Privatizing government

Friday, June 7, 2002 | 5:29 a.m.

WEEKEND EDITION: June 9, 2002

For more than a decade, the region's public transit system has served as a kind of poster child for privatization -- the turnover of government services to the private, for-profit sector.

And officials of the government agency that oversees public transportation, the Regional Transportation Commission, have argued that the system has worked well, providing efficient and relatively low-cost service to millions of residents and visitors.

Nobody is arguing that now.

A 3-week-old bus strike has crippled the system, abruptly ending service for about a quarter of its 51 routes and cutting the number of passengers in half to about 75,000 a day.

The RTC, charged with oversight of the system, is losing farebox revenue. Would-be riders are waiting hours in the summer heat for buses.

And the Amalgamated Transit Union, representing striking drivers, and ATC, the multinational company contracted to manage the bus system, are at an acrimonious impasse with little hope of an early resolution.

The result is that the poster child of the public-private concept in Southern Nevada is hardly a glowing example of what it is supposed to be. Critics say what's happening is exactly what should be expected when public institutions pawn their responsibilities off and try to save money by contracting services that they're supposed to provide.

Scott MacKenzie, State of Nevada Employees Association executive director, said Las Vegas is a good example of the long-term dangers of privatization.

"The benefits are temporary," he said. "In the long run, it's a losing situation ...

"In the short run, the company may have done well, but it doesn't work because they aren't fair to the drivers. In the end, there will be no peace."

That is -- or appears to be -- the case in situations in Nevada.

In September, the Florida-based company that operated Summit View Youth Correctional Facility north of Nellis Air Force Base announced it would pull out of its contract with the state -- two years before it would expire. The prison was the first juvenile facility to be privatized. The company, Youth Services International, complained that the state did not send enough people to the facility to make a profit.

A Sun investigation found high levels of employee turnover, inadequate training for guards, drug abuse and sex between guards and inmates. A state official said low pay contributed to the problems, which included a June 2001 riot.

The prison closed in January after the company pulled out.

The state is evaluating four bids to run the prison. Last year the Legislature's Interim Finance Committee rejected Gov. Kenny Guinn's proposal that the state take control of the prison because it would be too expensive.

Edison Schools Inc., a 10-year-old national school-management company, operates seven schools in Clark County and hundreds nationwide, but has never posted a profit and is struggling to continue operating with fresh infusions of capital.

In Reno, bus drivers represented by the Teamsters Union voted last week to authorize a strike against Transit Management, the contract company for Washoe County's Regional Transportation Commission.

Contracting out government services is common throughout the country, particularly in transit and trash collection -- as is the case in Clark County with the bus system and Republic Services, which collects the trash. But "privatizing" is a growing practice for all kinds of services. The motive is money.

"It is really common and becoming more common for governments to contract out what had been in-house operations to private firms," said Jeff Waddoups, a University of Nevada, Las Vegas, economics professor. "Basically, the reason cited is for cost-cutting."

But the company running the local bus system says that beyond cost-savings, it can do things that the government can't -- and does them well.

"Because there are fewer layers of management, we can make decisions quickly," said Valerie Michael, spokeswoman for ATC, which runs transit systems in Las Vegas and throughout the country. "Personnel issues can be resolved quickly without going through layers of red tape, for example."

ATC and other companies competing for government contracts can keep costs low by running lean operations with limited management, Michael said, adding that they also reduce the taxpayer's vulnerability to liability lawsuits.

But perhaps the biggest advantage is that with contract companies, public agencies and their boards can focus on broad policy issues rather than get buried in the day-to-day details of running a bus system -- or, by extension, other services, Michael said.

Contract companies run water systems, treat sewage, handle welfare claims, oversee public parks and nature preserves and generally operate in almost every sphere of what once were considered government services.

"Just about everything is up for grabs," MacKenzie said. "The 'privateers' are looking for any opportunity."

Private companies, Waddoups said, simply are more aggressive about paying lower wages and benefits.

"The costs are borne by the workers who have lower-wage jobs without benefits and by the community," he said. "The quality of jobs deteriorates."

County Commissioner Bruce Woodbury, who also serves as RTC chairman, agreed that cost is a factor.

"The reason we have a private contract -- like most municipalities do throughout the country -- is that we're able to expand our service much more broadly than otherwise," he said. "We only have so much money to spend. Either you spend it on expanding service, or in some other, nonservice area."

Woodbury said companies such as ATC may offer lower wages and benefits, but they also have central staffs that can consolidate tasks, providing efficiencies of scale.

Without a privatized system, "the costs just mount up," he said.

But organized labor is leery at best of the alleged benefits of privatization.

"What we've seen around the country is that privatization has been attempted in just about every service the government provides," said Kerry Corpi, research and collective bargaining director for the American Federation of State, County and Municipal Employees. "What we often see is that the savings that people claim they are going to get never materialize."

And as about 80,000 regular local bus riders know, privatized systems have risks. Not only can labor disputes disrupt an essential service, but once privatized, a service also is difficult to turn back into one run by the government, Corpi said.

"Governments find that the cost savings aren't there, that they've had a loss of control and quality of the service," she said. "That's when a lot of governments find that they're high and dry. They've lost the ability to provide a crucial service."

Bringing a service back to the public sector often means painstakingly rebuilding an infrastructure from scratch. But Corpi suspects one reason there is pressure to privatize and keep services private is the deep pockets some companies have.

Companies frequently return some of their government fees in the form of campaign contributions to the political representatives who grant contracts.

A local example might be Republic Services, the corporation that succeeded Silver State. Republic has contracts with Las Vegas and Clark County.

Republic and its subsidiaries contribute heavily to the political campaign of the city and county boards candidates. Campaign filings show that ATC didn't make any contributions in the most recent filing period.

Government officials, though, say that contributions have nothing to do with the decisions and defend using contractors.

Government's role

Las Vegas' bus system won praise in a January 2001 study of seven urban systems. Jonathan Richmond, a transit analyst, consultant and then-researcher at Harvard University's John F. Kennedy School of Government, gave the system high marks, calling it one of the best examples of private-public cooperation in transit management.

Last week he criticized the RTC for keeping its distance in the labor dispute.

"The RTC has managed to keep a very low profile in this situation when in fact the RTC is responsible for setting the rules of the game," he said.

RTC General Manager Jacob Snow said state and federal labor and transit rules make it impossible for his agency to set minimum wage and benefit standards or to require binding arbitration.

In such a setup, the problem is that management and the drivers are almost doomed to an acrimonious relationship because the company must keep wages and costs down to maintain profit, which government-run entities don't have to struggle with, Richmond said.

"The RTC has to come to terms with the root of the strike," he said.

Traditionally, elected boards or agency managers maintain policymaking responsibilities for services even when they are provided by a private company. But Corpi warned that the companies inevitably affect policy that might not be intended by the political leadership or the voters.

"They can be a kind of shadow government," she said. "What's troubling is that the whole contractor work force is not subject to the same kind of oversight that a government agency is."

One example is that companies do not have to reveal information that would be open for public inspection from a government agency.

ATC, for example, has revealed few details about how many drivers are actually on the roads during the strike. The same information would be routinely revealed if the RTC were running the system directly.

Control

Corpi also warned that the kind of competition that was supposed to foster lower costs for governments contracting out work is evaporating. For example, among transit operations, three of four multinational corporations -- including ATC, a subsidiary of an English company -- dominate the field.

"It used to be mom-and-pop, local operations, but more and more these operations are being bought up by multinational corporations," she said. "There's often not a lot of competition left.

"Not only have they lost control as government officials, but the control is overseas."

But Michael said larger companies such as ATC provide an important benefit. In the case of a service disruption, it can pull in resources from other areas to get back on track, she said.

In a natural disaster the company could bring in buses from other parts of the country. In labor troubles it can bring in workers from other affiliates, she said.

For RTC officials, the efficiencies of privatizing made sense.

Until now, "it's been a huge success story," Snow said. If the drivers were direct government workers -- an option strongly favored by the Amalgamated Transit Union and the drivers themselves -- the RTC would be paying them $27 an hour.

If wage and benefit costs go up, then service goes down, he said.

"We would have to cut service on the street 30 (percent) to 40 percent."

In his study, Richmond noted a problem at ATC: Drivers started at about $10 an hour, which isn't competitive with area businesses. Union officials have also protested the pay and the lack of paid holidays.

RTC officials said the issue is balancing reality with what they would like.

"In the best of all possible worlds, we would have a bus stopping in front of everybody's house every five minutes and drivers would get $35 an hour with fully paid benefits," Woodbury said. "That's not realistic.

"We made a decision a decade ago to contract with a company to provide long-term expertise, where we could still maintain policy control, and provide a greater level of service than a fully municipal system."

archive