Sequestration & The Threat of Privatization: A Statement from The Praxis Project


Sequestration & The Threat of Privatization: A Statement from The Praxis Project

In case you haven’t heard the thud sound from the sky falling or felt your frostbitten limbs from hell officially freezing over—Congress and the President were unable to reach a budget agreement on their own construct of balancing tax revenues and spending cuts. So the “across the board” federal spending cuts known as “The Sequester” begins today. But the actual cuts don’t go into effect until March 27th, when the continuing resolution extended through the fiscal cliff negotiations officially ends, leaving Congress and the White House some room to negotiate a budget, or to reshape what the federal spending cuts will be.

Sequestration is no big surprise

Remember the fiscal cliff drama from 2012? Well, sequestration was created as part of that negotiation embedded in the Budget Control Act passed by Congress in 2011. It was a self-imposed catastrophe, a worst possible scenario to ensure that they would do everything to come to an agreement on the federal budget, and end the stalemate over whether the best way to grow the sluggish economy is with spending cuts or raising taxes on the wealthy and closing various tax loopholes that also benefit the superrich.

Since the fiscal cliff deal in 2012 focused heavily on taxes, it is important to note that, according to analysis by the National Priorities Project of Office of Management and Budget (OMB) data on their website, 80% of projected revenue for FY2013 comes from individual income taxes and payroll taxes. Corporate taxes only account for 12% of all revenue. Yet, corporate interests have been able to successfully construct the narrative that spending cuts must come from “entitlement programs” (Medicaid, Medicare, Social Security, Unemployment Insurance, etc). And, that same narrative has been used to justify the particular cuts included in the sequestration.

Are the proposed cuts really equal?

Many groups have done an excellent job quantifying the disproportionate impact that the sequestration spending cuts will have on communities of color including analysis shared by panelists hosted by the Joint Center for Political and Economic Studies this week. In their analysis, the non-defense discretionary programs such as WIC, Head Start, Section 8, Medicaid, and SNAP are all on the chopping block. These social program cuts are seen on equal footing with defense cuts, which amount to 80% of the Gross Domestic Product (GDP) and (coupled with the Bush-era tax cuts) account for 50% of the national debt. In comparison, non-defense discriminatory funds amount to just 4% of the GDP (down from 7% at their highest in 1976) and do not contribute to the national debt in any significant way.  Upon examination of the non-defense discretionary programs that would be cut, 71% of children enrolled in Head Start are children of color, more than two-thirds of those enrolled in WIC are people of color, and moreover SNAP is a proven economic stimulus increasing the GDP by $1.72 for every $1 spent on the program.  So why are defense and non-defense spending cuts being weighted equally?

Bill Moyers and Michael Winship point out from Paul Krugman’s book End This Depression Now! that politicians and Big Money interests, as they name them, have built a narrative, or “myth of public austerity,” that “everyone” must give up something to pull us out of debt. However, while these same interests preach austerity and shrinking government, they privately lobby to secure government subsidies for their own interests.

Beware of Privatization

With sequestration and tightening budgets, state and local governments will feel an even greater burden in maintaining basic public services like transportation, housing, education, and healthcare. With a firm, national tide against raising taxes and the dwindling of federal funds, state and local governments are more often turning to the private sector to fill the funding gaps. This trend toward privatization of public goods and services has been growing in the last two decades, framed as an “efficient” alternative to “bureaucratic” government processes and timelines.

Often, local governments will partner with private companies to carry out the services, known as public-private partnerships. And, these usually entail significant financial subsidies for the private entity through tax breaks, land grants, and zoning changes. There is little disagreement between Republicans and Democrats on public-private partnerships. Both largely see it is a positive trend and both party leaders have advanced these policies in states and municipalities all over the country.

What has not been analyzed in the fiscal cliff and sequestration debate is how the privatization of public services has actually contributed to the enormous debt we now face and how it will continue to bury us further in debt if private entities continue to get subsidized by public coffers.  Instead, our attention is often drawn to the costs of federal employees, including US postal workers, who have been targeted for downsizing.  But the federal government spends over half a trillion dollars or 14% of the federal budget on private contracts every year, double what it was in 2000. This amounts to a nearly 100% increase in private contract spending in the past decade. According to the Project on Government Oversight, “contractor services cost almost two times more—and in the case of the Pentagon as much as six times more—what it would cost if the same work was performed by a federal employee. The move to ‘smaller government’ by outsourcing work has in fact created an enormous shadow government of contractors that are largely or entirely dependent on taxpayers for their revenues.”

In addition to the increased financial burden this creates over time in the public sector, the social costs are also enormous. With limited public oversight, privatizing services often leads to limited and inequitable access to those resources, increased violations of workers’ rights, and a weakened chain of accountability. As the hype of the sequestration and debt ceiling heightens, the private sector gains more leverage as they get framed as the fiscal alternative. State and local governments should be wary of this approach as the evidence increasingly shows that privatization – from parks to schools and to prisons have meant negatively disproportionate impacts on communities of color.

In some ways, sequestration is an opportunity to engage in a public conversation about federal spending and what our national priorities should be. However, it is important for advocates to pay close attention to its impact and potential impact at the state and local levels and be ready to move alternative approaches like participatory budgeting, land valuation and other more democratic methods for managing the public’s business.

Learn more about the problems of privatization and how communities are learning to manage together during tough financial times.