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How to Avoid Closing Washington State Parks

Posted on May 17, 2013, 1:57pm | Leonard Gilroy

Many thanks to the Washington Policy Center for publishing my legislative memo today on how to avoid the closure of dozens of Washington State parks, as Gov. Insley has proposed if his tax increase package fails to advance. Here's an excerpt:

The threat of closing five dozen state parks is yet another variation on the well-worn “Washington Monument Syndrome” tactic designed to threaten closure or disruption of popular amenities if tax increases are not approved.

Political tactics notwithstanding, Washington’s state parks system does indeed face significant funding challenges. General fund appropriations for parks have been on the decline for years, a predictable circumstance in a fiscal football game in which funding for major spending priorities like education, healthcare, public safety and public-sector retiree benefits increasingly crowds out funding for the “nice-to-have” amenities like state parks. The sooner that policymakers and citizens understand this basic trajectory is only going to intensify — and that new solutions are needed to sustain the “nice-to-have” items like state parks — the better.

Some in Washington have begun to realize this when it comes to parks. In recent years, the legislature pushed the Washington State Parks Commission to pursue financial self-sustainability, and to its credit, the agency has pursued a range of strategies that include staff reductions, an increasing reliance on user fees and non-recreational leases, and expanding revenue-generating assets within the parks themselves. While these actions have not solved the funding challenge, they have been useful steps to keep the parks system afloat.

Short-term infusions of funding along the lines proposed by the governor are not a sustainable financial strategy if the goal is to keep parks open and thriving for the long term. Washington, like many other states, is due for a major rethinking of the structure and operation of the parks system itself. […]

Though it may be anathema to the preconceived visions held by some parks advocates, there is indeed a strong role for private-sector and non-profit operators in the state parks. For example, nonprofits played a major role in taking over operations of dozens of California state parks to help avoid closure amid 2012’s budget battles, and many municipal parks, zoos and aquariums, including New York City’s famed Central Park, have long been operated by nonprofit conservancies and “friends” groups.

Read the whole thing here or here for more on the role of the for-profit sector in operating Evergreen State parks.

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Why is the CDC Being Anti-Science on State Liquor Privatization?

Posted on May 14, 2013, 2:26pm | Leonard Gilroy

When policymakers in any of the liquor "control" states—the 17 states (plus parts of Maryland) that still, puzzlingly, retain Prohibition-era, psuedo-Soviet state-run liquor stores and/or a state-run liquor wholesale business—broach the subject of liquor privatization, government unions and anti-alcohol activist opponents raise fears that privatization will bring an increase in alcohol-related societal malaise, including more drunk driving, more binge drinking and more underage drinking.

The academic evidence for these predictions are thin at best, and more recent research from Duquesne University scholars Antony Davies and John Pulito suggests quite the opposite.

That hasn't stopped the U.S. Centers for Disease Control (CDC) from stepping in to muddy the waters on privatization. In fact, the CDC's independent advisory board—the Community Preventative Services Task Force—has gone on the record officially opposing any further privatization of state liquor monopolies, a position now echoed by the CDC itself. (Forget for a moment that the cat's already way out of the bag, as 32 states have never had state-run liquor monopolies to begin with, and Washington State voters opted to privatize their state-run wholesale and retail systems last year).

The primary justification for the CDC's stance is an analysis the task force conducted reviewing 17 different studies on privatizing retail alcohol sales, which concluded that "[t]he evidence consistently showed that privatization of retail alcohol sales was associated with a substantial increase in per capita sales of the privatized beverages." (p.425) The report and task force recommendation has been received by government unions and anti-liquor activists as manna from heaven and has been widely used in states like Pennsylvania to scare policymakers, media and citizens into believing that privatization will bring untold social horrors (again, despite the lack of said horrors in the 33 states already privatized).

However, two recent media articles call the CDC report's analysis and findings into question. First, Forbes ran a lengthy article yesterday by contributor Trevor Butterworth that debunks several key aspects of the study. Here's a teaser:

In examining 17 studies on the effect of privatization, the Task Force found that the median consumption of alcohol increased by 44.4 percent. Did this increase lead to an increase in harm? The two studies addressing the issue had mixed results and “methodological limitations;” but “Single Distribution Theory,” for which the Task Force said there is “extensive evidence,” shows that a mean increase in alcohol consumption leads to an increase in overall risk.

This all sounds quite persuasive – and why would anyone not trust an independent expert task force advising the CDC on the best scientific evidence? Well, the first problem is the extensive evidence that Single Distribution Theory does not explain the relationship between the availability and consumption of alcohol – so extensive, in fact, that the theory was largely abandoned in the early 1990s for its inability to explain, and in many cases, fit the empirical data on alcohol consumption.

Read the whole thing for a rich debunking of the CDC's findings. Skipping to the punch line:

Of course, whatever way you parse the recommendations of the Task Force, and their adoption by the CDC, such reasoning is about as robust as Styrofoam. This is an astonishing abuse of data in the service of trying to sway legislation – and one which points to an agency being driven by politics and ideology, and not by science.

In addition to the Forbes article, The Inquirer in Philadelphia recently published an op-ed by a former chair of the American Medical Association, Dr. Raymond Scalettar, who is also a clinical professor of medicine at GWU Medical Center and a medical adviser to the Distilled Spirits Council. Dr. Scalettar writes that the studies reviewed by CDC do not support the claim that privatization would harm public health:

Robert Brewer, who leads the alcohol program in the CDC's National Center for Chronic Disease Prevention and Health Promotion, has repeatedly pointed to a review by CDC's Community Task Force. It found a 44 percent median increase in per capita sales of privatized alcoholic beverages within jurisdictions that underwent privatization of retail alcohol sales.

Unfortunately, Brewer has never explained what the 44 percent estimate really means. This data, which has been presented out of context, is misleading and useless in the Pennsylvania privatization discussions.

The 44 percent figure was derived by analyzing 17 studies that looked at the impact privatization had on the privatized beverage. The 44 percent growth estimate is not an estimate of total alcohol consumption, nor is it an estimate of alcohol-related harms.

Of the 17 studies analyzed, six showed no increase in consumption, and four showed only moderate increases. This fact alone would give most researchers pause with regard to any kind of sweeping conclusion.

Importantly, the Community Task Force's review found no pattern of increased alcohol-related harms in the studies it analyzed, which ultimately is what the public is most concerned about.

Again, readers should review the whole article for Scalettar's full critique. He concludes:

The CDC has the imprimatur of a respected, science-based government organization. Brewer has the responsibility to honestly present research in an unbiased, forthright manner so the public and elected officials can make decisions based upon the best available evidence.

Both articles provide ample evidence that policymakers and citizens in the 17 "control" states like Pennsylvania should take the CDC's anti-privatization stance with a major grain of salt, as it rests on a dubious scientific foundation. But the big question that still remains unanswered is why is the CDC being so anti-science on liquor privatization? Could it, as Butterworth suggests, be driven more by political and ideological considerations? That would certainly be unfathomable in this day and age, right?

For more, see here for my recent writeup on developments on state liquor privatization from Reason Foundation's Annual Privatization Report 2013.

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Louisiana Republicans Introduce Bills to Replicate Massachusetts's Pro-Union, Anti-Privatization “Pacheco Law”

Posted on May 9, 2013, 7:36pm | Leonard Gilroy

My latest column offers a critique of two bills introduced in the Louisiana legislature that are modeled after the Massachusetts "Pacheco Law," which is widely regarded as the most onerous and stringent anti-privatization law in the country. Here's a brief excerpt:

Two proposed bills introduced in the Louisiana legislature—and passed by a House committee earlier this week—raise serious barriers to fiscal responsibility, as the bills would effectively shut down the ability of the current and future governors to use the proven tool of competitive contracting to lower the costs of state government.

House Bill 240 (sponsored by Rep. Kenny Havard) and House Bill 519 (sponsored by Rep. Cameron Henry) are two alternative versions of a “Privatization Review Act” designed to place significant hurdles in front of routine, sensible privatization efforts used by governors of all political stripes across the country. Given the similarity to a 1993 law enacted in Massachusetts at the behest of government employee unions—and which has stymied privatization efforts in that state for two decades since—a more appropriate title for the proposed Louisiana bills would be the "Louisiana Government Employee Protection Act."

Specifically, HB 240 and HB 519 would prohibit agencies from entering into privatization contracts without prior legislative review and approval, and they would subject routine contracting decisions to onerous pre-procurement and contract review processes clearly designed to protect state employee jobs and elevate the interests of government employee unions over those of taxpayers at large.

The proposed bills are modeled nearly word-for-word after Massachusetts’ “Pacheco Law” (named for its legislative sponsor) that “has basically shut down all privatization efforts in state government,” according to an April 2013 Boston Globe editorial, which also noted that, “the purpose of state government isn’t to be a jobs program, particularly one that turns a blind eye to opportunities for savings.”

[...]

In January 2011, the Globe's editorial board wrote that the anti-privatization Pacheco Law “doesn’t just keep government agencies from saving money by hiring outside contractors to perform certain services. It also sends a broad message: In Massachusetts, the demands of special-interest groups — in this case, public-employee unions — can outweigh the obligation to run government efficiently."

Louisiana taxpayers would be right to question why some of their own state legislators are trying to replicate the law that has been so counterproductive in the Bay State for decades. Does Louisiana really want to become a profligate, big-spending state like Massachusetts and remove proven cost-cutting tools from the toolbox?

Read the full article here.

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New at Reason: Privatization Developments in Criminal Justice and Corrections

Posted on May 6, 2013, 3:55pm | Leonard Gilroy

The rollout of Reason Foundation's Annual Privatization Report 2013 continues today with the release of the Criminal Justice and Corrections section—authored by Leonard Gilroy, Harris Kenny, Alexander Volokh and Andrew Livingston—which provides an overview of the latest on privatization and public-private partnerships in criminal justice and corrections. Topics include:

  • 2012 Corrections Privatization Overview
  • State and International Corrections Privatization Update
  • State and Local Correctional Healthcare Privatization Update
  • ANALYSIS: Recent Developments in the Federal Civil-Rights Liability of Federal Private Prisons
  • FOCUS: The Emergence of Social Impact Bonds: Paying for Success in Social Service Innovation
  • FOCUS: Colorado, Washington State Vote to Tax and Regulate Recreational Marijuana for Adults

» Annual Privatization Report 2013: Criminal Justice and Corrections
» Complete Annual Privatization Report 2013

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

Posted on April 22, 2013, 1:43pm | Leonard Gilroy

The rollout of Reason Foundation's Annual Privatization Report 2013 continues today with the release of the State Government Privatization section—authored by Reason's Leonard Gilroy and Lisa Snell—which offers an overview of the latest on privatization and public-private partnerships in state government. Topics include:

  • State Budget Update
  • Privatization of State Lottery Management
  • The Emergence of Social Impact Bonds: Paying for Success in Social Service Innovation
  • California Pioneers Public-Private Partnerships for Private Operation of State Parks
  • Higher Education Public-Private Partnerships Update
  • State Liquor Privatization Update
  • Social Infrastructure Public-Private Partnerships Update
  • Child Welfare Privatization Update
  • State Privatization News and Notes

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

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New Jersey Announces Lottery Privatization Contract Award

Posted on April 12, 2013, 5:12pm | Leonard Gilroy

The New Jersey Department of the Treasury today announced its intention to award a 15-year contract for the private operation of the state's lottery that will bring a $120 million upfront payment to the state and an estimated $1.4 billion in additional net lottery revenue to the state over the life of the deal, relative to in-house operation. From the state's press release:

To ensure the future performance of the New Jersey Lottery exceeds its past record of providing essential support to State institutions and education programs, the Department of the Treasury’s Division of Purchase and Property has issued a Notice of Intent to award a 15-year contract to Northstar New Jersey Lottery Group to provide the Lottery with services to support its marketing and sales operations.

As part of the contract terms which guarantee the State a minimum amount of income, Northstar NJ will provide an accelerated payment of $120 million to the State upon the final award and execution of the contract. It has also committed to generating at least $1.42 billion of total additional net income for the State from Lottery operations over the life of the contract with a potential actual increase in net income of $6.88 billion. The $1.42 billion mark is above and beyond what the State could expect to see if Lottery operations remain unchanged.

Northstar NJ is a joint venture consisting of GTECH Corporation of Providence, Rhode Island, Scientific Games International of Alpharetta, Georgia, and OSI LTT NJ Holdings, a unit of the Ontario Municipal Employees Retirement System (OMERS). GTECH and Scientific Games are two of the world’s leading companies in lottery management and OMERS is one of the largest pension funds in Canada.

“For more than 40 years, the Lottery has provided critical financial support to New Jersey’s institutions and educational programs. The contract we plan to enter into with Northstar New Jersey protects that legacy commitment to New Jerseyans by positioning the Lottery for sustained growth and continued success in the face of an increasingly complex and competitive marketplace,” said State Treasurer Andrew Sidamon-Eristoff.

Carole Hedinger, executive director of the Lottery, said the contract will immediately strengthen its operations. “GTECH and Scientific Games have outstanding records of success in helping public lotteries grow their revenues and improve their operations. Their business plan for the Lottery is solid, well-researched and builds upon our existing strengths.”

New Jersey now becomes the fourth state—after Illinois, Indiana and Pennsylvania—to move forward with a private management agreement for lottery operations in recent years. The shift to private management has already occurred in Illinois and Indiana, while officials in Pennsylvania continue to renegotiate their contract after the state's Attorney General raised several legal concerns in February, which has slowed the process in the Commonwealth.

Check back to reason.org in the coming weeks for my state lottery privatization roundup as part of our Annual Privatization Report 2013.

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Parks 2.0: Operating State Parks through Public-Private Partnerships

Posted on January 9, 2013, 8:00pm | Leonard Gilroy and Harris Kenny

Yesterday we had the privilege of having our new policy study—“Parks 2.0: Operating State Parks through Public-Private Partnerships” (Parks 2.0) —published by the Conservation Leadership Council (CLC). Our paper is one of six commissioned by CLC on a range of environmental topics intended to offer a set of actionable recommendations that focus on private sector and market-based policy initiatives reflecting the CLC’s principles of limited government, community leadership and public-private partnerships.

The papers were launched yesterday at an event hosted by CLC in Washington, D.C. that included Gale Norton, former U.S. Interior Secretary and former Colorado Attorney General; Ed Schafer, former U.S. Agriculture Secretary and former North Dakota Governor; and Lynn Scarlett, former Deputy Secretary of the Interior (and former Reason Foundation president). The event was recorded by C-SPAN and is available online here.

Parks 2.0 acknowledges that the ongoing fiscal challenges facing state governments are creating an existential crisis for state parks. With budgets stretched increasingly thin, state parks must compete for limited funds with other (usually higher) policy priorities like education, health care, public pensions and public safety. These budget pressures have prompted policy makers in California, New York, Florida, Arizona, Georgia, Massachusetts and other states to close or significantly reduce services in hundreds of state parks, or at minimum reduce parks budgets, nationwide. In other states, like Washington and South Carolina, governors and legislatures have recently launched efforts to require parks to become self-sufficient to wean them off state appropriations, in seeming recognition that parks funding will increasingly be crowded out by other spending priorities.

Yet state parks remain popular while their maintenance needs continue to worsen; according to America’s State Parks Foundation, state parks received 725 million visitors at over 6,000 sites around the country in 2010 alone. Can this popularity be turned from a cost into a benefit? One way to keep state parks open without imposing additional burdens on the taxpayer is to utilize public-private partnerships (PPPs). 

Many states already successfully use private concessionaires to provide piecemeal services within parks—including food, retail, lodging, marinas, and other commercial activities—so a shift to more extensive involvement can build on that. Such a whole park operation PPP would transfer the responsibility of maintaining the park to a private operator, while enabling that operator to raise revenue through entrance and other fees. The U.S. Forest Service has used this PPP model for over 25 years to operate thousands of its developed recreation areas nationwide, and in 2012 California began the first state to turn over the operation of state parks to private recreation management companies to avoid closure.

Parks 2.0 seeks to describe such a PPP model and explain how it can best be applied to the operation of state parks. Reason Foundation has been on the forefront of this issue for years, both by conducting research and engaging in policy implementation. For example, last year we outlined the state of California’s decision to issue a request for proposals (RFP) for private operation of five state parks. Our Annual Privatization Report 2011: State Government Privatization detailed steps taken towards partnering with for-profit and nonprofit operators for state parks operation across the U.S. And a 2010 ReasonTV video suggested that PPPs, not a proposed new tax on car registration, offered a more sustainable solution to the state’s park funding challenges. Watch the full ReasonTV video below:

To learn more about the Conservation Leadership Council visit their website and watch the CSPAN event here. To learn more about Parks 2.0, read our study “Parks 2.0: Operating State Parks through Public-Private Partnerships,” available online here and visit Reason Foundation’s Parks and Recreation Research Archive here. 

 

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

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

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

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

Read an excerpt from the interview below:

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

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

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

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

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

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

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

 

 

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Innovators in Action 2012, Year in Review

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

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

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

 

 

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

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

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

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

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

Here's a brief excerpt from the interview:

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

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

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

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

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

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

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

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

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

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

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

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

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

Here's a brief excerpt from the interview:

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

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

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

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

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

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

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

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

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

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

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To Avoid Massive Tax Hikes, Privatize State Lotteries

Posted on August 23, 2012, 11:59pm | Harris Kenny

Today my colleague Leonard Gilroy and I published a piece on Real Clear Markets entitled, "To Avoid Massive Tax Hikes, Privatize State Lotteries." The piece begins:

As states continue to grapple with ongoing fiscal pressures, some are beginning to explore an innovative new lottery privatization model with the hopes of increasing revenue. To the extent that this trend could prevent tax hikes or cuts in core programs, it is worth applauding.

The piece goes on to highlight several noteworthy developments towards privatization at the state level, including New Jersey, Pennsylvania, Indiana and Illinois. We initially focus on Illinois because it is pioneering this trend, writing:

(Illinois) handed over its lottery operations to Northstar Lottery Group, a private manager, last year. The result? A $36 million boost in net lottery revenues to the state in the first year with hundreds of millions of additional dollars expected over the next five years.

Why is Northstar doing so much better than the government? It's not by scamming customers or cheating. State authorities continue to exercise control and oversight over all of Northstar's significant business decisions because Northstar has to submit its annual business plans for state approval.

Lotteries are unique and many observers are unfamiliar with how they operate. However lotteries are no different than a number of other state-run services that can be adequately, or even better, provided by the private sector. The piece continues:

What privatization does is recognize that lotteries are essentially businesses that are better run by professional firms that have the right mix of incentives, skills and technology to maximize the value of this ultimately state-owned asset. It hands over to the private operator management of day-to-day operations, marketing and other functions in exchange for a portion of revenues (subject to an overall cap).

The upshot is not just increased efficiency but expanded product lines, improved marketing to attract new types of players, and new outlets for lottery ticket purchases across the state, all of which boost the bottom line.

Lotteries are lucrative businesses that generate profits even when not run super efficiently. Hence, even state-run lotteries produce revenues. However, public agencies face very few incentives to maximize efficiency since they don't have to focus on a bottom line and, are rarely held to performance standards.

We go on explain the details of the agreement in Illinois, specifically covering financial terms of the contract between Northstar and the state. We also highlight caveats that will impact similar deals in other states. For example, some states have strict constitutional language limiting the use of lottery revenue. The piece concludes:

 

Although every state has something different to gain from privatizing lottery management, to the extent that money is fungible, by relieving fiscal pressure on some programs, lottery revenues can relieve the overall pressure for tax increases. And its far better that the state pursue new revenue from people voluntarily playing lottery games instead of taking more of taxpayers' income involuntarily through tax hikes and the like.

What's more, many states are saddled with debt and legacy obligations (pension and retiree healthcare costs) that they don't have the funds to pay for. Many of these promises were reckless and should never have been made. But the fact is that governments can't write them all off. They'll have to find a way to pay for some of them. And lottery and other privatization efforts offer one such way without massive tax hikes.

 

Implementing privatization, like any policy tool (and like playing the lottery itself), is inherently risky. But all risk is not created equal, and ongoing fiscal woes suggest the risk of maintaining the status quo in government may be far greater.

It seems far more sensible for policymakers to avail themselves of every opportunity to maximize the return from the state's existing revenue-generating assets through more efficient management, creating another option for cash-strapped states beyond just higher taxes and cuts in core services. Thus far, Illinois' experience partnering with the private sector to increase lottery revenues suggests that maybe privatization isn't such a risky gamble after all.

Read the full piece available online here. For more on privatization and other reforms at the state level see Reason Foundation's State Government Research Archive.

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California Parks’ “Special Fund” and the Health of Golden State Recreation

Posted on August 2, 2012, 9:00am | David Aloyts

Recent revelations from the California Department of Parks and Recreation point to $54 million in special funds squirreled away during a time when budget deficits are forcing nearly one quarter of all California parks to shutter their doors. This money, accumulated over the course of 12 years, was enough to cover the department’s cuts several times over. Several top officials at the department have been forced to resign because of the department’s lack of transparency in this time of fiscal trouble, including Ruth Coleman, the longest-running parks director in state history, and her heir apparent. All involved claim no knowledge of the funds’ existence.

While this scandal has brought to light what appears to be a case of government mismanagement and unaccountability, it has also been a proof-of-concept for the decentralized creation of public goods. Most of the 70 State Parks that lost their funding were saved by a combination of nonprofits and local governments who wanted to keep them open to protect their own interests. If more parks were set to close, it is likely even more outside funding would come out of the woodworks to protect them. While this sudden drop of dozens of state recreational facilities is nearly unprecedented, transferring the operations of such properties is becoming increasingly popular, along with the leasing or privatization of other venues such as zoos and libraries.

These new funds potentially could have kept some of California’s State Parks open for a few more years. Unfortunately, these are one-time sources of revenue rather than a permanent solution to the department’s budget deficit. The biggest fall-out from all of this is that it could make reaching such permanent solutions more difficult. Already, Sonoma County park advocates decided to cancel a local sales tax ballot measure which was set to provide long-term funding for the area’s closing State parks. Strangely, supporters who claimed the State’s financial mismanagement was “just too much [to overcome],” are putting financial responsibility for these important assets back into the State’s hands.

Maybe Ms. Coleman, who was known for advancing outdoor recreation and forging partnerships with corporations and nonprofits, did not do such a bad job after all. By not announcing these funds, she at once concentrated park funding in California’s most popular parks where they could do the most good, while simultaneously making sure parks in underserved areas remained permanently funded through private and local sources of income.

In the end, this news is a surprising change of pace: government officials irresponsibly saving money instead of irresponsibly spending it.

With budgets strained tighter than ever it is becoming increasingly necessary to have legislators more informed and accountable. For further insight, check here.

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Task Force Report Warns of Darkening Clouds for State Finances, Absent Reforms

Posted on July 19, 2012, 5:19pm | Leonard Gilroy

An important new report this week by the State Budget Crisis Task Force—an independent panel of experts convened by former New York Lt. Gov. Richard Ravitch and former Federal Reserve Board Chair Paul Volcker—concludes that states are on an unsustainable fiscal path and will face a worsening fiscal storm absent major budget and policy reforms. Ravitch and Volcker created the task force "because of their growing concern about the long-term fiscal sustainability of the states and the persistent structural imbalance in state budgets, which was accelerated by the financial collapse of 2008."

There's little new information in the report for those that track state budget issues closely. Rather, it leverages the clout of authors to convey the seriousness of state fiscal crunch to a mass audience, and it synthesizes in one report a wide range of analyses of the major fiscal threats states continue to face. According to the report:

To understand the threats to fiscal sustainability, we examined six states - California, Illinois, New Jersey, New York, Texas, and Virginia—in depth. While all states are different, these states reflect important geographical and political differences within our country. They account for more than a third of the nation’s population and almost 40 cents of every dollar spent by state and local governments. All six states face major threats to their ability to provide basic services to the public, invest for the future, and care for the needy at a cost taxpayers will support.

While the study states differ along many dimensions, including politics, policies, economies, and demographics, they share many problems, including these six major fiscal threats:

• Medicaid Spending Growth Is Crowding Out Other Needs
• Federal Deficit Reduction Threatens State Economies and Budgets
• Underfunded Retirement Promises Create Risks for Future Budgets
• Narrow, Eroding Tax Bases and Volatile Tax Revenues Undermine State Finances
• Local Government Fiscal Stress Poses Challenges for States
• State Budget Laws and Practices Hinder Fiscal Stability and Mask Imbalances

These threats to fiscal sustainability create risks to essential state functions such as investments in education and infrastructure, and they affect the ways in which states are likely to issue debt. Addressing these threats will not be easy. States must address these threats through the budget process, which reflects each state’s own culture, institutions, and politics. The effort to achieve an annual or biennial balanced budget is a major political and governing event in the states, made by elected officials in an environment that breeds caution, encourages short-term budget- balancing contrivances, and discourages investment for the future.

The report goes into significant detail on each of these threats and is worth a read even for the well-initiated. For example, the "Underfunded Retirement Promises" section details the latest estimates on unfunded public employee pension liabilities and retiree health care plans, which tally in the trillions of dollars in aggregate. And the "Eroding Tax Bases" section covers a range of topics from the economic sensitivity of various types of taxes to the steadily erosion in motor fuel taxes that is increasingly limiting states' ability to invest in roads, bridges and other public infrastructure.

While the report devotes significant attention to the fiscal impact of federal deficit reduction on state and local governments, it also rightfully chastises state policymakers' use of gimmickry and budget "sleights-of-hand" to give the illusion of budget balance. Examples cited include delaying payment dates into future budget cycles, taking on debt to fund current operating expenses intend of financing long-term capital projects and more.

Last, the report makes an initial stab at some policy recommendations, including increased financial transparency, budget process reforms to replace cash-based-budgeting and enact multi-year budget forecasts, strengthening rainy day funds, reforming and increasing the transparency of pension systems, broadening the tax base and adopting multi-year capital budgets.

While these are useful ideas to consider as a start, the recommendations just begin to scratch the surface of what will really be necessary to put state budgets on a sustainable path. To supplement this report, I would also recommend that readers branch out further to check out additional works by independent groups, including this State Budget Reform Toolkit (a collaboration of many think tanks, including Reason Foundation), as well as the many ideas discussed over at www.statebudgetsolutions.org. And be sure to visit Reason's state budget policy archives to review our long-running work in this area.

Overall, the main takeaway from the Task Force report is a stark—and correct—warning:

The conclusion of the Task Force is unambiguous. The existing trajectory of state spending, taxation, and administrative practices cannot be sustained. The basic problem is not cyclical. It is structural.

The time to act is now.

The full report is available here, and a summary version is available here. For more details on this report, visit the task force website at www.statebudgetcrisis.org, and see the recent coverage by The New York Times, Governing and Stateline.org.

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New at Reason.tv: Public-Private Partnerships in Puerto Rico

Posted on July 10, 2012, 5:25pm | Leonard Gilroy

Yesterday, my Reason.tv colleagues posted a new video on Puerto Rico's laudable program to entice private investment in public roads, schools and other infrastructure via public-private partnerships:

"At the end of the day, we are benefiting from savings," explains David Alvarez, executive director of the Puerto Rico Public-Private Partnerships (PPP) Authority. "The government is not dedicating more resources to (infrastructure) and the taxpayers are receiving value."

Although vital public projects such as schools, roads, and airports have traditionally been the domain of the government, Alvarez tells ReasonTV "it's important that we incorporate private investment into the infrastructure." He add that PPP projects add nothing to the public debt and are completed faster and more efficiently than traditional government-administered ventures.

The video, featuring Alvarez, is available at both Reason.tv and YouTube, or it can be viewed directly via the link below.

As I detailed in this May post, Puerto Rico's PPP program is one of the most robust out there at the moment. For more details, see:

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Why California can Only Cut Education and Public Safety

Posted on June 29, 2012, 11:07am | Adrian Moore

Yep, California faces a $16 billion budget deficit and the only solution Sacramento can come up with is cutting education and public safety and a massive tax increase.  Over the interweb this morning I got this list of real California state government entities.  I have checked it over and it looks legit to me, I couldn't find any on the list I knew to no longer exist. But you can see why the only possible cuts are to vital services, right? There's nothing unnecessary on this list, right?

California Academic Performance Index (API) * California Access for Infants and Mothers * California Acupuncture Board * California Administrative Office of the Courts * California Adoptions Branch * California African American Museum * California Agricultural Export Program * California Agricultural Labor Relations Board * California Agricultural Statistics Service * California Air Resources Board (CARB) * California Allocation Board * California Alternative Energy and Advanced Transportation Financing Authority * California Animal Health and Food Safety Services * California Anti-Terrorism Information Center * California Apprenticeship Council * California Arbitration Certification Program * California Architects Board * California Area VI Developmental Disabilities Board * California Arts Council * California Asian Pacific Islander Legislative Caucus * California Assembly Democratic Caucus * California Assembly Republican Caucus * California Athletic Commission * California Attorney General * California Bay Conservation and Development Commission * California Bay-Delta Authority * California Bay-Delta Office * California Bio Diversity Council * California Board for Geologists and Geophysicists * California Board for Professional Engineers and Land Surveyors * California Board of Accountancy * California Board of Barbering and Cosmetology * California Board of Behavioral Sciences * California Board of Chiropractic Examiners * California Board of Equalization (BOE) * California Board of Forestry and Fire Protection * California Board of Guide Dogs for the Blind * California Board of Occupational Therapy * California Board of Optometry * California Board of Pharmacy * California Board of Podiatric Medicine * California Board of Prison Terms * California Board of Psychology * California Board of Registered Nursing * California Board of Trustees * California Board of Vocational Nursing and Psychiatric Technicians * California Braille and Talking Book Library * California Building Standards Commission * California Bureau for Private Post Secondary and Vocational Education * California Bureau of Automotive Repair * California Bureau of Electronic and Appliance Repair * California Bureau of Home Furnishings and Thermal Insulation * California Bureau of Naturopathic Medi cine * California Bureau of Security and Investigative Services * California Bureau of State Audits * California Business Agency * California Business Investment Services (CalBIS) * California Business Permit Information (CalGOLD) * California Business Portal * California Business, Transportation and Housing Agency * California Cal Grants * California CalJOBS * California Cal-Learn Program * California CalVet Home Loan Program * California Career Resource Network * California Cemetery and Funeral Bureau * California Center for Analytical Chemistry * California Center for Distributed Learning * California Center for Teaching Careers (Teach California) * California Chancellors Office * California Charter Schools * California Children and Families Commission * California Children and Family Services Division * California Citizens Compensation Commission * California Civil Rights Bureau * California Coastal Commission * California Coastal Conservancy * California Code of Regulations * California Collaborative Projects with UC Davis * California Commission for Jobs and Economic Growth * California Commission on Aging * California Commission on Health and Safety and Workers Compensation * California Commission on Judicial Performance * California Commission on State Mandates * California Commission on Status of Women * California Commission on Teacher Credentialing * California Commission on the Status of Women * California Committee on Dental Auxiliaries * California Community Colleges Chancellors Office, Junior Colleges * California Community Colleges Chancellors Office * California Complaint Mediation Program * California Conservation Corps * California Constitution Revision Commission * California Consumer Hotline * California Consumer Information Center * California Consumer Information * California Consumer Services Division * California Consumers and Families Agency * California Contractors State License Board * California Corrections Standard s Authority * California Council for the Humanities * California Council on Criminal Justice * California Council on Developmental Disabilities * California Court Reporters Board * California Courts of Appeal * California Crime and Violence Prevention Center * California Criminal Justice Statistics Center * California Criminalist Institute Forensic Library * California CSGnet Network Management * California Cultural and Historical Endowment * California Cultural Resources Division * California Curriculum and Instructional Leadership Branch * California Data Exchange Center * California Data Management Division * California Debt and Investment Advisory Commission * California Delta Protection Commission * California Democratic Caucus * California Demographic Research Unit * California Dental Auxiliaries * California Department of Aging * California Department of Alcohol and Drug Programs * California Department of Alcoholic Beverage Control Appeals Board * California Departme nt of Alcoholic Beverage Control * California Department of Boating and Waterways (Cal Boating) * California Department of Child Support Services (CDCSS) * California Department of Community Services and Development * California Department of Conservation * California Department of Consumer Affairs * California Department of Corporations * California Department of Corrections and Rehabilitation * California Department of Developmental Services * California Department of Education * California Department of Fair Employment and Housing * California Department of Finance * California Department of Financial Institutions * California Department of Fish and Game * California Department of Food and Agriculture * California Department of Forestry and Fire Protection (CDF) * California Department of General Services * California Department of General Services, Office of State Publishing * California Department of Health Care Services * California Department of Housing and Community Development * California Department of Industrial Relations (DIR) * California Department of Insurance * California Department of Justice Firearms Division * California Department of Justice Opinion Unit * California Department of Justice, Consumer Information, Public Inquiry Unit * California Department of Justice * California Department of Managed Health Care * California Department of Mental Health * California Department of Motor Vehicles (DMV) * California Department of Personnel Administration * California Department of Pesticide Regulation * California Department of Public Health * California Department of Real Estate * California Department of Rehabilitation * California Department of Social Services Adoptions Branch * California Department of Social Services * California Department of Technology Services Training Center (DTSTC) * California Department of Technology Services (DTS) * California Department of Toxic Substances Control * California Department of Transpor tation (Caltrans) * California Department of Veterans Affairs (CalVets) * California Department of Water Resources * California Departmento de Vehiculos Motorizados * California Digital Library * California Disabled Veteran Business Enterprise Certification Program * California Division of Apprenticeship Standards * California Division of Codes and Standards * California Division of Communicable Disease Control * California Division of Engineering * California Division of Environmental and Occupational Disease Control * California Division of Gambling Control * California Division of Housing Policy Development * California Division of Labor Standards Enforcement * California Division of Labor Statistics and Research * California Division of Land and Right of Way * California Division of Land Resource Protection * California Division of Law Enforcement General Library * California Division of Measurement Standards * California Division of Mines and Geology * California Divisi on of Occupational Safety and Health (Cal/OSHA) * California Division of Oil, Gas and Geothermal Resources * California Division of Planning and Local Assistance * California Division of Recycling * California Division of Safety of Dams * California Division of the State Architect * California Division of Tourism * California Division of Workers Compensation Medical Unit * California Division of Workers Compensation * California Economic Assistance, Business and Community Resources * California Economic Strategy Panel * California Education and Training Agency * California Education Audit Appeals Panel * California Educational Facilities Authority * California Elections Division * California Electricity Oversight Board * California Emergency Management Agency * California Emergency Medical Services Authority * California Employment Development Department (EDD) * California Employment Information State Jobs * California Employment Training Panel * California Energy Commission * California Environment and Natural Resources Agency * California Environmental Protection Agency (Cal/EPA) * California Environmental Resources Evaluation System (CERES) * California Executive Office * California Export Laboratory Services * California Exposition and State Fair (Cal Expo) * California Fair Political Practices Commission * California Fairs and Expositions Division * California Film Commission * California Fire and Resource Assessment Program * California Firearms Division * California Fiscal Services * California Fish and Game Commission * California Fisheries Program Branch * California Floodplain Management * California Foster Youth Help * California Franchise Tax Board (FTB) * California Fraud Division * California Gambling Control Commission * California Geographic Information Systems Council (GIS) * California Geological Survey * California Government Claims and Victim Compensation Board * California Governors Committee for Employment of Disabled Pers ons * California Governors Mentoring Partnership * California Governors Office of Emergency Services * California Governors Office of Homeland Security * California Governors Office of Planning and Research * California Governors Office * California Grant and Enterprise Zone Programs HCD Loan * California Health and Human Services Agency * California Health and Safety Agency * California Healthy Families Program * California Hearing Aid Dispensers Bureau * California High-Speed Rail Authority * California Highway Patrol (CHP) * California History and Culture Agency * California Horse Racing Board * California Housing Finance Agency * California Indoor Air Quality Program * California Industrial Development Financing Advisory Commission * California Industrial Welfare Commission * California InFoPeople * California Information Center for the Environment * California Infrastructure and Economic Development Bank (I-Bank) * California Inspection Services * California Institute f or County Government * California Institute for Education Reform * California Integrated Waste Management Board * California Interagency Ecological Program * California Job Service * California Junta Estatal de Personal * California Labor and Employment Agency * California Labor and Workforce Development Agency * California Labor Market Information Division * California Land Use Planning Information Network (LUPIN) * California Lands Commission * California Landscape Architects Technical Committee * California Latino Legislative Caucus * California Law Enforcement Branch * California Law Enforcement General Library * California Law Revision Commission * California Legislative Analyst's Office * California Legislative Black Caucus * California Legislative Counsel * California Legislative Division * California Legislative Information * California Legislative Lesbian, Gay, Bisexual, and Transgender (LGBT) Caucus * California Legislature Internet Caucus * California Library Development Services * California License and Revenue Branch * California Major Risk Medical Insurance Program * California Managed Risk Medical Insurance Board * California Maritime Academy * California Marketing Services * California Measurement Standards * California Medical Assistance Commission * California Medical Care Services * California Military Department * California Mining and Geology Board * California Museum for History, Women, and the Arts * California Museum Resource Center * California National Guard * California Native American Heritage Commission * California Natural Community Conservation Planning Program * California New Motor Vehicle Board * California Nursing Home Administrator Program * California Occupational Safety and Health Appeals Board * California Occupational Safety and Health Standards Board * California Ocean Resources Management Program * California Office of Administrative Hearings * California Office of Administrative Law * California Office of AIDS * California Office of Binational Border Health * California Office of Child Abuse Prevention * California Office of Deaf Access * California Office of Emergency Services (OES) * California Office of Environmental Health Hazard Assessment * California Office of Fiscal Services * California Office of Fleet Administration * California Office of Health Insurance Portability and Accountability Act (HIPAA) Implementation (CalOHI) * California Office of Historic Preservation * California Office of Homeland Security * California Office of Human Resources * California Office of Legal Services * California Office of Legislation * California Office of Lieutenant Governor * California Office of Military and Aerospace Support * California Office of Mine Reclamation * California Office of Natural Resource Education * California Office of Privacy Protection * California Office of Public School Construction * California Office of Real Estate Appraisers * California Office of Risk and Insurance Management * California Office of Services to the Blind * California Office of Spill Prevention and Response * California Office of State Publishing (OSP) * California Office of Statewide Health Planning and Development * California Office of Systems Integration * California Office of the Inspector General * California Office of the Ombudsman * California Office of the Patient Advocate * California Office of the President * California Office of the Secretary for Education * California Office of the State Fire Marshal * California Office of the State Public Defender * California Office of Traffic Safety * California Office of Vital Records * California Online Directory * California Operations Control Office * California Opinion Unit * California Outreach and Technical Assistance Network (OTAN) * California Park and Recreation Commission * California Peace Officer Standards and Training (POST) * California Performance Review (CPR) * California Permit Information for Business (CalGOLD) * California Physical Therapy Board * California Physician Assistant Committee * California Plant Health and Pest Prevention Services * California Policy and Evaluation Division * California Political Reform Division * California Pollution Control Financing Authority * California Polytechnic State University, San Luis Obispo * California Postsecondary Education Commission * California Prevention Services * California Primary Care and Family Health * California Prison Industry Authority * California Procurement Division * California Public Employees Retirement System (CalPERS) * California Public Employment Relations Board (PERB) * California Public Utilities Commission (PUC) * California Real Estate Services Division * California Refugee Programs Branch * California Regional Water Quality Control Boards * California Registered Veterinary Technician Committee * California Registrar of Charitable Trusts * California Republican Caucus * California Research and Development Division * California Research Bureau * California Resources Agency * California Respiratory Care Board * California Rivers Assessment * California Rural Health Policy Council * California Safe Schools * California San Francisco Bay Conservation and Development Commission * California San Gabriel and Lower Los Angeles Rivers and Mountains Conservancy * California San Joaquin River Conservancy * California School to Career * California Science Center * California Scripps Institution of Oceanography * California Secretary of State Business Portal * California Secretary of State * California Seismic Safety Commission * California Self Insurance Plans (SIP) * California Senate Office of Research * California Small Business and Disabled Veteran Business Enterprise Certification Program * California Small Business Development Center Program * California Smart Growth Caucus * California Smog Check Information Center * California Spatial Information Library * California Special Education Division * California Speech-Language Pathology and Audiology Board * California Standardized Testing and Reporting (STAR) * California Standards and Assessment Division * California State Administrative Manual (SAM) * California State Allocation Board * California State and Consumer Services Agency * California State Architect * California State Archives * California State Assembly * California State Association of Counties (CSAC) * California State Board of Education * California State Board of Food and Agriculture *California Office of the Chief Information Officer (OCIO) * California State Children's Trust Fund * California State Compensation Insurance Fund * California State Contracts Register Program * California State Contracts Register * California State Controller * California State Council on Developmental Disabilities (SCDD) * California State Disability Insurance (SDI) * California State Fair (Cal Expo) * California State Jobs Employment Information * California State Lands Commission * California State Legislative Portal * California State Legislature * California State Library Catalog * California State Library Services Bureau * California State Library * California State Lottery * California State Mediation and Conciliation Service * California State Mining and Geology Board * California State Park and Recreation Commission * California State Parks * California State Personnel Board * California State Polytechnic University, Pomona * California State Railroad Museum * California State Science Fair * California State Senate * California State Summer School for Mathematics and Science (COSMOS) * California State Summer School for the Arts * California State Superintendent of Public Instruction * California State Teachers Retirement System (CalSTRS) * California State Treasurer * California State University Center for Distributed Learning * California State University, Bakersfield * California State University, Channel Islands * California State University, Chico * California State University, Dominguez Hills * California State University, East Bay * California State University, Fresno * California State University, Fullerton * California State University, Long Beach * California State University, Los Angeles * California State University, Monterey Bay * California State University, Northridge * California State University, Sacramento * California State University, San Bernardino * California State University, San Marcos * California State University, Stanislaus * California State University (CSU) * California State Water Project Analysis Office * California State Water Project * California State Water Resources Control Board * California Structural Pest Control Board * California Student Aid Commission * California Superintendent of Public Instruction * California Superior Courts * California Tahoe Conservancy * California Task Force on Culturally and Linguistically Competent Physicians and Dentists * California Tax Information Center * California Technology and Administration Branch Finance * California Telecommunications Division * California Telephone Medical Advice Services (TAMS) * California Transportation Commission * California Travel and Transportation Agency * California Unclaimed Property Program * California Unemployment Insurance Appeals Board * California Unemployment Insurance Program * California Uniform Construction Cost Accounting Commission * California Veterans Board * California Veterans Memorial * California Veterinary Medical Board and Registered Veterinary Technician Examining Committee * California Veterinary Medical Board * California Victim Compensation and Government Claims Board * California Volunteers * California Voter Registration * California Water Commission * California Water Environment Association (COWPEA) * California Water Resources Control Board * California Welfare to Work Division * California Wetlands In formation System * California Wildlife and Habitat Data Analysis Branch * California Wildlife Conservation Board * California Wildlife Programs Branch * California Work Opportunity and Responsibility to Kids (CalWORKs) * California Workers Compensation Appeals Board * California Workforce and Labor Development Agency * California Workforce Investment Board * California Youth Authority (CYA) * Central Valley Flood Protection Board * Center for California Studies * Colorado River Board of California * Counting California * Dental Board of California * Health Insurance Plan of California (PacAdvantage) * Humboldt State University * Jobs with the State of California * Judicial Council of California * Learn California * Library of California * Lieutenant Governors Commission for One California * Little Hoover Commission (on California State Government Organization and Economy) * Medical Board of California * Medi-Cal * Osteopathic Medical Board of California * Physical Therapy Board of California * Regents of the University of California * San Diego State University * San Francisco State University * San Jose State University * Santa Monica Mountains Conservancy * State Bar of California * Supreme Court of California * Teach California * University of California * University of California, Berkeley * University of California, Davis * University of California, Hastings College of the Law * University of California, Irvine * University of California, Los Angeles * University of California, Merced * University of California, Riverside * University of California, San Diego * University of California, San Francisco * University of California, Santa Barbara * University of California, Santa Cruz *

California's state motto ought to be "We do everything. Everything."

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Pennsylvania Announces Plans to Move Forward with Lottery Privatization

Posted on June 14, 2012, 5:11pm | Leonard Gilroy

Following up on this post on state lottery privatization a few weeks ago, yesterday the Commonwealth of Pennsylvania announced that it plans to move forward with a bidding process covering the private management of the state lottery (a la Illinois).

From the Central Penn Business Journal:

The Pennsylvania Department of Revenue is moving forward in a process to privatize the day-to-day operation of the Pennsylvania Lottery, enlisting its current machine operator and scratch-off vendor to assist in the search for management firms.

The state sent out a request in April for qualified companies. The response since then convinced the department, which oversees the lottery’s programs, that moving forward with the process would benefit the state, it said Tuesday in a statement.

The department is refusing to release the number or names of companies it’s talking to in the process ahead of bidding, holding that confidentiality will better serve competition, spokeswoman Elizabeth Brassell said.

The state will continue to own the lottery and any management contract would require the company to demonstrate it will increase lottery revenue to benefit programs for older Pennsylvanians, according to the department.

[...] The state’s instant ticket and scratch-off game vendor, New York-based Scientific Games Corp., will be a consultant in the management firm search. If the state executes a management agreement, Scientific Games will continue as the lottery’s exclusive supplier of vending and technology services until December 2018, per its contract. A second contract ends in August 2017.

Scientific Games has not submitted its qualifications for the management contract and will not bid on such a contract because of its consulting role with the state in this process, the company said in a statement.

More details are available in the Department of Revenue's press release.

This seems like a sensible pursuit, as Illinois expects to receive approximately $1 billion in additional, net lottery revenues to the state over the next five years under their private management contract, relative to what the lottery projected under its own in-house operation. In an ideal world, this sort of commercial enterprise should be a stricly private sector function. But under federal law, states are the only entities allowed to operate lotteries, and full divestiture—or even a long-term lease—have been taken off the table as policy options for states. So Illinois pioneered the next best, feasible thing: hiring a private manager to run the enterprise like a real business, with all of the marketing, etc. bells and whistles that are not a core competency of government.

More to come as this develops, both in Pennsylvania and elsewhere. In the meantime, for more on the privatization of state lottery operations, see my article in Reason Foundation's Annual Privatization Report 2011, released last month.

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Washington State Enters New Era of Liquor Privatization

Posted on May 31, 2012, 10:42am | Leonard Gilroy

Friday will mark a historic first: Washington State will become the first of 18 liquor "control" states to fully privatize its state-run monopoly on the wholesale and retail trade in distilled spirits, assuming that the state's Supreme Court doesn't strike down the ballot initiative that mandated privatization when it issues a final ruling on a court challenge later this morning.

I detailed the Washington State initiative in Reason Foundation's recent Annual Privatization Report 2011 (full report here), and I've posted a standalone version of that article here for convenience.

This will be interesting to watch on many levels. One topic of particular interest will be the impact of privatization on liquor prices. Many observers expect prices to increase overall, which on the surface might seem counterintuitive when considering the establishment of a competitive market among private vendors where one previously did not exist. However, to secure enough political support for privatization, drafters of the ballot initiative made a strategic calculation that merely replacing revenues to the state (via new excise taxes to replace the previous state monopoly markup, or profit) would not be enough to secure voter approval.

As I detail in the article linked above, drafters opted to add new fees on top of an already high state tax burden on alcohol to generate higher net alcohol-related revenues to the state after privatization. At the state level, increased revenues are estimated to be $216 million to $253 million over the next six fiscal years, with a similar $186 million to $227 million increase in local government revenues expected over that same period.

So if prices increase overall, well…it would make sense, since you're tacking on new fees onto already high taxes. But we should be clear: if prices do rise, then it will be due to that particular policy decision, not a natural result of privatization. Observers in other states like Pennsylvania, where a policy debate over liquor privatization is ongoing in the legislature, should keep that context in mind as they consider how to design similar initiatives.

And in Washington State, policymakers always have the option of lowering the alcohol tax burden to drive prices down, though I don't suspect that many policymakers there will be rushing to do so given their interest in higher tax revenues.

At a larger level, it will be interesting to see how Washington's experience influences the liquor privatization discussion in the other 17 so-called "control" states, which retain post-Prohibition era wholesale and/or retail liquor monopolies. As I discussed at length in this February 2012 blog post, I see these government-run businesses as relics of a bygone era when there was a false belief (hubris?) in a minority of states that somehow you can only trust government to sell liquor (though it's perfectly fine to have private sales of beer and wine).

But that logic is severely flawed: if government being the direct monopoly wholesaler and retailer of potentially harmful substances is everything it’s supporters say it’s cracked up to be, then:

  • Why not have state governments expropriate and take over operation of all Walgreens, CVS’s and the myriad other pharmacies out there that dispense potentially dangerous and addictive pharmaceuticals? Or ban private sales of tobacco products and establish state-run tobacco store systems?
  • Why didn't any of the dozen-plus states that have legalized medical marijuana in recent years opted to pursue direct state control of sale and distribution, despite over 75 years of experience with the state spirits monopolies in the “control” states.

No one is seriously suggesting that these things happen, and it’s for a good reason: government’s proper role is in the regulation of these substances, not their direct sale and marketing.

Governments tend to be bad at running business enterprises because they're not actually business and it’s not a core expertise. By contrast, the private sector is in the business of business, and hence the proper place for that, with government responsible for enforcing regulation of the market. In fact, you have the same regulatory tools available in control and privatized states: those are controls on price and controls on availability. Open market states have control over excise tax rates, as well as the number and location of liquor licenses. It’s that regulatory function that is the critical aspect of “control”, not whether the clerk behind the counter is a public employee or not.

Check back here for more in the coming days and weeks on Washington State's privatization rollout.

UPDATE: Hot off the presses, the state Supreme Court has just issued a ruling upholding the constitutionality of Initiatve 1183, so the full conversion to private liquor sales in Washington State will take place at midnight.

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

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

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

In September 2011, the ODRC announced the results of a groundbreaking procurement that will see the state raise $72 million from the sale of one state prison to a private operator—the first sale of its kind in the nation—and two others turned over to private management, for an estimated $13 million in annualized cost savings. One additional facility formerly under private sector operation was also brought back under in-house operation.

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

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

Here's an excerpt:

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

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

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

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

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

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

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

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

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

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

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

Zachary K. Johnson of the Record Staff reports:

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

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

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

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

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

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

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

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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.

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Private Sector's Increasing Role in Infrastructure Investment

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

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

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

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

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

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

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

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

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

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

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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:

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

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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

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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:

State Tax Collection in 2011 by Category

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.

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