Final
Economic Impacts
STATE PROCUREMENT PROCESS
Votes:
Action Taken:
<none>
<none>
1:32 PM -- Economic Impact of Privatizing, Outsourcing, and Off-shoring State Functions
Elizabeth Drake stated that she is in the public policy department of the AFL-CIO, and works on issues related to international trade, outsourcing, privatization, and off-shoring. Specifically, she analyzes the net impacts of these policies for governments spending tax dollars. Ms. Drake stated that the AFL-CIO feels that outsourcing should only be used when it provides a net benefit to the state. Outsourcing opens the door for poor service quality, corruption, and cost overrun which would not exist if performed in the public sector. Ms Drake explained that where work is performed is an important question. There are usually claims of net savings to taxpayers when contracts are off-shored. The problem is that the state has no way of knowing that savings is actually passed on to taxpayers, unless there is full disclosure.
Ms. Drake identified negative impacts of off-shoring including higher unemployment, higher dependence on state welfare programs, increased default on mortgages, and lower tax revenue. In addition, overseas worker salaries do not have the multiplier effect on the state's economy. She stated that she does not know how many jobs are lost overseas, but the number appears to be increasing. The broad view shows that Colorado has lost a total of 30,000 jobs since 2002. Workers who lose jobs to free-trade are often unable to find new jobs, and if they do, salaries are typically 23 percent less with their new employers.
Ms. Drake stated that there is not a lot of information available about off-shoring of public contracts. She cited a Washington State survey that indicated 36 of 41 agencies found that some work had been off-shored. Another study found that the amount of state contracts moved off-shore is about $10 billion now and is expected to reach $23 billion by 2008.
Ms. Drake noted that in addition to the cost to the community due to off-shoring, there are also issues of quality and accountability. Functions being off-shored involve personal health data, tax data, engineering, and highway data. When work is performed overseas, individuals may lose control and accountability of personal information.
1:41 PM
Ms. Drake explained that states can use several tools to deal with the accountability issue. Some states require vendors to disclose how much work will be performed overseas. Protections can also be put in place for the security of personal information. Finally, the state could prohibit contracts from being sent offshore or give preferences to in-state contractors. She stated that more than 30 states have introduced this type of legislation.
Ms. Drake discussed international trade agreements. Some agreements prohibit states from giving preference to in state contractors, and create new rights for foreign bidders that do not exist for domestic bidders. Under these agreements, states are unable to evaluate bids on other criteria such as the use of recycled goods, supplier qualifications, or local job creation. As state legislatures realize that their authority to set procurement policy has been compromised, many are demanding increased involvement. Some governors and state legislatures are withdrawing their states from these agreements.
Sen Groff asked if Governor Owens has signed Colorado onto any international trade agreements. Ms. Drake explained that Colorado is signed onto the agreement on government procurement through the World Trade Organization. Colorado also has bilateral agreements with Australia, Chile, Morocco and Central America. Others agreements are in negotiations.
Senator Groff asked Ms. Drake to review what other states have done to give preferences to their companies. Ms. Drake replied that about five states have given preference to in-state suppliers and contractors. Those states allow purchasing officers to consider where work will be done in awarding contracts. New Jersey specifically prohibits awarding contracts to companies that intend to perform work overseas. Although little information exists on state-to-state impacts, there has not been a negative impact internationally. Colorado companies will have access to foreign markets, whether or not Colorado signs on to trade agreements
Representative Kerr commented that services are more intangible than goods, and asked how off-shoring services can be managed. Ms. Drake replied that contractors should be the ones managing this and stipulating that subcontracted work not be completed offshore. Representative Kerr asked if that was a form of protectionism. Ms. Drake noted that there was a difference between private companies' operations and the spending of public tax dollars. Public dollars represent only a small portion of the total amount of contracts off-shored. In addition, she stated that it is important to remember the multiplier effect which occurs when public dollars are invested in the local economy. As more services are able to be performed overseas due to advances in information technology, many state legislatures want to have a greater voice in the decision making process.
Mr. Felice asked if there is a penalty for withdrawal from trade agreements. Ms. Drake explained that the federal government is responsible for ensuring state compliance with trade agreements. International trade tribunals cannot force a state to change its laws. The federal government would likely urge state compliance, but it is not known what the penalties may be.