LOOKING FOR AN INVISIBLE GOVERNMENT

By Mitchell W. Pearlman*

In the TV and movie series Star Trek, the evil Klingon Empire can make its spaceships invisible by something called a “cloaking device.” The futuristic spacecraft are there, they just can’t be seen.

In a metaphorical sense, government is also using a cloaking device which keeps some of its functions and expenditures from being seen by the public, although those functions and expenditures are likewise there. The cloaking device is commonly referred to as privatization.

In most of the world, what is known here as freedom of information (FOI) is called “government transparency.” This term evokes an image of citizens looking through a window to see what their government is doing. In many democratic countries, particularly recently emerging democracies, government transparency is considered a fundamental human right and encompasses both the public dissemination of information as well as compliance with citizen requests for the disclosure of government records.

In the United States, however -- and Connecticut is no exception -- privatization is increasingly being used by government in the expectation of realizing greater operational efficiencies and cost savings. We are just beginning to realize that there may be a “down side” to privatization when it comes to government transparency and public accountability.

Privatization can be classified as falling into one of three types: government by for-profit organization; government by not-for-profit organization; and government in partnership. Each of these creates problems when it comes to government transparency.

Government by for-profit organization is perhaps what most people have in mind when they think of privatization. It’s when government hires a company to perform one of its functions or operations. In some states, the construction, maintenance and operation of prisons have been privatized by contract with for-profit organizations. In

______________

*Executive Director, Connecticut Freedom of Information Commission.

Connecticut, the statutory mandate of automotive emissions testing has been contracted out to a private corporation working under the supervision of the state department of motor vehicles.

Similar to government by for-profit organization, but with significantly different problems attendant to it, is government by not-for-profit organization. In this form of privatization, usually a tax exempt, not-for-profit organization assists a public institution or performs some ancillary governmental function or operation. There has been a proliferation of this type of privatization as not-for-profits have been formed, and continue to be formed, to raise private funds for public institutions and to run government-funded programs. Examples include state university foundations, health care facilities, group homes for the mentally impaired, and domestic violence shelters and counseling services.

Government in partnership is the latest in the line of privatization ventures. It’s characterized by a partnership between, or among, one or more not-for-profit organizations, perhaps also one or more for-profit organizations, and government. It often focuses on complex transactions in areas in which government either can’t or won’t perform a historically governmental function. In Connecticut, a prime example is the New London Development Corporation (NLDC). The NLDC is a not-for-profit organization established to facilitate economic development in the City of New London. It works closely with for-profit companies in various development schemes. It also works closely with state government, which funds its efforts to the tune of many millions of taxpayer dollars, and with city government, which has delegated to the NLDC municipal redevelopment authority and even the power of eminent domain.

When legislative bodies in the United States first enacted FOI laws in the 1960s and 1970s, they made such laws applicable to government or public agencies only, and not to private organizations. They didn’t foresee the problems that privatization would cause to upset the easy dichotomy between public and private. As a result, courts were called on to decide where the line should be drawn to effectuate the legislative intent embodied in the FOI (transparency) laws when otherwise private entities performed governmental functions.

In Connecticut, the lead case involved a private school which agreed to enroll all students from certain municipalities on the payment of a per pupil tuition. Education is a constitutional right in Connecticut and government has the duty to provide free education through high school. In this case, the municipalities used the private school to meet this obligation. Accordingly, the school also received state funds for facilities construction and other specified programs. It was also subject to some regulation by the state department of education. Notwithstanding all of this, the school’s board of trustees determined that it didn’t want to open its meetings or records in accordance with applicable FOI rules.

The state Supreme Court ultimately held that the school had to comply with the FOI law. Based on its view that the legislative “policy of liberal access to public records would necessarily be thwarted if ‘public agencies’ were given a narrow construction,” it decided to apply a functional equivalence test to determine whether an otherwise private entity is a public agency for purposes of the state FOI Act. That test has four criteria: whether the entity performs a governmental function; the level of government funding; the extent of government involvement in or regulation over the entity; and whether the entity was created by the government.

Later cases have held that all four criteria don’t have to be present for a finding of public agency; a case-by-case analysis applying the functional equivalence test is therefore necessary before holding a particular organization to be a public agency; and where an entity performs both public and private functions -- such as a volunteer fire department which acts as a town’s fire department but which also has fraternal and charitable functions -- it’s possible to conclude that the entity is public for some of its functions, but not for others. In this regard, so far the Connecticut courts have taken a more liberal view of what constitutes a public agency than the courts of many other American jurisdictions, including the federal courts.

Unfortunately, this reasonable and balanced approach has come under attack, with potentially devastating results with respect to government transparency in cases involving all three types of privatization. A Superior Court judge recently ruled in a case concerning the for-profit company performing automotive emission testing in Connecticut that the company isn’t a public agency for purposes of the state’s FOI laws. In that case, now on appeal, a requester asked the motor vehicles department for the paperwork that went into the creation of a new form used in the emission testing program. The department had approved the form’s use, but had none of the requested paperwork. It said it would have provided the paperwork to the requester if it had kept the paperwork because there was nothing sensitive in it. The requester then asked the for-profit company for the same material. The company declined to provide it, claiming it wasn’t a public agency subject to the state’s FOI Act.

In reaching its conclusion, the court relied on federal law holding that the federal FOI Act “was not intended to be applied directly to private entities which merely contract with the government.” It added, “entities that are the functional equivalent of a public agency have the power to govern or to regulate or to make decisions.” Well, although the for-profit company performing the statutorily mandated emission testing doesn’t govern or regulate, it certainly makes decisions (e.g., who passes the emissions tests). And, of course, the same can be said for the private school which contracted with municipalities to provide a high school education for their residents’ children and which was held to be a public agency for purposes of the FOI Act.

Both the private school and the emission testing cases involve non-governmental organizations performing required governmental functions. It’s simply unacceptable in a democratic society to permit government to avoid popular oversight and accountability merely by entering into a contract with a private entity. Put another way, it makes no sense, let alone good public policy, to have local school boards of education subject to FOI laws, but not the boards of trustees of private schools which, under contract, act as the public schools for various cities and towns; or to have the paperwork supporting a form change available to the public when a motor vehicle department runs an emission testing program, but not available when that department contracts with a private company to operate the program.

The government transparency issues discussed above apply both to for-profit and not-for-profit organizations performing governmental functions under contract. There is, however, a more recent phenomenon emerging from the evolution of privatization which raises other serious transparency problems stemming from the formation of not-for-profits created to assist government or perform ancillary governmental functions.

One such kind of not-for-profit is a foundation created to support a public university or other institution. The foundation derives its tax exempt status from this role and is given permission to use the institution’s name in its efforts. It both raises and spends funds directly for and on behalf of the institution. Yet, because it’s a private entity, it’s not subject to state FOI laws, or even to the state’s ethics and conflict of interests rules. Thus, such not-for-profits have provided limousines, country club memberships and other perks to public institution personnel, which would not be permitted under the laws and rules governing public employees. They’ve also hired the relatives of officials and other well-connected individuals without any public oversight or accountability.

Another relatively new problem area raised by privatization relates to the proliferation of not-for-profits formed to own or operate government-funded facilities or programs. Sometimes this kind of not-for-profit is really a guise for the organizers to make money through high salaries and self-dealing. For example, it has been reported in Connecticut that an individual established a not-for-profit corporation to operate a charter school. It’s alleged that she purchased property in her own name, then leased the property to the charter school, while at the same time taking a high salary to be the school’s executive director. In other instances, for-profit companies have formed not-for-profits to own or operate such things as government funded health care facilities and group homes. The for-profits can then rent or sell the facilities to the not-for profits, provide equipment for a fee, and may even provide staffing for additional compensation.

The problem, of course, is that such not-for-profits may not be subject to FOI laws. Consequently, issues of self-dealing, excessive compensation at taxpayer expense, and even corruption in the awarding of these arrangements may be hidden from public scrutiny. Obviously, this privatization problem also tends to seriously undermine the very credibility of our democratic institutions by the avoidance of public accountability.

But perhaps the form of privatization that’s most problematic is also the one that offers the best opportunity to improve the community -- i.e., government in partnership. Under this scenario, a not-for-profit organization works with both government and for-profit companies for a particular end, typically municipal or regional development or to provide new or additional job opportunities. They do this by offering incentives, usually in the form of tax abatement, grants and low interest loans. All of this is at taxpayer expense. But once again, the problem is a lack of transparency into the process. The process itself often involves many millions of dollars that could be lost because of bad investment schemes or could implicate self-dealing and political payoffs.

The NLDC doesn’t want to disclose how much it pays its employees and consultants or the involvement of real estate agents. Real estate agents serve on the NLDC board. In New Haven, a local government official actually headed several not-for-profit organizations established to pass on community development and job creation funds coming from federal, state and local sources. In both cases, these not-for-profits are spending vast sums of public money without public oversight or the transparency that is required of government agencies under FOI laws.

Until recently, the State of Connecticut was negotiating to privatize virtually its entire executive branch information technology assets and services. This privatization effort failed. But, to its credit, the state administration collaborated with the state’s Freedom of Information Commission to create, and it then insisted on, contractual safeguards to protect the public’s FOI and privacy rights. Nevertheless, the parties could have decided not to provide such protections, and they could have easily changed any contract entered into merely by signing another agreement without such provisions.

The possible lack of transparency whenever there is a privatization of governmental functions or programs is a serious problem that clearly must be addressed if our citizens are to retain control over the instruments of government they have created to serve them. Promises of openness, and even contractual arrangements, are insufficient because they’re easily broken or changed. Thus, it’s up to the people in a democratic society to insist on laws that will protect their right-to-know. If their message is not heard, or understood, or ignored, we can only hope that the judiciary will interpret current laws broadly to cover the privatization problems identified here, and perhaps others not as yet invented. So far, the Connecticut Supreme Court has risen to the challenge. Hopefully, other courts will emulate it in this regard.

If our political and judicial institutions fail to protect our citizens from the potential dark side of privatization, then, like the spacecraft of Star Trek, we’re all threatened by an alien cloaking device. In our case, however, what’s at stake is an open government and the public accountability that goes with it. In other words, what’s at stake is the very essence of our democracy.