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

Posted on May 6, 2013, 4:25pm | Leonard Gilroy

The rollout of Reason Foundation's Annual Privatization Report 2013 continues today with the release of the Local Government Privatization section—authored by Reason's Harris Kenny, Adam Summers and Steven Titch—which provides an overview of the latest on privatization and public-private partnerships in local government. Articles include:

  • Mayor Emanuel Establishes Chicago Infrastructure Trust
  • Public-Private Partnerships for Parking Assets
  • Yonkers, New York Pursuing Innovative School Partnership Approach
  • City of Austin Releases Surprising Outsourcing Study
  • Georgia Contract Cities Continue to Evolve
  • Finding New Ways to Provide Parks and Recreation Amenities
  • Water and Wastewater Privatization Update
  • Solid Waste Collection Update
  • Non-Profit Partnerships for Animal Shelters Grow
  • ANALYSIS: Is Managed Competition Dead in San Diego?
  • ANALYSIS: San Diego, San Jose Lead the Way in Local Pension Reform
  • ANALYSIS: Despite Glossy Reports, Muni Broadband is Still a Net Money Loser
  • Local Government Privatization News and Notes

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

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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.

 

 

twitter-bird-blue-on-white_small Follow Harris Kenny on Twitter @harriskenny

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21st Century Schools Require 21st Century Finance

Posted on September 20, 2012, 2:04pm | Harris Kenny

Today my colleague Leonard Gilroy and I had a piece on Real Clear Markets entitled, "21st Century Schools Require 21st Century Finance." The piece begins:

Recent teacher protests in Chicago show that students and parents suffer when public employee unions and elected officials fight over how to run schools. But there is one issue that should unite both sides: Tapping private sector capital to build schools - whether traditional or alternative - and other education-related infrastructure, leaving more public dollars for the instructional needs of children. Yonkers, a school district in New York State, is doing just that by deploying a solution that has worked well for transportation and other types of public infrastructure: Public-private partnerships (PPPs).

We go on to explain that school districts are out of money, so they can't simply finance, build and operate the new capacity they need on their own. Meanwhile taxpayers are unwilling to approve tax increases. PPPs are an emerging third strategy that addresses these issues. The piece continues:

PPPs usher in private sector capital upfront, which is repaid in exchange for maintenance of the facilities over the course of the contract. Maintenance costs over the long-term are lumped in and included as a payment for a set period. Schools use the resources they would have used to repay municipal bonds and maintain the facility to repay a private partner instead, and more cost effectively. Rigorous procurement allows competing private firms to drive down costs within a framework that protects taxpayers.

This is in contrast to the traditional approach, which requires school districts to fulfill many duties that are beyond the scope of their mission and core competencies, specifically:

Under the traditional model, school districts are responsible not only for overseeing education, but also for finance, building/property maintenance and asset management. In contrast, well-structured PPPs can drive down construction costs and lower life-cycle maintenance costs, freeing up resources that can be deployed in the classroom. These benefits should unify school administrators and unions, not to mention parents and children. Superintendent of Yonkers Public Schools Bernard P. Pierorazio recently explained, "(The PPP allows us to) concentrate on what we do best - preparing students to achieve."

We go on to detail success stories in Yonkers and Puerto Rico. For example in Yonkers, the district hired PPP advisors to determine the feasibility of a $1.7 billion procurement to rebuild 38 schools. The district's buildings are in dire disrepair, with over 95 percent labelled "unsatisfactory" by the State. In Puerto Rico, Governor Luis Fortuño's PPP Authority is overseeing a partnership for approximately 100 schools in 78 municipalities across the island. It's easy to understand why this tool is so appealing to policymakers:

Yonkers, Puerto Rico and others are using PPPs because they tap the strength of the private sector to deliver and maintain facilities (which is not a strength of school districts, whose core mission is academic), based on the public sector's need for good learning environments. Their approach is based on rigorous, well-structured PPP contracts that often span hundreds of pages that transfer key financial, project delivery and operational risks from the public sector (read: taxpayers) to the private sector. Exemplary PPP contracts incorporate enforceable provisions that make the private vendor responsible for everything from future repairs and maintenance, to the scope and timing of projects. Policymakers also sometimes include language to incentivize private partners to finish on (or even ahead of) schedule or hedge against both predictable and unpredictable changes in circumstances like inclement weather or fluctuating commodity prices.

The piece later explains other benefits of PPPs and concludes by saying that PPPs represent an opportunity to improve - if not reinvent -the American education system. Read the full piece, available here on Real Clear Markets.

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Contracting Transportation Services

Posted on September 10, 2012, 9:18am | Baruch Feigenbaum

A session at last month’s Institute of Transportation Conference and Exhibit titled Privatizing Government Agency Services featured how the private sector can provide excellent services at a much lower cost than a traditional government. The two featured cities of Sandy Springs, GA and Centennial, CO use slightly different approaches. Sandy Springs privatizes everything but police and fire. Centennial, Colorado privatizes some of its services including some transportation functions. The cities provide slightly different  templates for other interested cities depending on the situation. 

Sandy Springs was formed in 2005. With the exception of Police and Fire, which the Georgia Constitution requires be handled by a public entity, Sandy Springs has privatized all its remaining services. The city continues to be a leader, breaking new ground with the re-bid of its master services contract previously held by construction company CH2M Hill. Following a year-long process, the city awarded contracts to four firms at a May 17, 2011 city council meeting to provide general government services in the areas of communications, municipal court, public works, recreation and parks and community development. 

City officials, led by City Manager John McDonough, leveraged an exhaustive split contract service Request for Proposals (RFP) process that, when applied, saved taxpayers almost 30%, or over $7 million, compared to the previous single-provider contract service. Over the course of five years these contracts are expected to save taxpayers $35 million. The city is partnering with the following firms: Pasadena, California-based Jacobs Engineering Group Inc. for a municipal court and parks and recreation, San Francisco, California-based URS Corporation for public works, and Boston, Massachusetts-based Planners Collaborative Inc. for communications and community development. Additionally, the city already contracts with Severn Trent Services for financial services. Overall, Sandy Springs’s FY 2012 contracts are worth $10,126,293. 

Similar to traditional cities, Sandy Springs has a comprehensive long-range transportation strategy. This includes new major construction projects as well as routine maintenance. While most cities contract with the private sector to build transportation infrastructure, and some contract out repavings, new contract cities such as Sandy Springs are the only ones who also partner for basic Planning Services and basic Engineering Services. There is a department that handles Civil Works, but its employees work for URS, not the city. There is no noticeable difference between the services provided by a contracted city and those offered by a traditional city. While Sandy Springs residents pay lower taxes than their neighbors in Roswell and Atlanta, the quality of Sandy Springs’ services is better. 

Located southeast of Denver in Arapahoe County, Centennial incorporated in 2001 in an effort to keep neighboring Greenwood Village from annexing its commercial corridor. Because special districts in the area already managed library, recreation, fire and water services, the new city's two largest services would be public safety and public works. 

Initially, Centennial signed intergovernmental agreements with Arapahoe County to provide law enforcement and public works services. Although the county sheriff still provides public safety services for the city, a new agreement could not be reached for public works services in 2007, so Centennial leaders began investigating other options. 

The city requested proposals from private firms, and it prepared its own estimate for an in-house public works department. The city created a request for proposals, determined the actual service provision, and developed detailed analytics to define the level of service city residents wanted. 

Centennial would assume some risk in the contract by purchasing all fuel, asphalt, deicing chemicals and road salt needed for the department's operations. That removed some cost uncertainty for the private firms so they could focus their proposals on the costs of providing the expected services. The city ensured there was no incentive to minimize the amount of deicing materials. 

Three firms submitted proposals for the contract, and their costs were comparable to the city's estimate for an in-house department, but the level of services the private firms could provide exceeded the city's ability for the same cost. On July 1, 2008, Centennial launched the public works department through a public-private partnership with Denver-based CH2M HILL. The five-year contract includes transportation and traffic engineering, infrastructure maintenance and snow removal. Centennial retains direct control of public works operations, and the company operates as an extension of the city. 

The contract is designed to be flexible and adjustable through a value exchange system the city developed that assigns values to all public works services. Sweeping 30 miles of streets has a certain value; replacing five road signs has a certain value; paving a number of miles of roads also has a certain value. The contractor updates the costs of these services each year when the contract is reviewed, and the city decides how much of each service it wants to provide for the next 12 months. If quantities of services need to change, they can be exchanged for the same value of services elsewhere. 

With these annual service updates, the city can bring service back in-house or continue contracting depending on what works best for Centennial residents. In 2010, partly due to the recession when Centennial reanalyzed the costs it was paying for infrastructure services, the city determined it could more effectively perform the services in house. The city chose not to contract infrastructure services. However, with the economy improving the city is once again looking at an infrastructure contract. The city estimates it will send out a request for proposals later this year or early next year. If the new numbers favor contracting, the city hopes to have a new agreement in place by the end of next year.

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Innovators in Action: Making Phoenix a 24-Hour City--Privatizing City Permitting to Cut Red Tape and Drive Economic Development

Posted on July 31, 2012, 5:49pm | Leonard Gilroy

While many other cities are increasing the regulatory burden on starting or expanding businesses, policymakers in Phoenix, Arizona have recently taken significant steps toward reducing it. In our latest interview in the Innovators in Action 2012 series, I sat down with Phoenix City Councilman Sal DiCiccio to talk about the city's new plan review and permitting reforms, how they came about and what they mean for economic development.

Regulatory delays and uncertainty in local government—particularly in permitting related to commercial and residential construction—tend to drive up the costs of development and can become so burdensome that they ultimately serve as a disincentive for economic investment. This used to be the case in Phoenix, until its City Council recently enacted reforms that shifted a significant portion of city permitting and inspection functions to the private sector and created 24-hour turnarounds for projects that used to take four to six months.

Phoenix is implementing a "self certification" model where architects and engineers who undertake city training and random audits can submit plans for a variety of residential and commercial construction projects (exceptions include high-rises, steep slope development and hazardous land uses) and be able to walk out with a permit, on the same visit. Next year, the city plans to go one step further by implementing online permitting, which will be even faster and more convenient for permit seekers.

In all, these reforms are intended to improve Phoenix’s economic competitiveness and lower costs for taxpayers. Here's a brief excerpt from the interview:

Gilroy: What did Phoenix pass to help businesses get up and running faster?

DiCiccio: We created a model making Phoenix a 24-hour city when it comes to plan reviews and inspections. Walk in with your building plans, walk out with a permit and start construction that same day. Call for an inspector before 10 pm and get an inspection the very next day. That’s huge, compared to our history and what happens in most metro areas.

Phoenix shifted a significant portion of the planning and inspection functions to the private sector. Phoenix has instituted what’s known as a “self certification” model, which means architects and engineers who have been through city training will submit plans and be able to walk out with a permit, on the same visit. That includes all new construction up to 75 feet, all tenant improvements; civil permits for industrial, commercial/office, multifamily and residential; and historic preservation. More than 100 professionals are now certified on the list.

Next year, permits will be online, so they will be able to push a button and submit plans electronically. Today’s 24-hour process will get even faster.

Gilroy: How will Phoenix’s permitting reforms help business owners?

DiCiccio: Getting permits quickly to do construction and improvements saves time and money. We also have greater predictability, so they will know when to lease, when they can build and when they should hire employees, for example. Unpredictability not only costs them time, money and market share, it also discourages some would-be entrepreneurs from even starting. When you’re a small business trying to build your dream on savings and credit cards, months-long hold-ups can be devastating. We’ve ended that.

It also gives them a choice of whom they want to work with. Private sector architects and engineers may provide more targeted services to a particular industry or business owner, and I believe people must have that choice. Competition creates more and better innovation. Government can't specialize in every field, but the private sector can and does.

The full interview is well worth a read and is available here. For more on the subject, the Arizona Republic's recent coverage of the new permitting reforms 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 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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Rahm Emanuel and Big City Democrats Embrace Privatization

Posted on July 6, 2012, 10:19pm | Leonard Gilroy

Harris Kenny and I have a column in tomorrow's Wall Street Journal:

We often hear that America's infrastructure is crumbling, but did you know that tens and possibly hundreds of billions of dollars in private infrastructure funds are waiting to be spent? It's money that Chicago Mayor—and Democratic Party powerhouse—Rahm Emanuel has spotted, rightly calling it "a tool here that takes some of the pressure off taxpayers."

In April, the Chicago City Council overwhelmingly approved Mr. Emanuel's $7 billion program to "rebuild Chicago" by constructing two new runways at O'Hare Airport; replacing 900 miles of water pipes and 750 miles of the sewer system; creating special routes for rapid bus transit; modernizing schools, transit stations and city buildings; and building 12 new parks and 20 playgrounds.

To pay for these projects, Mr. Emanuel is turning in part to private firms including Citibank and Citi Infrastructure Investors, Macquarie Infrastructure and Real Assets Inc., J.P. Morgan Asset Management Infrastructure Investment Group, and union-held Ullico. These firms say they are ready to provide at least $1.7 billion to help build the "new Chicago." (Though the details are not yet set, the likely arrangement would have the private firms putting up capital and then recouping their investments through user fees over a set period of years or decades.)

"This model of private financing for public infrastructure is happening all over the world, but not here in America," said Mr. Emanuel, who served from 2009-10 as President Obama's chief of staff. "I can't get from here to there on the old model—it's broken."

There are decades of major public-private partnership success stories in the United Kingdom, France, Italy, Spain and elsewhere. The Reason Foundation's Annual Privatization Report finds that partly or fully privatized airports—such as Heathrow and Stansted in London, and Leonardo da Vinci-Fiumicino Airport in Rome, which make money from airlines and especially from passengers in stores, parking lots and the like—handled 48% of European air travel passengers in 2011. That's one reason Chicago is considering privatization plans for Midway Airport (which would ultimately require approval from the Federal Aviation Administration).

Mr. Emanuel's new infrastructure plan is bolstered by the privatization success he's already experienced in Chicago. Last summer he launched a large-scale competitive bidding process in which two companies compete with each other—and head-to-head with city workers—to provide cheaper curbside recycling for Chicagoans.

The competition forced government workers to find better ways to do their jobs, and Chicago reported reducing costs by $2 million in the first six months alone. "The City's crews have worked to close the gap between the private haulers' $2.70 price per cart by reducing their costs by 35 percent from $4.77 to $3.28 per cart," the city government reported in April.

Also privatized by Mr. Emanuel: Chicago's water-bill call center, airport and library custodial services, and the city-worker benefits-management system. Hiring private companies that could manage these services at lower costs led the city to lay off over 600 employees, so the mayor came under predictable fire from government unions. "My duty as mayor is to protect our city's taxpayers and be their voice—not to protect the city's payroll," he responded.

Mr. Emanuel is doing what sensible leaders do: focusing resources on the core functions of government and using competition to lower costs on the rest. When government agencies are forced to compete with the private sector, it saves taxpayers money and makes government more responsive to its customers. Performance-based contracts that set clear standards ensure that high-quality services are delivered by private firms that are held accountable.

Other prominent Democrats are joining Mr. Emanuel in embracing privatization or nonprofit funding for the countless nonessential services that drain city coffers.

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Innovators in Action: Indianapolis’ Parking Meter Lease, One Year Later

Posted on July 2, 2012, 8:00am | Leonard Gilroy

In case you missed it, last week we published the latest installment of Reason Foundation's Innovators in Action series, my interview with Indianapolis Deputy Mayor for Economic Development Michael Huber on the first year results from the modernization of the city's metered parking system, the product of a long-term lease of the system to a private concessionaire.

In August 2010, Indianapolis Mayor Greg Ballard announced the winning bidder for a 50-year concession (lease) of nearly 3,700 city parking meters in the downtown and Broad Ripple areas. Under the concession, ParkIndy—a team composed of Xerox and its local partners Denison Global Parking and Evens Time—have taken over responsibility for meter system operations, maintenance and capital investment, in exchange paying the city $20 million up front and an estimated $300-600 million share of ongoing revenues over the 50-year lease term. The city council approved the deal in November 2010, and the concessionaire took over parking meter operations in March 2011.

City revenues generated from the parking meter concession will be dedicated to street, sidewalk and other infrastructure improvements in the metered portions of the downtown and Broad Ripple areas, effectively allowing the Ballard administration to stretch its existing $500 million infrastructure repair program even further.

Based on the interview, the city appears pleased with the early results. Here's a short excerpt:

Gilroy: Overall, how are Indianapolis taxpayers and drivers benefitting from the parking lease? Could the city have committed to the same level of operation, same level of investment without turning to the private sector?

Huber: One of the key goals of this program was to increase the convenience for citizens and visitors. In the upgraded system, motorists have the choice to pay with coin, credit card, debit card or even with a phone or online application. Initial trend data shows that in the busiest section of the metered parking area, over half of the monthly transactions are now credit card payments. In just the first full month of having pay-by-phone functionality, thousands of pay-by-phone transactions were made. Leading to a better experience because motorists now know when there meters is about to expire and can add additional time from a meeting or if they are having dinner without worrying that they may get a ticket.

In addition to this flexibility in how to pay, motorists will benefit from having a higher level of meter reliability. Newer meters break less often than the older legacy meters did, and the new meters utilize a wireless network to provide operational data to a centralized maintenance department that can dispatch repair crews much faster than the City was able to in the older system. Often when the city was in charge of repairing meters they would be broke for days or weeks leading to lost revenues and poor customer experiences.

The concessionaire’s new Parker mobile application also allows motorists to find available parking spaces using sensors and support equipment that ParkIndy has installed.

It is difficult to imagine how the city could have made all of the technical upgrades and process improvements in the metered parking system given the state of municipal budgets, not just in Indianapolis but everywhere. In addition, the concession agreement provided an initial $20 million upfront payment that has allowed the city to fund projects that would otherwise have been delayed, or would not have happened at all.

Read the whole interview for Huber's thoughts on the first year revenue picture, the transition to privatization, operational efficiency and a look forward to the second year of the lease.

As I wrote here last week, Indianapolis' parking meter lease has been a model example of privatization done well, a public-private partnership that continues to bring dividends for the city and taxpayers. Mayor Ballard's administration and the ParkIndy team deserve a ton of credit and should serve as an example to other governments seeking similar transformative partnerships.

For more on the subject, recent Reason Foundation articles on parking privatization include:

[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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Indy Parking Privatization Continues to Deliver Technological Innovation, Consumer Benefits

Posted on June 27, 2012, 2:00pm | Leonard Gilroy

Indianapolis' 50-year lease of its downtown parking meter operation to a private concessionaire (ParkIndy, a Xerox-led venture) in 2010 is a model example of privatization done well, a public-private partnership that continues to bring dividends for the city and taxpayers. There's more evidence today. According to a ParkIndy press release, the concessionaire will be rolling out hundreds of additional street sensors next week that interface with ParkIndy's wayfinding iPhone/Android app to help guide commuters to open parking spots:

Monday, July 2, will become another noteworthy date in the transformation of the city’s parking system when an additional 811 sensors will be activated to identify vacant parking spaces at meters.

Coupled with 557 already operational sensors, this rollout will bring the total number of parking spaces served by sensors downtown and in Broad Ripple to 1,368. The sensors are embedded in the roadway in each parking space and detect the presence of a car. That information is communicated to motorists to help them more easily find parking.

“This move is another step toward providing Indianapolis the most advanced parking system in the United States,” said Adam Isen, program manager for ParkIndy, the organization modernizing metered parking in Indianapolis.

Motorists can download a free app called ParkerTM for their iPhone or Android device. The app provides real-time information to guide customers to open and available parking spaces. Icons note when more than four spaces are available (plenty of parking available), more than two spaces are available (some parking) or less than two spaces are available (limited parking). ParkerTM updates automatically when a car is parked or leaves a space. An optional voice feature provides an audible queue when available parking is nearby.

The app also provides information about parking space time limits, pricing, and meter paying options, including links to pay by phone using Parkmobile. A “Park Now” button allows the driver to note where his or her car is parked -- and later find guidance back to the car if needed, set reminders, take a picture of a car, and add notes about the location.

So not only were Indianapolis officials able to transfer a non-core government enterprise to a private partner better equipped to operate it, and not only will the city benefit from $300-600 million in enhanced parking revenues over the next five decades, but it has also ensured that commuters will benefit from dramatically enhanced customer convenience via system modernization and technology deployments paid for and installed by the concessionaire. In short, the city and its commuters are getting a vastly better—cutting-edge, in many ways—parking system. Contrast this with the many cities that still have coin-based meters untethered to wayfinding and other technological innovations that make commuting easier and reduce urban traffic congestion.

But this isn't all. I found out two more interesting developments this week from ParkIndy staff.

The first involves the deployment of credit card technology, a boon to parking customers. By the end of 2011, ParkIndy had ensured that all 3,650 metered parking spaces in Indianapolis could be paid by credit card, introducing a mix of credit card accepting technology via new single space meters, pay boxes, and pay by phone options. These days, credit cards are a far more convenient payment option for motorists who don't have or use coins. And customers apparently like the improved convenience. In April 2011, credit cards accounted for 37% of the dollars collected at new meters in Indy. As of last month, however, the percentage of dollars paid by credit card ballooned to 63%. It will be interesting to see if this trend continues, but I would expect it would, given the rapid proliferation of mobile technologies and commuters' growing awareness of ParkIndy's apps and their powerful functionality.

Second, when ParkIndy began installing pay boxes—centrally located meters covering many or all of the spaces within a given block, instead of the one-meter-per-space configuration—in the city last year, they were careful not to remove all of the existing single-space meter poles. In fact, they left more than half of them. Meter poles are very popular among bicyclists who use them to lock their bike to in a pinch. But ParkIndy has gone even further by donating 50 bike racks to INDYCOG, an Indianapolis nonprofit that promotes bicycle use and safety, and installing them this week on existing parking meter poles. Now, even if you're not driving or parking, securing your bike in Indianapolis got even easier because of the parking concession.

I realize it's still early in a 50-year deal, but it's stories like these that reinforce my belief that this privatization seems to be a major win-win-win for the city, the concessionaire and commuters and should serve as a model for other cities seeking to modernize the operations of their parking assets. But don't just take my word for it. For a view from the city's perspective, see my brand new Innovators in Action interview with Michael Huber, Indianapolis' Deputy Mayor for Economic Development, posted earlier today.

For more on Indy's innovative parking concession, see our recent articles here, here, here, here and here.

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Sandy Springs Continues to Prove that Privatization Works

Posted on June 25, 2012, 5:25pm | Leonard Gilroy

Yesterday's New York Times profiled the city government of Sandy Springs, Georgia, which incorporated nearly seven years ago under a model where the vast majority of non-safety services are provided through public-private partnerships (PPPs) with private sector service providers. Here's a snippet from the beginning:

If your image of a city hall involves a venerable building, some Roman pillars and lots of public employees, the version offered by this Atlanta suburb of 94,000 residents is a bit of a shocker.

The entire operation is housed in a generic, one-story industrial park, along with a restaurant and a gym. And though the place has a large staff, none are on the public payroll. O.K., seven are, including the city manager. But unless you chance into one of them, the people you meet here work for private companies through a variety of contracts.

Applying for a business license? Speak to a woman with Severn Trent, a multinational company based in Coventry, England. Want to build a new deck on your house? Chat with an employee of Collaborative Consulting, based in Burlington, Mass. Need a word with people who oversee trash collection? That would be the URS Corporation, based in San Francisco. […]

With public employee unions under attack in states like Wisconsin, and with cities across the country looking to trim budgets, behold a town built almost entirely on a series of public-private partnerships — a system that leaders around here refer to, simply, as “the model.”

Cities have dabbled for years with privatization, but few have taken the idea as far as Sandy Springs. Since the day it incorporated, Dec. 1, 2005, it has handed off to private enterprise just about every service that can be evaluated through metrics and inked into a contract.

To grasp how unusual this is, consider what Sandy Springs does not have. It does not have a fleet of vehicles for road repair, or a yard where the fleet is parked. It does not have long-term debt. It has no pension obligations. It does not have a city hall, for that matter, if your idea of a city hall is a building owned by the city. Sandy Springs rents.

Overall, the NYT gave the topic a fair treatment, IMO, as they noted the biggest takeaways from Sandy Springs' bold contract experiment:

  • Because it started from scratch and avoided the defined benefit pension quicksand from the beginning, the city has no long term liabilities, neither debt nor unfunded liabilities for pensions and retiree health benefits (unlike many of their peers).
  • Services are greatly improved from the beginning level, and citizens (over 90% of whom voted for the original incorporation) generally remain very pleased with their lean-but-not-so-mean government.
  • Despite claims that Sandy Springs "abandoned" Fulton County, the city still sends nearly $200 million in annual property tax revenue to the County today. What Sandy Springs was really after with incorporation was more local control over their own destiny, particularly with regard to service delivery and land use decision making.

There were a few spots in the article where more context might have been useful, however. First, the article noted that, "The town does have a conventional police force and fire department, in part because the insurance premiums for a private company providing those services were deemed prohibitively high." However, it's my understanding that a far bigger factor was the provision in Georgia's state constitution requiring cities to use public employees for police and fire services. In Sandy Springs' case, the new city started by contracting those services out to Fulton County, until the city later created its own (public sector) police force. So when the NYT notes that Sandy Springs has less than 10 city employees on its payroll, they are referring to the non-public-safety side of operations.

Also, the article suggests that other cities would have a difficult time replicating the "Sandy Springs model," but for the wrong reason. The article suggests that its wealth gives Sandy Springs an advantage over other cities, but I don't follow the logic. Sandy Springs is staying lean and mean through smart contracting, which is something that cities of all levels of affluence can task their professionals with undertaking if they are so motivated. The real reason that it would be hard for "traditional" cities to adopt the Sandy Springs model is simply because it's hard to unwind government bureaucracies once they're started and special interests—including public employee unions that aim for self-preservation—have become entrenched. These are things that help to calcify governments, which Sandy Springs was able to avoid by starting from a blank sheet of paper (and by not getting caught in pension, benefits and debt traps).

Sandy Springs continues to demonstrate how far PPPs can go in government. Private contractors provide nearly all of the non-safety services and systems that citizens interact with on a daily basis, and citizens in Sandy Springs have been well-served and appear to be pleased overall with their local government. For "traditional" cities, the takeaway should be: there are FAR more opportunities to explore PPPs than are currently being considered. Some cities get bogged down in piecemeal political battles over outsourcing one or two services—solid waste, vehicle fleet maintenance, library operations, etc.—when Sandy Springs demonstrates that cities can be thinking much bigger, on the scale of entire departments, agencies, programs, etc. My recent interview with Carrollton, Texas City Manager Leonard Martin offers a perspective on what it takes to create a culture of competition in city government from a "traditional" city perspective, with many themes discussed that are relevant to the Sandy Springs/contracting discussion.

For more on Sandy Springs, see founding father Oliver Porter's 2009 Reason.org article telling the story of incorporating Sandy Springs and establishing the public-private partnership service delivery model, as well as offering thoughts on lessons applicable to other cities. Porter starts the article with a thought experiment:

Imagine starting a new city of over 90,000 people with only two employees. We did it. Imagine improved employee attitude, less cost, more responsive government, decreased long-term liabilities and happier citizens. We did it.

Read the whole thing here for an insider's take on how the Sandy Springs story went down and why it matters to other cities. And my colleagues at Reason.tv produced a video on the Sandy Springs story in 2010, available below:

Reason Foundation has been covering Sandy Springs since before its incorporation, so there's plenty more. Our Annual Privatization Report has included an annual update on Sandy Springs and its contract city emulators in Georgia for several years now. The most recent two are available here and here, and older archives are available here.

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Exciting Investment Opportunities Await In… Public Parking

Posted on June 21, 2012, 2:20pm | Harris Kenny

Today my colleague Leonard Gilroy and I published a piece on Real Clear Markets entitled, “Exciting Investment Opportunities Await In… Public Parking.”

The piece begins:

U.S. policymakers in Chicago, Indianapolis and elsewhere have recently begun to unlock value trapped in a neglected treasure: municipal parking assets. This might not seem like a hot topic, but for investors seeking new places to park capital, creative partnerships to invest in and manage city parking garages, meters and lots are increasingly attractive.

Next, we explain that parking is a historically commercial enterprise that’s being crowded out, or captured, by the public sector. But investors drawn by steady returns in the 10-14 percent range are being lured into the market amid the post-recession flight to quality.

The piece continues:

American automobile ownership slowly proliferated in the early 20th century, and by the 1930s, cities began to face traffic congestion. In 1935, a private company installed the first Park-o-Meter, charging motorists five cents an hour to park in Oklahoma City's downtown business district. New private meters successfully promoted higher turnover of parking spaces, satisfying the needs of retailers and customers who wanted access to them.

Over the next decade over 140,000 meters were installed across the nation. Unfortunately, innovation was subsequently stymied as the public sector assumed increased ownership and operation of parking assets, including meters, street-level lots and garages. The private parking market didn't disappear; it simply calcified under public sector capture. But now it's being reborn.

Today, the private sector is partnering with governments to deploy disruptive technology, from real-time parking meter sensors accessible via smart phones to variable pricing that more accurately values spaces. Meanwhile, investors are starting to pour capital into government-owned parking infrastructure.

We go on to walk through Chicago’s groundbreaking public-private partnership for most of publicly owned parking meter system. Chicago signed a 75-year concession (lease) agreement that netted the city an up-front $1.1 billion payment from a Morgan Stanley-led consortium in 2009. We also highlight the adapted approach taken in Indianapolis, who inked a 50-year lease of 3,700 of the city’s parking meters, opting for a $20 million up-front payment and revenue sharing agreement that will net between $300-600 million.

Next, we detail Ohio State University’s pending partnership, which is expected to yield $483 million for almost 36,000 spaces over a 50-year contract. Finally, we explore New York City’s new plan, which is in its embryonic stages, but at this point is likely to resemble a contract for management with guaranteed revenue to the city, alongside capital reinvestment for new technology.

The piece concludes:

Municipal parking assets haven't been fully released into a free and competitive market, but innovative policymakers are finally unlocking value they've been sitting on for years. Meanwhile governments retain legal ownership of core assets, and important controls on things like meter rates and operating hours, for the duration of these agreements.

The increasingly relevant question in parking - and in public policy more broadly - is this: what other public infrastructure assets hidden in plain sight offer similar privatization opportunities?

Read the full piece available online here. For more of Reason’s work on parking, see Leonard’s recent post on New York City entitled, "Don't Believe the Hype About NYC Parking Privatization." For related infrastructure research, see our previous Real Clear Markets piece entitled, “States and Cities Going Private With Infrastructure Investment.”

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Don't Believe the Hype About NYC Parking Privatization

Posted on June 20, 2012, 7:30pm | Leonard Gilroy

Last week, the New York City Department of Transportation formally launched a procurement for a potential long-term lease of the city's nearly 90,000 parking spaces via a request for qualifications (RFQ) from interested bidders (see here and here for more, as well as my recent post here).

One of the aspects of NYC's initiative that seems abundantly clear is that the Bloomberg administration is clearly trying to differentiate their efforts from Chicago's controversial parking meter lease. One key point of differentiation lies in the administration's statements that they are not looking for a large, upfront payment in a long-term lease arrangement (a la Chicago). Like many observers, I initially thought that this implied that the city was looking instead for a long-term lease that primarily involves a small (or no) upfront cash payment and shared revenues over time split between the city and the parking concessionaire. That's the model that Indianapolis pursued, where the city received a small upfront payment of approximately $20 million and will get an annual slice of revenues over the life of the 50-year deal estimated to tally in the hundreds of millions.

However, after looking at the city's RFQ more, I've come to the conclusion that the city isn't necessarily even looking at a lease/concession structure that would transfer a parking revenue stream to a concessionaire over a multi-decade period. Rather, NYC appears to be seeking a private management agreement in which a private parking manager would essentially take over day-to-day operations while guaranteeing certain minimum levels of annual parking revenue to the city (in addition to deploying cutting edge parking technology, innovation, operational efficiencies, etc.). In other words, rather than leasing a parking revenue stream to the private sector, the city would be asking a private partner to help the city increase its own parking revenue, with the private sector presumably being compensated on a performance basis depending on its ability to hit its targets.

Hence, to my eyes the NYC parking concept seems to draw as much or more inspiration from Illinois' private lottery management agreement and NYC's own recently-announced water/wastewater management agreement as it does from Chicago or Indy's long-term parking leases.

Important nuances like this appear to be getting lost in the public discourse, as if all parking deals were the same. A case in point is last week's blog post by Matt Taibbi over at Rolling Stone. The post presumes that NYC wants to replicate Chicago's parking meter transaction, suggesting that "[the Bloomberg administration is] expecting to get over $11 billion in upfront money from the deal," which the administration "gets to use […] to patch current budget holes instead of making tough cuts or raising taxes."

However, the administration has been clear from the outset that they are not looking to structure a Chicago-style deal with a massive upfront payment. In fact, this Bond Buyer article notes that even the RFQ itself issued by the city clearly states, "In contrast to certain precedent U.S. parking transactions, the city's objective is not to structure an upfront payment […]."

Further, I've been reading about this initiative for weeks and have not seen anything suggesting an $11 billion valuation for NYC's parking (taking aside the point that the city is not seeking a monetization). I must assume that Taibbi misread one of the articles he links to, confusing what investors hope to recoup over time from Chicago's lease, not NYC. And if that's the case, it's my understanding that the $11 billion in hoped-for revenue from Chicago is in nominal dollars, not inflation adjusted and converted to a net present value covering the span of the 75 year lease. Further, it is derived from a Morgan Stanley prospectus, so it's an aspirational number that they want to attract investors with but in real life may very well never reach. In all honesty, I'm skeptical that they'll come even close to earning their desired return, if there's even much of a return at all.

That's mostly neither here nor there with regard to NYC, except for the fact that Taibbi talks about Chicago getting pennies for the dollar and "selling off" at a "steep discount." For an alternative take, check out this interview I did with former Chicago CFO Gene Saffold and his Reason.org article, both from back when the bogus "Chicago got ripped off" meme started to propagate in the media. Sure, one might counter, "well he was the city's CFO, of course he's going to say they didn't get ripped off." But I have asked a wide range of subject matter (financial and industry) experts about claims that Chicago "got ripped off" over the years, and this notion is widely regarded as laughable and generally ignores basic finance principles and the way long-term leases actually work.

The blog post also confuses sales and leases. The post starts by assuming that NYC is pursuing a lease—again, something I do not believe to be the case at all. But even if it was a lease, then the city would take back full control of its parking assets, including revenue, at the end of the agreement. Yet, the tone then shifts to "selling off a valuable piece of city property," "spending the proceeds of your sale," and "selling off a critically valuable public revenue stream." And then there's perhaps the most far-reaching assertion in the post, namely that Chicago's in a bind "because there's no parking meter revenue anymore, ever."

This is wrong on several fronts. First, and most obviously, a lease does not last forever. By definition, a commercial lease is for a set duration at which point the owner gets back full operational control of the asset. In a sale, something is literally sold from one party to another in perpetuity.

Beyond that, it's still false to say that Chicago is no longer getting parking meter revenue anymore. First, the city set aside a pool of reserve meters outside of the concession that it still collects revenue from today. Second, the concessionaire does not get a penny of the city's parking ticket/violation enforcement revenue today—this still goes to the city and tallies to tens of millions per year. That holds true for meters in the concession and outside of it. Last, revenues from any new meters installed by the city would flow to the city, not the concessionaire. (The city also still collects parking-related revenue from residential permit fees and parking permits as well.)

Finally, Taibbi makes this statement: "Meanwhile, whoever gets to own all of those meters will now be sitting on the ultimate investment. You get all the certainty of tax revenue, but you don’t have any of the accountability attached to public governance. It’s profit without risk, customers without responsibility."

But it's inaccurate to suggest there's no risk in parking. How is parking revenue "certain"? What happens to parking revenues when fuel prices skyrocket in a few decades due to some international event? When gas goes up, people tend to drive less, and if they drive less they use less paid parking. Or, what happens if a city were to put in place a London-style congestion pricing system that creates a disincentive to driving downtown? Or, what happens if consumer preferences in that area turn more towards public transit usage and less driving? What happens when telecommuting and technology reduce the need to face-to-face downtown meetings? What happens in 30 years when flying cars perhaps become a reality? What happens if new private parking garages open up to draw users away from metered street parking? Or, what happens to parking revenues in a global financial meltdown and economic recession?

Some of these risks may sound overblown at first blush, but recent data on both public transit usage and urban congestion, while by no means indicative of massive long-term shifts, at least suggest that cities face very real financial risks and volatility related to long-term parking revenues. Chicago's former CFO Gene Saffold touched on the subject of parking-related risk in my December 2009 interview with him:

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.

The bottom line is that the concessionaire holds those risks today in Chicago. And if those risks materialize in parking, then the concessionaire faces a very real risk that their hoped for profit at the end of the deal may not materialize whatsoever. For the private sector, here are no guaranteed profits in municipal parking leases, just guaranteed risks.

But Taibbi's dismissal of risk was also paired with a statement that in a lease one would lose "accountability attached to public governance." Again, this misunderstands the nature of these deals. Parking leases are governed by contracts written with governments sitting at the table across from the concessionaire. Controls on rates, hours of operation, etc.—key elements of public accountability—are addressed in the Chicago and Indy concessions as they would be in a future NYC contract. And if, for example, you want to make sure you can remove a block's worth of parking meters on a whim as part of a new government streetscape project without triggering a lawsuit by the parking vendor over potential lost revenues, then policymakers could carve out that ability up front in the contract. The notion that for the private sector it's all profit and no accountability is a major misstatement.

Suffice to say, I'd advise New Yorkers to take such prognostications with a big grain of salt. NYC seems much more interested in pursuing a management contract, not a Chicago-style long-term concession, for starters.

Deals like this should certainly be examined in their entirety. And I encourage taking a closer look at deals in Chicago—which fair-minded people can criticize, but which also offers a lot to learn from— as well as Indy, which pursued a different approach. For more on those examples and more, see Reason Foundation's Annual Privatization Report 2011.

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Milpitas Public Works Partnership Belies California Dysfunction

Posted on June 19, 2012, 6:21pm | Harris Kenny

California: The ready and willing standard bearer of political dysfunction. When its lawmakers aren't busy pretending to balance a $92 billion budget (turns out they relied on gimmicks to close a $15.7 billion budget deficit), they're getting ban-happy by legislating everything from over-the-counter cold medicine to foie gras. But before you lose hope in the Golden State, turn your eyes to Milpitas in Santa Clara County.

Last week the Milpitas City Council announced their first-ever public works public-private partnership to rightsize the department. The city's public works department came under fire over the past year due to deteriorating park conditions ranging from broken irrigation systems and dead shrubbery, to graffiti and vandalism marring benches. Rather than accept city staff promises to restore conditions over the course of three years, policymakers turned to the private sector.

The City Council voted to award two related contracts to Colorado-based Terracare Associates for park and street landscaping, and repair services. The Milpitas Post reports:

Under its parks maintenance contact, Terracare will be paid an annual base price of $1,326,155 for the first two years and $1,369,638 for years three through five. The contract for these services is for one year with four one-year options for renewal, city reports state.

Terracare will be charged with maintaining 24 city parks and sports fields with equipment and personnel to provide routine landscape maintenance services, pruning, trash pick-up, weed removal, turf care, plant replacements, irrigation system maintenance and fixture and equipment repair services.

Under its streetscape maintenance and repair contract, Terracare will receive an annual not-to-exceed amount of $125,218 for all aspects of landscape and irrigation system maintenance for the city's landscaped streetscapes, medians and rights of way.

The council's approval allows the city manager to grant yearly increases pursuant to the contract without further city council action. Terracare was chosen above three other similar firms and was determined to be the most advantageous to the city, reports state.

This is a small step towards solving the overwhelming political dysfunction at California's state and local level; but for parkgoers and motorists in Milpitas, partnerships like this make all the difference. For more on local government privatization, see Reason Foundation's Annual Privatization Report 2011: Local Government Privatization available online here.

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Privatization Proposed for Micke Grove Zoo in San Joaquin County, CA

Posted on May 29, 2012, 7:00am | Harris Kenny

Zachary K. Johnson of the Record Staff reports:

It has been six years since Micke Grove Zoo lost its national accreditation and more than three years since work to remake the eastern end of the zoo came to a halt, leaving a large, dormant construction site...

And now a newly-invigorated nonprofit organization is hoping to breathe new life into the public zoo with a plan to privatize it, reclaim its lost accreditation and guide the San Joaquin County institution into a bigger future.

The Micke Grove Zoological Society - longtime supporters of the zoo and its programs - would like to one day take over operations. The group has hired a consultant (Terry Maple) who is an expert in zoo privatization.

The Micke Grove Zoological Society is rightly identifying a national trend towards public-private partnerships for amenities like zoos, which was recently highlighted here in Reason Foundation's Annual Privation Report 2011. According to some estimates, as many as three-quarters of all U.S. zoos are now privately operated, including cities like Sacramento, Fresno, Atlanta, Chicago, Dallas, Denver, Houston and Seattle.

Issues at the Micke Grove Zoo in San Joaquin County, California are similar to those seen at many zoos across the country over the past few decades. In short, scarce taxpayer dollars have been directed towards high priorty services like law enforcement and education, while amenities such as zoos have been neglected. Johnson reports the Micke Grove Zoo lost its accreditation in 2006 due to its outdated facilities and lack of veterinary space.

Under the proposed partnership the private partner, the Micke Grove Zoological Society, would assume control of day-to-day operations and improve conditions for the animals in hopes of regaining the facility's accreditation. Meanwhile the public partner, San Joaquin County, would retain ownership of the facility and retain oversite through the contract. Maple explains the plan saying, "This is going to be fun to take this zoo to the next level. It will be a smarter organization, a more flexible organization."

For more on zoo partnerships, see the following extract from Annual Privatization Report 2011 entitled, "Privately Operated Zoos Now Considered the Standard."

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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.

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Private Sector's Increasing Role in Infrastructure Investment

Posted on May 17, 2012, 9:16pm | Harris Kenny

Today my colleague Leonard Gilroy and I published a piece on Real Clear Markets entitled, "States and Cities Going Private With Infrastructure Investment," which explains "...that new infrastructure financing models and sources of capital will be the only viable option to support and sustain growth." The challenge is simple: while governments at all levels are strapped for cash and continue to feel the effects of the Great Recession, they face pressing infrastructure needs.

Enter the private sector, where investors are demonstrating a willingness and capability to partner with governments to modernize and expand infrastructure, according to Reason Foundation's recent Annual Privatization Report 2011. The report finds that the amount of capital available in private infrastructure equity investment funds reached a new all-time high last year. And since 2006, the 30 largest global infrastructure investment funds have raised a total of $183.1 billion dedicated to financing infrastructure projects; the bulk coming from U.S., Australian and Canadian inventors. In fact, eight major privately financed transportation projects were under construction in the U.S. in 2011 totaling over $13 billion.

Historically, U.S. policymaker interest in public-private partnerships has been in surface transportation, however 2012 ushered in a wave of new social infrastructure considerations (along the lines of what is already seen across in the developed world.)

For a preview of the future, just look to Puerto Rico, where innovative infrastructure financing has been a priority of Governor Luis Fortuño's administration. Prior to his tenure, massive budget deficits and weak credit ratings left the territory with a limited ability to finance infrastructure. In fact, public infrastructure investment (as a share of GDP) had been on a steep decline in Puerto Rico since 2000.

Put simply, if Puerto Rico was going to maintain-much less expand and modernize-its infrastructure, it was going to need outside help. Policymakers proactively adopted a 2009 law authorizing government agencies to partner with private firms for the design, construction, financing, maintenance and/or operation of public facilities across a wide spectrum that includes transportation, ports, schools and other asset classes. The law also established a Public Private Partnership Authority (PPPA), a new unit of the Government Development Bank, to conduct due diligence on these infrastructure partnerships and take worthy projects to market in competitive procurements.

The piece goes on to highlight promising new efforts in Chicago, Texas, Connecticut and elsewhere, continuing:

Puerto Rico isn't alone though. For example, Chicago Mayor and former Obama chief of staff Rahm Emanuel stood with former President Bill Clinton last month to propose an ambitious $7.2 billion infrastructure program that will rely heavily on public-private partnerships and private financing for a broad spectrum of projects including roads, water, transit and more. To implement this program, city policymakers recently created a new Chicago Infrastructure Trust, a nonprofit infrastructure bank that can package deals and blend public and private financing to advance projects. Early pledges of up to $1 billion in private capital from several financial institutions, including Citibank, Macquarie and JPMorgan suggest the model may be viable.

Elsewhere, both Texas and Connecticut enacted broad-ranging laws to authorize private sector financing for state and local assets in 2011. In New York, The Yonkers Public Schools recently hired a team of financial, legal and technical consultants to evaluate the potential to tap private financing to help deliver a $2 billion K-12 school modernization program. Like Puerto Rico, Yonkers has a number of aging facilities over 70 years old that need reconstruction, yet lacks the ability to undertake large-scale renovation through traditional taxes and bonds given current fiscal and financial constraints.

We ultimately conclude that, "Infrastructure represents the arteries and capillaries of our economy, and if we let those deteriorate, the heart itself will soon follow." Read the full piece available online here. For more on this policy area, read my colleague Leonard Gilroy's previous post on Puerto Rico here.

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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.

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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

 

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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.

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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

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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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Teachable Moment: Yonkers Evaluating Private Finance for $1.7 Billion K-12 School Modernization Program

Posted on April 3, 2012, 3:30pm | Leonard Gilroy

Call me crazy, but for years I've been scratching my head wondering why K-12 public school systems still rely on an antiquated 20th century model to build and maintain school facilities—one based on a combo of debt, taxes and inefficient contracting processes—when there are other options out there, like public-private partnerships (PPPs) that dial up the private sector's role in financing, delivering and maintaining assets. The transportation sector realized decades ago that PPPs offer a innovative way to deliver public infrastructure assets as needs grow and citizens' willingness to absorb new taxes and debt plummets.

It's taken some time, but it seems that K-12 schools are slowly starting to wake up to the emerging PPP opportunity as well. The most recent evidence comes from Yonkers, NY, where school district officials announced today that they've selected a team of financial, legal and technical advisors to evaluate the potential for using PPPs to deliver a whopping $1.7 billion in school construction and address a $460 million backlog in facility repairs. Today's press release offers more details, and a February Construction News article offered a good summary:

For a city chock full of hopes and dreams, Yonkers has enjoyed many groundbreakings over the years. There just may be another one on its horizon: the use of a public-private partnership, or P3, which its public school system is exploring as a means to finance some $1.7 billion in school construction.

If it happens, the Yonkers School District would be the first in the nation to engage in the much-discussed (and debated) P3 financing methodology for financing a public school project.

[pause] Close, but not quite right. Puerto Rico's "Schools for the 21st Century" project, currently underway, beat them to it. And that's just in the U.S. and its territories. Earlier this year, New Zealand announced a winning bidder for its pilot schools PPP project. Last summer, the U.K. launched its privately financed Priority School Building Programme. Earlier that year, the Netherlands-based Amarantis launched a PPP procurement for several schools. Those are just a few recent efforts; suffice to say that PPP schools are nothing new under the sun from a global perspective. Continuing on with the Construction News excerpt:

Yonkers Schools Superintendent Bernard Pierorazio and Joseph Bracchitta, chief administrative officer for the Yonkers Public Schools in a telephone interview with CONSTRUCTION NEWS, discussed the progress of the P3 initiative and the need for creative financing for the school district’s sizable capital project needs.

As initiatives are underway from the Governor’s office and others to propose and pass legislation that would allow public-private partnerships on construction projects in the state, the Yonkers City School District has the ability to “engage the private sector” through its Educational Construction Fund statute. To actually undertake a P3 for school construction work will most likely require some legislative authority from the state, Superintendent Pierorazio said.

[…] The need for creative financing is caused by the age of the schools in the City of Yonkers. The average age of a Yonkers school is 73. Its oldest building is 117-years-old and nine of its school buildings are over the age of 95. In 2009, the school district released a long range Educational Facilities Plan that identified at least $1.7 billion in construction needs (either school renovations or new construction), along with $460 million in emergency repairs.

School Superintendent Pierorazio said that studies show that the school district is short 5,000 seats for students and will be short by another 3,000 students by 2018- 2019. As part of the master plan, the Yonkers City School District has, for the last three years, been exploring the possibility of using public equity and public-private partnerships to fund its capital construction program. The only school districts to successfully complete projects via a P3 arrangement are in the United Kingdom and Canada.

“We felt at this point in time it would be the only way for us to do a massive refurbish and rebuilding of the district,” he said.

In November the school district issued an RFP for a consulting team to further explore P3s as a possible funding mechanism for the first phase of the capital construction project, estimated at about $700 million. A total of eight project teams responded to the RFP. The city expects to make a selection sometime in March.

[…] The P3 arrangement the school district is looking to structure is a “Design-Build and Maintain” with the private sector. The school district, which would retain ownership of the buildings and the properties, believes that by utilizing the P3 method it will be able to finance the capital program and achieve significant savings on the maintenance costs of the school properties.

Check out the District's original RFP here for more details.

Yonkers School District officials deserve kudos for taking a serious look at the PPP opportunity, and others should follow their lead because the long-term viability of the 20th century school finance model is questionable at best. And it's not just about dollars and cents. Puerto Rico PPP Authority executive director David Alvarez notes the real value play with the PPP model:

So at the end of the day, with this school program we're tackling infrastructure challenges, but the ultimate goal for us is to improve academic performance of students. We're trying to go in an indirect way towards academic performance by providing and delivering better infrastructure, with the goal for students to perform better at school—to keep more people in school and to get better results. That's the ultimate goal of the program, really.

Hopefully other school systems adopt the same forward thinking approach as Puerto Rico and Yonkers.

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Politics & Garbage Privatization in Norwalk, CT

Posted on March 21, 2012, 12:18pm | Leonard Gilroy

The public works director in Norwalk, Connecticut is making a case for privatization of waste collection, estimating savings of over $1.2 million in the first two years. Per The Daily Norwalk:

The city would save $360,000 in fiscal year 2012-13 if it were to outsource garbage collection, says Hal Alvord, director of the Department of Public Works. That figure would jump to $950,000 the following year.

If the plan is not approved, the council would need to add $800,000 to its 2012-13 budget, or the price of four garbage trucks. "Our newest truck is 12 years old," Alvord said. "If the truck is broken down by the side of the road or you can't get it out of the garage, the garbage isn't going to get picked up."

The cost of pickup by city workers would be $126 per household in 2012-13, Alvord said. This compares to $30 a household for recycling pickup, which is contracted to City Carting. Rowayton, which has contracted out garbage collection for decades, will pay $76 a household.

Eight public works employees are assigned to refuse. The city's garbage truck drivers get $30.64 an hour, and the laborers get $22.86 to $29.18 an hour. Private sector drivers get $20 to $23 an hour, and laborers earn $12 to $15 an hour.

The hourly rate does not include benefit costs, according to Jim Haselkamp, the city's personnel director. Alvord said benefits are equal to about 51 percent of a city worker's salary and 30 percent of a private contractor's salary.

"You can see right there, that's the basis for a big chunk of the savings," Alvord said. "Another big part of the savings that we get in Norwalk is from workers' comp from injuries."

Sanitation workers made up 10 percent of the public works staff from 2005 to 2010, but 42 percent of the workers' comp complaints came from the sanitation department. The regular sanitation claims totaled $538,000. Catastrophic claims – from employees whose injuries prevent them from returning to work – resulted in settlements of $1,206,115 to three people. A total of 1,400 work days were lost to sanitation claims.

[…] If the plan goes through, the eight workers would be reassigned as truck drivers and would be paid less. The city has agreed to give them a one-time lump sum payment of $7,000 as compensation, the amount of money they would lose over a year.

"We took this position on outsourcing solid waste because we had a way of continuing to provide that service to residents, to do it in a manner that provides significant savings of money and protects the jobs and health of our employees because nobody would get laid off," Alvord said.

Absent any other information, one might think that at the very least this might be compelling enough for city electeds to authorize a procurement. Remember that going to procurement means nothing more than just the government testing the market to see what kind of bids it gets back. They're not obligated to actually privatize anything if the bids don't pencil out or make fiscal sense. In fact, governments should be doing way more of this sort of bid process for public services, because at the very least—even if you end up not going to contract—you've still gotten a third-party, independent validation of your budget for that particular service, a comparative benchmark of sorts.

But so far, at least based on media reports, that kind of thinking doesn't yet seem to be at play with some of the electeds in Norwalk, who seem antsy amid current union bargaining. Cutting to the chase, from today's Daily Norwalk:

Alvord said last week that many council members had not heard the numbers in the case to outsource. He presented that case in an executive session.

"Clearly they don't understand," he said. "I don't know how anybody can sit here and say, 'I don't see any cost savings.' But, you know, some of these positions were set in concrete long before this."

In other words, pro-labor pols will argue the sky is red if that's the way to avoid privatization. When policymakers get so cozy with unions that even mentioning alternative management regimes that could benefit taxpayers is verboten/scary/heresy, then it's time for taxpayers to reassess the fortitude of their leaders. The unions aren't the root problem; it's electing sycophantic politicians that offer reflexive deference to labor interests over taxpayers.

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No Such Thing as a Free Parking Space

Posted on March 16, 2012, 4:12pm | Harris Kenny

While the benefits of market pricing are readily accepted for items like consumer electronics, it’s difficult for people to accept the value of pricing on things they think should be free to the user (i.e. parking, road use, etc.). To adapt Milton Friedman’s famous maxim: there’s so such thing as a free parking space. There are in fact a myriad of problems associated with underpriced and zero-priced goods. 

In the case of parking, Donald Shoup (parking guru and professor of urban planning at the University of California at Los Angeles) calculates that in some cases up to one-third of urban congestion is caused by drivers circling city streets to find a parking space. The lower rate of parking space turnover inhibits mobility making it more difficult to get from A to B. There’s also a lost opportunity to generate revenue that could be re-invested in infrastructure, like more parking.

Cities around the world are working to fix the problems associated with underpriced and zero-priced government-owned/operated parking assets. One approach being explored in San Francisco is variable market-based parking pricing. The program is known as SFpark and is being implemented by the San Francisco Municipal Transportation Agency (SFMTA). The premise is simple: use technology to allow variable pricing in urban parking. 

SFpark is accomplishing this goal by installing 8,300 wireless parking sensors for metered and unmetered parking spaces in eight pilot areas across San Francisco. Meters were also installed at the entrance and exist of several public parking garages, and separate control neighborhoods. Then, SFpark installed a data feed responsible for maintaining parking space sensors and meter data. Finally, the city replaced existing meters with new ones that accept joins, major credit/debit cards and SFMTA parking cards that operate for extending time limits. For more on the program, read my April 2011 reason.org commentary entitled “San Francisco’s Experimental Market-Based Parking Pricing Program” available online here.

It’s a logistically complex program highlighted by Michael Cooper and Jo Craven McGinty yesterday in The New York Times, they write:

It is too early to tell whether the program is working over all, but an analysis of city parking data by The New York Times found signs that the new rates are having the desired effect in some areas. While only a third of the blocks in the program have hit their targeted occupancy rates in any given month since the program began, the analysis found, three-quarters of the blocks either hit their targets or moved closer to the goal. The program has been a bit more successful on weekdays.

Of course, price is only one factor that influences behavior. About a fifth of the time prices rose but more spaces filled up, or prices fell but fewer people parked. And the full effects of the phased-in price changes have yet to be felt, because the most expensive spots cannot hit the $6-an-hour maximum until next year at the earliest.

So far so good. However some my critiques of the program from nearly a year ago still apply. As I wrote last April, By only using eight pilot areas, SFMTA is taking a gradual approach that excludes most destinations within the city, meaning many drivers’ behavior will not be impacted. It is also difficult to know what impact private parking garages may have in reducing the program’s efficacy, since private parking garage prices do not seem to be included in SFpark’s data feed. And lastly, SFMTA has severely restricted its ability to raise or lower prices in a dynamic way, meaning it will take a significant amount of time to equilibrate parking prices with demand.

San Francisco isn’t the only city exploring alternative approaches to urban parking. Another noteworthy approach is implementing long-term concession public-private partnership (PPP) agreements whereby the city transfers operation of city-owned parking assets to a private operator. These types of PPP agreements are being successfully leveraged in cities like Chicago and Indianapolis.

For more urban parking, see my previous reason.org commentary here, and reason.tv’s interview with Donald Shoup (below):

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