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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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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.

Puerto Rico's Infrastructure Renaissance Continuing in 2012

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

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

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

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

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

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

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

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

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

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

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

Private Screening Could Solve TSA Theft Issues

Posted on May 9, 2012, 1:36pm | Baruch Feigenbaum

The Transportation Security Administration (TSA) is hiring screeners without adequately checking their backgrounds. Recently, the TSA purchased equipment that does not work, mishandled screening of congressional members and allowed a loaded gun on a plane.

According to Bloomberg:

The arrest April 25 of two current and two former TSA screeners at Los Angeles International Airport marked the third bribery case involving agency employees this year. Also in April, a TSA screener admitted to accepting $1,200 in bribes from drug traffickers sending the narcotic oxycodone from Florida to Connecticut through an airport in White Plains, New York.

Agency officers have also been accused of stealing iPads, cash, laptops and jewelry from baggage.

“This pattern suggests there’s something wrong in the vetting process TSA uses in hiring and screening its own people,” said Robert Poole, director of transportation studies at the Reason Foundation in Los Angeles, which advocates for free market solutions to policy issues. “It’s certainly a question Congress should be asking.”

All TSA security officers undergo thorough criminal background checks, submitting their fingerprints to the FBI and cross-checking names against terrorist watch lists, Kawika Riley, a TSA spokesman, said in an e-mail. 

Further:

Applicants are supposed to be disqualified for any one of 28 criminal offenses ranging from interference with navigation to espionage, treason and felony arson. Theft and bribery felonies are on the list, as are unpaid taxes, child support arrears or $7,500 in delinquent debt.

The TSA said in a 2008 post on its official blog that more than 200 employees had been fired for theft. Last year, taking a closer look at agency numbers, the news website New York Press concluded the number had expanded to about 500.

Agents were sentenced to jail terms after being convicted of stealing $40,000 from a checked bag at New York’s John F. Kennedy International Airport.

All agencies both public and private are going to have some personnel issues. Hiring is an imperfect science. However, the TSA has a problem with a much higher percentage of its employees than other government departments or private companies. Assuming DOT is accurately checking the background status of its employees, the agency is targeting the wrong people. The agency needs to study its hiring and recruiting standards to determine why so many future employees might be tempted to steal from customers.

One solution for solving this problem is for TSA to set the security standards but have private companies run the screening operation. If private screening company employees engage in criminal activity, the companies could face penalties or contract cancellation. As a government monopoly the TSA has no incentive to improve its hiring. Creating a better process would be the “right thing to do” but I am not convinced TSA leadership will be moved by a moral argument. 

The U.S. screening model is different from the process in many other countries. In most European countries and Canada private screening is the responsibility of private companies. The Governmental Accountability Office and others have studied private contracting and found the performance of TSA screening contractors to be as good or better than that of TSA’s own screeners. A 2008 catapult study commissioned by the TSA suggested that the agency expand private screening to several different types of airports. Instead of implementing the report's findings, TSA ignored its own study and refused to publish the results.

In the recently passed FAA reauthorization bill Congress requires that TSA now provide details on any opt-out application it denies. In the past, TSA has denied most of the applications because they did not provide a "clear and substantial benefit."

According to my colleague, Bob Poole, in March’s Airport Policy and Security Newsletter #77:

CNN reported on Feb. 2^nd that TSA turned down two pending airport requests to take part in the Screening Partnership Program while approving one. Both Mooney Airport in Montana and Orlando Sanford in Florida (in Rep. John Mica’s district) were denied access to the program, because they “failed to demonstrate an operational, security, or cost advantage that provides a clear and substantial benefit over federalized screening operations.” Those criteria are not in the 2001 Aviation and Transportation Security Act legislation; they are the creation of Pistole and his TSA team. Moreover, insisting that the airport demonstrate a cost savings in advance is very difficult, since the airport itself is unable to issue an RFP and select the most responsive and cost-effective TSA-approved company. Instead, the way TSA has always managed the process, the airport applies to TSA for permission and if TSA deigns to grant it, TSA itself selects (by a process known only to itself) the security firm it deems the best fit for that airport. 

The airport that was approved is West Yellowstone in Montana. That airport is only open about half the year, and so under TSA screening, the agency flies in a team of its screeners each spring, puts them up in local lodging, and flies them home again in the autumn. Hence, if the airport hires qualified locals to do the screening, the cost will be about half, once travel and lodging costs are eliminated.

In the past, TSA director John Pistole and the Obama Administration relyed on ideological reasons and not sound policy analysis for their rejection of private screening. Maybe the new aviation bill will change that; but its doubtful.

Safety and cost issues should override politics in something as critical as airport security. But that’s not how the TSA operates.

For more details on private screening see the Annual Privatization Report 2011: Air Transportation.

Much of the Capital in PPPs Comes from American Sources

Posted on May 4, 2012, 6:00am | Baruch Feigenbaum

The Reason Foundation’s Annual Privatization Report 2011 Surface Transportation Chapter reveals that much of the capital in Public Private Partnerships comes from American sources. Specifically as my colleague Bob Poole explains:

In the United States, concerns continue to be raised about “foreign takeovers” of infrastructure. It is therefore worthwhile to compare the nationality of the funds providing equity for infrastructure projects with the nationality of the concession companies that are implementing the projects. Based on Infrastructure Investor’s analysis of the 30 largest investors, 34% of the capital comes from U.S-based institutions, with Australia’s share at 29%. When you add Canada to the U.S. share, the total of North American investors is 54%. European institutions constitute 14% of the capital.

The large majority of project experience is European. Of the top 10 companies, eight are from Europe, one from Australia and one from China. Of the top 20 companies, 14 are from Europe (Spain, France, Germany, UK and Portugal), three from China, and one each from Australia, Mexico and Brazil. A U.S. firm does not show up until position 33. We can see that while the large majority of infrastructure development and operational expertise currently resides with European firms, the majority of the capital is coming from North American and Australian investment funds. Those who raise political concerns about foreigners “buying our toll roads” seem to have missed the difference between those who are building and operating these infrastructure projects and those who are financing them. More than half of all the equity investment is coming from North American funds.

The reason why “foreign control” has become an issue is because the United States entered the infrastructure privatization arena late in the game. Many European countries as well as Australia, Brazil, India and many others have been using PPPs for more than 20 years. Since foreign nations used PPPs before the U.S., it is only natural that many foreign companies are leaders in PPPs. Additional U.S. PPP infrastructure projects will lead to additional U.S. companies becoming involved in PPPs. 

For many years, the U.S. was fortunate to have a robust federal funding source: the federal gas tax. Although the country could have enhanced its infrastructure with PPPs there was no pressing need. Times have certainly changed. As a result of inflation the gas tax has diminished purchasing power. Vehicles are more fuel-efficient than ever resulting in less money for infrastructure. Additionally, an increasing amount of fuel tax revenue is diverted to transit, non-motorized transportation uses, or economic development projects. While PPPs are not ideal for every transportation project they can reduce the contributions from cash-strapped governments allowing projects to be built far sooner than if the public sector acted alone. PPPs are more important than ever for constructing a robust infrastructure system.

Unfortunately, xenophobic politicians who exaggerate the influence of foreign companies have become a major threat to PPPs. These xenophobes can be found in both political parties and appeal to union members and tea-party members alike. While fear of foreign investment is misplaced and illogical, it is also not accurate. While infrastructure development and operational experience resides with foreign companies, the majority of the capital is coming from U.S. sources. In addition, most contractors hired by foreign companies are American. While foreign companies may be managing the process, they are employing American workers.

Annual Privatization Report 2011: Surface Transportation

Annual Privatization Report 2011: Homepage

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

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

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

Here's an excerpt of my testimony:

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

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

[…]

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

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

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

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

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

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

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

For more on this issue, see:

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

APR 2011: Corrections and Public Safety

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

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

• According to the most recent data compiled by the Bureau of Justice Statistics, the total U.S. prison population declined for the first time in nearly four decades. The decrease is attributed largely to a decline in new prison admissions relative to prison releases in state prisons.
• Approximately 8 percent of the total prison population is currently housed in privately owned and/or operated facilities, while the remaining 92 percent continue to be housed in government-run facilities.
• In the 2011 case Brown v. Plata, the U.S. Supreme Court ruled California’s correctional system is providing unconstitutional mental and medical care to inmates. At the time, California held about 156,000 inmates in a system designed for less than 80,000 inmates – nearly twice the design capacity. In response, the court ordered the state reduce its system-wide prison population at or below an average of 137.5 percent of prison design capacity.
• A new form of public-private partnership is emerging in the United Kingdom and Florida that could dramatically reduce recidivism and transform corrections, whereby contractors would be compensated for achieving specific performance goals in reducing recidivism and improving rehabilitation. Florida is exploring this model for an 18-county region and would apply dozens of performance measures to quantify outcomes.
• In September 2011, the Ohio Department of Rehabilitation and Correction, under the guidance of Gov. John Kasich, announced the results of a large-scale procurement that will see the state raise $72 million from the sale of one state prison to a private operator—the first sale of its kind in the nation—and two others turned over to private management, for an estimated $13 million in annualized cost savings.
• Lawmakers in Texas, Florida, Arizona, North Carolina, Pennsylvania and elsewhere are pursuing meaningfully expanding the role the private sector plays in inmate healthcare delivery.

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

» Complete Annual Privatization Report 2011 homepage

Osceola County, Florida Library Partnership "Paying Dividends"

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

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

The piece continues:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

» Annual Privatization Report 2011: Local Government Privatization

» Complete Annual Privatization Report 2011 homepage

The Year 2011 in Surface Transportation and Aviation Privatization

Posted on April 26, 2012, 10:53am | Baruch Feigenbaum

The rollout of Reason Foundation’s Annual Privatization Report 2011 continues today with the release of the Surface Transportation Privtization and Aviation Privatization sections authored by Reason’s Bob Poole. The Surface Transportation section provides a comprehensive overview of the latest on toll roads, HOT lanes and other news on privatization and public-private partnerships in surface transportation. The Aviation section provides a comprehensive overview on the latest news on domestic and international airport privatization and privatization of airport security. Topics include:

 Surface Transportation

• In 2011, infrastructure finance continued to recover from the credit market crunch of 2009. The amount of capital available in infrastructure equity investment funds reached a new all-time high.
• Over the past five years, the 30 largest global infrastructure investment funds have raised a total of $183.1 billion dedicated to financing infrastructure projects, with the bulk coming from U.S., Australian and Canadian inventors. 
• Eight major privately financed transportation projects were under construction in the U.S. in 2011 totaling over $13 billion investment, including megaprojects in Virginia, Texas and Florida. 
• In 2010 CalPERS, the largest U.S. public employee pension fund, purchased a 12.7% equity stake in London Gatwick Airport, and public pension funds in Arizona, Louisiana, Oregon, Texas and San Diego are seeking similar investments. 
• Puerto Rico’s Public-Private Partnership Authority announced a $1.5 billion lease of the PR-22 and PR-5 toll roads, their as its first large-scale project.  Ohio officials are considering a similar lease of the Ohio Turnpike.
• Other topics include the federal role in private infrastructure finance, an update on high-occupancy toll and express lane projects in the U.S., and a review of toll road developments in the states and across the world.

Aviation 

• In the aftermath of the credit markets crunch of 2008–2009, the airport market continued its recovery in 2011, with efforts including Puerto Rico's current plan to privatize San Juan’s Luis Munoz Marin International Airport and Chicago's continued interest in a potential Midway Airport lease. 
• A total of 48% of European air passengers were handled by partly or fully privatized airports in 2011, with that share likely to grow with impending privatization initiatives in Spain and Greece. 
• Amid public outrage over TSA’s introduction of body scanners and aggressive pat-downs, the administration and Congress continued to battle over proposals to allow airports to opt-out of TSA security and hire private screeners. However, some progress was made in Washington D.C. over reviving the trusted traveler program, advancing a more risk-based approach to security.
• Since 1990, 51 governments have commercialized their air traffic control systems, separating the air traffic control functions from regulatory bodies, removing them from civil service, and making them self-supporting from fees charged to aircraft operators. However, there was no significant progress in 2011 toward commercializing air traffic control in the United States. 
• Other news on domestic and international airport privatization and air traffic control commercialization 

Denver's RTD Abandons Tax Hike for FasTracks

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

Monte Whaley of The Denver Post reports:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

» Complete Annual Privatization Report 2011 homepage

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

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

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

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

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

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

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

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

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

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

» Complete Annual Privatization Report 2011

New at Reason: Annual Privatization Report 2011

Posted on April 23, 2012, 11:58pm | Leonard Gilroy and Harris Kenny

We are pleased to announce that today marks the launch of Reason Foundation's Annual Privatization Report 2011. Now in its 25th year of publication, the Annual Privatization Report is the world's longest running and most comprehensive report on privatization news, developments and trends.

Readers will notice that APR 2011 features the same format as last years report, published in as a series of reports arranged by topic, rather than one consolidated report as in previous years. We expect that this will make it easier to use as a resource and find the information you're looking for. The individual sections of APR 2011—which will be released over the next two weeks—include:

• Federal Government Privatization
• State Government Privatization
• Local Government Privatization
• Air Transportation
• Surface Transportation
• Education
• Telecommunications
• Corrections and Public Safety

We started the rollout today with the APR 2011 Federal Government Privatization section. It provides an overview of the latest federal insourcing, housing finance, private spaceflight and other news on privatization and public-private partnerships in the federal government.

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

» Complete Annual Privatization Report 2011

State Tax Collections Rise $62 Billion in 2011

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

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

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

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

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

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

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

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

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

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

Innovators in Action: Osceola County, Florida Commissioner Frank Attkisson

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

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

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

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

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

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

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

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

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

Pew Finds States Barely Evaluate Tax Incentive Programs

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

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

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

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

Ultimately, the report finds:

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

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

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

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

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

ALEC Releases 2012 Rich States, Poor States Report

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

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

From the executive summary:

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

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

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

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

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

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

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

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

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

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

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.]

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.

Gov. Cuomo Ushers Through $132.6 billion NY State Budget

Posted on April 2, 2012, 2:35pm | Harris Kenny

Last week New York Governor Andrew Cuomo, Senate Majority Leader Dean Skelos and Assembly Speaker Sheldon Silver announced the early passage of the state’s fiscal year 2013 budget. The Legislature approved the $132.6 billion budget on Friday March 30. According to an article by Thomas Kaplan in The New York Times:

The voting on Friday marked the first time the Legislature had approved a state spending plan with more than 24 hours to spare since 1983 – when Mr. Cuomo’s father, former Gov. Mario M. Cuomo, passed his first budget.

Four major stories jump out of this budget deal.

1. Fiscal Responsibility: Lawmakers closed a multi-billion dollar deficit ($2 billion, or 3.5% of the state budget, according to the Center on Budget and Policy Priorities) without raising taxes or imposing fees. State spending growth held to 2% for the second year in a row, while net spending (state and local) was reduced for the second year in a row thanks in part to tax caps on local governments. State spending will total roughly $88.8 billion in FY 2013. Most impressively, out year deficits have been reduced by a cumulative $72 billion since Gov. Cuomo took office.
2. Government Reform: Lawmakers are empowering the Office of General Services (OGS) to serve as a clearinghouse for state agencies, thereby transforming procurement by facilitating bulk purchase common goods and services through centralized contracts. Officials will leverage the state’s purchasing power to save $100 million in FY 2013 and a projected $755 million over five years. They’re also eliminating 25 state boards and commissions that are no longer active or whose missions have been completed or become redundant, such as the Department of State’s Barbers Board. (See the full list of eliminated boards and commissions available online here, for more on the new OGS initiatives see here).
3. Transportation Infrastructure: Lawmakers are enhancing their focus on transportation infrastructure. The budget establishes the New York Works Task Force to coordinate capital plans across state government and funds the New York Works program with $232 million in state capital funds and $917 in federal funds for $1.2 billion in new spending. This is in addition to $1.6 billion already allocated this year to core transportation capital investment. And most importantly, these funds are in addition to the advancement of the Tappan Zee Bridge replacement project. (For more on the Tappan Zee Bridge replacement project, see my colleague Baruch Feigenbaum’s latest Out of Control Policy Blog post here.)
4. Criminal Justice: The Budget serves as the launching point for Gov. Cuomo’s Close to Home Initiative, which seeks to reform the state’s juvenile justice facility system. Specifically it allows New York City officials to take responsibility for the case of lower risk youth who come from the City. This applies to youth in non-secure and limited security facilities. The aim of the program is to reduce crime and improve outcomes for youth and the communities in which they live by providing targeted educational, mental health, substance abuse and other service needs without compromising public safety. The program is expected to save $4.5 million in FY 2013 and $27 million in FY 2014, in part by reducing the state’s juvenile justice system capacity by 140 beds in FY 2013 and 180 beds in FY 2014. (For more on the Close to Home Initiative see a write-up by the New York State Juvenile Justice Advisory Group here.)

Overall there are some major accomplishments in this budget. Kudos to state policymakers for finding common ground and balancing innovation with fiscal responsibility along the way. Once considered in the dysfucntional company of states like California and Illinois, New York appears to be taking serious strides in the right direction.

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

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

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

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

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

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

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

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

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

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

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

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

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.