The Unfairness In Privatization—A Small Example

During the Reagan Administration, federal white-collar pay was slightly reduced by recalculating the number of hours the employee works each year. But federal contractors were allowed to continue charging the government under the old pay formula, reaping billions in extra profits. This is just one small example of the unlevel playing field which has been tilted to encourage the privatization of public work.

Prior to the Consolidated Omnibus Budget Reconciliation Act of 1985, the pay of “non-exempt” federal workers (employees who are paid an annual rather than an hourly salary) was calculated by dividing their annual salary by 2080 hours. That’s 40 hours multiplied by 52 weeks.

Here’s the Government Accountability Office’s illustration of how the 2080-hour conversion method works:

But there aren’t exactly 52 weeks in a year. Usually there is an extra day—52 weeks plus one day equals 365 days. And there are two extra days every leap year. So the 1985 law moved non-exempt federal employees to a 2087-hour conversion method. Again, from the GAO:

One can justify the change. But one cannot justify the fact that it did not—and does not—apply to federal contractors.

According to the Economic Policy Institute, while “the number of directly employed federal workers has remained steady at 2.7 million since 2000, federal contract workers have grown from 1.4 million to 2.0 million.” So there’s a lot of employees and money involved. And companies relentlessly collect those extra dollars for privatized non-exempt employees compared to what the government pays to its own workers. That’s obviously unfair (and quite intentional).

That kind of unfairness—promoting privatization over government employees—is commonplace on the federal, state and local levels. Contractor bids generally do not accurately reflect the hidden costs required to transfer responsibility to a non-government entity, including the use of public equipment, facilities and human resources. Other hidden costs include the need for a new layer of bureaucracy to administer the bidding process, oversee contracts, and monitor results. A survey of state budget directors revealed that over 68 percent cite cost savings as the primary reason for privatization, but only 19.6 percent reported any quantifiable cost savings.

Contractors also reduce costs by hiring contingent and inexperienced personnel at low wages, skimping on contract requirements, or providing inadequate supervision. Even worse, 1 in 5 federal contract workers are paid sub-poverty wages. Because government has to step in and support these workers with the Earned Income Tax Credit and a variety of public services, taxpayers end up paying much more overall than if the job had been done by government employees in the first place.

It is time for some accountability. We must recognize that using private contractors to provide public services formerly provided by public employees often does not promote the public interest. To ensure that Americans receive high quality public services at low cost, with due regard for taxpayers, service recipients, and the needs of public and private workers, Congress and the Administration should crack down on contracting provisions that waste our money.

SPECIAL THANKS to one of our readers, James R. Davey of Spokane, Washington for bringing the 2080 versus 2087-hours issue to our attention. Mr. Davey and his father, Walter T. Davey, have been pursuing the matter for 40 years, as explained in this MSNBC news story.

Views expressed on this page are those of the authors and not necessarily those of Campaign for America's Future or Institute for America's Future