• Make Tax Systems More Progressive
• Promote Fair Income and Estate Taxes
• Reform Property Taxes
• Broaden Base of Sales Tax To Include Services
• Make Corporations Pay Their Fair Share
• Better Enforcement of Tax Law
• Stop Rightwing Tax Campaigns
• Fix Failed Tax and Development Subsidies
• Review and Sunset Tax Expenditures
• Disclose Economic Subsidies
• Require Job Quality Standards and Other Reforms for Subsidy Recipients
• Stop Tax Subsidy Bidding Wars
• Reform Government Contracting and Restrict Privatization
• Measure and Disclose the Costs of Public Contracts
• Strengthen Contract Accountability
• Enforce Wage Standards on Contractors
• Restrict Asset Privatization
• Stop Pay to Play on Government Contracting
• Support the Health Care Infrastructure and Improve Long-Term Planning
• Stop Industry Profiteering Value For Your Health Care Dollar
• Reducing Prescription Drug Costs
• Rein in Abusive Marketing Practices to Cut Costs
• Ensure Drug Quality and Safety “Academic Detailing”
• Favor Drugs that are Less Expensive But Equality, or More, Effective
• Strengthen Negotiating Power with Drug Makers
• Increase Access to Prescription Drugs for Low-Income and Vulnerable Populations
  Health Insurance Regulations to Ensure Fairness and Access to Coverage
• Non-Profit Hospital “Community Benefits” Standards

In a debate too often dominated by rightwing tax cut rhetoric, there is a real opening for progressives to demand a fairer, more accountable tax and budget system. The public has a strong commitment to funding both social services and the long-term investments needed for economic growth, but state residents are frustrated by governments that they believe tax low- and middle-income residents too much and upper-income residents and corporations too little. Hidden economic giveaways to companies receiving tax breaks and government contracts only add to voters’ suspicion that state budgets serve those with money, not the average taxpayer. In response, a range of reforms at the state level are creating more transparent tax and budget decisions and strengthening voters’ trust that their tax money will actually go towards the important public services that they do support.

Tax reform that eases the burden on working families while demanding that the wealthy and corporations pay their fair share should be a core principle of the progressive movement. An April 2008 Gallup poll showed that 63% of Americans think upper-income people pay “too little” and 73% think corporations pay too little in taxes, with many state polls showing up to 80% of voters calling for higher tax rates on the wealthy. This desire reflects the reality that corporations and the wealthy pay a lower percentage of their income in state and local taxes than working families. Easing the tax burden away from working families is therefore a key part of creating broader political support for expanding popular support for social programs and public investments.

Budget and Tax Transparency as Strategy: To expose inequities in our tax and budget systems, a prime goal for progressives should be to promote “truth in budget” reforms that track the tax burden for different income groups, the extent of corporate loopholes and other tax giveaways, the hidden deals made when contracting out public services, and which companies receive state economic development money and government contracts. Such reforms give the public the tools for a more robust understanding of what really goes on with state money. And once special deals for corporate interests are exposed, it becomes easier to enact reforms that save taxpayers money and free up resources for other needed state programs.

Stop Failed Corporate Rip-offs of the Public: More transparency will highlight that tens of billions of dollars each year are lost to corporate tax loopholes and subsidies that deliver little in return. Progressives need to establish clear policies to eliminate such wasteful use of taxpayer dollars. States also need to crack down on wasteful economic development deals handed out to large corporations who have little to show in decent jobs created for state residents.

The other side of budget malfeasance is insider privatization—deals that hand fat public contracts to politically connected corporations. Privatization often just pads the corporate profits of those receiving public contracts and leasing government-owned assets (like highways). All across the country, “pay to play” corruption has led to indictments of public officials selling off government to the highest bidder. And the cost is not only the public trust, but poorly delivered public services, fraud, and the undermining of state economies as companies pay poverty wages and even offshore jobs overseas. Policies that create accountable standards for government contracts are needed to prevent corruption and help guarantee that public money is used to promote broader public policy goals.

A New Progressive Message on Economic Growth: In times of economic troubles and recession, the standard rightwing calls for more cutbacks on public investments and more tax giveaways to try to lure businesses to the state become that much louder. Yet the worst thing policymakers can do during temporary hard times is to cut back on the investments in education, university research, physical infrastructure, and worker training that actually do determine where companies want to do business in the
long term.

In Rethinking Growth Strategies, author Robert Lynch highlights the fact that state and local taxes are too small a part of a typical company’s costs to determine plant location, so cuts in public services are likely to cost more jobs than any jobs potentially attracted by low taxes. Similarly, CFED’s A Progressive Economic Development Agenda for Shared Prosperity, describes low-tax strategies as a “get poor” strategy, where the better approach to local economic competitiveness “needs to focus on meeting the workforce and infrastructure requirements of the New Economy.” All of which emphasizes that states can best pay for those investments in public services by creating effective state tax systems where the wealthy and corporations pay their fair share.

See Also:

• Progressive States Network - Dos and Don’ts of Coping With State Budget Crises
• CFED - A Progressive Economic Development Agenda for Shared Prosperity: Taking the High Road and Closing the Low
• Economic Policy Institute - Rethinking Growth Strategies

Make Tax Systems More Progressive

The usual objection to raising taxes on the wealthy or corporations is that such taxes undermine economic growth; yet there is remarkably little evidence to back up those claims. Studies instead have emphasized that neither business tax cuts nor estate tax cuts play any significant role in local economic growth.

Instead, the sad truth is that almost every state tax system requires working families to pay a higher percentage of their income in taxes than their wealthier citizens. In fact, as the Institute on Taxation & Economic Policy detailed in their 2003 study, Who Pays?: “[O]nly four states require their best-off citizens to pay as much of their incomes in taxes as middle-income families have to pay.” As the graph below from ITEP shows, the average family pays significantly more of their income in state taxes than
the wealthy.

A report by the Center on Budget and Policy Priorities and EPI emphasizes that making state tax systems more progressive is also a way to mitigate the broader trend of growing before-tax economic inequality.

General Resources to Make Tax System More Progressive

• Institute on Taxation and Economic Policy (ITEP) - Guide to Fair State and Local Taxes

• ITEP - Who Pays? A Distributional Analysis of the Tax Systems in All 50 States

• Progressive States Network, Raising Revenue Through Fair Taxes

• Progressive States Network - Dos and Don’ts of Coping With State Budget Crises

• Economic Policy Institute - Rethinking Growth Strategies

• Center on Budget and Policy Priorities and EPI - Pulling Apart: A State-by-State Analysis of Income Trends

All of this activity bodes well for health care reform nationally and in the states, in large part because states look to each other for guidance and ideas. For instance, lawmakers in Iowa this year enacted legislation with the goal of covering all children, joining at least Illinois, Pennsylvania, Massachusetts, Washington, and New York. The legislation includes language, derived in part from the California compromise measure, which calls for the state to limit the cost of children’s health care coverage to an affordable percentage of family income.

Fortunately, there are new models for reform, such as Healthy Wisconsin, which offer a new standard for states and go further than the Massachusetts model towards guaranteeing quality health care for all residents and ensuring new systems are resistant to economic ups and downs.

State Comprehensive Health Care Laws:

• San Francisco (Ordinance overview and text)

• Vermont Bill (Overview and resources)

• Massachusetts (Bill summary and text)

• Maine’s Dirigo Health Reform (Chapter 87)

Promote Fair Income and Estate Taxes

Most sales and property taxes are regressive and burden working families more than the wealthy; however, states can create a fair tax system by balancing those regressive taxes with an income tax that includes higher tax brackets for the very wealthy. Washington State’s antiquated tax structure is an example of the crucial need for progressive reforms. The state has no income tax and relies heavily on sales, property, and business gross income taxes, leading to, in the words of the Economic Opportunity Institute, “the most regressive tax system in the United States.” The lowest income residents pay 18% of their income in state and local taxes while the richest 1% pay just 3% of their income in taxes.

Make Income Tax More Progressive: As the Tax Policy Center highlights, there is a wide disparity in state income tax systems, but recently a number of states have been seeking ways to make their tax systems more progressive. In states with an income tax, creating higher tax brackets for wealthier taxpayers should be the prime tool for easing budget crises.

• For example, back in 2004, as New Jersey struggled with both a budget deficit and calls to lower the property tax burden, the state created a new 8.97% tax bracket for those making $500,000 per year or more. Only 30,000 households saw a tax increase, even as 1.8 million households saw a tax cut.

• For example, back in 2004, as New Jersey struggled with both a budget deficit and calls to lower the property tax burden, the state created a new 8.97% tax bracket for those making $500,000 per year or more. Only 30,000 households saw a tax increase, even as 1.8 million households saw a tax cut.

• Similarly, the Minnesota legislature approved a plan last year -- unfortunately vetoed by their governor -- that would have cut taxes for 90% of the populace while raising revenue with a new 9% tax rate for married couples making $400,000 per year or more. Polls showed that 72% of voters favored the higher tax rate for the wealthy as a way to lower property taxes.

• Maryland helped solve a budget crisis and get rid of an unpopular business tax on the computer industry with a simple solution -- ask the richest 6,000 households in the state making more than $1 million per year to pay more of their fair share in taxes. By raising the top income tax rate in 2008 to 6.5%, Maryland will raise an additional $328.5 million over three years. This is part of the state’s multi-year process of converting what had been a flat tax rate of 4.75% on income over $3,000 into a code that progressively raises the rate as incomes rise.

Each of these examples is a blueprint for creating a fairer tax system for middle class families without gutting social spending:

• Tax Policy Center - Individual State Income Tax Rates 2000-2006

• Maryland Budget and Tax Policy Institute - Budget Wrap-up

• New Jersey Policy Perspectives - If It Ain’t Broke...New Jersey’s Income Tax Makes Dollars and Sense

• Minnesota Budget Project - What’s At Stake: 2007 Revenue Proposals

Earned Income Tax Credit (EITC): Creating or increasing State Earned Income Tax Credits to ease the tax burden on lower-income working families is another tool to help increase fairness in the tax code. These reward work by low-income working families by adding some additional payment on top of the federal EITC, usually as a percentage of the federal credit. During an economic slowdown, these tax cuts for working families will have the most immediate impact on the economy since low-wage working families invariably have to spend those tax savings on immediate needs, usually at local retailers or other local services that strengthen local economies.

Twenty-three states have enacted EITCs. Maryland recently expanded the refundable part of its EITC from 20% of the federal EITC up to 25%. States without an income tax can create a “Working Families Credit” like Washington State’s SB 6809. Passed in 2008, the bill will give 350,000 Washington residents the equivalent of 10% of their federal EITC refund.

See Also:

• State EITC Online Resource Center
• Center on Budget Policy & Priorities - State Low-Income Tax Relief in the Absence of an Income Tax
• Center on Budget Policy & Priorities - The Impact of State Income Taxes on Low-Income Families in 2006
• Washington State Budget & Policy Center - A Working Families Credit for Washington State
• Center on Budget and Policy Priorities - “A Majority of States with Income Taxes have Enacted State Earned Income Tax Credits”
• Center on Budget and Policy Priorities - Additional Tools for Promoting the Tax Credits
• Brookings Institution - EITC Data by State Legislative District

Estate Taxes: Preserving taxes on wealthy estates is another area where states are working to maintain tax fairness (and raise some needed revenue) . While some states have followed federal law as the estate tax has been rolled back, many others are “decoupling” their estate tax from federal law changes. And while a few high-income folks duck out of state to avoid state estate taxes, “the number is modest and not nearly enough to offset the revenue gained by keeping an estate tax,” as one research report detailed.

See Also:

• Center on Budget and Policy Priorities - Research Findings Cast Doubt on Argument That Estate Taxes Harm State Economies
• Washington Post - “No Need for States To Fear Estate Taxes”
• Jon Bakija & Joel Slemrod - Do the Rich Flee from High State Taxes? Evidence from Federal Estate Tax Returns

Reform Property Taxes

With the housing market meltdown, we are seeing more proposals for across-the-board caps on property tax rates -- a bad idea that delivers most of the tax benefits to wealthier property owners. Instead, a better approach are Property Tax Circuit Breakers, which limit property taxes to a percentage of a taxpayer’s income, while fully taxing the property of wealthy homeowners. A new study from Connecticut emphasizes why circuit breakers, along with other reforms, are far better than a tax rate cap proposed by the state’s governor.

The basic idea is simple (see this policy brief for more). Instead of the typical proposal to cap property taxes at some percentage of the property value -- which disproportionately benefits the wealthy -- a circuit breaker caps property taxes at a percentage of a taxpayer’s income. Different states restrict circuit breaker caps to various groups -- the elderly, the very poor -- or offer them to renters as well as homeowners. Some examples include:

• Illinois: Grants up to $700 per year to help low-income elderly and disabled homeowners and renters pay property taxes or rent. Renters can count 25% of their rent as accrued property taxes under the state formula). See the bill text here.

• Massachusetts: Provides a tax credit to homeowners over age 65 when they paid more than 10% of their total income for real estate taxes, including water and sewer debt charges. Renters can count 25% of their rent as real estate tax payments. In 2007, the maximum credit was $900.

Property Tax Deferral Programs: A variation on the circuit breaker idea are programs that defer payment of property tax increases for certain homeowners until the property is sold, allowing owners to wait until the profits from selling the land make paying the taxes less of a burden. Like other common
tax relief measures, they are generally restricted to certain populations, including:

• Minnesota’s Green Acres Tax Deferment program for owners of farm land

• Colorado’s Property Tax Deferral program for those age 65 or older

Many argue for broader programs to allow a wider variety of taxpayers to defer paying property tax increases until they can cash out their property values at a sale—one way to fund public services while protecting homeowners.

Property Tax Homestead Exemptions: Forty states exempt a certain amount of a home’s value from tax. This is a progressive tax solution, but many states restrict the exemption in ways that deny tax relief to many working families. Also, many exemptions are not indexed to housing inflation, so their value can rapidly be eroded in times of housing price booms.

A key strategy for progressives should be to expand these tax relief programs to include more working families, which would go a long way in undermining potential “tax revolt” strategies by rightwing politicians before they even start.

• CITEP - Property Tax Circuit Breakers

• Robert LaFollette School of Public Affairs - The Middle Way to Property Tax Reform- policy brief on tax deferral proposal

• ITEP - Property Tax Homestead Exemptions

Broaden Base of Sales Taxes to Include Services

While sales taxes often contribute to tax inequality, they can be made fairer by broadening the tax base of goods and services covered, especially with an eye to taxing legal and financial services used more heavily by richer consumers.

Such a broadening of the sales tax can also raise significant revenue. According to a report by the Center for Budget and Policy Priorities, sales taxes on services could bring states tens of billions of dollars in new income.

See Also:

• Center for Budget and Policy Priorities - Expanding Sales Taxation of Services: Options and Issues, Revised
• New Jersey Policy Perspectives (NJPP) - Making the State Sales Tax Pull Its Weight

Make Corporations Pay Their Fair Share

By taxing corporate owners, an effective corporate income tax has two large advantages for states: the majority of owners are in the richest 1% of the population, and many are not state voters. Corporate income taxes are often the main tax that out-of-state corporations and their shareholders pay for the public benefits enjoyed by their companies

One reason social services face funding crises is that state corporate income tax revenues have dropped from 9.7% of all state taxes in 1980 down to just 5.7% by 2000. A 2005 study by Citizens for Tax Justice found that 252 of America’s largest corporations failed to include two-thirds of their U.S. profits on state tax returns, avoiding an estimated $41.7 billion in state corporate income taxes over three years.

States are increasingly using a variety of tools to have corporations pay their share:

• State PIRGS, Close Corporate Tax Loopholes

• Institute on Taxation and Economic - Policy Guide to Fair State and Local Taxes: Corporate Income Taxes

Combined Reporting: States are increasingly requiring companies to use combined reporting, listing profit reports for all subsidiary companies together on state tax forms to prevent shell games where companies hide profits through phony transactions among different corporate entities.

To give one example, Wal-Mart alone may have avoided $2.3 billion in state taxes between 1999 and 2005 by gaming the tax system-- something combined reporting can shut down. The key to many of the tax evasion strategies used by Wal-Mart, like many other companies, was to manipulate the reporting of national profits and expenses by reporting them in different states—wherever would minimize the taxes owed. The end result was that instead of paying the 6.9% average tax on corporate profits paid by most companies to state authorities, Wal-Mart paid only half that rate.

At least eighteen states now have enacted “combined reporting” rules that require corporations to aggregate all profits from those separate subsidiaries and then pay a specific portion of those profits to a state -- an approach the Supreme Court affirmed in Barclay’s Bank PLC v. Franchise Tax Bd.

See Also:

• Institute on Taxation and Economic Policy - Combined Reporting of State Corporate Income Taxes: A Primer
• Multistate Tax Commission - Model Statute for Combined Reporting
• Center on Budget Policy & Priorities - Growing Number of States Considering A Key Corporate Tax Reform

Decoupling: States can save revenue by refusing to automatically grant special interest tax breaks handed out by the federal government --”decoupling” their tax code from the feds. For example, at least 23 states would save $1.7 billion in revenue if they refuse to implement the “bonus depreciation” corporate tax break put into the recent federal stimulus package. Similarly, some states have already rejected one particular federal loophole, the “Qualified Production Activities Income” (QPAI) deduction, because it threatens to cost states over $1 billion per year as it is phased in.

See Also:

• Center on Budget Policy & Priorities - How States Can Avoid Revenue Loss From Federal Stimulus
• Center on Budget Policy & Priorities - Protecting State Revenue By Decoupling from Federal Tax Legislation

Oil windfall taxes: A number of groups have advocated state Windfall Profits Taxes to capture the outsized oil company profits. Such a tax could raise billions for state coffers -- $500 million per year for the state of Washington alone, according to the Economic Opportunity Institute. These revenues could then be used to offset many of the environmental costs of fossil fuel use.

• Legislators in Washington State gave the oil windfall profits tax idea national attention when legislators sponsored HB 1510, which called for using windfall oil profits to mitigate energy costs for state residents and fund state investments in renewable energy.

• Wisconsin Governor Jim Doyle proposed taxing big oil companies to help pay for the state’s transportation needs. The tax would equal $1.50 per barrel of oil sold in the state, and more importantly, the companies would be prohibited from passing the tax onto customers by raising the price of gas at the pump. The Wisconsin Department of Revenue would also have the authority to audit the oil companies’ earnings. If the department finds that the tax is resulting in higher fuel prices, the offending company would be subject to fines in the amount of the gains resulting from the price increase, or up to six months in jail.

• Pennsylvania Governor Ed Rendell also proposed taxing oil company profits to help fill the state’s transportation gap. His proposal would tax oil company businesses operating in the state at a rate of 6.17% on gross profits, providing $760 million a year for public transit systems. Governor Rendell pointed out that Exxon Mobil’s 2006 profit of $39.5 billion was almost 50% greater than the entire Pennsylvania state budget.

Similar proposals have been debated in New York and New Jersey.

See Also:

• Progressive States Network - Taxing Big Oil’s Windfall profits
• WA House Bill 1510 - providing for the community reinvestment of oil windfall profits
• Doyle Seeks to Tax Big Oil Firms
• Pennsylvania Governor Plans Oil Profits Tax to Fund Transport
• Economic Opportunity Institute - Redirecting Windfalls for a Renewable Energy Future and a SustainableTransportation Policy

Better Enforcement of Tax Law

While some lost tax revenue is due to loopholes and manipulation, another tax drain is straight-up tax cheating by corporations and individuals. States are responding with a variety of strategies for catching these tax cheats and recovering this lost revenue:

Cracking Down on Abusive Tax Shelters: A 2001 Multistate Tax Commission report estimated that tax shelters designed to illegally evade taxes cost states as much as $12 billion per year. Facing the largest losses in the nation, California pioneered legislation requiring new reporting on the details of suspicious shelters, enacting heavy fines for using illegal shelters, and creating an amnesty program to promote voluntary compliance. The amnesty program brought in a cascade of revenue: over $1.4 billion from 1,202 taxpayers, or an average payment of over $1 million per taxpayer, reflecting the widespread tax cheating among this wealthy population. Other states are following suit.

Multi-State Collaboration: Going beyond the occasional cooperation between state auditors, eight states, led by Massachusetts, created a new multi-state agreement to share data in a project called the Clearinghouse, which will compare information on people who work in one state and earn income in another in order to reveal tax cheating.

Shaming Tax Cheats: To encourage payment by delinquent taxpayers or those caught violating the law, more than a dozen states have begun publishing lists of businesses and individuals owing taxes on the Internet. Connecticut pioneered this high-tech shaming strategy in its Top 100 list, which collected more than $161 million in overdue tax debts over its first seven years. Other states have been collecting similar amounts with their own programs.

See Also:

• California Legislative Analyst’s Office - Abusive Tax Shelters: Impact of Recent California Legislation
• Multistate Tax Commission - Model Statute on Disclosure of Reportable Transactions: requires disclosure of transactions with potential for tax avoidance or evasion Multistate Tax Commission - Model Statute for Tax Avoidance Transaction Voluntary Compliance Program: creates a voluntary compliance (amnesty) program
• Multistate Tax Commission - Model Statute on Compilation of State Tax Return Data: requires taxpayers to report certain data as filed on the tax returns in the other states

Stop Rightwing Tax Campaigns

For decades, property tax revolts have been a thorn in the side of progressives. California’s Proposition 13 remains the highest profile example of the property tax revolt, but just about every legislator in the country can attest to the level of frustration many Americans feel about property taxes.

Challenging Property Tax Caps: The concerns that come from property taxes are neither irrational nor inexplicable. First, since housing costs consume a higher portion of low-income Americans’ budgets, property taxes are regressive in nature – hitting hardest those who can least afford them. Second, in some cases people have little control over their own property’s values. External factors can drive up property values, sometimes forcing individuals to choose between paying taxes they cannot afford and leaving a home full of memories. Finally, rightwing moves across the country to cut taxes at the state level and shift costs to cities and counties have resulted in mounting property tax bills, as property taxes are one of the few revenue options that these local governments have.

Progressives can begin to challenge these tax caps by simply presenting research showing the regressive nature of property tax caps in a compelling way. A more aggressive approach played out in Montana in 2006 and 2007, where progressive Governor Brian Schweitzer put the state’s rightwing on the defensive regarding their property cap proposals. Schweitzer countered the right by proposing a one-time flat rebate of $400 for every Montana resident homeowner, ensuring that virtually all Montana homeowners (more than 99%) received a larger refund without giving disproportionate gains to rich landowners or out-of-state corporate property owners.

Fighting TABOR: One of the most disastrous tax policies in recent decades was Colorado voters’ approval of the so-called Taxpayer Bill Of Rights (TABOR) in the early 1990s. The TABOR created a rigid cap on increases in state spending tied to inflation and economic growth, decimating the state’s investments in education, health care, and social services. Voters partially repealed the TABOR tax limits in a referendum in 2005, but not before Colorado had fallen to 47th in the nation in K-12 education funding as a share of state income and 50th in the nation in immunization rates. The repeal campaign successfully tapped voters’ desire to invest in those human needs and highlighted the damages from such rigid tax rules.

Despite strong funding for similar measures in 2006 by people like super-wealthy New York developer Howard Rich, a strong funder of rightwing causes, all those measures failed that year due to mobilization by progressive forces. In Michigan, Montana, Nevada, Oklahoma, and Missouri, anti-TABOR forces were able to reveal so much fraud in the initiative’s wording or signature collection process that state judges and other administrative bodies blocked the measures from the ballot. In Maine, the one state where the initiative went to voters, it was rejected after opponents highlighted the damage TABOR had done in Colorado.

How Tax “Limitation” Laws Entrench Tax Loopholes: One other dangerous form of tax limitation laws are rules that require supermajorities to pass any tax increase. In such cases, special interests may be able to enact a tax break for themselves with a simple majority, but then can often block repeal of the tax loophole as a “tax increase” that can be blocked by a minority of legislators The Center on Budget Policy and Priorities outlined this problem in an analysis of a Kansas proposal to require a supermajority to raise revenue in that state, emphasizing how so-called “taxpayer rights” laws are often just special interest protection legislation in disguise.

See Also:

• Progressive States Network - Winning on Property Taxes: The Montana Model for Progressives
• Progressive States Network - Rightwing Fraud Derails Tax Revolt
• Center for Budget and Policy Priorities – The Problems with Property Tax Caps
• Progressive States Network - The Taxpayer Bill of Goods
• Center for Budget and Policy Priorities - What is TABOR?
• The Bell Policy Center - TABOR
• Center for American Progress - TABOR
• Center on Budget and Policy Priorities - TABOR: A Threat to Education, Health Care, and Social Services

Review and Sunset Tax Expenditures

The fact that billions of dollars in corporate subsidies are hidden in the tax code rather than clearly listed in annual budgetary allocations like other spending programs represents a core problem. As a brief by the Institute on Taxation and Economic Policy (ITEP) outlines, tax subsidies end up being a privileged kind of government spending:

• Tax expenditures often have no built-in cost limits, and generally there are no annual appropriations or oversight processes.

• There’s often no review of a company’s use of a tax subsidy; all they do is file a tax return and get the subsidy with no questions asked.

• Whether tax loopholes benefit the public through long-term job growth is rarely if ever evaluated

In response, some states have required tax expenditure budgets to evaluate how much states are spending on tax subsidies and whether they are being effective. In 2006, Connecticut passed a particularly comprehensive review law, which established a commission to review each tax credit and policy in the state, measure what jobs they actually helped create or retain, determine whether there are better alternatives to achieve the same policy objectives, and encourage individual auditing of companies’ use of tax credits to ferret out abuses of tax law.

A few state leaders are proposing an even more comprehensive reform: automatically sunsetting all tax subsidies unless they are renewed by an affirmative vote of the legislature every few years. Instead of requiring passage of new legislation and a governor’s signature to kill an abusive loophole, a sunset provision means that the refusal of either chamber to reapprove the tax loophole would eliminate it and save taxpayers the revenue. In Ohio, Democratic leaders in 2006 proposed HB 61, which would immediately sunset existing tax expenditures (which cost Ohio taxpayers an estimated $6.3 billion each year), and require all new tax expenditures in the future to be renewed every five years. A few years ago, Florida tax reform advocates proposed a state initiative to sunset tax expenditures every ten years and eliminate other tax loopholes. In both cases, corporate-backed interests fought the reforms, but sunset rules are gaining attention as lobbyist corruption becomes a bigger political issue.

See Also:

• IETP - Tax Expenditures: Spending By Another Name
• OH HB 61 - proposed Ohio law to automatically sunset tax expenditures
• Connecticut Public Act 05-251 - comprehensive annual review of tax expenditures law
• Text of Florida Tax Reform Initiatives - includes automatic tax expenditures sunset

Disclose Economic Subsidies

In the age of Google, citizens expect to be able to find detailed websites with information about government operations. Yet while some states are promoting online transparency, many states are failing on public disclosure. Good Jobs First, an organization which has been bird-dogging government giveaways of taxpayer money to corporations for years, has published The State of State Disclosure, a report ranking state government websites in three areas of transparency. The report includes economic development subsidies and disclosure of lobbying by companies who are usually the ones seeking these kinds of tax and development subsidies.

Good Jobs First has been the national leader in pushing states to better disclose the extent of economic development giveaways. For example, its Illinois affiliate publicized problems in the Illinois subsidy program and then helped pass groundbreaking accountability legislation in 2003. One result is the Illinois Corporate Accountability website, which tracks reports on every firm receiving different kinds of tax subsidies, the jobs they promised to create or retain, and the results year to year. Minnesota and Maine have also enacted disclosure laws to track individual economic development deals and make this information available to the public.

See Also:

• Good Jobs First - The State of State Disclosure: An Evaluation of Public Information About Economic Development Subsidies, Procurement Contracts and Lobbying Activities
• State Economic Development Subsidy Disclosure Laws: Illinois PA 93-0552, Maine §13070-J, Minnesota §116J.994

Require Job Quality Standards and Other Reforms for Subsidy Recipients

When states enact legislation to review and disclose tax subsidies, they gain the information needed to eliminate or reform overly generous subsidy programs to better serve a variety of community needs. And if states dump all the bad corporate giveaways, they’ll actually have the funds for more effective economic growth programs. As these disclosure laws come into force, they will just reinforce the trend of states and local governments demanding that tax subsidy recipients deliver on promises and improve the economic climates of their states.

States are increasingly making sure that companies receiving subsidies deliver on promises to create decent jobs or face “clawbacks” of the funds distributed. They are also requiring subsidy recipients to pay a living or prevailing wage. At least forty-three states and many cities and counties have attached some wage requirements to at least one subsidy program, but additional reforms are needed for the remaining programs and states.

Another problem is that most subsidy programs fund developments that increase suburban sprawl, so reforms must provide incentives to subsidy recipients to locate projects in places that reinforce smart growth and mass transit. No state laws currently use transit accessibility as a criterion for awarding economic development subsidies (although one has been proposed in Illinois), but a number of communities and state agencies have negotiated community benefit agreements with individual developers that included transit-oriented provisions.

Good Jobs First has outlined a detailed list of key reforms for all tax subsidy programs and developed model accountability legislation, but the main point is that states can make sure subsidy programs actually use the community’s money to serve the community needs.

See Also:

• Good Jobs First - Model subsidy reform legislation with language requiring reporting and disclosure of subsidy information, the creation of quality jobs and a cap on the total subsidy amount; and recapture of subsidies in cases where companies are found noncompliant
• Good Jobs First - Examples of Clawback Provisions in State Subsidy Programs
• Illinois Business Location Efficiency Incentive Act - proposed law to require that subsidized projects in a metro area must be accessible by mass transit.
• Partnership for Working Families - Community Benefit Agreements

Stop Tax Subsidy Bidding Wars

While it’s bad enough that states subsidize rich corporations with fat tax breaks, what’s even worse is that competing suburbs within the states end up offering competing tax incentives – creating a suburban bidding war that merely moves jobs around the same metro area. As Good Jobs First documents in a study on “job piracy” in the Twin Cities Metro Area, this trend wastes taxpayer money and deepens economic inequality. A parallel study by Brookings found that Michigan’s economic subsidies were causing job hopping between suburbs, exacerbating urban
sprawl, and subsidizing wealthier communities at the expense of central cities.

Arizona offers one example of how to deal with tax subsidy wars. After highlighting the revenue loss as surrounding municipalities competed in business tax giveaways, the legislator and Governor enacted HB 2515 in 2007 to stop communities in Maricopa and Pinal counties from competing with each other to give huge tax breaks to retail businesses for locating within their municipalities. to pay for their costs.

• Securing a federal “waiver” to existing federal Medicaid and SCHIP laws. These allow states to develop programs or expand access to coverage to populations not immediately covered by existing rules, such as adults without children.

Refuting claims by the Right that such expansions drive people away from private insurance and into public programs, Community Catalyst, Families USA, and the Center on Budget and Policy Priorities point out that expanding Medicaid and SCHIP is far more cost-effective than proposals like tax credits and deductions, which primarily benefit people who already have coverage. Additionally, while Medicaid is a government-created program, almost two-thirds of Medicaid members receive their benefits through a privately-run managed care program. And, while state investments in Medicaid and SCHIP have made progress, they have not been able to completely stem the rising percentage of uninsured Americans as employer-based health care has declined.

See Also

• Families USA and Community Catalyst – A Consumer Guide to State Health Reform: How will this proposal make health coverage affordable for people with low- and moderate-incomes?
• Center on Budget and Policy Priorities – The False “Public Versus Private” Choice for Children’s Health Coverage

Maintain Employer Responsibility

The great majority of employers want to provide health care benefits to employees and their families. Despite a steady decline in the percentage of Americans with employer-based coverage, from 66% of Americans under age 65 in 2000 to 61% in 2004, employers still cover more than 158 million Americans, more than twice the number of Americans who receive Medicaid or
Medicare. Because of the financial contributions employers make to health care, ensuring strong employer participation in health care reform is a key priority.

Employer Mandates: As part of comprehensive reforms, Massachusetts, Vermont, and San Francisco require all employers to provide some degree of health coverage for their employees or pay a fee to help finance health care programs. The main goal is to ensure that “low road” employers are not dumping their health care costs onto the public and gaining an unfair competitive advantage against employers who do provide coverage. Despite a precipitous national decline in employer-based coverage and warnings from critics that state-funded programs would “crowd-out”
private insurance, Massachusetts has seen a 3% increase in employer-based coverage.

San Francisco’s law has the strongest employer mandate, requiring employers with 20 or more employees to provide health care or pay the city $1.17 to $1.76 per hour depending on firm size. Employers have tried to challenge the law in court, but recent court decisions have allowed the city to continue with the mandate during the appeal process. This bodes well for the program and employer mandates elsewhere. Healthy Wisconsin’s proposed employer and employee payroll-fee, which replaces monthly premiums, is a form of employer mandate. In many ways, its payroll-fee creates the most equitable approach to employer responsibility, since its sliding scale payment structure is directly proportional to an employer’s ability to pay.

Public/Private Partnerships: Many states have developed programs that contract with private carriers and offer coverage to individuals and small businesses. These typically offer insurance-like coverage administered by public and private entities coupled with sliding scale subsidies or premiums available to people with income up to 300% of the poverty line.

• Contracting with Insurers: Vermont’s Catamount Health Plan and Maine’s DirigoChoice insurance program contract with private carriers to offer a comprehensive benefits package with sliding scale premiums or subsidies to people with incomes up to 300% of poverty. In case private carriers do not participate, each state is authorized to offer the coverage through a public entity. Both programs are available to individuals and small business employees. Maine’s program is available to small businesses as long as employers cover 60% of an employee’s premium. It is also available to employees eligible for Medicaid and provides a wrap-around benefit to ensure those employees receive the full range of Medicaid services. New Mexico’s State Coverage Insurance program offers coverage to individuals and small business employees with incomes up to 200% of the poverty line. Importantly, the program limits total out of pocket costs to 5% of a family’s income.

• New Regulatory Agencies: Massachusetts’ Commonwealth Connector negotiates and contracts with private insurers to bring more affordable insurance options to market for individuals and small businesses. The state created Commonwealth Care, a program offering subsidized coverage to adults with incomes up to 300% of the poverty line and who are not eligible for Medicaid, and Commonwealth Choice, a similar program that offers non-subsidized health plans to individuals, documented immigrants, families, and small businesses. Both Commonwealth programs are administered by the Connector. As Community Catalyst describes, connectors create a common marketplace for consumers to compare options, and they work best with other insurance reforms like guaranteed issue, community rating, and standardized benefit plans.

See Also

• Families USA and Community Catalyst – A Consumer Guide to State Health Reform: Employer Buy-In Programs
• Families USA and Community Catalyst – A Consumer Guide to State Health Reform: Expanding Public Coverage to Non-Medicaid Populations
• December 2006 Urban Institute paper – Changes in Employer-Sponsored Health Insurance Sponsorship, Eligibility, and Participation: 2001 to 2005
• Commonwealth Fund - Stretching State Health Care Dollars: Building on Employer-Based Coverage
• Massachusetts – Commonwealth Connector

Improve Access to Private Coverage

• States can take a number of other actions to improve access for families and small businesses to more affordable options for health care, including:

• Coverage for Young Adults: Requiring insurance companies to allow children to stay on their parent’s health insurance well into their 20’s can help cover one of the fastest growing segments of the population without health insurance. Of the 45 million uninsured in the US, 31% are between 19 and 29 years of age. Eleven states have authorized coverage up to age 25, but New Jersey has extended dependent coverage to age 30.

• Pre-Tax Employee Premium Payments: Requiring employers to set up “section 125 plans,” which allow employees to pay their share of employer-based health insurance premiums pre-tax, can help working families better afford private insurance.

• Pooling Public and Private Coverage: In 2008, legislators in Connecticut passed – but the Governor vetoed – an expansive pooling initiative allowing small businesses and municipalities to pool with the 200,000 members of the strong state employee health plan. Proponents of HB 5536 projected millions of dollars in savings to municipalities. While over 20 states allow for the pooling of municipal and state employees, Connecticut would have been the first to extend that option to small businesses.

• Standardized Benefit Plans: Requiring insurers in a particular market to include a certain level of benefits in all their insurance options helps ensure people have coverage for the care they need and get value for their insurance premiums. This prevents insurers from selling inadequate insurance and allows consumers to better compare the value of different health plans. And, as Community Catalyst points out, states can also establish maximum premiums and out-of-pocket costs to protect consumers from medical debt and bankruptcy.

• Merging Insurance Markets: Combining the individual and small group markets can make more affordable options available to small businesses and to individuals, in particular. Massachusetts has merged these markets and early projections estimate the move will reduce individual insurance premiums by 15% and cause only a slight up-tick in small group premiums. Community Catalyst found this works best if the two markets have similar consumer protections.

There are worrisome trends in states, as well. Indiana, in 2007, and Florida, in 2008, both enacted new programs that provide reduced benefit and high deductible plans to low income and uninsured residents. Such programs do not provide access to affordable and comprehensive coverage, leaving people
under-insured and without coverage for the care they need.

See Also

• Commonwealth Fund – Rite of Passage? Why Young Adults Become Uninsured and How New Policies Can Help, 2008 Update
• Families USA and Community Catalyst – A Consumer Guide to State Health Reform: Additional Strategies for Increasing Access to Private Insurance
• Connecticut – HB 5536, Connecticut Healthcare Partnership
• Georgetown University - State Consumer Guides for Getting and Keeping Health Insurance

Funding Health Care Expansions

As states face another economic downturn and growing budget deficits, expanding access to coverage may seem like an impossible goal. However, there are steps states can take to generate revenue and “stretch” health care dollars to ensure access to health care.

Following the budget stress states felt earlier this decade, the Commonwealth Fund issued a series of reports titled, “Stretching State Health Care Dollars during Difficult Economic Times”. The four reports focus on shoring up employer-based coverage, improving prescription drug purchasing through pooling and evidence-based systems, improving chronic care management, and innovative uses of uncompensated care funds.

Sources of funding include:

• Employer Pay-or-Play Mandates: Employer mandates help ensure employers provide coverage, but for those that don’t, the penalties for non-compliance can help fund health care expansions. As previously noted, San Francisco’s law requires employers with 20 or more employees to provide health care or pay the city $1.17 to $1.76 per hour depending on firm size.
• Maximizing Federal Matching Dollars: As Families USA and Community Catalyst point out, it is in a state’s best interest to maximize federal matching dollars, particularly during economic downturns. For every dollar a state spends on Medicaid, the federal government matches it with at least $1, and in many cases more. States can generate additional state funds to draw down more federal match dollars through provider taxes. A proposed 4% tax on providers as part of California’s failed compromise reform measure would have generated an estimated $2.3 billion, in large part through additional federal match. The California hospital industry supported the measure because it would have enabled the state to increase Medicaid provider rates.
• Tobacco Settlement Dollars: The 1998 multi-state tobacco settlement is projected to total $246 billion over the first 25 years of the settlement. Unfortunately, only three states have used their settlement dollars to fund tobacco cessation and prevention programs at or above minimum levels prescribed by the Centers for Disease Control and Prevention -- Maine, Delaware and Colorado. These funds should be allocated only towards health care purposes.
• Cigarette and Sin Taxes: Despite being regressive, raising cigarette, alcohol and other so-called sin taxes can provide valuable revenue to fund health care expansion programs. Additionally, raising tobacco taxes has shown to help reduce rates of smoking, which is a key public health goal.
• Ending Corporate Loopholes: Instead of cutting social services or foregoing expansions during difficult economic times, states can raise revenue by requiring corporations to pay their fair share. Options include requiring combined reporting of profits from all subsidiaries, refusing to automatically grant special interest tax breaks handed out by the Feds by “decoupling” state and federal tax codes, enacting oil windfall taxes, and requiring tax disclosure to expose corporations that are abusing the tax code.
• Capturing Savings: A bold feature of Maine’s comprehensive 2003 Dirigo Health Reform is a unique funding measure called the Savings Offset Payment – a fee paid by insurance companies that is proportional to health care savings achieved by the Dirigo Health’s cost containment provisions. Although lawmakers recently replaced the controversial fee with a premium surcharge and increased “sin” taxes, the strength of this model is that it builds health care expansions on top of cost containment, which is necessary for sustainable reform.

Funding Expansions Resources:

• Commonwealth Fund – Stretching State Health Care Dollars during Difficult Economic Times
• Families USA and Community Catalyst – A Consumer Guide to State Health Reform: How to Maximize Federal Matching dollars
• Progressive States Network – Cut Corporate Loopholes, Not Social Services
• Kaiser Family Foundation – Medicaid Financing
• Maine – Dirigo Health: Savings Offset Payment

Other Strategies to Extend Coverage Resources:

• Progressive States Network - Health-Care-for-All on the Installment Plan
• Commonwealth Fund - How Many Are Underinsured? Trends Among US Adults, 2003 to 2007
• Kaiser Family Foundation - State Health Facts

Periodically, we hear elected leaders promoting what seems like a free lunch: hand over control of government services or assets to private industry, and services will improve at a lower cost. But like most promises of a free lunch, privatization of government services – also known as “contracting out” or “public-private partnerships” – has rarely delivered on its promises. Most studies show little gain and often substantial losses for the public. While government obviously buys many products and services from the private sector, there is little evidence that there are any fiscal gains from outsourcing most services presently performed by government employees.

The Problems With Privatization: As the non-partisan Stateline.org emphasized last year:

“[I]n practice, privatization has failed more than it has succeeded,” says Mildred Warner, a privatization expert at Cornell University. In an analysis of privatization of state and local services over the last 20 years, Warner concluded that the majority of projects failed because of deteriorating quality of service. And in more than half the cases, the projects did not save taxpayer dollars, she said.”

There is little doubt that the poster child for the failure of privatization was Texas’ attempt to hand over management of its social services system to Accenture, a Bermuda-based consulting firm. The promise was that business expertise would put government bureaucrats to shame with their efficiency. Instead, computer systems failed, costs mounted, and 30,000 children ended up being dropped from the children’s health insurance program (CHIP) because of administrative bungling. The results were so bad that the Republican State Comptroller, Carole Keeton Strayhorn, investigated the deal and declared, “The Accenture contract appears to be the perfect storm of wasted tax dollars, reduced access to services for our most vulnerable Texans, and profiteering at the expense of our Texas taxpayers.”

Few Cost Savings from Privatization: Broader research has found no net financial advantage for states that hand over work previously done by public servants to profit-seeking contractors. A study by Rand Corporation found that privately-run schools in Philadelphia did no better in raising student test scores than did publicly-run schools, adding to a range of evidence that privatization of schools is no panacea. Despite New Mexico having 43% of its prisoners in private prisons (the highest in the nation), there is little evidence that this saves the state money, and the high percentage of privatization has left state officials with few experts qualified to monitor the private contracts. As Paul C. Light of New York University, who has long tracked the hidden contractor work force, writes, “We have no data to show that contractors are actually more efficient than the government.”

Weak Oversight and Lost Democratic Accountability: A number of states have contracted out so many services that they have lost the internal expertise to even evaluate the quality of the companies bidding on government projects. Weakened accountability has led to more rip-offs of the public as well as more shocking and deadly results such as the death and failures due to incompetence by contractors on the Big Dig construction project in Boston.

One reason, it is argued, that privatized services can make money is that they do things that elected officials might not be able to get away with if decisions were subject to direct democratic accountability. Privatized roads can raise tolls with no political debate; private contractors can use marketing or employment practices that would be stopped in their tracks if done by the public sector. And when that privatization involves prisons and private police units, many analysts worry that the profiteering comes at the expense of constitutional safeguards and democratic oversight. But that’s the beauty of privatization -- out of sight, out of mind -- except for the contractor’s profit sheets.

Corruption of the Political Process: A significant worry is that the “revolving door” between private contractors and the government offices where those contracts are awarded creates a nexus for corruption (which a strong civil service ethic among government workers was originally created to prevent). Such revolving door corruption has played a role in recent high-profile privatization scandals, from Accenture in Texas to the notorious “Coingate” scandal in Ohio, which led to investigations of the whole Ohio political elite in 2005 and 2006.

Selling Off Public Assets for Short Term Gains: When public assets are in the mix, another worry is that sharp bargaining by private interests will result in bad deals with long-term economic losses for the taxpayer. When Indiana agreed to hand over a 75-year lease of its toll highway to an Australian-Spanish consortium for $3.8 billion, many analysts complained that this deal was trading up-front money for the loss of toll income for multiple generations. “That is money that could go to our children, our grandchildren and our great-grandchildren,” said Indiana House Democratic leader Patrick Bauer in 2006. Bauer is now Speaker partly because of protests over the deal.

See Also:

• Progressive States Network, Stopping Privatization Profiteering
• Progressive States Network, Ripoff Privatizations – And Why They Keep Happening
• AFSCME, Power Tools for Fighting Privatization
• AFSCME Privatization Update has day-to-day excerpts from relevant news articles from around the nation.
• Economic Policy Institute, Privatization: Trends, evidence, and alternatives- materials and papers from a conference on privatization of public services.
• Contracting Back In - When Privatization fails and Applying Market Solutions to Public Services: An Assessment of Efficiency, Equity and Voice -- a few key scholarly papers by Professor Mildred Warner who has studied privatization extensively.
• Stateline, “States stumble privatizing social services”
• Mother Jones - “The Highwaymen”

Measure and Disclose the Costs of Public Contracts

One of the largest problems is that states systematically fail to collect reliable data on the benefits or costs of privatization. States rarely even track what percentage of their state budgets are going to contracting out services, a theme highlighted in a 2007 report by the Progressive States Network: Privatizing in the Dark: The Pitfalls of Privatization & Why Budget Disclosure is Needed.

At least one analysis of the privatization of state and local services over the last 20 years found the majority of such projects failed because of deteriorating quality of service. And in more than half the cases, the projects did not save taxpayers dollars. While some conservative scholars will cite their studies showing the gains from privatization, the most intellectually honest statement is that, especially in analysis of privatization at the state level, there is not enough good multi-state data to compare results.

Little Data on Privatization: Because states do not collect and publish good data on their contracting practices, well-respected scholars on privatization such as Cornell Professor Mildred Warner say flatly, “I am not aware of a consistent data set at the state level to make academically relevant statements on the level of contracting in the states.”

Echoing Warner, the most recent report from the American State Administrators Project, which surveys privatization in the states, argues “Apart from selected surveys at the local (municipal) level, most public administrative experiences and research involving contracting are anecdotal, case-specific, or otherwise narrowly focused.” Meanwhile, the Council on State Governments report on state contracting states, “There appears to be no consensus as to the effectiveness of privatization in part due to the lack of empirical data as well as the complexity of the issue.”

The Need to Collect Privatization Information: Publicly accessible accounting in each state that notes what percentage of each agency’s budget is being spent through public employees and what percentage is going to contractors is clearly lacking. Some states collect pieces of this data, but none collect it systematically. Requiring the collection and disclosure of this data, as well as long-term tracking of the comparative costs and savings from contracting out government services, should be the first step in long-term reform.

See Also:

• Progressive States Network - Privatizing in the Dark: The Pitfalls of Privatization & Why Budget Disclosure is Needed
• American State Administrators Project - Contracting for Service Delivery by American State Administrative Agencies: A Performance-Oriented Analysis of Third-Party Outsourcing for Public Services
• Council on State Governments - Privatization in State Government: Trends and Issues

Strengthen Contract Accountability

Over a decade ago, Massachusetts passed a law prohibiting private contracting of government services unless private companies proved they could perform those functions more efficiently than government workers -- an automatic check on corruption. Multiple studies found that the bill saved Massachusetts from the typical bilking suffered by other states who have privatized public services under the pressure of corporate lobbying.

Rhode Island has updated its Privatization of State Services law (Chap 42-128) in recent years to require clear comparisons of the costs of work performed by contractors and public employees, a prohibition on contracting out unless costs and quality exceed that already achieved “in-house,” and a built-in legal appeal process to block any privatization violating the law.

Other states put a range of restrictions on privatization of various services. Reforms include establishing civil services protections for anyone evaluating eligibility for public benefits, promoting affirmative action, reviewing how outsourcing impacts community economies, screening out corporate law-violators from bidding on contracts, and opening up the bidding process to public scrutiny.

See Also:

• AFSCME - Legislative Approaches to Responsible Contracting
• Rhode Island Government Oversight and Fiscal Accountability Review Act

Enforce Wage Standards on Contractors

One chronic problem in contracting out government work is that private contractors often win contracts not through greater efficiency, but by lowering wages or weakening guarantees for full-time work, practices that hurts the workers as well as the quality of services provided. For example, one recent study of 500 governments in both cities and counties found that private sector contracting results in full-time employees being replaced by more part-time workers.

Where private companies do perform public functions, the tighter the standards for the bidding processes, the less likely incompetent or corrupt companies can buy the bid with campaign contributions. Vendor-performance requirements help protect taxpayers from being ripped off, while prevailing or living wage laws and responsible contractor laws screen out shady employers who cut corners on public services. New Jersey and Arizona have flatly prohibited companies that offshore jobs from bidding on their state contracts.

With the privatization of many public services in recent decades, state and local governments now purchase over $400 billion of goods and services from the private sector, so conditioning those purchases on contractors meeting decent wage standards will assure both quality government services and have a powerful effect in strengthening wage standards throughout the economy. Such contract standards include a variety of approaches:

• Prevailing Wage for Public Works: Predating even the minimum wage are laws at the federal government and thirty-three states which require that work done on public works -- transit and public building construction primarily -- meet “prevailing wage” standards, usually the union wage for any occupation. (See here for a history and survey of prevailing wage laws around the country from the Ohio Legislative Service Commission.) Some critics worry that prevailing wage laws might drive up costs for state government, but most studies show that paying a decent wage leads to a more skilled workforce, less turnover, and higher quality work -- and ends up saving the government money over the long term.

• Prevailing Wage Laws for Other Government Contracts: While less common, state and local prevailing wage laws have been extended in a number of states to other kinds of government contracts. A number of state and local governments, such as Denver and New Jersey (Chapter 379 in 2006), cover janitors and other building service workers under a prevailing wage law. Illinois has a separate Procurement Code that sets prevailing wage rates for janitorial, window cleaning, food service, and security service workers in the state.

• Living Wage Laws: Maryland became the first state to enact a “living wage” law, HB 430, requiring government contractors to pay their employees a decent wage, up to $11.30 an hour in areas of the state with higher costs of living. Maryland followed the 120 local governments around the country that have required that public money go to companies that pay their workers above the poverty line. The California legislature approved a state living wage bill in 2003, only to see it vetoed by its governor. Notably, the local governments that have implemented living wage laws have seen little if any increased costs from requiring increased wages by contractors (see some of the recent studies here and here), and have often saved money since the employees of contractors are less likely to end up needing local welfare or health care services.

• Sweatfree: Every year, state and local governments purchase hundreds of billions of dollars in goods and services. As we see toys made with lead paint produced in sweatshop conditions flood the country, many elected leaders and their constituents are demanding that new standards be imposed on those government purchasing decisions. Cities such as Portland and Berkeley have enacted “Sweatfree Procurement” resolutions, while governors from the states of Maine, New Jersey, and Pennsylvania have signed on to calls for the Sweatfree Consortium to strengthen those efforts and expand them to new jurisdictions. Sweatfree Communities, a force behind this movement, has just released a new Model Sweatfree Procurement Policy along with other resources that provide help to make sure that when governments spend money, they aren’t adding to the problems they are supposed to be solving.

• Protecting Union Rights: A number of communities and states use Project Labor Agreements on public work projects that require a combination of union contracts and no-strike clauses to ensure that workers are treated well and public projects are not disrupted by strikes.

States pay hundreds of billions of dollars to their own employees and to government contractors -- and they can make sure that those dollars protect service quality and expand worker freedoms rather than undermine them.

See Also:

• AFL-CIO Building & Construction Trades Department - Prevailing Wage Law Studies
• SPIN Project - Winning Wages: A Media Kit for Successful Living Wage Strategies
• Jen Kern and David Reynolds - Living Wage Campaigns: An Activists Guide to Organizing a Movement for Economic Justice
• ACORN Living Wage Resource Center
• Progressive States - Stopping Immigration at the Source: Anti-Sweatshop Legislation
• Sweatfree Communities - Resources
• State Building & Construction Trade Council - Project Labor Agreements
• Sweatfree Communities - Resources
• State Building & Construction Trade Council - Project Labor Agreement

Restrict Asset Privatization

In recent years, private equity firms and financial predators like Goldman Sachs have begun circling states with the goal of acquiring publicly owned assets like highways and state lotteries at cut-rate prices. These predators are using current fiscal woes to try to convince states to accept a bit of up-front money in exchange for long-term costs that future generations will be stuck paying for. When the state is auctioning off assets, the political payoff is obvious: today’s politicians get to spend the money, and the economic loss is only realized by taxpayers denied the ongoing revenue in the future. And that political calculation means that today’s politicians often offer these assets at fire-sale prices,
since the economic losses will show up down the line on someone else’s watch.

How Asset Privatization Rips Off Future Generations: For example, in 2008, in the largest privatization deal ever proposed in the United States, a consortium led by Spanish company Abertis Infraestructuras offered $12.8 billion to lease operation of the Pennsylvania Turnpike for 75 years. The deal would allow the company to immediately hike tolls 25% and then increase tolls each year thereafter up to the rate of inflation. This parallels the Indiana deal in 2006, where the state handed control of its toll highway to an Australian-Spanish consortium for $3.8 billion in up-front cash, with the catch that the new corporation gets to keep all tolls for the next 75 years (meaning the company will recoup the purchase price in 17 years, then make $21 billion in profits over the next 58 years). So Indiana has given away tens of billions of dollars in future toll revenues in exchange for less than $4 billion up front -- typical of many short-sighted privatization deals. Criticism of these deals is often bipartisan; long-time conservative leader Phyllis Schlafly criticized road privatization in the rightwing publication Human Events.

State and local governments pocket the money upfront and get to spend it here and now, so politicians can cover their runaway budget deficits and enjoy the political rewards of spending for new facilities. They ignore the fact that U.S. citizens must pay tolls to foreign landlords for the next two or three or even
four generations.

The Spread of Asset Privatization Deals: Unfortunately, from Texas’s proposed “Trans-Texas Corridor” of toll highways to proposals in West Virginia and Nevada for private toll roads, along with other proposals to privatize lotteries and other assets, financial firms are wooing and sometimes convincing public officials to sell off public assets at bargain-basement prices. Globally,
$53 billion in privatization deals worldwide were announced in just the first half of 2008, triple the $13 billion in the comparable period last year. Privatizing public assets is the new gold rush for global financial firms -- and state legislators should be justifiably skeptical that the public will benefit financially in negotiations with such firms.

Progressive States Network has highlighted the financial and social costs of such privatizations in Ripoff Privatizations -- And Why They Keep Happening, while state groups like PennPIRG have specifically highlighted the dangers of Turnpike privatization. Its parent group, U.S. PIRG, also published a key report last year highlighting the chronic problems of road privatization, including loss of public control over key social policies, the public getting ripped off in deals negotiated over excessively long contracts, the lack of transparency in most deals, and the selling of privatization based on short-term payoffs and budget gimmicks despite long-term losses to state budgets. In a 2007 letter sent to governors, legislators, and transportation officials, key House leaders on transit issues warned states not to rush into privatization deals involving national highways.

State Actions to Restrict Privatization: Despite Pennsylvania Gov. Rendell’s support for selling off the turnpike, the state legislature rejected previous privatization plans and polls show 58% of Pennsylvanians oppose leasing the toll highway. And while Texas Gov. Rick Perry continues to promote his proposals for large-scale private toll roads across Texas, he will have to deal with a legislature that passed a moratorium (watered down during negotiations with the Governor) on new deals during the 2007 legislative session. And in 2007, the Indiana House held hearings on privatization, including IN HB 1062 to establish a commission to review privatization deals, largely derailing new plans to privatize the state lottery and additional toll roads.

See Also:

• Progressive States Network - Ripoff Privatizations -- And Why They Keep Happening
• Progressive States Network - Congressional Leaders Warn Against State Highway Privatization
• MotherJones - The Highwaymen: Why you could soon be paying Wall Street investors, Australian bankers, and Spanish builders for the privilege of driving on American roads.
• IN HB 1062- creates commission to review privatization deals and limits duration of privatization contracts
• U.S. PIRG - Road Privatization: Explaining the Trend, Assessing the Facts, and Protecting the Public

Stop Pay to Play on Government Contracting

Privatization deals across the country flourish as the money made by private contractors continues to grease the political wheels and pave the way for future deals.

• In New Mexico, The GEO Group, the main private prison company formerly known as Wackenhut, contributed about $80,000 to candidates running for state office in New Mexico. They also donated $30,000 to the Democratic Governors Association and $95,000 to the Republican Governors Association last year.

• When Ohio melted down in corruption, the scandal was linked to campaign contributors profiting from private contracts, from legal contracts to the notorious Coingate scandal.

• Political connections and political money have helped construction giant Bechtel land construction contracts like the Boston “Big Dig” and others around the country -- campaign contributions were a small price to pay for a firm that, despite multiple scandals, landed government contracts worth $18 billion in revenue in 2005 alone.

• Financial firm Goldman Sachs, which handed out $16 billion in bonuses (an average of $600,000 per employee), has been lobbying at more than 35 statehouses for asset privatization. And those Goldman Sachs bonuses end up in big money political contributions. The firm has been hired by Indiana to design its Toll Road deal, worked for Texas on the state’s privatization projects, and now is ready to jump to the other side of the negotiating table to bid on deals it helped design -- a sweet setup for any firm.

States can restrict this problem by banning contractors doing business with the state from making campaign contributions and avoiding the “pay to play” relationships that corrupt government.

See Also:

• Public Citizen - Pay-to-Play and State Governments
• Progressive States - Ending “Pay to Play” on Government Contracts