Louisiana Legislature Considering Anti-Privatization Bills that Would Grow Government & Hurt Private Jobs, Part 1

For a state facing an ongoing fiscal crisis—and one that may very well be exacerbated in the near term by the expected economic impacts of the oil spill—you’d think that state legislators would be doing everything possible to streamline government and encourage robust private sector growth. Yet, several are advancing bills that would do the exact opposite by virtually ensuring big government into the future, stifling sensible cost-cutting privatization projects, and generally making Louisiana state government a very difficult partner for businesses to do business with.

Each bill merits discussion, so this post will start with HB 1316, which will be heard in the House Appropriations Committee on Monday (5/24). This bill is a stealth attempt to completely shut down privatization in the state by giving a new, PERMANENT legislative subcommittee—the first clue of a push for bigger government—seemingly unchecked authority to review and approve any state contracts it wants to. This is terrible public policy and just plain bad for business, for a variety of reasons:

1. HB 1316 would drive up costs in state government at the worst possible time. Directly, the legislative fiscal note for the bill states that just the costs of hiring 3 new legislative auditor staff to perform the required contract reviews will cost $1,059,000 over the next five yearsread: bigger government—and because of the generous nature of state benefits, the state will basically be on the hook for paying those salaries in virtual perpetuity (a state employee is never off the state books, after all, since they get paid for another 20-30 years after they retire). Expect this number to grow in coming years when things predictably bog down and legislators try to throw more money and staff at a problem they themselves created.

2. HB 1316 creates more bureaucracy and makes Louisiana a risky place to do business. The indirect costs of HB 1316 are far larger than the administrative costs, and they’re effectively hidden. Any requirement for legislative approval of individual contracts will automatically increase the political risks faced by the private sector. Private service providers typically spend thousands, sometime millions, of dollars developing individual proposals and engaging in state procurements.

These procurements already involve time consuming processes requiring vendors to take on significant legal, financial and other costs. HB 1316 would make it worse, in two key ways. First, if you, as a business owner, knew that you could jump through all of the existing procurement hoops (and cover all of the necessary costs along the way, out-of-pocket) to win a competitive bid and then still face a 50-50 shot that the contract wouldn’t proceed to close, would you be more or less likely to bid? Ideally, the risk of project approval would decline as the competition nears completion, not peak at the very end. And fewer bidders on the margin, will produce less competition, higher costs and less value for taxpayer money. Second, HB 1316 would drag out the procurement process by another 45 days, and since time is money in the private sector, legislators would be effectively shooting the state in the economic foot by forcing the private sector to spend more money chasing potentially ephemeral state business.

Legislative approval of contracts is a deal killer, plain and simple. So when the private sector doesn’t show up to bid because legislators have made it so precarious—or more likely, when agencies don’t even bother to try to cut costs through privatization knowing that the whole contracting process will be precarious to them too (which has been the case in Washington State and Massachusetts)—the legislature would only have themselves to blame when they’re unable to cut costs. Competition is what drives down costs, and HB 1316 would completely undermine it.

3. HB 1316 would be a legislative power grab and would politicize procurement. Legislatures are there to pass laws, not review contracts, which is properly a management function that belongs in the executive branch. The legislature already has some contract review authority in the regular appropriation process, where contracts are itemized in the budget request. From a public administration standpoint, direct legislative approval of contracts works at cross purposes to the day-to-day management and administration work performed by agency directors and staff. It becomes hard for them to make decisions and accomplish their goals when the political process sits waiting in the corner to potentially undermine them as they approach the goal line. HB 1316 would allow procurement decisions to be easily hijacked by political aims, rather than guided by smart policy. Isn’t that the very same sort of banana republic stuff that Louisiana’s been trying to move away from in the 21st Century?

4. HB 1316 would create an unchecked, arbitrary review process. According to the provisions of the bill, “the subcommittee may review any contract it deems appropriate or necessary,” and they can do so selectively for any agency, any time (outside of emergency contracts). For the private sector, this sort of expansive scope again rings of the stuff of banana republics. Would you trust your state legislator to review and approve your home mortgage? Would you trust them to review and approve your personal employment contract with your employer? Of course not. So if you’re a private business, would you trust a legislative subcommittee to give a neutral, unbiased review of a contract you’re ready to sign when its members are politicians utterly susceptible to holding privatization hostage for political aims, like preserving state jobs in their district fiefdoms?

5. HB 1316 does not protect the intellectual property rights of contract bidders. Vendor contracts often include sensitive, proprietary information related to a bidder’s core business plan, pricing model and/or system processes that could severely damage its competitiveness if made public to their competitors. HB 1316 leaves unanswered the question of how vendor intellectual property would be treated, so again, why bid on a Louisiana state contract if this new subcommittee can just take your proprietary ideas and make them public?

I made similar points in an earlier post here, and readers should go back and review what I propose as an policy approach that would provide sensible state oversight of privatization and without undermining smart contracting by politicizing it. I presented a better option—institutionalizing a business case review process for state privatization projects—in my testimony before Louisiana’s Streamlining Commission last September.

There, I proposed a model similar to that used by Florida’s Council on Efficient Government (CEG), which is probably the most robust and transparent privatization process out there among the states, and one has saved the state hundreds of millions in spending in recent years. This approach would establish a mechanism to make better decisions on state contracting, not to put in place political barriers in front of it. The Streamlining Commission adopted this recommendation, and Gov. Jindal’s administration is piloting a program to implement it. HB 1316 would thwart these important steps towards better, more transparent procurement. (see here and here for more discussion on Florida’s CEG).

Hopefully, legislators will recognize this for what it is: bad policy that would encourage bigger, less accountable government and hurt private sector jobs. With Louisiana’s fiscal challenges today, the focus should be on the exact opposite: doing everything possible to streamline bureaucracy and stimulate economic growth.

Reason Foundation’s Annual Privatization Report 2009
Reason Foundation’s Privatization Research and Commentary