Out of Control Policy Blog

NJ Privatization Task Force Report Offers Reform Roadmap, Over $210 Million in Annual Savings

Taxpayers in the Garden State have reason to cheer today. As the Star-Ledger reports, the New Jersey Privatization Task Force—established by Gov. Chris Christie under Executive Order #17 in mid-March—released its final report this morning, identifying a comprehensive set of privatization tools and strategies that could save the state over $210 million annually if fully implemented. But that's just the beginning of what's in this valuable report.

Having served as an advisor to the Task Force since its formation, I can attest that this work was no small task. In just under three months, the Task Force diligently conducted an agency-wide, in-depth review to identify realistic, pragmatic and actionable privatization opportunities across state government.

At the same time, they also focused beyond the what to the how, outlining a solid set of recommended best practices and institutionalization strategies designed to create a solid and sustainable privatization process—in short, a process designed to help the state do privatization well and avoid some of the pitfalls that befell botched privatization initiatives in previous administrations. Chairman and former Congressman Dick Zimmer and his Task Force colleagues (and staff) did yeoman's work in producing a rich and substantive report that should be required reading for state executive and legislative offices nationwide.

Readers would be well advised to read the full report from beginning to end. Among the higher-level highlights:

  • Major cost savings identified: The Task Force identified dozens of privatization opportunities that, if fully implemented, would realize cost savings and/or other benefits totaling over $210 million on an ongoing, annualized basis. For a state with the scale of fiscal challenges that New Jersey faces, this represents real money.

    But even this $210 million is likely underestimated. It was impossible to quantify potential savings for a number of the individual privatization recommendations, and although the Task Force recommended the disposal of surplus state land, the analysis did not attempt to estimate the potential revenues from divestiture, which likely total in the tens of millions.

  • Focus on institutionalizing a sound privatization process: Beyond individual privatization opportunities, the Task Force clearly recognized the value of a sound privatization process, outlining a series of institutionalization strategies designed to make smart privatization a routine part of public management in Trenton. Notably, they recommend that Gov. Christie announce as an administration priority that achieving efficiency through private sector competition become standard policy for all state agencies.

    One of the key recommendations for doing so involves the establishment of a centralized privatization entity for the state that would fulfill functions similar to Florida’s Council on Efficient Government, a privatization "center of excellence" established in 2004 during former Governor Jeb Bush's tenure and a key component of a strategy that ultimately helped his administration realize over $550 million in cost savings through over 130 privatization and competition initiatives. I've written and testified extensively on the benefits of this approach—see here, here and here, for example.

    Additional Task Force recommendations on institutionalization include applying a set of best practices in project selection and contracting, creating a process for unsolicited privatization proposals, and ensuring that privatization initiatives reflect the state’s environmental policy priorities.

  • Focus on lessons learned from previous privatization challenges in NJ: The recommendation that New Jersey create a comprehensive system for managing the privatization process is in part based on the state's previous challenges in privatization project implementation. While there have been many privatization successes in New Jersey in recent decades, they’ve also had their share of troubled initiatives where privatization was implemented poorly. The challenges shared some common themes—poor design, unclear goals, superficial due diligence, inexperienced contractors, misconduct/conflicts of interest and poor government monitoring and oversight. These are precisely the sorts of challenges that an institutionalized privatization process is intended to address.

The 40 individual privatization recommendations in the report ranged from broad to narrow, but some of the major highlights include:

  • Park management concession agreements: Having written numerous articles in recent months suggesting that states embrace the private operation of state parks—something relatively "new" to states, but common at the federal level—it was particularly rewarding to see the Task Force embrace the concept, recommending that the state should enter into one or more long‐term concession agreements with private recreation firms for the operation and management of all state parks. Annual savings to the state were estimated to range between $6-8 million annually, a significant sum relative to overall park spending. This is the boldest, most sweeping call for state park privatization that I've personally ever seen at the state level, and Gov. Christie and NJ State Parks have an opportunity to blaze a new and transformational path forward on state parks management that policymakers in every state should be watching closely.
  • Privatization of state psychiatric hospitals: According to the Task Force, the experience of other states demonstrates that important mental health services could be more efficiently and effectively provided by private sector organizations (see my article here for some excellent examples from Florida and Virginia). The Task Force recommends that the state initially consider the privatization of one of the psychiatric hospitals it operates, as a first step toward privatization of the entire mental health system.
  • Correctional services privatization: Several privatization opportunities emerged from in the area of corrections, including inmate medical services, correctional food services (including the distribution and support services infrastructure) and the inmate high school education and GED program. Several of these topics are covered in Reason's April 2010 report outlining the benefits of public-private partnerships in corrections.
  • Public-private partnerships to finance the construction and maintenance of new or expanded state infrastructure: Reason has written for decades on the many benefits of using public-private partnerships (PPPs) to modernize and expand critical transportation, water, energy and other infrastructure assets. The Task Force recommends the passage of broad‐based and flexible infrastructure PPP legislation that encompasses new projects and some already in‐progress. Further, the Task Force recommends the creation of a state advisory body for PPP projects, possibly along the lines of California's Public Infrastructure Advisory Commission. If implemented, these recommendations would give the state some powerful new tools for financing and delivering infrastructure in tough economic times.

But these examples just scratch the surface. Beyond those discussed above, additional privatization opportunities identified by the Task Force include:

  • Vehicle fleet maintenance and management;
  • Performance-based highway maintenance (e.g., bundled “fence-to-fence” maintenance contracts);
  • Surplus asset divestiture;
  • Emergency service patrols on state highways and interstates;
  • State parking facilities;
  • Water;
  • Printing services;
  • Workers compensation claims processing;
  • State rest areas;
  • NJ Turnpike toll collection;
  • NJTransit bus routes and vehicle maintenance;
  • Statewide vehicle emission inspections;
  • Motor vehicle titling and registration;
  • Higher education facility maintenance;
  • Child support services;
  • Hospital debt collection;
  • Golf course management; and
  • Housing and construction code enforcement.

Of course, the recommendations in the Task Force report are not self-implementing. Like any advisory commission report, the challenge will be to ensure that ideas move forward from concept to implementation. The Christie administration will certainly have their work cut out for them in that regard.

However, the Task Force has offered the administration a solid template to start with and sound processes to put in place to smooth the journey ahead. The combination of this commendable new privatization roadmap with a reform-minded administration—and Gov. Christie's clear willingness to challenge the status quo—bodes well for the transformational change needed in New Jersey state government to restore the state's fiscal health and deliver better value for Garden State taxpayers.

Leonard Gilroy is Director of Government Reform


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