Reason Foundation

Reason's Len Gilroy Talks TVA Privatization, Annual Privatization Report on Heartland Institute Podcast

Posted on May 23, 2013, 3:54pm | Leonard Gilroy

Earlier this week, I had the pleasure of sitting down with the Heartland Institute's Steve Stanek for an episode of their Heartland Daily Podcast, where we discussed President Obama's recent budget proposal to study a potential privatization of the Tennessee Valley Authority (TVA). From Heartland's Somewhat Reasonable blog:

President Barack Obama has proposed studying the possibility of privatizing the Tennessee Valley Authority, the nation’s largest government-owned utility. Privatization expert Leonard Gilroy of The Reason Foundation tells Heartland's Steve Stanek why the president has a good idea, and why area politicians in both major political parties oppose it.

An iTunes link for this podcast is available here. Beyond the proposed TVA privatization, we also discussed several highlights from Reason Foundation's Annual Privatization Report 2013.

Speaking of the TVA, I was also quoted in a Budget and Tax News article last week on the privatization proposal. Here's an excerpt:

The Chattanooga Times Free Press newspaper declared in an editorial that opposing TVA privatization is a mistake and noted the disconnect between some Tennessee politicians who declare they favor free enterprise and limited government yet oppose privatization.

“The only real argument for keeping the TVA's assets in government hands are weak arguments like, ‘people like the TVA how it is’ and ‘that's how we've always done it.’ Sadly, that stale mindset has overtaken area Republican lawmakers who claim to oppose government control and socialist programs,” the newspaper’s editors wrote. [...]

Privatization expert Leonard Gilroy of Reason Foundation said he sees lots of institutional opposition to privatization.

"Despite being an utterly nonessential federal asset, there appears to be no political will in Congress whatsoever to authorize a TVA privatization," he said. "Senator Alexander, Senator [Bob] Corker (R) and other Tennessee congressmen of both political parties have already condemned the proposal to merely study privatization, which is all the President has proposed. This just goes to show how difficult it is in real life to shut down government agencies and enterprises once they spring to life and build constituencies."

Nonetheless, he said privatization ought to be studied.

"There's nothing inherently governmental about running a power business, so privatization could provide an opportunity to bring in a businesslike approach and more efficient operations and management compared to what's seen today as a government-owned enterprise," he said. "However, there would be some very thorny implementation issues to work out, not the least of which being how to handle the divestiture of the TVA land and power assets that were originally seized from private hands to begin with."

For a more detailed analysis of the merits and challenges associated with privatizing the TVA, check out this recent Reason Foundation article by Steve Esposito. 

Like Obama said, Privatize the TVA!

Posted on April 29, 2013, 2:03pm | Adrian Moore

Steve Esposito has some thoughts on President Obama's proposal to privatize the Tennessee Valley Authority, a massive bureaucracy of electricity generation, flood control, jobs for cousins, patronage and waste. And some cautions about the idea's prospects. 

Republicans in Congress, who you might think would love the idea of privatizing a big federal agency that benefits few while costing many, was quick to oppose Obama's proposal. Esposito breaks down and answers some of the objections to privatization.

Read it all here.

New at Reason: Looking Back at the Last Year in Federal Government Privatization

Posted on April 15, 2013, 3:47pm | Leonard Gilroy

The rollout of Reason Foundation's Annual Privatization Report 2013 continues today with the release of the Federal Government Privatization section—authored by Reason's Adam Summers, Anthony Randazzo, Steven Titch and Victor Nava—which offers an overview of the latest on postal service reform, space privatization, financial regulation, telecommunications and more. Topics include:

• BCFC Outlines $795 Billion in Federal Budget Savings
• Congress Takes on Postal Service Reform—Again
• Space Privatization Update
• ANALYSIS: Google, Facebook, Antitrust and the “Public Good”
• ANALYSIS: Private Sector is Best-Positioned to Lead Cybersecurity Policy
• ANALYSIS: Privatization of Financial Regulation is Not Impossible

» Annual Privatization Report 2013: Federal Government Privatization
» Complete Annual Privatization Report 2013

Testimony: FLAIR Act Would Bring Efficiency, Accountability to Federal Land Management

Posted on May 3, 2012, 3:40pm | Leonard Gilroy

Today I had the opportunity to testify at a remote field hearing of the House Committee on Natural Resources' Subcommittee on Energy and Mineral Resources regarding federal geospatial spending, duplication and land inventory management. Two proposed bills in particular—H.R. 1620 ("Federal Land Asset Inventory Reform Act of 2011") and H.R. 4233 ("Map it Once, Use It Many Times Act")—were the focus, and together they would be an important step towards developing a central, federal real property inventory and eliminating massive duplication in various agencies' mapping and geospatial data collection and use.

Here's an excerpt of my testimony:

Managing real property can often be considered a mundane chore in the public sector. Each government agency often has its own monitoring and tracking methods, which are often not compatible or interoperable with other agencies, leading to a lack of standardized reporting methods at agencies and departments. Without the ability to know what government agencies own, it becomes very difficult to manage those assets in the most cost-effective and efficient ways.

In June 2010, Reason Foundation published a report (“Knowing What You Own: An Efficient Government How-To Guide for Managing Federal Property Inventories,” available at: reason.org/studies/show/what-the-federal-government-owns) outlining the case for a federal real property inventory that is a central record of government-owned land and assets and an important component of efficient property management. In that report we assert that government initiatives to develop an adequate portfolio management system for publicly owned real estate are a sensible step towards improved asset management and public accountability and should be given serious consideration.

[…]

Unfortunately, when it comes to knowing what it owns, the federal government is lacking. The absence of a robust real property inventory presents a major challenge for right-sizing the federal property portfolio and causes higher than necessary operating costs and maintenance responsibilities.

The U.S. Government Accountability Office (GAO) has long noted deficiencies in federal real property management. For example, a 2002 GAO report found that the international inventory of federal real property “contained data that were unreliable and of limited usefulness. Therefore decision-makers, such as Congress and the OMB, do not have access to quality data on what real property assets the government owns, their value, how efficiently assets are being used and what the overall costs are involved in preserving, protecting and investing in them.”

The full testimony is here. I go on to discuss how state governments are stepping up on this issue, including Georgia, Virginia and Oklahoma. They are discovering that developing centralized real property inventories offer a range of benefits:

• A comprehensive and current list of land and assets would allow the government to assess whether public property is being used and maintained in the most efficient manner possible.
• Inventories serve as a tool to assess the potential value of divesting underutilized or unnecessary land or assets, which can generate revenues for government and lower maintenance and operations costs.
• Selling or leasing assets to the private sector can expand the tax base and encourage economic growth.
• Inventories can potentially help lower lease and maintenance costs through space consolidation and more efficient utilization.
• Inventory information helps governments plan with more precision, improves efficiency and cost effectiveness and increases officials’ ability to monitor the use of taxpayer money.

Additionally, the two pieces of proposed legislation explicitly encourage partnering with private sector firms to acquire commercially available geospatial services, as opposed to doing such work in-house. Not only is there a robust private sector marketplace that can support government's needs in this sector, but it also makes little sense for governments to provide duplicative services that the private sector is already efficiently providing.

As I conclude in my testimony, this is an important issue in these challenging economic times:

Considering the nation’s ongoing economic challenges, the government should take proactive steps to maximize the value of its resources, ensure efficient management and enable private sector economic growth through asset divestiture. Real property management is not a partisan issue, nor is it an issue of spending priorities. It is an issue of good governance and fiscal responsibility.

For more on this issue, see:

• Reason Foundation's 2010 study by Anthony Randazzo and John Palatiello outlining the case for a federal real property inventory
• My March 2012 blog post on privatizing geospatial activities to make state governments more efficient.
• Reason's 2004 report by John Palatiello, "What's in the Government's Attic?"

New at Reason: Review of Federal Privatization Issues in 2011 and Today

Posted on April 23, 2012, 11:59pm | Leonard Gilroy and Harris Kenny

The rollout of Reason Foundation's Annual Privatization Report 2011 begins today with the release of the Federal Government Privatization section, authored by Reason's Adam Summers and Anthony Randazzo. This section of Reason Foundation's Annual Privatization Report 2011 provides an overview of the latest federal insourcing, housing finance, private spaceflight and other news on privatization and public-private partnerships in the federal government. Topics include:

• The ongoing dispute over what constitutes “inherently governmental” functions continued in 2011, and new Obama administration regulations could undermine federal outsourcing policy standards dating back to 1955.
• Regulators implementing the Dodd-Frank Act are creating significant risk for both mortgage investors and securitizers and appear likely to undercut the private mortgage industry while benefitting government mortgage providers. 
• In 2011, Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA) combined to purchase or guarantee 95 percent of all new mortgages in America with some mortgages worth as much as $729,750. Every one of these mortgages is backed by taxpayer money.
• Federal agencies, under the encouragement of President Obama, are expected to generate nearly $13 billion in cost savings from asset divestiture, $9.8 billion of which comes form the Department of Defense’s Base Realignment and Closure (BRAC) efforts.
• The federal government owns approximately 1.2 million properties that cost $20 billion a year to maintain. Recent Congressional efforts to pass a Civil Property Realignment Act could save as much as $15 billion, according to the Office of Management and Budget.

» Annual Privatization Report 2011: Federal Government Privatization [pdf, 1.9 MB]

» Complete Annual Privatization Report 2011

Privatization-Not Junk Mail-Is Needed to Reform the U.S. Postal Service

Posted on March 23, 2012, 2:59pm | Adam Summers

The U.S. Postal Service, which lost $5.1 billion last year ($10.6 billion if you include a required payment to prefund its retiree health care) and is expected to lose another $14.1 billion this year, is looking for ways to make some money. Thus, it is launching the "Every Door Direct Mail" campaign to generate more targeted junk mail for small businesses. Since even a successful junk mail promotion would only make a tiny dent in the USPS's fiscal problems, other proposed reforms include increasing First-Class Mail postage by 11% (from 45 cents to 50 cents per stamp), eliminating Saturday delivery, and taking longer to deliver letters. Talk about ingratiating yourself to your customers.

In fairness, the Postal Service is also embarking upon long overdue efforts to scale back its operations by closing and consolidating up to 3,800 post offices and 223 mail-processing centers, as well as seeking flexibility from Congress to rein in its excessive personnel costs (such as employee benefits), which account for about 80% of its expenses. Even this will be inadequate to save the USPS, however, as e-mail, online bill payment, e-filing of taxes, social media like Facebook and Twitter, and telephone communication continue to replace physical mail services.

In fact, ask Congress seeks to reform the Postal Service, it is asking the wrong question entirely. The proper question is not about how to "fix" the Postal Service, but rather how to improve postal services for customers. This will never be adequately resolved as long as the USPS maintains a monopoly on mail delivery and business decisions are made arbitrarily by politicians and postal regulators. Only a free and competitive market can recognize and satisfy the ever-changing desires of postal consumers.

In my latest commentary, I outline the Postal Service's reform efforts, as embodied in its newly revised five-year business plan, and use a brief period of private mail delivery entrepreneurism from the mid-19th century (before the competition was eventually squashed by the federal government) to illustrate that not only is postal privatization possible, it has already been done—and should be sought once again. Below is an excerpt of that column.

The truth is, however, that because the Postal Service has a monopoly on delivering mail, there is no way to know whether a five-days-per-week or six-days-per-week delivery schedule is ideal, or even how much should be charged to deliver a letter. Matters such as prices, service speed, frequency of delivery, and additional mail products and services should be determined by competition and consumer preferences, not arbitrarily by politicians and postal regulators.

As Lysander Spooner, who challenged the government mail monopoly when he formed the American Letter Mail Company in 1844 noted in his essay, "The Unconstitutionality of the Laws of Congress, Prohibiting Private Mails,"

Universal experience attests that government establishments cannot keep pace with private enterprize in matters of business (and the transmission of letters is a mere matter of business.) . . . [Private enterprise] is constantly increasing its speed, and simplifying and cheapening its operations. But government functionaries, secure in the enjoyment of warm nests, large salaries, official honors and power, and presidential smiles . . . feel few quickening impulses to labor, and are altogether too independent and dignified personages to move at the speed that commercial interests require. . . . The consequence is, as we now see, that when a cumbrous, clumsy, expensive and dilatory government system is once established, it is nearly impossible to modify or materially improve it. Opening the business to rivalry and free competition, is the only way to get rid of the nuisance.

While Spooner and several other private mail entrepreneurs sprouting up during the period of about 1839-1851 (see this Cato Journal article by Kelly B. Olds for an excellent history of private mail delivery during this period) were eventually shut down by the government, they proved that private mail delivery was possible. And the competition they provided forced the government to drastically reduce its prices in the process.

Given that the delivery of information and products is certainly not a core governmental function and the USPS operates under an obsolete business model with unsustainable personnel costs. It is time to embark upon a new age of postal privatization.

See the full article here, as well as a previous op-ed of mine on the topic that was published in the Washington Times.

Automatic Spending Cuts and Outsourcing

Posted on January 17, 2012, 7:09pm | Adrian Moore

With the federal government facing automatic spending cuts, and the need to make a lot more cuts beyond that. John Palatiello points out in a new column that it does not make sense to prevent agencies from using outsourcing to help make some of those cuts.

Fifty-seven years ago this month, January 15, 1955, President Dwight Eisenhower promulgated a federal policy that is as relevant today as it was the day it was issued, if not more so. In 1955 Bureau of the Budget Bulletin 55-4 stated, "The Federal government will not start or carry on any commercial activity to provide a service or product for its own use if such product or service can be procured from private enterprise through ordinary business channels

But Congress, in its infinite wisdom, recently banned federal agencies from doing anything that might replace a federal worker with a contractor, or heaven forbid, just stop doing some things.

As a result,

More than 850,000 federal employees are engaged in commercial activities that duplicate, and in some cases compete with, private enterprise, including small business. . . .A government that does virtually everything that can be found in the old Yellow Pages is a government that is simply too big to succeed.

Read the whole column here.

Government Printing Office Makes a Profit in '11 - Not Good

Posted on January 5, 2012, 9:18am | Adrian Moore

Bankrupting American notes:

Usually for Wednesday Waste we find an example of hard-to-believe government waste, highlighting the often inefficient ways taxpayer resources are being used. But today, we’re going to change the script a bit and focus on the federal government actually tackling wasteful spending.

This comes from the Government Printing Office (GPO). As The Hill reported late last month, the GPO actually ended 2011 in the black, earning $5.6 million in net income for last fiscal year.

I am not so sanguine about that outcome.  The fact that GPO could make a profit printing just frosts the cake of proof that there is no need for the government to be in the printing business in the first place.  There is clearly lots of demand and supply, no sign of a market failure here requiring government to step in a provide something the private sector cannot.

If you think the government making a profit is good in its own right, the surely you must think the government should pursue other profit making opportunities. Fortune reports that communications, oil production, and pharmaceuticals are the most profitable industries, so perhaps government should nationalize those industries and start making some real profits? What could possibly go wrong?

Government provision of services can only be justified in limited circumstances, the failure of the market to provide being a key one.  Profitability is decidedly NOT one.  The federal government has no business being in the printing business, and ought to privatize the GPO on this high note.

[note: I am harshing on this post by Bankrupting America, but by no means harshing on them, they do great work that I use constantly.]

Branson Christens First-Ever Commercial Spaceport in New Mexico

Posted on October 18, 2011, 4:57pm | Harris Kenny

This week Virgin Group media mogul Sir Richard Branson christened the first-ever commercial spaceport in Sierra County, New Mexico. The 110,000-square-foot spaceport cost over $200 million to build (thanks in part to taxpayer-financed support.) 150 attended the ceremony alongside New Mexico Governor Susana Martinez, astronaut Buzz Aldrin, and others. The Associated Press reports that more than 450 people have purchased tickets to fly a two and a half hour suborbital space trip, that includes five minutes of weightlessness, costing $200,000 each. Branson explains in an interview to the Associated Press (below) he plans on sharing the maiden voyage with his children by next Christmas:"

Branson’s space company, Virgin Galactic, has been working towards this day for years, but the christening isn't their only good news. Last week NASA booked the first available flight scheduled to depart from the spaceport in an agreement that includes options for two additional flights worth up to $4.5 million. Darren Quick of Gizmag.com explains, "Although Virgin Galactic is generally known as a space tourism company, it sees research experiemnts as a future mission segment and significant business opportunity." The contract with NASA allows up to 1,300 lbs (590 kg) of scientific experiments per flight.

In other private aerospace news, MF Monitor reports that NASA reached an agreement on the criteria for certification of Evolved Expendable Launch Vehicle (EELV) launches:

The basis of the new strategy is a step further to NASA’s directive for launch vehicle risk mitigation, taking into account mission-unique requirements from each of the three agencies. The latest document provides a common framework to license new launch service providers.

The risk-based certification framework allows the agencies to consider both the cost and risk tolerance of the payload and their confidence in the launch vehicle. For payloads with higher risk tolerance, the agencies may consider use of launch vehicles with a higher risk category rating and provide an opportunity for new commercial providers to gain experience launching government payloads, said NASA in a statement.

Within a given risk category rating, if new entrants have launch vehicles with a demonstrated successful flight history, then the government may require less technical evaluation for non-recurring certification of the new launch system. This new strategy further enables competition from emerging, commercially developed launch capabilities for future Air Force, NASA, and NRO missions.

For more of Reason Foundation’s work on this aerospace policy, see the Space Travel Research Archive.

Feds Rule Out Transit Efficiency With Labor Rules

Posted on September 14, 2011, 12:13pm | Samuel Staley

Friday Privatization News Highlights (9/2/2011 edition)

Posted on September 2, 2011, 5:48pm | Leonard Gilroy

News articles on some of the more interesting developments on the privatization and public-private partnership (PPP) front over the last two weeks include:

Federal Government

• "Contract winner must hire predecessor's employees, new rule says" (Federal Times): If we're looking for onerous and counterproductive rules and regulations to eliminate at the federal level, this new Labor Department rule would be a good place to start. Under the rule, any company that wins a federal services contract previously held by another company has to hire the old company's employees. Not only does this represent an unwarranted intrusion into companies' ability to make their own personnel decisions, but it could also drive up costs for the public sector as well (if companies are forced to hire more employees than they need, or are forced to hire less productive employees than they otherwise would). This idea appears to have been taken straight from Bad Procurement Policy 101.

State Government

• "Ohio becomes 1st in nation to sell state prison to private company; 4 others not sold" (Washington Post): Yesterday, Ohio corrections officials announced the results of a large-scale procurement that will see the state raise $72 million from the sale of one state prison to a private operator and two others turned over to private management, for an estimated $13 million in total, annualized cost savings. More details from Bloomberg here.
• "VDOT announces public-private partnership to maintain rest areas" (Land Line): This week, Virginia transportation officials announced a new PPP that will upgrade the state's 42 rest areas and welcome centers. The state is partnering with a vendor that will expand vending and advertising at the facilities and will pay the state $2 million per year for the privilege. The deal is structured to also give the state a revenue share based on percentage of total sales. According to Virginia Gov. Bob McDonnell, "As part of this innovative program, we see great opportunity to offset rest stop costs now and into the future. […] Partnering with the private sector will enable us to expand and improve the services that we offer visitors while saving taxpayer dollars." More here and here.
• "Bill Looks to Require Districts to Seek Bids on Support Services" (Michigan Capitol Confidential): Our friends over at Michigan's Mackinac Center weigh in on the proposed House Bill 4306, which would require all Michigan school districts to solicit bids for school support services (e.g., food, transportation, custodial) and compare them to in-house costs. The bill does not mandate any actual privatization; it just requires a bidding process. The idea builds on the rapid expansion of non-instructional school service outsourcing in the state in recent years. According to Mackinac's latest privatization survey, 295 of the state's 550 districts (53.6%) are outsourcing some of their non-instructional services, up from 31 percent in 2001. For more details on the Mackinac survey, see here and here.
• "Illinois approves privatization for new roads" (Land Line): Illinois has become the latest state to adopt enabling legislation providing the state broad statutory authority to pursue PPPs for new transportation projects. Unfortunately, they've opted to require legislative approval of all PPP projects, injecting a degree of political risk into the process that could potentially make some bidders wary of pursuing projects in Illinois.
• "Bill would allow private groups to run state parks" (The Union of Grass Valley): A bill (AB 42) approved by the state assembly and currently under consideration by the California State Senate would allow the state to enter into PPPs with nonprofits to take over operations of state parks threatened by closure. This would certainly be a step forward, though legislators would be smart to expand this authority to include for-profit recreation management firms as well. The U.S. Forest Service already uses for-profit concessionaires to operate dozens of recreation areas throughout California today, and about half of their recreation sites nationally, so it's a proven model that works.
• "Firm proposes public-private partnership to improve I-70 mountain corridor" (Denver Post): The global engineering/construction firm Parsons has submitted an unsolicited proposal to Colorado officials proposing a new PPP to rebuild the Interstate 70 mountain corridor using private financing. This is a high-traffic corridor with billions in identified needs and little by way of state funds to address them.
• "Tri Rail privatization studied as way to add FEC commuter service" (South Florida Business Journal): Transit officials in Florida are reportedly considering privatization as a means to add commuter rail service along the Florida East Coast Railway in South Florida.

Local Government

• "Parking deal netting city more meter money" (Indianapolis Business Journal): So far, so good with Indianapolis' parking meter privatization. After signing a 50-year concession with ACS last year for the management of its downtown parking meters, the decision already appears to be paying off for the city. The article reports that total meter revenues increased to $1.7 million in March-June quarter, up from $1.3 million during that same quarter in 2010. The concessionaire is sharing those revenues with the city, and the city's take rose to $498,273, a dramatic increase over the $108,265 it collected from the meters over that same time period last year when the meters were still an in-house operation. What's even more exciting is what's to come: ACS will soon be rolling out a mobile phone app that will allow users to feed their meters electronically. I'd imagine it will have other features beyond that that will make life a lot easier for system users. I would be nice to hear a mea culpa from the Chicken Littles who predicted post-privatization doom and gloom amid the pre-concession debates last year, but I'm not holding my breath.
• "StarTran audit to look at privatizing all or part of bus service" (Lincoln Journal Star): Transit officials in Lincoln, Nebraska have hired a consultant to evaluate potential options for privatizing the city's public bus service as part of a larger transit management review.
• "Santa Paula Water Recycling Facility Receives Prestigious 2011 Public-Private Partnership Award For Innovation" (Water Online): The National Council of Public-Private Partnerships has given an innovation award to Santa Paula, California's new water recycling plant. The facility, the first 100% privately funded water recycling facility in the country, was built for the city by PERC Water and Alinda Capital under a 30-year contract.
• "City of Flint postpones leasing out public golf courses" (The Flint Journal): Flint officials have had to slow down their ongoing golf course privatization process in order to hammer out details with the various bidders selected to take over operations, including a public employee union.

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

Friday Privatization News Highlights (8/19/2011 edition)

Posted on August 19, 2011, 7:30pm | Leonard Gilroy

News articles on some of the more interesting developments on the privatization and public-private partnership (PPP) front over the last week include:

State Government

• "Under threat of losing millions, state decides against using private workers for food assistance program" (The Capital Times): The federal government is turning the screws on a fledgling welfare eligibility privatization program in Wisconsin started under the previous administration, threatening to withhold millions in federal funds unless the state fires hundreds of contractors and replaces them with public sector employees. The USDA’s personnel demands would reduce the number of private contractors by approximately 40%, according to the article.
• "New liquor-privatization measure, Initiative 1183, deserves a toast" (The Seattle Times): The Times editorial board raises a glass to Initiative 1183, a November 2011 ballot initiative that would get Washington State out of the liquor wholesale and retail business and, according to multiple estimates, would increase revenue to state and local governments.
• "Omaha child-welfare cases privatized" (Omaha World-Herald): This article provides an update on Nebraska's ongoing efforts to privatize child welfare services. For some illustrative success stories in child welfare privatization, see the State Government Update in Reason Foundation's Annual Privatization Report 2010.

Local Government

• "Los Angeles City Council Pursuing Zoo Privatization" (Reason.org): Last Friday afternoon, the Los Angeles City Council approved soliciting proposals from potential private operators of the L.A. Zoo. My colleague Harris Kenny's blog post on this initiative includes details and article links with more information.
• "Los Angeles to hand over animal shelter to nonprofit group" (Los Angeles Times): This week, the Los Angeles City Council voted to move forward with a 3-year PPP with Best Friends Animal Society to take over operations of the Northeast Valley Animal Care Center in Mission Hills. The $19 million facility was built several years ago using public debt, but since then the city’s fiscal woes have prevented it from funding the operations of the currently-closed shelter. Notably, under the new PPP the city will not be contributing operating funds to the private operator (and estimated savings of over $3 million per year), and Best Friends has committed to making $1 million in improvements to the facility. More details in the L.A. Daily News here, and don’t miss the Times’ recent editorial here.
• "Parks and Re-creation" (City Journal): Animal shelters and zoos are not the only city amenities that can be more effectively provided through nonprofit PPPs. This informative article by Laura Vanderkam offers an excellent overview of New York City’s pioneering and extensive use of PPPs to operate many of its urban parks, including famous landmarks like Central Park and Bryant Park that were almost literally collapsing under government operation three decades ago. Today, both parks are thriving after a conversion to nonprofit operation and are vibrant urban spaces people want to visit. Significantly, the city is contributing vastly less in public funding to these parks today than it used to—Central Park only receives about 15% of its operating funds from the city today, with the nonprofit conservancy operator generating the rest; Bryant Park is now 100% self-funded. This is the type of model that many cash-strapped cities today would be smart to explore to keep their parks open and thriving.
• "Memphis officials ask Humane Society to evaluate animal shelter" (Memphis Commercial Appeal): Memphis, Tennessee officials plan to issue a request for proposals within the next month to solicit interest from nonprofits interested in potentially taking over operations of Memphis Animal Services. In parallel, they’ve reached an agreement with the Humane Society to conduct an evaluation of the current operations of the city’s animal shelter.
• "City of Flint considering plan to lease out all public golf course operations" (The Flint Journal): Officials in Flint, Michigan are considering a proposal to spin off the operations of four public golf courses—two of which are currently closed and, taken collectively, all of which are operating at a loss in city hands. According to a follow up article here, a local AFSCME chapter is reportedly being considered to run two of the courses, with private sector operators being considered for the others.
• "Hollywood considers privatizing water services" (South Florida Sun-Sentinel): Officials in Hollywood, Florida are doing some advance planning in the event that a September ballot measure fails and throws the city budget out of whack. The measure asks voters to approve a variety of pension reforms that the city was unable to get unions to agree to, and with approval uncertain, officials are considering a range of "Plan B" options to cut costs, ranging from employee pay cuts, layoffs, service cuts and the potential privatization of utilities services that include water, stormwater and wastewater services.

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

Friday Privatization News Highlights (8/12/2011 edition)

Posted on August 12, 2011, 6:54pm | Leonard Gilroy

News articles on some of the more interesting developments on the privatization and public-private partnership (PPP) front over the last two weeks include:

International

• "Taxpayers tell state they prefer private sector to foot bills for infrastructure" (The Australian): A new poll of over 1, 000 Australian citizens found that the global economic malaise appears to be increasing public support to tap private funds to deliver public infrastructure through PPPs. The poll found 69% support for PPPs, up over 20% from a similar poll in 2009. At the other end of the spectrum, only 14% supported raising taxes to fund infrastructure.

State Government

• "Ohio seeks consultant bids for advice on turnpike sale" (Toledo Blade): This week, the Kasich administration launched the process of exploring a potential lease of the Ohio Turnpike by issuing a request for proposals seeking consulting advisers that would conduct an asset valuation analysis and assess the feasibility of a long-term Turnpike lease, relative to other "leveraging" options. More here from the Plain Dealer.
• "Analysis: State could make $ from privatized booze measure" (Seattle Post Intelligencer): The Washington State Office of Financial Management (OFM) has released a fiscal impact statement for Initiative 1183, a November 2011 ballot measure that would privatize the state's monopoly on the sale and distribution of distilled spirits. The OFM report estimates an increase of $216-253 million to the state general fund over the next six fiscal years, as well as an increase to local government revenues of $186-227 million over that same period. The full OFM analysis is available here.
• "State, feds hammer out Medicaid overhaul" (Miami Herald): This year, Florida policymakers moved to expand their 5-county Medicaid privatization program statewide, and they're currently negotiating an agreement with the Federal government on how implementation will proceed. For more information on this initiative (and the original pilot), see the Florida Agency for Health Care Administration's information archive here.
• "Route 460 advances" (Suffolk News-Herald): The Virginia Department of Transportation recently issued a request for detailed proposals to build and operate a 75-year concession for a new 55-mile toll road to replace the aging Route 460 between Petersburg and Suffolk. Proposals are due by the first quarter of 2012 from three investor-operator consortia shortlisted in an earlier round of the procurement. Virginia plans to contribute up to $500 million in state funds toward construction in order to lower toll rates.
• "Corbett: Prison Healthcare, State Park Services Could Be Privatized" (Capitol Ideas with John L. Micek): Pennsylvania Gov. Tom Corbett—who recently announced the upcoming formation of a state privatization task force—told reporters recently that while his administration has taken the privatization of the PA Turnpike and correctional facility operation off the table, it's open to considering potential privatization opportunities in state parks and correctional health care delivery.
• "Hickenlooper gives old idea a new look: privatizing Pinnacol" (Denver Post): Though the idea has seen fits and starts in recent years—most recently having been rejected by legislators last year—Colorado Gov. John Hickenlooper is re-starting the conversation on privatizing Pinnacol Assurance, the state-run workers'-compensation insurance fund. The administration is in an exploratory phase, and no decisions have been made yet.

Local Government

• "L.A. City Council to consider measure to privatize zoo management" (Los Angeles Times): Today, the L.A. city council will consider a measure that would authorize a procurement for a potential PPP to operate and manage the Los Angeles Zoo. At the same time, it would task city analysts with evaluating potential alternatives to privatization that would reduce city expenditures on the zoo. Be sure to also check out this L.A. Daily News editorial noting the potential benefits of privatization.
• "City official proposes that group run shelter" (Los Angeles Daily News): Los Angeles City Administrative Officer Miguel Santana is proposing a PPP with a nonprofit animal society to take over operations of the city's Northeast Animal Care Center in Mission Hills. According to Santana, the move would save the city over $3 million annually. The nonprofit Best Friends Animal Society was selected based on the proposal it submitted in response to an earlier request for information issued by the City.
• "Nonprofit will manage curb market" (Greensboro News & Record): The city council in Greensboro, North Carolina has voted 5-4 to proceed with a contract with a nonprofit to take over operations and management of the Greensboro Farmers’ Curb Market. Four bidders submitted proposals, and the selected vendor, Farmers’ Market Inc., was formed by a group of current market vendors, farmers and customers. More here from Yes! Weekly.
• "Asheville considers leasing Municipal Golf Course" (Asheville Citizen-Times): City officials in Asheville, North Carolina are considering the potential privatization of the Asheville Municipal Golf Course, which has lost approximately $500,000 over the last three years and has seen declining play.

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

Friday Privatization News Highlights (7/29/2011 edition)

Posted on July 29, 2011, 8:11am | Leonard Gilroy

News articles on some of the more interesting developments on the privatization and public-private partnership (PPP) front over the last week include:

Federal

• "Postal Service eyes thousands of post offices for privatization" (Central Valley Business Times): The U.S. Postal Service announced this week that it was considering closing over 3,600 largely rural post offices (representing slightly over 10% of the total post offices nationally) and outsourcing some of their basic functions to local businesses. More here from The New York Times.
• "Lawmakers examine proposals to reduce federal government's real estate holdings" (The Hill): While it certainly makes sense for the Federal government to reduce its real property holdings—it spends $20 billion annually to operate a whopping 1.2 million buildings—it's definitely presents a political challenge. This interesting read discusses a recent House Oversight and Government Reform Committee hearing in which Obama administration and Congressional Budget Office officials offered contrasting views on the potential costs and savings associated with the administration's asset divestiture plan.

State Government

• "Jindal administration announces firms for Medicaid privatization" (Times-Picayune): In major state Medicaid privatization news, the Jindal administration announced this week that it has selected five firms to provide state-subsidized health insurance policies to over 800,000 state Medicaid patients in Louisiana. Under the plan, the state will transition Medicaid recipients into “coordinated care networks,” where the state will pay the private insurance companies to cover Medicaid patients, and the insurers will manage patient benefits and reimburse providers for services rendered. Each firm will operate statewide, and Medicaid recipients will be able to choose from the plans offered by the competing providers.
• "Kasich touts Ohio Turnpike privatization while in Toledo" (Toledo Blade): Ohio Gov. John Kasich touted the potential benefits of a long-term lease of the Ohio Turnpike at a Toledo press conference this week. The recently passed state budget authorized the administration to pursue a Turnpike PPP, and Kasich told reporters that a deal could potentially bring billions to the state to invest in needed transportation infrastructure, along with a share of annual toll revenues over the life of the lease.
• "Bidding begins to privatize prisons in South Florida" (Miami Herald): This week, the Florida Department of Corrections issued the solicitation for the state's large-scale, 18-county corrections privatization initiative, which was authorized in the budget passed earlier this year (see this recent commentary for more details). According to the Herald, state corrections secretary Edwin Buss is expecting "some of the most competitive bidding the country has ever seen for private prisons." For more on Secretary Buss's take on the ambitious initiative, see this recent NorthEscambia.com article.
• "State seeks private partner for two I-95 travel plazas" (Baltimore Sun): The Maryland Transportation Authority is taking a mulligan in its attempt to replace two aging travel plazas on I-95 via a PPP, issuing a new request for proposals this week. The agency is revamping its approach after vendors offered a tepid response to the original solicitation last year, which was so overly prescriptive that the request for proposals itself totaled over 700 pages.
• "Workers comp is on the right track" (Charleston Daily Mail): While not a news article, this editorial highlights the ongoing benefits of West Virginia’s 2006 privatization of its state-run workers compensation insurance monopoly. Since privatization and the onset of competition—over 170 companies compete to provide this insurance today, versus one in 2006—workers comp insurance rates have dropped by over 40% in West Virginia. For more on this initiative, see my 2010 my June 2010 post on Governing’s “Better, Faster, Cheaper” blog.

Local Government

• "LA is one step closer to privatizing zoo" (Los Angeles Times): Yesterday, a Los Angeles city council committee unanimously approved a proposal to enter into a PPP for the operations and management of the Los Angeles Zoo...with a catch. Under pressure from labor, the committee also asked city staff to prepare an analysis of what in-house changes the city might do on its own to lower zoo costs and avoid privatization (presumably to be released before the full council vote). As I wrote last week, the overwhelming majority of accredited urban zoos nationally (over 70%, according to some estimates) have already shifted to a PPP model as a means to increase private fundraising and reduce or eliminate government subsidies.
• "Osceola looks at privatizing libraries, security officers" (Orlando Sentinel): Osceola County, FL officials are considering the privatization of county library operations and some security functions. According to the article, the county manager estimates that outsourcing the operation of the county's six libraries would save approximately $12 million over five years—the system is currently running a $3 million annual deficit. For more on recent moves in library privatization, see Reason Foundation’s Annual Privatization Report 2010: Local Government Update.
• "Privatization—and Pushback—Proceed in Santa Clarita" (American Libraries): Speaking of library privatization, this article takes a look at Santa Clarita, California's recent shift to private library management. I should note that this is a remarkably balanced article, given that it was published by the American Library Association, which has taken a firm position against privatization.
• "Ramsey Board of Public Works rejects bids for purchase of water and sewer system" (NorthJersey.com): Officials in Ramsey, NJ have rejected three private bids received on the potential privatization of the borough's water and wastewater systems, as they came in lower than officials had anticipated.

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

Friday Privatization News Highlights (7/22/2011 edition)

Posted on July 22, 2011, 5:51pm | Leonard Gilroy

News articles on some of the more interesting developments on the privatization and public-private partnership (PPP) front over the last two weeks include:

Federal/International

• "Republicans push to restore job competitions with private sector" (Federal Times): Over 20 House Republicans sent a letter to Appropriations Committee Chairman Harold Rogers last week requesting the reinstatement of public-private competitions under Circular A-76 in upcoming 2012 appropriation bills. Congress placed a moratorium on competitions under Circular A-76 in 2009.
• "House appropriators encourage GPO privatization" (FierceGovernmentIT.com): A legislative appropriations bill (HR 2551) moving through the House directs the Government Accountability Office to prepare a feasibility study on transferring Government Printing Office (GPO) functions to other agencies and privatizing the GPO. A report accompanying the bill noted that GPO already contracts out over 90% of its annual print jobs and expressed "some concern about the future of the GPO as a viable printing operation for the Federal Government."
• "Nine prisons put up for tender in mass privatisation programme (U.K.)" (The Guardian): Having already selected private operators for three U.K. prisons earlier this year, U.K. Justice Secretary Kenneth Clarke announced that nine more prisons will be put out to bid for private operation. According to the article, if officials ultimately decide to sign contracts for each facility, then over 20 of the country's 138 prisons (or roughly 15%) would be under private operation; there are 12 today, with four new privately-operated prisons in the pipeline.

State Government

• "Corbett panel to look at selling state assets, privatizing services" (Pittsburgh Tribune-Review): Pennsylvania Gov. Tom Corbett plans to launch a new privatization advisory commission in the coming weeks that will be charged with identifying new asset divestiture and privatization opportunities.
• "Long-awaited bill to privatize Pa. liquor store system is unveiled" (Philadelphia Inquirer): Last week, Pennsylvania House Majority Leader Mike Turzai introduced House Bill 11, which would dismantle the PA Liquor Control Board's (PLCB) monopoly on the sale and distribution of wine and spirits. Under the proposal, the state would auction off 1,250 retail licenses (twice the number of current state-run stores) and sell off wholesale assets for an expected $1.5-2 billion in upfront revenues, and would replace the state's current 30% markup and 18% "Johnstown Flood Tax" with an excise tax of between $8-12 per gallon. Recent polls suggest that roughly 60-70% of Commonwealth voters are supportive of PLCB privatization.
• "Costco revamps liquor-sales initiative" (Seattle Times): Costco has submitted more than the required number of signatures to get a new (and more palatable) initiative on the fall ballot that would privatize Washington State's archaic, state-run liquor monopoly (wholesale and retail). Costco was the sponsor of a previous ballot initiative last fall that suffered a close defeat at the polls, and the new initiative—Initiative 1183—addresses some flaws and lessons learned from the 2010 campaign.
• "NJ Transit parking plan derailed" (New York Post): Despite the headline, the plan to lease NJTransit's massive parking assets hasn't really "derailed." Rather, the ongoing procurement process is complex and is being extended a few months.
• "Florida may still consider privatizing camping at State Parks" (WPTV.com): Public resistance has prompted Florida Gov. Rick Scott to remove four state parks from consideration for expanded camping facilities delivered through PPPs, but the administration still plans to evaluate the concept at other state parks.
• "Growing problem: Citizens Property Insurance CEO suggests privatization" (Naples Daily News): The CEO of Florida's state-owned insurer of last resort, Citizens Property Insurance, is interested in exploring the potential privatization of the enterprise to lower the growing financial risks to the state as the policyholder base expands.

Local Government

• "Emanuel hires private firms for city recycling" (Chicago Tribune): Last week, Chicago Mayor Rahm Emanuel announced the privatization of recycling services in four of six zones of the city in a de facto public-private competition (the city will continue to serve the other two zones). The winning bidders were Waste Management and Midwest Metal Management, and WLS 890AM reports data from the Mayor's office indicating that the new privatization contracts will reduce the city's current costs of recycling collection from $13.8 million annually to $6.6 million, a savings of over 50%.
• "Emanuel Acts on Layoff Threat" (Chicago News Cooperative): In addition to privatizing recycling services, the Emanuel administration also recently announced plans to privatize the city's water bill call center, airport and library custodial services, and employee benefits services as part of its push to drive down labor costs.
• "City Hires New Finanical Advisor for Public-Private Partnerships" (DNAinfo): In New York City, the Bloomberg administration has hired a financial advisor, Greenhill & Co., to guide city officials on potential new PPPs in parking and real property management. More here from Crain's.
• "Report by CAO endorses private partnership for LA Zoo" (L.A. Daily News): Los Angeles City Administrative Officer Miguel Santana has issued a report recommending the city proceed with creating a nonprofit public-private partnership to operate the Los Angeles Zoo, a privatization model that the overwhelming majority of accredited urban zoos nationally have already shifted to as a means to increase private fundraising and reduce/eliminate government subsidies.
• "Private lessons" (Greater Baton Rouge Business Report): Sandy Springs, GA certainly isn't the only city to have incorporated and embraced a largely privatized model of municipal service delivery. Read this fascinating review of the city of Central, LA (located near Baton Rouge), which since 2008 has used a similar privatization model whereby contractors are used to deliver the bulk of city services. So far, so good in Central, where the city's lean-and-mean approach has produced a 20% budget surplus. Notably, the city has selected a new vendor, the nonprofit Institute for Building Technology & Safety, whose board of directors are officials appointed by the Council of State Governments, International City/County Management Association, the National Association of Counties, the National Governors Association Center for Best Practices and the National League of Cities.
• "Memphis May Privatize Animal Shelter" (WREG News Channel 3): City officials in Memphis announced plans to issue a request for proposals to solicit a private operator for the beleaguered Memphis Animal Shelter, the subject of animal abuse scandals and mismanagement in recent years.
• "Springfield opts to privatize trash pickup" (The News Herald): Officials in Springfield, FL have voted to contract out their residential waste collection to Waste Management. The company's bid proposed residential rates as low as $12.15/month for twice-per-week collection, less than half as much as the current city rate of $26.55 per month, according to the mayor's office.
• "Winter Haven Commission Considers Privatizing Some Services" (The Ledger): The city manager in Winter Haven, FL has told officials that he plans to begin evaluating potential privatization and agency consolidation opportunities in the coming year.

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

Obama Admin. Proposes Federal Asset Divestiture

Posted on March 3, 2011, 8:26pm | Harris Kenny

Reuters reports that the Obama administration is proposing the creation of a civilian property realignment board responsible for overseeing divestiture of federal assets. According to Reuters, the board would be responsible for expediting “the sale of thousands of unneeded federal properties at home and abroad… [Specifically targeting] 14,000 properties already identified as excess to requirements... [And] 55,000 properties that have been identified as under-utilized.”

Reason Foundation explores the recent history of federal asset divestiture in the Annual Privatization Report 2010 section on Federal Government Privatization:

The fiscal challenges facing Washington are driving both parties to seek out new efficiencies to get spending under control, including initiatives for more effective management of federal property…

In total, [a 2010 Republican report entitled “Sitting on Our Assets: The Federal Government’s misuse of Taxpayer-Owned Assets” estimates that the government could achieve savings of up to $270 billion over ten years utilizing such strategies as selling unnecessary real estate assets, expanding the use of public-private partnerships for transportation infrastructure projects, streamlining the approval of transportation projects, renegotiating leases to take advantage of depressed market rates and reallocating and otherwise improving management of existing assets…

[However, current assessments come] from an incomplete database built from inconsistent data managed mainly by the agencies themselves, with each using its own inventory method rather than an accurate, centralized inventory…

As a June 2010 Reason Foundation report notes, real property management is not a Democrat or Republican issue. It is not an issue of spending priorities. Rather, it is a good governance issue and a fiscal responsibility issue…

See the rest of the story on federal asset divestiture, including discussion of steps taken by the Bush Administration in 2004, by downloading the full report here.

For more examples of innovative policy and government reform, check out the other sections of Reason Foundation’s Annual Privatization Report 2010.

New at Reason: Review of Federal Privatization Issues in 2010 and Today

Posted on February 16, 2011, 3:04pm | Adam Summers

The rollout of Reason Foundation's Annual Privatization Report 2010 continues today with the release of the Federal Government Privatization section, authored by Reason's Adam Summers and Anthony Randazzo. The document provides a comprehensive overview of the latest in issues such as public sector versus private sector pay and benefits, the failure of federal housing policies and the need to end federal housing subsidies and dissolve Fannie Mae and Freddie Mac, the Obama administration's proposal to privatize portions of the space program, and other news on privatization and public-private partnerships in the federal government. The articles include:

• Public Sector Compensation Far Exceeds Private Sector Compensation,
• Fight over Insourcing Initiative Dominates Federal Contracting Policy,
• Space, the Private Frontier?,
• Policy Spotlight: Privatizing the Housing Finance System,
• Military Housing Privatization Update, and more.

» APR 2010: Federal Government Privatization [pdf, 800 kB]
» Complete Annual Privatization Report 2010

New at Reason: Annual Privatization Report 2010

Posted on February 10, 2011, 3:32pm | Leonard Gilroy

I'm pleased to announce that today marks the launch of Reason Foundation's Annual Privatization Report 2010 (reason.org/apr2010). Now in its 24th year of publication, the Annual Privatization Report is the world's longest running and most comprehensive report on privatization news, developments and trends.

Readers will notice that we've made a significant change with APR 2010, publishing it as a series of reports arranged by topic, rather than one consolidated report as in previous years. We expect that this will make it easier to use as a resource and find the information you're looking for. The individual sections of APR 2010—which will be released over the next two weeks—include:

• Air Transportation
• Surface Transportation
• Federal Privatization
• State Privatization
• Local Privatization
• Education
• Telecommunications
• Corrections
• Water

We started the rollout today with the APR 2010 Air Transportation section. It provides a comprehensive overview of the latest news on domestic and international airport privatization, the privatization of airport security - including passenger and baggage screening and the federal Registered Traveler program, and domestic and international trends in air traffic control reform. 

» Annual Privatization Report 2010: Air Transportation [pdf, 800kB]

» Complete Annual Privatization Report 2010

NASA to Offer Kennedy Space Center Facilities to Private Aerospace Companies

Posted on February 6, 2011, 11:58pm | Adam Summers

In 2009, the Obama administration announced that it intended to outsource the transportation of astronauts and supplies to and from the International Space Station to private companies (see here and here). The space shuttle fleet is about to be retired and some are wondering what will become of the Kennedy Space Center, which is geared mostly to support the shuttle program. To fill the gap left by the retiring shuttle fleet, NASA is offering private aerospace companies the opportunity to use some of the Kennedy Space Center's facilities.

"Kennedy has been working for some time to enable commercial space activities at the center that are in line with NASA's mission," Kennedy Center Director Bob Cabana said in a statement, reported in the National Journal. "Partnering with the commercial space industry will help NASA meet its goals and help sustain facility assets to support our nation's space objectives."

The statement also noted: "The facilities that may become available are well-suited for entities operating or directly supporting government or commercial launches or space user services." NASA has already received some interest in the Kennedy Center facilities from private aerospace companies, and would reserve the right to take back the facilities if it should determine that it needs them.

This would not be the first instance of privatization at the Kennedy Space Center. As my colleague, Len Gilroy, has observed, the Kennedy Space Center Visitor Complex has been run by a private company for over 15 years. In fact, the privatization of the Visitor Complex improved the quality of the facilities and allowed the Center to tap millions of dollars of private capital for upgrades to what had been deteriorating facilities, upgrades that would not have been possible in times of tight budgets if the Complex had had to continue to rely on taxpayer funding. The privatization has been so successful—and the contractor, Delaware North, has continually received solid performance marks in its regular contract reviews—that last year NASA renewed the company's contract for an additional 10-20 years.

If the government can privatize so much of the space program, once thought beyond the scope of private commercial activity, just think how much else it could privatize if it had the will.

Libertarians Have Smaller Buts Than Rs and Ds

Posted on December 3, 2010, 7:47am | Adrian Moore

Democrat's buts are as big a field of solar panels.  Republican's as wide as a South Florida condo complex. Eve Tea Partiers buts are as big as a Navy ship. And they are all flabby as hell, practically flapping in the wind.

Only libertarians have small, firm buts.

I'm not talking about where they sit. I am talking about where they stand. On government spending.

Across party lines, most Americans agree we need to tackle the deficit, including cutting spending. However, ask them what spending we should cut, and suddenly their big, giant, flabby buts are exposed.

Democrats say: cut defense spending, corporate welfare, BUT don't cut spending on alternative energy, social programs, or health care.

Republicans say:  cut spending on welfare, arts, and the EPA, BUT don't cut social security, education, or farm subsidies.

Even Tea Partiers say: cut spending on most things, BUT don't cut defense or immigration enforcement.

In other words, they all say: cut spending on you, you, you, and that guy behind the tree, BUT please oh please don't cut spending on ME!

(OK, I've beaten the butt of that dead horse enough)

Never before in my decades of being involved in debates about the size of government has it been this obvious how wedded most people are to the government providing them a broad array of things they want.  Not just things you could reasonably describe as public necessities, but just things they want and the easiest way to get them is to have the government provide them.

Only libertarians say: Hell yeah, cut it all, cut everything, even stuff I might think government should still do--at least they should do less of it. For starters, we'd cut defense back as much as reasonable, eliminate corporate welfare and subsidies and move to a flatter, simpler tax system, get the feds out of education, social security, and health care, and start cutting back  the inspector and regulatory state.

You really want to cut the deficit?  Put libertarians in charge.  They may cut some stuff you don't want cut, but they will certainly cut stuff the other guys don't want as well. They will piss everyone one off, but will get the job done. And we all know this problem won't get solved without making everyone mad about something, so lets just jump right in.

Libertarian fiscal aerobics will have those buts trimmed down in no time.

Survey Shows Voters Are Fed Up with Excessive Federal Pay

Posted on September 7, 2010, 5:35pm | Adam Summers

Federal government employees are overpaid, according to a recent survey by Rasmussen Reports. The survey found that 75% of likely voters nationwide want Congress to cut its own pay, and 54% believe that most federal workers are overpaid (just 24% disagreed and 22% were not sure).

The survey results come on the heels of a USA Today analysis of Bureau of Economic Analysis data that revealed that federal workers earned average pay and benefits of $123,049 in 2009, more than twice as much as the $61,051 earned by private workers. Yet the Office of Personnel Management is standing behind a different estimate that claims that federal workers are paid, on average, 22% less than private workers (not counting benefits). OPM Director John Berry responded to the USA Today analysis by claiming that comparing private and public sector averages was like comparing "apples to oranges," and argued that federal workers are "highly specialized."

While it is true that comparing averages does not yield perfect "apples-to-apples" results, other more detailed comparisons have shown that the discrepancies are significant even when the same jobs are compared. As a previous USA Today analysis from earlier this year concluded,

Federal employees earn higher average salaries than private-sector workers in more than eight out of 10 occupations, a USA TODAY analysis of federal data finds.

Accountants, nurses, chemists, surveyors, cooks, clerks and janitors are among the wide range of jobs that get paid more on average in the federal government than in the private sector.

Overall, federal workers earned an average salary of $67,691 in 2008 for occupations that exist both in government and the private sector, according to Bureau of Labor Statistics data. The average pay for the same mix of jobs in the private sector was $60,046 in 2008, the most recent data available.

These salary figures do not include the value of health, pension and other benefits, which averaged $40,785 per federal employee in 2008 vs. $9,882 per private worker, according to the Bureau of Economic Analysis.

Moreover, the pay gap has clearly been widening for many years. Since 2000, federal compensation has grown 36.9%, after adjusting for inflation, compared to only 8.8% in the private sector. And note that none of these comparisons places any value at all on the ironclad job security that federal workers enjoy which cannot be found in the private sector.

So when are governments and their labor unions going to simply own up to the fact that they have used their power to squeeze more money from taxpayers and enrich themselves at our expense? When they are compensated four times as much as private-sector workers? Ten times? Such discrepancies in compensation just make the case even stronger for privatization. At least the aforementioned survey suggests that taxpayers are now wise to the game and are fed up with it.

Related reading:

See my analysis from earlier this year of a comparison of public- and private-sector compensation done by a couple of public-labor-union-friendly groups, "Comparing Private Sector and Government Worker Salaries."

Defense Department Reverses Policy on "Insourcing"

Posted on August 12, 2010, 2:04pm | Samuel Staley

My post yesterday apparently jumped the gun a bit on the U.S. Defense Department's policy of shedding contractor jobs and replacing contractors with full-time civil servants. While this was an explicit policy and goal of the Obama Administration, Defense Secretary Robert Gates has reversed his position after analysis found few savings from this kind of "insourcing" over the last year. So, the cuts really are cuts.

According to GovernmentExecutive.com (August 10, 2010):

The Defense Department's experiment with bringing contractor functions back in-house appears to be over.

While announcing deep personnel cuts and the elimination of the Joint Forces Command, Defense Secretary Robert Gates on Monday said the Pentagon will no longer automatically replace departing contractors with full-time government personnel. Some exceptions, he said, could be made for critical areas such as the acquisition workforce.

Last year, the department announced it would reduce its number of service support contractors by about 33,000 by 2015. The Pentagon had planned to replace those contractors during the next five years with 39,000 new full-time government employees, 20,000 of whom would be acquisition professionals.

So, the 10 perent cuts in contracting reflect reduced budgetary authority, not positions.

See also the report in Federal Computer Week.

This is good news, although I don't think it will save my friends' job. The Defense department has already added 5,000 new full-time positions to replace the contractors already let go.

Defense Cuts Mask Build Up in Future Government Spending

Posted on August 11, 2010, 8:35am | Samuel Staley

The U.S. Department of Defense announced $700 million in cuts this week, including the closing down of a major command in Norfolk, Virginia. Closing the command will save $240 million.

But, these cuts may be masking a fundamental change in defense department personnel strategy that will both expand the size of government and obligate the government to higher spending in the future. The devil is in the details.

The Joint Forces Command--the Norfolk-based command slated to be closed--currently employs 2,800 military and civilian positions. These are jobs covered by U.S. Civil Service requirements, including health benefits, pay grades, and retirement. The command also is supported by 3,000 private contractors. These are private-sector employees that generally don't have the same level of benefits or are not protected by civil service rules. This ratio is not unique: A lot of work is currently provided by private-sector employees. And the Obama Administration doesn't like it.

What better way to mask an increase in government employment than to cloak it under the veil of budget cuts?

The Obama Administration has made clear it wants to bring contractor jobs "in-house" to become part of the civil service. Indeed, Defense Secretary Robert M. Gates budget calls for a 10 percent per year reduction in private-sector contracting. According to the New York Times:

"Mr. Gates also called for a 10 percent annual reduction in spending on contractors who provide support services to the military, including money for intelligence-related contracts, and he placed a freeze on the number of workers in the office of the secretary of defense, other Pentagon supervisory agencies and the headquarters of the military’s combat commands."

Unlike the Joint Forces Command, these contractor jobs are not going away. They will be re-allocated to career civil servants in the federal government (with all the perks and benefits). As Chris Edwards at the Cato Institute has pointed out, federal workers get paid more than private workers overall. And, according to a recent analysis by USA Today (March 8, 2010),

"Overall, federal workers earned an average salary of $67,691 in 2008 for occupations that exist both in government and the private sector, according to Bureau of Labor Statistics data. The average pay for the same mix of jobs in the private sector was $60,046 in 2008, the most recent data available."

These data exclude benefits like health care and vacation pay discrepancies. Among the jobs that pay better on average in the federal government compared to the private sector according to the USA Today analysis are: Accountants, computer systems analysts, economists, procurement clerks, chemists, statisticians, surveyers, nurses and paralegals.

I personally know contractors at Wright Patterson Air Force Base in Dayton, Ohio whose contracts have not been renewed but are now training their career civil service replacements. In these cases, the new federal employees have no substantive background or experience in the job they are being trained for.

So, while real defense cuts are welcome if they improve efficiency and effectiveness, a likely result of the current round is fulfilling the long-term goal of the Obama Administration of building up federal employment and, ultimately, the size of government.

Mercatus: Federal Income Taxes Would Have to More Than Double to Maintain Medicare, Social Security Benefits

Posted on July 31, 2010, 10:36pm | Adam Summers

Here is a sobering chart from the Mercatus Center at George Mason University. Mercatus Center Senior Research Fellow and Reason magazine contributor Veronique de Rugy (see an archive of her Reason articles here) used Congressional Budget Office data to calculate the hike in federal income tax rates that will be required to maintain the increasingly costly Social Security, Medicare, and Medicaid entitlement programs at current benefit levels.

According to de Rugy,

Even for the lowest tax bracket, annual federal income taxes will have to more than double to pay for current levels of Medicare, Medicaid and Social Security spending. These massive tax increases will be necessary in spite of the recently legislated changes to the healthcare system, which CBO has determined will increase costs over the next 20 years and will have indeterminate budget effects into the future.

In 2010, Medicare and Medicaid will cost a projected 5.0 percent of GDP and Social Security will cost a projected 4.8 percent of GDP. Combined, that is just under 10 percent of GDP. By 2020, the combined cost of these three programs is already projected to grow to 11.4 percent of GDP; extrapolating forward at constant growth rates, their cost will be at about 14.4 percent of GDP by 2030. To put this in context, total federal spending has averaged 18.5% of GDP over the last 40 years.

While things like "bridge to nowhere" earmarks grab a lot of the headlines—and, indeed, these are maddening abuses of taxpayer dollars—they represent only a minuscule portion of the federal budget. To truly make any headway in cutting the size and scope of the federal government down to a more reasonable, fiscally manageable, and individual freedom-friendly level, there must be serious reform of the entitlement programs, which make up the bulk of the budget (especially if you take out defense spending). Clearly, we are on an unsustainable trajectory and it is time to start asking fundamental questions like why government intrusions into the health care industry have led to higher costs, fewer choices for consumers, and oftentimes poorer quality of care; whether retirement planning should really be under government purview; or why individuals cannot at least opt out of the Social Security system and handle their own retirement investments and plans.

House Bills to Crack Down on Pentagon Waste, Government Payment Errors

Posted on April 29, 2010, 6:22pm | Adam Summers

A House bill, H.R. 5013, intended to improve Department of Defense procurement and contracting practices and save taxpayers billions of dollars by reducing waste, fraud, and abuse sailed through on a 417-3 vote on Wednesday.

The Pentagon has long been rife with waste. As an Associated Press article on the bill noted,

The Pentagon has long been infamous for its $600 hammers and $300 toilet seats, and Rep. Rob Andrews, D-N.J., who for the past year has headed a panel with Rep. Mike Conaway, R-Texas, working on recommendations for the acquisition bill, said such abuses are still common.

He cited one example of the Air Force paying $13,000 for a refrigeration unit on a plane, and then paying $32,000 for the same unit two years later. He recounted that the Pentagon paid $201 million to truck petroleum products from Kuwait to Iraq even before a contract was signed, and that it can take nearly seven years to go from a proposal to buy information technology to actual use of the technology, by which time it is often obsolete.

"For many years, we've witnessed waste in the Department of Defense's acquisition system spiral out of control, placing a heavy burden on both American taxpayers and on our men and women in uniform," said House Armed Services Committee Chairman Ike Skelton, D-Mo.

The bill would require the Pentagon to establish performance measures to improve efficiency and accountability, require audits of the Pentagon's financial management system, take steps to ensure that units get what they need when equipment is purchased, and improve procurement practices through additional procurement staff, enhanced training, and performance bonuses.

Sponsors of the bill estimated that efficiency improvements and the elimination of waste, fraud, and abuse as a result of the measure would generate savings of $135 billion over five years.

In addition, the House passed another bill, H.R. 3933, yesterday that would enhance the oversight and recovery of payment errors, such as double payment errors or payments made for services that were never received. Rep. Patrick Murphy, D-Pa., a chief sponsor of the legislation, estimated that such errors resulted in $98 billion in improper payments during fiscal year 2009, an amount approximately twice that of the budget of the Department of Homeland Security.

Related Reason research on performance measurement and procurement reforms:

» The Next California Budget: Buying Results Citizens Want at a Price They Are Willing to Pay

» Streamlining San Diego: Achieving Taxpayer Savings and Government Reforms Through Managed Competition (see especially pages 48-50)

» Designing a Performance-Based Competitive Sourcing Process for the Federal Government: 37 Proposed Changes to Regulations and Approaches to Competing and Outsourcing Commercial Activities in Government

» "Streamlining Louisiana: Driving Government Reform in an Era of Fiscal Crisis," interview with Angele Davis, Louisiana Commissioner of Administration (from Innovators in Action 2009)

» Citizens' Budget 2003-05: A 10-Point Plan to Balance the California Budget and Protect Quality-of-Life Priorities (see pages 63-64, 69-84).

» Citizens' Budget Reports: Improving Performance and Accountability in Government