Bringing Home the Big Bucks in the Public Sector

A tractor sorts garbage at the Altamont Landfill owned by Waste Management in Livermore, Calif., Friday, Dec. 18, 2009. Dotted throughout the facility are more than 100 wells with black tubes that vacuum up methane from the heap. Marcio Jose Sanchez/AP

Given all the news these days about public sector pay, three important questions to answer are: Which jobs funded by tax dollars pay the most? How much do they pay? And who holds those jobs?

Let's start with teachers. Average teacher pay last school year was under $57,000, but the highest-paid educator the taxpayers support earned $9.5 million last year. Those big bucks went to Nathaniel A. Davis, the chief executive officer and chairman of the board of K12 Inc., which runs virtual privatized schools for taxpayers.

What of garbage removal, the stinky work of burly men whose wages Martin Luther King Jr. was trying to get modestly increased back in 1968 when he was murdered in Memphis? These days, you can haul in $7.7 million a year in garbage. That big payday went to David Steiner, CEO of Waste Management, who also owns about $59 million worth of stock in the company that contracts to pick up garbage for cities, towns and counties, but also has private-pay customers.

And how about prison guards? Newspapers often run stories on how some guards rack up overtime to make more than $100,000 a year. But pay in this field can range as high as $6 million. That is what GEO Corporation paid CEO George Zoley in 2012. GEO operates jails and prisons with about 77,000 beds that, it boasts to shareholders, are occupied 96 percent of the time with inmates - adult and juvenile.

These are but a few examples of how the privatization of local and state government services makes a few employees wildly rich. It is a very different set of facts from the meme that justified laws restricting the rights and pay of public sector workers in Michigan, Ohio, North Carolina, Wisconsin and other states where governors ran on a platform that public sector workers make too much money.

Research by many scholars, notably Professor Paul C. Light of New York University and the Brookings Institution, has shown that privatization does not save taxpayer money. The total cost for federal contract employees averages twice that of what civil service workers cost; for military contractors, the figure is three times as much, Light showed from official pay data.

Advocates for contract workers say they can be used on a temporary basis, making the long-term cost lower. But the data show the number of contract workers is growing, so while individuals may get laid off, more new ones get hired.

The idea of looking not at the whole, but at who gets the really big bucks from local and state taxpayers comes from the Center for Media and Democracy. It is a nonprofit in Madison, Wis., that on a shoestring budget of less than $900,000 a year runs the websites PR Watch, SourceWatch and Alec Exposed. The center outs organizations that, it says, pose as public interest advocates, but actually undermine integrity, trust and representative government.

The center issued a report last month titled EXPOSED: America's Highest Paid Government Workers.* That asterisk is to draw attention to the fact that the big bucks do not go to civil servants, but to executives at companies that derive all or most of their revenue from taxpayers. (Unfortunately, the center's report used nonstandard measures of pay that were not directly comparable and named one CEO who no longer holds that title, so the figures here come from my reporting.)

Lisa Graves, the center's executive director, says voters need to understand what she calls "take and rake," the process by which "companies take over public services, then rake in millions in tax dollar to compensate themselves."

Public sector workers average $45,000 a year, according to the American Federation of State, County and Municipal Employees, which represents 1.4 million. Average public worker pension: $19,000 annually. "These social workers, corrections officers and water-treatment workers are not overpaid, and they certainly are not the cause for state and local budget shortfalls," Graves says.

Blaming tight government budgets entirely, or even primarily, on privatization goes much too far. Still, when it comes to paying more than necessary for talent and management skill, the center makes a compelling case against privatization, at least as it is practiced today.

Evidence abounds that privatization has spawned abuse, fraud and waste, especially at companies paying the most. The for-profit education industry, for one, appears to be rife with fraud at every level, from kindergarten to college. The firm Davis heads, K12 Inc., has yet to show it is superior to public schools. In Kansas, the company's Lawrence Virtual High School posted a graduation rate last spring of 26.3 percent, compared to the 90.9 percent rate at the city's two public high schools.

The local school board kicked out K12 management last month, but the company will collect its fee until June 30. Experienced teachers and education researchers, notably Diane Ravitch, have challenged its effectiveness and its secretive policies, including what it pays teachers and supervisors.

Investors may also wonder about the firm. In the last four years K12 Inc. revenues, 86 percent of which come from taxpayers, grew more than three times faster than pretax profits, not a sign of financial health or skilled management. One hedge fund manager last fall called it a "horrible" company that fails investors and students.

Given K12 Inc.'s management failures, why would any school board hire it? The answer may lie in its membership in the American Legislative Exchange Council, an association of self-proclaimed conservative state legislators who have an affinity for paying corporations to do taxpayer work.

The privatization of garbage collection, with big pay for Steiner and others, has come at a high price for taxpayers. The trash removal industry has become a cartel, as I detail in my book The Fine Print, quoting industry executives touting their shares to stock analysts. The tape-recorded remarks show that rather than compete for business, the biggest garbage companies work together to "rationalize markets." That means they swap territories for their benefit, not the public's, and they jack up prices, which makes big executive paydays possible.

Privatizing prisons poses similar problems: big pay for top executives and a lack of transparency. Whether private prisons save or cost taxpayers remains unresolved because many subtle factors are at work, allowing the industry and its critics to cherry-pick data. But clearly no warden, no prison guard, makes anywhere near the kind of money taxpayers contribute to the pay of George Zoley and other private prison executives.

These few examples, among many, raise a provocative question that taxpayers should put to their elected leaders: Why are we taxed to pay multimillion-dollar salaries to unaccountable executives for services that civil servants do for a fraction of the cost?

Are children better off if taxpayers finance a $9.5 million paycheck for Nathaniel Davis or if that same sum were used to put 166 more teachers in classrooms?