Reason Foundation

Puerto Rico's Infrastructure Renaissance Continuing in 2012

Posted on May 15, 2012, 4:40pm | Leonard Gilroy

Under the leadership of Gov. Luis Fortuño, Puerto Rico continued to emerge as a leader in attracting private investment in public infrastructure in 2011, with public-private partnerships (PPPs) undertaken or underway that include a modernization of 100 K-12 schools, a $1.5 billion toll road lease and an ongoing procurement for a long-term lease of San Juan's international airport. As I wrote in Reason Foundation's recently released Annual Privatization Report 2011 (see Puerto Rico excerpt here):

In two short years, the administration of Governor Luis Fortuño has turned Puerto Rico into a privatization leader among its state peers. To address the territory's chronic deficits and unsustainable debt, the administration has advanced a range of reforms that include major spending reductions, optimization of government operations and the enactment of a new law in 2009 inviting private investors to modernize or develop new infrastructure across a variety of sectors.

That law, Act No. 29, is now bearing fruit. It authorized government agencies to enter into public- private partnerships (PPPs) with private firms for the design, construction, financing, maintenance or operation of public facilities, with a set of priority projects that include toll roads, transit, energy, water/wastewater facilities, solid waste management and ports. The law also established a new Public Private Partnership Authority (PPPA), a new center of excellence within the Puerto Rico Government Development Bank responsible for identifying, evaluating and selecting PPP projects and for monitoring and enforcing the terms of PPP contracts.

Despite its short life, the PPPA has built a world-class PPP program utilizing global best practices, and it has already seen some major successes advancing projects through the procurement pipeline.

Read the rest of the Annual Privatization Report 2011 article here for more on Puerto Rico's schools, toll road and airport PPP initiatives that advanced in 2011.

I'm pleased to report that momentum has continued into 2012. Earlier this year, Puerto Rico's Public-Private Partnership (PPP) Authority announced what will become the next PPP project in their infrastructure pipeline—a design-build-finance-maintain project for a new 600-bed, privately-financed juvenile correctional detention and treatment facility, a project estimated to potentially save the commonwealth over $4 million annually. This will be Puerto Rico's first social infrastructure project in corrections, and upon completion, operations of the facility will remain in the public sector (though the private developer will continue be responsible for ongoing facility maintenance). The PPP Authority decided to move forward into procurement for this project based on the results of a feasibility and value-for-money analysis prepared for the project, available here. Statements of qualification from interested bidders were due last week. More information on this project is available here.

Also, earlier this month, the PPP Authority and the Ports Authority announced two consortia— Grupo Aerpuertos Avance (a team combining Ferrovial and Macquarie) and Aerostar Airport Holdings (a team combining Aeroportuario del Sureste and Highstar Capital)— as finalists for a long-term lease of San Juan's international airport. Six consortia were shortlisted last September out of 12 applicants, and the winning bidder is expected to be announced next month.

For more on Puerto Rico's robust and impressive PPP program, see:

• My February 2012 live, video interview with PPP Authority director David Alvarez at Reason Weekend in San Juan.
• My August 2011 print interview with Alvarez.
• Puerto Rico's PPP Authority website.

For more of the latest in state and local government privatization, see the full Annual Privatization Report 2011.

Join Reason On an Alaskan Cruise

Posted on May 15, 2012, 3:43pm

Reason's Alaskan cruise will depart from Seattle on August 11, 2012. We'll visit Juneau, Glacier Bay, Sitka, and Ketchikan, Alaska, before visiting Victoria, British Columbia. Join Reason's Nick Gillespie, Matt Welch, Jacob Sullum and Peter Suderman, plus featured guests:

For more information about the Reason cruise, please click here.

Green Dot Charter Schools Raise Performance for Long-Suffering Locke High School

Posted on May 14, 2012, 4:10pm | Lisa Snell

Reason first told the story of the struggle of Locke high school parents and teachers to have their school run by Green Dot charter schools in the Drew Carey piece: Education Revolt in Watts.

Now there is good news out of Locke high school. Students are doing much better on multiple indicators under Green Dot management. As this new UCLA study reports:

Students at historically low-performing Locke High School in South Los Angeles, which recently was transformed into five smaller charter schools, are now performing better than their traditional-school peers in a number of key academic areas, according to a multi-year study conducted by the National Center for Research on Evaluation, Standards, and Student Testing at UCLA (CRESST). 

CRESST's evaluation, funded by the Bill and Melinda Gates Foundation, looked at two groups of ninth graders who started in 2007 and 2008 - just after the charter-school group Green Dot Public Schools assumed operational control of Locke from the Los Angeles Unified School district and initiated a series of major curriculum and faculty changes. The UCLA researchers followed the students for three years. 

The study found that the Green Dot Locke students were more likely to stay in school, to take and pass important college preparatory classes, and to score higher on the state high school exit exam on their first attempt than students at demographically similar high schools in the LAUSD. The study authors called the transformation of Locke "an impressive success story" and found that the charter had achieved "consistent, positive effects on a range of student outcomes." The UCLA CRESST evaluation is ongoing. 

The full UCLA report is here.

And Fast Company has an extensive story on the news and other positive results at Locke:

Rather than centrally manage every school, each Green Dot charter is run like a startup: the staff is given broad discretionary powers over finance, faculty are given the reins to innovate with new curriculum, and the union contract is performance-based rather than a guarantee of minimum work requirements. To maintain its unusual level of collaboration, a Green Dot overhaul physically splits schools into autonomous units of around 500 students (in some cases, by using chicken wire for temporary walls).

A UCLA-Gates Foundation study released today shows that Green Dot's prescription is paying off, with 25% higher graduation rates (80% vs. 55%) and 35% higher college readiness (48% vs. 13%). Green Dot even managed to bring sanity to one of LA's worst schools, Locke, where rival gangs maintained control over bathrooms and students regularly set hanging artwork on fire.

Green Dot was able to achieve these positive results without cherry picking students and they were able to have better outcomes while enrolling students in more challenging classes. 

And as Dr. Jay P. Greene recently argued when we look at gold standard randomized studies charter school benefits are proven by the best evidence.

24 High-Performing Los Angeles Unified Schools Plan to Become Charter Schools

Posted on May 14, 2012, 3:35pm | Lisa Snell

In "The School District is Dead, Long Live the Schools," I wrote about the emerging trend of high-performing traditional schools converting to charters schools  to get more flexibility and control of their financial resources. This growing trend is distinct from the traditional trajectory of charter schools that have developed to serve students in poor performing public schools. Los Angeles Unified is embracing this trend. As the Los Angeles Times reports:

Two dozen high-performing Los Angeles schools are seeking to become charter campuses in search of more money and increased flexibility.

The list reads like an honor roll of academic excellence. Every school has surpassed the state's target score of 800 on the Academic Performance Index, which is based on standardized tests.

Although many of the schools considered the move in hopes of greater funding, campus officials said they also began to see the benefits of increased freedom over such things as curriculum, testing and schedules. "Finance is one key factor but not the only one," said Jose Cole-Gutierrez, who directs the charter school division of the L.A. Unified School District.

The interesting twist is that Los Angeles Unified appears to be encouraging these schools to become charters. This again begs the questions are central offices and school districts going to become obsolete?  Why not have all charter districts like New Orleans? As I said in the earlier Reason piece:

The bottom line is that charter schools give school leaders, teachers, and parents much more control over staffing and finances while also freeing them from the economic consequences of belonging to a district that has been in financial distress for decades. A school district may become financially bankrupt, but individual schools can live on through the charter school process. It raises the question: As a nation, should we continue to support large school districts at the expense of individual schools and students?

Fannie Mae Breaks Its 14 Quarter Bailout Streak

Posted on May 11, 2012, 12:02pm | Anthony Randazzo

Fannie Mae performed a magic trick this past quarter: they made a net profit including their dividend payment to Treasury for the first time since the fall of 2008 when they were taken into conservatorship. This week, Fannie Mae's 1Q 2012 earnings statement was actually an earnings statement. They posted a $2.7 billion profit, and were able to make a $2.8 billion payment to Treasury, covering the balance of the payment with a few hundred million built up in positive net worth, according to The Wall Street Journal. 

Last year, Fannie Mae lost a net of $16.4 billion. With the $0 loss figure through the first quarter of 2012, that means the updated complete taxpayer bailout total (3Q2008 to 1Q2012) for Fannie Mae remains:

$116.2 billion

So while a few kudos are in order for not having to go hat in hand to taxpayers for a 14th straight quarter, Fannie Mae is far from being out of the woods. Of that $116.2 billion bailout given to Fannie Mae, $22.6 billion has been paid back, leaving a remaining balance of $93.6 billion.  

There were a few different reasons that Fannie was able to turn a profit. The WSJ reports:

Part of the profit is due to gains that resulted from an upswing in interest rates earlier in the year, according to Jim Vogel of FTN Financial. He pegs the contribution to profit at around $1 billion. With rates having retreated recently, this could reverse in the current quarter.

Another factor was an improvement in credit quality leading Fannie to set aside less money to cover souring mortgages. That the company needed $2 billion in provisions for credit losses, compared with $10.5 billion a year earlier, is positive. It shows Fannie's losses are growing at a slower rate, while profit from more recent, better-quality loans should bolster results going forward.

Fannie also said the serious delinquency rate for single-family mortgages declined to 3.67% in the first quarter from 5.47% a year earlier. A slower rate of home-price declines has helped on this front. 

The challenge for the future is that the Fed is promising continued low interest rates for the coming years, and there are million of homes that will be foreclosed on in the coming years as well. Losses will likely slow, but continue to mount in coming quarters. 

Freddie Mac also had a relatively good quarter, asking for "just" $19 million to cover losses from the first three months of the year. The combined total taxpayer bailout from 3Q2008 to 1Q2012 for Fannie and Freddie is now:

$71.365 billion (Freddie) + $116.2 billion (Fannie) = $187.565 billion

Here is an updated list of Fannie Mae's quarter bailout needs:

• 1Q 2012 — $0B
• 4Q 2011 — $4.6B
• 3Q 2011 — $7.8B
• 2Q 2011 — $5.1B
• 1Q 2011 — $8.5B
• 4Q 2010 — $2.6B
• 3Q 2010 — $2.5B
• 2Q 2010 — $1.5B
• 1Q 2010 — $8.4B
• 4Q 2009 — $15.3B
• 3Q 2009 — $15B
• 2Q 2009 — $10.7B
• 1Q 2009 — $19B
• 4Q 2008 — $15.2B
• 3Q 2008 — $0B

See last quarter's post on Fannie Mae's losses here.

See full coverage of Fannie Mae and Freddie Mac here. 

Washington Outer Beltway and I-495 BRT Have Benefits

Posted on May 11, 2012, 8:27am | Baruch Feigenbaum

Last Week transportation reporter Martin Di Caro of Metro Connection received a dressing down by David Alpert of Greater Greater Washington. Alpert argued in a column that Di Caro’s transportation article was one sided. Specifically, Alpert took notion with the idea that an Outer Beltway or other arterial highway could solve congestion in the Washington area. Other environmental and smart growth advocates issued similar critiques. 

Alpert accurately highlighted some of the shortcomings of the article. He was honest in noting that all of his articles are opinions and in detailing the difference between editorials and objective news coverage. I also agree with him about the quality of transportation coverage. Washington DC is fortunate to have dedicated, knowledgeable transportation reporters such as Robert Thompson of the Washington Post. But transportation is not as big a priority as issues such as taxes or defense. Sometimes transportation beat reporters are just passing through to other more lucrative positions. Most of the DC media tries very hard to offer balanced transportation coverage; but transportation is often the red headed stepchild.

However, I think there are several good reasons that Albert is not considering for building a parallel expressway. While some pro-highway groups can serve as boosters for new roads that may not be justified, some environmental groups are just as guilty of bias. Environmental groups have delayed many needed highways with minimal environmental impacts. 

Yes, new highways do induce demand. But that does not mean highways should never be built. A highway linking western Fairfax and western Montgomery could also serve drivers trying to avoid the Capital Beltway. As Alpert notes the Capital Beltway does not serve its original purpose. As many commuters travel from one location along the Beltway to another, travelers trying to bypass Washington D.C. become stuck in the 4-hour morning and 5-hour afternoon rush-hour traffic jams.

New highways do not necessarily induce new development. Several steps can be taken to lessen this phenomenon. First, the number of exits can be limited. Much of the new development occurs near exits because highways offer quick access between existing jobs and new residences. Second, the exits can be placed in areas that are already developed. Small existing communities are prevalent in Western Fairfax and Western Montgomery counties. 

Further, Washington is a growing metro area. While some new residents move to the District, Bethesda, or Tysons Corner those locations are not right for everybody. Some residents prefer to live outside the beltway or in the exurbs; others cannot afford to live close-in. Proclaiming that we are never ever going to build new highways is “solutionism” where one solution is the answer for every problem. It is no better a policy than deciding to build new highways everywhere, wherever there is a slight amount of traffic congestion. 

The region absolutely needs better transit solutions between Bethesda and Tysons Corner. The challenge is finding the best solution. In many corridors it is bus-rapid-transit (BRT) and not rail. BRT runs managed lanes such as high-occupancy vehicle (HOV) or high-occupancy toll (HOT) lanes. In addition to providing operating space for reliable, cost-effective and attractive transit, managed lanes encourage carpooling and vanpooling. Virginia will allow single person vehicles to use the managed lanes providing they pay a small toll. However the tolls will rise and fall with congestion to ensure buses will always travel at 45 miles per hour or higher. Virginia is building managed lanes from I-95 to The Dulles Greenway. Maryland is studying the system. A managed lanes system from The Dulles Greenway to I-270 could be operational in less than ten years. 

In many situations the solution is not rail. The most recent cost estimate for Maryland’s proposed purple line from Bethesda to New Carrolton is almost $2 billion. While Maryland is hoping that the federal government will pick up half the tab, opposition to the route and the cost continues to grow. A deluxe BRT system would cost less than a third of the light-rail line. The BRT system would also cost about $10 million less per year to operate. More details on why BRT is a better choice for that corridor are available here.

Unfortunately, many urban interstates were built through low-income minority neighborhoods. Routes were built in these locations because land prices were the cheapest and opposition the least well organized. In addition highways were used for socially nefarious goals. While urban interstate construction was often curtailed for good reasons, DC never built a highway network. As a result there are a limited number of ways for traveling in the DC region. The Potomac River and the lack of interjurisdictional cooperation further increase congestion. While it is much more challenging to build a new highway now than it was 40 years ago, a well-placed new expressway could provide many benefits. 

A Long Slog Ahead on Unemployment

Posted on May 10, 2012, 4:10pm | Anthony Randazzo

There have been a lot of stories lately about the challenges of college graduates finding a job. They aren't without merit. Here is a snapshot of the problem from The Wall Street Journal:

Graduating college students face a mixed job market at best this year, and most will leave school without an offer in hand, despite an uptick in hiring by on-campus recruiters... In a study to be released Thursday, the John J. Heldrich Center for Workforce Development at Rutgers University found that recent graduates are taking awhile to find work. Only 49% of graduates from the classes of 2009 to 2011 had found a full-time job within a year of finishing school, compared with 73% for students who graduated in the three years prior.

Daunting numbers. Here is how BLS April 2012 unemployment numbers look— 

• 20 to 24 year-olds: 13.2 percent 
• Men 20 to 24 years-old: 14.1 percent
• Women 20 to 24 years-old: 12.3 percent
• New entrants to labor force: 11 percent
• Overall unemployment: 8.1 percent

The links to those numbers will update each month so if you're reading this in June 2012 or later follow the link to see what the status is.

As bad as these numbers are, the unemployment problem is really worse than this. To start, the labor force participation numbers are artificially reducing the headline unemployment number, so there is more than 8.1 percent of the work force that is unemployed. Beyond that, there are several long-term demographic trends that are weighing on the labor force today. In a column over at Reason.com this afternoon I outline these trends and frame up a pretty negative outlook for the employment market.

(Video) Interview on Reason's New Mortgage Reform Study

Posted on May 10, 2012, 2:12pm | Anthony Randazzo

Earlier this week I appeared on Fox Business to discuss our recent Reason Foundation study "Restoring Trust in Mortgage Backed-Securities." We argue that to end the government housing monopoly and reduce the $5.8 trillion in mortgage debt liability taxpayers have as a result, that Congress should authorize MBS investors to have access to more information about the mortgages they are buying, and that the mortgage industry should create a group to create clear mortgage definitions that do not rely on federal regulations like the qualified residential mortgage.

Read the full study here

See our press release here.

Also, read our summary op-eds at RealClearMarkets and the DailyCaller.