Tag Archives: costs

The Cost of Saving Money

Last year, In the Public Interest released a report that highlighted a harmful but frequently overlooked way in which our tax dollars are fueling income inequality.

Every time a city or state outsources a public service to a low-wage contractor, the community loses. Taxpayers have to make up the difference in the form of nutrition assistance, healthcare coverage, and other programs designed to help people working for minimum wage and living in poverty. The report included examples from across the country, including public servants in Costa Mesa and Fresno, CA, who either lost their jobs to – or were at risk of being replaced by – low-wage contractors.

There are a number of problems with government outsourcing–aka “privatization”–and a copious academic literature documenting those problems. When government provides services through surrogates–via third-party contracts–it needs different management skills (skills that are relatively rare in government agencies, meaning oversight is hit or miss). Mayors and governors often give in to the temptation to reward their cronies with lucrative contracts. (Indeed, privatization has become the current form of patronage). And the promised savings are rarely realized, even without accounting for the problem identified by the report.

There are certainly times when outsourcing makes sense, but far too often the decision has been made on the basis of a near-religious belief in the superior performance of the private sector. As this report suggests, those perceived “efficiencies” can end up costing us in less visible but no less expensive ways.

There really is no such thing as a free lunch.


It Really Sucks to be Poor

It costs a lot to be poor. Just a few examples:

A recent report released by the Office of the Inspector General (OIG) of the U.S. Postal Service reports that 68 million Americans — more than a quarter of all U.S. households – have no checking or savings accounts.

How do people get along in a society where payments are made by check, or increasingly, electronic transfer? How do the (growing numbers of) people scraping along paycheck to paycheck access short-term loans when they hit a rough spot?

Evidently, by spending a lot more than the rest of us.

According to the report, these households collectively spent about $89 billion in 2012 on interest and fees for non-bank financial services like payday loans and check cashing. That works out to an average of $2,412 per household. The average underserved household spends an astonishing 10 percent of its annual income on interest and fees — about the same amount they spend on food.

As Senator Elizabeth Warren wrote in a column commenting on the report, “The poor pay more, and that’s one of the reasons people get trapped at the bottom of the economic ladder.” Poor people disproportionately rely on the check-cashing stores, pawnshops, payday lenders, and other predatory financial services that took customers for $89 billion in interest and fees in 2012.

But poor people have to contend with more than just predatory lending; they have fewer options across the board.

A few days ago, I wrote about the connection between poverty and marriage; it appears that despite the undeniable correlation between the two, we had the cause and effect backward. Poverty prevents many poor single moms from marrying in the first place. Subsequently, I found research (from professors of psychology and and organizational management) demonstrating that poverty also makes it harder for poor couples who are married to stay that way.

The problem is not that poor people fail to appreciate the importance of marriage, nor is it that poor and wealthy Americans differ in which factors they believe are important in a good marriage. The problem is that the same trends that have exacerbated inequality since 1980 — unemployment, juggling multiple jobs and so on — have also made it increasingly difficult for less wealthy Americans to invest the time and other resources needed to sustain a strong marital bond.

Poor people divorce at a rate that is thirty percent higher than their wealthier peers, with all of the emotional and financial distress that divorce brings in its wake.

Back in 2001, Barbara Ehrenreich wrote Nickeled and Dimed: On (Not) Getting Along in America, in which she documented the difficulties faced by low wage workers–  the added costs for shelter (the poor often have to spend much more on “rent by the week” fleabags than they would pay to rent a decent apartment because they can’t afford the security deposit and first-and-last month rent payments) and food (the poor often live in “food deserts” and have to buy food that is both more expensive and less healthy).

Let’s not even get into medical and dental care. That’s a subject for an entirely separate diatribe. (Folks who can’t afford regular, preventive care end up very sick in the ER, costing everyone more money.)

If we really expect poor people to “pull themselves up by their bootstraps,” maybe we should help them afford the bootstraps.


I Just Don’t Understand

There are a lot of positions conservatives take that I understand, although I disagree with them. There are sincere anti-abortion people who believe life begins at conception, for example. Belief in “fiscal responsibility” leads many people to draw (bad) analogies to household budgets and disputes over what sorts of behaviors actually are fiscally responsible.

I even understand–I think–where less intellectually respectable positions come from. The desire to roll back women’s rights to birth control, equal pay and similar markers of equality, the hysterical response to same-sex marriage (or even equal civil rights) for GLBT folks, the punitive attitudes toward immigrants and similar attitudes are pretty clearly part and parcel of a profound unease with contemporary realities, and a desire to return to a (largely imaginary) past.

But what in the world motivates opposition to mass transit?

A couple of years ago, Chris Christie–the Republican Governor of New Jersey–killed one of the most important transit projects in the country: a tunnel that would have linked his state to Manhattan and relieved the congestion that currently chokes both. At the time, he claimed his reasons were financial–that New Jersey’s share of the costs were simply too high.

Yesterday, it turned out he was lying.  Not mistaken, not misinformed. Lying.

I hope everyone reading this will click through and read the whole report. This is absolutely bizarre behavior, but what makes it worse is a passing reference in the article to the fact that opposition to mass transit has become part of the conservative “creed.”

Why in the world would someone have a philosophical opposition to transit? I certainly understand believing that a particular project is not well thought-out, or too expensive or otherwise flawed, but opposition to all mass transit? To suggest such a belief sounds paranoid.

The tunnel Christie killed is desperately needed, and had been planned for many years. It would have relieved congestion and helped the environment (okay, I realize that conservatives also reject science and the fact of climate change, but still). If built on schedule, it would also have created jobs at a time when those jobs were desperately needed.

I thought Christie was stupid and short-sighted for pulling the plug over up-front costs that would be recouped (many times over) over the long-term. But stupid and short-sighted are explicable; flat-out lying in order to justify an otherwise inexplicable decision is beyond my ability to understand.


The Shadow Government

A fair amount of my academic research has addressed issues of government privatization–or more accurately, contracting out. (Privatization, as Morton Marcus frequently notes, is what Margaret Thatcher did in England: selling off government enterprises to private sector owners. In the US, privatization means providing government services through for-profit or nonprofit contractors–a very different thing.)

My research has convinced me of three things: 1) while contracting may be appropriate under some circumstances, it is not the panacea that so many politicians seem to think. Sometimes it makes sense, often not. 2) the cost savings that are touted by privatization advocates are largely mythical, the result of omitting the cost to government of contract management–or the even greater costs of failing to manage those contracts. And 3) far from shrinking the size of government, as proponents contend, contracting actually expands both the size and scope of government, while at the same time making that expansion less visible and government less accountable.

Two recent studies confirm those latter conclusions.

A few weeks ago, the Government Accounting Office released the results of its investigation of contracting costs. It found that contracting was often more costly than providing the same services in-house. And just a few days ago, during a debate over a proposed federal contracting rule, the number of of federal contract workers–people working full-time for the federal government who are contract workers rather than federal employees–was estimated at approximately 7.1 million. That’s in contrast to the full-time civilian federal workforce of 2.1 million.  The Economic Policy Institute estimates that 43% of all employees who do the government’s work are employed by contractors. (It further estimates that 20% of that 43% are paid “poverty wages.”)

It isn’t only the federal government, of course. When you add the “shadow” employees working under contract for state and local governments, estimates of the number of contracted government employees run as high as 17 million. It’s impossible to know for certain, because there is very little data available that would allow governments to monitor these workers, and considerable resistance from the business community to the Obama administration’s recent efforts to collect and analyze such information.

It’s very difficult to hold government accountable when you can’t see government at work. Contract workers need to come out of the shadows.

Death and Taxes

These days, those of us who follow policy debates are suffering from overload: same-sex marriage, immigration policy, foreign policy—not to mention the re-emergence of pocketbook issues like collective bargaining rights—are generating lots of heat, if distressingly little light.

And then, of course, there are the perennial complaints about taxes.

Everyone, it seems, wants government to cost less–until someone suggests cuts to our particular sacred cows. In Washington, we see lawmakers eager to de-fund Planned Parenthood and NPR become livid when someone suggests cutting military spending. Here in Indiana, an eminently reasonable proposal by Governor Daniels and the Chief Justice to incarcerate fewer nonviolent offenders and save the billions of tax dollars that we would otherwise spend building additional prisons has been eviscerated by defenders of “law and order.”

In fact, the criminal justice system offers one of the best opportunities to save significant tax dollars, beginning with abolition of the death penalty.

People have different opinions about the morality of capital punishment, and I leave those arguments to ethicists and theologians. There are, however, some pretty compelling practical and fiscal arguments for abolition.

As a practical matter, years of scholarship have confirmed that capital punishment is not a deterrent. In 2009, states with the death penalty had murder rates of 5.2 per 100,000 residents; in states without, the rate was 3.9—a 35% difference. Police agree. In a recent poll, police chiefs ranked the death penalty last among ways to reduce violent crime; they also considered it the least efficient use of taxpayer money, and complained that it diverted money from more effective crime control measures.

Which brings us to the fiscal issues.

In 2010, Legislative Services analyzed capital punishment costs in Indiana, and determined that the average cost of a capital trial and direct appeal was 449,000–over ten times the 42,658 cost of a life-without-parole case.  In California, taxpayers pay 114,000,000 more each year than it would cost to keep those same offenders imprisoned for life. In Kansas, capital cases are 70% more expensive than non-capital cases, even including the costs of lifelong incarceration. In Texas, a death penalty case costs three times what it would cost to imprison someone in a single cell at the highest security level for 40 years.

Advocates of the death penalty often complain that the higher costs are a result of “interminable appeals,” but that isn’t actually true. Appeals do add costs, but a capital trial is very expensive. Cells on death row and extra staff cost more.

We could eliminate appeals and execute people immediately upon conviction. That would save money. Unfortunately, such a proposal raises another pesky problem we have with capital punishment—the fact that we convict innocent people. Since 1973, over 130 people have been released from death row because they were found to be innocent. These were not folks freed on a “technicality,” they were people wrongfully convicted.

One of those people will be in Indianapolis on April 14th. Randy Steidl will speak at the IUPUI Campus Center at 7 p.m. about the 17 years he spent on death row for a crime he didn’t commit. Randy comes from a law-abiding middle-class family; his brother is a retired State Trooper. His story is troubling, to say the least: there was evidence of the sort of police and prosecutorial misconduct that—more often than we might like to think—accompanies the rush to solve high-profile murders.

As Steidl says, “If it happened to me, it can happen to anyone.”

I guess that’s one of those “moral” arguments I said I wasn’t going to make.