What to Cut? Federal gov’t takes on more duties, as states take on less

CSX trains run over 21,000 miles of track in 23 eastern states -- part of a private, profitable company that delivers goods at competitive prices. It was born during the Reagan administration, put together from the rusty remnants of Conrail, a government-run freight rail that, at its worst, was losing a million dollars a day.

"Ronald Reagan had a yellow book test," said Tom Schatz, president of Citizens Against Government Waste. "If something could be found in the Yellow Book, it should be done by the private sector. Unfortunately, the administration now is taking the opposite view, claiming many services are inherently governmental, and therefore not subject to competition.”

This may be part of the problem as lawmakers struggle to figure out what to cut from the still-bloated federal budget.

Schatz's phrase, "inherently governmental," is not randomly chosen. In 2010, the Obama administration's Office of Federal Procurement Policy issued a proposed policy change, to broaden the definition of an "inherently governmental" function. That's bureaucrat-ese for reducing outsourcing or increasing the size of government.

"We've seen things like mapping , audio visual services, food services that were being in-sourced," said John Palatiello, of the Business Coalition for Fair Competition. "In the Defense Department when Secretary Gates was still in office, he put an end to in-sourcing, because he found that it just wasn't saving money.”

While the Obama administration is increasing in-sourcing, many states are doing the opposite. "Today there are governors and mayors across the country that are privatizing hospitals, privatizing toll roads, privatizing parking garages, using the private sector for information technology, building geographic information systems," said Palatiello.

There have been complaints about state and local government outsourcing. Unions have objected. In Indiana, there are accusations that politically connected companies won lucrative government contracts. There are other reports of poor service by private contractors.

And at the federal level, there are concerns that outsourcing means less oversight. Some point to the government contractor, Edward Snowden, now living in asylum in Russia after divulging highly sensitive secrets, as outsourcing's worst fear come true.

Palatiello says that’s a false argument, "A situation like that could happen as easily with a government employee as with a private contractor," he said. " There should be adequate backround checks. That is a generic requirement of the government."