James F. Powers, Pennsylvania's director of homeland security, was miffed. Somehow an intelligence bulletin discussing the activities of natural gas drilling opponents turned up on an online forum in early September, so Powers emailed the woman who posted it. The bulletin, he wrote her, was meant only for state and local law enforcement and for critical infrastructure owners, including businesses wrapped up in the state's enormously profitable natural gas drilling industry. But since the bulletin was posted on an unsecured forum, anyone could access it. This was not good, Powers explained, because the bulletin could fall into the wrong hands. "We want to continue providing this support to the Marcellus Shale Formation natural gas stakeholders while not feeding those groups fomenting dissent against those same companies," Powers wrote.

There was one big problem, however: Powers didn't look at the forum. What he thought was a pro-drilling forum turned out to be the opposite and the woman, retired U.S. Air Force Officer Virginia Cody, a drilling opponent. In just one email, Powers inadvertently revealed that Pennsylvania's Office of Homeland Security had not only been monitoring the activities of law-abiding citizens who oppose natural gas drilling for fear of its environmental damage, but passing the information on to the companies involved in the drilling. Powers had chosen business interests over Pennsylvanians' rights of free speech and association.

There was more. The state's Office of Homeland Security didn't generate the intelligence bulletin–a private contractor Powers hired did. Since 2009, the Institute of Terrorism Research and Response (ITRR), a private intelligence firm with offices in Philadelphia and Jerusalem, was paid over $100,000 in a no-bid contract to create intelligence bulletins on possible threats to Pennsylvania's critical infrastructure.

Apparently, the threats were everywhere. Aside from anti-drilling activists, the 137 bulletins ITRR produced reported on the activities of anarchists, animal rights activists, anti-war activists, black power activists, Federal Reserve critics, Tea Partiers, even groups associated with Pennsylvania Gov. Ed Rendell's own education policies. In one ridiculously absurd bulletin, ITRR warned that "anarchists, anti-prison ideologues and Indian rights activists" were going to attack the federal prison in Lewisburg by clogging the prison's phone lines with calls. In ITRR's reports, anyone with a political cause or complaint, whether left or right, was eyed as a potential security threat.

After the leaked bulletin and Power's email were passed to the press, public outrage and bipartisan condemnation from the state house ensued. On September 14, Gov. Rendell called a press conference where he apologized for violating Pennsylvanians' civil rights, terminated ITRR's contract, and then publicly released the 137 bulletins the firm had produced. Last Monday, both Powers and ITRR co-director Michael Perelman faced outraged state senators, some of whom called for Powers' termination. And on Friday, Powers' inevitable resignation came.

The public attention, contract termination, and Powers' resignation all make it easy to say case closed: A homeland security bureaucrat overreached and fortunately he was smacked down by the state's citizens and their elected representatives. But what Pennsylvania's surveillance scandal shows is that a disturbing federal trend has trickled down to the states. In July, The Washington Post released its two-year investigation "Top Secret America." The three-part series exposed how homeland security and intelligence have become big business at the expense of taxpayers. Currently, the federal government outsources a substantial amount of intelligence duties to unaccountable armies of contractors that produce redundant reports that are routinely ignored by the intelligence community. These reports remain secret, thus ensuring no public oversight, accountability, or fiscal responsibility.

The recent scandal in Pennsylvania looks eerily similar. For one, Pennsylvania's state police already run an intelligence shop that monitors threats to the commonwealth. Even worse, spokespeople for both the state police and the attorney general's office told the press that ITRR's reports were ignored because they were valueless. "I would liken it to reading the National Enquirer," the head of the state police's criminal investigations division told a state Senate hearing last week. "Every so often they have it right but most of the time it is unsubstantiated gossip." The reports often caused alarm and led police to waste manpower by chasing down phantom threats until state police told "local stations" to stop responding to the threats ITRR identified. Finally, the funds used by Powers to hire ITRR didn't come from Pennsylvania, they came from the federal government, which has time and again said that creating a domestic intelligence apparatus at the state-level is a main priority to upset developing terrorism plots.

And Pennsylvania isn't the only state using federal funds to hire a private firm to search the Internet for threats. Last year, the North Central Texas Fusion System headquartered in Collins County also found itself at the center of a controversy after a contractor drew up an intelligence bulletin that conflated the constitutionally protected activities of antiwar activists and American Muslims as a threat to the region. Like Pennsylvania, the contractor, ADB Consulting, also received no-bid contracts, but the fiscal damage was much worse. ADB Consulting had been paid at least $1.3 million for fusion center operations, primarily financed through federal funds. Much like what occurred in Pennsylvania, the county's director of homeland security barred private contractors from writing the intelligence reports.

Much as the Post uncovered a secret world of widespread surveillance inside the federal government, the incidents in Pennsylvania and Texas suggest the same thing is happening inside the nation's statehouses. Collected together, these incidents show that a vast, multi-tiered surveillance state is under construction, greased by federal funds and aided by private companies willing to fatten up on the public dime.

Addressing the state senate hearing last Monday, Pennsylvania State Police Commissioner Frank Pawlowski knocked Powers' decision to hire ITRR. "This is one of the problems you have when you contract intelligence work to amateurs," he said.

Fair enough, but Pawlowski missed the point. The real issue here isn't that the government should have a monopoly on domestic intelligence gathering, it's that such gathering shouldn't be done at all.

Matthew Harwood is a writer living in Washington DC. His work has appeared in the Washington Monthly and online at the Guardian, the Huffington Post, Truthout, and elsewhere. He is currently working on a book about evangelical Christian rhetoric and aggressive U.S. foreign policy.