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Statistics show how LA govt privatization can win big

While Gov. Bobby Jindal’s budget’s focus on privatization, representing the greatest move towards it in state history, has caught the attention of policy-makers, why Louisiana can benefit here more than in most states shows why it can be a very effective strategy for improving performance for fewer dollars.

There’s a reason why some state employees or their representatives – especially union bosses – and legislators look at this issue anywhere from askance to with hostility: because of the sweet deal public sector employees typically receive compared to their private sector counterparts. On average, total compensation for state and local government employees is 45 percent higher than those in comparable positions in the private sector, so considerable savings exist by pruning government where the job can be done just by the private sector.

Some savings would be immediate, as salaries are about a third higher in the public sector. Thus, assuming the jobs pared average the roughly $41,000 a Louisiana classified employee makes, and assuming that the 3,000 or so jobs the Jindal budget seeks to drop, many of which would go courtesy of privatization, that could produce an annual savings of $41 million just by this differential – enough to pay for the earned income tax credit the state dishes to low-income earners who file state income taxes despite having no liability and instead get a refund.

However, a substantial long-term benefit also would accrue to the state by exporting government jobs to the private sector, because benefits for government workers are about 70 percent higher on average than those same ones in the private sector. Already, the state is struggling with an unfunded accrued liability problem that by itself is about 60 percent of the state’s entire annual operating budget – and it continues higher. By shedding these jobs now, this would aggravate less this ticking time bomb.

It’s no surprise that unions have been vocal critics of the privatization effort – statistics also show that almost all of the gap between public and private jobs has come about because of unionization. So, most of that $40 million potentially realized from salary savings alone would manifest only if it were all unionized jobs that were culled, which is not the case. Still, in 2008 in Louisiana 4.6 percent of the entire workforce was union members, and in state and local government the proportion was over 10 percent of them.

Of course, even if the large majority of jobs contracted away won’t save much in terms of personnel costs, chances are private sector workers are more productive and efficient. (Which is why private workers are three times more likely to quit their jobs than are government workers.) Thus, savings would emerge from that source as well.

Unfortunately, it’s not just union hacks and state employees who know, if rehired in the private sector, they may have to work harder and may even get less compensation so they speak out against privatization, it’s also lawmakers whose parochial views put a few constituents first and the rest of the state and its taxpayers second also who object. Too many of them see state employment as a device that wins them votes, so the more of it in their districts, the better. More than these other sources, Jindal will find these obstacles the toughest to overcome.

Still, the crisis atmosphere may be enough finally to get the state – which is fourth in terms of per capita expense on government and 12th in percentage of workforce in state government – to move away from this bloat and start using taxpayer dollars more efficiently through privatization.

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