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Innovators in Action: Jacksonville, FL Commissioner of Public-Private Partnerships Renée Finley on Building the City's PPP Program to Drive Efficiency, Quality of Life

Posted on May 7, 2013, 3:36pm | Leonard Gilroy

Soon after taking office in July 2011, Jacksonville, Florida Mayor Alvin Brown established the city’s first Office of Public-Private Partnerships (PPPs) as a means to leverage greater returns from public resources by cultivating new funding sources for city initiatives, forging new partnerships with the private and nonprofit sectors, and optimizing the use of public assets and city-owned real estate.

Consistent with the office’s mission, Mayor Brown looked to the private sector for leadership of the new PPP office, ultimately appointing Renée Finley—an executive-on-loan from Florida Blue (formerly Blue Cross and Blue Shield of Florida)—in November 2011 to build the new office and set a course for PPPs in Jacksonville. In less than two years, the PPP office has already generated some significant results, including tapping approximately $7 million in direct private sector donations and grants, and approximately $2 million in identified cost savings opportunities through efficiency and competition initiatives.

In our latest interview in the Innovators in Action 2013 series, I interview Finley on the origins and accomplishments to date of Jacksonville’s PPP program, lessons learned along the way, and more. Here's a brief excerpt of the interview:

Leonard Gilroy, Reason Foundation: What drove Mayor Brown's decision to launch the Office of PPPs so early in his administration?

Renée Finley, Commissioner of Public-Private Partnerships, City of Jacksonville, Florida: The concept started with the mayor and his vision to reform government. Coming into office, he was faced with a $53 million budget deficit, so he articulated a number of reform goals, one of which was to position the city government for the new economic reality that we were facing. And he had a second goal of improving the effectiveness and efficiency of government. Mayor Brown believes that we can attain more efficiency in the delivery of public services and achieve better results by leveraging the strengths of both the private and nonprofit sectors.

Gilroy: What goals did the mayor have in setting up the Office of PPPs? What were the areas of focus?

Finley: There were really four key areas of focus. The first was around optimizing assets and services, and the thought was, “how do we leverage the strengths and resources of the private and nonprofit sectors in the delivery of public services and public works?” And furthermore, he wanted to explore opportunities to leverage city assets—in particular, real estate assets—by getting them in the hands of the private sector so they can drive additional private investment for further economic development for the city.

The second area of focus was around the facilitation of private interest in economic and urban development. The third area of focus was to facilitate private support and nonprofit involvement in education and workforce development initiatives. And, the fourth area focuses on delivering partnerships that improve the quality of life for Jacksonville citizens.

Check out the full interview here for details on the results of Jacksonville's PPP initiatives thus far, which will hopefully inspire other cities to pursue similar endeavors.

Other articles featured in the Innovators in Action 2013 series are available here.

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Innovators in Action: Swampscott, MA Selectman Barry Greenfield on Breaking the State’s Control of Municipal Pensions in Massachusetts

Posted on April 8, 2013, 8:45am | Leonard Gilroy

In Massachusetts, the state mandates the types of retirement benefits that municipal governments provide to employees, effectively precluding local governments from having full control of their fiscal destiny. As unfunded pension and retiree healthcare obligations continue to mount in local governments in Massachusetts—as across the country—at least one town is trying to end the state's grip on local governments and give them the ability to pursue their own tailored, financially sustainable retiree benefit reforms.

The push for local control is being driven by Barry Greenfield, a selectman in Swampscott, Massachusetts and the founder and publisher of EfficientGov.com, a publication aimed at spreading public policy innovations. Greenfield has led the push to build a coalition of Massachusetts cities and towns—all of which have unfunded retiree benefit obligations—to build support for legislation that would give local governments the power to determine retirement benefits, rather than having the state mandate what municipalities provide.

Swampscott offers an illustrative example of the challenge local governments face. The town of 13,700 people has an unfunded liability of approximately $38 million dollars, and current pension costs account for close to 10% of the town’s budget. Worse, the town faces an $80 million unfunded liability in retiree healthcare. Together, retiree pension and healthcare benefits are currently consuming almost 20 percent of the town’s annual budget.

In our latest interview in the Innovators in Action 2013 series, I interview Greenfield on his efforts to give local governments the power to determine public employment retirement benefits in Massachusetts, getting the state out of a key aspect of municipal decisionmaking. Here's a brief excerpt of the interview:

Leonard Gilroy, Reason Foundation: Can you describe what prompted you to launch your current pension reform initiative?

Barry Greenfield, Town of Swampscott, MA Selectman: My town, Swampscott, is involved in a state-run public employee pension plan—a mandated retirement system that we pay the cost for, but which is overseen by the state. This plan covers public employees and teachers as well. It’s a defined-benefit plan where the retirement benefits for your pension are based on years of service, a multiplier that’s based on what type of employee you are, and what age you retire, in addition to employee contributions and investment return. The town contributes to those retirement benefits primarily through property taxes. A similar state-run system dictates OPEB [other post-employment benefits] like retiree healthcare benefits as well.

What’s happened over the years is that when they first implemented this program—which I believe was in 1911—the number of active employees to retired employees was at least 40-to-1. And that’s what most of these plans were designed on—a high level of active employees with relatively few retired employees. But over time, as the country has aged and people have aged, we in Swampscott are now down to a 1-to-1 ratio.

Most pension experts—and by that I mean academics, as you’ll get different answers from the actuaries involved in the state-run pension system—will tell you that the research has shown that once you get to a 5-to-1 ratio of active to retired employees, you’re really heading for trouble because you just don’t have enough new active employees paying contributions into the system to keep it afloat. There’s a myth that each employee contributes enough to pay for their own pension. Even when you add the projected investment return, the numbers simply don’t add up.

We’re at a 1-to-1 ratio in Swampscott, and it’s only going to get worse, because we have an aging workforce. If you look at the age of our municipal employees, they’ve all been working for 10 to 15 years and there are very few new employees coming into the system. People are working longer because the longer they stay working, the better the pension and OPEB benefits are.

So what I started reading and writing about in other states is what I would describe as the ability of cities to take control of their pension issues and realize that they’re unsustainable, as city and town services are falling by the wayside simply to fund retirement benefits. So what you’re seeing is that property taxes are rising—mine have gone up 50% in six years—but the services in the town have not improved. Almost all of that money has gone to pension or OPEB benefits.

[. . .]

This April, the town will be voting on a home rule petition that says we should have the freedom to decide what retirement benefits are a fit for our financial situation. The reality is that each town is not identical in terms of its fiscal footprint. We’re a small town trying to offer city-like services with few prospects for regionalization. It’s not necessarily saying that we’re going to move away from a defined benefit plan, nor does it say that we’re going to move toward a defined contribution plan. It’s not saying exactly what we’re going to do—all we want is the freedom to pursue options because we’re $38 million underfunded in our pension obligations and close to $80 million underfunded in our OPEB obligations. While those numbers may change a little on a day-to-day basis, they are still significant numbers when you’re talking about a town of only 13,700 people.

So I think that our town has proven that this particular mandate from the state—and I actually believe it’s an unfunded mandate—we need to be able to determine what’s best for us. We’ve proven that the current system doesn’t work for us, so that’s what this issue is all about.

The full interview is well worth a read and is available here. Other articles featured in the Innovators in Action 2013 series are available here.

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[Interview] Conversation with Colorado's High Performance Transportation Enterprise

Posted on January 2, 2013, 9:00am | Harris Kenny

On Monday, I chronicled the year in review for Reason Foundation's Innovators in Action 2012. Today, I'm publishing the first interview of Innovators in Action 2013, available here. I recently had the privilege to sit down with Michael Cheroutes, director, and Nick Farber, enterprise specialist, of the Colorado Department of Transportation's High Performance Transportation Enterprise (HPTE) to discuss their work.

States are struggling to adequately invest in infrastructure, a challenge compounded by the declining purchasing power of revenue from the federal gas tax and lower revenue from more fuel efficient automobiles. Meanwhile, continued deadlock at the federal level fails to inspire confidence that help is coming. Innovative policymakers, like the ones at HPTE, are applying new approaches to solve these problems. 

Read an excerpt from the interview below:

Harris Kenny, Reason Foundation: How is HPTE unique from the rest of the Colorado Department of Transportation?

Michael Cheroutes and Nick Farber, HPTE: HPTE is unique because it is the innovative transportation finance arm of CDOT. HPTE’s vision is to pursue public-private partnerships (and other innovative and efficient means of financing multimodal projects), make sure innovative projects are properly prioritized and accelerate delivery of those projects to facilitate the state’s economic recovery – we’re much more than just a tolling agency. 

Kenny: What is one of HPTE’s most successful projects underway today?

Cheroutes and Farber: One would be Phase 2 of the US 36 Project, which is currently underway. The US 36 Project is an eighteen-mile (from downtown Denver to Boulder), 50-year DBFOM project. Construction for the project is an estimated $100 million, in addition to operation and maintenance. US 36 is funded in part by tolls paid to the concessionaire. CDOT, the Regional Transportation District (RTD), the Denver Regional Council of Governments (DRCOG) and some local governments are also contributing funds to help finance the project. In other words, private equity is playing a role, but it’s not all private equity.

Kenny: What are some upcoming projects that HPTE is excited about?

Cheroutes and Farber: We issued an RFP for the I-70 East project, which, among other things, will replace a viaduct going into Denver on the east side of the city that was built in 1964. The RFP is specifically seeking a financial advisor to help evaluate options on how to finance the preferred for the I-70 East project. 

For more, read the full interview here. Stay tuned to reason.org/innovators for new content, or visit here to read our interviews from 2012.

 

 

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Innovators in Action 2012, Year in Review

Posted on December 31, 2012, 12:00pm | Harris Kenny

Reason Foundation's Innovators in Action series profiles innovative policymakers in their own words, highlighting good government efforts that are delivering real results and value for taxpayers. In 2012, these thought leaders joined us from across the United States--and even Puerto Rico--to share insight into their process. Check out our year in review, below:

Innovators in Action kicks off again in the new year with my interview with Michael Cheroutes, director, and Nick Farber, enterprise specialist, for the Colorado Department of Transportation's High Performance Transportation Enterprise. Visit reason.org/innovators for the latest content.

 

 

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Innovators in Action: FDOT Secretary Ananth Prasad on Delivering Florida's 21st Century Transportation System Through Tolling, Managed Lanes and Public-Private Partnerships

Posted on November 21, 2012, 9:00am | Leonard Gilroy

Like most states, Florida faces a significant challenge in delivering future transportation infrastructure, given the declining purchasing power of the federal gas tax, uncertain future revenues resulting from the increasing efficiency of automobiles, and other challenges that are making it increasingly difficult for most states to even maintain the infrastructure they already have, much less expand and modernize their transportation systems to meet the demands of the 21st century economy.

The Florida Department of Transportation (FDOT) has been working to meet that challenge in recent years, increasingly embracing innovations in project finance, road pricing and other areas of transportation policy that allow them to better control costs, as well as deliver major projects to reduce congestion and improve mobility amid an uncertain transportation funding future.

In our latest interview in the Innovators in Action 2012 series, I sat down with Florida Department of Transportation (FDOT) Secretary Ananth Prasad to discuss how his agency has embraced innovations like public-private partnerships, cutting-edge tolling projects, private highway maintenance and more.

Here's a brief excerpt from the interview:

Leonard Gilroy, Reason Foundation: Florida has become one of the leading states in the U.S. with regard to embracing innovations like public-private partnerships, private infrastructure financing and cutting-edge tolling projects. What challenges prompted this shift? And can you explain why partnering with the private sector makes sense for FDOT?

Ananth Prasad, Secretary, Florida Department of Transportation: As you know, Florida is a very outsourced state, and we rely on the private sector to deliver a lot of our projects. As with most states, 100% of the construction is done by the private sector in Florida, but we’re also at upwards of 80% when it comes to planning, design, engineering, inspections and the like. So in our work, we rely a significant amount on the private sector to help us deliver.

When it comes to public-private partnerships (PPPs), I think it’s just another tool in the toolbox, trying to leverage what private investment is out there, what innovations may be there when it comes to a procurement or contract management or a delivery technique. That’s basically what prompted us going into PPPs.

At the outset, Design-Build was our first foray into trying to take a traditional design function that was done by a department—either in-house or by consultants—and combine it with a construction contractor and package it together. And that evolved into “OK, if you can do design and build together, why can’t you operate and maintain together?” And that morphed into “why can’t you finance it, if it’s a long-term, corridor-type project?” It’s a natural evolution of what various departments of transportation do, and we’re just trying to make sure that we utilize all of the tools in the toolbox to deliver infrastructure improvements.

When we look at unfunded transportation needs, we estimate Florida would need in excess of $131 billion for the state’s most critical assets between now and 2040. PPPs are not going to close that gap, but they can help us deliver long corridors today by leveraging private equity and financing, and then also bringing innovations through combining the design and the operations and maintenance into a contract so that we’re designing and building a project with a holistic view rather than just designing it or just building it or just operating and maintaining it.

When it comes to tolls, we obviously have a long track record with our toll road—the [Florida] Turnpike—and in the last few decades with the various expressway authorities. Tolling allows us to diversify the revenue stream to fund transportation. As you know, the gas tax is not keeping pace and while Florida’s gas tax is indexed [to inflation], the federal gas tax is not. And with fuel efficiency standards going up and with alternative fuel vehicles, people will be driving the same amount of miles but not contributing to the upkeep and future improvements to the infrastructure. Toll roads answer that question because if you use it, you pay for it.

The full interview is well worth a read and is available here. The topics discussed include the state's current public-private partnership projects, the expansion of managed lanes in different regions, the use of "toll lanes within toll lanes," the state's efforts to capitalize on the expansion of the Panama Canal, and much more. 

[Note to readers: In previous years, we have published Innovators in Action in an annual report format, the last edition having been released in early 2010. The publication was on a temporary hiatus in 2011, but we have resumed publication in a slightly different format. In order to deliver timely content to our readers on a more frequent schedule, we're publishing one Innovators article per month on reason.org. Other articles featured in the Innovators in Action 2012 series are available here.]

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Innovators in Action: ODOT Director Jerry Wray on Addressing Ohio's Transportation Funding Challenges Through Streamlining, Public-Private Partnerships

Posted on November 13, 2012, 11:26am | Leonard Gilroy

State departments of transportation are increasingly cutting costs and seeking new ways to finance and deliver transportation projects as revenues from traditional funding sources—primarily federal and state fuel taxes—continue to erode. In our latest interview in the Innovators in Action 2012 series, I sat down with Ohio Department of Transportation (ODOT) director Jerry Wray to learn how the agency is trying to address its long-term challenges by innovating today through streamlining measures, public-private partnerships (PPPs), and other strategies.

Facing an estimated $1.6 billion highway funding gap in coming years, Ohio policymakers began taking concrete steps to develop new cost-saving and project financing tools in 2011, passing legislation authorizing a potential long-term lease of the Ohio Turnpike to private investors and granting ODOT the authority to enter into PPPs to finance and develop new transportation projects.

ODOT took another major step earlier this year in establishing a new internal Division of Innovative Delivery to identify alternative transportation funding solutions. Among its early initiatives, the Division is exploring PPPs to modernize the Ohio Turnpike, develop non-Interstate rest areas, and establish a corporate sponsorship program for state-owned rest areas, bridges, interchanges and sections of highway. Further, the Division is also exploring innovative financing approaches for several different state transportation projects, including the Brent Spence Bridge over the Ohio River in the Cincinnati area, the Portsmouth Bypass in Scioto County.

Here's a brief excerpt from the interview:

Gilroy: Can you describe some of the solutions you’re advancing at ODOT today?

Wray: We have to produce projects at the retail level: quick delivery of projects is what people want from us. Everything we do—from plowing snow to building new interchanges and highways—our citizens want faster and better.

To help us meet citizens' expectations, we've been exploring many different ways of saving money since January 2011. For example, we've reduced staff by over 400 through attrition and saved over $34 million annually, a savings that will repeat year after year. We expect further staff reductions through attrition in the coming years as well, which we expect will generate further savings.

We've also moved to zero-based budgeting this year. ODOT used to carry forward lots of money as a cushion for future years, but we can't afford to let that money sit on the books when we can use it to build projects around the state. We will free up millions of dollars this year alone.

We've also re-budgeted $150 million off of our previously adopted biennium budget, taking a hard look at areas like equipment usage, overtime control, and vehicle usage and purchasing. We believe we could reduce our vehicle fleet by up to 40 percent, for example.

That's what we can do internally, as an agency, to identify areas where we can deliver the same great service ODOT is known for and do it at a lower cost to our customers. But we’re not stopping there. I oftentimes tell groups of people when speaking at public events that, “this isn’t your grandpa's ODOT.” And it isn’t. We’re embarking on a new program—the Division of Innovative Delivery—that will allow us to essentially do two things: 1) reduce construction costs by partnering with the private sector, and 2) generate additional money by leveraging the value of state-owned assets.

For instance, we are conducting a top-to-bottom review of all of ODOT’s assets that could potentially generate money for the department. We have a website that provides real-time traffic information to the motoring public. Is there a market for ODOT to sell advertising space on that website? We’re about to find out. We have thousands of bridges, interchanges and other transportation features that private businesses could pay us millions of dollars to sponsor. So, we’re pursuing an aggressive sponsorship and advertising program.

We're also looking at new and innovative ways to finance transportation projects, and we see great value in engaging the private sector through public-private partnerships.

The full interview is well worth a read and is available here.

[Note to readers: In previous years, we have published Innovators in Action in an annual report format, the last edition having been released in early 2010. The publication was on a temporary hiatus in 2011, but we have resumed publication in a slightly different format. In order to deliver timely content to our readers on a more frequent schedule, we're publishing one Innovators article per month on reason.org. Other articles featured in the Innovators in Action 2012 series are available here.]

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Innovators in Action: Ohio Department of Rehabilitation and Correction Director Gary Mohr

Posted on May 31, 2012, 9:00am | Leonard Gilroy

In the latest installment of Reason Foundation's Innovators in Action series, I interview Gary Mohr, Director of the Ohio Department of Rehabilitation and Correction (ODRC), on creating a culture of competition in corrections.

In September 2011, the ODRC announced the results of a groundbreaking 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. One additional facility formerly under private sector operation was also brought back under in-house operation.

Notably, the state’s biennial budget signed in June 2011 authorized ODRC to sell up to five prisons to help close the state’s budget deficit and reduce corrections costs, though ODRC ultimately opted to pursue a mix of asset sales, outsourced facility operations and facility consolidation/insourcing.

In the interview—available here— Mohr discusses the rationale behind this large-scale and historic procurement, how ODRC uses the private sector in corrections and the role of privatization and competition in driving positive change throughout the state-run correctional system.

Here's an excerpt:

Leonard Gilroy, Reason Foundation: Last year, Ohio made history by becoming the first state to sell a prison to a private operator, at the same time that you both insourced and outsourced the operation of several other prisons. Can you describe the rationale for those moves, and what benefits do you expect?

Gary Mohr, Director, Ohio Department of Corrections: In a labor-oriented state, when we talk about outsourcing and privatization, it’s always a contentious topic. But my vision all along was this: we’re going to reform our system, which means that we need some catalysts for change. And my vision has been that you use competing forces. When you put in people that are earnestly concerned about competing and have a solid framework—which is the request for proposals (RFP)—what you can do is not just save resources, but you can literally enhance all of the operations by ratcheting up the standards and ratcheting up the best practices that can be created from both the public sector and multiple private vendors.

So in terms of reforming, we wanted to develop systems to reduce violence, and we wanted to develop programming to reduce recidivism, because that should be our measure, quite frankly. And what we have seen with this initiative is that we have reduced violence, and we’ve reduced the gang violence by 25 percent if we look at January through March of 2011 compared to the same period in 2012.

Now was that exclusively due to privatization? No. But I believe that the element of competition plays an important role in that.

Second, I’ve been a believer in decentralized unit management. I was involved in putting it in place in Ohio in the mid-1980s, and I know it is the most effective way to safely and proactively operate prison settings. And the benefit of outsourcing is that while Ohio had essentially deleted unit management, the ability to outsource immediately put in the RFP the requirement that these facilities will be fully unit managed to allow them to get a jump-start on shifting back to unit management. This served as an incentive for rest of state facilities to get back into the unit management way of doing business.

And along with that, we’re continuing to enhance the training and providers of evidence-based programs that have direct contact with inmates.

So those were huge for us as I looked at reforming our system to a safer, more proactive, and more evidence-based program delivery methodology, and certainly served in that positive, competitive sense.

Read the rest of the interview here for more of Gary Mohr's fresh and enlightening insights on bringing a culture of competition to corrections to drive better outcomes in offender rehabilitation and public safety. For more details on Ohio's recent correctional privatization initiatives, see Reason Foundation's Annual Privatization Report 2011.

For more interviews in the Innovators in Action 2012 series here.

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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.

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Innovators in Action: Carrollton, Texas City Manager Leonard Martin and Director of Competition Tom Guilfoy

Posted on April 5, 2012, 7:00am | Leonard Gilroy

In the latest installment of Reason Foundation's Innovators in Action series, I interview the Dynamic Duo of Carrollton, Texas: city manager Leonard Martin and director of competition Tom Guilfoy. Trust me—you don't want to miss this. There's a reason I call them the Dynamic Duo.

Ten years ago, Carrollton's city leaders charted a new direction for how the city would operate, directing administrators to transform the bureaucracy from a government culture to a competitive, business-like culture. Officials hired Martin to lead this change, and he created a new Director of Competition—the first both for the city and nation—whose sole purpose was to drive the city's culture to become competitive, either using in-house or external service providers to provide services to residents "cheaper, faster, better, and friendlier."

Martin and Guilfoy developed a robust managed competition program where all government service costs are fully burdened with overhead costs just like private businesses, and government compares their fully loaded cost of service delivery against private sector costs to seek the best provider. In some cases, this has led to re-engineering of city services, and in others, like solid waste collection and vehicle fleet maintenance, the city has turned to private service providers.

Overall, Martin and Guilfoy estimate that managed competition has saved the city $30 million over the last decade (and they add that it's a conservative estimate). Moreover, despite an increase of over 40,000 residents, the city still operates with about the same number of employees on the payroll in 1990, a testament to both the results of competition and the city's fiscal stewardship.

In the interview—available here—Martin and Guilfoy discuss the first decade of managed competition in Carrollton, the process used, and what it takes to create a culture of competition in city government. Here's a small excerpt:

Martin: [...] Government has been taught that there are only two options: raise taxes or cut services. You hear it in Washington. You hear it in the states and cities. No, there's another option: run it like a business and make it efficient. We don’t try to be everything to all people.

[...] Our exercise wasn’t really fancy. We took legal pads, put a line down the middle, and on the left side put essential services and on the right, non-essential. We listed out every service we did. The things we learned that we were doing were things we didn’t previously have a clue on, like the movies. We don’t need to go out and undercut businesses, so we just stopped doing some things. Another example is karate, where you can’t drive down the street and not see a school on every other corner. Yet city government was offering karate classes. And you’re out there with your black belt, paying your lease, paying taxes on your business that I get to keep to undercut you at the rec center.

I had an employee that defended it to me once, saying that there were people that couldn’t afford to go take karate. So I told him that was an excellent point that I hadn’t thought of. At the time George Bush was president, and I said, “I’m quite sure that President Bush had to know karate under the Constitution in order to run for president.” Because obviously if you’re going to be President then you have to know karate. I wanted to be an astronaut, and my town didn’t provide me astronaut training. It’s amazing I was able to become a city manager since my town let me down on astronaut training.

So that guy quit. I respect that person because they lived up to their principles. And I assure you that there were lots of places in government he could go that had that same philosophy: that anyone who wants something gets it. Not here. The council has stayed firm to our policies. We’ve known other places where the staff want to do managed competition, but the council doesn’t want to push on employees because the employees are viewed as a strong voting base. You see that especially at the state levels, where politicians cater to that state bureaucracy.

Our councils have not gotten into that, and they’ve stayed on firm ground and done what’s right for the taxpayer. You got people on the council that have been there for years and understand the culture and are proud of it. All of that takes some courage.

Read the rest of the article here. All I can say is that it's a must-read for anyone interested in what cutting edge city management looks like. One of the more interesting takeaways from the interview is that implementing tools like managed competition is necessary but not sufficient. To really streamline government and keep it lean, you need to change the culture of the bureaucracy. Martin and Guilfoy's insights on that subject alone are fascinating and, frankly, should be internalized by every public administrator (and politician) in the country.

With policymakers at all levels of government seeking ways to reduce spending and improve services delivered to taxpayers, Reason Foundation's Innovators in Action series highlights good government efforts that are delivering real results and value for taxpayers. It is our hope that that the examples and experiences offered by innovators like Martin and Guilfoy will inspire reform-minded mayors and administrators elsewhere to provide better, leaner and cheaper government to taxpayers.

[Note to readers: In previous years, we have published Innovators in Action in an annual report format, the last edition having been released in early 2010. The publication has been on a temporary hiatus since then, but we have resumed publication in a slightly different format. In order to deliver timely content to our readers on a more frequent schedule, we're publishing one Innovators article per month on reason.org. Other articles featured in the Innovators in Action 2012 series are available here.]

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Innovators in ActionReforming Local Government in Colorado Springs

Posted on February 14, 2012, 5:00pm | Harris Kenny

As is often documented here on Reason Foundation's Out of Control Policy blog, the Great Recession gut checked federal, state and local government budgets across the United States. Overspending finally caught up to state capitols and many policymakers realized how vulnerable their budgets were (and still are) to economic uncertainty. However, policymakers weren’t the only ones who noticed. In Colorado Springs, concerned citizen and president of The Broadmoor Hotel, Steve Bartolin, wrote a letter to then Mayor Lionel Rivera criticizing the city’s unsustainable fiscal policy and lack of transparency.

At the time, Colorado Springs faced two major long-term issues: First, unsustainable fiscal policy exacerbated by a lack of transparency; and second, burgeoning civil employee pension liabilities that are outside the control of local government [civil servants are part of the state’s Public Employee Retirement Association (PERA)]. These concerns, combined with citizen dissatisfaction, created a distrustful environment blocking meaningful government reform.

Letter writing was a respectable start, but that's not where Bartolin's efforts ended. Bartolin’s letter ultimately rallied community, business, and political leaders (like former City Councilman Sean Paige), who partnered to create The City Committee in 2010. The City Committee is a nonprofit, nonpartisan civic organization focused on applying best business practices to improve the operators of Colorado Springs' city government and its enterprises.

I recently sat down with Chuck Fowler, CEO and Chairman of The City Committee, where he discusses the formation of the organization, the changing structure of city government in Colorado Springs, and future government reform efforts in store for The City Committee. Here's an excerpt:

Kenny: Do you have any recommendations for concerned citizens who might be interested in starting something like The City Committee in their community?

Fowler: First, the common thread is the recognition there's a problem. Second, that it's time to do business differently. Every community is different and the variables that have shaped communities over time are what make them different. Recognition of the problem and willingness to find the courage to make changes is what will bind communities together. Communities need to find their collective courage, tear down their silos, to look at the issues they’re confronting in a realistic way, which I think if one trusts the current economic forecasts its going to be a while before governments have the type of revenue that they enjoyed the past few decades—something’s got to give. 

Growing the revenue to government enterprises is less likely of an outcome than a reduction of public services by the government. The only way to pay for a level of service that some have come to expect from government is to question: is this something government should do? And if it is, maybe their role is to oversee procurement to give the private sector the privilege to provide these services competitively. This practice is widely known as managed competition.

Economic cycles come and go. Financial tides rise and fall. At this moment in our country’s unique economic and political history, all citizens—whether individuals, businesses or public servants—can and should participate in redefining appropriate solutions for more effective and efficient government. American ingenuity has always led to innovative solutions. That’s foundational to the mission of the City Committee. 

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

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Innovators in Action (Jan 2012 edition): Tulsa, Oklahoma Mayor Dewey Bartlett, Jr.

Posted on January 13, 2012, 12:02pm | Leonard Gilroy

In the latest installment of Reason Foundation's Innovators in Action series, Tulsa, Oklahoma Mayor Dewey Bartlett, Jr. offers his reflections on tackling the city's fiscal challenges by embracing innovation, competition and market-based policies. In the article—available here—Mayor Bartlett details the bleak fiscal situation his administration walked into two years ago, his proactive approach to developing solutions and a number of the administration's implementation successes to date. In short, Mayor Bartlett is applying the tools of competition—such as competitive sourcing and public-private partnerships—to deliver better value to taxpayers and right the city's fiscal course.

An excerpt from Mayor Bartlett's article:

My first day in office was December 7, 2009. My finance director greeted me with the sober news that, after ten consecutive months of declining sales tax revenues, all previous measures to balance the city budget had failed to stop the real threat of deficit spending. Even though the previous administration had cut $10 million dollars in spending and had used almost $11 million of the reserve fund, my management team and I had 45 days to cut an additional $10 million from the operating budget. In total, this amounted to between 10% and 15% or $24 million of the operating budget.

Reductions by the previous mayor had included discontinuing public safety academies, turning off highway lights, grounding the police helicopters, and suspending the removal of graffiti and the mowing of public property. Even with city employees being furloughed eight days and the previous administration having spent 80% of the city's reserve fund after just five months of the fiscal year, more and bigger pain was on the immediate horizon. Defaulting on obligations was more real than at any time in Tulsa’s history.

We quickly discerned that the city government had not prepared for times such as these. City government had grown too big, it cost too much, it was doing too much, and it had made commitments and promises to our government employee unions that could not be kept.

[…]

With the help and guidance of my chief of staff and management team we have accomplished major changes after only two years. Over that time Tulsa has resumed both police and fire academies, the police helicopters are flying again, the highway lights are back on and the efforts toward mowing public property and removing graffiti have doubled. All of the employee furlough days have been eliminated, and for the first time in several years, the employees received a stipend increase in June. The reserve fund balance has been restored to almost $13 million and we continue to control our overhead cost by maintaining a 3% vacancy rate across all city departments. And, for the first time in memory, the city has reached collective bargaining agreements with all five of its bargaining units at the beginning of the fiscal year.

The secret of our success really is no secret. It takes applying conservative business and financial principles to government, the courage and political will to tackle the toughest of challenges, willingness to embrace innovation, competition and private market ideas.

Read the rest of the article here for Mayor Bartlett's detailed description of how his administration has gotten from there to here. He describes over a dozen different administration initiatives that span a broad range—from competitive service delivery to public-private partnerships to asset divestiture to implementation of internal efficiency initiatives. It's an impressive and ambitious agenda illustrative of the kind of thinking that will be critical to future public sector management. If you're not familiar with Mayor Bartlett or his reform agenda, you definitely should be.

With policymakers at all levels of government seeking ways to reduce spending and improve services delivered to taxpayers, Reason Foundation's Innovators in Action series highlights good government efforts that are delivering real results and value for taxpayers. It is our hope that that the examples and experiences offered by innovators like Mayor Bartlett will inspire reform-minded mayors and administrators elsewhere to provide better, leaner and cheaper government to taxpayers.

[Note to readers: In previous years, we have published Innovators in Action in an annual report format, the last edition having been released in early 2010. The publication has been on a temporary hiatus since then, but we are resuming publication in a slightly different format. In order to deliver timely content to our readers on a more frequent schedule, henceforth we plan to publish one Innovators article per month on reason.org, which will subsequently be compiled into a report format later in the calendar year.

Mayor Bartlett's article is the second in the 2012 Innovators in Action series. The first—my interview with Puerto Rico Public-Private Partnerships Authority executive director David Alvarez last fall—is available here.]

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Building Puerto Rico's Successful Infrastructure PPP Program

Posted on September 9, 2011, 2:23pm | Leonard Gilroy

Puerto Rico Governor Luis Fortuño's administration has taken bold actions to address the territory's chronic deficits and unsustainable debt, including dramatic spending cuts, optimizing government operations and passing a broad-ranging new law in 2009 inviting private investors to modernize or develop new public infrastructure across a variety of sectors. (see the Governor discuss Puerto Rico's fiscal situation and his reform efforts in this Reason.tv video.)

Puerto Rico enacted Act No. 29 in 2009, authorizing government agencies to enter into public-private partnerships (PPPs) with private firms for the design, construction, financing, maintenance and/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 Government Development Bank responsible for identifying, evaluating and selecting PPP projects and for monitoring and enforcing the terms of PPP contracts.

Getting a program enacted is one thing, but implementation is where the hard work really happens. And in two short years, the PPPA has built a world-class PPP program and has already seen some major successes that other states can learn from. For example:

  • To help modernize aging K-12 school facilities and improve academic performance, the PPPA developed the "Schools for the 21st Century" program as their first PPP endeavor, where the Commonwealth is contracting with with private operators to design, build and maintain approximately 100 schools across Puerto Rico; over 60 of these contracts were already in place by July 2011.
  • In June 2011, the PPPA selected a winning bidder for a 40-year, $1.08 billion concession to operate the PR-22 and PR-5 toll roads.
  • PPPA officials have more recently launched a procurement for a long-term lease of San Juan’s international airport, and a dozen potential bidders recently submitted statements of qualification.

For some must-read, innovator insights on what it takes to build a successful PPP program, check out my new interview with PPPA executive director David Alvarez, where he discusses the development of Puerto Rico's PPP program, the benefits of having a centralized PPP program with a broad scope across infrastructure sectors, and the central role of the PPP program in Puerto Rico's economic development strategy. Here's an excerpt:

Gilroy: Up to this point, most states have taken piecemeal approaches to PPPs, with a heavy focus on transportation projects. However, Puerto Rico's PPP program goes much further than most states, extending beyond transportation to other types of infrastructure. Can you describe the scope of the Commonwealth's PPP program?

Alvarez: The scope of the program is very broad. We decided to include in the legislation—not the projects themselves, but the areas that we can pursue, the different infrastructure types. We actually have nine areas listed in the PPP legislation in Puerto Rico. We can go from transportation to energy to water. We can do schools, social infrastructure, corrections, information technology—so it's a very broad scope.

We decided to start the program with the projects that were most ready to go into the pipeline and out to the market. For example, we focused first on "brownfield" projects [Editor's note: "brownfield" PPPs cover the operation and/or capital investment in existing public assets]. The schools project [Schools for the 21st Century] was one where the need was high for investment in school infrastructure, so we knew that this was a priority project. A lot of these are renovations of existing schools, so this is not like a "greenfield" project where you need a lot of permitting, etc. [Editor's note: "greenfield" PPPs cover the private sector construction, operation and/or financing of new public assets.] All of the greenfield PPP opportunities that Puerto Rico has need a lot of permits and environmental work to be completed.

So we started with something that we could manage well. Then we moved into the toll roads project with another brownfield transaction. And that's how we started to move across different asset classes.

We can do a variety of different projects, which is fascinating and gives the opportunity to talk to the public about the PPP concept without attaching it to a project—a toll road or an airport. So you can do a lot of education about the PPP concept itself, which is very useful. Then when you get to a particular project, you can relate to your concept again and how it applies to a toll road or a school or a correctional facility. So that gives us a lot of room for action.

To continue reading, click here.

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La Jolla to Secede from City of San Diego?

Posted on April 29, 2010, 9:32pm | Adam Summers

Aggrieved by deteriorating services and infrastructure provided by the City of San Diego, whose financial outlook seems increasingly bleak and destined to insolvency, the community of La Jolla is seriously considering seceding from the city. The upscale community, home to over 40,000 residents, beautiful beaches and ocean bluffs, the cute and pesky seals that frequent La Jolla Cove, Mount Soledad, the Torrey Pines Golf Course, Birch Aquarium, and the University of California, San Diego, is more than capable of providing for its own services, and has been frustrated as resources have been siphoned away to line the pockets of San Diego employee labor union members while local services decline and the San Diego administration and city council appear unwilling or unable to tackle mounting debts and implement needed reforms.

According to a San Diego Union-Tribune article, "La Jolla is fed up with how San Diego can't deliver key services like it used to. . . . The secession movement, a perennial, is once again becoming a hot topic in La Jolla. Proponents even have a logo. This time, momentum may be growing because of how the community is suffering from widespread decay."

"People are fed up," said Melinda Merryweather, vice president of Independent La Jolla, a citizens group advocating for secession.

Some parents have talked of splitting La Jolla schools off from the San Diego Unified School District as well.

A dispute over shoreline fire pits is a microcosm of the larger debate. The City of San Diego is removing its 186 fire pits across the city because it can't afford the maintenance costs to clean them. La Jolla residents want to maintain the 7 pits in the community, and the La Jolla Community Foundation even wants to donate the money needed to do so, but the city has refused because it is taking an all-or-nothing approach to the maintenance and claims that it can't service a select few.

Such a secession would not be unprecedented. In 2005 and 2006, the new cities of Sandy Springs, John's Creek, and Milton split off from Fulton County, Georgia (which includes the City of Atlanta). Chattahoochee Hill Country and Dunwoody followed suit in 2007 and 2008, respectively. The communities were upset with high taxes and poor service delivery, and so became the first new cities in Georgia in 50 years. Instead of establishing municipal bureaucracies that would mirror that of Fulton County on a smaller level, the new cities adopted a "contract city" model, in which a city contracts out most of its services to private-sector providers. In an article for Reason's Innovators in Action 2009 publication, Oliver Porter, who was instrumental in the Georgia incorporation movement, describes how Sandy Springs was formed in a very short period of time to effectively serve a population of 90,000 with only two city employees. In the article, he notes the benefits of incorporation and the public-private partnership (PPP) model:

While surrounding traditional cities have experienced severe budget problems during the current recession, Sandy Springs has enjoyed a $14 million surplus, in addition to funding a $21 million reserve.

During the three and a half years of operations, Sandy Springs has paved more roads in the community than the county had in the past 20 years, created new parks, established a 125­-person police force, and 89 firemen with all new equipment. The new city has vastly improved EMS capability, and has established a state-of­-the-art, joint electronic 911 service with another of the new cities. Cost sharing in many areas between the PPP cities has aided in keeping costs down. A much needed modern traffic control system has been installed. Local control over zoning, planning, permitting and code enforcement has been gained. The list of improvements is very extensive, and all of these changes have been introduced without tax increases. In fact, the city's taxes are lower than the taxes on the unincorporated areas of the county.

The PPP that looked so risky at first has been an outstanding success.

Should La Jolla succeed in overcoming the hurdles to secession (San Diego will not easily let go of its valuable tax base, especially as it struggles to make ends meet), it would be wise to adopt the contract city/PPP model and avoid the mistakes of San Diego, which has yet to even implement the managed competition/outsourcing program approved by voters three and a half years ago (check out the San Diego Managed Competition Clock, which notes the amount of time that has passed since the measure was approved and an estimate of how much money the city could have saved in the meantime by implementing the program).

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Louisiana Announces Privatization of Insurance Program

Posted on March 16, 2010, 6:59pm | Leonard Gilroy

In what's shaped up as a "Privatization Day" of sorts at Reason—with our new Reason.tv "Privatize It!" video and two new privatization policy briefs here and here—it seems fitting to report some good news from Louisiana on the privatization front.

The Louisiana Division of Administration has announced the privatization of their state self-insurance operation, primarily the management of all property and casualty claims and loss prevention services. Details from the press release:

Commissioner of Administration Angele Davis today announced the privatization of claims management and loss prevention services within the Division of Administration's office of risk management, a move that will result in estimated savings of at least $20 million over five years, instant access to technology improvements, and greater program flexibility.

Last year, Commissioner Davis embarked upon a department-wide efficiency initiative, conducting a sweeping review of activities for potential privatization and outsourcing opportunities.

"The point is not to privatize just for the sake of privatization, but where it makes sense, and only after a thorough evaluation demonstrates an ability to provide a high level of service at a better cost to taxpayers," said Davis. "During a period of fiscal challenges, today's announcement points to just one of the ways that the Division is leading the effort to streamline state government, in this case actually improving the effectiveness of services while also improving the cost-effectiveness of government operations."

After issuing a request for proposals last November, the Office of Risk Management (ORM) conducted a careful review of the proposals received, then evaluated the highest-scoring proposal in comparison with its internal operations. This process resulted in the decision to outsource the adjusting/management of all property and casualty claims and loss prevention services to FARA (F.A. Richard & Associates, Inc.), a Louisiana-owned company headquartered in Mandeville, Louisiana.

ORM director Bud Thompson said, "I commend my staff for their yeoman's work in the research, preparation and execution of this RFP, especially their commitment to evaluate the proposals objectively and analyze the advantages, disadvantages and projected cost-savings to our in-house program in the long-term best interest of the State."

Among the advantages to ORM's operations identified in this privatization effort:

• Provides instant access to state-of-the-art technology improvements that cannot be achieved in-house;
• Offers high probability for reduced claims costs and reduction in overall program cost;
• Provides for additional flexibility in managing the program, as changes can be made more quickly;
• Allows ORM to focus on enterprise risk management, as opposed to the day-to-day business of running a large claims and loss prevention organization.

The privatization will result in a reduction of approximately 85 ORM employees. However, due the specialized nature of ORM's work evaluating risk to government, the RFP included a requirement that the company awarded the service offer employment to all ORM employees displaced by the privatization, at a salary based on the company's pay scales for their existing employees, and providing immediate eligibility for enrollment in benefit plans and the establishment of local offices to service the state.

While states routinely operate their own self-insurance programs—which are essentially responsible for handling the state's property and casualty risks, as well as tort claims made against the state or its agencies—there's nothing inherently governmental about the tasks that operational staff perform. In fact, these same functions are performed at privately insurance companies as a matter of routine, and thus they are commercial in nature. So essentially, Louisiana has decided that the private sector can perform that same function for the state at a lower cost, in addition to the longer-term benefits of reducing the state workforce (and associated pension liabilities, etc.). And it should be noted that the private company is expected to save millions for the state while taking on 100% of the current state employees currently performing that function.

More from The Advocate here. And don't miss my interview with Commissioner Davis in Reason Foundation's Innovators in Action 2009, in which she discussed privatization and the numerous other "right-sizing" strategies Gov. Jindal's administration is advancing in Louisiana to proactively address their fiscal challenges. Other states should be following suit.

» Reason Saves Cleveland With Drew Carey Episode 3: Privatize It
» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary

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Louisiana Budget Chief Angele Davis on Streamlining State Government

Posted on February 18, 2010, 4:05pm | Leonard Gilroy

Reason Foundation's Innovators in Action 2009 features an interview with Louisiana Commissioner of Administration Angele Davis (PDF version here, who is playing a central implementation role in Gov. Bobby Jindal's wide-ranging efforts to streamline the state bureaucracy. Here's an excerpt:

Leonard Gilroy, Reason Foundation: Nearly every state, and many local governments, are facing a protracted fiscal crisis. What is Louisiana facing on the fiscal front? What's driving the push toward streamlining government in the state?

Angele Davis, Louisiana Commissioner of Administration: Like most other states, we're facing budget deficits projected over the next several years, including a $948.7 million shortfall for FY 2010–11 alone. Given these challenges, we're aggressively putting fiscal reforms in place. Primarily we're focused on reducing the cost and size of government by evaluating program effectiveness and getting rid of those that don't measure up through elimination, consolidation, privatization or the strategic use of technology. We're expanding our use of performance measurement to drive accountability and to see what works and what needs improvement. We don't have enough money to get the outcomes we want for citizens if we spend it in the same ways we spent it last year and the year before.

Read the whole thing for a detailed review of the variety of internal cost-cutting and efficiency strategies underway in Louisiana. This interview gives a excellent example of the type of broad, wide-ranging thinking and action it takes to tackle a fiscal crisis of the scale that many states are facing these days. In short, there's no silver bullet, and reform involves many moving parts, as we're seeing in Louisiana.

For other examples of innovative policy and management approaches in government, don't miss the rest of Innovators in Action 2009.

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Innovators in Action 2009

Posted on January 29, 2010, 4:22pm | Leonard Gilroy

Now more than ever, governments at all levels are looking for ways to reduce spending and improve the services delivered to taxpayers. As such, I'm pleased to announce the release of Reason Foundation's Innovators in Action 2009, which profiles nine innovators who have demonstrated leadership through action on privatization, competition, government re-invention and other market-based reforms designed to reduce the costs of government and deliver more value to taxpayers:

  • Georgia Governor Sonny Perdue created the Commission on a New Georgia, an advisory group of corporate executives partnering with the state to re-engineer its bureaucratic machinery.
  • Former New South Wales, Australia Premier Bob Carr embraced privately financed toll roads as a means of delivering infrastructure better, faster and cheaper than traditional government approaches.
  • Louisiana Commissioner of Administration Angele Davis is playing a central implementation role in Gov. Bobby Jindal's wide-ranging efforts to streamline the state bureaucracy.
  • Under the leadership of State Superintendent of Education Paul Pastorek, Louisiana's burgeoning school choice movement is using transparency, standards and accountability to improve student achievement and turn around low-performing schools.
  • Indianapolis Mayor Gregory Ballard has advanced an array of competition and government reform initiatives designed to control costs, improve government performance, and bring best business practices to government.
  • Former Florida Council on Efficient Government Executive Director Henry Garrigo helped to create a national model for a state center of excellence in privatization to ensure sound decisionmaking on outsourcing proposals.
  • Chicago's Chief Financial Officer Gene Saffold oversaw the Windy City's $1.15 billion lease of the city's downtown parking meter system in 2009.
  • Former AT&T executive Oliver Porter led a citizen task force that created the template for the largely privatized government in Sandy Springs, Georgia.
  • Chief Information Officer Eric Gillespie and his colleagues at Onvia saw major gaps in the federal government's commitment and ability to deliver on stimulus spending transparency— and they stepped in to fill it by creating Recovery.org at a fraction of the cost it took the feds to create their own Recovery.gov.

Amidst today's massive deficits and red ink, we need government leaders who are willing to ditch the failed status quo and seek out better ways of doing things. We hope the examples and experiences offered by these innovators will inspire reform-minded officials at all levels of government to provide better, leaner and cheaper government to taxpayers.

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Laissez Les Bon Reforms Roulez

Posted on December 16, 2009, 6:47pm | Leonard Gilroy

My new column tells Virginia policymakers that it's time to serious about reducing the size and scope of government and that they should look to Louisiana's aggressive government reform efforts as a model. Here's an excerpt:

As the state taking perhaps the most aggressive approach to solving its own fiscal crisis, Louisiana offers a reform model Virginia officials should consider replicating. [...]

In the spring they created a Commission on Streamlining Government that presented the governor and legislature 238 recommendations this week to save over $1 billion through privatization, streamlining, consolidation, and elimination of government activities. Recommendations include a number of large-scale government overhauls, including adopting a statewide spending limit, shifting all of the state's retirement funds to 401-k style defined contribution plans for all new hires, and revamping state education finance to promote a student-based budgeting approach where education dollars directly follow children into the classroom. Similarly, policymakers created a parallel commission to review the state's postsecondary education system to find potential savings, cuts and service improvements.

Louisiana policymakers are also embracing privatization. The Streamlining Commission recommended over a dozen privatization initiatives estimated to save the state at least $88 million, including recommendations to create a statewide competitive sourcing program, privatize state inpatient psychiatric services and outsource the administration of state employee group medical benefits, correctional food and pharmaceutical services, road maintenance and most highway design engineering.

The state has also recently issued requests for proposals from private bidders for the potential privatization of state risk management functions (claims management and loss prevention), the maintenance of dozens of state buildings and a variety of IT support services. In addition, the state has already adjusted its rental car contract to facilitate more downsizing in its vehicle fleet, and it is undertaking an inventory and analysis of all state-owned buildings and lands to find underused property to return to private commerce.

This is just a start—read the whole thing for more on Louisiana's budget and spending reform initiatives, and see my testimony on privatization to the Streamlining Commission here.

I'll be writing separate posts in the coming days on the new Streamlining Commission report, as well as some of the privatization initiatives that are starting to advance in Louisiana.

» Reason Foundation's Government Reform Research and Commentary
» Reason Foundation's Privatization Research and Commentary
» Reason Foundation's Annual Privatization Report 2009

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Chicago CFO Gene Saffold Addresses Critics, Discusses Benefits of Parking Meter Privatization

Posted on December 11, 2009, 4:48pm | Leonard Gilroy

One of the ongoing themes in Chicago's controversial parking meter privatization is the question of whether or not the city received the best and highest value in the $1.156 billion transaction. I haven't seen any evidence to support that contention myself—in fact, this sort of claim is usually either (1) based on a flawed analysis of costs, risks and discount rates, or (2) pulled from the grab bag of tired, old anti-privatization rhetoric (i.e., "the city could run it more efficiently and keep the savings," which of course never really pans out much in real life).

In a new Reason.org interview, I asked Chicago's Chief Financial Officer Gene Saffold to share his take on the issue of valuing Chicago's parking meters, after a recent New York Times article suggested that the concessionaire is "piling up profits" and that the city could have gotten a better deal. Suffice to say, Saffold sees it differently—here's an excerpt:

The City of Chicago competitively bid the metered parking system, and the high bid was $1.156 billion. That amount was on the high side of our projections. As such, it was more than just a good bid; it was an economic boon to the City.

There have been a few contrarian valuations offered to date, but they've generally failed to fully factor annual operating expenses and recurring costs, like capital expenditures, or failed to allocate the appropriate level of risk. Risk discounts future cash flow. Let's be honest, there are some very real risks associated with the metered parking system, like labor costs, fuel costs, expanded use of public transportation, and changes in driver behavior. The City has shifted those risks, however, from the taxpayers to the concessionaire. [...]

I don't think the whole story is told unless one notes the benefits that flowed from the metered parking concession. For example, prior to this year, hourly rates had not been increased in nearly 20 years at 75% of Chicago's parking meters. Under-priced meters lead to congestion, increased travel times, and pollution. Today, however, Chicago's hourly parking meter rates are comparable, even less, than a number of cities throughout the Unites States. They create turnover and availability, making businesses and institutions served by meters more attractive.

The technology side has improved as well. The concessionaire has installed more than 4,200 pay boxes, replacing about 32,000 single space parking meters. The pay boxes take credit cards and notify the concessionaire when they are broken or need collection. As a result, there are now fewer broken meters. Those meters that are broken are repaired in a couple of hours. It used to take the City days.

Read the whole interview here. And for more on Chicago's parking meter privatization, see here.

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary

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