Reason Foundation

New Wisconsin Recall Poll: Reason-Rupe Finds Broad Support for Pension, Health Care Reforms

Posted on May 24, 2012, 8:00am | Emily Ekins

Gov. Scott Walker leads Milwaukee Mayor Tom Barrett 50-42 among those likely to vote in Wisconsin’s June 5 recall election, according to a new Reason-Rupe poll of 708 Wisconsin adults on cell phones and landlines.

In the presidential race, 49 percent of all adults surveyed approve of the job President Obama is doing and 45 percent disapprove. President Obama leads Mitt Romney 46-36 in Wisconsin, with 6 percent selecting the Libertarian Party’s Gary Johnson. Obama’s margin over Romney shrinks to 45-41 among those likely to vote in June’s recall election, with Johnson taking what would be a crucial 5 percent of the vote.

The Reason-Rupe poll finds voters overwhelmingly support many of the key changes Gov. Walker and the legislature implemented on public sector pensions and health care last year. Reason-Rupe finds 72 percent favor the change requiring public sector workers to increase their pension contributions from less than 1 percent to 6 percent of their salaries. And 71 percent favor making government employees pay 12 percent of their own health care premiums instead of the previous 6 percent.

Taxpayers actually wish state lawmakers had cast an even larger net with their reforms. Police and firefighters were exempted from the pension and health care adjustments but 57 percent of taxpayers say they should not have been.

The public supports asking government workers to pick up more of the tab for their own benefits because 65 percent say public sector workers receive better pension and health care benefits than private sector workers, 22 percent say benefit levels are about the same, and just 7 percent believe private sector benefits are better than those in the public sector.

When asked what state and local officials should do if pensions and health benefits are underfunded, 74 percent favor requiring government employees to pay more for their own health care and retirement benefits. In sharp contrast, 75 percent oppose cutting funding for programs like education and 74 percent oppose raising taxes to help fund government worker benefits.

To deal with rising retirement costs, 69 percent favor shifting future state employees, those who haven’t been hired or promised pensions yet, to 401(k)-style retirement plans instead of the current defined-benefit plans.

If state and local governments have to reduce spending, voters were asked what should be cut first: 38 percent say public employee pension benefits, 29 percent believe prison and court cuts should be made first, 17 percent would reduce funding for roads and infrastructure, 5 percent chose education, and 4 percent would target health care spending.

Government employee unions are viewed favorably by 35 percent of those surveyed and unfavorably by 31 percent. Voters remain split on limiting the collective bargaining power of public sector unions, with 47 percent in favor of, and 46 percent opposed to, restricting unions’ ability to negotiate things like health care and pension benefits.

The Reason-Rupe poll finds significant differences in attitudes between public and private sector employees. For example, 65 percent of government employees have a favorable view of public employee unions and just 11 percent view unions unfavorably. In contrast, only 27 percent of private sector employees have favorable opinions of public employee unions, while 37 percent view them unfavorably.

And while 72 percent of all respondents favor the law requiring public sector workers to increase their pension contributions, only 48 percent of government employees favor the change, while 80 percent of private sector employees favor it.

The complete Reason-Rupe survey is online here (pdf).

This Reason-Rupe poll, conducted May 14-18, 2012 by ORC International, surveyed a random sample of 708 Wisconsin adults on cell phones and landlines. The results have a margin of error of plus or minus 3.7 percentage points. The poll includes 609 likely voters who are registered and said they are certain or likely to vote in the June 5 recall election.

This is the latest in a series of Reason-Rupe public opinion surveys dedicated to exploring what Americans really think about government and major issues. This Reason Foundation project is made possible thanks to the generous support of the Arthur N. Rupe Foundation.

New York City Launches Parking Meter Privatization Initiative

Posted on May 24, 2012, 7:00am | Leonard Gilroy

Last week, the Bloomberg administration in New York City announced plans to issue a request for qualifications from private bidders interested in a potential lease of the city's parking meter system, following in the footsteps of Indianapolis and Chicago, which have inked similar deals in recent years. This is a sensible move for NYC, as privatization can not only unlock value trapped in parking assets, but it can also provide a powerful means of deploying new, cutting-edge parking technology at a time when fiscal conditions prevent the city from making such investments on its own.

As Ted Mann wrote in The Wall Street Journal last week:

Officials said they are motivated in part by a belief that a private company could help alleviate some of the well-known frustrations of parking in New York: circling block after block in a search for an empty spot or dashing out in the middle of dinner to feed a meter.

Although other cities have embraced more driver-friendly technologies, New York has been slow to catch up.

The city's 7,800 muni-meters represent only a slightly more modern approach—they accept credit and debit cards—than the 31,000 single-space meters that gobble coins in boroughs outside Manhattan.

With enough incentive, officials believe, an outside party could come up with innovations for the Internet age, such as a system to pay with a smartphone or a mobile app that would direct drivers to vacant spaces detected through sensors in the pavement.

In the Bronx, the city Department of Transportation is running a pilot program to test pavement sensors, including whether they will work in New York's climate. But that is a small test, and broadening that program, or one like it, to the entire city could be risky and expensive.

"The odds are higher that [private companies] will move with greater alacrity," Deputy Mayor Robert Steel said.

A deal also could offer potential savings for the city on labor costs, but officials said it is too soon to say what a contract might look like.

[…] New York City officials said they aren't looking for an upfront balloon payment and wouldn't strike a deal that relinquished control over the setting of parking-meter rates—a key source of friction in Chicago.

New York's meters brought in $149 million in revenue in the last fiscal year, a spokesman for the city DOT said. Parking tickets are handled separately from meter operations, and neither enforcement nor parking-ticket revenue would be included in any privatization deal, a city spokeswoman said.

"We're not looking to sell out the system, which some people have done and which I don't understand at all," Mr. Steel said. "Our process has been to consider locking in the current performance, and, if it makes sense, transferring the risk to a third party."

[…] If the city's request for qualifications reveals suitable bidders, a request for proposals would follow, likely several months from now.

More here from Noah Kazis at Streetsblog, as well as this follow-up article from Mann.

Notably, the Bloomberg administration has been emphatic that if a deal is ultimately reached, the city will retain controls over parking rates and parking violation enforcement. Some journalists have misconstrued this to imply that similar deals in Indianapolis and Chicago lacked those controls, but that is not the case.

For example, Chicago officials authorized a set schedule of rate increases for the first five years of the 75-year lease term, and then rates are allowed to adjust annually beyond that with a maximum cap (capped by inflation). However, city council approval is required for any rate increase after the first five years. So the private concessionaire cannot just change whatever rates it wants; rates are controlled either in the contract (first five years) or must be approved by the city council (remainder of lease term). The Indianapolis privatization has similar rate controls.

Earlier this week, my colleague Harris Kenny posted his parking asset privatization update extracted from Reason Foundation's recently released Annual Privatization Report 2011 (APR2011). The article offers an update on last year's news from the Chicago and Indianapolis parking leases, and it also provides an overview of other governments' efforts in 2011 to explore similar parking transactions, including Los Angeles, Sacramento, New Jersey Transit and Pittsburgh.

Momentum appears to be continuing in 2012. In addition to New York CIty, some of the more notable developments thus far in 2012 include:

Ohio State University: As Harris noted in APR2011, last year Ohio State University officials released a request for qualifications—and approved seven potential bidders for—a potential long-term lease of its parking system, which would be a first-of-its-kind asset monetization by a public university. Last last month, OSU took the next step, issuing a request for proposals seeking at least $375 million in an upfront payment from a private operator in return for a 30-50 year concession. If a deal is finalized, then the school would put the entire upfront payment into its long-term investment pool to support the university's long term academic mission. Bids are due by the end of this month. More details are available on the university's parking proposal homepage. Predictably, students and professors don't like it.

Sacramento, CA: As Harris and I wrote back in March, officials in Sacramento had been pursuing a lease of its downtown parking meters and garages in order to help finance a brand new downtown NBA arena to try to keep the Sacramento Kings from leaving town. As we wrote, parking privatization makes sense on its own, but doing so in order to subsidize a boondoggle arena and its wealthy patrons does not. Luckily for Sacramento taxpayers, this arena deal crashed and burned last month, when the city and the Kings' owners reached an irreconcilable impasse in their larger negotiations to finance the arena. More details here. Interestingly, one media outlet reported recently that city staff have left open the possibility of a standalone parking asset lease to generate revenues for other capital assets.

Harrisburg, PA: The state receiver charged with paying down Harrisburg's staggering debt and closing structural budget deficits is pursuing several potential sales and long-term leases of city assets as part of the city's fiscal recovery plan, including a long-term lease to operate the city's system of parking garages, meters and surface lots. Back in March, the city's receiver shortlisted 12 of 18 potential bidders for a long-term lease of the city's parking assets, and last month nine of those bidders submitted responses to a request for qualifications. The receiver is expected to make a final selection by June. The state's Commonwealth Court must approve any final deal, and officials expect that the Court could make its determinations as early as late June.

Wilkes Barre, PA: Last Friday, the Wilkes-Barre City Parking Authority released a request for qualifications for a 30-year or 50-year lease of its 2,273 garage and surface lot spaces and 800 parking meters. It has also hired a parking consultant to help assess the potential value of its parking assets and prepare the RFQ. City officials are seeking an upfront payment of at least $20 million, and responses are due back by June 8, 2012. The RFQ is available here.

Reason Foundation has a lot of research available in its archive on the privatization of parking assets. For more, see here.

NJ Legislature Exploring Decriminalizing Marijuana

Posted on May 21, 2012, 11:37am | Harris Kenny

Today the New Jersey Assembly Judiciary Committee is considering Assembly Bill Number 1465 (A1465), which would most notably decriminalize possession of 15 grams or less of marijuana, and impose a new range of civil penalties instead. Roseanne Scott, state director for the Drug Policy Alliance, told The Star-Ledger, "(this) the furthest a bill to decriminalize marijuana has ever gotten in the New Jersey Legislature." Specifically, the bill statement reads:

This bill would decriminalize possession of 15 grams or less of marijuana. A person who is found to possess 15 grams or less of marijuana would be subject to a $150 fine for a first violation, a $200 fine for a second violation, and a $500 fine for a third or subsequent violation…

In addition, any person who is 21 years of age or older who commits a third or subsequent violation would be referred to a drug education program approved by the Division of Mental Health and Addition Services in the Department of Human Services. A person who is less than 21 years of age at the time of the violation shall be referred to an approved drug education program following any violation. The person would be responsible for paying any costs associated with his participation in the program, consistent with his ability to pay. If the violation is committed by a person under the age of 18, the person would be referred to the Family Part of the Chancery Division of the Superior Court for an appropriate disposition.

A person who possesses drug paraphernalia for the personal use of 15 grams or less of marijuana would no longer have committed a criminal violation but would be subject to a $100 civil penalty.

Additionally, this bill would establish that it is no longer a disorderly persons offense to be under the influence of marijuana or to fail to voluntarily deliver 15 grams or less of marijuana to the nearest law enforcement officer. This bill would also eliminate the requirement that a person who operates a motor vehicle while in possession of 15 grams or less of marijuana must pay a $50 fine and forfeit the right to operate a motor vehicle for a period of two years.

The Commissioner of Human Services would adopt any rules and regulations necessary to effectuate the purposes of section 5 of this bill. This bill would not apply to persons who are in compliance with the “New Jersey Compassionate Use Medical Marijuana Act,” N.J.S.A.24:6I-1 et al.

A1465 will likely benefit from recent momentum on drug policy reform, and enjoys widespread support in its own right. For example, New Jersey policymakers recently approved medical marijuana for the first time.  A1465 was first introduced by Assemblymen Reed Gusciora (D-Mercer) and has bipartisan support from 15 Democrats and three Republicans. And last week The Star-Ledger editorial board weighed in on A1465 bluntly, concluding:

Treat pot the same way we do alcohol, with education and treatment. Not by calling the cops. What didn’t work for bootleggers won’t stop the stoners.

Despite the aforementioned support, A1465 faces an uncertain future. It’s not clear whether the bill will make it out of committee, let alone out of the legislature. And while Governor Chris Christie has signaled interest in criminal sentencing reform, his office has not publicly commented on this particular bill.

Drug policy and criminal sentencing reform continue to gain momentum in New Jersey, making A1465 a bill to watch.

Will Indiana, Pennsylvania Follow in Illinois' Footsteps on Lottery Privatization in 2012?

Posted on May 21, 2012, 10:00am | Leonard Gilroy

One of the more interesting developments last year in the world of privatization was Illinois' first-of-its-kind privatization of the operation of its lottery, covered in detail in Reason Foundation's Annual Privatization Report 2011 (lottery article link here; full report here). Illinois officials crafted the privatization initiative such that the private operator committed to increasing net lottery revenues to the state by an expected $1 billion over what the state had estimated under in-house operation over the next five years, with the new revenues dedicated to education and infrastructure.

The Annual Privatization Report 2011 article noted that Illinois' lottery deal caught the attention of policymakers in several other states in the second half of last year, and in just the last two months, two additional states have begun taking formal steps to evaluate the potential for similar transactions.

Last Wednesday, the Indiana State Lottery Commission announced a solicitation seeking firms interested in assuming operation of the Hoosier Lottery. As Leslie Weidenbener wrote last week in The Courier-Journal:

The state will take steps to hire a private company to help run the Hoosier Lottery in an effort to make more money from the games — a step already taken by Illinois and under consideration in Pennsylvania, New Jersey and other states as well.

The Indiana State Lottery Commission voted 3-0 Wednesday to seek information from companies that would be willing to “perform a broad scope of services” for the lottery. Then in September, the state plans to accept actual bids.

“Gov. Mitch Daniels has consistently challenged all of us to identify and implement changes that promote more effective and more efficient state government,” said Hoosier Lottery Executive Director Karl Browning in a statement the agency issued Wednesday afternoon. "The goal is to become more strategic in our business approach in an effort to increase revenue for the State of Indiana," he said.

[...] The Hoosier Lottery released what it called a “Request for Expression of Interest” on Wednesday, which lists areas of potential growth opportunities:

• Reconfiguring the current retail and distribution network, potentially increasing its scope and reach;
• Optimizing commission structure for retailers and other distributors;
• Optimizing the gaming experience within the legal parameters of the United States and the State of Indiana;
• Enhancing marketing activities;
• Marketing the Lottery to new, infrequent and lapsed players to increase the breadth of its customer base
• Implementing new technology platforms to enable more effective and efficient operations; and
• Making improvements to the supply-chain.

Similarly, last month Pennsylvania Gov. Tom Corbett announced that his administration had launched a similar process, testing the market for interest in a private management contract for that state's lottery. According to the Governor's press release:

Governor Tom Corbett today announced his administration is taking an innovative step that could increase future funding for a wide range of vital programs for older adults supported by the Pennsylvania Lottery.

The commonwealth has issued a Request for Qualifications to pursue a private management agreement for the Pennsylvania Lottery. Should the state decide to move forward with accepting bids, qualified private sector firms will compete to offer new ideas to maximize the Lottery’s performance and increase revenues that support programs serving older Pennsylvanians.

“The Pennsylvania Lottery is the nation’s one and only lottery that benefits older adults and that will not change,” Corbett said. “This initiative is simply part of my administration’s efforts to tap private sector innovation to make state government work more efficiently and effectively, which is precisely what taxpayers expect.

“Our state’s fast-growing population of older adults means time is not on our side, and we need to maximize funding for senior programs and services in a way that does not ask taxpayers to dig any deeper into their pockets,” Corbett added.

A private management organization may be better able to quickly adapt new technologies, develop new games and optimize retail outlet performance. It would be required to cover any initial shortfall to financial returns assured by any private management agreement.

In accordance with federal guidelines, the commonwealth would continue to own the Lottery – it would not be sold. A private management firm would be responsible for the Lottery’s operations, but the commonwealth would still conduct the Lottery and retain full rights to control, inspect and audit the Lottery.

[...] [State revenue secretary Dan] Meuser noted that over the last five years, Lottery net profits have grown an average of just 0.3 percent per year. In addition, the Lottery’s net revenue is projected to grow about 1 percent, on average, per year through fiscal year 2014- 15, which is not likely to keep pace with cost increases and demand for current programs.

These are encouraging developments in both states, as operating a lottery enterprise is not a core function of government in any semblance of the imagination. However, full privatization is not an option; any divestiture or long-term lease of lottery revenues would be prohibited under federal law according to the U.S. Department of Justice. So Illinois pioneered the next best thing: turning over lottery operations to a private consortium with deep operational expertise as a means to maximize marketing and retail performance, and thus maximize net revenues to the state. Why would anyone reasonably expect government agencies to manage such business functions better than...well, a real business?

And it's no free-for-all for the private sector, as the contract in Illinois (and presumably the next states to follow their lead) requires the operator to receive state approval of its business plan annually and submit to other public controls. As I wrote in APR2011:

Illinois Gov. Pat Quinn announced the winning bidder for a contract to take over the management of the state lottery in September 2010. Officials expect the move to generate $4.8 billion for the state over the next five years, a $1.1 billion increase over the revenues projected under state management. Under the terms of the 10-year contract, the winning bidder—Northstar Lottery Group, a partnership between GTECH, Scientific Games and Energy BBDO—will take over responsibility for lottery operations, management and marketing functions in exchange for a portion of revenues. The state will continue to exercise control and oversight over all significant business decisions, including the state approval of annual business plans and ability to access all vendor information regarding lottery operations.

The deal also ties the operator’s compensation to its performance at enhancing lottery revenues. Through a combination of an annual $15 million management fee and incentives for extra profits, Northstar stands to earn over $330 million over five years if it reaches state-determined revenue targets. However, the contract includes a 5% total net income cap on the potential profits for the contractor, as well as penalties paid to the state if the company fails to hit revenue targets. The contractor will retain all current lottery employees and has announced its intention to hire an additional 100 private sector employees.

Read the whole thing here, and see here for more fascinating tales from the voluminous Annual Privatization Report 2011.

Polling Metro Denver Voters' Support of Tax Hikes for Public Transit

Posted on May 18, 2012, 12:09pm | Harris Kenny

Last month I wrote on Reason Foundation's Out of Control Policy Blog about the Denver Regional Transportation District (RTD) Board's decision to abandon a proposed tax hike that would have doubled the current transit-dedicated, 0.4 percent regional sales tax along the Northwest Corridor.

For context, the new revenue would have specifically gone towards FasTracks, a regional transit program approved by voters in 2004 projected to cost $4.7 billion and be complete by 2017. According to the latest estimates, FasTracks costs ballooned up to $7.4 billion and won't be complete until 2042. For more on FasTracks see my previous posts here, here and here.

Two major factors behind RTD's decision were uncertainty over voter support and ambiguity over the proposed use of funds. A reader recently sent me a poll conducted by Ciruli Associates, a Colorado-based research and consulting firm, which sheds light on metro Denver voters' attitudes towards tax hikes for FasTracks. This poll was released prior to RTD's decision and likely played a role in their decision.

According to Ciruli Associates:

The Ciruli Associates question in this survey used a historical context of the revenue provided for the project since its 2004 inauguration.  Previously, polls have shown people like transit, especially light rail, and would like the system built out quicker.  But, the decline in trust in government makes RTD and its ability to manage finances and the project an issue in this election.

First, the broad numbers. 49 percent of voters support the tax increase, while 46 percent of voters oppose it. Only 17 percent of voters definitely support the tax increase, while 30 percent (almost one-third) definitely oppose it.

Next, a breakdown by party affiliation. A majority of Democrats (65 percent) support the tax increase, while a majority of Republicans (57 percent) and independents, or unaffiliated, voters (56 percent) oppose it.

Finally, a breakdown by geography. Ciruli Associates note that interestingly, "Voters in the two counties that should receive the most benefit from the next phase of transit expenditure, Adams and Boulder, are among the least supportive of the tax increase. Even Denver is only mildly supportive."

This poll was conducted from April 6-10, 2012 in the seven-county metro area known as the Northwest Corridor by Ciruli Associates for The Buzz. Ciruli Associates used RDD probability sampling with 500 voters and calculated a margin of error of ⁺ 4.4 percentage points.

This poll was not widely cited in the lead up to the RTD Board's vote and only came to my attention today, however its results remain informative. Most Colorado transportation observers recognize that the relevant question is not if RTD will seek voter approval for another transit-dedicated tax hike, but when?

For related research, see Reason-Rupe's December 2011 national poll on transportation and public transit here.

Federal Public School Food Police Fine Utah School $15k for Leaving Vending Machine Plugged in During Lunch.

Posted on May 17, 2012, 1:05pm | Lisa Snell

As "The Blaze" reports: 

A Utah high school is learning the hard way that the government is serious about nudging students away from food it doesn't want them to consume. Davis High School in the Salt Lake City area is having to fork over a whopping $15,000 in fines to the Feds because it accidentally sold soda through a vending machine during lunch.

Federal law requires the school to turn off its soda machines during the lunch period, which is 47 minutes a day. And Davis High school did turn off the machines in the lunch room. However, the school didn't realize that there was another machine in the school bookstore that wasn't being turned off. And when the food police realized it, the school was hit with a $0.75 fine per student for the duration of the offense. 

And this is especially unfair because all the evidence suggests that soda and snack bans in schools don't work. As the Washington Post and many others have reported:

Jennifer Van Hook and Claire Altman looked at a sample of 20,000 students who began kindergarten in 1998, and checked in on their height and weight in fifth and eighth grade. They couldn't find any significant link between higher obesity rates and schools that allowed vending machines selling snacks and soda. "The results suggest that the sale of competitive foods [which compete with traditional school foods, such as soda and snacks] in school is unassociated with weight gain among middle school children," they write.

Policies that limit the availability of candy bars, chips and soda have become popular in recent years; 23 states place some kind of restriction on what foods can be sold in schools. Why does this study find that such policies don't necessarily reduce childhood obesity? A lot of factors could be at play. Students that don't have access to soda in schools tend to increase their consumption of sugary drinks at home, a 2011 study in the Archives of Pediatric and Adolescent Medicine found.

In addition, it turns out that like everyone else school kids are good at developing black markets when soda and snacks are banned. As this article explains: LA school district lunch program spawns thriving junk food black market. 

School Districts in Wisconsin Saved $30 million on Health Insurance Costs Since Collective Bargaining Relief

Posted on May 17, 2012, 12:35pm | Lisa Snell

A competitive environment for health insurance is already saving school districts money in Wisconsin.

As the Wisconsin State Journal reports:

WEA Trust, the not-for-profit insurer that covered about two-thirds of Wisconsin school districts last year, has seen its revenue decline almost $70 million after the state gave districts more freedom to switch insurers. . . .

The data, from 52 school districts that changed health insurance carriers, show total savings of more than $30 million. Walker said the savings are good news for taxpayers, and also free dollars for teacher wages and classroom development.

And even those districts that did not switch health insurance plans are now getting a more competitive deal:

However, other districts said even with the increased freedom to switch, they preferred to stay with WEA Trust. They said the insurer offered them a competitive price along with the secondary benefit of strong customer service.

One example is the School District of La Crosse, which insures about 1,000 people. Its premiums actually went down 3 percent last year.

Puerto Rico's Infrastructure Renaissance Continuing in 2012

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

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

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

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

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

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

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

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

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

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

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

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?"

APR 2011: Corrections and Public Safety

Posted on May 2, 2012, 5:35pm | Harris Kenny

The rollout of Reason Foundation's Annual Privatization Report 2011 (APR 2011) concluded this week with the Corrections and Public Safety section, which provides an overview of the latest news and trends in public-private partnerships in corrections and public safety. Highlights include:

• According to the most recent data compiled by the Bureau of Justice Statistics, the total U.S. prison population declined for the first time in nearly four decades. The decrease is attributed largely to a decline in new prison admissions relative to prison releases in state prisons.
• Approximately 8 percent of the total prison population is currently housed in privately owned and/or operated facilities, while the remaining 92 percent continue to be housed in government-run facilities.
• In the 2011 case Brown v. Plata, the U.S. Supreme Court ruled California’s correctional system is providing unconstitutional mental and medical care to inmates. At the time, California held about 156,000 inmates in a system designed for less than 80,000 inmates – nearly twice the design capacity. In response, the court ordered the state reduce its system-wide prison population at or below an average of 137.5 percent of prison design capacity.
• A new form of public-private partnership is emerging in the United Kingdom and Florida that could dramatically reduce recidivism and transform corrections, whereby contractors would be compensated for achieving specific performance goals in reducing recidivism and improving rehabilitation. Florida is exploring this model for an 18-county region and would apply dozens of performance measures to quantify outcomes.
• In September 2011, the Ohio Department of Rehabilitation and Correction, under the guidance of Gov. John Kasich, 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—the first sale of its kind in the nation—and two others turned over to private management, for an estimated $13 million in annualized cost savings.
• Lawmakers in Texas, Florida, Arizona, North Carolina, Pennsylvania and elsewhere are pursuing meaningfully expanding the role the private sector plays in inmate healthcare delivery.

» Annual Privatization Report 2011: Corrections and Public Safety [pdf, 1.4 MB]

» Complete Annual Privatization Report 2011 homepage

Osceola County, Florida Library Partnership "Paying Dividends"

Posted on May 1, 2012, 8:48pm | Harris Kenny

In a recent Around Osceola op-ed, Osceola County, Florida Commission chairman John Quiñones writes, "A bold, ground-breaking partnership with a private company to operate the Osceola Library System passed its 100-day mark Sunday (April 15) and is already leading to reduced costs, a flow of new books and more access for all residents."

The piece continues:

Osceola County was the first in the state to enter into a relationship with a private company (Library Systems and Services Inc.) to manage the system. For this reason, I believe that funding and the future of the operation of our libraries are secure because of the Board of County Commissioners’ action. Residents need to know that there is plenty of good news about the Osceola Library System.

First, it’s about the books. Orders for materials have been going out regularly for the last eight weeks and shelves are filling up with bestsellers and new releases. More than 4,200 new items have arrived and more than 8,500 books have been ordered. 

Next, it’s about the people. The “Hot off the Press” program expands the availability of new books and bestsellers to library patrons, while maintaining the popular hold system.

Denise Galarraga, the new director, has already held meet-and-greets at each library branch. Library amnesty week included a “Fees for Food” program in partnership with the Green Bag Project that helped the community’s children in need.

What about the employees? I’m pleased to say that all of the Osceola Library System employees were offered positions with the new company and the majority accepted those offers. And all of the employees were hired at the same salary they had with the county.

The piece ultimately concludes, "Overall, I am confident that the Osceola Library System will continue its role of serving residents in a progressive and inclusive manner."

John Quiñones' op-ed is a must-read for anyone interested in understanding why public-private partnerships are a useful tool for local governments. Not only can they help cash strapped governments keep libraries open, they have proven to be an effective tool for improving the quality of library services too. For more on this issue, see my recent Innovators in Action interview with Osceola County commissioner Frank Attkisson here; and this excerpted section on library partnerships in California from Reason Foundation's Annual Privatization Report 2011.

Chicago, Los Angeles, Tulsa and Jacksonville and Other Local Governments Turning to Privatization

Posted on April 30, 2012, 7:20pm | Harris Kenny

In case you missed it, the rollout of Reason Foundation's Annual Privatization Report continued last week with the release of the local government privatization section. This section details the latest trends and government reforms being implemented in cities across the United States.

For example, Chicago Mayor Rahm Emanuel recently announced a plan to raise $7 billion—largely through private financing—to rebuild the city’s critical infrastructure. Emanuel, former White House chief of staff to President Barack Obama, has followed the path blazed by former Mayor Richard Daley, who privatized dozens of city services, including long-term leases of Chicago’s parking meters and the Chicago Skyway toll road, during his tenure. Emanual also implemented a new competitive bidding program in recycling that has lowered costs by over $2 million in the six months since private companies started competing with city crews.

Last year in Los Angeles, Mayor Antonio Villaraigosa worked to advance public-private partnerships for city-owned parking garages, the Los Angeles Zoo, animal shelters and public art facilities. While Los Angeles hasn’t moved ahead on zoo reforms yet, Tulsa Mayor Dewey Bartlett successfully partnered with a nonprofit to privatize management of the Tulsa Zoo. Mayor Bartlett is pursuing an ambitious reform agenda with initiatives such as identifying underutilized city assets that could be closed (maintenance garages) and sold (over 500 city vehicles).

Similarly, new Jacksonville Mayor Alvin Brown is looking to partner with the private sector. Shortly after taking office in 2011, Mayor Brown created a new Office of Public Private Partnerships that’s currently exploring ways to reduce costs on city services and optimize public assets.

This section of the Annual Privatization Report identifies the privatization of parking garage and meter operation as an emerging local privatization trend of the past year, led by newcomer Indianapolis. New York, Sacramento, Pittsburgh, Memphis and Harrisburg are some of the cities that have also investigated parking privatization.

You can find the complete local government section of Reason Foundation’s Annual Privatization Report available online here.

» Annual Privatization Report 2011: Local Government Privatization

» Complete Annual Privatization Report 2011 homepage

Being Taken for a Ride on High-Speed Rail in California

Posted on April 27, 2012, 4:21pm | Adam Summers

In my latest commentary, I once again tackle the boondoggle that is the California high-speed rail project, specifically, the most recent version of what passes for a business plan from the California High-Speed Rail Authority (CHSRA).

When the High-Speed Rail Authority recently released yet another version of its purported business plan, it was just another day in the world of the ever-changing high-speed rail plans and assumptions made by the Authority and its backers. The fourth incarnation of the plan relies upon sharing tracks with commuter trains in both Los Angeles and the Bay Area in order to trim estimated costs from $98.5 billion to "only" $68.4 billion—still more than 50% more expensive than the plan voters thought they were approving in November 2008. But, as the non-partisan Legislative Analyst's Office (LAO) observed, this plan makes no more sense than any of the previous ones.

The LAO analysis concludes,

We find that HSRA has not provided sufficient detail and justification to the Legislature regarding its plan to build a high-speed train system. Specifically, funding for the project remains highly speculative and important details have not been sorted out. We recommend the Legislature not approve the Governor’s various budget proposals to provide additional funding for the project.

The vast majority of the expected funding continues to be wishful thinking. As I relate in my article,

As with every other attempt at a plan, the latest effort from the CHSRA lacks any basis in reality. Once again, most of the funding is to come from unidentified federal and private-sector sources that almost certainly will not materialize. In fact, 83.2 percent of the project’s proposed funding is unaccounted for, including $38.6 billion the CHSRA hopes to receive in federal funds (in addition to the approximately $3.5 billion in federal stimulus and transportation funds that has already been allocated), $13.1 billion expected from private investors, and $5.2 billion to come from other sources such as local governments.

In response to such criticisms, CHSRA Chairman Dan Richards argued that it is simply common practice for transportation projects to go forward without knowing from where the money will come. “I spent 12 years on the [Bay Area Rapid Transit] board in the transit world; we never knew where all of the money was coming from,” Richards said. “Our colleagues in Southern California just adopted a $540 billion regional transportation plan for the Southland, for the next 20 years, same time period we’re talking about here. They don’t know where all of the money is coming from.” Added Richards, “It is just part and parcel of the transportation world that people don’t know these things now.”

If ever there was a window into the mindset of a government central planner, this is it. So the excuse for such irresponsibility and carelessness with scarce taxpayer dollars is the notion that “Everyone else (in government) is doing it!” Besides, who needs to know minor details like how something is going to be paid for when your state faces yearly multi-billion-dollar deficits?

Yet CHSRA board member Mike Rossi calls the new business plan “credible, reasonable, and transparent.” Many of the high-speed rail planners are clever people, so it is hard to believe that they could be so divorced from reality. There are many special interests involved in a project of this scope, however (which is yet another reason why such things should be left to the voluntary decisions of people in a free market, rather than forced down people's throats through the political process), so perhaps it is simply an attempt to intentionally delude taxpayers whom they hope will be too apathetic or uncritical to notice otherwise.

One of the things that continually amazes me is how basic assumptions such as the cost of the project and the estimated ridership—which affects everything from how much revenue the system will generate to how much it will affect traffic congestion and greenhouse gas emissions—can change so dramatically, so quickly, and yet the supporters of high-speed rail cling to the project with religious fervor and never question how these seemingly arbitrarily-determined numbers affect the viability of such a large project. As I argued in my column,

The CHSRA and many advocates of high-speed rail have demonstrated that they are beyond reason, despite all the facts that contradict their hopes and assumptions. High-speed rail advocacy has become more of a religious crusade than a policy position. Avoiding the facts stacking against this project is how cost estimates can triple, then be reduced by one-third. It’s how ridership estimates can magically plummet to one-third of their original estimates (see this CalWatchdog article for a good summary on the project’s changing assumptions). It’s how major decisions such as changing from dedicated high-speed rail tracks to tracks shared with slower commuter trains on both ends of the system can be made. And yet with all these arbitrary changes, high-speed rail acolytes have not batted an eye or even questioned how the plan can still be considered feasible, much less profitable.

Moreover, the bond measure (Prop. 1A) that voters narrowly passed back in 2008 requires that a trip between Los Angeles and San Francisco on the high-speed train system take no more than 2 hours, 40 minutes. That probably would not have happened even under the older plans, but seems to be pure fantasy now that the high-speed trains will have to share tracks with slower commuter trains at both ends of the system. As Quentin Kopp, former California state senator and CSHRA chairman who was a leading figure in pushing for the passage of Prop. 1A and the creation of the CHSRA, admitted of the new plan, “This isn’t high-speed rail.” Added Kopp, “High-speed trains have separated tracks. That’s how they could achieve speeds and travel times promised to voters in the 2008 ballot measure.”

The high-speed rail project is such a disaster on so many fronts—economically, politically, even environmentally—that one can only hope that the plug will be pulled before California wastes more billions of dollars it does not have. At the very least, voters should have the chance to re-vote on such a project that is so different from the one put before them in 2008. Barring that, it will be up to the voters to use the initiative process to kill the high-speed rail system in order save themselves from more financial waste and abuse.

See my full article here.

Denver's RTD Abandons Tax Hike for FasTracks

Posted on April 25, 2012, 12:56pm | Harris Kenny

Monte Whaley of The Denver Post reports:

A FasTracks proposal to link commuters in the northwest Denver metro area to downtown is stalled after the Regional Transportation District (RTD) board of directors decided Tuesday night not to pursue a tax increase in November that would fund the idea.

All 12 members of the RTD board said the timing is wrong for any kind of tax hike—which would have gone for to all unfunded and partially funded corridors—and there still remains too many questions about the plan.

This vote shelves an ongoing conversation about solving surface transportation needs in the Denver metropolitan area. In this piece I highlight two motivating factors behind their decision, and offer three takeaways for what to expect moving forward.

First, for those unfamiliar, I outlined the context of this vote in a reason.org commentary last month:

In 2004 voters in Denver’s Northwest Corridor approved raising a regional 0.4 percent sales tax, generating $894.6 million to build a Commuter Rail Transit (CRT) line known as the Northwest Rail Line by 2017. The proposed 41-mile diesel, 7-station diesel-powered (non-electric light rail) CRT would start at Denver’s Union Station and would have stations in Westminster, Walnut Creek, Broomfield, Louisville, Boulder, Gunbarrel and Longmont. The Northwest Rail Line is one piece of a larger regional transit program known as FasTracks...

Overall FasTracks is a multi-billion dollar transit expansion program that aims to ultimately comprise of 122 miles of CRT and light rail, 18 miles of bus rapid transit (BRT) and 21,000 new complementary parking spaces across eight counties. When voters approved FasTracks it was projected to cost $4.7 billion - these estimates have proven to be totally inaccurate.

Fast forward to spring 2012: FasTracks costs ballooned from $4.7 up to $7.4 billion and the system is not expected to be complete until 2042. Last year alone FasTracks' system-wide capital costs increased by $968.3 million and eighty five percent of that increase came from the Northwest Rail Line. The RTD Board of Directors weighed four options for the Northwest Rail Line that all hinged on ballot placement, and voter approval, doubling the initial FasTracks regional sales tax from 0.4 percent up to 0.8 percent. They pursued—and ultimately abandoned—a hybrid option prepared by the RTD staff that would have provided supplemental BRT from Westminster to Longmont until CRT was complete.

The RTD Board of Directors essentially punted on making a decision by abandoning the tax hike for the hybrid option, and they were primarily motivated by two factors.

1. It's uncertain whether or not voters would approve a tax increase this fall. For example, last fall voters rejected Proposition 103, which would have collected an estimated $3 billion in tax revenue for education, by nearly 40 points. Gov. John Hickenlooper famously described the state of the electorate last fall saying, "There's no appetite for taxes anywhere, all over the state." In addition to their analysis and public outreach, RTD reportedly conducted telephone polling to gauge voter willingness to support a tax increase and they likely weren't encouraged by the results.
2. Several board members expressed concern over the ambiguity of the proposed hybrid option. Board member John Tayer was quoted in The Denver Post saying, "I will not support going forward... until we have a specific plan and a specific time frame."

This vote is only a temporary setback, as the Board explains in a press release:

RTD will continue to work aggressively to seek alternative funding sources for the program including grants, public-private partnerships and unsolicited proposals. The Board will continue to explore pursuing a sales and use tax election in the future when the time is right for the region.

There are three takeaways from this vote by the RTD Board of Directors.

1. It's only a matter of time before another revenue raising ballot measure is discussed for the Northwest Rail Line. Stakeholders along the corridor have expressed continued dismay over the fact that full service won't be provided until 2042 at the earliest.
2. This may open the door for more innovative alternatives. Initial cost and completion projections have been totally inaccurate throughout FasTracks with the exception of one aspect: the Eagle P3 Project. The Eagle P3 project is a 34-year design-build-finance-operate-maintain (DBFOM) public-private partnership signed with Denver Transit Partners in July 2010. As mentioned above, RTD has signaled willingness to pursue similar public-private partnerships in their efforts to complete the line. RTD currently evaluating an unsolicited proposal for rail along I-225. 
3. Finally, with more time, it's likely that officials will be convinced of the merits of BRT. A recently launched global database on BRT systems demonstrates their efficacy in 134 cities around the world carrying over 22.4 million passengers daily. U.S. BRT leaders include New York City, Pittsburgh and Boston. The Board considered BRT prior to choosing the hybrid option. Compared to the CRT option, the BRT option would have offered: an earlier competion date, more frequent on-peak and off-peak service and more frequent stops; while offering comparable travel times, costing half as much in the short run and requiring lower annual operation and maintenance costs in the long run.

This project is one to watch in the coming months and years ahead because RTD has signaled interest in the types of innovative alternatives that would meaningfully address the Denver metropolitan area's surface transportation needs—before 2042 and beyond.

For more on the Northwest Rail Line and FasTracks, see my previous posts here and here.

Privatization and Public-Private Partnership Trends in Local Government in 2011

Posted on April 25, 2012, 12:00am | Harris Kenny

The rollout of Reason Foundation's Annual Privatization Report 2011 continues today with the local government section, which provides an overview of the latest on privatization and public-private partnerships at the local level. Highlights include:

• 57 percent of city finance officers report their cities were less able to meet their financial needs in 2011 than in 2010 while general city revenues declined for the fifth straight year, according to the National League of Cities. This “new normal” fiscal condition is hitting local governments across the U.S. that continue to feel the squeeze of the prolonged economic downturn.
• Chicago Mayor Rahm Emanuel, and former White House Chief of Staff to President Obama, hit the ground running during his first year in office. He implemented managed competition for the city’s Blue Cart recycling program allowing private companies to compete with the public sector, the move is projected to provide Chicagoans cost-savings exceeding 50 percent. The city began outsourcing the water bill call center in summer 2011 and is considering outsourcing the collection of city ambulance fees to improve collection rates.
• Parking assets remain the hot item in local government privatization. Chicago and Indianapolis are realizing substantial gains from their reforms and were joined in 2011 by a host of cities (such as New York, Pittsburgh, Sacramento, Memphis and Harrisburg) that are considering similar efforts.
• San Diego, California is finally implementing the managed competition mandate approved by voters in 2006. City employees won bids for the Publishing Services Department and Fleet Services Division, with new contracts expected to save y 30 percent ($5.2 million) and 13 percent ($22 million) respectively over the separate five-year contracts. Officials are also exploring street sweeping services, utilities call centers, street and sidewalk maintenance and landfill operations.
• Toronto Mayor Rob Ford championed efforts to privatize trash collection in District 2 could save residents anywhere from $35-$92 million over the course of the seven-year contract. Half the city’s trash collection is now provided by the private sector, allowing for cost and service comparison before further privatization.
• New mayors in Tulsa and Jacksonville have quickly moved to apply competitive forces to public service delivery. In Tulsa, Mayor Dewey Bartlett is implementing 1,134 strategic opportunities compiled by KPMG to realize cost savings, enhance revenue collection and improve efficiency. In Jacksonville, Mayor Alvin Brown appointed a new public-private partnership commissioner who will oversee a wide range of streamlining initiatives.
• Contract cities in Georgia continue evolve, with the latest improvement coming in the form split service contracts that saved taxpayers almost 30 percent, or over $7 million, in Sandy Springs for example.
• A 2011 survey conducted by American University found that 93 percent of city officials support government contracting with the private sector, and 63 believe that most public agencies do a good job at contract management.
• Jefferson County, Alabama filed the largest government bankruptcy in American history. The county held approximately $4.23 billion in debt owed to more than 5,000 creditors that traced back to a 1996 federal judge ruling that obligated the county to rebuild its sewer system.

» Annual Privatization Report 2011: Local Government [pdf, 1.7 MB]

» Complete Annual Privatization Report 2011 homepage

The Year 2011 in State Government Privatization and Public-Private Partnerships

Posted on April 24, 2012, 3:53pm | Leonard Gilroy

The rollout of Reason Foundation's Annual Privatization Report 2011 begins today with the release of the State Government Privatization section, which I co-authored with Reason's Lisa Snell. This section of APR 2011 provides an overview of the latest on privatization and public-private partnerships in state government. Topics include:

• In New Jersey, the Christie administration continued to expand its portfolio of privatization initiatives in 2011, which included highway maintenance, manual toll collection, state-run horse racing facilities, vehicle fleet operation, the NJ Network TV station and more.
• Two ratings agencies upgraded Louisiana's credit rating in 2011, citing the state's strong fiscal management, strong employment levels and sustainable levels of public debt. Privatization remained a central feature of the Jindal administration's fiscal management in 2011, with progress on some of its major healthcare privatization initiatives in Medicaid delivery, public employee health care and behavioral health services.
• New Ohio Gov. John Kasich has already taken significant steps to advance privatization as a key component of his governing agenda, including privatizing the state's economic development agency, selling a state prison to a private operator, and hiring advisors to analyze the potential privatization of the Ohio Turnpike and Ohio Lottery.
• In late 2011, Washington State became the first state since the end of Prohibition in 1932 to fully privatize the sale and distribution of liquor, and several other states, including Pennsylvania and Virginia, considered similar moves. Today, 33 states have completely private wholesale and retail trade in liquor, while 17 states still retain a state-run wholesale and/or retail liquor monopoly.
• Puerto Rico continued to emerge as a leader in attracting private investment in public infrastructure, with public-private partnerships undertaken or underway in 2011 that include a modernization of 100 K-12 schools, a $1.5 billion toll road lease and an ongoing procurement for a long-term lease of San Juan's international airport.
• In 2011, both Texas and Connecticut enacted broad-ranging laws to authorize private sector financing for infrastructure assets.
• As state park systems continued to face significant fiscal pressures in 2011, policymakers in states like Arizona, Utah and California took steps to expand the use of private for-profit and nonprofit operators to take over state parks threatened with closure.
• Illinois' groundbreaking lottery privatization program got underway in 2011, an initiative designed to generate an additional $1 billion in revenues to the state over the next five years. Policymakers in California, New Jersey, and Ohio are considering similar moves.
• After years of implementation challenges that prompted a dramatic overhaul, Indiana's privatized welfare eligibility modernization program significantly improved its performance in 2011, prompting federal officials to authorize its expansion throughout the state and award the state $1.6 million in recognition of its progress at reducing its error rates for food stamp processing.
• Other topics include public-private partnerships in higher education, an update on state child welfare privatization systems and more.

» Annual Privatization Report 2011: State Government
» Complete Annual Privatization Report 2011 homepage

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

[Op-Ed] (Colorado SB 124) is a Misguided Attempt to Create Jobs

Posted on April 23, 2012, 1:27pm | Harris Kenny

Colorado recently lawmakers Senate Bill 124, which seeks to cut the strings on tax incentive programs for tourism projects. As I explain in my recent op-ed in The Colorado Springs Gazette entitled "Tax incentive program is a misguided attempt to create jobs": 

Nearly 8 percent of Coloradans are unemployed and seeking a job, and with numbers like that it’s normal for policymakers to focus on job creation. However a misguided attempt to create jobs through tourism projects might be made worse by the recently passed SB 124. The projects were originally approved with strings attached to limit taxpayer risk and lawmakers seeking to cut those strings aren’t considering the consequences.

The bill would modify the Regional Tourism Act passed in 2009, which approved tax increment financing for six total tourism projects. The Regional Tourism Act stipulated that only two projects could be chosen over the next three years and SB 124 would remove that stipulation until officials reach the six project cap. Despite passage through the legislature:

... (T)he bill faces bipartisan opposition in the Legislature and from the Governor’s office. Officials at the Colorado Office of Economic Development and International Trade have also questioned SB 124, citing uncertainty over whether the program will work. Gov. Hickenlooper’s critique centers around the need for oversight provisions and accountability measures that demonstrate projects will attract out-of-state visitors.

The piece later details how the Pew Center on the States determined Colorado belongs among the bottom half of states "trailing behind" in accountability for tax incentive programs. The piece concludes:

As long as the state is in the business of doling out special treatment through the tax code, taxpayers might as well know what they’re getting for their money. SB 124 is an excellent opportunity for Gov. Hickenlooper to flex his famed pragmatism and send a message that now is not the time to cut the strings and set loose Colorado’s flawed tax incentive programs, it’s time to rein them in.

Read the full piece available online here. For more, see my previous blog post on the aforementioned Pew study here. 

Denver’s RTD Publishes 2011 Report on FasTracks

Posted on April 15, 2012, 5:56pm | Harris Kenny

Every year Denver’s Regional Transportation District (RTD) publishes a report detailing ongoing rapid transit projects within the boundaries of the Denver Regional Council of Governments (DRCOG). RTD’s largest project is FasTracks, a multimodal, multi-billion dollar transit expansion program that aims to ultimately comprise of 122 miles of commuter rail transit (CRT) and light rail, 18 miles of bus rapid transit (BRT) and 21,000 new complementary parking spaces across eight counties.

When Denver-area voters approved FasTracks in 2004 the system was slated to cost $4.7 billion and be complete by 2017. RTD has been unable to finish FasTracks on budget or on time. The report notes that overall costs increased from $4.7 billion in 2004 up to approximately $7.4 billion in early 2012. All other things unchanged, the system won’t be done until 2042. So, what’s next?

Last week RTD published its 2011 Annual Report to DRCOG on FasTracks. For a detailed system-wide update by region, see the full report available online here. The report includes an RTD map with a comprehensive view of the system:

FasTracks Plan, Rapid Transit Lines

Source: Regional Transportation District, 2011 Annual Report to DRCOG on FasTracks, April 3, 2012.

While the system is large, the Northwest Corridor has been at the center of the conversation over the past six months. RTD is asking DRCOG to approve a new option that would double the original regional 0.4% sales and use tax along the Northwest Corridor to generate more revenue for FasTracks. This option would expedite portions of rail construction and provide intermediary BRT service until rail is complete. Ultimately RTD hopes to complete the Northwest Rail Line out to Longmont, and estimates they will initiate construction and begin revenue service between 2026-2032. If DRCOG approves this option, then RTD will begin the process of placing the initiative on the November 2012 ballot.

For more on FasTracks see my previous reason.org commentary, "Denver’s RTD Weighing Options for Northwest Corridor."

State Tax Collections Rise $62 Billion in 2011

Posted on April 14, 2012, 6:07pm | Harris Kenny

State tax collections increased $62.1 billion—or 8.9 percent—up to $763.7 billion in 2011, according to the U.S. Census Bureau’s recently released 2011 Annual Survey of State Government Tax Collections. See the following figure for a breakdown of the $763.7 billion in state tax collections by category in 2011:

All 50 states experienced a positive increase in total tax collections; whereas in 2010 only 11 states experienced a positive increase. There are nine states where tax collection increased by 10 percent or greater in 2011, including:

• North Dakota (+44.5%)
• Alaska (+22.4%)
• California (+17.4%)
• Illinois (+15.3%)
• New Mexico (+15.1%)
• Wyoming (+14.1%)
• Idaho (+10.5%)
• Colorado (+10.4%)
• Minnesota (+10.1%)

In an accompanying press release, the U.S. Census Bureau highlights the following findings from the report:

States with the largest percent increase in motor fuels tax revenue were California (+80.3 percent), Alaska (+37.4 percent), North Dakota (+13.1 percent) and Kentucky (+10.6 percent).

Severance taxes—collection for removal or harvesting of natural resources (e.g., oil, gas, coal, timber, fish, etc.)—were up $3.5 billion, a 31.2 percent increase. This followed a 16.4 percent decrease in fiscal year 2010. The largest increases in severance tax revenue were seen in the West.

Revenue on taxes imposed distinctively on insurance companies and measured by gross or adjusted gross premiums (insurance premium sales tax) increased $593.8 million, up 3.8 percent. This followed a 5.3 percent increase in fiscal year 2010. The largest increases in insurance premium sales tax revenue were seen in the Northeast and South.

It’s important to note that state tax collection data does not include: employer and employee assessments for retirement and social insurance purposes; collections for the unemployment compensation taxes imposed by each of the state governments; or tax collections from local governments.

This data is only one piece of the state revenue puzzle. For context, in 2010 state tax collection accounted for approximately one third of total state government revenue. That being said, growing state tax collections suggest an ease to state budget woes. For related research on this topic, see Reason Foundation’s Tax and Budget Policy Research Archive.

Sales Taxes Aren't Killing Best Buy

Posted on April 13, 2012, 3:52pm | Steven Titch

A few weeks back, now-former Best Buy CEO Brian Dunn blamed the retailer's $1.7 billion quarterly loss and its decision to close 50 stores nationwide on the fact that its online competitors, Amazon.com in particular, "aren't encumbered by the costs of running physical locations and in many cases don't have to collect sales tax."

Dunn's comments rehash the now-familiar meme that forcing e-retailers to collect sales tax is the silver bullet to saving brick-and-mortar retailers. It gives politicians on all sides cover--for some, it's a way to keep revenues coming in for excessive spending. For others, it's a handy way to wave the flag for local commerce.

But slapping consumers with more taxes isn't going to save retailing. In a short piece this week, BusinessWeek explores the fundamental shifts online retailing has created in consumer behavior. Here's a nugget from the article:

Best Buy’s decline reflects a cultural shift that’s reshaping the retail world. All big-box stores, and Best Buy in particular, thrived in an era when comparison shopping meant physically going from store to store. The effort required of consumers was a kind of transactional friction. With the advent of mobile technology, friction has all but disappeared. Rather than ruminate with a salesperson before making a selection, tech-savvy consumers are more likely to walk into stores, eyeball products, scan barcodes with their smartphones, note cheaper prices online, and head for the exit. Shoppers can purchase virtually any product under the sun on Amazon or eBay while sipping a latte at Starbucks. For traditional retailers, that spells trouble, if not death. “So far nothing Best Buy is doing is fast enough or significant enough to get in front of these waves,” says Scot Wingo, CEO of e-commerce consulting firm ChannelAdvisor.

Certainly e-commerce created competitive problems for Best Buy, but the sales tax advantage e-commerce has was likely the least of them. Brick-and-mortar retailing is facing an out-and-out crisis that's going to require creativity and innovation to solve. Taxing consumers who buy online won't do much toward that end.

Innovators in Action: Osceola County, Florida Commissioner Frank Attkisson

Posted on April 13, 2012, 9:00am | Harris Kenny

In the latest installment of Reason Foundation's Innovators in Action series, I interview Osceola County, Florida Commissioner Frank Attkisson.

Osceola County policymakers faced few choices when, admist ongoing county-wide budget woes, the library system alone faced a $3 million budget deficit. In response, the Commission voted to approve the first-ever public-private partnership for libraries in Florida. They ultimately signed a five year contract that netted $6 million in savings with Maryland-based Library Systems & Services Incorporated (LSSI).

While the public-private partnership model is proven in states like California and Texas, this is a major move for Florida and one that is likely to be replicated by other local governments across the state. Here's an excerpt from the interview:

Kenny: The first concern that many people have when it comes to libraries is access. How did the commission address this concern and how might other policymakers address it?

Attkisson: If another commission wants to do this, the boogey man is going to come out and people will try to scare them. Elected officials control these contracts and the public trusts us to deliver value for their money. We (the commission) control the hours and set the standards. We know what it costs and want the private sector to help us realize our vision for our libraries.

The vendor has an option to set up ancillary businesses to provide additional services to users, like a coffee shop. Think about how much has changed in ten years. We didn’t have computers or Internet. Now it’s a given that you’ll have those resources. That’s totally different from the libraries of ten years ago. We were able to leverage procurement to achieve substantive goals.

You have to have the backbone to say it will take 3-6 months to transition. But I’m comfortable that once we do, nobody will want to go back because we’ll have more capability than ever before.

Read the full interview available online here. For more, see Reason Foundation's Innovators in Action 2012 series available online here.

Pew Finds States Barely Evaluate Tax Incentive Programs

Posted on April 12, 2012, 9:50pm | Harris Kenny

Today The Pew Center on the States published an eye opening report entitled Evidence Counts: Evaluating State Tax Incentives for Jobs and Growth. First, kudos to Pew for conducting this report and asking important questions about state tax policy. The report starts with a refrain commonly seen here on Reason Foundation’s Out of Control policy blog, which is that state governments are strapped for cash and need to both get their fiscal houses in order and foster economic growth.

Many policymakers feel the way to foster economic growth is by supporting politically favored businesses—as opposed to promoting economic freedom—so they pass lavish tax incentive programs totaling billions of dollars across the country in hopes of turning things around. Today’s Pew report addresses a critical follow up question: Do states measure to see if their tax incentives are having an impact? Their answer? Barely.

No state was spared in this analysis because every state has at least one tax incentive program, and most have several. Tax incentives come in the form of tax credits, exemptions and deductions; financial assistance for relocation or workforce expansion; and a variety of other mechanisms. Pew reviewed almost 600 documents and interviewed over 175 government officials and policy experts to evaluate whether or not states gauge the effectiveness of their tax incentives, and if they do, Pew examined how well they do it.

Ultimately, the report finds:

... (N)o state regularly and rigorously tests whether (its tax incentives) are working and ensures lawmakers considers this information when deciding whether to use them, how much to spend, and who should get them. Often, states that have conducted rigorous evaluations of some incentives virtually ignore others or assess them infrequently. Other states regularly examine these investments, but not thoroughly enough.

Since no state met Pew’s expectations for the study, it became a battle to avoid last place. States are evaluated under two criteria, scope and/or quality of evaluation, and are split into three categories listed below.

• 13 states are “leading the way,” which means they're “meeting both criteria for scope of evaluation and/or both criteria for quality of evaluation.”
• 12 states are achieving “mixed results,” which means they're “meeting only one of the criteria for scope and/or quality of evaluation.”
• 26 states (including the District of Columbia) are “trailing behind,” which means they're “not meeting any of the criteria for scope or quality of evaluation.”

Below is an infographic provided with the report detailing where states rank and highlighting four recommended steps for state policymakers:

For a detailed evaluation of state performance, see page 32 of the report available online here. Stay tuned because I will be exploring the report’s specific findings—by policy area and by state—over the next week. In the meantime, check out Reason Foundation’s Government Reform Tax and Budget Policy Research Archive and State Government Privatization Research Archive for more ideas on ways that policymakers can turn things around in their states.

Maryland Passes Unprecedented (and Unnecessary?) Digital Labor Law

Posted on April 11, 2012, 6:33pm | Harris Kenny

Maryland legislators just passed an unprecedented digital labor law in Senate Bill 433. The bill would prevent employers from asking for passwords to websites such as Facebook and Twitter. While other states like California and Illinois are exploring similar legislation, Maryland appears likely to be the first to move. However despite its popularity, this legislation may not be necessary after all.

The bill has strong support from the legislature, passing unanimously in the Senate (44-0) and overwhelmingly in the House (128-10). If signed by Gov. Martin O’Malley, SB 433 would specifically prohibit Maryland employers from:

• Requesting or requiring that an employee or applicant disclose any user name, password, or other means for accessing a personal account or service through specified electronic communications devices.;
• Taking, or threatening to take, specified disciplinary actions for an employee’s refusal to disclose specified password and related information; and 
• Downloading specified information or data.

Civil liberties advocates have praised SB 433 for it’s expansive scope and hope future provisions will include college students and athletes. Further, the bill will likely save the state a significant amount of money in legal fees and settlement costs. But was this legislation necessary?

On Friday March 23 Facebook’s Chief Privacy Officer Erin Egan issued a warning that Facebook may take action against employers who demand passwords, either through engaging or taking legal action. Egan explains that these demands violate Section 4, Part 8 of Facebook's Statement of Rights and Responsibilities, which reads: 

You will not share your password, (or in the case of developers, your secret key), let anyone else access your account, or do anything else that might jeopardize the security of your account.

By requesting a job applicant’s Facebook password, an employer is demanding the applicant violate Facebook’s terms of service, for which he or she could be civilly liable (and at minimum risk having his or her account terminated.) Beyond Facebook, any website concerned about this issue can incorporate similar language in their terms of service.

Having this type of language in the terms of service makes sense for websites. At first glance, one might assume this story only impacts a handful of job applicants in Maryland. In reality, Facebook has a vested interest in protecting its reputation and the goodwill of its hundreds of millions of users around the world. Social media is built on a foundation of trust whereby users voluntarily submit personal information—in a trusted environment—in exchange for similar information from other users. If one user’s account is compromised through coercion, then the foundation of trust will crumble.

Ironically, Kevin Rector of The Baltimore Sun reports SB 433 was inspired by the Maryland state Department of Public Safety and Correctional Services, who asked a job applicant to turn over his Facebook password during the application process. The department said the policy had been a factor in the denial of employment of seven out of 2,689 applicants over the course of a year. The department specifically sought use or presence of verified gang signs in applicant accounts, which would prove detrimental in a correctional environment. 

After the American Civil Liberties Union (ACLU) filed a complaint, the department made participation voluntary, however this did not meet the ACLU’s concerns. This led the legislature to take action. Rather than the legislature, Gov. O’Malley might have instead addressed this issue since the state is the employer that was responsible for violating Facebook’s terms of service. 

Federal policymakers are also seeking to get involved. U.S. Senators Richard Blumenthal and Charles Schumer recently called on the U.S. Equal Employment Opportunity Commission (EEOC) and the U.S. Department of Justice (DOJ) to launch a federal investigation into this issue. Their press release cites several federal laws and Supreme Court rulings, such as the Stored Communication Act, Computer Fraud and Abuse Act, Pietrylo v. Hillstone Restaurant Group, and Konop v. Hawaiin Airlines, Inc.

There are two market forces already at work solving this problem. First, applicants who view this requirement as onerous won’t apply to work at the businesses that impose it, and those businesses will suffer in the marketplace due to their lower competitiveness in attracting labor. Second and more importantly, Facebook and other websites ultimately have a strong incentive to take legal action to protect their users. Users will patronize websites that meet their needs, including privacy protection, and they will avoid websites that don’t.

ALEC Releases 2012 Rich States, Poor States Report

Posted on April 11, 2012, 2:31pm | Leonard Gilroy

Today, the American Legislative Exchange Council (ALEC) released the fifth edition of its annual Rich States, Poor States report, authored by Arthur Laffer, Stephen Moore and ALEC's Jonathan Williams. As with previous editions, this helpful report provides a current snapshot of state economic conditions, offers some worthy primers on tax policy/research issues, and ranks the states along an index that includes such metrics as income tax rates, property and sales tax burdens, recently enacted tax policy changes, debt service as a share of tax revenue, public employees per 1,000 residents and more.

From the executive summary:

In chapter 1, the authors lay the groundwork for understanding what states must do in order to increase growth and become prosperous. First, they set the stage by identifying the biggest winners and losers in the ALEC-Laffer State Economic Competitiveness Index over the past five years. From there, Messrs. Laffer, Moore, and Williams provide a lesson in economics 101, discussing the merits of supply-side economics, the theory of incentives, and the evidence behind taxpayers voting with their feet—very strongly against high taxes. Finally, this chapter highlights the best policies of the states, from pension reform, to closing budget gaps, to pro-business tax reform, and everything in between. Readers should be on the lookout for Oklahoma, Kansas, and Missouri, where the personal income tax may soon become a thing of the past.

Chapter 2 evaluates the influence several policy variables have on state economies. The authors begin with the personal and corporate income taxes, comparing the states with the highest tax rates to the states with the lowest, or in some cases zero, tax rates. The results speak for themselves. The no income tax states outperform their high tax counterparts across the board in gross state product growth, population growth, job growth, and, perhaps shockingly, even tax receipt growth. This chapter allows readers to see the data and decide which policies they think have the greatest effect on state economies.

In chapter 3, the authors delve into one of the most anti-growth tax policies: The unpopular and economically damaging “death tax.” From what not to do to where not to die, the authors combine anecdotal evidence with the data to show why the death tax is one of the worst possible taxes for state economies. Less than half the states impose death taxes, and that number is quickly dwindling. Ohio and Indiana are leading the effort to eliminate these growth killing taxes, and we expect others to soon follow in their footsteps.

Finally, chapter 4 is the much anticipated 2012 ALEC-Laffer State Economic Competitiveness Index. The first measure, the Economic Performance Rank, is a historical measure based on a state’s income per capita, absolute domestic migration, and non-farm payroll employment—each of which is highly influenced by state policy. This ranking details states’ individual performances over the past 10 years based on the economic data.

The second measure, the Economic Outlook Rank, is a forecast based on a state’s current standing in 15 equally weighted policy variables, each of which is influenced directly by state lawmakers through the legislative process. In general, states that spend less, especially on transfer programs, and states that tax less, particularly on productive activities such as working or investing, experience higher growth rates than states that tax and spend more.

In this year's edition, the top 10 states in the Economic Outlook rankings were (from 1 to 10, in order): Utah, South Dakota, Virginia, Wyoming, North Dakota, Idaho, Missouri, Colorado, Arizona and Georgia. Rounding out the bottom of the list were (from 41-50, in order): Minnesota, New Jersey, Rhode Island, Connecticut, Oregon, Hawaii, Maine, Illinois, Vermont and New York.

For the Economic Performance rankings, the top 10 performing states were (in order from 1 to 10): Wyoming, Texas, Montana, North Dakota, Alaska, New Mexico, South Dakota, Virginia, Oklahoma and Arkansas. The bottom 10 performing states were (from 41 to 50): Minnesota, Wisconsin, Massachusetts, Connecticut, New Jersey, Indiana, California, Illinois, Ohio and Michigan.

Another interesting component of the 2012 report is the intro feature outlining the "10 Golden Rules of Effective Taxation," a reality check of sorts for how tax policy works in real life (not the fantasy world in which the "Buffett rule," for example, is touted as some realistic fiscal solution). Here are the 10 rules, which the report discusses in detail:

1. When you tax something more you get less of it, and when you tax something less you get more of it.
2. Individuals work and produce goods and services to earn money for present or future consumption.
3. Taxes create a wedge between the cost of working and the rewards from working.
4. An increase in tax rates will not lead to a dollar-for-dollar increase in tax revenues, and a reduction in tax rates that encourages production will lead to less than a dollar-for-dollar reduction in tax revenues.
5. If tax rates become too high, they may lead to a reduction in tax receipts. The relationship between tax rates and tax receipts has been described by the Laffer Curve.
6. The more mobile the factors being taxed, the larger the response to a change in tax rates. The less mobile the factor, the smaller the change in the tax base for a given change in tax rates.
7. Raising tax rates on one source of revenue may reduce the tax revenue from other sources, while reducing the tax rate on one activity may raise the taxes raised from other activities.
8. An economically efficient tax system has a sensible, broad base and a low rate.
9. Income transfer (welfare) payments also create a de facto tax on work and, thus, have a high impact on the vitality of a state’s economy.
10. If A and B are two locations, and if taxes are raised in B and lowered in A, producers and manufacturers will have a greater incentive to move from B to A.

There's a ton worth checking out in this report, including features on the estate tax and a detailed performance comparison for high-vs.-low tax states that merit a thorough read. The full report is available here.