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Cash-Strapped North Texas Cities Embrace Privatization

leonard.gilroy@reason.org (Leonard Gilroy) — Mon, 16 Nov 2009 13:45:00 EST

Theodore Kim at the Dallas Morning News highlights the growing trend of municipal privatization/outsouring in North Texas cities:

Plano decided to eliminate its city printing and graphic design staff in September, farming out the work to Office Depot and Ricoh.

At Plano's Douglass Community Recreation Center, Kennedy Estrada, 10, runs in the gym. The Boys and Girls Club of Collin County may take over operating the center.

Leaders in cash-strapped Rowlett may contract out city planning services, tech support and other departments. [...]

In North Texas, Dallas officials hope to save some $1.5 million this year, as well as millions more later, by transferring the reins of the city zoo to the Dallas Zoological Society.

And Dallas County, by some estimates, could save up to $1 million by contracting out for certain legal services.

"In the environment we are in, cities are going to have to look at every option," said Chris Hoene, research director for the National League of Cities in Washington, D.C.

I couldn't agree more. Former Indianapolis Mayor and Harvard Kennedy School professor Stephen Goldsmith adds an important point—the trick for policymakers will be to ensure that the cost savings with privatization are accompanied by current or higher levels of service quality:

"The question becomes: How can you save money by outsourcing and managed competition while improving the quality of service, or at least keeping it the same?" Goldsmith said.

This is why performance-based contracting and good contract management and oversight are such critical skills for public administrators to cultivate internally, as these are the direct means through which to ensure that contractors deliver on performance. In a Governing column last month, Goldsmith offers similar thoughts from a different angle—the setting of arbitrary federal insourcing mandates by the Obama administration:

So rather than committing to insourcing 7 percent of existing contracts, let's ask some fundamental questions: What are the costs (activity-based costing) per unit of work accomplished? How are outputs and outcomes measured? How are high performing workers acknowledged and rewarded? How is citizen satisfaction measured and translated into accountability? What are the private and public benchmarks by which productivity is compared? Can a part of the service be tested in the marketplace for true comparisons?

In Indianapolis, we found that theoretical examinations of our public agencies were often way off the actual results produced by competition. For example, a consultant told us that we could save maybe 5 percent by privatizing our wastewater-treatment facility. We held a competition, and wound up saving 44 percent. Even in cases where we didn't contract out, public agencies that were exposed to competition found ways to reduce their costs.

Deciding what to contract out and what to do in-house requires hard facts. Are there private contractors or nonprofits that provide similar services? How recently was the market tested? Most important, many complicated services are neither wholly insourced nor outsourced, but rather are accomplished in partnership, with government responsible for quality management and a network of contractors providing the back-office and front-office support.

For the federal government, there will be certain activities that you may decide are inherently governmental. For reasons of national security, you may want to keep certain skill sets in-house, regardless of cost inefficiencies. That's fine. But as a general rule, a competitive process is the best way to discover whether insourcing or outsourcing makes sense. In every case, the goal should be "rightsourcing."

Read the whole thing for a sage perspective from a pioneer in competitive public service delivery.

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

Following California Down the Path to Fiscal Ruin

leonard.gilroy@reason.org (Leonard Gilroy) — Fri, 13 Nov 2009 17:43:00 EST

The NGA-NASBO reports issued yesterday—which predict a fiscal "lost decade" for states—weren't the only source of bad news for state policymakers. The Pew Center on the States also released a new report—Beyond California: States in Fiscal Peril—profiling the fiscal disasters in the worst-hit state, California, and nine others (Arizona, Rhode Island, Michigan, Oregon, Nevada, Florida, New Jersey, Illinois and Wisconsin) that aren't far behind in the severity of their crises. The report is well worth a read for some insights into what's driving these fiscal trainwrecks.

As this Arizona Republic piece by Mary Joe Pitzl notes, these states share some common problems—overreliance on specific economic sectors, voter-approved spending mandates, and general lack of political will to create economically-sustainable fiscal policy, to name a few. But at a practical level the biggest problem, of course, is the mismatch between revenues and expenditures. Arizona's is pretty simple and stark:

...Currently, Arizona's budget calls for $10 billion in spending, but there is only $6.4 billion in projected revenue.

As I wrote yesterday, an imbalance of this scale is not something policymakers can simply tax, borrow and gimmick their way out of, in good economic times or bad.

There's no appetite for the level of tax increases, fee hikes and borrowing that it would take to sustain pre-recession spending levels. And those strategies are akin to shooting oneself in the foot, as they'd prolong and compound the recovery and kick the can down the road. Further, NGA and NASBO (among others) projecting tough economic times for states for the next decade so we're going to have to settle in for a long, difficult ride. Given all of these stark realities, there's no way for policymakers to avoid cutting the size and scope of government.

Privatization News Roundup, Nov. 13, 2009

leonard.gilroy@reason.org (Leonard Gilroy) — Fri, 13 Nov 2009 08:12:00 EST

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

FEDERAL

"White House push to reduce contractors is at odds with expanding role of agencies," Government Executive
"Former Defense acquisition chief warns against 'global war on contractors'," Government Executive
"Federal procurement nominee outlines agenda," Washington Technology
"Balfour Beatty bases new division here," Nashville Post

STATE & LOCAL:

"State's risk agency looks at privatization," The Advocate
"Group divided on worker's comp privatization," The Associated Press
"Governor to submit plan to reduce prison crowding," Los Angeles Times
"Closing time for Virginia's ABC stores," Washington Post
"Conservative group calls for privatization of Iowa prisons," Iowa Independent
"Commission to submit fiscal-fix measures to Colorado Legislature," Denver Business Journal
"Public/private partnership deserves a second look," Belleville Times
"DOT: Atlanta Toll Lanes Top Priority for Privately Funded Program," Georgia Public Broadcasting
"Charlotte urban loop to be built with private funds," WRAL.com
"Team ends its bid to build, operate RTD line to airport," Denver Post
"Town officials tour prison, evaluate impact on town," Wickenburg Sun
"Possible State Prison Brings Hope to Jenkins County," Georgia Public Broadcasting
"ECU exploring partnerships for housing," Greenville Daily Reflector
"Bay City starts preliminary talks with company to take over water and sewer operations," Bay City Times
"County supervisors vote against privatization of Planning Department," Green Bay Press Gazette

INTERNATIONAL:

"The Coming Privatization Boom," MotleyFool.com
"Canadian pensions pounce on Aus toll road firm," Financial Standard
"Sweden Selects Bids From Local Groups in Pharmacy Privatization," Bloomberg.com
"Public-private partnership system in British Columbia keeps evolving," Journal of Commerce
"Saint John courthouse won't have private partner," CBCNews
"Lessons from India's port privatization," Livemint.com
"China Plans to Build, Manage Toll Road in Ugandan Capital," Bloomberg.com
"Parliament approves Privatisation of SLPA," Awoko
"Lebanese economic shake-up to focus on privatization," Daily Star
"Syria Pursuing partnership with private sector," Global Arab Network
"Peru port workers start strike over privatization," Reuters

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

Banner Year for State Budget Gimmicks

leonard.gilroy@reason.org (Leonard Gilroy) — Thu, 12 Nov 2009 19:51:00 EST

In the November 2009 issue of Governing, Katherine Barrett and Richard Greene argue that this may be a banner year for state budget gimmicks:

Arizona is hardly alone in looking at "creative" ways to close its budget gap. This year may go down in the record books for the number of gimmicks used to balance state budgets—and the degree to which those gimmicks may come back to haunt the entities involved. We're not particularly aware of any new tricks out there. These are tried-and-true ways for governments to avoid confronting reality—at least for a while. They include deferring payments, accelerating revenues, changing accounting rules and, as in Arizona, borrowing from the future to pay for today.

California, as is often the case, takes the cake. In its efforts to resolve its nearly $60 billion budget imbalance over this year and last year, the state borrowed from local government property taxes and special fund accounts, added to payroll withholding, accelerated personal income tax and corporate tax estimated payments, and will be kicking the June payroll to July. That last one is particularly sneaky. Employees see virtually no difference. Their paychecks arrive a day late, maybe, and that's hardly cause for outrage. But for the state it moves those payments forward a full fiscal year.

"You can argue, ‘What's the big deal?'" says Mac Taylor, California's legislative analyst. "But our concern is that it's an expense we incurred this year, and we really should count it this year. We're getting out of sync on the reporting of what we're spending."

Read the whole thing for more examples of policymakers going to every extreme to avoid making the necessary budget cuts and reforms to address the pandemic of state fiscal crises.

Renewed Interest in Midway Airport Lease?

leonard.gilroy@reason.org (Leonard Gilroy) — Wed, 11 Nov 2009 15:17:00 EST

As Crain's Chicago Business reports, Midway Airport's strong economic performance of late is rekindling interest in a long-term lease:

Midway Airport is pulling out of the recession faster than O'Hare International Airport, as shifts in the air travel market boost Midway's fortunes and breathe new life into Mayor Richard M. Daley's plan to privatize the city's No. 2 airport.

Passenger traffic at Midway climbed 9% in September on a year-on-year basis, following smaller gains in July and August. O'Hare, meanwhile, saw monthly declines of 7% to 8% during the same period. [...]

Midway remains about one-fourth the size of O'Hare, the nation's second-busiest airport and a hub for United and American. That's not going to change significantly, but Midway's quick recovery will make it more attractive to private investors. "There is an active discussion around trying to get ready to do it (again)," says John Schmidt, a partner at Chicago-based Mayer Brown LLP who is advising the city on privatizing Midway.

A $2.5-billion privatization led by New York-based Citigroup Inc. and Vancouver-based YVR Airport Services collapsed in April. But a new deal could happen next year. "A combination of things has to happen for privatization: The airport has to come back, and credit has to be available," Mr. Schmidt says. "To be able to say 'Here's an airport that's doing well,' it's a great strength."

In a sign the privatization market is reopening, New York-based Global Infrastructure Partners paid $2.5 billion last month for Gatwick Airport, London's secondary airport. And in September, the Federal Aviation Administration gave preliminary approval to New Orleans to privatize Louis Armstrong International Airport.

Meanwhile, increased traffic at Midway will boost passenger facility charges — the $4.50 fee the airport collects from travelers — which are used to pay off bonds that financed an expansion five years ago. More passengers also means more revenue from parking, food and other concessions, a key component of any privatization.

This, plus the recent Gatwick purchase and the approval to move forward with a lease of New Orleans' Louis Armstrong International Airport, offer some encouraging signs on the U.S. airport privatization front.

For the latest on international airport privatization, check out colleague Robert Poole's comprehensive review in Reason Foundation's Annual Privatization Report 2009, as well as Reason's airports research and commentary here.

Milwaukee County Board Chooses Tax Hikes Over Privatization

leonard.gilroy@reason.org (Leonard Gilroy) — Wed, 11 Nov 2009 14:48:00 EST

As I've written recently, the Milwaukee County Board is where good privatization ideas go to die—in particular those proposed by County Executive Scott Walker, who deserves credit for his tenacity in trying. It's happened yet again, as the Board has just opted for higher taxes to avoid privatization of public functions. Per the Milwaukee Journal-Sentinel:

The Milwaukee County Board adopted a precariously balanced 2010 budget early Tuesday that sets aside nearly all of County Executive Scott Walker's privatization efforts, ditches a proposed "wheel tax" and raises the property tax levy 3.8%, or nearly $10 million, to $267 million.

The budget approved by the board included a set of employee concessions with a much lower price tag than those Walker had wanted. Like Walker's, the ones the board approved have not yet been bargained with unions. [...]

After nearly four hours of closed-door negotiations Monday night, supervisors reversed an earlier decision and agreed to accept the privatization of 15 county mainframe computer technicians, to tap into an unemployment compensation reserve fund and to reject a bus rapid transit plan that Walker wanted. [...]

The board voted to reject the outsourcing of housekeeping and security jobs at the courthouse complex and other county buildings. Supervisors also turned back Walker’s proposed outsourcing of 25 airport firefighter jobs.

Together, those moves would add about $5 million to Walker's budget, which counted on privatization to help freeze the property tax levy for 2010 at this year's $257 million.

There were some minor, potential bright spots, however. First, the Board agreed to study health savings accounts and a potential shift from a defined-benefit to a 401(k)-style defined-contribution pension system for new employees. If these policies were implemented, the County would at least stop digging the entitlement hole deeper. Second, the Board agreed to study Walker's proposal to privatize the operations and management of the County zoo.

On the zoo privatization front, hopefully County Board members will see this excellent piece by Detroit Free-Press columnist Tom Walsh on how the private sector rescued the Detroit Zoo under an arrangement similar to that which Walker is proposing (and which Dallas has just begun to implement):

For a telling Detroit example of how a public-private partnership can save and improve a regional asset that government can no longer afford, look no further than where the wild things are. [...]

The Detroit Zoo's record of growing attendance while controlling costs and boosting visitor satisfaction -- all during a horrible economic time -- is remarkable.

This didn't happen easily. When the city struck a deal in 2006 to turn operation of the zoo over to the Detroit Zoological Society, it came after the usual squeals of protest from some in Detroit who didn't want to surrender control of a so-called city-owned jewel. [...]

The city still owns the assets, but the nonprofit Zoological Society runs operations, and much of the budget comes from the regional tax.[...]

On the cost side, the biggest savings was switching employee retirement plans from defined-benefit pensions to contributory 401(k) plans, as many private companies have done. Kagan said benefit costs are now about 29% of salaries, down from 70% when the workers were City of Detroit employees.

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

Dave Bing's Last-Second Shot

shikha.dalmia@reason.org (Shikha Dalmia) — Tue, 10 Nov 2009 16:16:00 EST

The Wall Street Journal

On Tuesday, voters in Detroit trudged to the polls and re-elected 65-year-old Mayor Dave Bing, giving him five new city council members to accomplish a mission impossible: bring Michigan's biggest city back from near death. There's no clear prescription that will work, and Detroit's recalcitrant public-employee unions will resist the fiscal therapy that will necessarily be a part of any recovery.

Last year, Mayor Kwame Kilpatrick headed off to prison for using city funds to cover up an affair with a staffer. After a few months of an interim mayor, Mr. Bing stepped in to finish Kilpatrick's remaining time in office neither out of political ambition (he's announced he won't seek two terms) nor to get rich (he is donating his salary to the police department). The former Detroit Piston basketball legend who later made a fortune as an auto supplier genuinely wants to use his business acumen to save the city. But Detroit is much closer to the brink than many people acknowledge.

Detroit has been in trouble for decades. It has the highest taxes in Michigan, the highest murder rate in the country, and a dreadful public school system. Only 25% of high school students graduate each year. Its tens of thousands of abandoned homes offer safe haven to drug dealers and criminals. All of this has produced an exodus of businesses—there is no longer a single major department store in the city—and residents. Detroit's population is less than half of its peak of two million in the 1960s.

With the collapse of the auto industry over the past year and a half, things have gotten a lot worse. Unemployment is now touching Depression levels of around 30%—three times the national rate. Businesses that depend on the auto industry are shutting down and more residents are hitting the exits. This is accelerating the erosion of the city's tax base, producing a fiscal crisis that seems impossible to escape. The city's accumulated deficit is currently somewhere between $300 million and $400 million. No one knows for sure because the city has yet to submit its 2008 audit; its annual budget is about $3 billion.

Joe Harris, a former chief financial officer of Detroit, notes that when Mr. Bing took office this summer, the city had enough cash on hand to make payroll, pay vendors and meet other day-to-day needs for about 11 days. To make ends meet, Mr. Bing is planning to issue "tax anticipation" notes to lenders to raise $94 million against expected tax revenues. This money, along with the biannual property taxes that the city collected in August, might keep Detroit running through the end of the fiscal year next June.

But that won't address the underlying fiscal imbalances. For that problem, Mr. Bing wants to squeeze $5 million in savings every month by asking the city's roughly 13,000 workers to take a 10% pay cut, a 10% benefit cut, and a 10% staff cut. He also wants to privatize or outsource many city services and consolidate various departments. "Our people [city workers] need to understand that entitlement is gone," Mr. Bing told the Detroit News in August. "There are people who think we are job providers. We're service providers."

Mr. Bing is going to have a very hard time making the city's entrenched unions play ball. John Reihl, president of the American Federation of State, Council and Municipal Employees (AFSCME) Local 207, regards Mr. Bing's talk of cuts as a personal insult. "It is just a way to mess with the unions," he told the Detroit News in July. "It's not our role to give anymore concessions."

So far Mr. Bing has shown little indication that he'll stand up to the unions. For the third time on Friday, Mr. Bing backed off on his threat to lay off more workers if unions don't accept a wage cut. Yet a recent study by the Mackinac Center for Public Policy found that if state and local government employee benefit packages in Michigan were limited to what is typical for Midwestern private sector workers—including those in unions—taxpayers would save as much as $5.7 billion annually.

The fiscal mess puts Mr. Bing in a Catch-22. He can't cut the city's taxes because the short-term hit to cash flow would leave the city unable to pay its bills. But without tax reform the city can't lure businesses back.

Detroit may simply not be viable in its current form. Political and economic leaders need to rethink the notion that the city can regain its former status as a major American metropolis capable of luring large companies with tax breaks—which was Mr. Kilpatrick's failed strategy.

Detroit now more closely resembles a frontier town that needs not flashy stadiums and art institutes but basic services: police, firemen and good schools. Mr. Bing needs to confront the hard reality that the city needs to pare back its liabilities, identify infrastructure it can no longer afford to maintain, and (though this is anathema to Detroit's political class) perhaps auction off portions of its 140 square miles to neighboring counties, shrinking to a size that its diminished population base can support.

Short term, Detroit's best hope may be to go bankrupt. However, given Michigan law, which has never been tested because no city has ever filed for bankruptcy, it's unclear if even bankruptcy will fully release Detroit from the clutches of its unions and allow it to start over. The only thing certain is that fate is not kind to a city that allows unions to run amok.

Shikha Dalmia is a Senior Analyst at Reason Foundation. This column first appeared in The Wall Street Journal.

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