Editorial: Stimulus contract cheats ripped off workers and taxpayers

The underground economy is never going away. There will always be those – particularly in the construction industry – who dodge taxes and safety regulations by bending rules or working strictly for cash.

But you’d think that on government projects, the rules would apply. Sadly for unsuspecting taxpayers, a yearlong McClatchy Newspapers investigation has uncovered massive fraud in the 2009 federal stimulus project intended to rebuild America and jump-start the economy.

How massive is the scheme?

A review of public records in 28 states indicates that unscrupulous companies robbed state and federal treasuries of billions of dollars each year. Their deceit was accomplished by one of the oldest tricks in the book: listing employees as independent contractors and issuing them “1099” tax forms.

Even worse, federal regulators, “while cracking down on the practice in private industry, let it happen in stimulus projects in the rush to pump money into the economy at a time of crisis.”

McClatchy’s team of reporters found that the problem was widespread in the South, where there is abundant immigrant labor and anti-union sentiment. In Texas, the state and federal governments lose an estimated $1.2 billion a year because of misclassification. The amount lost in North Carolina is believed to be $460 million annually. It’s $400 million in Florida. All of this money – which is owed fair and square – could be used for the public good in these states and all across the land.

Companies that play by the rules lose out, too, when government regulators either look the other way or fail to uncover what’s happening under their noses. By failing to pay taxes, health benefits and prevailing wages on government projects, cheaters underbid honest competitors by as much 25 percent and still turn a profit.

If you are outraged, call your congressional or Assembly representative and say it’s time to start looking out for taxpayers. Dogged reporting by McClatchy Newspapers – the kind that people tell us they want more of – has uncovered a huge problem that needs fixing.