provide true competition - and therefore, fails to deliver the benefits of a free market, such as efficiency or discipline.  I predict this will NOT save the state any money in the long run, even if the initial bids seem irresistible. 

 - Dru Stevenson

Monday, April 2, 2012

Can Privatization Kill?

A op-ed piece in today's New York Times, entitled "Can Privatization Kill?," focuses on the privatization of detention and deportation services in the US and the UK. The op-ed, which begins by describing the death of a deportee from Britain named Jimmy Mubenga at the hands of three private contractors, pulls no punches. The author's conclusion:

Today, government outsourcing has given rise to an industry that encompasses nearly every aspect of migration management in countries across the globe. This shift comes at a price: It eliminates government accountability and runs roughshod over the rights of those subjected to private corporations’ control. And unless governments reassert control over what used to be a core sovereign function of the state, many more Jimmy Mubengas are likely to die.