A Good Example of Problems That Can Arise from Privatization
It's nice when something you write about in a blog shows up on the
front page of the New York <i>Times</i> the following day. Yesterday, in a
post called "<a href="http://www.cityethics.org/content/privatization-and-transparency" target="”_blank”">Privatization
and Transparency</a>," I discussed new types of privatization involving
nonprofits, which raise new sorts of problems. One type of nonprofit
operates government-funded facilities or
programs, such as schools. These nonprofits are sometimes a way for
organizers to make money by selling property or services to the schools. It
is easier for such self-dealing to occur when the entities are not
subject to transparency or ethics laws.<br>
<br>
<a href="http://www.nytimes.com/2011/06/07/education/07charter.html" target="”_blank”">The
<i>Times</i> article</a> reports on a nonprofit charter school company whose
33 schools in Texas receive over $100 million a year in taxpayer funds.
The charter school company, actually a foundation, is part of a group
of foundations, affiliated with a religious movement, that operate 120
schools in 25 states.<br>
<br>
Besides transparency issues, these schools foundations appear to have
problems involving preferential treatment and self-dealing that would
not be accepted were they to happen with respect to public schools.<br>
<br>
Nearly all the schools' recent construction has been contracted to companies
owned by people originally from the same country as the people who run
the foundations and the religious movement they are affiliated with.
Even many of the teachers are brought over from that country on special
visas.<br>
<br>
Although contracts, at least in Texas, must be competitively bid, there
is a great deal of room for the schools to reject the lowest bidders,
and the specifications can be written so as to favor
companies they want to win contracts. In addition, change orders can increase
the contract payments after bids are accepted. With little oversight
from an overburdened state agency, with no school board to set policies
and provide oversight, and with limited transparency, it is easy to
provide preferential treatment to one's countrymen, friends, and
associates.<br>
<br>
Self-dealing seems to be common. For example, an owner of a contractor
that has done a great deal of construction work for the schools is
president of an umbrella group of the religious movement's
foundations. The owner of another construction contractor for the
schools had been a business manager at one of the schools immediately
before forming the company. Yet another of the schools' construction
contractors is affiliated with the religious movement. And the CEO of a foundation that provides services to the schools purchased property that he leased and then sold to the schools foundation.<br>
<br>
In other words, using U.S. tax dollars and American nonprofits, foreign nationals have managed
to give themselves enormous construction contracts and the ability to
give jobs to many other countrymen.<br>
<br>
This is no different than, say, ethnic groups that bind together to buy
motels, diners, or newstands throughout a city or a region. The
difference is that this involves public money, and it can be done only
by getting around ethics and competitive bidding laws that prevent this
sort of preferential treatment and self-dealing in the public sphere.<br>
<br>
It should come as no surprise that the same network is providing gifts
to government officials and other "influential" Americans. The article
gives the example of a free trip abroad given to a Texas state senator
last year. In January, the state senator co-sponsored a state senate
resolution commending the religious movement's leader, who does not
live in Texas, for “his ongoing and inspirational contributions to
promoting global peace and understanding.”<br>
<br>
I haven't mentioned the country or religion involved only because it
isn't relevant. What is important is that a network of individuals have
helped themselves to public funds without responsibly handling their
conflicts and without showing any interest in public trust. They have also provided little transparency, so that only investigative reporting
could let the public know how its funds are being spent.<br>
<br>
One lesson that should become clear is that when government services
are privatized and there is little oversight or transparency, unethical
behavior is inevitable. The most important element in preventing
unethical behavior is ethical leadership. When government services are
privatized and taken out of the hands of government, even the most
ethical government leaders cannot make much of a difference.<br>
<br>
The only thing ethical leaders can do is require of the charter schools, and related entities, all
that is required of government officials, with jurisdiction over their
behavior given to the same bodies, with regular auditing, with the same
training and advice available, and with the possibility of having their
contracts voided for failure to deal responsibly with conflicts on the
level of the self-dealing presented in the <i>Times</i> article.<br>
<br>
Robert Wechsler<br>
Director of Research-Retired, City Ethics<br>
<br>
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