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Privatization News Roundup, Nov. 5, 2009

leonard.gilroy@reason.org (Leonard Gilroy) — Thu, 05 Nov 2009 16:45:00 EST

Some privatization news highlights from the last two weeks that haven't been covered elsewhere on the blog:

FEDERAL

"VA will turn to a contractor to reduce backlog of GI educational benefits," NextGov.com
"Senators express concern about administration's contracting guidance," Government Executive
"OMB's new procurement guidance inadequate, lawmakers say," Federal Times
"OMB pushes more fixed-price contracts," Federal Times

STATE & LOCAL:

"Panel offers cost cuts," The Advocate
"Public vs. private: Should NC give up booze control?," WRAL.com
"State-run setup's benefit doubted," The Patriot-News
"FSSA chief outlines plan to create 'hybrid' welfare system," The Herald-Times
"Plan to privatize prison deserves consideration," Denver Post
"Missouri Department of Corrections calls prison population boom no problem," Columbia Missourian
"Privatization fears persist for public Macclenny hospital," Florida Times-Union
"Eliminate, privatize some state services," Sioux City Journal
"Walker makes direct budget pitch," Milwaukee Journal Sentinel
"Novato Sanitary referendum gets green light," Contra Costa Times
"Brown County to look at privatizing planning," Green Bay Press Gazette
"Somerville Mayor Curtatone reconvenes Financial Advisory Committee," Somerville Journal
"Cape May County Youth Shelter employees, parents oppose privatization plan," Press of Atlantic City
"Central Dauphin moving forward with bus outsourcing plan," The Patriot-News
"Staffing drives airport's quest to privatize," Daily Inter Lake

INTERNATIONAL:

"Brazil In Talks On Rio's Galeao Airport Concession," Wall Street Journal
"State mulls disposals, partnerships to release value from property portfolio (South Africa)," Creamer Media's Engineering News
"KDB takes one step closer to privatization," Korea Herald
"KDB plans for mergers ahead of privatization," JoongAng Daily
"Poland's privatization plan shall help to close budget gap," Poland.com
"Czech Airlines Privatization Off For Now," Aviation Week
"Serbia to Privatize a Number of State Enterprises in 2010," PropertyXpress.com
"Syria launches its first electricity privatization tender," Daily Star
"AZN 75 million invested in Azerbaijani privatized enterprises for Jan-Sept," Azerbaijan Business Center
"MP offers to start using private prisons in Kyrgyzstan," 24 Press Club

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary

San Diego County to Outsource 200 Health Service Jobs

adam.summers@reason.org (Adam Summers) — Tue, 27 Oct 2009 23:33:00 EDT

Earlier this month, the San Diego County Board of Supervisors voted unanimously to outsource nearly 200 health service jobs in the county's Health and Human Services Agency. The positions include 198 caseworkers and other employees, and will be outsourced to private-sector contractors and nonprofit organizations. The move is expected to save the county approximately $6.8 million.

"We're looking at a troubling financial forecast," said Board of Supervisors Chairwoman Dianne Jacob. "We have a responsibility to the taxpayers to explore any and all cost-saving measures."

According to the San Diego Union-Tribune article that reported on the issue, the county supervisors eliminated 800 positions from the county government's work force earlier this year.

Since the 1990s, San Diego County has embarked on a number of successful privatization and outsourcing efforts. The City of San Diego, which is in an even bigger budget hole, should follow the county's lead. In 2007, Reason published a study that conservatively estimated that the city could save $80 million to $200 million a year by competitively bidding for services such as water/wastewater maintenance, parks and recreation, library operations, street maintenance, trash and recycling collection, vehicle fleet maintenance, printing and copying, facilities management, and information technology. A couple of months later, voters approved a measure to allow the city to force government agencies to compete with the private sector for contracts to provide services. After three years, however, the city has yet to implement the program, as the city employees' labor unions have thus far effectively stonewalled it.

As state and local governments across the country continue to struggle with tight budgets and the effects of the economic downturn, it is more important than ever to get the best value for taxpayers' dollars. To that end, privatization and outsourcing should become vital tools and governments should conduct top-to-bottom "Yellow Pages tests" to see where private-sector vendors and nonprofit agencies may provide services more cheaply and/or of better quality than government agencies.

Other Resources:

» Reason study: Streamlining San Diego: Achieving Taxpayer Savings and Government Reforms Through Managed Competition

» Reason's privatization research and commentary

Chicago's Budget and the Prospects for Future Asset Leases

leonard.gilroy@reason.org (Leonard Gilroy) — Fri, 23 Oct 2009 20:01:00 EDT

A Chicago Sun-Times editorial yesterday commented on Chicago Mayor Richard Daley's new 2010 budget, which would draw down the reserve funds created by the city's recent asset leases faster than anyone (including the Mayor) had originally anticipated:

Cities across America are struggling with similar deficits, with many turning to tax and fee increases and major service cuts.

But Daley says he won't go there -- and we're with him on that.

Instead, the mayor said Wednesday, he proposes spending $495 million from big reserve funds created by leasing the Chicago Skyway and the city's parking meters. He also is calling for 24 furloughs days for non-union employees, spending cuts, layoffs, elimination of vacant jobs and refinancing and restructuring of city debt.

Mostly, Daley is going after the parking meter fund, grabbing $420 million, while wisely not touching a $500 million long-term Skyway reserve fund. Preservation of the Skyway fund is essential to the city's long-term financial health and has led to an upgrading of the city's bond rating in 2006.

Still, Moody's Investors Service tells us there are risks in raiding the parking meter fund, potentially making it more expensive for the city to borrow money. The mayor and his financial team acknowledged that risk in a meeting with the Sun-Times Editorial Board on Wednesday, but played it down, emphasizing that the proposed budget still leaves the city with a $730 million reserve fund.

And, the mayor said -- and we agree -- he has no better options.

The decision certainly involves important potential risks and trade offs. But on a practical level, there's absolutely no political will for tax and fee hikes right now in the city council, and the process of determining round after round of budget cuts—which is absolutely necessary given the shortfalls Chicago is facing—is by its very nature slow, tedious and politically perilous. So while tapping reserves is suboptimal from a fiscal perspective, it's still the best of some bad options in the final analysis.

[Sidebar comment: scanning the coverage of this issue, it's ironic that the conversation has suddenly shifted from how supposedly "bad" the parking meter deal was (a bogus claim, I argue) to a recognition of how valuable the proceeds are to city finances. Hmmm.]

However, as Fran Spielman at the Sun-Times reports today, the administration may also be considering other privatization opportunities:

Daley could privatize the water system or just the sewer portion. He could revive the $2.5 billion Midway Airport deal that collapsed for lack of financing and lay the groundwork to do the same at O'Hare.

If he wants to reduce operating expenses without generating up-front cash, he could privatize garbage collection or recycling. Water billing and other revenue collections are also possibilities.

Read the whole article for more details on each idea. If any of these initiatives do materialize, they'll likely get significant public scrutiny given current local political sensibilities, but it's absolutely worth exploring all of these and more given the value that the previous asset leases brought to the city.

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary

Fulton County Schools Reps Praise Outsourcing of Capital Program Management

leonard.gilroy@reason.org (Leonard Gilroy) — Fri, 23 Oct 2009 17:32:00 EDT

A reader forwarded an article in the October 2009 edition of The School Administrator (a publication of the American Association of School Administrators) that's worth a read.

In the article, Fulton County Schools (Georgia) chief of operations Patrick Burke and colleague Jennifer Klein tell the story of how the FCS achieved dramatic results from privatizing the management of its capital improvement program (e.g., new school construction, etc.) in response to long-standing problems of inefficiency and rampant cost-overruns under public operation.

The school board opted to change the way it managed construction through a type of outsourcing known as professional program management. In 2004, the board entered into an agreement with Parsons Corp., an international firm headquartered in Pasadena, Calif.

The school board's president, Linda Bryant, says of the decision to look outside for better management, "We needed better savings and more control and accountability for construction spending. Outsourcing our capital programs has gotten us better pricing from an honest group of suppliers and contractors and definitely more accountability." [...]

So what is professional program management? First, it is not a euphemism for facility management. Facility management is the day-to-day care and operations of the existing buildings, including repair and general upgrading of facilities. The Fulton County Schools still maintain a full facilities and maintenance staff.

Program management is a comprehensive method of managing a capital improvement program that covers planning, pre-design, design and construction oversight. While architects, engineering firms or construction companies may provide program management services, several firms, such as Parsons, Jacobs, MACTEC and PBSJ, specialize in K-12 program management. [...]

New approaches to contracting, cost control and capital projects management netted documented savings in excess of $6 million in the first year of operations alone, offsetting the fee to Parsons and yielding significantly better results than in-house. These changes continue to reap significant savings, particularly in the areas of general conditions costs, geotechnical fees, change orders costs and renovations management, giving the lowest possible cost for each project.

Prior to outsourcing, the school system paid general conditions fees for construction management at risk contracts, which cover such costs as management items over and above construction materials and labor. With Parsons, we pay no fees in this area, saving $3 million per year. Also, the company manages contracts directly for the school district for geotechnical surveys and studies and requires the architects and contractors to follow procedures that reduce design cost and overhead fees, saving the district $450,000 in architect and engineering expenses. [...]

Bryant [...] is convinced the outsourcing arrangement has given the school system "more bang for our buck. … We are now on time and on the money or even under budget." Dean, the previous board president, said, "Now I have the confidence I can spend my time and energy on student achievement, policy and overall budget management. I don't have to worry whether capital programs are running well. They've freed me as a board member to do my true task."

Read the whole article for a client/administrator perspective on the benefits of outsourcing—this is straight from the source. The quotes alone should be enticement enough. More on non-instructional school services outsourcing here.

One more thing. Poor Fulton County is well-known for its tax and fiscal policies that prompted roughly 200,000 citizens to effectively secede from the County via municipal incorporation in recent years. Those new cities are almost entirely privatized outside of public safety services. As if that's not enough of a signal to the County that it should be seeking increased efficiencies and cost savings through more (and more robust) competitive service delivery, here comes an example from its own school board.

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary

Privatization News Roundup, Oct. 23, 2009

leonard.gilroy@reason.org (Leonard Gilroy) — Fri, 23 Oct 2009 15:16:00 EDT

Some privatization news highlights from the last week that haven't been covered elsewhere on the blog:

FEDERAL

"GAO: Army shouldn't privatize West Point jobs," The Associated Press
"Panel Recommends Privatization of Fannie Mae And Freddie Mac," Talk Radio News Service
"Justice kicks off planning phase of $1.5B contract," Washington Technology

STATE & LOCAL:

"Puerto Rico to Use Private-Partnership Proceeds to Repay Bonds," Bloomberg
"Arresting Developments," Barron's
"Miami Tunnel Reaches Closure," The Bond Buyer
"Despite speed bumps, Port of Miami tunnels continued attracting lender interest," Miami Today
"Lawmakers eye using budget as a tool against Northrop Grumman in IT deal," Richmond Times Dispatch
"Montana Airport to Privatize Security Screening," Security Management
"Airport to privatize security," Daily Inter Lake
"Colorado prison cuts possible elsewhere," Denver Post
"Fire department should keep going to medical emergencies, committee says," Record-Searchlight
"Village gets bid by company to construct sewer system," The Reporter

INTERNATIONAL:

"Scottish Think-tank Propose PFI Replacement," PPPFocus.com
"Private firms model for projects," BBC News
"UK's Royal Mint Workers Protest Against Privatization Plans," Bloomberg
"Japan Post Goes in New Direction," Wall Street Journal
"Makeover of postal privatization," The Japan Times
"France: Voters Reject Postal Privatization," Toward Freedom blog
"Russia may privatize certain state corporations - Medvedev," RIA Novosti
"Poland Banks on Privatizations to Plug Budget," BusinessWeek
"Zambia Shortlists Eight In Privatization Of Zamtel," Wall Street Journal
"Public-private partnerships contribute to country's development," AngolaPress
"Zimbabwe: Privatization Opens Massive Infrastructure Opportunities," AllAfrica.com
"Government announces new wave of privatization," Daily Georgian Times
"More private finance initiatives to reduce budget deficit," Malaysia Star
"6 power plants to be privatized next year," Manila Bulletin

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary

Milwaukee County Board Nixes Privatization, Again

leonard.gilroy@reason.org (Leonard Gilroy) — Thu, 22 Oct 2009 19:03:00 EDT

Generally speaking, the Milwaukee County Board of Supervisors has become a destination where good privatization ideas go to die. County Executive Scott Walker knows this well, having made numerous, sensible attempts to pursue outsourcing in several areas of government, only to see them mostly get squashed by the union-friendly County Board. As I wrote in Reason Foundation's Annual Privatization Report 2009,

In September 2008, Milwaukee County Executive Scott Walker released his 2009 budget, which included proposals to privatize several county services, including vehicle maintenance, operation of the county’s economic support call center and non-medical services at the county behavioral health hospital. The proposal also allocated $500,000 for a study assessing the potential privatization of General Mitchell International Airport. [...]

The privatization discussion quickly became politicized. In November 2008, the County Board cut the privatization measures from its version of the 2009 budget. Walker responded with a series of line-item vetoes that effectively restored nearly all of the privatization measures the County Board had cut. In turn, the County Board responded with a corresponding set of veto overrides that eliminated most of the privatization proposals from the budget. There was one notable exception, however. Walker and the County Board both agreed to proceed on a contract for food services at the behavioral health hospital, replacing 70 food service employees at the complex. This contract began in June 2009.

Walker's plans to privatize Mitchell International Airport failed to move forward after a County Board committee voted unanimously in October 2008 to reject his request for a $500,000 consultant study of a possible deal. Walker had pitched his airport privatization proposal as a way to generate $25 million a year for transit.

Walker indicated that he would likely resubmit separate legislation to recreate some of the privatization initiatives he had originally proposed. He brought the call center privatization proposal back to the County Board in January 2009 and was rejected a second time. The troubled call center has been under fire in recent years for severe staff shortages, prompting citizen complaints and a federal lawsuit. In addition, Walker's administration issued a request for proposals in July 2009 for an initiative to potentially outsource janitorial and security services currently provided by the county facilities division. If it decides to move forward, the administration would include the initiative in its 2010 budget proposal.

Though I suppose it must feel like beating one's head against the wall, I give Executive Walker tremendous credit for his persistence in pursuing these initiatives, because the County is on an unsustainable fiscal path. Apparently that message is still not getting through to some of the County Board:

The County Board's finance committee on Tuesday recommended rejection of privatizing security and housekeeping services at the courthouse complex.

County Executive Scott Walker's budget estimates the moves would save $1.7 million in property tax money next year. They are part of his solution to fill an $80 million hole in the 2010 budget.

The panel also called for rejecting a plan to substitute Air National Guard firefighters for county employees to provide crash and rescue service at Mitchell International Airport. That would save the airport, which is funded mainly through fees from airlines, an estimated $619,000.

Hiring private companies to do the work also would mean elimination of 92 county jobs - 25 airport firefighters, 31 security guards and 36 housekeepers. County workers would get first crack at applying for their old jobs with a private contractor, under Walker's budget. In all, Walker is proposing outsourcing 207 county jobs for 2010, for a first-year saving of $5.9 million.

Supervisors said hiring private firms for security and cleaning posed safety concerns, and private workers wouldn't do the job as well as county workers. [...]

[Walker] disagreed that hiring private firms for security or housekeeping would compromise safety at the courthouse. Major corporations use private security and housekeeping successfully, and the county should also be able to, Walker said.

Walker questioned whether there would be enough votes to kill the privatization moves. He also wants to privatize additional housekeepers, case managers for patients at the Mental Health Complex and mainframe computer technicians.

The courthouse security outsourcing was rejected on a 5-1 vote, and the housekeeping privatization was dumped on a 4-2 vote by the finance panel.

More to come on the continuing privatization saga in Milwaukee County.

Indianapolis Seeking Proposals for Convention Center, Sports Stadium Management

leonard.gilroy@reason.org (Leonard Gilroy) — Thu, 22 Oct 2009 15:32:00 EDT

Mary Beth Schneider and Bill Ruthhart at the Indianapolis Star report today that Indy Mayor Greg Ballard's administration has issued a Request for Information and Qualifications to gauge potential private sector interest in operating and managing the city's convention center and major sports stadia, which currently face large operating deficits:

Indianapolis is investigating hiring a private firm to handle the financial headache of operating Lucas Oil Stadium and the Indiana Convention Center, and potentially Conseco Fieldhouse.

The city has issued a "request for information and qualifications," shopping for a firm that thinks it can run the facilities cheaper and better than the Capital Improvement Board.

Paul Okeson, chief of staff to Mayor Greg Ballard, said the city doesn't know whether it will, in the end, privatize the management of the facilities. But, he said, there's only one way to find out: Ask.

"We issued the RFI for the sincere and honest purpose of maybe there's something out there we're not thinking of that someone could present to us that would save us a significant amount of money in operating these facilities."

The result, he said, could be private management of the facilities; private-management assistance to continued CIB management; or no change at all.

"It could be anything," he said. "We're obligated on behalf of the taxpayer to see if there's a way to do this and create some efficiencies or gain a significant amount of savings." [...]

Ballard and the CIB went to the General Assembly for help earlier this year when it projected a $47 million deficit for 2010.

The RFI is posted on the city's website here, and more details on the initiative are available in this Indianapolis Business Journal article.

As I told the Star, it's a smart move in a fiscal crunch for policymakers to look at innovative ways to get government out of the business of operating and managing non-core assets (especially when they're not even breaking even while doing it):

The city's request comes at a time when cities have increasingly turned to private firms to operate their large convention centers, arenas and stadiums.

"I'm hearing a lot more about this issue now," said Leonard Gilroy, who as director of government reform at Los Angeles-based Reason Foundation produces an annual report on privatization.

"There's been a renewal, a reinvigoration of privatizing these kinds of facilities because of the obvious fiscal crises going on at the state and local level throughout the country." [...]

Privatizing facilities like Lucas Oil and the convention center certainly isn't a new concept. But what is unusual about Indianapolis' request is that it includes multiple facilities.

"I have not seen the bundling of facilities like this request, but it is very smart because it adds value," said Gilroy, the privatization expert. "Blending them together like this creates more bang for the buck, because there are more savings, economies of scale and cost efficiencies an operator can find."

For more on other recent Indianapolis competition initiatives, see my earlier posts here and here. Mayor Ballard and his administration deserve recognition for really thinking outside the box and driving fundamental reforms in a variety of ways, both on the privatization front and on the larger front of revamping antiquated government systems and business processes. The end result is the same—delivering more efficient and streamlined government services to taxpayers.

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary

San Diego Needs Pension Reform, Managed Competition to Address Fiscal Problems

adam.summers@reason.org (Adam Summers) — Wed, 21 Oct 2009 20:54:00 EDT

My latest column on Reason.org addresses San Diego's massive budget deficit (now and for the foreseeable future) and the need for the city to adopt significant structural reforms to address its fiscal problems and avoid bankruptcy. These reforms include switching to a 401(k)-style defined contribution retirement system for all future employees and--at last!--implementing the managed competition program overwhelmingly approved by voters nearly three years ago in order to lower the cost of government services by forcing the government to compete with private-sector vendors for contracts to offer those services. The following is an excerpt of that article.

The City of San Diego has released its 5-year forecast—and the future is not pretty. The city is facing a record $179 million deficit this year, followed by additional projected annual deficits of at least $150 million for several years.

[. . .]

While governments at all levels are experiencing falling revenues due to the recession, San Diego's outlook is particularly dire because of egregious missteps the city made regarding its pension system. San Diego's pension problems stem from pension deals reached in 1996 and again in 2002 which led to the city underfunding the system by increasing pension benefits without setting aside enough money to cover the additional costs. The city is still paying for its mistakes today. In addition to an extra $57 million that the city will have to pay from its general fund to cover pension investment losses—an increase in the city's pension contributions of approximately 34%—San Diego must pay $32 million as part of the McGuigan legal settlement to remedy its past pension underfunding.

If this picture is not bleak enough, consider that San Diego's fiscal situation is actually even worse than the 5-year projections because, as Councilman Carl DeMaio notes, the city did not include the costs of its retiree health-care benefits or deferred maintenance, such as street, sidewalk, and storm drain repairs that must be made, in its budget forecasts. The city is planning to pay $43 million next year for retiree health care—barely one-third of the estimated $120 million needed to adequately pay for the benefits. The city is already running a $1.3 billion unfunded liability for retiree health care.

[. . .]

The city should switch to a pure defined-contribution retirement system for all new employees, with compensation levels comparable to those received in the private sector. Savings from this pension reform would be long-term, however, and the city needs some more immediate relief.

To that end, there are many government services that could be performed more cheaply and effectively by the private sector. Forcing the government to compete with the private sector to provide services could result in significant cost savings while maintaining or improving service quality. A 2007 study done by Reason Foundation and the San Diego Institute for Policy Research conservatively estimates that the city could save between $80 million and $200 million a year by implementing managed competition for services such as:

Water and wastewater treatment,

Trash and recycling collection,

Vehicle fleet maintenance,

Street maintenance,

Parks and recreation (including city-owned golf courses),

Library operations,

Permitting,

Facilities maintenance,

Information technology, and

Printing and copying.

Voters saw the wisdom in this "managed competition" approach, and overwhelmingly passed a measure in November 2006 to amend the city charter to allow the city to implement it. But city labor unions have tied up the process, and nearly three years after the voters passed Proposition C, the city is still without a managed competition program.

If labor unions continue to hold the city hostage, they will drive San Diego to the same fate as the City of Vallejo, California—into bankruptcy.

See the full article here.

Other resources:

» Reason pension reform study: The Gathering Pension Storm: How Government Pension Plans Are Breaking the Bank and Strategies for Reform (see pages 33-40 for a case study on the City of San Diego)

» Reason-SDI study on managed competition in San Diego: Streamlining San Diego: Achieving Taxpayer Savings and Government Reforms Through Managed Competition

» Reason's privatization research and commentary

More Georgia Officials Considering Local Government Privatization

leonard.gilroy@reason.org (Leonard Gilroy) — Wed, 21 Oct 2009 17:04:00 EDT

From The Telegraph, more evidence that the "Sandy Springs effect" continues to spread throughout Georgia, this time in the context of a proposed merger of Macon and Bibb County:

A committee of community leaders has suggested privatizing many government functions and merging other city and county departments.

The initiative would be directed by a consolidation czar who would report directly to the mayor of Macon and the Bibb County Commission chairman to make sure plans are carried out.

The committee's report is still in draft form, and its members are seeking input from members of the Macon City Council and the Bibb County Commission. Many of the merger ideas are not new, but the report is one more sign that city-county consolidation, which has languished for years, has new momentum under Mayor Robert Reichert and Bibb County Commission Chairman Sam Hart. [...]

Some of the ideas are modeled after Gov. Sonny Perdue's Commission for a New Georgia, which sought to take a businesslike look at state government. Hatcher's father, Robert, co-chaired that commission. [...]

The report recommends:

–Merging the city and county engineering, technology, purchasing, billing, collection, human resources and risk management departments. The tax collector's office would oversee collections for a range of services, including court fines and permitting fees, in addition to taxes.

–Contracting out for many services now provided by government employees, including garbage pickup, vehicle maintenance and building upkeep. Existing departments could bid against private contractors for the work, and private companies could be required to retain existing government employees if they take over a service, the report says.

For more on managed competition—allowing public employees to bid against private firms to provide public services—see Reason Foundation's 2006 study here. Meanwhile, citizens in north Fulton County are still pushing to carve out a new Milton County from the unincorporated parts of north Fulton (the same area where Sandy Springs, Dunwoody and other contract cities reside), and if that were to pass, it's likely that the new county would explore a similar startup model as the new Georgia contract cities, relying on private firms to provide the bulk of services. It's amazing what some tension in the system can do to promote change in the system. In Georgia's case, the recent proliferation of newly incorporated cities contracting out for virtually all non-public-safety services forces policymakers and citizens to confront the reality that they're not thinking big enough on privatization.

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary

Privatization News Roundup, 10/16/2009

leonard.gilroy@reason.org (Leonard Gilroy) — Fri, 16 Oct 2009 16:00:00 EDT

Some privatization news highlights from the last week that haven't been covered elsewhere on the blog:

FEDERAL

"Administration wants tighter reins on contractor fees," Washington Technology
"Report says government should focus on quality of contracting competition," Government Executive
"North Georgia gets new immigration detention site," Chattanooga Times Free Press

STATE & LOCAL:

"US Airport Executives Eye Privatization Amid Traffic Slump," The Wall Street Journal
"Virginia audit blasts Northrop Grumman IT contract," The Virginian-Pilot
"Oklahoma DOC to cut some private prison contracts ," The Oklahoman
"Prison system to shop for new medical provider," The News Journal (Delaware)
"Proposal to privatize snow removal plowed under," Chicago Sun-Times
"Okaloosa schools' privatized health service a success, parents still concerned," Northwest Florida Daily News
"Cape May County looks to privatize youth shelter," Philadelphia Inquirer
"Fight at city hall after re-vote privatizes Baywalk sidewalk," The Daily Loaf (blog)
"Petition Backs Private Bid for Animal Shelter," Sag Harbor Express
"Grass cutting bids now being accepted by city," The Natchez Democrat

INTERNATIONAL:

"UK Considers Privatizations to Cut Its Debt," Wall Street Journal
"Firms eyes stake in Mombasa port," Business Daily Africa
"French companies eager to join public-private partnerships in concession of water and sewerage companies," Focus News Agency
"French Companies Interested in Privatization of Sofia Heating Utility," Sofia News Agency
"Yuschenko instructs cabinet to consider privatization of small hydro power plants," Interfax.com
"NAREDCO presents models for Public Private Partnership in housing," Webnewswire.com
"Govt roping in private players to construct old-age homes," Indopia
"Saudi Arabia committed to privatization," Middle East North Africa Financial Network
"Privatization of The Bahamas Telecommunications Company Enters Due Diligence Phase," Reuters

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary

Complimenting Chicago's Parking Meters

leonard.gilroy@reason.org (Leonard Gilroy) — Thu, 15 Oct 2009 16:38:00 EDT

Columnist Mary Schmidt at the Chicago Tribune offers a contrarian—and in my view, sensible—take on Chicago's parking meter lease:

[I]'m sorry, I like the new parking boxes. [...]

It's easier to find a spot to park. It's easier to pay.

Remember back in ye olde parking days -- just a few months ago -- when you reached your destination only to discover in a panic that you had no quarters? I once found myself kneeling on the greasy pavement, groping under the car for the precious coin that got away.

Remember circling block after block looking for an empty spot? Remember all the broken meters? Remember the parade of eyesores?

It's true -- this is a common complaint -- that now you have to walk up the block to get to the box and then walk back.

Fellow citizens, please. Chicago prides itself on being tough. We can't handle a 10-second walk?

It's also true that parking costs more now. That hurts. But cheap parking isn't all good. It encourages people to drive and so discourages them from taking public transportation.

And now, if you pay by credit card, you can track your parking expenses on your monthly statement. Nothing like coming face to face with that number to get you on the bus or "L" or on your bike.

Around town, a few old parking meters still stand, wearing little notices: "Meter Remains as a Courtesy to Cyclists." They're the new hitching posts, and already they look like the strange artifacts of a parking era to which it's time to say good riddance.

For more on Chicago parking meters, see my recent article here.

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary

Through Privatization, Indy Seeks Funds for Infrastructure Program

leonard.gilroy@reason.org (Leonard Gilroy) — Sun, 11 Oct 2009 19:49:00 EDT

Francesca Jarosz at the Indianapolis Star takes a deeper look at Indy's current large-scale privatization initiatives today in an interesting article. In addition to tapping privatization to modernize its water & wastewater systems and parking operations (discussed here, here and here), the city is also conducting an inventory of city property to identify divestiture opportunities and considering long-term contracts to upgrade golf courses.

One of the more interesting aspects is that, given Indy's long history as a privatization pioneer, one of the recurring themes in the current batch of initiatives is that they're taking services or assets that already utilize some form of privatization and extending the model further (e.g., longer terms, more responsibilities, etc.):

Privatization experts say long-term contracts like the ones Indianapolis is seeking for its already privatized operations can be beneficial in a couple of ways. A longer term allows companies to make capital improvements and can increase trust between the city and the private operator, said Sergio Fernandez, an assistant professor at Indiana University's School of Public and Environmental Affairs who studies privatization.

But, the long-term deals also can bring risks. For instance, the lease of Chicago's meters could be an unwise move because after the initial payment, the city loses out on the revenue. Evan McKenzie, an associate professor of political science at the University of Illinois-Chicago who has written on privatization since the 1980s, equates it to "having a garage sale to pay your mortgage."

Indianapolis leaders say the difference in their efforts is that the revenues would go toward long-term infrastructure improvements, rather than operating costs. They also say they'll vigilantly monitor contracts to avoid another possible risk of long-term privatization: neglect on the private company's part.

"Monitoring is very important," Fernandez said. "One of the ironies about privatization is that it takes good government to make it work."

Investing in long-term infrastructure improvements would be a fiscally responsible use of the revenues from privatization, as I write here.

And indeed, it does take good government to make privatization work, or at least a government that knows how to manage contracts well. That's the key determinant of a successful privatization initiative. Government doesn't just walk away once the contract is signed. By definition, there are two parties to the contract, and it outlines the expectations and responsibilities of both over the term of the relationship. Hence, the relationship between client and contractor is an active one. Once the contract is signed the public sector's role shifts to contract management and oversight. Hence, governments interested in privatization need to be cognizant of the need to have good procurement specialists to build a solid base of expertise to ensure that goals are achieved and that the contractor delivers.

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary

Amid Budget Woes, Governments Turn to Technology to Drive Streamlining

leonard.gilroy@reason.org (Leonard Gilroy) — Sun, 11 Oct 2009 15:29:00 EDT

Steve Lohr at The New York Times writes today that the pressure to solve state and local fiscal crises may be prompting a fresh look at how technology can drive government streamlining and performance:

Local governments, like many businesses, are struggling with a data glut. Agencies collect huge amounts of information about topics as diverse as building permits, potholes, Medicaid cases and foster-child placements. Technology, according to computer experts and government officials, can be a powerful tool to mine vast troves of government data for insights to streamline services and guide policy.

"The mistake people make is to think that collecting the data is the endgame," said Michael R. Bloomberg, the mayor of New York. The real payoff, he said, takes another step. "We actually use the data," he noted.

Indeed, New York has been a pioneer among cities in the use of computing firepower to sift through data to improve services. It began in the 1990s with the city's CompStat system for mapping, identifying and predicting crime. The system, combined with new policing practices, reduced crime rates in New York and was later adopted by Los Angeles, Philadelphia, Baltimore and other cities.

In 2002, the city began its "311" telephone number for answering questions about government services and to report problems down to missing manhole covers. The service receives 50,000 calls a day, and earlier this year began operating on the Web as well. Complaints, response times and resolved problems are tracked and measured to improve performance.

In 2006, the city began an online service, NYC Business Express, to make it easier and faster to start a business. The average time to obtain a building permit, for example, has been cut to 7 days from 40. Such seemingly mundane improvements can add up to big gains in the efficiency of government service systems, experts say, nurturing productivity and growth in local economies. The process, they say, is similar to "lean manufacturing," a system first mastered by Toyota in which step-by-step changes on the factory floor, made repeatedly, translate into major advances in quality and productivity.

Linking government databases can be crucial. The New York Fire Department, in partnership with I.B.M., is developing a system that combines information on building floor plans, inspections and code violations from city agencies and then uses software to analyze and make predictions. Firefighters will be able to call up building information on hand-held wireless computers on their way to a fire. The real-time system, scheduled to be deployed next year, should help guide firefighting tactics and help firefighters avoid some dangers.

Read on to learn more about efforts in Alameda County, California and Dubuque, Iowa to leverage technology to drive efficiency. And in case you missed it the first time around, be sure to re-read former NYC Mayor Rudy Giuliani's article in Reason Foundation's Innovators in Action 2007—"Management Requires Measurement: The Key to New York City’s Renaissance"—where he details NYC's CompStat and other city efficiency initiatives implemented during his tenure as mayor.

Privatization News Roundup, 10/11/2009

leonard.gilroy@reason.org (Leonard Gilroy) — Sun, 11 Oct 2009 13:07:00 EDT

Some privatization news highlights from the last week that haven't been covered elsewhere on the blog:

FEDERAL

"Feds ‘In-Sourcing’ Could Hurt N. Va. Economy," Burke Connection
"DHS announces immigration detention reforms," Government Executive
"Defense policy bill has major implications for contractors," Government Executive
Report: "Civilian Agencies' Development and Implementation of Insourcing Guidelines," GAO-10-58R, October 6, 2009, U.S. Government Accountability Office
Report: "Contract Management: Agencies Are Not Maximizing Opportunities for Competition or Savings under Blanket Purchase Agreements despite Significant Increase in Usage," GAO-09-792, U.S. Government Accountability Office

STATE & LOCAL:

"Private Capital Can Serve as Second Stimulus," EarthTimes.org
"New council exploring public-private alliance," NJBIZ
"Oklahoma urged to sell worker's comp agency," Forbes
"Activists Storm Leno's Office, Demand Schwarzenegger Veto Privatization Bill," Fog City Journal
"Supervisor questions savings from 'reverse privatization'," Fairfax County Times
"Protesters pan privatization plan," New Haven Register
"Bidwell Marina deal sealed Friday," Oroville Mercury-Register
"Future of BayWalk sidewalk up in the air again," Tampa Tribune
"Library faces privatization or drastic cuts, report says," The Union
"Piscataquis County decides against dispatch contract," Bangor Daily News
"Southampton Councilwoman mulls bids to privatize town animal shelter," 27east.com
"Newton firefighters seek chance to bring ambulance service in-house," Gatehouse News Service

INTERNATIONAL:

"Russia to go ahead with privatization in 2010 - deputy PM," RIA Novosti
"Brazil to privatize Rio airport to prepare for 2016 Olympics," RIA Novosti
"Private group seeks slice of $3b rail budget," Brisbane Times
"Turkey achieves privatization successes," Hurriyet Daily News
"Iran's Telecom Privatization May Prompt Reform," Forbes
"Iran to privatize its ports, management," Tehran Times
"Belarus plans to sell stake in Beltelecom by end-2009," ISI Emerging Markets
"Mumbai Port opens RFQs for privatization of 3 berths," SteelGuru

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary

23 Firms Eyeing Indianapolis Superutility

leonard.gilroy@reason.org (Leonard Gilroy) — Tue, 06 Oct 2009 15:12:00 EDT

In big water privatization news, Indianapolis has received expressions of interest from nearly two dozen firms seeking to restructure the city's water and sewer systems into a massive, combined utility with a value that may top $3.5 billion. Mayor Greg Ballard's administration is seeking to merge the two utilities—which are both currently under long term contracts with separate private operators—in order to generate hundreds of millions in long-term cost savings that would be used to hold water/sewer rates down and generate up to $400 million to invest in citywide infrastructure improvements. Bill Ruthhart at the Indianapolis Star writes:

About two dozen companies, including Citizens Energy Group, have expressed interest in owning or operating the systems, which city leaders said could generate as much as $400 million to build roads and sidewalks and make other improvements while potentially protecting customers from large rate increases. [...]

By 2025, the city expects to spend more than $4 billion to make upgrades to the water and wastewater systems. Those improvements are expected to increase water rates by 112 percent and wastewater rates by 427 percent during that time period.

Under those projections, today's average water bill of $28.07 would increase to $59.64, and the average sewer bill would go from $19.89 to $104.83 during the same period.

Robert Vane, Mayor Greg Ballard's deputy chief of staff, said the mayor's goal is to help reduce those future costs by either partnering with private companies or signing off on Citizens Energy's acquisition of the utilities. He said it was too early for Ballard to offer a specific goal for how much future increases could be reduced.

Other potential bidders include prominent industry players like Veolia Water, United Water, Macquarie Capital, CH2M Hill, and Black & Veatch. The trade publication Public Works Financing reports separately that the city plans to issue a Request for Proposals next month, with bidder selection likely slated for early 2010.

Matthew Tully at the Indianapolis Star comments on the politics of the proposal, speculating that Indy Mayor Greg Ballard's focus on core infrastructure is likely to be viewed favorably by voters:

Cash-strapped cities such as Indianapolis have few options in addressing massive infrastructure backlogs. Typically, annual city budgets for street repairs don't even keep pace with new problems. And so, cities fall further and further behind every year.

With that in mind, the mayor is aiming for a "once-in-a-generation effort to address what are generation-old infrastructure problems," spokesman Robert Vane said Monday. [...]

The money gained from the initiative wouldn't come close to solving all of the city's infrastructure problems. But there would be a one-time infusion of cash that would allow the city to plow through years of backlogged projects.

If he can do it, Ballard would put a serious dent in a problem that has turned city streets into third-rate roadways and has left many residents waiting decades for new sidewalks to replace the crumbling messes outside their homes. He'll have helped address a depressing gap in quality between streets and sidewalks within the city and those in suburban areas. He also will have focused on exactly the type of issues mayors should target. [...]

The "un-mayor," as he was once called, was elected to address the nuts and bolts of local government. Nothing is more nuts and bolts than fixing streets and sidewalks. If he can find a way to pump an extra $150 million or $200 million into those problems, he will have tackled a matter that affects the daily life of every Marion County resident.

Reflecting back to my recent commentary on the use of upfront proceeds from transactions like this, I'd say that the proposal as shaped thus far would score high on the fiscal responsibility meter, as it would re-invest the bulk of the transaction proceeds back into long-lived infrastructure. As I've said before, it's great to see Indianapolis re-embracing privatization under Mayor Ballard's watch, and this particular initiative has the potential to be as groundbreaking as Indy's managed competition was in the early 1990s.

Public Option for EMS in Salt Lake City?

leonard.gilroy@reason.org (Leonard Gilroy) — Mon, 05 Oct 2009 14:01:00 EDT

A Salt Lake Tribune editorial yesterday suggested that Salt Lake City abandon competitive contracting for emergency medical services (EMS) in favor of starting a new city "public option." According to the editorial:

Protecting the public is a core government function, too important to privatize. With its ability to tax and borrow and quickly adjust service levels without renegotiating contracts, the city can better assure that residents are well-served. [...]

Privatization, for some services, makes sense. But not for vital, essential functions like emergency medical services. When employees on the front line answer directly to elected officials, control is one step closer to the people who pay the bills.

Let's be clear—the city already contracts out for EMS services, so that train has already left the station. And I find it odd that of the three options facing the city—renegotiating its current contract, rebidding the contract, or starting its own (costly) in-house service—the editorial board jumps straight to the most expensive and highest risk option.

The drawbacks of the in-house option seem obvious—increasing the number of public employees and the long-term pension and health obligations that come with them, enormous start-up and capital costs, the risks and costs associated with long-term vehicle management, and the big one—the risk that performance slides when the service becomes a government monopoly subject to less accountability. In fact, improved performance is one of the main reasons cities privatize EMS in the first place.

A few years ago Reason Foundation released an FAQ on EMS privatization that anticipates this "inherently governmental" argument:

Many people regard EMS as an inherently governmental task and see it as a leap of faith to place lives in private hands. Since so many people are only familiar with government-provided EMS, it's natural for EMS privatization to be met with some initial apprehension. Even those friendly to privatization in other areas, like water service or garbage collection, may be slow to embrace privatized EMS. After all, if emergency response is poor, people die.

But so many cities privatize EMS precisely because the stakes are so high. EMS is too vital to shield from competition. Those skeptical of privatization should consider the limitations cities already endure under the alternative. The real leap of faith is to commit to one provider, forever, regardless of performance. Public EMS monopolies lack much in the way of "carrot or stick" incentives, and as such they have little hope of being rewarded for strong performance and little fear that poor performance will lead to their replacement. A private provider cannot compel a city to use its services, so it must pay special attention to customer satisfaction. Private providers know that a good reputation is the best way to expand into new markets.

Privatization allows cities to benefit from a level of technology, specialization, and expertise only available in the private sector. Competition provides us with ever-improving drugs and medical devices. It makes sense that it would also provide us with better EMS.

The bottom line is that privatizing EMS is not a matter of trust—it’s a matter of contract. A city doesn’t hand a contract to a private provider and walk away with fingers crossed, hoping that the firm will make good on its performance promises. Under privatization, elected officials still maintain crucial oversight roles. Officials shop for the best EMS provider, and set performance standards.

Read the whole FAQ for more on EMS privatization.

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary

Fitch on Using One-Time Proceeds from Asset Sales & Leases

leonard.gilroy@reason.org (Leonard Gilroy) — Fri, 02 Oct 2009 17:12:00 EDT

My latest commentary makes the point that the revenue derived from sales or long-term leases of government assets should be primarily (or mostly, in the pinch of a fiscal crisis) used for long-term economic benefit, such as paying down public debt, shoring up underfunded pensions, investing in long-lived infrastructure and the like. Similarly, ongoing (recurring) spending should rely on recurring revenues from taxes, fees and the like.

Confusing the two situations—spending proceeds from the divestiture of long-lived assets on recurring spending—is a recipe for long-term structural budget deficits. After all, a one-time influx of revenues is by definition temporary, and the expiration of those revenues will inevitably produce a hole in the budget.

That said, as I wrote in the commentary, we don't live in a perfect world. Hence, it's reasonable to spend a limited portion of one-time revenues on near-term budget relief in the middle of a fiscal crisis as a means of avoiding tax hikes or more bonded debt, both of which would dig the hole deeper in one way or another.

In revising its outlook on various Chicago tax revenue, general obligation and fuel tax revenue bonds, ratings agency Fitch amplifies this idea:

Fitch has long noted the city's use of non-recurring funding sources, primarily a portion of proceeds from fixed asset sales and long-term leases, for near and intermediate-term budget relief. Fitch will monitor management's ability to fund its largely inflexible spending requirements once sizable non-recurring funding sources are exhausted. Currently, the city maintains $900 million in long-term reserves, boosting its available resources. Although the city's corporate fund balance is effectively nil, reserves equaled about 20% of spending including medium- and long-term reserves for fiscal 2008. In 2009, the parking meter lease proceeds bolstered the city's financial position as long-term reserves climbed to over $1.5 billion when available long- and mid-term funds are included. While Fitch views negatively any use of proceeds derived from long-term asset leases for near-term budget relief, the planned spending of these sources through 2012 provides the city with time to develop long-term budget measures to better match recurring spending with revenue.

In other words, if you're against the wall and in a position where you need to use one-time proceeds to backfill current spending, then at least use it to buy some time to make the more difficult spending cuts.

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary

Privatization News Roundup, 10/2/2009

leonard.gilroy@reason.org (Leonard Gilroy) — Fri, 02 Oct 2009 06:57:00 EDT

It's been a few weeks since I've done a privatization news roundup, so today I'll play catch-up. The articles below are some privatization news highlights from the last several weeks that haven't been covered elsewhere on the blog:

FEDERAL

"NASA plans new schedule for $4B procurement," Washington Technology
"IG: VA has widespread problems with management of IT projects," NextGov.com
"House panelists decry space privatization," Salt Lake Tribune
"Immigration agency to outsource disaster-recovery plans," Washington Technology

STATE & LOCAL:

"Schwarzenegger's prison plan sets stage for court battle," Sacramento Bee
"Port of Miami tunnel deadline extended," South Florida Business Journal
"State prison contract changes hands," Alaska Dispatch
"Editorial: Privatizing roads may boost infrastructure," The Detroit News
"Let's get back on the privatization train," Vancouver Sun
"Indianapolis Extends IT Services Deal With Northrop Grumman," Government Technology
"Indianapolis considers electronic parking meters," WTHR
"Daley administration floats privatization of plowing side streets," Chicago Tribune
"Mental health workers sue DC to stop privatization," Washington Business Journal
"DC Council Member Fights Privatization Of City Child Care," WAMU
"County May Privatize Ambulances," The Monticello News (GA)
"Concessionaire signs contract for Bidwell Marina," Contra Costa Times

INTERNATIONAL:

"Russia to relaunch privatization drive," AFP
"Polish Privatization Will Narrow Budget Gap," Wall Street Journal
"Iran to privatize oil terminals," Tehran Times
"BBC considers part-privatization of commercial arm," Boston Globe
"British Conservatives consider bank privatizations," The Associated Press
"Ukraine hopes for $1.2 bln in privatisation in 2010," Forbes
"Gaming giants vie for lottery," Melbourne Herald Sun
"NSW Lotteries Privatised by Rees Government," Razors Edge
"Gov't to sell 15% of holdings in Ashdod, Haifa ports," Jerusalem Post
"Privatizations to gain pace," Turkish Daily News
"£184m housing repairs contract out to tender in Kingston," Surrey Comet
"2009-2010 Revenues of Bulgaria’s Privatization Agency can reach 440 million euros," Radio Bulgaria
"Oman to privatize, invest in power projects," Tehran Times

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary

Novato, CA Sanitary Board Privatizes Wastewater Treatment Plant

adam.summers@reason.org (Adam Summers) — Wed, 30 Sep 2009 17:50:00 EDT

The Novato Sanitary District board recently voted 4-0 to approve a contract with private water company Veolia Water to turn over the operations of its new $90 million wastewater treatment plant. While privatization is often sought primarily to achieve cost savings, the Novato Sanitary deal illustrates other benefits of privatization. The arrangement will offer the district access to management expertise that might not be available in-house, and will transfer the risk of regulatory compliance from the district to the company.

According to a Marin Independent Journal article about the deal,

District general manager Beverly James hailed the contract as making Veolia responsible for regulatory compliance and fines incurred for non-compliance, as well as liability protection, guaranteed operating costs and long-term stability. "We feel that we have negotiated a fair contract that protects the district's interests," James said.

The compliance and liability issues have been a big concern for the district, as the U.S. Environmental Protection Agency is currently conducting a criminal investigation of apparent environmental violations that occurred in the district in 2006 and 2007. The district could potentially face fines if the EPA finds that violations did, in fact, occur. Under the terms of the Veolia contract, the company would not be responsible for any fines related to violations prior to the deal taking effect.

"This business has gotten too complicated to continue running it with our hometown staff," said board member Bill Long. "This is a new era where you can get a million-dollar fine, and the people of Novato do not want to be exposed to those kinds of fines."

Other Resources:

» Reason Policy Brief: Frequently Asked Questions About Water / Wastewater Privatization

» Reason's Water and Wastewater Research and Commentary

Milwaukee County Exec Proposes Zoo Privatization

leonard.gilroy@reason.org (Leonard Gilroy) — Tue, 22 Sep 2009 14:29:00 EDT

Milwaukee County Executive Scott Walker is proposing to privatize the County zoo by turning over its operations to a nonprofit, possibly even the Milwaukee County Zoological Society:

Operation of the Milwaukee County Zoo, one of the area's most popular attractions, would be spun off to a nonprofit company under a plan by County Executive Scott Walker.

A proposal he'll include in his 2010 budget will call for creation of a steering committee to work out details of how the privatization would work, including whether the Milwaukee County Zoological Society or some newly created entity would take on zoo operations. Walker is eyeing a late 2011 date for the shift. [...]

Walker said he wasn't demanding that the 125 county employees at the zoo be privatized, but noted that's something he wants the steering committee to consider. The group would include Zoo Director Charles Wikenhauser, representatives of the zoological society and county officials.

The idea would be to save money, although Walker said that would be a long-range goal. Marketing for the zoo could be done more cheaply if it were centralized in a private entity rather than having the county and the zoological society run separate promotions, he said. Management costs also could be cut if the society took over operations, Walker said.

Privatizing also would allow the society to focus more of its fund raising on operating costs, in addition to collecting cash for new exhibits and facilities, the county executive said. The society reported $8.6 million in revenue for 2007, on its most recent nonprofit tax filing. [...]

He called the privatization move a major step, but one that would not be unusual among major zoos in the country. Half or more of the major zoos in the U.S. are now run by nonprofits, including the Lincoln Park Zoo in Chicago and zoos in Dallas, Houston, San Diego and New York City, Wikenhauser said. He said private donations might increase if the county no longer ran the zoo. Some donors now are concerned that money given to the zoo could wind up subsidizing other county operations, he said. [...]

"This makes it possible to sustain support of the zoo for years to come," Walker said. His privatization idea comes in the midst of one of the most difficult budgets the county has faced in years. Without big changes in programs or tax support, the county faces a $78 million shortfall in 2010.

Dallas just recently did exactly what Walker's proposing with little, if any, real controversy (after all, how tweaked are people going to get by the idea of turning over a zoo to a nonprofit zoological society). But this is Milwaukee County, where no good government streamlining deed (or mere suggestion thereof) goes unpunished.

Walker's idea is likely to run into opposition with the County Board, said Supervisor Lynne De Bruin, whose district includes the zoo.

She said the only way to save money with the zoo would be through privatizing its employees, something a large majority of the County Board has resisted in other areas.

The unfortunate reality in Milwaukee County is that any idea that involves privatizing non-core government functions and enterprises—even in a fiscal crisis, no less—is a non-starter with most of the County Board. The same story has repeated itself several times over the last few years, most recently with discussions about privatizing a County call center and a potential long-term lease of General Mitchell airport.

Perhaps the zoo proposal offers a way out of this cycle though. It's hard to demagogue a proposal that involves potentially turning over the zoo to a nonprofit operation whose existence is built on supporting zoo operations. As I wrote a few weeks ago on the Dallas zoo privatization:

Having been a frequent visitor to the Houston Zoo for several years right after its transition to private hands, I can attest that its privatization arrangement certainly improved fundraising and capital investment and maintenance in both the asset and the surrounding park, generating a quite an improvement from its previous days as a public sector enterprise.

With the ongoing budget challenges that municipalities are facing these days, I suspect that we'll see growing interest in getting cities out of the zoo business. There's really nothing inherently governmental about running a zoo—Disney runs its Animal Kingdom and private interests own and/or operate zoos and wildlife parks of many shapes and sizes all throughout the country. Privatization is one policy option local leaders can turn to to ensure that zoos survive, and even thrive, during the current fiscal crunch.

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary

Indy Airport Considering Parking, Shuttle Lease

leonard.gilroy@reason.org (Leonard Gilroy) — Fri, 18 Sep 2009 20:16:00 EDT

As reported here, the city of Indianapolis considering a long-term lease of its parking meter system, as well as several other proposals to enhance revenues from its 4,000 parking meters.

Now the Indianapolis Airport Authority is considering a long-term lease of its parking and shuttle operations (as well as more limited operational contracts) at its new passenger terminal in a effort to help address budget challenges brought on by declining passenger travel in the recession. More details from the Indianapolis Star:

Airport CEO John Clark received the board's approval to ask parking and shuttle operating companies to give proposals on their costs and details of the services they could provide at the Indianapolis airport. [...]

Chief Financial Officer Marsha Stone said at least three ideas are under study and could help the airport's finances.

LEASE: She said a long-term lease of the parking facilities and shuttle system could yield $350 million to $500 million in an upfront payment to the Airport Authority. The garage next to the new terminal cost $120 million to build.

In return, a company could lease the rights to run parking and ground transport at the newly opened Weir Cook terminal for a very long time, perhaps 40 years of more.

She agreed the concept is similar to the governor's $3.8 billion deal to lease the Indiana Told Road for 75 years and use the upfront payment for other immediate road improvements. [...] Stone also said that any deal could require a private operator to use the 100 airport employees already working in the parking and shuttle system.

PARKING AND SHUTTLE OPERATIONS: Another option would be to treat the parking garage and surface parking lots and the shuttle bus system like a concession and simply hire a manager to run the operation.

She said the vast majority of other airports in the Midwest of similar and smaller size than Indianapolis have a hired manager for parking and ground transport.

SHUTTLES ONLY: A third option could be to hire a manager just for the shuttle system.

The airport has a fleet of 20 buses to ferry people between the terminal, the surface parking lots and other locations on the grounds. Stone estimated the airport will spend about $3 million on the shuttle fleet next year.

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary

FAA Gives New Orleans Go-Ahead on Airport Privatization

leonard.gilroy@reason.org (Leonard Gilroy) — Wed, 16 Sep 2009 21:45:00 EDT

I'm sure my colleagues Bob Poole and Shirley Ybarra will have more to say on this, but there's been a significant development on the airport privatization front in New Orleans. According to AviationNews.com:

FAA has accepted the New Orleans Aviation Board's (NOAB) preliminary application to privatize Louis Armstrong New Orleans International Airport, according to a statement issued Wednesday by the board.

As part of the privatization process, FAA completed its 30-day review of the preliminary application on Sept. 8 and accepted it, paving the way for the airport to begin the bidding process to select a private operator to manage the airport. After the private operator is selected, the airport will prepare a final privatization application for submittal to FAA.

The board now will issue a request for qualifications to determine a list of technically and financially qualified firms with the necessary and appropriate experience and resources to manage the airport. Once the qualified bidders are identified, the board will issue a request for bids. The bidder with the highest and best bid will be selected and included in the final application to FAA, NOAB said.

NOAB will continue discussions about privatization with the airlines, including the negotiation of a new airport-airline master lease agreement that establishes certain limits on air carrier rates and charges. It also will seek public input on privatization of the airport, as well as establish a data room for use by qualified bidders. Additionally, it will draft a private operator concession agreement/lease document.

The New Orleans Aviation Board, the City Council and the mayor must approve a concession agreement/lease with the winning bidder.

It is anticipated that the request for qualifications will be issued late in 2009 with a request for bids issued in the spring 2010. The final application should be presented to FAA in fall 2010.

For context, as Bob wrote in Reason Foundation's Annual Privatization Report 2009:

At least eight medium hub airports have been proposed by public officials as candidates for long-term leases under the [federal Airport Privatization] Pilot Program: Austin, Bradley (Hartford), Jacksonville (FL), Kansas City, Long Beach, Milwaukee, New Orleans and Ontario (California). Of these, New Orleans appears to have the strongest political support as of this writing. As part of a series of local and state reform efforts, a new Regional Airport Authority was created in 2008 to manage the Louis Armstrong International Airport (which is owned by the city of New Orleans but whose land includes portions of two other jurisdictions). That body is considering two options, either a takeover by the state government or privatization under the Pilot Program. Privatization appears to have the support of Mayor Ray Nagin, several council members and key business leaders.

More to come as this develops. As a former New Orleanian, I will say that it's very encouraging to see local leaders moving down this path. It offers yet another piece of supporting evidence for my strong conviction that Louisiana should be viewed as the epicenter of government reform right now, with Gov. Jindal's aggressive reform agenda, the current work of the Commission on Streamlining Government, the massive charter school revolution in New Orleans, the new privatized city of Central (Louisiana's version of Sandy Springs), and much more.

» Reason Foundation's Privatization Research and Commentary

Time is Relative, Except to Chicago Parking Meter Lease Critics

leonard.gilroy@reason.org (Leonard Gilroy) — Wed, 16 Sep 2009 18:47:00 EDT

In a bizarre display of investigative journalism, the Chicago Sun-Times published a "gotcha" piece yesterday in which the reporters attempt to make headlines with a new smear against the $1.15 billion lease of the city's parking meter system. Their crack reporting exposed the fact that...(gasp!)...the new pay-and-display parking meters show different times than people's cell phones:

Chicago's new pay-and-display parking meters have a problem.

They're not all in synch, according to a spot check of about 50 of the new parking pay kiosks that found the time they show varies from machine to machine.

They should all show the same time. They didn't. And that could cost you.

City officials and a spokeswoman for Chicago Parking Meters LLC, which the city hired to take over the meters in a megadeal in February, say no one's being shorted on parking time.

Wait...stop. Faulty premise alert. They should all show the same time? This assumes that there's some master clock somewhere that can send infallible, instantaneous information to thousands of electronic devices without fail. People may gotten too comfortable with the belief that because their cell phones typically pick up time signals from satellites, then this must be the "accurate" time. But in reality, as Time magazine helpfully reported just last month, the idea that cell phones get time right is false in the first place. Geez, the Time article is even titled, "Why Can’t My Clocks Keep Time Accurately?"

Try it yourself. Last night, I put my phone up against another cell phone, in the same house, from the same service provider, and the clocks hit the same time roughly 30 seconds apart. Apparently, the operators of the Chicago parking meter system tried the same thing on a slightly larger scale and got the same result:

Avis LaVelle, a spokeswoman for Chicago Parking Meters LLC, said time discrepancies are unavoidable, even though pay-and-display boxes are "synched up every night at midnight with the atomic clock."

"Synchronization is not absolute, no matter what technology you’re using. I just came from a meeting with six people who have cell phones set by satellite. There were five different times among six people," she said.

As if this story wasn't absurd enough, the Sun-Times article goes on to show that the real "problem" here seems to be of a personal responsibility nature:

Parking recently in the 2500 block of North Lincoln, Barry Shuman said he glanced at his cell phone to note the time -- 11:45 a.m. Then, he looked at his parking receipt.

"Ticket comes out: The ticket says 11:43," said Shuman.

If he hadn't noticed, he said he might have come back when he thought his time would be up according to his cell phone and gotten a ticket.

Shuman's view? "You are getting short two [minutes]."

What?! He's not getting shorted two minutes—he gets the full time he paid for—he just didn't bother to check his phone and match it up to the meter receipt. If he buys two hours of meter time, he gets two hours of meter time, plain and simple. But if he expects the parking meter to hold his hand on the basics of personal time management beyond that, he's got a lot of hard lessons to learn in life.

Under this logic, if your cell phone says you have two minutes left to board your flight and the airline's clocks say its time to close the doors, is it the airline's fault that you missed your flight? Are we that lazy these days that we elevate our personal cell phone clock display to "absolute time" status?

How about this—why don't you look at your ticket and compare it to your cell phone to see what time you need to be back? Wouldn't you do that at an airport? Wouldn't you factor in a minute or two buffer time for a safe zone to be safe?

Here's the reality: technology isn't perfect, and both the city and concessionaire appear to have about as much handle on this time issue as you could have. The concessionaire syncs the parking meter clocks every night with a central server tied to an atomic clock. Enforcement personnel with the city also sync the clocks in their ticketing devices on a nightly basis. But both of those actions cannot overcome the fundamental reality that parking meters, cell phones, computer servers and all sorts of other technology still can't keep 100% perfect time. This is due to a variety of causes—distance from cell towers, fluctuating bandwidth usage, vagaries in coverage and signal strength, inaccuracy at the server level, low batteries and a number of other little tech annoyances that keep us from perfection.

As silly as this non-issue is, it's worth mentioning that the concessionaire has already jumped on top of it to add additional "buffer" time to compensate for the inherent whims of technology. As the Sun-Times reports today:

Over the last day, Chicago Parking Meters LLC has re-examined every one of its 2,200 pay-and-display boxes to make certain they are "rounding up to give consumers a full minute" when parking time is purchased.

Spokesperson Avis LaVelle said the company has also thrown in an "extra minute to compensate for time-keeping differences that may occur with customer cell phones or other hand-held devices." [...]

"It wasn't demanded by anyone. It's a customer service initiative and an effort to be responsive to issues as they arise," said LaVelle, the former mayoral press secretary now serving as a spokesperson for Chicago Parking Meters.

LaVelle acknowledged that offering two minutes of free parking time would cost the company money. But, she said, "There is a recognition that there are inconsistencies in time-keeping technology, and this is an initiative to try and address that."

I'll set aside the question of how well-synchronized the first pay-and-display meters installed a few years ago by the city were. I suspect that no one bothered to ask that question until there was a private operator in the mix.

What I will say though is that I doubt you would have seen the same prompt action were the meter system still in city hands, jumping within 24 hours to reset thousands of parking meters to give "free" minutes in reaction to an overblown story like this. This follows the same pattern described in my recent article here—yes, the early implementation of the parking meter lease has had its share of operational challenges, but the concessionaire has also been diligent about rectifying them.

In this case, though, it's unfortunate that the concessionaire is having to step in and eat some costs to appease people who can't be bothered to check the clock and do some basic math. Call me crazy, but I don't expect a clock on the wall to match my cell phone, I don't expect my computer to match my cell phone, and I don't expect a parking meter to match my cell phone. Chicagoans would do well to remember that the purpose of a parking meter is to count time, not to tell it.

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary

Detroit Mayor Bing Opening the Door to Privatization

leonard.gilroy@reason.org (Leonard Gilroy) — Mon, 14 Sep 2009 20:41:00 EDT

I was interviewed recently by Detroit Free Press writer Suzette Hackney regarding Detroit Mayor Dave Bing's government reform agenda, which includes a fresh look at potential privatization of a range of government services and activities. Her excellent column was published in yesterday's edition, and it reinforces my feeling that Mayor Bing is a mayor to watch:

Detroit Mayor Dave Bing says he is taking a strategic approach to turning around Detroit -- an approach that will focus on the city running core services such as police, fire and EMS and outsourcing or privatizing others that can be done more efficiently elsewhere. [...]

Bing, his top advisers and department heads spend hours each week holed up in a downtown conference room on the 26th floor of the Cadillac Tower, blocks away from city hall. The space is called the OR, the off-site operating room where they're debating how to restructure city government into a more cost-efficient and effective model. The debates can be intense, but Bing's team members have agreed to walk through the doors with cleansed and open minds. Yes, trash pickup is a vital city service, but who says it must be done by city workers? Certainly Detroiters depend on public buses, but why does the city need to manage the Department of Transportation? Bing acknowledges that the decisions are difficult to make -- which city services will be outsourced and which departments will be consolidated or eliminated -- but he doesn't appear to be flinching from the responsibility.

"Because I'm not worried about my next job, I'm going to make the hard choices that are necessary to move forward," Bing said. "I've had people tell me, 'You've got to be crazy to do the things that you're doing right now and think you're going to get re-elected.' Well, that's not the most important issue to me. The most important issue to me is doing what's right for whatever time that I'm here to make a difference.

My take:

"The more of a union influence and presence, the more difficult it is to even get something off the ground, but the writing has been on the wall for Detroit," Gilroy said. "Mayor Bing only has to look around at other models. It's all out there, and it's all been done successfully. It's not like he'd have to reinvent the wheel; he has to just get comfortable with the new wheel."

It sounds like the Mayor's already getting comfortable, as he seems to be unfazed by the potential public employee union blowback. This blowback has already started, by the way—the article notes that the American Federation of State, County and Municipal Employees (the largest city employee union in Detroit) officially withdrew its support for Bing last Friday.

However, something a former NBA player certainly understands is adversity and competition. Sometimes they go hand in hand. But if you have a solid game plan, stay focused and execute it well, you'll put yourself in the best position to be successful. IMO, the overall game plan here should be fairly straightforward. Here are some key elements:

Commercial activities inventory: Mayor Bing should direct his budget team to start preparing a commercial activities inventory to sort out the inherently governmental functions versus those that are commercial in nature. Now, you can break things down by silo to start off with (i.e., focusing on trash collection, for example), and there may be some obvious candidates already. But to reach enterprise-wide across all city agencies and find ways to really maximize efficiencies, the commercial activities inventory might offer the best start. For instance, you may find out that multiple departments have multiple payroll or HR systems, and before looking at privatization opportunities you might want to see if there's some opportunity to consolidate these functions first.
Business cases on proposed outsourcing initiatives: Florida's Council on Efficient Government has set the model for pre-budgetary analysis of potential privatization initiatives, doing something rare in government but routine in business—the business case. Essentially the business case is a report that outlines the rationale of a proposed privatization initiative, offering a compare-and-contrast between the in-house and outsourced delivery options with regard to cost savings, service levels, etc. Importantly, the business case moves decisionmaking beyond "intuition" (how most policy is made) and into the realm of rational analysis. The business case is critical for cutting through the politics—let's put Options A and B side-by-side and see what makes the most sense. If it's Option B-Privatization, then that's fine—you've done the upfront due diligence to ensure that it's a smart decision, not one based on intuition or politics.
Develop an official competitive sourcing program: The elements above really feed into what should be a larger set of "rules of the game" on competitive sourcing, outlining how decisions will be made, procurements will be run, etc. Again, Florida offers a solid model in the work (and statutory authority) of their Council on Efficient Government. Mayor Bing should also consider whether or not to establish a managed competition program that allows public employees to bid against private sector companies to provide services. As discussed in this article and in this study, this is a proven strategy for fostering competitive service delivery, as demonstrated in recent decades by Indianapolis, Phoenix, and Charlotte, among others. In fact, this year Charlotte's managed competition program hit its 15th anniversary and is viewed by most city officials as a tremendous success. To not re-invent the wheel in Detroit, I hope Mayor Bing's staff is looking closely at Charlotte's policies and those of other pioneers like Indy.

For Detroit's sake, let's hope that Mayor Bing is successful in changing the paradigm of governance in that city. Government-as-usual will not solve the city's ongoing fiscal and economic woes. Outsourcing those commercial activities currently performed by public employees will be a critical part of doing more with less in the future and putting the city back on sustainable fiscal footing.

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary

UPDATE: I had a recent post on Mayor Bing's proposal to privatize city payroll and tax collection here.

Taxpayer Group Sues Chicago Over Parking Meter Lease That Benefits Taxpayers

leonard.gilroy@reason.org (Leonard Gilroy) — Fri, 11 Sep 2009 19:53:00 EDT

Paradigm shifts are hard, and many struggle through them kicking and screaming. That appears to be the case in Chicago, where a local taxpayer group is challenging the constitutionality of the city's $1.1 billion lease of its downtown parking meter system to a Morgan Stanley-led consortium. Per Forbes:

An Illinois judge on Friday allowed a lawsuit challenging a controversial deal that leased Chicago's metered parking system to a private operator to proceed.

Cook County Circuit Court Judge Richard Billik said a petition by taxpayers to bring the lawsuit contained reasonable grounds under state law to allow the lawsuit to be filed. However, he removed the Illinois secretary of state from the list of defendants in the case. [...]

The lawsuit seeks to stop both the city and state from spending taxpayer money related to the now privatized parking meter system and suspending Illinois driver licenses for Chicago parking meter infractions.

Chicago earlier this year entered into the deal to lease 36,000 parking meters with Chicago Parking Meters LLC, comprised of Morgan Stanley Infrastructure Partners and others.

The lawsuit claims the deal violates the Illinois Constitution by requiring the city to spend public funds to "police, enforce and maintain" what is now a "privately controlled parking meter system." Chicago also overstepped its legal authority granted by the Illinois General Assembly by leasing on-street meters, according to the lawsuit.

While Chicago did not file objections to the taxpayers' petition, a spokeswoman for Chicago's law department has said the suit is "wholly without merit, both factually and legally."

I'm not a lawyer, but I'm having difficulty seeing the problem here. How "privately controlled" is the parking meter system now, exactly?

Can the private operator raise the rates if they want? No, the city retained that control. Can the operator extend the length of time of operation of the meters? No, the city retained that control. Can the operator adjust the length of stay on the meters? No, the city retained that control. Can the operator hire supplemental enforcement personnel if the city falls down on the job over time? Technically yes, but it wouldn't make any sense for them to unless things got dire because any revenues generated by stepped-up enforcement would be for and to the benefit of the city alone. Put simply, it would be a net cost to the operator since they wouldn't stand to collect even a dime of additional revenues.

In fact, it's my understanding that separating the operational side of the parking meter system from the regulatory/policymaking/police power issues were a key consideration in the design of the concession agreement itself to ensure it passed constitutional muster, which explains why you see those elements described throughout the paragraph above.

I'm not familiar with the taxpayer group that filed this lawsuit or what their angle is, but what I can say is that my own body of work is also oriented towards taxpayer-friendly policies, and as I write in detail here, it seems to me that the obvious benefits to Chicago taxpayers through the parking meter lease—as well as the Skyway and downtown parking garage leases before it—vastly outweigh any perceived trade-offs.

The city has received well over $3 billion by leveraging underperforming city assets, investing the proceeds in a mix of short and longer term investments. They have paid down city debt, removing long term taxpayer obligations. These transactions played a key role in Chicago getting an upgrade on its bond rating, lowering its costs of borrowing capital. The city has not been able to avoid the same fiscal crisis that so many other governments are dealing with these days, but it has have been able to cushion the blow and reduce pressure for higher taxes and greater service and employee cuts. The city also shed a lot of future operational and revenue risk from the public sector (i.e., taxpayers) to the private sector, and this risk has significant value.

Sure, users will pay more for services that were previously way undervalued. And they'll complain about it, as they are now with the parking meters. In the end though, the city got over $1 billion, a brand new parking meter system (with more rebuilds to come over the term of the lease, all on the operator's dime), improved urban mobility and a major budget assist that will keep on giving. And the city structured the deal to ensure that it preserved its constitutional police power responsibilities of rate setting, enforcement and the like.

What's the problem again?

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary