Stateline Story

States Stung by Work Sent Overseas

Outsourcing of U.S. jobs to cheaper operations overseas is a major theme in the presidential race and some governors' elections -- and came as a surprise to many state governments that discovered they're paying foreign workers to answer calls about state food stamp programs or to keep state computers humming.

The shift of U.S. private-sector jobs to other countries is politically sensitive on its own, but the idea of using state taxpayers' dollars to hire foreign workers to do white-collar state jobs hits a particular nerve. Outsourcing also called offshoring when U.S. jobs go overseas emerged as an issue this year on the campaign trail and some 35 statehouses. At least a dozen states acted or are in the process of making sure that state procurement dollars don't end up in foreign countries.

New Jersey was one of the first states to learn more than a year ago that offshoring information-technology (IT) work can create a political firestorm. The state spent nearly $1 million to bring back its call centers from India and Mexico. A handful of other states plan to follow suit.

State contract work that ended up in India is a big issue in the gubernatorial race in both Indiana and North Carolina, where Democratic Govs. Joe Kernan and Mike Easley each face tight races and have made moves to bring state jobs home.

The number of jobs and the value of contracts that state governments send overseas can't be tallied because many states do not know the exact identity and location of a company signed to a state contract, according to Philip Mattera, director of the Corporate Research Project of Good Jobs First, based in Washington, D.C.

Mattera wrote the report, "Your Tax Dollars At Work - Offshore: How Foreign Outsourcing Firms Are Capturing State Government Contracts." The 39-page report was produced for the Washington Alliance of Technology Workers, a local union that is critical of offshoring.

Often a company hired by a state will subcontract parts of the job. At least 18 firms already have captured $75 million worth of state government work in more than a dozen states, Mattera said. These 18 offshore firms are registered as vendors in 30 states, the first step in landing state government work, according to the report.

Without knowing it, 42 states ended up paying for call centers in India, Mexico and other countries when the states stopped issuing paper food stamps and went with new federally mandated paperless "electronic benefit transfer" systems, Materra found.

Connecticut's Department of Labor thought it had hired a Massachusetts firm to provide document-storage software for its mainframe computers, but actually the state was dealing with a subsidiary of one of India's leading information technology services companies, The Hartford Courant recently reported. Earlier this year, Vermont Gov. James Douglas (R) said he was shocked to learn that a company providing services for the state's food stamp program uses workers based in India, The Rutland Herald reported.

During the Democratic National Convention in Boston last month, the Michigan Republican Party charged the state Democratic Party with outsourcing work to India and challenged the party "to stop being hypocrites."

"Like it or not, outsourcing is not merely gaining momentum; it is already a fixture of modern global business practice in the private and public sectors alike," stated an Aug. 10 report from the Conference Board, an organization made up of 2,000 companies that is known for its surveys on consumer confidence and hiring. The 40-page report lays out the pros and cons of outsourcing.

Business groups argue that states can save tax dollars by farming out call centers and high-tech work and that, in the long run, outsourcing can help states' economies. The Information Technology Association of America predicted earlier this year that while 104,000 computer programming and other high-tech U.S. jobs went overseas in 2003, global outsourcing would create 317,000 new jobs of all sorts in the United States by 2008.

The issue is important both politically and financially. The state government information-technology market amounts to about $50 billion a year, according to ITAA, a trade group that represents the IT industry.

At least 35 statehouses had anti-outsourcing legislation in the hopper this year, but only one state succeeded in enacting a law to curb the practice. Tennessee Gov. Phil Bredesen (D) signed a measure (SB 2344) allowing state agencies to give preference to companies using domestic workers for call centers or IT work.

Here's a sampling of what other states did on outsourcing:

  • Arizona, Kansas, Missouri, North Carolina, Oregon and Wisconsin plan to bring back call-center work that had been overseas.  In Arizona, an order from the state's top procurement official says that all state procurement contracts must include a clause that explicitly states "all services under this contract shall be performed within the borders of the United States. This provision applies to work performed by subcontractors at all tiers." 
  • The statehouses in Massachusetts and Maryland both passed anti-outsourcing legislation, but Govs. Mitt Romney and Gov. Robert Ehrlich, both Republicans, vetoed them. The governors said the measures would hurt taxpayers and make their states less business-friendly. 
  • Michigan Gov. Jennifer M. Granholm (D) signed an executive order that gives preference to Michigan-based job providers in the state government contracting process and requires the state to consider whether a bidder outsources abroad. 
  • Minnesota Gov Tim Pawlenty (R) and Missouri Gov. Bob Holden (D) issued executive orders requiring contractors to disclose where they plan to perform the work.

 Concerned about offshoring of jobs, several governors also are telling U.S. trade negotiators to keep state procurement rules out of global trade pacts. Governors in seven states -- Iowa, Kansas, Maine, Minnesota, Missouri, Oregon and Pennsylvania -- have told the Bush administration they don't want their states' purchasing laws and preferences to be restricted by a new trade pact signed by the Bush administration that would make it easier for U.S. companies to trade with their counterparts in Central America. The Senate has yet to endorse the treaty.

In the bid for the White House, Democratic presidential candidate John Kerry concedes that offshoring is inevitable but he promises, if elected, to abolish current tax rules that reward U.S. companies that move jobs overseas. President Bush is an ardent supporter of global trade and stresses that expanding markets for American products and services around the world helps to create U.S. jobs.

Justin Marks, who tracks the issue for the National Conference of State Legislatures, said that only a minimal numbers of state jobs are lost to outsourcing and that anti-outsourcing policies are just a small part of a state's overall strategy to create and keep jobs. Click here for NCSL's list of 2004 anti-outsourcing legislation.

The political firestorm over outsourcing overshadows other things states do to jumpstart their economies, Marks said. "Talking about a one-stop' program where people can come in and access all kind of government services, such as help with their resume, is not quite as interesting. ... It's not as sexy" as talking about outsourcing, he said.