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Human Resources

Gloria Christie (US) - Privatization: Contractors' Path to the States (Part 1)

The economy is perhaps the most important factor in determining who will win the upcoming US Presidential election. And for better or worse, the sitting President owns the existing economy this November 5th, Election Day. Therefore, it is in the best interests of the Republican Party to influence the economy, specifically employment, downward in any way that it can.

Republican Governors hold the majority of states. Part one of this blog identifies the current US employment status and deals with ways Governors may influence states to downsize government. A byproduct of these actions is a vacuum, creating a substantial space between lower state employment and the tasks states must complete. This is where contractors can make their entrance.

CURRENT STATUS

A strong US economy helps maintain the world financial health. Europe’s current fiscal difficulty greatly impacts the US economy both as its major export partner and as a stabilizing economic factor. So what does that mean for the technical contracts? From 2000 to 2008 the US privatized a large segment of its federal jobs sector creating an opportunity for a vast array of requests for technical proposals. This situation remains static.

With the US economy stuttering in its recovery, private sector jobs increased steadily but only marginally. Normally public jobs sustain us through economic downturns with public employees outnumbering those in manufacturing and other industries.  Typically local and state government rebound less quickly from a recession than business. However, business is not hiring. The US is in the worst private jobs contraction since 1981. 

State and local governments have moved to record-breaking layoffs rising to an anticipated 110,000 layoffs in the third quarter with an average loss of 23,000 jobs in the second quarter. Since 2008, public employment has lost 510,000 employees according to the Labor Department. Just as the previous administration privatized much of the public federal sector, states may privatize, thus opening up an opportunity for contractors to fill multiple necessary positions. 

The existing recovery stands alone as is the only one with continual public-sector losses in its first 31 months. As of March, 14.1 million people worked for local governments and 5.1 million for the states. Public sector losses are the most substantial since 1955, when the Labor Department began to keep records.

It is clear now that the Presidential election will take place against a poor economic background which may worsen before November. Since the US Congress did not pass all of the components of the President’s jobs plan, the results was a weakened stimulus package which did not ensure steady economic growth in the private sector. 

However, the states are run by a majority of Republican governors. With the public-sector job loss culminating in a rapid peak over the past three years, one must consider whether or not there is political motivation behind state layoffs. The Republican stand is based upon the premise that tax cuts and program reduction (with the exception of Defense spending) are the solution to job loss

Republican Governors have enthusiastically carved away at their states following the party line of reduced government. The declining housing market created a nearly catastrophic decrease in state and local tax revenue. Governors approached the problem with spending cuts, increased taxes and relief funds from the federal government and through borrowing. 

SPENDING CUTS

Republic governors set about a multi-prong attack of restructuring, employee layoffs and programs cuts.  Some states have restructured themselves through improved information flow, greater functionality, better integration and less duplication. The public jobs were reduced through position elimination, fewer direct reports and combining executive management positions. North Caroline gives us one example of restructuring public safety agencies when it collapsed the Departments of Delinquency Prevention, Crime Control, Public Safety, Corrections and Juvenile Justice into one large agency.

It would behoove contractors to look in the following areas where state governments may need to look toward privatization: telecommunications, IT, healthcare and education.

Recent education budget cuts streamline all levels from early childhood programs through college. With an emphasis on outcome-based reforms, efficiency and effectiveness, contractors could provide programs that create a tighter accountability systems with measureable results.  Some governors also plan to privative the financial operations that maintain their public assets. 

With declining funds from the state government, local governments have already cut programs and services. Further reduction means less money for personnel, thus, more jobs cuts. These municipalities have been forced to lay-off teachers, police, fire-fighters and other crucial employees.

TAX CUTS

As a consequence of the residential real estate market and ensuing plummeting property taxes, states are looking at substantial shortfalls. The 2009 Federal Stimulus Fund offset declining tax revenues, but those funds have dried up.  Many states have determined that changing their tax structure would enhance economic viability and increase private-sector jobs. This plan includes reducing both corporate and individual tax rates. There is little appetite for holding corporations accountable for off-shoring or moving headquarters out of country.

Lower corporate taxes make Republican-led states fertile ground for new and existing technical corporations.

PENSIONS

According to the Pew Center on the States, states and local governments have been digging out of a $1.26 trillion unfunded pension plan. In 2009, 31 states were funded below the healthy 80% threshold. Naturally when the markets performed poorly, we saw a decline in pension value.

State political election folly has been responsible for states increasing pensions during the good times and decreasing or altogether skipping annual contributions during periods of shortfall.

CONCLUSION

The Republican Party has a real potential of rapidly influencing employment downward through downsizing prior to Election Day. This can be accomplished through spending cuts, tax cuts and decreasing or not funding Pensions. Lower state employment creates a space the state will need to fill with contractors.

Part two covers another approach Republicans use to influence the economy, by resisting the Affordable Care Act, sometimes called, “Obamacare”. If they are successful, this opens another avenue for contractors to pursue. Part two will be published on Thursday August 23.

Disclaimer: This blog is based upon my opinion and my opinion only. It does not reflect those of IDG Connect.

By Gloria Christie, Partner at The Christie Group

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