Poison Pills for New Jersey Taxpayers

Fiscal Reform, Policy — By on March 2, 2011 at 9:39 PM

Since the 1980s, corporate Boards of Directors concerned about their company being purchased by other firms have established defenses meant to make that impossible. These controversial tactics, known as poison pills, usually involve a penalty that the would-be acquirer must absorb to complete the takeover. The objective is for these penalties to raise the cost of the acquisition enough to discourage the takeover attempt. It entrenches the status quo, regardless of what is best for the consumer, employees, or marketplace.

Now, public sector unions are developing a similar ploy, and it could make lowering taxpayer costs through privatization nearly impossible. The legislature is considering a Constitutional Amendment and other legislative devices that would set unreasonable and vague standards and rigid procedures to block the privatization of public services. Mixed experiences with public-private partnerships in New Jersey should not be used to justify constitutionally mandated higher costs for some government services.

There is ample literature and real-world examples that support public-private competition initiatives as a responsible function of our state and local elected officials. From smaller initiatives such as privatizing pharmaceutical centers in state-run adult prisons in Louisiana to the outsourcing of $2.7 billion in work across 18 departments in Florida, taxpayers are increasingly benefiting from sensible privatization plans. Competition-oriented reforms are necessary to ensure the most equitable, effective and efficient provision of services is utilized, and is a necessary component of our governor’s and mayors’ tool-kits.

A key component of genuine competition for government services is an equal playing field with the best interest of taxpayers in mind. If a private company wishes to do public work, they and the government agencies must have the same rules governing them in order to present the two best options to policy makers and taxpayers. This amendment, and similar anti-competitiveness proposals, would control private competition for government services by protecting government legacy-employees and put their interests above the average New Jersey citizen.

Part of the poison given to private companies would be to thwart free-market wage levels and hiring practices. The proposed amendment would require private companies to pay the same wages to their employees as those of government agencies. This is misguided because private organizations will bear the risk of contract performance, and have a greater incentive than government agencies to ensure employee compliance with function requirements - even if it is at lower wage levels. The Amendment would even make hiring decisions for the private companies by requiring them to take on employees of government agencies that were no longer necessary due to privatization efforts. Would you take on a contract if it meant you could not choose who you hired and what their pay was?

Of course, that question presumes a private company could even attain a contract. The amendment would also severely restrict an out-of-state company’s ability to bid for a contract, even if they would provide the best level of service. Finally, government agencies would have the advantage of being able to bid without taking into account the long-term costs of pension and health benefits for their employees.

All this poison would be devastating to the state’s economic health and make the burdensome task of lowering the cost of government even heavier. Anti-competition legislation must never become law in New Jersey. Competition for public services should be a continuous process, introducing new technologies, new processes, and new energy into our government agencies.

When we utilize legislation to signal that we are going to tie the hands of private contractors with unreasonable legislative demands, we will quickly reduce and then eliminate the competition pool. Without competition, there would be no real incentive for government agencies to operate more efficiently, and our government productivity will collapse.

About the Author

Mark ‘Jay’ Williams is an Economics Fellow at the Common Sense Institute of New Jersey, a non-profit organization dedicated to bringing free-market solutions to the public policy challenges facing New Jersey.

This column first appeared on www.InTheLobby.net


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