Criminalization of Immigration Causes Warehousing of Thousands in Inhumane Privatized Prisons

By GREGORY N. HEIRES

Thousands of immigrants are locked up in a shadow private prison system as a result of the criminalization of immigration over the past decade, according to a recent report by the American Civil Liberties Union.

The 101-page report, “Warehoused and Forgotten: Immigrants Trapped in Our Shadow Private Prison System,” is a stinging indictment of prison privatization in the United States.

Immigrants incarcerated in privatized facilities receive poor medical care, live in overcrowded conditions, don’t have ready access to legal representation, lack education and vocational training opportunities, and are often housed far away from their families.

The act of illegally crossing the border into the United States used to be treated as a civil offence resulting in deportation. But the decision of the federal government several years ago to treat illegal crossings as a criminal offence has led a mass incarceration of immigrants in segregated facilities.

Illegally entering the country is a federal misdemeanor punishable by up to six months in prison. Re-entering the United States after deportation is a felony that can lead to two years in prison for a person without a criminal record. People with serious criminal records who re-enter the country can be locked up for 20 years.

The criminalization of immigration is enriching for-profit companies that operate privatized facilities. The privatized prisons aren’t subject to many of the policies and regulations of government-run prisons and are therefore largely unaccountable to outside oversight.

“The tipping point came in 2009, when more people entered federal prison for immigration offenses than for violent, weapons, and property offenses combined—and the number has continued to increase every year,” the report says. That year, the Federal Bureau of Prisons awarded contracts to two contractors to run two prisons in California and New Mexico housing up to 7,500 low-security, non-citizens inmates.

On a daily basis in 2012, the Bureau of Prisons held 23,700 people convicted of immigration offences. The number of people charged with federal immigration offenses increased by 367 percent from 2003 to 2013, when 97,384 people were prosecuted.

Foreign federal prisoners are mostly sent to thirteen “Criminal Alien Requirement” (CAR) prisons. Today, more than 25,000 “low-security criminal aliens” are locked up in these prisons. The ACLU report, released in June, focuses on the five CAR prisons in Texas.

The CAR facilities, which are among a group of federal prisons operated by for-profit companies instead of the Bureau of Prisons, exclusively house non-citizens. They have lower security requirements than medium- and maximum-security institutions run by the bureau.

Shocking Abuse and Mistreatment

“Our investigation uncovered evidence that the men held in these private prisons are subjected to shocking abuse and mistreatment, and discriminated against by BOP polices that impede family contact and exclude them from rehabilitative programs,” the report says.

Among the report’s findings:

• Private prison contracts provide incentives that result in overcrowding.

The contracts reviewed by the ACLU have occupancy quotas that require facilities to operate at least 90 percent capacity and provide incentives to house additional prisoners until the rate reaches 105 percent.

The bureau’s contracts for the Texas facilities require the five prisons to use 10 percent of their bed space for isolation cells—which is double to rate in government-run prisons. The requirement leads private prisons to put prisoners into isolated cells for minor and even bogus infractions, allowing additional detainees to be housed in the low-security space.

• Medical understaffing and cost-cutting limits prisoners’ access to emergency and routine medical care. In one facility, prisoners reported that a single doctor was responsible for attending to 2,000 inmates.

• Prisoners live in overcrowded and squalid conditions.

At the Willacy Count Correctional Center in Texas, for instance, prisoners live in Kevlar tents in which 200 inmates sleep on bunk beds spaced only a few feet apart. Detainees report that the tents are dirty and filled with insects. Foul odors come from toilets that frequently overflow.

“Sometimes it smells,” a prisoner told the ACLU. “They just don’t have enough space for all of us here. Sometimes it makes me go crazy.”

“[Our families] don’t know that we suffer, that we’re not treated with respect, or that we sometimes lack food or blankets,” said Vicente, a prisoner at the Willacy. “We don’t tell our families. I just don’t want my kids to see me like this.”

• Many prisoners have family ties in the United States, but they have far more limited access to drug rehabilitation and work opportunity than U.S. citizens in other federal prisons.

“I had the idea: I have three years,” said Jaime, a prisoner at Big Spring Correctional Center in Big Spring, Texas. “I will do something so I have something to make of myself…. But there’s nothing to do here.”

A Multi-Billion Dollar Business

Mass incarceration has fueled the growth of the private prison industry in the United States.

The “War on Drugs” and harsher sentencing led the U.S. prison population to increase by 700 percent between 1970 and 2009—faster than population growth and the crime rate. The United States has 5 percent of the world’s population but accounts for 25 percent of the world’s prisoners.

The multi-billion-dollar private prison industry has taken advantage of the explosion in the prison population.

From 1990 to 2009, the private prison industry grew by more than 1,600 percent.

In 2012, the three corporations that operate the 13 CAR facilities—Corrections Corporation of America, the GEO Group (GEO) and MTC—reported nearly $4 billion in revenue, according to the ACLU report. The political action committees and employees of the three companies have spent more than $32 million on federal lobbying and campaign contributions since 2000.

The companies operate a “shadow prison” that is largely free of public scrutiny. The Corrections Corporation of America has spent some $7 million since 2007 in a successful lobbying campaign against legislation that would subject it to the same open-records obligations as facilities operated by the federal government.

The Bureau of Prisons monitors the facilities, but it rarely cancels contracts, even in egregious circumstances, according to the ACLU report.

The bureau, for instance, has renewed its contracts with the GEO Group to run the Reeves County Detention Center in Pecos, Texas, where detainees make up nearly half of the local population, despite prisoner protests of inhumane living conditions, two major uprisings and negative reports by BOP monitors.

“In addition to failing to cancel contracts in response to underperformance, BOP policies turn a blind eye to prisoner grievances from these private prisons,” the report says.

The privatized facilities apparently lack the uniform administrative policies of government-run prisons that determine the procedures for prisoners to voice grievances.

Geographic isolation, barriers to access to attorneys and advocacy organizations, and legal barriers to accountability limit the prisoners’ ability to receive help, according to the ACLU.

“Prisoner after prisoner described how BOP’s decisions to incentivize overcrowding and abuse of extreme isolation, turn a blind eye to inadequate medical care and other forms of neglect, and deny rehabilitative programming have created dangerous, squalid, and tense conditions in these private prisons,” concludes the report, which calls for a federal investigation of the private prisons and a return of immigration enforcement to civil immigration authorities. “And despite multiple protests and uprisings, little seems to change.”

“They don’t take us seriously,” said Dominic, a prisoner in isolated confinement who spends 23 hours a day in cold cell at Big Spring. When the ACLU interviewed him, he continued to suffer from a severely injured wrist three months after an emergency room physician said he needed surgery.

“It’s all money for them,” Dominic said.

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Lousy Job? It’s Your Fault!

By GREGORY N. HEIRES

Technological change and inadequate education are often cited as the principal causes of our wage crisis.

This argument, in a certain sense, blames workers for their plight. They are unwilling to invest sufficiently in their education, and they lack the necessary skills for complex jobs in the Information Age.

Similarly, conservatives charge that the unemployed leach off the taxpayers, content to get by on generous unemployment benefits and to allow unskilled immigrants to do the low-wage work that they should be doing.

Blame the individual. It’s a very American concept. As the title of a song from the musical “Into the Woods” by Stephen Sondheim puts it: “Your Fault.”

Another argument is that we can’t do much about the wage decline.

Americans simply can’t compete with the low-wage workers of China and developing countries. This presumes a certain inevitability about our falling standard of living. So, let’s just give in.

But how true is this? Can we put a brake on our declining and stagnating wages?

Rising Inequality is No Accident

A recent study by the Economic Policy Institute, “Raising America’s Pay: Why It’s Our Central Economic Policy Challenge,” suggests that the economic squeeze on the middle class and the poor isn’t an accident. Largely it’s the result of a shift of greater economic and political power to the wealthy. Public policies account for much of our rising inequality and the wage crisis. And therefore public policies can address most of the problem.

“The causes of stagnant wages for the vast majority and unequal wage growth are, in our view, related to intentional policy decisions,” write the authors of the report, EPI President Lawrence Mishel and economists Josh Bivens, Elise Gould and Heidi Shierholz. “The connecting principle among them is that nearly every policy change had the completely predictable effect of reducing the bargaining power of typical workers (individually and collectively), and boosting the bargaining position of capital owners and corporate managers.”

The EPI report identifies several policies at the root of falling and stagnating wages, including:

(1) the dramatic drop in the top rate of taxes since the late 1970s: This has increased the pretax income share of the top 1 percent, and it has slowed the income growth of everyone else.

(2) skyrocketing corporate pay: In 1993, corporate tax law was changed to allow corporations to deduct only the first $1 million of executive salaries from corporate income taxes. But pay above the $1 million threshold could continue to be deducted as long as it was “performance based,” allowing corporations to boost executive compensation through stock options and profit-related bonuses.

(3) economic globalization: Trade agreements have protected corporate profits but done little to protect domestic wages.

(4) macroeconomic policy: The Federal Reserve Bank has focused on keeping inflation, rather than unemployment, low.

(5) regulatory policy: Financial deregulation has led the financial sector to double its size compared to the rest of the economy. The financial sector is overrepresented in the 1 percent. And,

(6) labor market policy and business practices: The decline in the minimum wage explains about two-thirds of the wage gap between low- and middle-wage workers. And weakened unions account for a fifth to a third of the rise of wage inequality from the 1970s to the late 2000s.

The Decline of Workers’ Share of Productivity

Progressive public policy must address the divergence between productivity growth and worker compensation.

From 1979 and 2013, productivity grew eight times faster than the typical worker’s compensation, according to the report. During that period, productivity went up 64.9 percent while the compensation of production and non-supervisory workers grew a mere 8.2 percent.

“Much of this productivity growth accrued to those with the very highest wages,” the EPI report says. “The top 1 percent of earners saw cumulative gains in annual wages of 153.6 percent between 1979 and 2012—far in excess of economy-wide production.” Between 1979 and 2007, the wages of the top 1 percent of earners increased by 156.2 percent—nearly 10 times as fast as the bottom 90 percent of the work force.

What steps should we take to restore share prosperity in the United States? We could simply begin by changing the policies cited by the EPI report.

Strengthening unions, boosting the federal minimum wage, supporting full employment, maintaining the competitive value of the U.S. dollar, adopting fair trade policies that protect workers, and implementing fairer taxes would significantly help reduce inequality.

Immigration reform would raise wages by bringing undocumented workers into the formal economy, where labor standards are higher than in the shadow economy.

Protecting government programs–Social Security, Medicare, Medicaid and unemployment benefits—must be a key priority. Public policies that aim to address inequality and our threatened standard of living should also include steps to restore pensions, resolve the foreclosure crisis and relieve the debt burden of college graduates. Creating good jobs and greater economic equality are the foundation of a shared prosperity.

“Inequality fueled by a broad wage stagnation is by far the most important determinant of the slowdown in living standards growth over the past generation, and it has been enormously costly for the broad middleclass,” the EPI report says.

Inequality is now at Great Depression levels and only seems to be getting worse. If we don’t support a progressive change in our public policies, how long will it take for our society to reach a boiling point?

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How Outsourcing Whacks the Middle Class

By GREGORY N. HEIRES

In his best-selling book “Capital in the 21st Century,” French economist Thomas Piketty identifies privatization as one of the causes of global inequality.

Indeed, the sell-off of public assets in the former Soviet Bloc, Europe and Latin America has lined the pockets of the wealthy as the wages of workers have stagnated and dropped.

In the United States, privatization is also exacerbating the gap between the 1 percent and the rest of us. But privatization in the United States refers more to the contracting out of public services than to the sale of public assets.

A report by In the Public Interest released on June 3 takes a critical look at privatization in the United States. It describes how outsourcing by state and local governments is causing the erosion of the middle class.

“Race to the Bottom: How Outsourcing Public Services Rewards Corporations and Punishes the Middle Class” examines case studies from across the country that show how contracting out public services in effect forces taxpayers to contribute to income inequality and the lowering of the quality of services in their own communities.

“Unfortunately, when these services are outsourced to private companies, the subsequent contracted positions offer lower wages, reduced benefits and little or no retirement security,” the report says.

“Too many times, these positions turn into poverty-level jobs because companies pay workers low wages and provide little or no benefits in an effort to reduce their own operating costs. These jobs that provide vital public services and are paid for with taxpayer dollars, yet the men and women working for contractors are provided with wages that do not allow them to support their families.”

Proponents claim they want to save taxpayer dollars by doling out public services to contractors and non-profits. But the evidence of savings isn’t conclusive; in reality, privatization is about shrinking the role of government in our society.

Most states and local governments do not track how many contractors they employ. But a lot is at stake with privatization.

State and local governments award an estimated $1.5 trillion in contracts every year, which means millions of jobs are created through state and local contracting, according to the report by In the Public Interest, a Washington, D.C.-based resource center on privatization and responsible contracting. Experts estimate that there are three times as many contracted employees as federal civil servants.

Destroying a Pathway to the Middle Class

Too often, though, the contracts go to union-free employers who pay lower wages and provide fewer benefits than public-sector employers. This elimination of public-sector jobs is destroying the pathway to the middle class that government has historically provided to women and minorities.

In New Orleans, Carol Sanders worked as a cook in the public school system for 28 years until cafeteria services were outsourced to the facility management company Aramark in 2010.

Sanders decided to take a job with the contractor even though that meant her pay would be cut from $28 an hour to $9 an hour and her hours would be reduced from full-time to 20 hours per week. She lost her medical care, because she couldn’t afford the plan offered by her new employer, and she needed to rely on $200 a month in nutritional assistance to get by. Then, two years later, Aramark laid her off.

Destroying Good Jobs

Besides looking at the impact of contracting out on school cafeteria workers, “Race to the Bottom” examines how it has hurt the livelihood of waste and recycling workers, correctional officers, custodial workers, transit employees, and health-care support staff. In virtually all instances, the contracting out of those public-service jobs has resulted in lower wages and reduced benefits. For example:

•The Metro School Board in Nashville, Tenn., outsourced the work of nearly 700 custodial and grounds keeping jobs to GCA Services Group in 2010. As a result, the compensation (wages and benefits) of those jobs fell by 32 percent.

• In 2009, Milwaukee County contracted out the work of nearly 90 housekeepers responsible for cleaning public buildings.

The county housekeepers earned between $13.95 and $15.75 an hour. They also received paid vacation, health care and dental care. Contracted housekeepers are paid $8 an hour without benefits.

Services sometimes also suffer.

For instance, compared with publicly-run prisons, private prisons have fewer correctional officers, a higher turnover rate and more escapes and drug use, according to a report by the Federal Bureau of Prisons. Several studies show that the rate of inmate recidivism is higher in privately run prisons.

In the Public Interest recommends that state and local governments adopt policies to put the brakes on the race to the bottom resulting from contracting out. These includes:

• requiring governments to do cost-benefit analysis studies before pursuing contracting

• forcing contractors to pay their workers a living wage and provide them with decent benefits

• making the contracting process more transparent to keep track of contracts and to study the impact of contracting on the wages and benefits of employees, and

• requiring governments to study the economic and social impact of contracting proposals before doling out the work.

“By implementing these policies, state and local governments can rebuild those ladders to the middle class that have eroded over the years,” the report concludes. “Instead of engaging in a race to the bottom, cities and states can ensure that taxpayer dollars used to pay people to perform public work result in solid family-supported jobs.”

 

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Book Review: When Government Helped

By GREGORY N. HEIRES

The New Deal era beginning in the 1930s set up the government structure we enjoy today. But ever since, conservatives have waged a protected war on “Big Government.”

The assault on government deepened with the presidency of Ronald Reagan, and more recently deficit phobia greatly hindered the Obama administration’s policy response to the Great Recession. The Republican campaign to destroy Obamacare is not so much about health care as chipping away at the size of government.

“When Government Helped: Learning from the Successes and Failures of the New Deal” (Oxford University Press: 2013), edited by Sheila D. Collins and Gertrude Schaffner Goldberg, examines how President Franklin D. Roosevelt’s government policies established our welfare state and helped the United States recover from the Great Depression. Collins is a professor emerita of political science from Williams Paterson University and an executive committee member of the National Jobs for All Coalition. Goldberg is a professor emerita of social policy from Adelphi University and chair of the national Jobs for All Coalition.

Lessons from the New Deal

Drawing lessons from the New Deal, the book’s contributors also study the accomplishments and shortfalls of the Obama administration in dealing with the Great Recession. They argue that more activist government is needed today as the country continues to face a long-term jobs crisis, economic malaise and growing inequity.

The depth of the crisis that the country faced during the Great Depression was, of course, greater than what it confronted when the financial implosion occurred in 2008. Still, the contrasting policy responses of FDR and Obama speak to the changing American attitudes about the role of government in our society.

When FDR came to office in 1933, unemployment was 25 percent, the Stock Market had crashed, the banking system had collapsed, thousands of businesses had failed, homeless Americans lived in shanties known as “Hoovervilles,” and bread lines were common in major cities, as Collins notes.

The economic crisis of the 2000s is widely viewed as the country’s worst since the Great Depression. But when Obama became president in January 2009, unemployment, while high at 7.9 percent, was only a third of that of the Great Depression. The Bush administration’s $700 billion bailout of the banks and subsequent action by the Federal Reserve Bank stabilized the banking system, arguably preventing the 2008 financial meltdown from morphing into a depression.

The triumph of conservatism since the 1970s significantly constrained Obama’s policy options, though his centrist ideology and ineffective political skills also limited the reforms he sought. About 40 percent of the Obama stimulus package consisted of tax cuts. Assistance for homeowners who were victims of corrupt mortgage practices was lacking while banks were given access to billions of credit from the Fed. For ordinary Americans, the blow of the economic downturn was weakened by New Deal reforms like unemployment insurance and food stamps, as well as by Medicare and Medicaid.

Economic assistance to the states initially helped prevent widespread layoffs in the public sector, but hundreds of thousands of public employees eventually lost their jobs as states and municipalities coped with falling tax revenue. The Obama administration provided funds for several hundred thousand jobs, but most of those were in “shovel-ready” projects already in the works.

By contrast, FDR helped millions of unemployed and underemployed Americans through federal jobs programs like the Civilian Conservation Corps, the Federal Emergency Relief Act, the Public Works Administration and the Tennessee Valley Authority. The administration’s projects included reforestation, dams, a public banking system, building and loan associations, rural electrification, and infrastructure development (tunnels, roads, bridges, highways, sewer systems, highways, waterworks, low-income housing and college dormitories).

FDR’s government activism was influenced deeply by the social unrest and dissent in the country in the 1930s. His economic reforms and the establishment of the modern welfare state saved U.S. capitalism. Ultimately, it was the Keynesian full-employment and government spending policy of World War II that turned the economy around.

The support for FDR’s strong government intervention would be out of sync with today’s political climate. The Right, especially tea baggers, relentlessly attacks Obama, accusing him of being a “socialist,” and deep-pocketed Republicans like the Koch brothers are out to cripple government. As Goldberg points out in a chapter on popular movements and the New Deal, FDR faced pressure from Communist-backed groups, the unemployment workers movement, jobless veterans, organized labor, African-American workers, southern tenant farmers, the elderly and levelers, such as Sen. Huey Long and Father Charles E. Coughlin, who pushed for a more equal distribution of wealth. This pressure helped create the political climate for the creation of Security and the passage of the Wagner Act and the National Labor Relations Act. Progressives have largely given Obama a pass despite his centrist policies.

Within the administration itself, FDR was influenced by a progressive “Brain Trust,” appointees and advisors like Labor Secretary Francis Perkins, Harry Hopkins, Harold Ickes, Henry Wallace and Henry Morgenthau Jr., with backgrounds in social work and progressive politics. Many of Obama’s team, in contrast, were Clinton era appointees with Wall Street ties and shaped by what Goldberg describes as a “deregulatory and anti-government ethos” that contributed to the 2008 financial meltdown.

FDR responded to the needs of workers by supporting legislation that strengthened collective bargaining rights and policies that contributed to a more vibrant labor movement, according to contributor Richard McIntyre. But, McIntyre also argues that the New Deal labor system has limited the ability of unions to push for radical change and “made labor vulnerable to the politics of class fragmentation pursued by the New Right.”

Over 50 years, labor’s ties to the Democratic Party have failed to produce a legislation to promote representation in the workplace. Unions are virtually nonexistent in the private sector, and they are under siege in the public sector, where about a third of workers enjoy collective bargaining rights. Obama, while promoting an increase in the federal minimum wage, pay equity and a more labor-friendly National Labor Relations Board, betrayed the labor movement by not using his political muscle to push the Employee Free Choice Act (which would have made it easier for workers to join unions) through the Democratic-controlled House of Representatives and Senate during his first term.

Obstacles and Hope

The path to progressive change that would lead to good jobs and improve the lot of the poor and middle class in our country faces great obstacles: globalization, an anti-government ideology, disappearing unions, deindustrialization, the pension crisis, deficit hysteria, as well as rising inequality and the resulting weakening of our democratic institutions.

But, as the contributors to “When Government Helped” argue, the record of the New Deal offers a framework for change. FDR’s unfulfilled “Economic Bill of Rights,” for instance, speaks to our current needs. It called for the right to a job at a livable wage, as well as the right to adequate health care, housing, old age security and quality education.

Today’s progressive movement is promoting a number of reforms that reflect the spirit of the New Deal: a Robin Hood tax, an expansion of social services, an improvement in unemployment insurance, the reduction of the military budget to free up funds for domestic spending, green policies and infrastructure development. But without a rethinking of the role of government in our society, these proposals will likely remain illusory.

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Three sentenced for $100 million fraud in botched automated payroll project in New York City

By GREGORY N. HEIRES

The conviction of three consultants charged in a $100 million fraudulent scheme involving a project to modernize the payroll system in New York City offers yet another lesson of the perils of contracting out.

On Monday, the three defendants each received sentences of 20 years in prison for their role in implementing the automated payroll system known as CityTime, whose cost mushroomed from an initial budget of $63 million to more than $700 million over more than 10 years.

“It’s a classic tale of greed and corruption,” U.S. District Judge George Daniels said. “It’s the largest city corruption scandal in decades. It is unparalleled in its amounts.”

The corrupt contractors lined their pockets with millions of dollars as they accepted kickbacks, funneled huge sums into shell companies, deposited stolen money into overseas accounts, inflated bills and maintained a bloated payroll with excessively paid and even fired employees.

The defendants include Gerald Denault, 52, who was the project manager of the prime contractor, Science Applications International Corp. SAIC is a Fortune 500 company that generates more than 90 percent of its business through government contracts. Under an agreement with the federal prosecutor in 2012, SAIC paid the city $466 million for the CityTime fraud.

Also sentenced were Mark Mazer, 50, a former consultant of the city’s Office of Payroll Administration, and his uncle, Dmitry Aronshtein, 53, who worked for a subcontractor.

The CityTime scandal was a major embarrassment to former Mayor Michael R. Bloomberg, who promised to bring a business ethos and the latest technological know-how to New York City.

During his 12 years in office, the portion of the city’s budget devoted to contracting increased by about a third to more than $10 billion.

From the start, CityTime encountered opposition from unionized workers, who, concerned about privacy, objected to the new payroll system’s use of hand scanners for clocking in.

Daily News reporter Juan Gonzalez broke open the scandal with a series of articles about CityTime that included revelations about cost overruns and excessive payments to computer consultants who earned as much as $400,000 a year, easily four times the pay of city information technology workers.

The municipal union District Council 37 ran a series of white papers that called attention to wasteful spending on contracting out, including the CityTime debacle and another project to upgrade the city’s emergency communications system. The original cost of the 911 upgrade overseen by Hewlett Packard was $380 million, and it skyrocketed to $666 million by 2011.

“Politicians have given out contracts like candy,” said Lillian Roberts, executive director of District Council 37, which represents tens of thousands of municipal employees in New York City. More than a year ago, Bloomberg and former New York City Comptroller John C. Liu agreed to assign the CityTime work to computer workers represented by DC 37.

Roberts said the CityTime scheme—perhaps the greatest municipal theft in the city’s history– pointed to the need for greater oversight of contracting out, which she blamed for vast waste of tax dollars, the loss of civil service jobs and the siphoning off of funds for social services. Recently, the new comptroller, Scott Stringer, announced steps to monitor contracting out more closely.

Kickbacks and Money Laundering

Between 2003 and 2010, the city paid SAIC more than $628 million. SAIC used over $464 million of those funds to pay a subcontractor, Technodyne to hire IT personnel.

The principals of Technodyne LLC, Reddy and Padma Allen, who face charges of wire fraud and money laundering, fled to India, according to the United States Attorney’s Office of the Southern District of New York. Denault, the former CityTime project manager, was charged with receiving $5 million in kickbacks from Technodyne and its principals.

Denault received a $5 kickback from Reddy Allen and Padma Allen for every hour Technodyne billed the city for labor, according to the prosecutor.

Mazer received kickbacks by channeling $65 million to a subcontractor controlled by Aronshtein and $23 million to another subcontractor controlled by Victor Natanzon, who earlier pled guilty along with four other defendants.

On the day of the sentencing, Manhattan U.S. Attorney Preet Bharara said in a statement, “These defendants are being justly punished—through lengthy sentences and forfeiture of over $40 million in cash and property—for orchestrating one of the largest and most brazen frauds ever committed against the city. This Office’s CityTime prosecutions have held accountable culpable individuals, as well as SAIC, the contractor at the center of the scheme, and through penalties and restitution of over $55 million, has made the City economically whole.”

An Invitation to Waste and Corruption

After sentencing the defendants and sending them away to prison, Judge Daniels criticized the procurement process in New York City.

“The city’s contracting process has created an atmosphere that lacks adequate and effective oversight,” he said. “It is an invitation for not just waste, but corruption and fraud.”

Last year, on his weekly radio program, Bloomberg remarkably said the city in a sense is “lucky” that the fraud happened.

“The whole system cost us something like only $100 million, and it should have been many times that,” he said, as quoted by gothamist.com. “We were lucky because of the fraud… In the end it turned out that because of the recovery that we save a lot of money. And it certainly works.”

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Contracting Out Public Services Worsens Inequality and Lowers Wages

By GREGORY N. HEIRES

Contracting out public services—which aims to help state and local governments save tax dollars—often has a harmful effect on the community, including worsening inequality and lowering wages.

A recent study, “The Decision to Contract Out: Understanding the Full Economic and Social Impacts,” finds that the savings of outsourcing varies widely and often diminish over time. The study, by Daphne T. Greenwood of the Colorado Center for Policy Studies at the University of Colorado at Colorado Springs, concludes that contracting out undermines our democratic principals by leading to corruption and less control over public funds.

“While reducing costs is most often the motive for outsourcing, a growing body of research documents that savings are minimal, on average,” the report says. “It is also not unusual for total costs to be greater when performed by private contracting firms than they were in-house.”

Studies show that contracting out typically leads to short-term savings of 5 to 10 percent. Over time, the savings often diminish because of a lack of competition and other factors.

Governments cite insufficient savings 52 percent of the time when they explain their decision to abandon contracts. In 61 percent of cases, governments cancel contracts because of inadequate services.

The Economic and Social Costs of Contracting Out

The savings of contracting out are usually achieved by lowering the wages and benefits of workers. That occurs at a great cost for the community, including:

• a decline in retail sales

• a worsening of the wage disparity between men and women, and between blacks and whites

• a reduction middle-class jobs and

• an increase in the dependency public services.

The push for contracting out began decades ago. The Reason Foundation, a libertarian think tank, was one of the earliest proponents of shifting public assets and spending to the private sector.

States and municipalities picked up the practice in the late 1970s and the 1980s.

Municipalities contact out an estimated 35 percent of services. The federal government has doubled the amount it spends on contracts since 2000, with most of the spending on services.

While contractors reduce costs by paying front-line workers less, their administrative costs are typically higher than in the public sector, where managers often earn less. But the managers of private companies tend to spend less in the community, leading to a siphoning off of profits and taxes elsewhere.

“More money usually flows out of the local economy,” the report says. “That means less spending, especially in retail and dining establishments.”

In many instances, contractors pay their workers so little that they must rely on public assistance for housing, food and medical care. In California, for instance, school cafeteria workers employed by contractors receive an average of $1,743 in public benefits each year.

The report describes a number of indirect effects of outsourcing on government, the economy and the workforce.

Historically, the public sector has provided a ladder into the middle class for women and minorities. They are disproportionately hit by the contracting out of public-sector work.

“Women of all races, along with African-American males, sought out public employment for more equal treatment than they often found in the private sector,” the study says. “Outsourcing public jobs often lowers wages, takes away benefits and reduces opportunities for advancement up the job ladder—and disproportionately affects the groups who have struggled most to get a foothold in the labor market and the middle class. Maintaining ladders of opportunity is an important part of the promise of America that public decisions can help to maintain.”

Private sector companies have spent decades attacking unions, cutting back on health-care benefits and eliminating pensions. Now contracting out has become a weapon for eliminating “good jobs”–jobs with decent pay and benefits–in the pubic sector.  Indeed, city officials in Colorado Springs described escaping long-term pension obligations as one of the reasons for contracting out there.

Comprehensive information about the workplace safety and health record of state and local contractors is not available, but substantial documentation exists on the record of federal contractors.

A recent U.S. Senate inquiry found that nearly 30 percent of the top violators of federal wage and health laws were federal contractors. The violations resulted in the deaths of 42 workers between 2007 and 2012.

One instance involved a worker who died after being sucked into an industrial dryer at a Cintas Corp. facility in Tulsa. The worker got caught in the dryer while he tried to untangle stuck clothes; he was spun around inside the dryer for 20 minutes at 300 degrees. Cintas had $3.4 million in federal contracts in 2012.

Weakening Accountability

Decades ago, the civil service system was established to combat nepotism, cronyism and corruption. Contracting out undermines civil service by funneling tax dollars to the private sector, where there is less transparency and accountability of tax dollars.

“In addition to having rights to privacy that collide with traditional expectations of transparency and accountability, private providers are generally not subject to conflict-of-interest laws, nepotism statues or ordinances, ethics codes or whistleblower protection for their employees, or restrictions on political involvement,” the study says.

Three examples of these problems:

• When Chicago considered contracting out its parking meter service for 75 years at a possible cost of $2 billion, it held three days of evaluation without public discussion.

• Denver awarded a company a contract to run a parkway for 99 years. The contract allows the company to object to mass transit projects and new and improved roads even though the life spans of streets are 45 years.

•  The online posting of a contract for a Texas charter school contained blacked-out paragraphs in 100 of its 393 pages, according to a New York Times article cited by the study.

“The evidence for public control just keeps on piling up,” said Donald Cohen, executive director of In The Public Interest, a resource center on privatization and responsible contracting, commenting on the University of Colorado report. “What we need now at every level of government are policies that reflect what the evidence makes clear and that helps us prevent economic and social harm to our communities.”

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College Football Players Win Right to Unionize

By GREGORY N. HEIRES

Last week’s regional National Labor Relations Board ruling that college football plays are workers opens up the possibility for a wave of organizing in collegiate sports.

The ruling that players at Northwestern University with athletic scholarships have the right to vote on whether they want a union challenges the “student-athlete” principle whereby players receive scholarships in exchange for competing in sports on behalf of their schools.

“The NCAA invented the term student-athlete to prevent the exact ruling that was made today,” said Ramogia Huma, president of the College Athletes Players Association, after NLRB Region 13 Director Peter Sung Ohr issued his ruling on March 26. CAPA filed the case along with Kain Colter, a former quarterback of the Northwestern Wildcats football team.

“The reality is players are employees, and today’s ruling confirms that,” Ramogi said. “The players are one giant step closer to justice.”

The unionization vote of the 87 players with scholarships will likely be sealed while the case is appealed to the national board. Under the ruling, the players without scholarships are ineligible to be union members.

The ruling only applies to private universities. Collective bargaining at public universities is governed by state law.

“This ruling is a tremendous victory, not just for the athletes at Northwestern, but ultimately for all college athletes, many of whom generate tens of millions of dollars each year for their institutions, yet still are in constant danger of being out on the street with one accident or injury,” said Leo W. Gerard, president of the United Steelworkers union, which backed Colter in his case.

The possibility that the decision could open up organizing drives by college athletes throughout the country sparked criticism from Sen. Lamar Alexander (R-Tenn.), a former president of the University of Tennessee.

“Imagine a university’s basketball players striking before a Sweet Sixteen game demanding shorter practices, bigger dorm rooms, better food and no classes before 11 a.m.,” Alexander said in a statement. “This is an absurd decision that will destroy intercollegiate athletics as we know it.”

Long workweeks

In his ruling, Ohr said that the Northwestern players “all squarely fall within the [National Labor Relations] Act’s broad definition of ‘employee’ when one considers the common law definition of ‘employee.’” As employees, the players have the right to union representation, according to the ruling.

Ohr concluded that the players are employees because through their scholarships they are compensated for doing a week’s worth of work. The National Collegiate Athletic Association limits athletes to 20 hours of practice and games each week. But the players in reality put in as many as 40 to 50 hours a week throughout the season once additional football-related such as training and travel are added to their practices and games, according to the regional NLRB decision.

The NCAA criticized the decision.

NCAA chief legal officer Donald Remy said in a statement, “While not a party to the proceeding, the NCAA is disappointed that the NLRB Region 13 determined the Northwestern football team may vote to be considered university employees. We strongly disagree with the opinion that student-athletes are employees.”

The NCAA’s response certainly isn’t surprising since the decades-old student-athlete principle has allowed the NCAA and universities to profit handsomely from the labor of their athletes.

The NCAA faces a class-action federal lawsuit from former players who seek to be compensated for the billions of dollars in earnings from television broadcasts, video games and merchandise sales of college sports. The NCAA faces additional lawsuits charging that it failed to protect players from head injuries.

In his decision, Ohr noted that scholarship players at Northwestern are required to sign releases that allow the university and the Big Ten Conference to use their name, likeness and image for any purpose. The terms and conditions of the players’ conduct is governed by a contract-like “tender” that allows the university to cancel their scholarship if they engage in misconduct, commit a criminal act, abuse team rules or agree to be represented by an agent.

The Need for Health Care Coverage

“The key issue at Northwestern is negotiating better protections against concussions and improving medical coverage following graduation,” USW President Gerard said.

“Our belief all along was simply that these athletes have a right to expect the same fair treatment that all Americans should expect, and that when they work hard and devote years of their lives in service to an institution, they deserve certain basic protections in return. None of them should live in fear of losing their scholarships in an instant, nor should they be left without health care after debilitating injuries.”

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College Graduates Face a Permanent Income Loss

By GREGORY N. HEIRES

The payoff of college isn’t what it used to be.

These days, many college-educated workers are struggling to get by with stagnating and falling wages.

This is not to suggest that an “education premium” no longer exists.

But the reality of the country’s educated workforce nevertheless is looking more and more like that of blue-collar workers, who have faced an attack on their living standards for decades.

Media reports abound about how liberal arts degrees—in English, philosophy, anthropology and sociology, to name some—don’t translate into solid jobs. That’s why you can talk to a barista at Starbucks about Hegel’s “Philosophy of Right.”

And sadly, students are graduating with substantial college loan debts, which society-wide amount to more than our collective credit-card debt.

The advantage of a college degree–being able to count on a good job with a solid and growing paycheck—seems to be slipping away as our country becomes more unequal.

A report by the Center for College Affordability and Productivity in January shows that 48 percent of recent college graduates have jobs that don’t require a college degree. And 38 percent are working in jobs that don’t even require a high-school degree.

So, what’s going on?

This trend is another part of the story of the decline of our living standards—disappearing unions, soaring inequality, declining and stagnating wages, the loss of job security, and the erosion of pension and health benefits.

Since the end of Great Recession, the ultra-rich snatched up virtually the entire income gain. Just about everyone else is running in place or falling down. Even college graduates with advanced degrees can no longer be sure that they will be reasonably insulated from the falling and stagnate wages that have hit workers without college degrees for so many years.

The De-skilling of the Workforce

During the 1980s and 1990s, demand was high for college graduates with technological skills. But the demand fell off as the technological revolution evolved, according to a report, “The Great Reversal in the Demand for Skill and Cognitive Tasks,” by economists Paul Beaudry, David A. Green and Benjamin M. Sand.

“In this maturity stage having a B.A. is less about obtaining access to high paying managerial and technology jobs and more about beating out less educated workers for the barista or clerical job,” Beaudry, Green and Sand explain.

The three economists say that, “in response to this demand reversal, high-skilled workers have moved down the occupational ladder and have begun to perform jobs traditional performed by lower-skilled workers. This de-skilling process, in turn, results in high-skilled workers pushing low-skilled workers even further down the occupational ladder and, to some degree, out of the labor force all together.”

Globalization has, of course, also pushed down the wages of skilled information technology workers, who have seen their jobs shipped off to Bangalore, India.

Rising Underemployment, Dwindling Good Jobs

So, what’s happened to wages of college graduates?

A New York Times editorial in March pointed out that the average pay of workers with bachelor’s degrees rose modesty from 1979 to 1995. Their wages went up an average of 0.46 percent each year, while the pay of workers without college degrees—the majority of workers—declined. The wages of everyone increased from 1995 to 2000. But since 2000, the pay of non-college educated workers has dropped while that of college-educated workers has stagnated.

One third of college-educated workers are working in jobs that don’t require a college degree, according to a recent study by the Federal Reserve Bank of New York.

The January report, “Are Recent College Graduates Finding Good Jobs?,” found that the percentage of recent graduates who are unemployed or underemployed (working a job that does not require a bachelor’s degree) has increased, particularly since the 2001 recession. What’s more, the quality of jobs accepted by underemployed graduates has worsened, leading many of them to accept low-wage jobs or part-time work.

Among the key findings of the report:

• the underemployment rate of recent college graduates is higher than that of college graduates as a whole

• the underemployment rate has been on the rise since 2001.

While the underemployment rate in 2012 (44 percent) is roughly the same as the rate (46 percent) during the 1990-91 recession, the quality of the available jobs has deteriorated over the past couple decades.

Years ago, college graduates working below their educational level could at least reasonably count on finding a good “non-college” job, perhaps as a dental hygienist, mechanic or electrician, with a typical wage equivalent to $45,000 in 2012. The share of underemployed recent graduates with jobs like those has dropped from about half in the early 1990s to 36 percent in 2009 according to the Fed report.

Today, the share of underemployed recent graduates with low-wage jobs is on the rise. This group accounted for 20 percent of the underemployed new graduates in 2009 compared to 15 percent in 1990, according to the Fed report, whose authors are Jaison R. Abel, Richard Deitz and Yaqin Su. The low-wage jobs filled by the college-educated workers include bartenders, food servers and cashiers, whose wages averaged under $25,000 in 2012.

Among 22-year-old graduates, more than half, or 56 percent, were underemployed in 2009-2011, according to the Fed report. For many, it will take years to find a job that matches their educational background. But by then, the damage will have been done.

As the report notes, “recent research suggests that those who begin their careers during such a weak labor market recovery many see permanent negative effects on their wages.”

So, the prospects for the Class of 2014 look bleak. Recent graduates with degrees in business and science face a tough labor market, and the future is less bright for graduates with majors in the humanities.

Tragically, the devaluation of the humanities also means that our educated workforce increasingly lacks analytical and critical thinking skills, a trend that worries business schools, not merely those who appreciate the value of a liberal arts education. But that’s another story.

What’s clear now is—to borrow the title of the 1996 book by former AFL-CIO President John Sweeney—America needs a raise.

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Wage Theft at McDonald’s

By GREGORY N. HEIRES

The fast-food business model is based on wage theft.

That’s the thrust of seven lawsuits that hit McDonald’s in three states last week.

Employees are cheated out of overtime.

They are forced to clock out when a computer monitoring program determines that profits are at risk because not enough customers showing up.

And the exploited workers’ pay falls below the minimum wage because they are forced to pick up the tab for cleaning their uniforms.

The lawsuits seek class-action status, which means thousands of workers could be covered.

An Escalation of the Fast-Food Workers’ Campaign

Filed in New York, Michigan and California, the legal suits mark a new stage in the campaign of fast-food workers to boost their salary to $15 an hour and win the right to unionize without retaliation.

They launched their mobilization with a one-day strike in New York City in November 2012. That was followed by nationwide work stoppages in 100 cities this past December.

The lawsuits strike at the heart of the business model of McDonald’s and the fast-food industry. McDonald’s maintains that it is not liable for workplace abuses because its franchises are independent businesses and the direct employers of the workers. But the lawsuits contend that McDonald’s is a joint employer and shares the liability of franchises for illegal employment practices. About 90 percent of McDonald’s restaurants are franchises.

“We’ve uncovered several unlawful schemes, but they all share a common purpose—to drive labor costs down by stealing wages from McDonald’s workers,” said Michael Rubin, an attorney who represents California workers, where four lawsuits were filed. Attorneys, organizers and workers announced the lawsuits during a conference call and news releases on March 13.

“Our wages are already at rock bottom,” said Sharnell Grandberry, a McDonald’s workers in Detroit, in a news release on the two Michigan lawsuits quoted by The New York Times. “It is time for McDonald’s stop skirting the law to pad profits. We need to get paid for the hours we work.”

The Rip-off Schemes

The lawsuits describe employer schemes to underpay their workers:

• In New York, workers allege that they are not reimbursed for the cost of washing their uniforms, as required by law. Because they are paid at such a low hourly rate, the loss is enough to drive down their actual pay below the minimum wage, which violates federal labor law.

“With $28 billion in revenue in 2013 alone, McDonald’s can certainly afford to provide its minimum-wage workers with this money to clean their uniforms, as required by law, instead of making them pay for the privilege of wearing McDonald’s advertising,” Jim Rief, the attorney who represents the New York workers, said in a statement.

• In California, workers report that restaurants have a computer system provided by McDonald’s that allows managers to monitor a “labor number” that shows how much a store is spending on workers compared with how much money is coming in from customers. When the labor number gets too high, employers temporarily pull workers off the job.

Besides getting ripped off because of the computer system, California workers allege that they are cheated out of pay because they don’t receive proper overtime compensation and employers alter pay records.

• In Michigan, workers are told to report to work at a certain time. But they then may remain idle—and unpaid—if not enough customers show up.

The claims in the lawsuits are violations of the federal Fair Labor Standards Act. The act establishes the minimum wage and it determines the standards for overtime pay, record keeping and other employment practices.

A McDonald’s spokesperson said the company would investigate the allegations.

Poverty Wages

Fast-food workers are typically paid $9 an hour, which amounts to $18,500 a year, according to CNN. That is $4,500 below what the U.S. Census Bureau’s considers the poverty income threshold for a family of four–$23,000.

The University of California, Berkeley’s Labor Center and the University of Illinois released a report in October that found that half of the families of fast-food workers rely on public assistance at an annual cost of $7 billion to taxpayers.

In 2012, seven publicly owned fast-food companies earned $7.4 billion in profits, according to a report by the University of California at Berkeley’s Labor Center and the University of Illinois. That year, McDonald’s awarded their top executives $53 million in salaries and distributed $7.7 billion to shareholders, according to another report by the National Employment Law Project.

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Corporate Fat Cats Become the Nation’s Richest “Government Employees” by Leaching Off Taxpayers

By GREGORY N. HEIRES

Budget hawks squawk about bloated bureaucracies and excessively paid public employees to justify their calls for slashing government services.

In recent years, their drumbeat about government waste has contributed to a political climate that has allowed for layoffs of hundreds of thousands of public employees and the imposition of salary freezes and paltry pay raises, as well as reductions of pension, health-care and other benefits.

But public employees like sewage treatment workers, teachers and social workers are far from being fat cats. Arguably, the most compensated “government” employees are actually the corporate bosses and administrators who line their pockets with taxpayer dollars for shoddy contracted-out work.

“Exposed: America’s Highest Paid Government Workers,” a report by the Center for Media and Democracy (CMD), shows how just six of those corporate chieftains have earned $100 million in recent years. But their track record for delivering services is often abysmal.

While the Center for Media and Democracy’s report focuses on only a few contractors, its message is more far-reaching, suggesting that government would generally be better off keeping work in house.

Indeed, two years ago, POGO, the Project on Government Oversight, took a look at federal contracting, which mushroomed from over $200 billion in fiscal year 2000 to more than $530 billion in fiscal year 2011.

POGO’s report, “Bad Business: Billions of Taxpayer Dollars Wasted on Hiring Contractors,” found that contractors cost 83 percent more than federal employees. The study showed that federal government employees were less expensive than contractors in 33 of the 35 occupational classifications reviewed by POGO.

In one of the greatest municipal government scandals in U.S. history, former New York City Mayor Michael R. Bloomberg’s contracted-out CityTime project, which automated the city’s payroll system, resulted in the theft and waste of hundreds of millions of dollars and the indictment more than 10 consultants. Besides helping to expose CityTime, a project on contracting out and revenue by District Council 37, which represents municipal employees, has documented how New York City’s annual $10 billion in procurement spending is marred by waste, corruption and union busting.

Poor Services and Excessive Costs

“Given these astronomical salaries, and evidence of higher prices, poor service, and at times outright malfeasance, taxpayers have every right to be concerned about how their outsourced dollars are spent,” said Lisa Graves, executive director of the Center for Media and Democracy, when the watchdog group released its report in February.

The top executives—described as the most highly compensated government employees in their fields—are:

• George Zoley, the country’s highest paid “corrections officer.” Zoley is the CEO of the private prison firm GEO Group. Between 2008 and 2012, his compensation was $22 million.

The Center for Media and Democracy estimates that GEO Group makes 86 percent of its revenue from taxpayers. Its contracts include clauses that require governments to keep prisons full or pay for empty beds. GEO Group has faced hundreds of lawsuits over prisoner deaths, assaults, and excessive force.

• David Steiner, the country’s highest paid “sanitation worker,” is president and CEO of Waste Management. He earned $45 million in compensation from 2006 to 2012. Government contracts account for 50 percent of Waste Management’s revenue, according to Goldman Sachs.

• Ron Packard, head of K12 Inc., is the country’s highest paid “teacher.” Between 2009 and 2013, he earned $19 million. He enjoyed that compensation even though only 12 percent of K12 Inc. cyber schools met state standards in 2010-2011, compared to 52 percent of public schools. CMD estimates that 86 percent of K12 Inc.’s revenue comes from taxpayer dollars.

• Jeffry Sterba, the country’s highest paid “water worker,” is president and CEO of American Water Works Co. During his three years as the company’s top executive, he has earned $8.3 million. American Water is the largest for-profit provider of water and wastewater treatment services in the country. CMD estimates that 89 percent of its revenue comes from taxpayers.

• Richard Montoni, the country’s highest paid “caseworker,” is CEO of Maximus, which provides Medicaid and government-funded welfare services for the poor. Between 2008 and 2012, Montoni enjoyed a compensation of $16 million. Wisconsin charged Maximus with improper billing in 2013. In 2007, Maximus paid the U.S. Justice Dept. $30 million after a government investigation uncovered widespread overbilling.

• Nicholas Moore, managing director and CEO of the Australian infrastructure firm Macquarie, is the country’s highest paid “road worker.” He made $8.8 million in compensation in fiscal year 2013. He has promoted the privatization of public services as a member of the American Legislative Exchange Council, which helps conservative politicians to craft legislation to privatize and reduce government services and undermine the power of public- employee unions. Macquarie has long-term contracts to run Chicago’s Skyway, Indiana’s Toll Road and the Dulles Greenway in Virginia.

Public Investment, Private Profit

These instances of privatization and contracting outstanding are disturbing for a number of reasons beyond the fact that corporate executives are profiting handsomely from taxpayer dollars.

Privatization allows companies to profit from government investments in infrastructure—roads, information technology and sewage treatment plants—without bearing the risk of making their own capital investment. Consultants often have far higher salaries than civil servants.

The takeover of government services by private companies is a form of union busting that typically replaces workers who have decent benefits with lower-paid and non-union front-line workers. And contracting out often leads to a lack of accountability, creating conditions that allow for theft and inefficiencies.

Research by Paul C. Light, a professor at New York University, shows that the total cost of federal contract employees is twice that of civil servants. The cost of military contractors is three times higher.

If only the politicians who determine how taxpayer dollars are spent would listen to credible analysts like Light instead of budget hawks whose agenda is to whack away at government services.

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