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The federal role in privatization : hearing before the Subcommittee on Government Management, Information, and Technology of the Committee on Government Reform and Oversight, House of Representatives, One Hundred Fourth Congress, first session, March 14, 1995 online

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V\\ THE FEDERAL ROLE IN PRIVATIZATION



\^



Y 4.G 74/7: P 93/16



The Federal Role in Privatizationi . . .

HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
INFORMATION, AND TECHNOLOGY

OF THE

COMMITTEE ON GOVERNMENT

REFORM AND OVERSIGHT
HOUSE OF REPRESENTATIVES

ONE HUNDRED FOURTH CONGRESS

FIRST SESSION



MARCH 14, 1995



Printed for the use of the Committee on Government Reform and Oversight













:. '^.A^'^.'-



U.S. GOVERNMENT PRINTING OFFICE
91-041 CC WASHINGTON : 1995



For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-047296-2



A



\ \ THE FEDERAL ROLE IN PRIVATIZATION



'4,G 74/7: P 93/16



he Federal Role in Privatization, . . .

HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
INFORMATION, AND TECHNOLOGY

OF THE

COMMITTEE ON GOVERNMENT

REFORM AND OVERSIGHT
HOUSE OF REPRESENTATIVES

ONE HUNDRED FOURTH CONGRESS
FIRST SESSION



MARCH 14, 1995



Printed for the use of the Committee on Government Reform and Oversight




0.-.,.



4(/<?;^



%






U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 1995



For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-047296-2



COMMITTEE ON GOVER^rMENT REFORM AND OVERSIGHT

WILLIAM F. CLINGER, JR., Pennsylvania, Chairman
BENJAMIN A. GILMAN, New York CARDISS COLLINS, Illinois

DAN BURTON, Indiana HENRY A. WAXMAN, California

CONSTANCE A. MORELLA, Maiyland TOM LANTOS, California

CHRISTOPHER SHAYS, Connecticut ROBERT E. WISE, JR., West Virginia

STEVEN SCHIFF, New Mexico MAJOR R. OWENS, New York

ILEANA ROS-LEHTINEN, Florida EDOLPHUS TOWNS, New York

WILLIAM H. ZELIFF, JR., New Hampshire JOHN M. SPRATT, JR., South Carolina
JOHN M. McHUGH, New York LOUISE McINTOSH SLAUGHTER, New

STEPHEN HORN, California York

JOHN L. MICA, Florida PAUL E. KANJORSKI, Pennsylvania

PETER BLUTE, Massachusetts GARY A. CONDIT, California

THOMAS M. DAVIS, Vii^nia COLLIN C. PETERSON, Minnesota

DAVID M. MCINTOSH, Indiana KAREN L. THURMAN, Florida

JON D. FOX, Pennsylvania CAROLYN B. MALONEY, New York

RANDY TATE, Washington THOMAS M. BARRETT, Wisconsin

DICK CHRYSLER, Michigan GENE TAYLOR, Mississippi

GIL GUTKNT:CHT, Minnesota BARBARA-ROSE COLLINS, Michigan

MARK E. SOUDER, Indiana ELEANOR HOLMES NORTON, District of

WILLIAM J. MARTINI, New Jersey Columbia

JOE SCARBOROUGH, Florida JAMES P. MORAN, Virginia

JOHN B. SHADEGG, Arizona GENE GREEN, Texas

MICHAEL PATRICK FLANAGAN, Illinois CARRIE P. MEEK, Florida

CHARLES F. BASS, New Hampshire FRANK MASCARA, Pennsylvania

STEVEN C. LaTOURETTE, Ohio CHAKA FATTAH, Pennsylvania

MARSHALL "MARK" SANFORD, South

Carolina BERNARD SANDERS, Vermont

ROBERT L. EHRLICH, JR., Maryland (Independent)

James L. Clarke, Staff Director

Kevin M. SabO, Counsel

Judith McCoy, Chief Clerk

Bud Myers, Minority Staff Director



Subcommittee on Government Management, Information, and Technology

STEPHEN HORN, California, Chairman

MICHAEL PATRICK FLANAGAN, Illinois CAROLYN B. MALONEY, New York

PETER BLUTE, Massachusetts MAJOR R. OW^NS, New York

THOMAS M. DAVIS, Vii^nia FRANK MASCARA, Pennsylvania

JON D. FOX, Pennsylvania ROBERT E. WISE, JR., West Virginia

RANDY TATE, Washington JOHN M. SPRATT, JR., South Carolina

JOE SCARBOROUGH, Florida PAUL E. KANJORSKI, Pennsylvania
CHARLES F. BASS, New Hampshire

"^ Ex Officio

WILLIAM F. CLINGER, JR., Pennsylvania CARDISS COLLINS, Illinois

J. Russell George, Staff Director
Mark Brasher, Professional Staff Member
Mark Uncapher, Professional Staff Member

Andrew G. Richardson, Clerk
David McMillEN, Minority Professional Staff



(II)



CONTENTS



Page

Hearing held on March 14, 1995 1

Statement of:

Albano, . Louis, president. Civil Sendee Technical Guild, accompanied by

Bert M. Concklin, president, Professioiial Servi-es Council .., 64

Jones, Andrew, worldwide privatization coordinator, Arthur Andersen;
Roger Leeds, managing director, Barents PLC; and Viggo Butler, presi-
dent, Lockheed Air Terminal 20

Klug, Hon. Scott, a Representative in Congress from the State of Wiscon-
sin; and Roy Bemardi, mayor, Syracuse, NY 4

Stanley, Ralph L., senior vice president. United Infrastructure Co.; ac-
companied by Donald Correll, president and ceo. United Water Re-
sources 82

Letters, statements, etc., submitted for the record by:

Albano, Louis, president. Civil Service Technical GuUd, prepared state-
ment of 66

Bilik, Al, president, Public Employee Department, AFL^IO, prepared

statement of 94

Butler, Viggo, president, Lockheed Air Terminal, prepared statement of ... 53

Concklin, Bert M., president. Professional Services Council, prepared
statement of 71

Horn, Hon. Stephen, a Representative in Congress from the State of
California, Executive Order 12803 17

Jones, Andrew, worldwide privatization coordinator, Arthur Andersen,

prepared statement of 23

Klug, Hon. Scott, a Representative in Congress from the State of Wiscon-
sin, prepared statement of 10

Leeds, Roger, managing director, Barents PLC, prepared statement of 49

National Council for Public-Private Partnership, prepared statement of ... 100

Savas, E.S., director. Privatization Research Organization, School of FHib-
lic Affairs, Baruch College/City University of New York, prepared state-
ment of 93

Stanley, Ralph L., senior vice president, United Infrastructure Co., pre-
pared statement of 85

Sturdivant, John N., national president, American Federation of Govern-
ment Employees, AFL-CIO, prepared statement of 96



(HI)



THE FEDERAL ROLE IN PRIVATIZATION



TUESDAY, MARCH 14, 1995

House of Representatives,
Subcommittee on Management,
Information, and Technology,
Committee on Government IIeform and Oversight,

Washington, DC.

The subcommittee met, pursuant to notice, at 2 p.m., in room
2154, Raybum House Office Building, the Honorable Stephen Horn
(chairman of the subcommittee) presiding.

Present: Representatives Davis, Fox, Horn, Maloney, and Mas-
cara.

Staff present: J. Russell George, staff director; Mark Brasher and
Mark Uncapher, professional staff members; Andrew G. Richard-
son, clerk; David McMillen, minority professional staff; and
Elisabeth Campbell, minority staff assistant.

Mr. Horn. The Subcommittee on Government Management, In-
formation, and Technology will come to order, a quorum being
present. And our first panel is Representative Klug of Wisconsin,
and Mayor Bemardi of Syracuse, NY. Mayor, if you would, please
come forward. We have a tradition in this committee, of swearing
all witnesses. So if you just raise your right hand.

[Witnesses sworn.]

Mr. Horn. And we will start with you. Mayor. We're delighted
to have you here. I congratulate you on your win. And I think
they've got a sign for you right there; there you are.

Mr. Fox. Sir, will you accept the opening statements as a brief?

Mr. Horn. My opening statement will be fairly brief, and I'll be
glad to recognize you after mine. I just want to get the witnesses
sworn in.

Mr. Fox. Very well. Thank you, Mr. Chairman.

Mr. Horn. And let me say to all witnesses that we will put your
full statement in the record automatically. What we'd like you to
do is summarize it. We give every witness 5 minutes for summari-
zation, and then each Member, alternating between Republicans
and Democrats, has 5 minutes per round. And let me just make a
few comments on this and I'll explain what we're about.

In 1979, Margaret Thatcher was elected as Britain's Prime Min-
ister. Mrs. Thatcher initiated a review of the British government
that included privatizing the State-owned enterprises, which had
been nationalized by the Labour government, following the Second
World War. The sale of British Petroleum and British Aerospace
kicked off the transformation of several British firms from largely
State-owned to largely private. Thatcher's Conservative Party revo-

(1)



lution even transformed the opposition British Labor Party from a
party committed to public ownership of "the commanding heights
of the economy," to one that accepts privatization and does not in-
tend to undo the achievements of the preceding two decades.

That really was a shot heard around the world. Privatization has
been widely copied in Latin America, Africa, Asia, Europe, even in
countries which were part of the former Soviet Union, and China,
which is still ruled by the Communist Party of China.

Conspicuously lacking among the ranks of the privatizers is the
United States. The United States has limited experiences with na-
tionalization of Federal ownership of corporations, except in the
First World War with the railroads. The lack of State-owned enter-
prises has limited the scope of privatization in the United States.
However, there are billions of dollars of Federal assets that are
available for sale.

Congressional committees should closely examine the opportuni-
ties available to us to achieve savings, and improve the effective-
ness and efficiency of various government-run programs. We should
have specific goals when privatizing. There should be a solid ra-
tionale and clear criteria in order to move areas of activity away
from government ownership to private ownership and management
which meets a public purpose.

A demonstration of the cost savings and economic opportunities
for economic benefits for society's consumers and workers are es-
sential. These are some of the questions we hope each of the wit-
nesses will deal with, based on your experience, so we can get a
feel for where are those solid rationale and the clear criteria. Con-
gress needs to decide whether to privatize; what form privatization
should take; how Federal workers should be treated; and finally,
how we can remove barriers to State and local governments for
their own privatization program.

With that, I look forward to hearing the testimony of the wit-
nesses. And to answer some of these questions, we've assembled an
impressive array of talent. And, as appropriate, other hearings will
follow this one over the next 2 years. I'd like to yield now to the
acting ranking minority member on the committee, Mr. Mascara,
the gentleman from Pennsylvania, for any opening statement he
might have.

Mr, Mascara. Thank you very much, Mr. Chairman. Let me first
indicate that I'm sitting in for our ranking member. Congress-
woman Carolyn Maloney. She is suffering from the flu, and I guess
that's going around, and she couldn't be here today. But we all
wish her a speedy recovery. Thank you for holding this hearing. We
are going to seriously consider privatizing Federal Government
functions and selling government assets.

This is a useful beginning, but it is only a beginning. We will
touch on a number of topics in today's hearing which are highly
controversial: cost accounting, contract control, and job placement
for displaced workers, just to name a few. We will not resolve these
issues today. At a hearing of this breadth, we can do little more
than identify the issues which are to be debated. I look forward to
working with you to make sure that each of these issues is fully
explored before we begin divesting Federal functions and assets.



Privatization is not a cure-all for government problems. We
should remember that it is just one of the tools at our disposal. The
President's National Performance Review has found that in many
situations, empowering the workers, not privatization, is the most
effective way to improve services. We see the same decision being
made each day in corporations and we hope the government will
emulate these decisions. Xerox and Coming have prospered be-
cause they have invested in their workers.

They treat their front-line employees as assets — an employee and
organizational style that respects workers' knowledge and experi-
ence. Often, the solution to inefficiency in government just means
changing the way we do things. We saw this last year as we looked
at procurement reform. Many of the problems could be solved by
giving the workers the authority to act as responsible agents. In
some cases, that was as simple as giving them a credit card and
telling them to go to a store and buy software off the shelf.

Similarly, when we discovered the $400 hammers and $600 toilet
seats at the Defense Department, we didn't rush out and hire a
contractor to do military procurement. Instead, we made sure that
the managers responsible understood their fiscal responsibiMties.
We must be cautious that privatizing a function doesn't wind up
costing us more in the long run. Private trash-hauling in New York
City costs 5 times what it costs in San Francisco.

But once a function is given over to the private sector, it is dif-
ficult for the government to regain control. A similar story is told
by the Los Angeles school district, which wound up with a $3 mil-
lion bill for deficits run up by a contractor hired to run the school
food services. On the other hand. New York City gave park services
workers greater control over their jobs, and found that they could
be more efficient than private contractors. The 1992 experiment,
the cost of tree removal in Queens and Bronx by city workers was
thousands of dollars less than a contractor would have charged.

The sale of government assets must also be carefully scrutinized.
In the 1980's, we set up the Resolution Trust Corporation, a gov-
ernment-sponsored enterprise to handle the assets of the failed
savings banks. In the end, most assets were sold well below market
value, and the bail-out cost the taxpayers more.

The history of management of the national forests is replete with
timber being sold below market value. On top of that, we build the
roads for the companies doing the logging. The least we can do
when we sell assets is to get a fair price for it. Determining when
to sell an asset is as important as deciding whether or not to sell.
We could sell the national helium reserves today, but the results
would be to depress the price of helium and decrease the savings
to the taxpayers.

We cannot let privatization become another trough of corporate
welfare. But to avoid that, we must scrutinize the process very
carefully. First, we must have sound information on what is to be
privatized and why. That information should include an estimate
of what savings could be realized by improving the management of
the service within the government.

Second, we must insist on sound contracts that incorporate in-
centives for cost savings as well as severe penalties for failure to
perform. Finally, in those situations where we do privatize govern-



ment functions, we must put in place a strong and effective job
placement program for the workers who are being displaced.

Again, thank you, Mr. Chairman, for beginning a dialog on this
most complicated topic. I look forward to working with you to solve
some of these problems. Thank you, sir.

Mr. Horn. Thank you very much. I now yield to the other gen-
tleman from Pennsylvania, Mr. Fox, for a brief opening statement.

Mr. Fox. Thank you, Mr. Chairman. The United States is on a
path of seeking better methods in meeting the needs of the Amer-
ican people, for both public and private institutions deserve and re-
ceive people's confidence. The American people have often com-
plained of the intrusiveness of Federal programs, of inadequate
performance and excessive expenditures.

In light of these public concerns, the government has begun to
turn to the creative talents and ingenuity of the private sector to
provide, whenever possible and appropriate, better answers to
present and future challenges. In response to renewed interest in
privatization, we must continue to address alternative approaches
that can best provide the social good, and we must continue the
discussion about the proper limits of government in society.

Therefore, it is important that we consider first, and most criti-
cally, the needs of the American consumer and how these needs
can best be satisfied. This hearing is in progress that we may ex-
plore alternative approaches for administering many government
programs and services to determine whether they can better be
managed at less cost by involving the private sector and/or provid-
ing for individual consumers' choice.

I look forward to hearing from the witnesses this afternoon, espe-
cially our colleague, Scott Klug, the czar of privatization. And I fur-
ther look forward to working with Chairman dinger and Chairman
Horn in examining the Federal role in privatization. Thank you
very much.

Mr. Horn. I thank the gentleman. Now I'm delighted to recog-
nize our distinguished colleague from Wisconsin, who has just been
described as the czar of privatization, and is heading the Speaker's
task force in that area. And we welcome you and look forward to
some of your insights throughout this Congress, where we hope you
will feel free to guide this committee as we hold various hearings
and try to get more specific from rather grand principles and cri-
teria and hopes.

STATEMENT OF HON. SCOTT KLUG, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF WISCONSIN; AND ROY
BERNARDI, MAYOR, SYRACUSE, NY

Mr. Klug. Thank you, Mr. Chairman. And I will submit a longer
statement for the record, but let me, if I can, just summarize what
I think need to be some of the key, overarching themes in this en-
tire debate about privatization. I was asked, as my colleague from
Pennsylvania correctly characterized, some months ago by the
Speaker, to try to really reenergize a number of efforts toward pri-
vatization that began in the late 1970's and the early 1980's and
then, frankly, ran out of gas.

And I think we need to examine this for a number of reasons.
To this point, much of the discussion that has gone on in the Fed-



eral Government — and, for example, the central theme that will
dominate the welfare debate next week — is the discussion of which
level of government should perform a service. Can the State, the
local government, or the Federal Government do welfare reform
best? And if you think of a giant flow chart, much of the discussion
is really focused on the State versus national debate, in terms of
what sector of government can do it most efficiently and more in-
telligently.

What I think, in many ways, has been overlooked is the second
half of that equation, which says, should the government still be
in the business? And if the answer is no, then I think the question
is, how do we get out of the business? In privatization, it seems to
me, it's important for a number of reasons: to balance the budget;
to downsize the Federal Government; to make sure that taxpayers
receive a fair return on their investments; and, in many ways, to
get the government out of the way where it interferes with the free
market.

There are really three categories of privatization that are very
distinct. First of all, the idea of selling off government assets, or
releasing off government assets, primarily in the natural resources
area. Second, contracting services out now done by Federal Govern-
ment employees. And I think if you look across the country, there
are a number of States and municipal governments which have had
terrific success with this.

Finally, functional conversion, which means, essentially, taking
what is today a government entity and spinning it off and letting
the private sector do it instead. In the issue of asset sales or leases,
I think we have to examine a number of properties owned by the
Federal Government today, and really ask why it is, in 1995, we're
still in the business of running hydroelectric dams across the coun-
try and selling off the power from them.

I think we have to ask why, in 1995, we continue to hold onto
a series of oil reserves and natural gas reserves established in the
Roosevelt administration — ^Teddy, not Franklin — to guarantee we'd
have an adequate supply of oil to allow the U.S. Navy fleet to make
the conversion from coal and wood to oil. I think we have to ask
why, in 1995, we still manage to hang on to a strategic helium re-
serve, first established by the Federal Grovemment in 1920, really,
then, focused on dirigible research; not a very hot commodity these
days, anywhere in the world.

And I think it's time we get out of these. And quite frankly, not
only do we downsize the government — for example, the Power Mar-
keting Administration today employs nearly a third of all the em-
ployees at the Department of Energy — ^but second, most economic
analyses that have been done suggest you can maximize your re-
turn to the government by selling off and liquidating assets, rather
than holding them and attempting to milk them.

The bottom line, Mr. Chairman, quite frankly, is given the choice
between taking $1 million in the lottery today, or $100,000 over the
next 10 years, you always want the cash up front. The second area
involves the privatization of functions now done by government em-
ployees. And just several blocks away from here, from the Capitol,
I think, is the perfect example — the Government Printing Office.



Today we still have 4,000 employees in the Washington, DC,
area involved in printing documents for the Federal Government.
The General Accounting Office, several times, at the request of this
very committee, has done long, detailed analyses on the General
Accounting Office. And the bottom line is, everything that the Gov-
ernment Printing Office prints today could be printed at a third to
half the price in the private sector.

I'd suggest what we do is shrink the Government Printing Office
and make it a procurement office to use the 100,000 private print-
ers in the United States, and to get the Federal Government out
of running printing presses for a living. And frankly, anybody who
knows the changes in printing — and I'm sure it's the kind of chal-
lenge you faced when you were a university president — is it's much
cheaper, in this day and age of desktop publishing, to do things
quietly, cheaply, in-house and farm the rest of it off, than it is to
still have a university system have a large printing plant on the
campus itself.

I also think, quite frankly, there's a number of other privatiza-
tion areas within this building itself Why we spend $100,000 rent-
ing beauty shops and barber shops and keeping folks on the payroll
and then having those entities — ^for example, the barber shop — lose
money is an absolute mystery to me. Where I think if you'd open
up the building for competition and say, here's a place where you
can put a barber shop in; what are you willing to pay us to have
that privilege? I think you could turn many of those operations
from losing money into for-profit operations.

The final area I want to talk about is the idea of functional con-
version. In the Commerce Committee, which I sit on, we're about
to complete the final steps of taking the U.S. Enrichment Corp. to
a private corporation. For years the Federal Government actually
took all the uranium; we processed it; processed some of it for
weapons-grade plutonium; and then processed some of the rest and
sold it to private utilities for nuclear power plants.

We managed to do such a wonderful job of it when it was a gov-
ernment entity, we used to have 100 percent of the market share
in the world and we now have 40 percent of the market share. So
we're about to cut the tethers, set up a private corporation, and
have the government get out of the business of marketing and sell-
ing and processing uranium, period.

The final thing you will see, and there's a rather detailed expla-
nation for you, which we'll insert in the record, is the number of
laws which currently exist which make it very difficult for some of
these privatization issues. For example, on the Power Marketing
Administration in 1986, the last time these ideas were discussed,
in the appropriations bill itscif, there is now actually a barrier in
place which forbids employees of the Department of Energy to talk
or discuss or analyze the sale of the Power Marketing Administra-
tion; as there is a ban at this point on the executive branch, which
prohibits it from procuring from commercial sources any printing-
related production of government publications.

There are a number of outdated laws. And it's my hope that this
committee can take the lead in repealing those to allow privatiza-
tion efforts to go forward. Thank you.



Mr. Horn. Now, I'm very conscious of members' time, and I won-
der, can you join with us while we hear Mayor Bemardi? Or would


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Online LibraryInformation United States. Congress. House. Committee on GoverThe federal role in privatization : hearing before the Subcommittee on Government Management, Information, and Technology of the Committee on Government Reform and Oversight, House of Representatives, One Hundred Fourth Congress, first session, March 14, 1995 → online text (page 1 of 14)
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