Out of Control Policy Blog

Friday Privatization News Highlights (7/8/2011 edition)

News articles on some of the more interesting developments on the state and local privatization front this week include:

  • "State: Private manager takes over lottery operations today" (The Daily Journal): On July 1st, Northstar Lottery Group took over operations of the Illinois Lottery under a pioneering, 10-year privatization contract that guarantees the state increased revenues above what it anticipated under in-house operation. Under the contract, the state will pay Northstar a $15 million annual management fee, as well as a percentage of lottery revenues above a $650 million annual revenue baseline. In return, Northstar is guaranteeing a roughly $1 billion increase in lottery revenues over the next five years; in fact, in the procurement bidders competed on the guaranteed annual revenue payments they would make to the state over that time. The private operator is gambling that it can increase lottery revenues to the state by expanding the customer base, more efficient management and other strategies, and if it falls short of revenue projections in a given year, the contract requires Northstar to make a revenue shortfall payment to the state, shielding the state and taxpayers from downside risks. For more on this groundbreaking privatization initiative, see here and here.
  • "Beshear announces managed-care contracts for Medicaid program" (Lexington Herald-Leader): The privatization of Medicaid services is looming large in Kentucky's fiscal future, and yesterday Gov. Steve Beshear announced three new contract awards that will extend the provision of managed care services to most of the state's 815,000 Medicaid recipients. The Governor announced that this major expansion of managed care will lower state Medicaid costs by $375 million over the next three years—and close this fiscal year's budget deficit—while preserving current levels of service. If the plan receives approval from the federal Centers for Medicare and Medicaid Services, patients will be able to enter the new managed plans in October.
  • "Puerto Rico Seeks Qualified Bidders For Airport Deal" (FoxBusiness.com): A week after announcing that it had gotten the approval of a majority of airlines serving Luis Munoz Marin International Airport to proceed with a long-term lease of the facility, the Commonwealth has issued a request for qualifications (RFQ) from private investors and operators interested in bidding on a 40-50 year concession to manage, operate, maintain and finance improvements at the airport. Responses are due early next month, at which point teams deemed qualified will compete for the concession contract. Officials are aiming to reach financial close early next year. Given the recent announcement of a winning bidder for a 40-year, $1+ billion concession for the operation of two of the commonwealth's toll roads, Puerto Rico's robust PPP program continues to steam ahead with the latest airport news, building momentum and striking while the iron is hot. The full LMM airport RFQ and press release are available here.
  • "Georgia DOT trying private maintenance program on Interstate Highway 95" (Columbus Ledger-Enquirer): The Georgia Department of Transportation has announced the award of a 3-year, $6.8 million contract to Roy Jorgenson Associates to provide the bulk of highway maintenance services on the state's stretch of Interstate 95, which was recently widened in a $1 billion expansion project. The GDOT press release is here. It appears that Georgia is piloting the type of "Maintenance 2.0" approach that Virginia and Florida have pioneered in recent decades—public-private partnerships (PPPs) for bundled, performance-based road maintenance contracts, instead of piecemeal contracts for discrete services or in-house operation (see here and here for more on the concept). Notably, Georgia's Department of Juvenile Justice, Department of Corrections, and Bureau of Investigation have been using a similar approach for building maintenance services at secure-site facilities, as described in this 2009 Reason Foundation policy brief.
  • "3 to bid on five of state's prisons" (Columbus Dispatch): The Ohio Department of Rehabilitation and Correction (ODRC) has announced that it has received bids from the "big three" private corrections management firms—GEO Group, Corrections Corporation of America (CCA) and Management and Training Corportation (MTC)—on the proposed sale of up to five state prisons, as authorized in the recently enacted state budget. Two of the facilities are already privately operated by MTC, but owned by the state). The ODRC's goal is to sell the prisons and then contract with the winning bidders to house state inmates at a lower cost, with an estimated $6 million in savings expected annually.
  • "Scott supports new campgrounds in state parks" (Miami Herald): Florida's state parks agency is considering tapping PPPs to develop new campground facilities in several dozen of its state parks, and despite early pushback from some antis at the very mention of the idea, Gov. Rick Scott doesn't seem to be backing down. Good for him—see my post last week on why parks operation PPPs would be a smart move that could really improve the quality and the financial health of Florida's parks and recreation areas.
  • "Prison-food privatization may trim 51 jobs near Jackson" (Jackson Citizen Patriot): The Citizen Patriot offers an update on the state's recent moves to advance correctional food services privatization, which was approved by the legislature and Gov. Rick Snyder this year. The state plans to solicit bids this summer and expects that privatization could result in annual savings of $7 million, representing a 14% savings on the state's current $67.6 million in correctional food spending, according to the paper.
  • "21 firms respond to county's call for courthouse ideas" (Austin American-Statesman): Travis County, Texas officials have received proposals from 21 consortia interested in a PPP for a new county courthouse to be built in downtown Austin. Officials are soliciting private interest in the concept and have approved hiring a consultant to evaluate the proposals received as they consider whether or not to move forward with a PPP financing model (versus traditional bond financing, which some officials see as unlikely to be approved by voters). Travis County commissioners have certainly taken notice of California's PPP to finance and develop a new $492 million courthouse in Long Beach, discussed at length in the state privatization update in Reason's Annual Privatization Report 2010 (direct PDF link here). Expect to see many more social infrastructure PPPs in the future as policymakers continue to reckon with fiscal constraints and mountainous debt and entitlement obligations.
  • "Chicago Watchdogs' Report Urges Reforms" (Bond Buyer): The Civic Federation, a Windy City public policy watchdog, has issued a report recommending dozens of major government reforms to address Chicago's looming debt and pension crises, including pension and retiree benefit reforms, various governmental reorganizations, and additional municipal asset leases, including a rejuvenated push for a long-term lease of Midway Airport, which has languished since a $2.5 billion lease deal fell apart amid the market upheaval of the fall of 2008.
  • "Judge Halts Costa Mesa Layoffs" (Los Angeles Times): An Orange County Superior Court judge has enjoined Costa Mesa, California from moving forward with its highly-publicized plans to privatize hundreds of city positions until it "goes through proper legal steps," though exactly what those steps are remains murky. City officials respond that they have been in full compliance with the law.

For more on privatization, see Reason Foundation's privatization research archive.

Leonard Gilroy is Director of Government Reform


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