Privatization

Privatization Effects During Government Shutdowns

Privatization Effects during Government Shutdowns: full report (periodically updated)

Privatization Effects during Government Shutdowns: This is the ebook version and it is offered as part of the historical record (periodically updated)

Internet Version (most current)

Table of Contents

Introduction
Systems Prespective
Privatization Key Executive Orders and Reports
Privatization Effects during Government Shutdowns
Shutdown History
Legislation
Litigation
Recommendations

Appendices

Report of the President's Commission on Privatization
Executive Order 12607 - President's Commission on Privatization
Executive Order 12803-Infrastructure Privatization

Introduction

A systems approach was used to start an analysis of United States federal government shutdown impacts and it became clear that a key stakeholder has been left out of the entire shutdown and recovery activities, the new privatized worker. This issue has been fully ignored by all parties as narrow self-interests are addressed rather than attempting to fully understand the problem from a systems perspective.

On December 22, 2018 the United States Government entered into another shutdown because of the inability to pass a new budget. Each time the government has shutdown it has impacted a new workforce that surfaced as a result of privatization - the privatized government workforce. Previously once the budget is passed and government operations resume, new legislation compensates the civil servants who were furloughed during the shutdown. However, the privatized workers that work side by side with the civil servants in various offices, labs, and government bases are not compensated in future legislation.

Systems Perspective

During the 2018-2019 government shutdown the media focused on the civil servants where 420,000 must work without pay and 380,000 were sent home in the furlough. However 4.1 million government contractors were laid off and will collect unemployment and dip into savings. There is no national database tracking the number of contract employees. Dr. Paul Light a federal workforce expert at New York University provided the estimates. Not Expecting Back Pay, Government Contractors Collect Unemployment, Dip Into Savings, NPR, January 7, 2019.

If there were a clear systems perspective the discussion would include the system boundary, stakeholders, history, impacts, and critical analysis.

Privatization Key Executive Orders and Reports

There are 2 key Presidential Executive Orders and a report that essentially allowed for the privatization of a large portion of the Federal Civil Service. The work began in 1987.

Details of the executive orders and reports are provided further in this document.

Privatization Effects during Government Shutdowns

Today government functions are performed by traditional civil servants and privatized workers. They work side by side in various government offices, labs, and military bases supporting the same operations and basically performing the same functions with the same educational and skill levels.

During the past few decades the budget has been delayed and multiple government shutdowns have occurred. Both civil servants and their privatized counterparts are not permitted to work during a government shutdown. In all cases after the shutdown is resolved legislation has been passed to reimburse the civil servants. However, their privatized counter parts working side by side are not reimbursed. In addition, there is evidence suggesting that the privatized workers are discouraged from claiming unemployment with their respective states.

The problem was further exacerbated in 2018 when President Trump closed government offices for President Bush's funeral and for Christmas Eve. Once again the civil servants will be compensated while the privatized workers will lose pay for each of the days the government offices were closed.

The shutdowns and random holiday declarations unfairly and severely impact the privatized workforce with loss of income. The privatized employees' only mistake is choosing to work in the government privatized workforce alongside their civil servant counterparts rather than for a traditional government contractor with its own offices, operations, and contracts.

Treating the privatized workforce in this way is obviously a gross injustice and severely out of character for the United States of America. The Commission on Privatization was aware of the potential abuse of power that may surface and clearly stated in the executive summary:

"In addition, any recommendation supporting increased contracting out should be implemented only after full consideration has been given to employee interests."

It is clear that employee interests have been ignored and severely compromised.

Shutdown History

The US Federal Government has experienced multiple years when it was unable to pass a new budget in time for the next year - US Federal Funding Gaps. However, until 1980 the government did not stop its functions or fail to pay its bills on time and in full, unlike today. It was obvious that the US Federal Government would eventually pass a budget and pay its bills. This changed in 1980 with a reinterpretation of the 1884 Antideficiency Act. It is unclear why this bad law has remained when it is obvious that it has caused serious harm to the USA. Sabotage is defined as: deliberately destroy, damage, or obstruct (something), especially for political or military advantage.

Since 1980 the US Federal Government has experienced multiple shutdown events because of its inability to agree on a new federal budget. The following table shows that the shutdown events have become more severe as time has moved on. Also because of the privatization of the government there are severe impacts to large numbers of workers that now form the new privatized contractor workforce..

Shutdown Days Civil Servants Furloughed Privatized Contractors Not Paid
1980 1 1,600
1981 1 241,000
1984 1 500,000
1986 1 500,000 NOT reimbursed
1990 3 2,800 NOT reimbursed
Nov 1995 5 800,000 NOT reimbursed
1995–1996 21 284,000 NOT reimbursed
2013 16 800,000 NOT reimbursed
Jan 2018 3 692,900 NOT reimbursed
2018–19 35 reimbursed 380,000 NOT reimbursed 4.1 Million

Legislation

Senate - Compensate Civil Servants (800,000)

On January 17, 2019 the media reported that President Trump signed S.24 into law. This follows the precedent set with previous shutdowns. However the privatized workforce as contractors will not be reimbursed leading to an unfair treatment under the law and breach of thousands of contracts situation. Further the civil servants that must work without pay will not be reimbursed for the extra workload and extremely stressful work settings.

S.24 - Government Employee Fair Treatment Act of 2019

There are major problems with this law unless it is augmented with new law: Breach Of Contract and Equal Treatment Under The Law.

An alternative is for someone to bring a lawsuit against the Federal Government and claim that this law must be expanded to include everyone using the same arguments used by Ruth Bader Ginsburg in Charles E. Morito vs. IRS care giver deduction 10th Circuit 1972. Extend protections of the Equal Protection Clause of the Fourteenth Amendment to contractors.

House - Compensate Contractors (4.1 million)

H.R.339 - To provide for the compensation of Federal contractor employees that may be placed on unpaid leave as a result of the Federal Government shutdown, and for other purposes. Submitted 1/8/2019.

Sponsors and Cosponsors

H.R.339 Contractor and Exempt Government Employee Fair Treatment Act of 2019 new bill text:

Sec. 750. If a Federal contractor that provides retail, food, custodial, or security services to the Federal Government places the employees of such contractor on unpaid leave as a result of any lapse in appropriations which begins in fiscal year 2019, the Government shall provide compensation to such employees at their standard rate of compensation for the period of such lapse.

HR339 Should include all contractors please delete "retail, food, custodial, or security" from the text to ensure there is equal treatment under the law

Essence of proposed new text - it should include everyone and correct other serious issues:

(1) Each excepted employee of the United States Government or of a District of Columbia public employer who is required to perform work during a covered lapse in appropriations shall be paid for such work, at the employee's standard rate of pay plus 10%, at the earliest date possible after the lapse in appropriations ends, regardless of scheduled pay dates.

Rational: Excepted employees forced to work during the shutdown experience significant increased workload and work stress. This is similar to a war zone where 25% is the expected pay rate increase. However since loss of life is not expected, the standard night rate 10% differential is suggested.

(2) Each contract employee of the United States Government or of a District of Columbia public contract employee not permitted to work and has lost wages due to layoff or other actions as a result of a covered lapse in appropriations shall be paid via their existing contracts for the period of the lapse in appropriations, at the contract employee's standard rate of pay, at the earliest date possible after the lapse in appropriations ends, regardless of scheduled billing dates.

Rational: Breach Of Contract and Equal Treatment Under The Law. This must be done to preserve the rule of law. See Ruth Bader Ginsburg in Charles E. Morito vs IRS care giver deduction 10th Circuit 1972.

Senate - Compensate Contractors (4.1 million)

S.162 - To provide for the compensation of Federal contractor employees that may be placed on unpaid leave as a result of the Federal Government shutdown, and for other purposes. Submitted 1/16/2019. This title was changed to - Fair Compensation for Low-Wage Contractor Employees Act of 2019

The text for this bill has been modified to only address non professional contractors in the Definitions section - The term “employee” means the following: - Once the references are traced not all contractors are included. Hiding this by using references is not good. The privatized contract employees include large numbers of professionals that are not included in this definition of employee.

This must be corrected: Breach Of Contract and Equal Treatment Under The Law. This must be done to preserve the rule of law. See Ruth Bader Ginsburg in Charles E. Morito vs IRS care giver deduction 10th Circuit 1972.

Sponsors and Cosponsors

Essence of the proposed new bill - it should include everyone - see this proposed text:

(1) Each excepted employee of the United States Government or of a District of Columbia public employer who is required to perform work during a covered lapse in appropriations shall be paid for such work, at the employee's standard rate of pay plus 10%, at the earliest date possible after the lapse in appropriations ends, regardless of scheduled pay dates.

Rational: Excepted employees forced to work during the shutdown experience significant increased workload and work stress. This is similar to a war zone where 25% is the expected pay rate increase. However since loss of life is not expected, the standard night rate 10% differential is suggested.

(2) Each contract employee of the United States Government or of a District of Columbia public contract employee not permitted to work and has lost wages due to layoff or other actions as a result of a covered lapse in appropriations shall be paid via their existing contracts for the period of the lapse in appropriations, at the contract employee's standard rate of pay, at the earliest date possible after the lapse in appropriations ends, regardless of scheduled billing dates.

Rational: Breach Of Contract and Equal Treatment Under The Law. This must be done to preserve the rule of law.

It is clear that the House and Senate are not listening. This is extremely serious because it is obvious that all privatized workers must be reimbursed.

Litigation

There does not appear to be any litigation from the shutdown events. Since 1980 there have been a total of 85 days of lost compensation due to shutdowns. It is unclear why no companies or their employees have challenged the Federal Government using Breach Of Contract and Equal Treatment Under The Law even though clear precedent was set by Ruth Bader Ginsburg in Charles E. Morito vs. IRS care giver deduction 10th Circuit 1972. One can only conclude that there is severe harassment and intimidation to prevent anyone from trying to seek justice at this time.

The government shutdowns have now reached a serious crisis point because with each shutdown the number of days increases. The latest shutdown of 35 days normally would translate into a collapsed state with a call for a new government and new elections. Yes it is that serious. Litigation may stop this action instantly. It is clear that 1-4 million workers reimbursed for 85 days of lost pay would translate into billions of dollars not including the damages that surfaced in breach of contract litigation and impacts of the shutdowns including suicides, lost careers, etc.

Recommendations

After the shutdown is over, legislation has been passed to compensate the civil servants and contracts have been modified to ensure companies providing the privatized workers receive the original contract value, however the privatized workers are not compensated for lost wages.

The argument is that companies cannot bill the government for work not performed. However, the civil servants are compensated for work not performed. One interpretation of law is used to deny wages to one group out of two groups of workers that are both equally hurt by the shutdown.

Another interpretation can be that the law should treat everyone equally. If the privatized workers are not paid then the civil servants should not be paid. If the civil servants are retroactively compensated for work not performed then the privatized workforce should be retroactively compensated for work not performed.

As the shutdown time increases there comes a point where healthcare and other benefits such as retirement, 401K contributions, and other benefits are impacted. The privatized workers may move to more expensive COBRA healthcare and lose time that contributes to their benefits before their civil servant coworkers because of shorter pay cycles.

The recommended remedy to this gross injustice is based on the concept that everyone must be treated equally under the law:

1. All future legislation that allows civil servants to be compensated after a shutdown must include their privatized counterparts who work side by side everyday as part of the United States of America government functions.

2. Further an investigation of previous shutdowns must be performed to determine how previous shutdowns affected the privatized workforce and if needed they must be compensated for their lost income since 1988.

3. Legislation must be provided to ensure that such gross injustice does not occur in the future.

4. This must happen immediately.

It's not that complex. Essentially each contract for privatized workers is automatically updated to include a new payment associated with the shutdown.

Automatically reimbursing privatized workers after a government shutdown also should be added to the body of law for future shutdowns so that companies providing privatized workers can float the costs of the shutdown using traditional financial mechanisms such as their banks. The guarantee of government reimbursement will allow this to happen. This is critical because these contracts do not have sufficient overhead to carry employees during shutdowns.

It is unfortunate that special legislation is needed to deal with a dysfunction of government. This is a symptom of a larger systemic problem associated with privatization and the role of government. Executive Order 12607 - President's Commission on Privatization may have been issued with the best of intentions, however there is now decades of empirical data to suggested that there are serious unintended consequences and that there is significant harm.

The reality is as we pursued the path of privatization beginning in 1987 no one really bothered to investigate the role of government and industry. Basic civics class 101 was never considered. This analysis needs to happen and future policy needs to be established to correct this serious problem that leads to constant budget standoffs and government shutdowns that penalize one group of workers while preserving another group of workers. There is more on this topic at:

Privatization - Shutdowns and Other Unintended Consequences

The remaining body of this document contains the Executive Orders associated with key privatization elements and an extract of the executive summary from the Report of the President's Commission on Privatization.


The remaining body of this webpage contains the Executive Orders associated with key privatization elements and an extract of the executive summary from the Report of the President's Commission on Privatization.



Report of the President's Commission on Privatization

This section is a summary of the report that was the result of Executive Order 12607 - President's Commission on Privatization issued on September 2, 1987 by President Reagan. This is a key document because it clearly outlines the plan to privatized major portions of the US Federal Government. As of 2018 we clearly see a major portion of this plan has been executed. However, in that time frame they were sensitive to the needs of employees.

What is not stated in the report is that at that time it was important to ensure that second class workers were not created with lower salaries and benefits. This was part of the perception that the Federal Government, as the largest employer in the US, should set an example and not facilitate downward spirals. Ensuring and encouraging commerce and upward economic growth and mobility were part of the social fabric when this report was produced.

Letter of Transmittal

Dear Mr. President:

I am pleased to transmit to you the report of the President's Commission on Privatization, PRIVATIZATION: Toward More Effective Government. Created by your Executive Order No. 12607 on September 2, 1987, the Commission has devoted the past several months to examining the appropriate division of responsibilities between the federal government and the private sector.

During the conduct of our examination, we reviewed extensive literature on privatization, considered the testimony of 140 witnesses, and analyzed information and data provided by the pertinent federal agencies in each of the subject areas addressed in this report.

In our deliberations, we considered first and most critically the needs of the American consumer and how those needs can best be satisfied. In this report we recommend alternative approaches for administering many government programs and services, when we determined that they could be better managed at less cost by involving the private sector and/or providing for individual consumer's choice.

It is our belief and hope that this report of findings and recommendations, if adopted, would serve as the linchpin in the identification and transfer of federal activities that can be performed more effectively by the private sector.

For all of us, participation in the work of the Commission has been a challenging and stimulating opportunity to serve our nation. We appreciate having had this privilege.

Sincerely,
David F. Linowes
Chairman

A copy of the letter was also sent to James C. Miller, III the Director of Office of Management and Budget.

Executive Summary Extract

This following is an extract of the executive summary. The executive summary provides additional details on how to deal with each of the targeted agencies and government functions.

Executive Summary

The President's Commission on Privatization was established on September 2, 1987 "to review the appropriate division of responsibilities between the federal government and the private sector," and to identify those government programs that are not properly the responsibility of the federal government or that can be performed more efficiently by the private sector.

The Commission reviewed a broad spectrum of government activities:

In all these representative areas, the Commission found potential for improved efficiency, quality of service, or both, to be derived from increased private sector participation in the provision of services. In some areas, such as the Naval Petroleum Reserves, the Commission found that the public would be best served by complete government divestiture. In other areas, such as Housing, Education, and Medicare, the Commission found that the continued need for public sector support could be served by means of vouchers, which act as vehicles for private sector participation, and hence, competition. In yet other areas, such as Air Traffic Control, Postal Service, and Urban Mass Transit, the Commission found that a combination of private sector initiatives, from contracting out to asset sales, may best serve the public interest. However, federal workers should be assured that normally any staff reductions resulting from the implementation of Commission recommendations should be handled through attrition. In addition, any recommendation supporting increased contracting out should be implemented only after full consideration has been given to employee interests.

PRIVATIZATION: Toward More Effective Government full report PDF


Executive Order 12607 - President's Commission on Privatization

President Ronald Reagan
Wednesday, September 2, 1987

By the authority vested in me as President by the Constitution and laws of the United States of America, and in order to establish, in accordance with the Federal Advisory Committee Act, as amended (5 U.S.C. App. I), a Commission to review the appropriate division of responsibilities between the Federal government and the private sector, it is hereby ordered as follows:

Section 1. Establishment.

(a) There is established the President's Commission on Privatization. The Commission shall be composed of not more than 13 members appointed or designated by the President. The members shall be drawn from among a bipartisan cross-section of distinguished leaders.

(b) The President shall designate a Chairman from among the members of the Commission.

Sec. 2. Functions.

(a) The Commission shall study and evaluate:

(1) Past and current privatization efforts by the Federal government, State and local governments, and foreign governments, including asset sales by the Federal government;

(2) Literature and writing on privatization; and

(3) The environment for additional privatization efforts by the Federal government.

(b) The Commission shall review the current activities of the Federal government, including asset holdings, and identify those functions that:

(1) Are not properly the responsibility of the Federal government and should be divested or transferred to the private sector, with no residual involvement by the Federal government; or

(2) Require continuing oversight by an Executive Branch agency but can be performed more efficiently by a private entity, including the use of vouchers as an alternative to direct service.

(c) The Commission shall develop the framework for a privatization program, identifying:

(1) Privatization opportunities, including those identified in (b) above, listed in order of priority;

(2) Legislative and administrative actions necessary to effect the privatization initiatives or remove existing privatization restrictions;

(3) Needed improvements to personnel and administrative policy to create an environment conducive to privatization;

(4) Organizational and resource requirements necessary to implement successfully the privatization program; and

(5) Actions necessary to create broadbased support for privatization efforts.

(d) The Commission shall submit its findings and recommendations to the President and the Director of the Office of Management and Budget by March 1, 1988. Interim recommendations shall be transmitted to the Director for consideration in the formulation of the President's FY 1989 budget.

Sec. 3. Administration.

(a) The heads of Executive departments, agencies, and independent instrumentalities shall, to the extent permitted by law, provide the Commission, upon request, with such information as it may require for purposes of carrying out its functions.

(b) Members of the Commission shall serve without compensation for their work on the Commission. While engaged in the work of the Commission, members appointed from among private citizens of the United States may be allowed travel expenses, including per diem in lieu of subsistence , as authorized by law for persons serving intermittently in the government service (5 U.S.C. 5701-5707).

(c) To the extent provided by law and subject to the availability of appropriations, the Director of the Office of Management and Budget shall provide the Commission with such administrative services, funds, facilities, staff, and other support services as may be necessary for the performance of its functions.

Sec. 4. General Provision.

(a) Notwithstanding the provisions of any other Executive Order, the functions of the President under the Federal Advisory Committee Act that are applicable to the Commission, except that of reporting annually to the Congress, shall be performed by the Director of the Office of Management and Budget, in accordance with guidelines and procedures established by the Administrator of General Services; and

(b) The Commission shall terminate 30 days after submitting its final report to the President.

Signature of Ronald Reagan

Ronald Reagan
The White House,
September 2, 1987.

Filed with the Office of the Federal Register, 11:57 a. m., September 8, 1987
The Executive order was released by the Office of the Press Secretary on September 3.


Executive Order 12803-Infrastructure Privatization

President George Herbert Walker Bush
Thursday, April 30, 1992

By the authority vested in me as President by the Constitution and the laws of the United States of America, and in order to ensure that the United States achieves the most beneficial economic use of its resources, it is hereby ordered as follows:

Section 1. Definitions.

For purposes of this order:

(a) "Privatization" means the disposition or transfer of an infrastructure asset, such as by sale or by long-term lease, from a State or local government to a private party.

(b) "Infrastructure asset" means any asset financed in whole or in part by the Federal Government and needed for the functioning of the economy. Examples of such assets include, but are not limited to: roads, tunnels, bridges, electricity supply facilities, mass transit, rail transportation, airports, ports, waterways, water supply facilities, recycling and wastewater treatment facilities, solid waste disposal facilities, housing, schools, prisons, and hospitals.

(c) "Originally authorized purposes" means the general objectives of the original grant program; however, the term is not intended to include every condition required for a grantee to have obtained the original grant.

(d) "Transfer price" means:

(i) the amount paid or to be paid by a private party for an infrastructure asset, if the asset is transferred as a result of competitive bidding; or

(ii) the appraised value of an infrastructure asset, as determined by the head of the executive department or agency and the Director of the Office of Management and Budget, if the asset is not transferred as a result of competitive bidding.

(e) "State and local governments" means the government of any State of the United States, the District of Columbia, any commonwealth, territory, or possession of the United States, and any county, municipality, city, town, township, local public authority, school district, special district, intrastate district, regional or interstate governmental entity, council of governments, and any agency or instrumentality of a local government, and any federally recognized Indian Tribe.

Sec. 2. Fundamental Principles.

Executive departments and agencies shall be guided by the following objectives and principles:

(a) Adequate and well maintained infrastructure is critical to economic growth. Consistent with the principles of federalism enumerated in Executive Order No. 12612, and in order to allow the private sector to provide for infrastructure modernization and expansion, State and local governments should have greater freedom to privatize infrastructure assets.

(b) Private enterprise and competitively driven improvements are the foundation of our Nation's economy and economic growth. Federal financing of infrastructure assets should not act as a barrier to the achievement of economic efficiencies through additional private market financing or competitive practices, or both.

(c) State and local governments are in the best position to assess and respond to local needs. State and local governments should, subject to assuring continued compliance with Federal requirements that public use be on reasonable and nondiscriminatory terms, have maximum possible freedom to make decisions concerning the maintenance and disposition of their federally financed infrastructure assets.

(d) User fees are generally more efficient than general taxes as a means to support infrastructure assets. Privatization transactions should be structured so as not to result in unreasonable increases in charges to users.

Sec. 3. Privatization Initiative.

To the extent permitted by law, the head of each executive department and agency shall undertake the following actions:

(a) Review those procedures affecting the management and disposition of federally financed infrastructure assets owned by State and local governments and modify those procedures to encourage appropriate privatization of such assets consistent with this order;

(b) Assist State and local governments in their efforts to advance the objectives of this order; and

(c) Approve State and local governments' requests to privatize infrastructure assets, consistent with the criteria in section 4 of this order and, where necessary, grant exceptions to the disposition requirements of the "Uniform Administrative Requirements for Grants and Cooperative Agreements to State and Local Governments" common rule, or other relevant rules or regulations, for infrastructure assets; provided that the transfer price shall be distributed, as paid, in the following manner:

(i) State and local governments shall first recoup in full the unadjusted dollar amount of their portion of total project costs (including any transaction and fix-up costs they incur) associated with the infrastructure asset involved;

(ii) if proceeds remain, then the Federal Government shall recoup in full the amount of Federal grant awards associated with the infrastructure asset, less the applicable share of accumulated depreciation on such asset (calculated using the Internal Revenue Service accelerated depreciation schedule for the categories of assets in question); and

(iii) finally, the State and local governments shall keep any remaining proceeds.

Sec. 4. Criteria.

To the extent permitted by law, the head of an executive department or agency shall approve a request in accordance with section 3(c) of this order only if the grantee:

(a) Agrees to use the proceeds described in section 3 (c) (iii) of this order only for investment in additional infrastructure assets (after public notice of the proposed investment), or for debt or tax reduction; and

(b) Demonstrates that a market mechanism, legally enforceable agreement, or regulatory mechanism will ensure that:

(i) the infrastructure asset or assets will continue to be used for their originally authorized purposes, as long as needed for those purposes, even if the purchaser becomes insolvent or is otherwise hindered from fulfilling the originally authorized purposes; and

(ii) user charges will be consistent with any current Federal conditions that protect users and the public by limiting the charges.

Sec. 5. Government-wide, Coordination and Review.

In implementing Executive Order Nos. 12291 and 12498 and OMB Circular No. A-19, the Office of Management and Budget, to the extent permitted by law and consistent with the provisions of those authorities, shall take action to ensure that the policies of the executive departments and agencies are consistent with the principles, criteria, and requirements of this order. The Office of Management and Budget shall review the results of implementing this order and report thereon to the President 1 year after the date of this order.

Sec. 6. Preservation of Existing Authority.

Nothing in this order is in any way intended to limit any existing authority of the heads of executive departments and agencies to approve privatization proposals that are otherwise consistent with law.

Sec. 7. Judicial Review.

This order is intended only to improve the internal management of the executive-branch, and is not intended to create any right or benefit, substantive or procedural, enforceable by a party against the United States, its agencies or instrumentalities, its officers or employees, or any other persons.

Signature of George H.W. Bush

George Bush
The White House,
April 30, 1992


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