A Hoosier Cautionary Tale

First Kansas. Now Indiana. One by one, the pillars of conservative fundamentalism are failing real-world tests.

Under then-Governor Pence, Indiana negotiated a much-ballyhood 35-year “public-private partnership” with the Spanish firm Insolux Corsan to build and maintain a portion of Interstate 69, between Bloomington and Indianapolis. The project has dragged on and on, making trips between Bloomington and Indianapolis slow and treacherous. (I know this from personal experience; faculty of IU routinely make the trip between campuses, and I’ve done my share of cursing while in transit.)

The original contract called for a completion date of October, 2016; that date has been pushed back four times amid media reports suggesting that the state’s private partner was as slow in paying subcontractors as it was in building the highway. Now, it appears the contractor is going bankrupt. The Indianapolis Star reports that the state “intends to take control of the troubled I-69 project from Bloomington to Martinsville as the public-private partnership used to finance and build the highway crumbles.”

It is a GOP article of faith that the private sector is always more efficient and more competent than government, and that contracting out–privatization–saves money. In the uncongenial place called the real world, it seldom works out that way. The collapse–or “crumbling”–of this particular partnership joins a long line of failed privatization schemes, some scandalous and corrupt, many simply ineffective and expensive, that have ended up costing taxpayers more than if government had done the job.

This isn’t to say that contracting out is always a bad idea. As I’ve said repeatedly, the issue isn’t whether to work with the private sector, but when and how. Public officials need to carefully evaluate proposed contracting arrangements: is this something government routinely does, or an unusual task requiring specialized expertise that the agency doesn’t have? If the motive is saving money, how realistic is that? (After all, private entities have to pay taxes, and their bids will reflect that expense.) Does the contracting agency have the expertise needed to properly negotiate the contract and monitor the contractor? Have all the risks been weighed, and due diligence exercised?

Do the officials making the decision recognize that contracting with a third party won’t relieve the government agency of its ultimate responsibility to see that the project is properly completed or the service is properly rendered?

Are there situations where public-private partnerships are both appropriate and competently structured? Of course. The Brookings Institution recently reported on the success of the Copenhagen City and Port Development Corporation in revitalizing Copenhagen’s waterfront. I was particularly struck by this description of that effort:

The approach deploys an innovative institutional vehicle—a publicly owned, privately run corporation—to achieve the high-level management and value appreciation of assets more commonly found in the private sector while retaining development profits for public use.(emphasis mine)

Two elements of this particular partnership stand out: (1) it was formed to execute a lengthy, difficult and highly complex project requiring skills that few municipal governments have in-house; and (2) it distributed risk and reward in a way that ensured taxpayers would benefit financially from the project’s success.

In contrast, virtually every American contract I’ve seen has socialized the risk and privatized the reward; that is, taxpayers have assumed the risks of cost overruns, unanticipated problems and project failures, while the private contractors have reaped the lions’ share of the profits.(Trump’s infrastructure plan–to the extent it exists–would take that formula to new heights. Or lows…)

I69 and the Indianapolis parking meter fiasco are just two of the more recent examples of what happens when privatization is a mantra–a semi-religious belief–rather than one of several strategically deployed tools in the public toolbox.

Personal P.S. Thanks to all of you who posted good wishes for my husband’s surgery. All went well, and he’s home (with a very rakish temporary eye patch).

28 thoughts on “A Hoosier Cautionary Tale

  1. In 2011, the Project on Government Oversight (POGO) published a report on the costs involved with outsourcing jobs provided by government agencies. The study described in the report compared the cost of having a job done by an employee of the government and by an employee of a private firm. Three things were compared for 35 job classifications: the total compensation of the government employee (including a pension), the total compensation of the private firm’s employee, and the amount of money billed to the government by the private firm (which includes overhead costs).

    In all 35 job classifications, the compensation of the private firm’s employees was lower than that of the government employees. But in 33 of the job classifications, the amount of money billed to the government agency exceeded the total cost of having the job done by a government employee by as much as a factor of two.

    The difference in costs was due to the overhead costs charged by the private firms. The executives of a private firm are paid more than the administrators at government agencies, and the private firms must pay dividends to shareholders, something government agencies do not do. If it costs about twice as much to have (say) a food processing plant inspected by a private contractor than by a government employee, outsourcing the task does not reduce government spending. So where is the saving?

  2. An economist friend of mine put it well (in response to the short-fingered vulgarian’s proposal to privatize ATC): Privatization without regulation or competition is just theft.

  3. One thing we all have to remember :: the great swath of ’empty’ counties (which actually control the Gen. Ass.) don’t really care about getting from Martinsville to Bloomington. There’s nothing but a bunch of lefties down there anyway, and we’d be better off if that place just dried up anyway.
    Sad, but I know this to be true.

  4. I-69 has become Mitch Daniels’ eternal road to nowhere. The trip to my granddaughter’s wedding in Bloomington last Saturday gave me a first-hand view of the unnecessary destruction of once beautiful Indiana countryside; no evidence remained of the homes, farms, businesses or small town areas which were sacrificed to make way for this continuing Indiana tax fiasco. We passed miles of devastated areas which instantly reminded me of the destruction I saw years ago caused by strip mining in Virginia, West Virginia and areas of Kentucky. Progress does not always mean improvement…especially when it was unnecessary, unneeded, drained the Indiana tax base and still has not reached its destination, with no end in sight.

  5. Patrick writes, “Privatization without regulation or competition is just theft.”

    Correct.

    But who also benefits in this theft?

    These private contractors “pay-to-play” this game with our local, state and federal government. All the contractors provide kickbacks to the politicians and/or political parties.

    This is how our Kleptocracy works. Until the press exposes the underpinnings of corruption in both political parties, nothing will change.

    There was a day you could track all the monies funneling back to our government officials, but thanks to SCOTUS and avoidance schemes, they can wash the money just like our drug lords.

    Also, privatization of government is part of the Neoliberals creed and has been crushing this country for 40 years. Remember what Grover Norquist said, “The smaller the government the better.”

    The Libertarian Koch brothers have been paying billions to ensure the government is completely privatized. They’ve been winning while the Establishment Democrats work to make life great for Wall Street.

    Main Street loses and has NO party looking out for them.

  6. I would also suggest that government rules about accepting the lowest bid rather than most qualified bid are doing us no favors. Often one bid is wildly lower than the others and you can only ask “I wonder what they left out?” I think just switching to second lowest bid would do government a lot of good in the long run.

  7. Todd; and what is the connection between those private contractors and government officials? Daniels and Pence to name two primary contacts with support from sitting officials to approve the expansion. Under Goldsmith, contracts were awarded at times with no required bid opportunities, jobs were doled out with no contracts. The Metropolitan Development Commission rubber-stamped everything he put through their decision-making process with many of them being awarded to Ohio developers thanks to his financial adviser Warren Tyler, vice president of a bank in Columbus, Ohio. One of the worst was selling 15 pieces of property on Indiana Avenue to a Hamilton, Ohio, developer for $82,000. It was the area south of 10th Street which had been given to the city by Beurt SerVass during the Hudnut administration. What is that area worth etoday? Just an example of wheeling-dealing by Republicans in this city by lower level elected officials. I-69 plans began 25 years ago during the Goldsmith administration; passed into being by Mitch Daniels and still we wait to see IF it will be completed – NOT when.

  8. The math is quite simple, really. If it costs X to build a project, the cost is X. A public entity can do the project for X. But a private company needs X + Y (profits) + Z (money to pay the taxes on &). Given that Y and Z are positive numbers, X < X+Y+Z.

  9. Using David’s formula there is no way a privatized function could be done cheaper than by the government.

    Then wingnuts whine the government shouldn’t be competing for jobs with the private sector. Shaming the government from taking care of the people and country only exacerbates privatized theft.

  10. One of the things I wonder when I travel on that streach is where the hell is INDOT? To not have their daily and intense oversight is insane. That agency has a long term experience with these type of projects from design to close out. If you allow a contractor to be in charge of quality control and schedule it is akin to allowing the fox to control henhouse security. I have over 26 years in manament of big ticket projects. There is no excuse for these cost over runs and schedule creep. This has been a boondoggle from the start and continues to go downhill and I blame it on the politicians.

  11. This immediately brought to mind the IBM contract debacle that Mitch Daniels got us into. What a mess! We will be paying for that for decades.

  12. Indiana got lots of money from the toll road deal. That could be used to finish I69. Oh, wait, they spent it already.

  13. Outsourcing was never about efficiencies or savings. Like school “choice,” it’s about transferring wealth to those the right considers more deserving, and at its worst it’s no more than theft. Things are much worse in the UK – almost every privatisation/contracting arrangement there has gone badly awry.

  14. I was not living in Indiana when this “deal” was made, but I’ll bet that every part of the media (print, TV, radio) helped to sell it to the public as …. jobs, jobs, jobs. No questions asked. Of course the rubes bought it, just as they continue to buy the bs that pours out of the Republican statehouse.

  15. To all who are making connections today; let us not forget our latest expensive boondoggle, perpetrated by president ELECT Donald Trump ably assisted by then Gov. Mike Pence…Carrier Corp. and that $2 MILLION Indiana tax dollar payoff to save less than 300 jobs. Some of those tax dollars will be coming from the almost 1,000 Carrier employees who lost their jobs due to Trump/Pence political scamming. And we received no cautionary warning prior to that action as we did long before I-69 got underway. Just a few instances locally when we should have had a large jar of Vaseline at hand.

  16. Like Humpty Dumpty who all the kings horses and all the king’s men couldn’t put together again; all the Republicans in Indiana cannot seem to complete I-69. In a Biblical sense; they have ignored the mounting and various problems like Pharaoh ignored the Seven Plagues of Egypt.

  17. Anywhere you find a pile of public money you will find Wall Street sniffing around trying to get a piece of the action, such as healthcare, defense, infrastructure, education etc., all preceded, of course, with talk of jobs, how private enterprise is always more efficicient than government and other propaganda designed to soften up the masses for the kill. Little if any of the small print where government abandons its responsibility to its citizens with “what if” goodies in such contracts is discussed in such propaganda storms to the media. Privatization is running amok; we even have Blackwater types playing military, which I suppose is next on the privatization list since there is a pile of money there to be exploited, a pile Trump proposes to greatly increase when we already have a military budget in excess of the combined total of the rest of the civilized world, and with giant defense contractors such as Boeing, General Electric and others who have not paid any income tax on their huge profits five years running. Defense? No. Scam? Yes.

  18. One of our stops in Europe was Nuremberg. Of course it is well known for the post WWII war crime trials but less well known as one of the major foci for Nazi propaganda. There still stands facilities for rallies of half a million folks to be exposed to pomp and circumstance and passionate advertising for the Nazi solutions to the Nazi defined problems that let Germans blame others for their failings and rally behind the one person who could solve them.

    Of course when all was said and done there were two sets of victims of the products being sold at those rallies. The Axis and the Allies. Good German citizens were reduced to animals and paid with everything they had for their seduction.

    It is certainly a stretch from that to Hoosier highways but the point they share is seduction by advertising (propaganda).

    How many people have fallen for the myth that corporations are strictly benign and government malignant?

    Perhaps the lyrics are different but the tune is the same. I alone can solve the problem that I defined as the source of your discontent.

    That sells Lincolns, soap, privatizing and world domination.

    Unless we develop resistance, it could prove to be a fatal infection as the good citizens of WWII Germany learned the hard way.

  19. The lack of a knowledgeable, state-level news media — with a working memory — linked to and caring about each Hoosier locality is really hurting us in this case and so many others. Stories like this one disappear into the froth of whatever easy-to-report thing is going on today and are never seen again, despite the fact that they need to be followed with persistent intensity.

  20. Having a career in IT, I saw this stupidity all of the time. They would hire contractors to do a project and pay massive amounts of money to the company and peanuts to the person actually doing the job (with no measurable benefits like health care or vacation time). It was disgusting and didn’t save any money. These contractors that are going bankrupt? They should never be allowed to do this because somewhere, somehow, the fix was in and someone got rich off this and it wasn’t the poor schmucks that did the labor. They are just out of luck, out of a job and now, on unemployment and medicaid and food stamps. We tax payers are getting the shaft.

  21. As one who travels this road monthly I agree between Martinsville and Bloomington IN37 is agonizing.
    However, from Bedford to Evansville traveling I69 is now a Sales Rep’s dream. I have been able to cut 1 to 1.5 hours off my normal 4 hour drive between north side Indy and Evansville.

  22. I moved to Long Island as a single woman. There was lots of talk about the new sewer being built. During the following years , I fell in love and married, had four children. When we left to move to Texas, the sewer was being rebuilt because of bad defects. I don’t know how it turned out.

  23. truckers hate toll roads, since 1998 the pennsyvania turnpike has increase 300%(loaded semi today,ohio to philidelphia,140.00 bucks) and they were also in process to toll I-80 but state consitution prohibited the move,but,they did manage to shift some turnpike money to I 80, until the recent installment of the present govenor,the state relized how far out they were on finding and upkeep,prior govenors said tax cuts! and the system feel apart. the goal here is like ohio,indiana,and penna. starve the system so bad and complain about taxes till we agree to go private. now, lets take a fact, all people who are consumers benifit from the public highway system. if we allow a few to disengage from paying taxes, then maybe they want a horse and buggy,instead. but being its not going to happen, we ALL pay taxes,a little,to be free from profits of whoever,and wall street, profits are just another way to bleed the american worker from his minial paycheck today while trump and his buddies celebrate our enduring dedication to supporting our demise.. again if the wages are low, so is the tax base, hense,since reagan, wages have stagnated,like our tax base. america was on a decent roll in the 50s to the 70s, because we has a vibrant economy,and taxes stayed in place to support whta america is all about,fair,equtable living. until reagan,and the mob in washington of today,dont buy this private scam, and dont allow this congress to believe we want this. also, theres a little known item, the construction workers in this country get a mandated wage,from the DAVIS-BACON ACT, if your employed on a fereral or state federal highway project,you get paid,for your work,time to complete,and safety. these trained and dedicated people all, have some of the toughest job standards and job requirements. they deserve this pay, bring in new workers,takes a long time to learn how to do these jobs,and stay alive while doing them, no amount of safety is enough,but, they damn sure earn it. dont allow the davis-bacon act be a barganing chip for so called job creation, its good to create jobs,but as you can see,when hot air politician breaths jobs,ask, how much do they pay? this is the biggest scam in politcal history, when were taking social programs and forcing people to take jobs,its obvious its minimum wage jobs,and wall street is just gleeming at more profits here. Im sure no one wants a bunch of new employees building a bridge your depending on. like my truck,next to your car,as we leave the toll booth…to cross the river…. We,in the trucking industry dispise tolls, and we get hit sometimes 10 times what a car pays. no one likes taxes,but id rather pay a little at the pump, to see joe family drive down the road with all kids in tow,to a beach,the mountians,picnics,sights,grandmas,and the like,spending their hard earn pay in local economies,and not have to be further burden by tolls taking more,than if we all chipped in.. greed sucks…. drive safe,and remember,someones mom,dad or relation,is working in that cone zone, respect what they do, its afterall, for the best of america..

  24. Jack, can you please get your space bar fixed. And the Enter key allows for paragraph spacing. Just fyi.

  25. If the requirement for material and construction specifications to complete I-69 is a carbon copy of the specs for the original road, then forget about it. I spent a week driving to and from Fishers and Anderson. I couldn’t believe the condition of the roadbed had deteriorated to such an extent. I attribute it to poor planning, poor materials, poor workmanship PLUS the volume of heavy truck trafficking. In other parts of the U.S. highways are protected by weigh stations to determine if trucks are overloaded (you know they are if it means higher profits). That, combined with charlatans in government, crooks in contracting, and in specification trimming. Indiana should be ashamed of the condition of I-69, constantly under patchwork “repair” by contractors and inspectors who are screwing the taxpayers. Kick ’em all out in 2018. Oppose the GOP up and down the ballot in 2018. Get a road from the northern to the southern Indiana state lines we and the whole country can be proud of and get it QUICK. It’s DANGEROUS. Supposedly it’s part of the Interstate Highway System but, until it’s done right, it’s a disgrace. Truckers must really be complaining.

  26. Just a reminder: whenever a pro-privatization politician talks about creating, “Jobs, Jobs, Jobs,” they never mention the fact that the new jobs being created will likely displace existing governmental employees, or, at the least, lead to diminished hiring of same. If someone calls them on it, they will tout the lower pay and less if any benefits as cost savings for the taxpayer. Which is nonsense, as we have seen: any “savings” go to shareholders as dividends or to the private company’s executives in pay increases or bonuses.

    In the unusual case where it ONLY costs as much as the government – run program, don’t forget that the private enterprise pays employees less. Those employees do not have the purchasing power of the government employees they replaced, so the local economy suffers.

    Bottom line is less money for the working class and local merchants, and more money for upper management and shareholders.

  27. And lest we forget. Indiana has a brand spanking new coal power plant where the taxpayer assumed the costs of overruns without any assurance this new plant will meet clean energy standards since the basis of the “clean” calculation is the coal is mined nearby and not the more typically accepted scrubbing the hard chemicals before they burn the coal. What a deal

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