Thursday, May 6, 2010 (517) 281-4731

Outsourcing state jobs to private sector often results in higher costs, waste

LANSING – With a $2-billion state budget deficit and a deadline for resolving it fast approaching, citizens groups today called on the Michigan Legislature to pass a plan requiring the government to review and audit private contracts to ensure they do not raise costs or waste taxpayer dollars.

“Michigan must squeeze value out of every dollar during these tough economic times,” said Cyndi Roper, executive director for A Better Michigan Future. “We cannot afford to waste taxpayer dollars by outsourcing jobs to the private sector if it will cost more. Michigan’s struggling families demand and deserve full accountability, and ensuring private contracts don’t waste tax dollars is a step in the right direction that will save money and fix our broken budget.”

A coalition of more than 30 organizations representing 2 million Michigan citizens, A Better Michigan Future today called on the Legislature to pass the Public Service Accountability Act, which was introduced in the House earlier this year. The plan holds state government accountable to the public by requiring evaluations of whether privatization of public services actually saves taxpayer money. The State of Michigan spends $16 billion in tax dollars every year on private contracts.

The Public Service Accountability Act requires the following protections:

  • A cost-benefit analysis before the state gives out or renews a private contract, comparing the costs of the service between the private sector and public workers. The analysis must include a range of other factors, such as whether the private company is adequately bonded to avoid liability or future legal action; all hidden costs incurred from monitoring, oversight and more; and other up-to-date information.
  • Companies that contract with the state will be subject to the Freedom of Information Act.
  • Members of the House and Senate appropriations committees can request a comprehensive audit of a private company that has a contract with the state.

“Lansing must end the destructive and reckless strategy of slashing vital public services like education, health care and public safety,” said William Ruhf, President of SEIU Local 517M. “Michigan families are tired of watching politicians take the ax to critical services and put our families at risk, while private contractors pad their profits. All too often, we hear about private services costing more and providing less value, and that’s why we must pass the Public Service Accountability Act now.”

A recent Clarion Group study examining 10 private contracts between New Jersey public schools and private outsourcing companies found the companies overcharged for insurance, illegally withheld rebates and engaged in questionable bidding practices.

Another report, “Profits First, School Kids Last,” also put the spotlight on how multinational outsourcing giant Sodexo, which provides food and janitorial services at thousands of U.S. schools and posted $1 billion in profits in 2009, actually hurts state and local budgets. The report showed that Sodexo pays its workers wages that are barely above the minimum wage and does not provide affordable health insurance, forcing those same workers to rely on local assistance programs.

“We must make sure that when we outsource services affecting kids, roads and bridges and general public safety, we put every safeguard and accountability standard in place,” said Rep. Sarah Roberts (D-St. Clair Shores). “Michigan must end contracts that do not save costs and waste taxpayer dollars. We cannot afford to do business with companies that provide sub-standard, unsafe and expensive services while some politicians continue to slash schools and cut teachers, police and firefighters.”

In addition to audits of private contracts, ABMF also calls on the Legislature to implement additional reforms to fix Michigan’s broken budget:

  • Implement a graduated income tax: Michigan is one of only seven states with a flat-rate tax. Michigan must modernize its tax code to ensure fairness and equity, while offering a tax cut to 90 percent of Michigan middle-class families and generate $600 million a year.
  • Close tax loopholes and CEO giveaways: Michigan must eliminate tax incentives and loopholes for companies that fail to create and retain jobs, while requiring yearly performance reviews for all remaining tax credits and incentives. In 2008, Michigan gave away nearly $32 billion in tax giveaways, at a time when the state generated only $26 billion in revenue.
  • Modernize the state’s sales tax: Michigan’s current sales tax is based on the old economy. Michigan must expand the sales tax to include services and luxury items to ensure stable revenue into the future, a move that could generate more than $1.6 billion a year.

For more information on A Better Michigan Future, visit


Leave a Reply

Your email address will not be published. Required fields are marked *

Post comment