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Sep 27

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America’s Government Contracting Bonanza Bilks Taxpayers

By Beth Schulman

I live nine blocks from the U.S. Capitol, so many of my neighbors depend on the government for their livelihoods. A few — a scientist, an editor, a Secret Service agent — belong to that often mocked and rapidly shrinking category known as “civil servants.” The government writes their paychecks, lets them buy into a decent health insurance plan, and runs a respectable pension system for them. Some belong to — and are protected by — powerful unions. Their generous benefit packages and job security are the stuff of legend.

It’s not surprising that eliminating their jobs and chipping away at their benefits have become favored tools of budget-conscious politicians in recent months. Last November, President Barack Obama froze federal wages for a full two years in an effort to build his credibility as a budget hawk. But even that wasn’t enough for some members of Congress.

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They’re advocating that the Super Congress, those dozen lawmakers who are tasked with carving at least $1.2 trillion from the federal deficit, cut that fat federal workforce and outsource more jobs to private industry.

Not so fast.

On average, Uncle Sam spends nearly twice as much when the government outsources a job as it would if it just hired another “expensive” federal worker, says a new report by the Project On Government Oversight, Bad Business: Billions of Taxpayer Dollars Wasted on Hiring Contractors.

In researching this report, the POGO assessed contracts in 35 different job categories, comparing the total compensation for a federal employee with contractor annual billing rates to provide the same services. Astonishingly, in 33 of the categories, the federal employee cost the Treasury significantly less than the contractor.

Consider this example. For a “general attorney” on the public payroll, the government spends about $175,000 a year on salary and full benefits. If, however, the government hires a contractor to provide the same legal services, POGO found that we taxpayers would dole out almost $555,000 a year. Comparable findings surfaced in lots of other cases. Accountants on the public payroll cost us about $124,000 a year. If we engage them through a contractor, we spend about $283,000. Federal food inspectors carry a $58,000 yearly price tag as government employees, but cost about $75,000 if they’re hired through a contractor.

How can this be? For two decades, the White House and Congress have sought to privatize more and more government jobs. This was supposed to save lots of taxpayer dollars. The logic seemed impeccable: Break the government monopoly and free-market competition would drive down the cost. So the feds embraced outsourcing and invited bids from all comers.

One estimate shows that the number of federal service contractors grew from 4.4 million in 1999 to more than 7.5 million by the end of the 2005 fiscal year. (Solid recent statistics are surprisingly elusive.)

What went wrong? One of the biggest problems was that the government simply assumed that contracting would truly save money, and didn’t bother to verify whether that actually happened. This might explain the dramatic increase in federal service contract spending to more than $320 billion each year, which hasn’t reduced the overall size of the federal workforce.

Studies that found civil servants to be better-paid than their private-sector counterparts supposedly justified the contracting bonanza. But those studies compare apples to oranges. If Washington is serious about cutting wasteful government spending, it has to factor in what a contractor bills. After all, taxpayers foot the bill for the contracting company’s profits and its administrative costs, not just their employees, who are doing work that would otherwise be handled by civil servants or members of the military.

There’s a simple solution. Congress should institute safeguards to ensure that taxpayers stop wasting billions of dollars on bloated contracts. The government just has to determine that the overall, real cost of every contracted hire is compared with the overall, real cost of hiring a public servant.

This is a move that belongs on the agenda for the Super Congress. It’s a no-brainer.

Beth Schulman is a senior writer at the Project On Government Oversight. www.pogo.org

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