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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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Pew Finds States Barely Evaluate Tax Incentive Programs

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

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

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

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

Ultimately, the report finds:

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

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

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

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

Evidence Counts Infographic, Pew Center on the States

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

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ALEC Releases 2012 Rich States, Poor States Report

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

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

From the executive summary:

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

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

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

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

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

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

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

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

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

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

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California Issues RFP for Private Operation of 5 State Parks

Posted on March 20, 2012, 1:28pm | Leonard Gilroy

For years, Reason Foundation has recommended that cash-strapped states consider tapping the private sector to take over operations of state parks as a means to lower costs and rescue parks threatened with closure in a difficult budget environment. Both the U.S. Forest Service (USFS) and BC Parks (British Columbia) have long pioneered the use of public-private partnerships (PPPs) for park operations, but states have been slow to follow their lead…until now, that is.

California State Parks (CSP) has issued a new request for proposals (RFP) seeking a five-year concession contract (or contracts) to operate campground and day use recreational areas at five park units in the Central Valley (Turlock Lake SRA, McConnell SRA, George J. Hatfield SRA, Woodson Bridge SRA, and Brannan Island SRA). This is the first serious and robust parks PPP procurement of its kind at the state level. The RFP is here, and CSP's sample contract is here. Bidder responses are due on May 1.

The contract would be structured as a concession, a commercial lease through which the state would retain ownership and control over the parks while paying the private operator nothing to operate them. Instead, the private operator would be allowed to retain the user fee revenues (e.g., gate entry fees, camping fees, etc.), in return for an obligation to pay a set percentage back to the state annually as a form of rent. CSP has set a minimum annual rent level for each park that bidders must exceed in their proposals. Bidders can submit proposals for individual parks, but the procurement is designed to give maximum weight to those proposals that cover all five parks. In fact, the parks in question appear to be a mix of revenue generating and revenue losing parks (once operating costs are factored in), so bundling all of them together is likely to be an attractive option to bidders to maximize their ability to mitigate risks.

Up to now, states have only tinkered with this management approach—with more talk than action, generally speaking—so California's procurement represents a paradigm shift in state parks management, albeit a well proven one. The "whole park concession" model being pursued in California is the same PPP concession model used by the USFS for the operation of hundreds of their fee-based recreation areas across the country for more than 25 years now. I routinely visit and camp at concessionaire-operated USFS recreation areas throughout Arizona—there are dozens in that state alone—and can attest to top quality operations and service, far higher than at the state-run parks nearby. In fact, if it weren't for a different logo on camp hosts' shirts, one might never even realize that the parks were not operated by the USFS directly. California also has dozens of USFS "whole park concession" contracts today too, so park users can go see for themselves that there's nothing to fear—and everything to gain—through shifting to PPPs.

See for yourself in this October 2010 Reason.tv video we shot at privately operated USFS recreation areas in the Sedona area. The video recommends concession management as an alternative to the misguided car tax for parks (Prop 21) that failed at the polls in California in November 2010. For more details on how the parks PPP model works, see these other Reason Foundation highlights:

And last week, the Franklin Center's Steve Greenhut penned an excellent Reason.com article on the potential for private operation of state parks in California.

But don't just take our word for it. The California Legislative Analyst's Office (LAO) released a report earlier this month that recommended PPPs for park operations:

Our research finds that the USFS, as well as many provinces in Canada, currently use private companies to operate and manage entire public parks and recreation areas. Outcomes for these different arrangements vary, but the reported benefits generally include the flexibility to easily reduce or increase staffing levels and lower operating costs from the introduction of competitive bidding. Lower costs were particularly noticeable if several parks in a geographic area were packaged as a single operation, allowing for economies of scale.

According to the provincial park system of British Columbia (BC Parks), bundling a mix of different parks (low–revenue–generating parks and high–revenue–generating parks) helps to attract potential bidders, since it is unlikely that bidders would otherwise elect to operate low–revenue–generating parks. The BC Parks also makes payments to most of their private operators to cover costs that are not recouped by park visitor fees. Even with these payments, BC Parks considers its operations model a success, because the payments, on balance, are less than the full cost of operating the parks.

Another advantage of using private companies to operate the parks is that they generally can procure new equipment and implement new projects more quickly than the state. In addition, privately operated parks also could assist DPR with its cash flow needs by assuming some of the risks associated with operational costs (including unpredictable user demand and fee revenue). Currently, if revenues from park fees are less than projected, the department must cut its operating costs during the fiscal year to make up for this loss in revenues. If private companies operated some of the parks, they could potentially take on this risk, as well as risks resulting from reduced visitor demand and unexpected maintenance costs.

The new RFP is an extremely positive development for park enthusiasts and users in California and elsewhere. For Californians, these parks would otherwise be slated for closure, so the PPP approach offers a lifeline to not only keep them open for public enjoyment, but to do so on a sustainable basis. By shifting revenue risk to the concessionaire, the state would take these parks out of the vicious budget loop that currently has dozens of parks slated for closure. It may even offer an opportunity to start hacking away at the whopping $1.5 billion in deferred maintenance throughout the California parks system (see Figure 5 in the LAO report).

For those outside of the Golden State, CSP is closely watched by parks administrators in other states, and innovative moves by the market leader would set a strong example likely to be replicated in many other states where parks are threatened. According to a recent Huffington Post article:

"We've gotten some pushback, but people are more and more coming to the realization that our budget has serious problems," Roy Stearns, deputy director of the California Department of Parks and Recreation, told HuffPost. "There are private companies in the Parks and Rec business that do it well. People shouldn’t see private enterprise as a dirty word. Our main goal is to get though these tough times."

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Privatizing Geospatial Activities to Make States More Efficient

Posted on March 6, 2012, 12:26pm | Leonard Gilroy

According to an association of private sector firms in the geospatial field, modern mapping technologies can make state government more efficient and present an opportunity to put a robust private sector market to work in the public interest.

In a letter to each of the 50 governors, the Management Association for Private Photogrammetric Surveyors (MAPPS) presents a checklist of issues relevant to the private geospatial business community that states should consider when developing and implementing reform initiatives. In short, the gist is that by reducing unfair government competition with private enterprise and enhancing a state's utilization of geospatial technologies, government can be more efficient.

For those unfamiliar with what "geospatial technology" means, think "things like Google Maps" that blend maps, data and imagery, generally within geographic information systems (GIS) that over the last two decades have become ubiquitous in government, industry and consumer markets. In a government context, GIS provides officials more complete information and better analytic tools to make crucial decisions—e.g., where tax revenues are generated, where infrastructure investment is needed, and how and where to spend, maintain or conserve resources—faster and more accurately.

The geospatial market has been identified by the U.S. Department of Labor as one of the fastest growing workforces in the country. The geospatial profession is a practice that uses geographic information as a base, but layers and integrates includes other data to provide faster, more efficient and accurate solutions to a plethora of issues. Geospatial applications offer a visual perspective to clients, users and consumers that decades ago was only previously available to a limited market.

And the role that geospatial information plays in our economy is subtle, but profound. The federal National Geospatial Advisory Committee estimates that up to 90% of government information has a geospatial information component and as much as 80% of the information managed by business is connected to a specific location (see here, here and here). Add in things like GPS and location-based services via smartphone apps, and it becomes clear how widespread the use of geospatial tools really is in modern society.

But as is all too common in government, when public officials began deploying GIS systems in earnest in the 1990s and faced the "make or buy" decision, in many jurisdictions the default answer was "make." So instead of partnering with engineering firms and other technical specialists that already provide mapping and other geospatial services widely in the private sector, they opted for the riskier and often costlier route of building in-house systems staffed by government employees.

This failure to apply the "Yellow Pages test"—e.g., if one can flip open a Yellow Pages and find a company providing a service or activity currently being performed by government, then that service is not "inherently governmental" and could be bid out—is no small concern to John Palatiello, executive director of MAPPS (and occasional Reason Foundation author). In an email, he noted:

"With a number of reform-minded governors beginning to implement changes to improve the operation of their state governments, lower costs, increase productivity, reduce the size of government, balance the budget and create private sector jobs, MAPPS believes the increasing use of geospatial technologies should be an opportunity for free market growth, not competition and duplication by government."

We've highlighted government competition with private geospatial firms before at Reason Foundation, along with the benefits of privatization. For example, see my 2006 feature on government competition with private mapping firms (see page 8), or this 2004 article noting that state transportation agencies have used federal and state highway funds to build in-house capabilities in surveying, mapping, engineering and planning rather than contract to the private sector (see page 14). Also, a 2000 Reason study found that outsourcing engineering, surveying, mapping and other infrastructure-related services can bring several benefits, including cost-effectiveness, improved service delivery, innovation, access to specialized expertise and accommodating fluctuations in peak demand more efficiently than traditional public sector efforts.

Returning to the main story, MAPPS recommends six specific initiatives that Governors should consider:

  1. Conduct a review of each state agency to determine whether geospatial activities are conducted with state employees that could and should be contracted to the private sector, with particular attention to the state's department of transportation.
  2. Create a current, accurate GIS-based inventory of all state owned land so determinations can be made which land is surplus and can be disposed for tax-generating activities in private ownership. [for more, see Palatiello and Reason colleague Anthony Randazzo's how-to-guide on conducting real property inventories.]
  3. Establish a state GIS Coordination Council, with private sector participation and representation.
  4. End state prison industry performance of mapping and GIS services.
  5. Audit practices of state universities to assure they are not conducting mapping and geospatial services for hire with state and local agencies or other entities in unfair competition with the private sector.
  6. Conduct an assessment of state utilization of geospatial technologies to determine whether the most cost-effective and state-of-the art services and solutions are being provided to citizens.

Read more on these recommendations here. As in many other areas of government activity, by partnering with the private sector and maximizing the use of cutting edge technological tools in the geospatial arena, states have an opportunity to lower costs while improving the efficiency of services to taxpayers.

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Corrections Still Impacting FL Budget Debate

Posted on March 5, 2012, 11:13pm | Harris Kenny

The Bradenton Herald reports:

Racing against the clock, legislators labored Sunday to settle spending differences and agree on a $70 billion budget with five days left in the session. They made progress, but today will be another marathon day as lawmakers left some of the most contentious issues to the final hours…

Following questions by Democrats, lawmakers removed budget language that would have allowed the Department of Corrections to move money between budget categories “for outsourcing efforts.”

In the most divisive vote of the 2012 session, the Senate voted 21-19 to reject a proposed privatization of all prisons in 18 South Florida counties. Some anti-privatization lawmakers and lobbyists were on high alert for a possible last-minute maneuver to keep privatization alive, but it didn’t happen.

Republicans said they were not giving the prison system authority to expand privatization, and when Senate Democratic Leader Nan Rich of Weston asked why the language was needed, Republicans quickly eliminate it.

“The budget is really pretty thin on cash,” said Senate Budget Chairman JD Alexander, R-Lake Wales. “I don’t think anybody’s quite satisfied, but I think we’re making good progress on a budget that will work for Florida.”

While the 18-county effort has garnered all the headlines, the state Department of Corrections is currently engaged in a less publicized reform effort to partner with the private sector to improve healthcare delivery within the state’s 100,000-inmate system. As I explained last week in a reason.org commentary entitled, “Florida Correctional Healthcare Reform in Jeopardy”:

The appeal of the legislature’s correctional healthcare reform effort is simple: private companies that compete to provide medical and mental health services to inmates can save the state money, provide high quality care, and give policymakers more accurate understanding of what it costs to run the state’s correctional system. In other words, competition disrupts an otherwise stagnant bureaucracy to find better ways to do things.

However like the aforementioned 18-county program, this innovative approach to correctional healthcare service delivery is facing legal challenges after the Florida Nurses Association filed a lawsuit in Leon County Circuit Court hoping to stop reform. The critics are ultimately on the wrong side of this issue. As I explain in the piece:

Government officials around the world are partnering with the private sector because it works. By abandoning the single-provider government service model, and embracing competition, policymakers have witnessed improvements in both cost savings and quality of service. Indiana, for example, has saved tens of millions of dollars in correctional healthcare costs through privatization, and corrections officials there have used privatization to lower food service costs by nearly one third.

The piece concludes:

Improving Florida’s correctional system is a daunting challenge and no one action can accomplish this goal. However, policymakers have already taken the first step by encouraging a culture of reform. Allowing private companies to partner in providing correctional healthcare is a common sense solution that’s as symbolically significant as it is substantive. The state Department of Corrections is exploring sensible new ways of doing the public’s work, something that should be encouraged, not stifled.

Read the full commentary available online here. For more of Reason’s work on corrections in Florida see here, here and here.

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In Nebraska Child Welfare Reform Should Focus on Removing Fewer Children not Starting New State Agencies

Posted on February 9, 2012, 12:43pm | Lisa Snell

The Platte Institute released my new policy study on the future of child welfare reform in Nebraska, specifically analyzing the effects of privatization and how it can be improved in the future.

Nebraska Legislature's Health and Human Services Committee put out a report advocating returning casework to the state and creating a new state agency. However, the state has not proved to be successful at handling child welfare. The Nebraska Foster Care Review Board 2010 Annual Report-which analyzes data through June 2011-showed that both the state and lead agencies had similarly negative outcomes for kids. One indicator showed that more than half of all children in out-of-home care had four or more state DHHS workers assigned to manage their cases during their time in the system, up from 35 percent in 2008. In those areas of the state where reform has contracted case management to private agencies, only 21 percent of children had four or more staff assigned to their cases. The state's negative outcome for this indicator is nearly double the lead agencies and impacts a much larger number of children.[5] Additionally, in a survey to identify the "level of satisfaction" with the system felt by biological and foster parents, lead agencies had a better score than the state in all but two of the eleven areas in the survey.[6]

With all the investment in privatization, returning services to the state would be wasteful and counterproductive. Instead of focusing on yet another governance or structural change, policymakers must focus on the inherent barriers that make both the state and the private contractors unsuccessful at meeting the goal of rightsizing child welfare. Even if the state moves forward with a governance change, they would still be forced to deal with these same structural issues.  

The legislature should focus their efforts on enabling the recommendations that are most connected to outcomes for children, including immediately seeking a federal waiver to enable the financing of these changes with flexible federal funding. In addition, financing of child welfare must be realigned toward the goal of front-end, cost-effective services like prevention, early intervention, and in-home services, which reduce the trauma of out-of-home care for children which should be a last resort.

It is possible to improve child welfare in Nebraska, but it can only be done if the legislature focuses on the real structural problems, and not simply governance issues.

 

The Omaha News looks at my study here. 

The entire study may be viewed here (.pdf).

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New at Reason: Maryland Announces $456m PPP to Redevelop and Operate I-95 Travel Plazas

Posted on January 27, 2012, 2:16pm | Leonard Gilroy

In my new Reason.org article today, I explore Maryland's newly announced public-private partnership (PPP) for the redevelopment and operation of two I-95 travel plazas. Here's a snippet:

Earlier this week, the Maryland Transportation Authority (MDTA) announced that it had approved a 35-year public-private partnership (PPP) for the redevelopment and operation of two I-95 travel plazas. A consortium led by the Areas USA—a domestic subsidiary of the Spanish firm Grupo Areas SA, a major food concessionaire in European and Latin American airports, toll plazas and the like that is currently engaged in similar concessions across the U.S.—will finance the $56 million redevelopment of the state's Maryland House and Chesapeake House travel plazas along Interstate 95, and upon completion will operate them for 35 years, sharing an estimated $400 million in revenues with the state over that period.

[...] The deal looks like a win-win for the state, taxpayers and private enterprise:

• The state will benefit from the replacement of two aging travel plazas without having to spend public dollars to do so, and it will retain ownership and control of these assets while benefitting from professional management by a private operator who knows this business. Running travel plaza businesses is hardly a core competency of government and is a better fit for private firms who do this sort of thing for a living.

• The state—and ultimately taxpayers—will benefit from a revenue sharing plan from day 1 that is expected to bring hundreds of millions to state coffers over the life of the deal. For the privilege of being allowed to operate these plazas, the concessionaire is going to share a 9-15% cut of its various revenue streams every year, with the state's share increasing as revenues increase. In short, the higher the concessionaire's revenues, the higher the state's share. It's not dissimilar from the way lodging concessions in national parks like Yosemite and the Grand Canyon work, as well as many other types of commercial concessions associated with public assets.

• The state is sending a strong signal to the PPP market that it is open for business and that there is a political commitment to see initiatives like this through to completion. Interestingly, the MDTA cancelled an earlier procurement for this project last year after vendors offered a tepid response to the original solicitation in late 2010, which was so overly prescriptive that the request for proposals itself totaled over 700 pages. Instead of abandoning the concept, MDTA did the sensible thing by reevaluating and streamlining its procurement approach and using a lesson learned from the first attempt to create a workable, attractive project when it was rebooted.

For more details and other thoughts on this initiative, read the whole article here. And be sure to visit our transportation PPP research archive here for more of Reason Foundation's long-running work on this valuable concept.

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California’s Employment Dysfunction

Posted on January 23, 2012, 4:54pm | Harris Kenny

The Associated Press reports:

California’s unemployment dipped slightly in December to 11.1 percent, down two-tenths of a percent from the previous month. 

Nonfarm payroll jobs increased by 10,700 last month, for a total gain of 240,300 jobs in 2011…  

California remains above the national jobless rate of 8.5 percent. 

California’s unemployment rate was near 12 percent for months and has been above 11 percent since 2009. 

The state’s rate fell to 11.3 percent in November, the lowest since May 2009.

Given California’s sustained period of high unemployment, and its reputation for unusually poor governance, marginal improvements like this offer little consolation to its residents. However, the Bay Area Council Economic Institute recently published a report that offers substantive solutions for the Golden State that show another economy is possible if policymakers are willing to partner with the private sector.

The full report, entitled Accelerating Job Creation in California Through Infrastructure Investment: Opportunities for Infrastructure Asset Formation and Job Creation Using Public-Private Partnership Procurement Methods, is available online here.

The report is a continuation of the Bay Area Council Economic Institute’s five-year focus on identifying global infrastructure best practices and applying them to California with respect to the unique environment, challenges, and opportunities there. The report specifically seeks to focus on leveraging infrastructure asset formation to stimulate near- and long-term job growth and maximize productivity in infrastructure assets.

This post does not constitute a wholesale endorsement of the report, however there are several vitally important takeaways:

  • “As California confronts a sustained budget crisis and high unemployment, the quality and state of repair of its infrastructure does not correspond to its population density or the size of its economy.” (p. 5)
  • “In 2006, the Bay Area Council Economic Institute calculated that California has an unfunded infrastructure shortfall of between $527 billion and $737 billion. Consistent with that finding, the Nicholas Berggruen Institute puts the state’s infrastructure deficit at $765 billion.” (p. 5-6)
  • “Calculations by the Bay Area Council Economic Institute for construction of new non-residential structures in California indicate that  $1 billion in infrastructure investment creates approximately 13,468 jobs. This suggests the strong potential of infrastructure investment as a vehicle for job creation in the state. Infrastructure investment of between $250 and $750 billion could create an estimated 3.4 million to 10.1 million jobs.” (p. 6)
  • “California does not need to invent a new concept for infrastructure investment to attain the results described above. There are two recent projects in California that illustrate the benefits of the (public-private partnership) approach: the Long Beach Courthouse sponsored by the Judicial Council of California Administrative Office of the Courts, and the Presidio Parkway sponsored by the California Department of Transportation.” (p. 10)
  • “… California’s infrastructure procurement methods and processes have not been reviewed or modernized in decades. SB 4 (2009) opened the door for the expanded use of private capital and (public-private partnership) methods for state transportation projects, but it did not create institutional mechanisms that would firmly embed alternative procurement in the state’s decision-making processes, nor did it promote investment in other important infrastructure. While California was once a world leader in infrastructure asset formation, the absence of modernization and innovation in recent times leaves it far behind the global best practice standard of performance.” (p. 12)

The authors go on to list nine actionable prescriptions for state policymakers: 

  1. The administration should recognize that the state must be open to alternative methods for infrastructure delivery, and the Governor should endorse P3 as an important tool in California’s strategy to rebuild infrastructure and create jobs... (p. 17);
  2. Create a comprehensive infrastructure plan for California... (p.17);
  3. Create an Infrastructure Procurement Center of Expertise... (p. 18);
  4. Leverage Existing Programs and Capacity... (p. 19); 
  5. Establish a public-private sector comparator process... (p. 19);
  6. Develop an Availability Payment Standard for California... (p.19)
  7. Develop a Labor Protection Standard... (p. 20);
  8. Adopt an Infrastructure Life-cycle Planning and Budgeting Process... (p. 20); and
  9. Reform the California Environmental Quality Act... (p. 20).

These sorts of common sense reform initiatives are increasingly common in the U.S. and around the world, and it’s time for California policymakers join the party. For more on this topic, explore Reason Foundation’s Highways Toll Roads and Public-Private Partnerships Research Archive and California Research Archive.

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PA Lawmakers Should Encourage Prison Health Competition, Not Ban It

Posted on January 20, 2012, 1:03pm | Harris Kenny

States across the U.S. continue to face budget woes. The latest budget estimates from the Center on Budget and Policy Priorities show 29 states are projected to have, or have addressed, budget deficits totaling $44 billion in FY 2013. However as my colleague Anthony Randazzo and I explained last month, long-range U.S. Census Bureau data suggests state and local governments have a spending problem – not a revenue problem. 

Pennsylvania fits all too comfortably within this narrative as its lawmakers are currently grappling with a $500 million budget deficit for FY 2013. My colleague Leonard Gilroy and I explain in our latest commentary entitled Lawmakers Should Encourage Prison Health Competition, Not Ban It:

(T)he last thing fiscally responsible policymakers should be doing is protecting sacred cows in government. Unfortunately, those trying to advance legislation to protect the jobs of Commonwealth prison nurses are attempting just that.

The legislation in question is House Bill 1985, which would prevent state funds appropriated to the Department of Corrections from being used to privatizing prison nursing services. There’s one glaring problem though: the state already partners with a range of private sector correctional healthcare professionals, including: physicians, mid-level providers, and nurses in some facilities. 

The bill is a reactionary attempt to stifle a request for proposals (RFP) issued by the Department of Corrections seeking two bids for comparative purposes, as we explain in the piece:

(O)ne that would maintain the current scope of outsourced services, and another that would expand the scope to include additional nursing positions. In essence, the corrections department is testing the market to see whether they should stay on their current path or if they can deliver more value to taxpayers by including more nurses.

Ultimately, the Pennsylvania Department of Corrections is doing their due diligence in considering every way to deliver high quality healthcare to inmates at an affordable cost to taxpayers. At a time of ongoing budget woes one would think they’d receive praise, not prying, from state lawmakers. For more, read the full piece available online here.

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University of Kentucky Smart to Explore Private Sector for New Campus Housing

Posted on December 15, 2011, 10:50am | Harris Kenny and Leonard Gilroy

As my colleague Leonard Gilroy and I explain today in our Reason.org commentary, University of Kentucky Smart to Explore Private Sector for New Campus Housing, ongoing state budget deficits and challenges are putting pressure on state university systems and prompting them to explore ways to cut costs. Higher education officials are desperately seeking ways to keep services, maintain facilities and find less costly and more efficient ways to build and modernize the dorms, academic buildings and other capital intensive facilities needed.

To do this, some are turning to public-private partnerships (PPPs), arrangements in which public entities contract with private sector firms for the financing, design, construction, operation and/or maintenance of public assets. The University of Kentucky (UK) may become the latest university to embrace public-private partnerships. Yesterday, the university announced that UK President Eli Capilouto told its board of trustees the school would begin negotiations with a Memphis-based company to potentially upgrade and expand over 9,000 residence hall beds over the next decade.

Other noteworthy universities that have explored this approach to student housing include:

  • Florida Atlantic University;
  • University of California Davis;
  • University of Arizona; and
  • Montclair State University.

As we explain in the piece, there is a growing body of research that demonstrates the public-private partnership model makes sense. A 2007 Reason Foundation study, Privatizing University Housing, outlines the long-term land lease approach that is commonly used. Meanwhile a June 2010 white paper Bay Area Council Economic Institute found that PPPs can deliver 15-30 percent life-cycle cost savings for operations and maintenance.

For more, read the full piece available online here.

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States Struggling with Toxic Waste Should Follow NJ, MA Approach

Posted on December 6, 2011, 8:44pm | Harris Kenny

Jim Malewitz, staff writer at Stateline (a project of The Pew Center on the States), reports:

States across the country are trying to bear the burden left by what many people – from environmental health advocates to chemical manufacturers – have described as a gaping hole in federal law. The uneven nature of state regulation leaves virtually no one satisfied.

Advocates of change now hope the increased awareness in state legislatures will translate into a sense of urgency in Congress, as it considers the latest attempt to overhaul the 35-year-old and never-updated Toxic Chemicals Safety Act.

This burden can be separated into three separate issues: First, cleaning up sites already polluted with toxic waste; second, disciplining individuals, businesses, and government bodies responsible for pollution; and third, reforming existing regulation to prevent further pollution of government-owned property.

Fortunately state policymakers don’t have to wait for Congressional action to address the first issue of cleaning up sites already polluted with toxic waste. Over the last few years New Jersey and Massachusetts implemented innovative programs that essentially privatized cleanup of toxic waste sites.

As Reason Foundation reported in Annual Privatization Report 2009, in May 2009 New Jersey lawmakers enacted a bill with overwhelming bipartisan support that privatized the cleanup of nearly 20,000 contaminated properties in the state. The move overhauled the state’s Department of Environmental Protection’s (DEP) site remediation program, which failed to put a dent in cleaning up nearly 20,000 contaminated sites.

The law authorized polluters to hire licensed private consultants to clean up the contaminated properties and certify their safety. The law also set mandatory time frames for cleanups and subjects environmental consultants to high standards and strict oversight. In a related move, former Governor Jon Corzine signed an executive order requiring the DEP to increase its oversight at certain sensitive sites, including schools, daycare facilities, and playgrounds. These measures were modeled after similar programs enacted previously in Massachusetts.

As for disciplining individuals, businesses, and government bodies responsible for pollution and reforming existing regulation to prevent further pollution of government-owned property… State policymakers shouldn’t hold their breath waiting for the federal government. The collective government failure to protect the environment from toxic waste strengthens the argument that voluntary private conservation is the silver bullet to tragedy of the commons dilemmas like this.

For additional related work, visit Reason Foundation’s Environment Research and Commentary Archive.

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Surprise, Surprise, California Gov. Jerry Brown Calls for More Tax Increases

Posted on December 6, 2011, 6:07pm | Adam Summers

To the surprise of no one, California Gov. Jerry Brown unveiled his plan calling for more tax increases to address the state's structural deficit.  The proposal, for which signatures are now being gathered with a goal of placing a ballot measure before voters in the November 2012 election, includes a half-cent sales tax increase and an income tax rate increase of one to two percentage points for those earning at least $250,000 a year, and would remain in effect for five years. As the Los Angeles Times reports, the tax increases are estimated to cost up to $6.8 billion a year for the five-year period, or a total of $34 billion.

Taxpayers have just gotten over the last "temporary" tax increases imposed under then-Governor Arnold Schwarzenegger and now Brown is coming, hat in hand, for more "temporary" tax increases. If these tax increases were to go into effect, and politicians continue to ignore the significant changes that must be made to pare back a bloated and unsustainable state government, you can be sure that five years down the road the budget will still be in peril and taxpayers will be asked to pony up again for more "temporary" tax measures.

While a sales tax increase of a "half-cent," or 0.5%, as it is sometimes reported sound innocuous, those increases are raises in the tax rate. Thus, a "half-cent" sales tax increase on the state's base rate of 7.25% to 8.25% is actually an increase of 6.9% on the price of everything Californians buy that requires sales tax. (Most counties and cities add their own sales taxes to the base rate, so their sales taxes are even higher. The cities of Pico Rivera and South Gate in Los Angeles County, for example, hold the dubious distinction of having the highest sales tax rates in the state at 9.75%.) Similarly, the "1%" income tax increase on someone earning $250,000 a year, which raises the tax rate from 9.3% to 10.3%, translates to a tax hike of 10.8%, and the "2%" increase on someone earning at least $1 million a year, which raises the tax rate from 10.3% to 12.3%, translates to a 19.4% tax hike. That's hardly small potatoes, even for someone who is rather wealthy.

All these tax hikes will serve to do is keep the current dysfunctional system going a few more years. As Steven Greenhut of CalWatchdog.com notes in his interpretation of Gov. Brown's "Open Letter to the People of California" announcing the tax increase proposal,

Brown: The stark truth is that without new tax revenues, we will have no other choice but to make deeper and more damaging cuts to schools, universities, public safety and our courts.

Interpretation: Actually, we could reform state government by embracing educational choice, outsourcing, pension reform and other measures, but we don’t want to do that. Remember, the unions elected me and I am serving them as faithfully as possible.

[. . .]

These tax increases will be gone in an instant and I will soon be back asking for more money. The public safety money means protecting huge pay and benefit packages for union workers, not for actually improving the public’s safety. The public schools are substandard, but the teachers unions won’t let us get rid of bad teachers or improve them with market-based reform. Our only way out is to throw more good money after bad. We will be taxing millionaires more, and more of them will join the exodus out of the state. Of course, when I say millionaires, I don’t mean those many public employees who are retiring on the kind of pensions that only a millionaire could afford.

I ask you to join with me to keep our state from having to make reforms that would cause any inconvenience to public employees. We need to get the state back on track — of spending without concern for the future.

It is a sad commentary on the state of California politics that living within your means and doing more with what you've got are radical concepts. Simply applying a "Yellow Pages test" to state government would go a long way to providing the same services for cheaper. Simply put, if the state is doing something that can be found in the Yellow Pages, either it shouldn't be doing it in the first place or it should put those services out for competitive bid so that private-sector businesses may provide them more cheaply and efficiently. As Greenhut suggests, improving the state's woeful business climate by reducing taxes and eliminating arduous and unnecessary regulations, addressing union education monopolies, and implementing real public pension reform are also necessary fixes that have long been ignored. (See here for a number of other ways to reform state budgets and spending.)

California's fiscal troubles are the result of many years of overspending and budgetary/accounting gimmicks. The recent economic downturn certainly did not help matters, but it merely revealed the state's budgetary unsustainability, rather than caused it. We have been dealing with many of the same issues since long before the latest recession hit. Perhaps, after years of continued failure, it is time to try something besides the status quo tax-and-spend policies.

Related Research and Commentary:

» "How to Fix California"

» How California's Public Pension System Broke (and How to Fix It)

» Citizens' Budget 2003-05: A Ten-Point Plan to Balance the California Budget and Protect Quality-of-Life Priorities (sadly, this is as relevant today as when it was written years ago)

 

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Politics Rears Its Head on Ohio Tollroad Lease

Posted on October 10, 2011, 10:19pm | Samuel Staley

The Federal Highway Administration has recinded a grant to fund a study that would have, among other things, evaluated the potential for leasing the Ohio Turnpike to a private company. This is a good example of how the U.S. Department of Transportation has become increasingly politicized under the current Presidential Administration.

The retraction from federal transportation authorities came after several Ohio Congressmen and women from the northern part of the state as well as U.S. Senator Sherrod Brown sent a letter to U.S. Department of Transportation challenging the grant. Led by Congressman Tim Ryan, the letter claimed that the money was being used to "privatize" a state asset and questioned the idea that the turnpike should be sold after it was paid for by taxpayers. According to a press release reported in the Cleveland Plain Dealer (Oct. 7, 2011):

“I am absolutely opposed to the state of Ohio’s misguided attempt to misuse these federal funds for its radical plan to privatize the Ohio Turnpike," Ryan said in a press statement. "It’s disappointing that during this rush to privatize the turnpike, the state attempted to misuse these federal funds for a plan that could potentially cost drivers through significantly increased tolls, threaten the job security of over 1,000 Ohioans, and drive up costs for local governments through increased maintenance costs for local roads. Federal money should be used to create jobs, not eliminate them."

It's apparent from the press release, public statements and the letter that these elected officials are conciously manipulating public opinion for pure political gain. (See also the commentary from Tollroads News here.)

The "privatization" being discussed is hardly radical. In fact, it's standard policy in other parts of the world, including Europe, China, and India. In fact, the U.S. is a laggard in the use of this tool to finance and manage public assets. The state of Ohio is not considering a "sale" of a public asset, either; it's considering a long-term lease to a private company in what's called a concession with strict performance criteria that usually shifts risk off taxpayers. The allusion to 1,000 jobs being lost (err, "threatened") is a red herring. Even if jobs are reduced--and substantial evidence suggests the turnpike's payroll is bloated--hundreds of jobs will still be held by Ohioans. Moreover, Ohio Gov. Kasich has been clear in that he wants to use the revenues from the lease to fund infrastructure investments in other parts of the state (following the successful lead of Indiana's lease of the its tollroad by Gov. Mitch Daniels). So, these funds would in fact generate the jobs the Congressmen and women claim will be threatened or lost through other infrastructure projects.

Of course, we shouldn't be surprised. The White House has long abandoned its 2008 campaign promise of pursuing evidence-based public policy.

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Uncertainty Looms As California Corrections “Realignment” Plan Begins Saturday

Posted on September 26, 2011, 12:44pm | Harris Kenny

Tracey Kaplan of the San Jose Mercury News reports:

To trim its bulging prison population and cut costs, California is about to gamble on a strategy no other state has tried – unload the responsibility for punishing and rehabilitating thousands of nonviolent felons from the state prison system to local communities.

The state's new massive "realignment" plan – which begins Saturday – amounts to a dramatic retreat from California's costly, tough-on-crime, lock-'em-up approach. No matter how slowly the new strategy unfolds, it will ultimately put more low-level offenders on the streets sooner than they would be under the current rules, either because they are enrolled in rehabilitation programs outside the jail walls, or are serving shorter periods in jail or on post-release supervision.

"It's the biggest change in the criminal justice system in 35 years," since the state switched to imposing fixed-term sentences on most crimes, said Judge Phil Pennypacker, who presides over the criminal division of Santa Clara County Superior Court.

For those unfamiliar, this abrupt policy change is coming on the heels of the Supreme Court’s recent Brown v. Plata decision, which found California’s in-state publicly operated prisons are providing unconstitutional medical and mental health care to inmates. Notably, California’s thousands of inmates incarcerated in privately operated prisons were not included in this ruling. (For more on Brown v. Plata, see my previous post here.)

Many of the concerns over realignment first arose when enabling legislation, specifically California Assembly Bill 11-109, was signed in April. AB 109 allows for a felony offender to be punished “by imprisonment in a county jail for more than one year.” (For more on AB 109 see my previous post here). Kaplan continues:

With the startup of realignment just days away, judges, sheriffs, lawyers and probation chiefs throughout California have been frantically meeting to figure out the complex rules. Before long, nearly everyone in county jail will be eligible to get out after serving half their sentence if they behave; currently, jail inmates have to serve two-thirds. Parolees who comply with the conditions of their release also can earn their freedom sooner – in six months, rather than a year.

And sheriffs in some of the 32 counties with court-imposed caps on jail populations or overcrowded jails are likely to release more inmates early.

Though that's not a problem for most Bay Area counties, the lack of jail beds is particularly acute in parts of the Central Valley and Southern California, especially Los Angeles County, which collectively released more than 68,000 sentenced inmates in 2009 before they were due to be freed.

Next she highlights fears that early inmate release programs may lead to an increase in property crimes, reversing California’s recent plunge in crime rate down to 1960’s levels. At the same time, advocates for realignment argue a new approach may lead to lower recidivism as communities provide alternatives to incarceration. While the outcome is difficult to predict, funding remains uncertain too. Kaplan writes:

Counties were given state funds totaling $400 million this fiscal year to spend on whatever mix of incarceration, supervision and programs they choose. State finance analysts say realignment will save about $53 million in prison costs this fiscal year, $125 million next year and $338 million the year after, even as the counties' allocation rises to about $1 billion in 2013-14.

But even if counties had the capacity or the staff to supervise more inmates, the state is not giving them enough money to simply lock them up. Incarceration is an expensive option; in the Bay Area, jail costs about $77 a day, compared with up to $49 for electronic monitoring. Drug treatment costs a little more than jail – $88 a day for a 90-day residential program – but if it works, it saves taxpayers money in the long run.

Many counties complain the funding falls far short of covering the cost of alternative programs – and they worry the state could cut it even more as the budget crisis worsens. The governor's first attempt to get a constitutional amendment on the ballot guaranteeing future funding failed, but he vowed last week to get such an amendment on the November 2012 ballot – even if he has to launch an initiative campaign himself.

Finally, she concludes with revealing data from a recent Los Angeles Times and University of Southern California poll that found:

  • ”80 percent of voters support realignment, though it’s unclear whether they will agree to tax themselves to fund it or to designate a portion of the state’s general fund to cover the cost.
  • Nearly 70 percent even approve the early release of some low-level nonviolent offenders.
  • In a major shift, voters are fed up with prison spending… [Which] produces the second-highest recidivism rate in the country: 67.5 percent.”

The full article is a must-read and is available online here.

In a recent reason.org commentary entitled “Brown v. Plata Ruling Highlights Need for Reform (Not Tax Increases)” Adam Summers and I outline three recommendations for California policymakers:

  1. Pursue criminal sentencing reform.
  2. Make recidivism reduction a priority.
  3. Expand use of privately operated facilities.

The full reason.org commentary is available online here. For more, read Reason Foundation’s 2010 study entitled Public Private Partnerships for Corrections in California: Bridging the Gap Between Crisis and Reform.

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Building Puerto Rico's Successful Infrastructure PPP Program

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

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

Puerto Rico enacted Act No. 29 in 2009, authorizing government agencies to enter into public-private partnerships (PPPs) with private firms for the design, construction, financing, maintenance and/or operation of public facilities, with a set of priority projects that include toll roads, transit, energy, water/wastewater facilities, solid waste management and ports. The law also established a new Public Private Partnership Authority (PPPA), a new center of excellence within the Government Development Bank responsible for identifying, evaluating and selecting PPP projects and for monitoring and enforcing the terms of PPP contracts.

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

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

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

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

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

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

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

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

To continue reading, click here.

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Friday Privatization News Highlights (9/2/2011 edition)

Posted on September 2, 2011, 5:48pm | Leonard Gilroy

News articles on some of the more interesting developments on the privatization and public-private partnership (PPP) front over the last two weeks include:

Federal Government

  • "Contract winner must hire predecessor's employees, new rule says" (Federal Times): If we're looking for onerous and counterproductive rules and regulations to eliminate at the federal level, this new Labor Department rule would be a good place to start. Under the rule, any company that wins a federal services contract previously held by another company has to hire the old company's employees. Not only does this represent an unwarranted intrusion into companies' ability to make their own personnel decisions, but it could also drive up costs for the public sector as well (if companies are forced to hire more employees than they need, or are forced to hire less productive employees than they otherwise would). This idea appears to have been taken straight from Bad Procurement Policy 101.

State Government

  • "Ohio becomes 1st in nation to sell state prison to private company; 4 others not sold" (Washington Post): Yesterday, Ohio corrections officials announced the results of a large-scale procurement that will see the state raise $72 million from the sale of one state prison to a private operator and two others turned over to private management, for an estimated $13 million in total, annualized cost savings. More details from Bloomberg here.
  • "VDOT announces public-private partnership to maintain rest areas" (Land Line): This week, Virginia transportation officials announced a new PPP that will upgrade the state's 42 rest areas and welcome centers. The state is partnering with a vendor that will expand vending and advertising at the facilities and will pay the state $2 million per year for the privilege. The deal is structured to also give the state a revenue share based on percentage of total sales. According to Virginia Gov. Bob McDonnell, "As part of this innovative program, we see great opportunity to offset rest stop costs now and into the future. […] Partnering with the private sector will enable us to expand and improve the services that we offer visitors while saving taxpayer dollars." More here and here.
  • "Bill Looks to Require Districts to Seek Bids on Support Services" (Michigan Capitol Confidential): Our friends over at Michigan's Mackinac Center weigh in on the proposed House Bill 4306, which would require all Michigan school districts to solicit bids for school support services (e.g., food, transportation, custodial) and compare them to in-house costs. The bill does not mandate any actual privatization; it just requires a bidding process. The idea builds on the rapid expansion of non-instructional school service outsourcing in the state in recent years. According to Mackinac's latest privatization survey, 295 of the state's 550 districts (53.6%) are outsourcing some of their non-instructional services, up from 31 percent in 2001. For more details on the Mackinac survey, see here and here.
  • "Illinois approves privatization for new roads" (Land Line): Illinois has become the latest state to adopt enabling legislation providing the state broad statutory authority to pursue PPPs for new transportation projects. Unfortunately, they've opted to require legislative approval of all PPP projects, injecting a degree of political risk into the process that could potentially make some bidders wary of pursuing projects in Illinois.
  • "Bill would allow private groups to run state parks" (The Union of Grass Valley): A bill (AB 42) approved by the state assembly and currently under consideration by the California State Senate would allow the state to enter into PPPs with nonprofits to take over operations of state parks threatened by closure. This would certainly be a step forward, though legislators would be smart to expand this authority to include for-profit recreation management firms as well. The U.S. Forest Service already uses for-profit concessionaires to operate dozens of recreation areas throughout California today, and about half of their recreation sites nationally, so it's a proven model that works.
  • "Firm proposes public-private partnership to improve I-70 mountain corridor" (Denver Post): The global engineering/construction firm Parsons has submitted an unsolicited proposal to Colorado officials proposing a new PPP to rebuild the Interstate 70 mountain corridor using private financing. This is a high-traffic corridor with billions in identified needs and little by way of state funds to address them.
  • "Tri Rail privatization studied as way to add FEC commuter service" (South Florida Business Journal): Transit officials in Florida are reportedly considering privatization as a means to add commuter rail service along the Florida East Coast Railway in South Florida.

Local Government

  • "Parking deal netting city more meter money" (Indianapolis Business Journal): So far, so good with Indianapolis' parking meter privatization. After signing a 50-year concession with ACS last year for the management of its downtown parking meters, the decision already appears to be paying off for the city. The article reports that total meter revenues increased to $1.7 million in March-June quarter, up from $1.3 million during that same quarter in 2010. The concessionaire is sharing those revenues with the city, and the city's take rose to $498,273, a dramatic increase over the $108,265 it collected from the meters over that same time period last year when the meters were still an in-house operation. What's even more exciting is what's to come: ACS will soon be rolling out a mobile phone app that will allow users to feed their meters electronically. I'd imagine it will have other features beyond that that will make life a lot easier for system users. I would be nice to hear a mea culpa from the Chicken Littles who predicted post-privatization doom and gloom amid the pre-concession debates last year, but I'm not holding my breath.
  • "StarTran audit to look at privatizing all or part of bus service" (Lincoln Journal Star): Transit officials in Lincoln, Nebraska have hired a consultant to evaluate potential options for privatizing the city's public bus service as part of a larger transit management review.
  • "Santa Paula Water Recycling Facility Receives Prestigious 2011 Public-Private Partnership Award For Innovation" (Water Online): The National Council of Public-Private Partnerships has given an innovation award to Santa Paula, California's new water recycling plant. The facility, the first 100% privately funded water recycling facility in the country, was built for the city by PERC Water and Alinda Capital under a 30-year contract.
  • "City of Flint postpones leasing out public golf courses" (The Flint Journal): Flint officials have had to slow down their ongoing golf course privatization process in order to hammer out details with the various bidders selected to take over operations, including a public employee union.

For more on privatization, see Reason Foundation's privatization research archive.

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Los Angeles Times Supports State Parks PPPs

Posted on August 21, 2011, 11:59pm | Harris Kenny

This weekend the Los Angeles Times editorial board published a piece entitled "Keeping All State Parks Open," (available online here) supporting public-private partnerships (PPPs) to save California’s state parks. The piece identifies and endorses two existing successful policies that California State Parks Director Ruth Coleman is considering expanding:

  • Cause marketing agreements with private companies, which would allow targeted brand promotion without jeopardizing park aesthetic; and
  • Whole park concession agreements, which would allow the state to lease state park operation to a private non-profit organization, local government or for-profit company.

Both of these policies are having a positive impact on California’s state parks and serve as encouraging evidence that the 270-park system can be inoculated from painful budget cuts in Sacramento.

First, in the case of cause marketing, the Los Angeles Times cites the recent partnership between Coca-Cola and Stater Bros. The companies replanted trees in Cuyamaca Rancho State Park and Chino Hills State Park after both parks suffered devastating wildfires earlier this decade.

The supermarket chain promoted offers in which the purchase of $10 worth of Coca-Cola products would result in a donation of $1 to state parks. Customers were invited to donate an additional small sum at the store. Over three years, $2 million was raised. In exchange, very modest renditions of the companies' logos are included at the bottom of interpretive signs in the parks.

Next, it’s important to recognize that whole park concession agreements are different than service concession agreements. According to Parks Department spokesman Roy Stearns, there are over 190 park service concession contracts in California's state parks system providing lodging, retail and food services. Private companies also provide park service concessions in the crown jewels of the national park system, including Yosemite National Park, Tahoe National Forest, Sierra National Forest, San Bernardino National Forest and others.

However, the Los Angeles Times identifies the more robust form of concession: whole park concession agreements. I describe this model in an Orange County Register op-ed entitled “Don’t Close State Parks; Lease Them,” (available online here) published this past May:

Some facilities, like Tecopa Hot Springs County Park in Death Valley, operate under whole-park concession agreements, a remnant of California's once-innovative past where the state leased some parks to private companies.

Under these lease agreements, recreation companies manage and maintain the parks. The government can set any quality and maintenance standards it desires and hold the private company accountable to them with a performance-based contract.

This approach is currently being explored in Arizona, where state parks officials issued a RFI (Request For Information) asking private operators to provide “feedback and recommendations regarding the feasibility of transitioning or enhancing various operations at ASP with the private sector.”

Whole park concessions prioritize environmental conservation, ensure accountable public oversight and ease the fiscal constraints facing lawmakers across the U.S. The Los Angeles Times recognizes that cash-strapped Sacramento has no viable alternatives and concludes:

At a time of fiscal crisis, these outside agreements are a good deal. In fact, they’re the only deal. The closure of parks, especially, is a bad solution to the budget shortfall because it could very quickly cost the state far more money than it saves.

It's nice to fantasize that, if parks were left to themselves for a few years, nature would recover from routine human trampling. In truth, most of the parks would still be used, but only by people who don't respect "Keep Out" signs. Illegal off-roading, backcountry campfires and meth labs could cause devastating wildfires. Marijuana farms and other illicit activities could increase crime in surrounding communities.

Just as it is doing for outside operating agreements, the parks department should draw up strict guidelines for corporate partnerships to avoid logo creep. And then it should be praised for not just sitting by while parks close, but seeking out innovative ways to keep its natural gems accessible to the public. That's not as good as robust public support for parks, but it's the best California has at the moment.

They're right to be concerned over the negative impact of closing state parks. In fact, there are a myriad of problems that would arise if the 70 parks that have been proposed for closure are shut down, for more on this see my previous post here. For more on parks PPPs, watch the video below entitled “Prop 21: Why Californians Don’t Need A Car Tax to Save Their State Parks,” produced by reason.tv:

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Friday Privatization News Highlights (8/19/2011 edition)

Posted on August 19, 2011, 7:30pm | Leonard Gilroy

News articles on some of the more interesting developments on the privatization and public-private partnership (PPP) front over the last week include:

State Government

  • "Under threat of losing millions, state decides against using private workers for food assistance program" (The Capital Times): The federal government is turning the screws on a fledgling welfare eligibility privatization program in Wisconsin started under the previous administration, threatening to withhold millions in federal funds unless the state fires hundreds of contractors and replaces them with public sector employees. The USDA’s personnel demands would reduce the number of private contractors by approximately 40%, according to the article.
  • "New liquor-privatization measure, Initiative 1183, deserves a toast" (The Seattle Times): The Times editorial board raises a glass to Initiative 1183, a November 2011 ballot initiative that would get Washington State out of the liquor wholesale and retail business and, according to multiple estimates, would increase revenue to state and local governments.
  • "Omaha child-welfare cases privatized" (Omaha World-Herald): This article provides an update on Nebraska's ongoing efforts to privatize child welfare services. For some illustrative success stories in child welfare privatization, see the State Government Update in Reason Foundation's Annual Privatization Report 2010.

Local Government

  • "Los Angeles City Council Pursuing Zoo Privatization" (Reason.org): Last Friday afternoon, the Los Angeles City Council approved soliciting proposals from potential private operators of the L.A. Zoo. My colleague Harris Kenny's blog post on this initiative includes details and article links with more information.
  • "Los Angeles to hand over animal shelter to nonprofit group" (Los Angeles Times): This week, the Los Angeles City Council voted to move forward with a 3-year PPP with Best Friends Animal Society to take over operations of the Northeast Valley Animal Care Center in Mission Hills. The $19 million facility was built several years ago using public debt, but since then the city’s fiscal woes have prevented it from funding the operations of the currently-closed shelter. Notably, under the new PPP the city will not be contributing operating funds to the private operator (and estimated savings of over $3 million per year), and Best Friends has committed to making $1 million in improvements to the facility. More details in the L.A. Daily News here, and don’t miss the Times’ recent editorial here.
  • "Parks and Re-creation" (City Journal): Animal shelters and zoos are not the only city amenities that can be more effectively provided through nonprofit PPPs. This informative article by Laura Vanderkam offers an excellent overview of New York City’s pioneering and extensive use of PPPs to operate many of its urban parks, including famous landmarks like Central Park and Bryant Park that were almost literally collapsing under government operation three decades ago. Today, both parks are thriving after a conversion to nonprofit operation and are vibrant urban spaces people want to visit. Significantly, the city is contributing vastly less in public funding to these parks today than it used to—Central Park only receives about 15% of its operating funds from the city today, with the nonprofit conservancy operator generating the rest; Bryant Park is now 100% self-funded. This is the type of model that many cash-strapped cities today would be smart to explore to keep their parks open and thriving.
  • "Memphis officials ask Humane Society to evaluate animal shelter" (Memphis Commercial Appeal): Memphis, Tennessee officials plan to issue a request for proposals within the next month to solicit interest from nonprofits interested in potentially taking over operations of Memphis Animal Services. In parallel, they’ve reached an agreement with the Humane Society to conduct an evaluation of the current operations of the city’s animal shelter.
  • "City of Flint considering plan to lease out all public golf course operations" (The Flint Journal): Officials in Flint, Michigan are considering a proposal to spin off the operations of four public golf courses—two of which are currently closed and, taken collectively, all of which are operating at a loss in city hands. According to a follow up article here, a local AFSCME chapter is reportedly being considered to run two of the courses, with private sector operators being considered for the others.
  • "Hollywood considers privatizing water services" (South Florida Sun-Sentinel): Officials in Hollywood, Florida are doing some advance planning in the event that a September ballot measure fails and throws the city budget out of whack. The measure asks voters to approve a variety of pension reforms that the city was unable to get unions to agree to, and with approval uncertain, officials are considering a range of "Plan B" options to cut costs, ranging from employee pay cuts, layoffs, service cuts and the potential privatization of utilities services that include water, stormwater and wastewater services.

For more on privatization, see Reason Foundation's privatization research archive.

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Friday Privatization News Highlights (8/12/2011 edition)

Posted on August 12, 2011, 6:54pm | Leonard Gilroy

News articles on some of the more interesting developments on the privatization and public-private partnership (PPP) front over the last two weeks include:

International

  • "Taxpayers tell state they prefer private sector to foot bills for infrastructure" (The Australian): A new poll of over 1, 000 Australian citizens found that the global economic malaise appears to be increasing public support to tap private funds to deliver public infrastructure through PPPs. The poll found 69% support for PPPs, up over 20% from a similar poll in 2009. At the other end of the spectrum, only 14% supported raising taxes to fund infrastructure.

State Government

  • "Ohio seeks consultant bids for advice on turnpike sale" (Toledo Blade): This week, the Kasich administration launched the process of exploring a potential lease of the Ohio Turnpike by issuing a request for proposals seeking consulting advisers that would conduct an asset valuation analysis and assess the feasibility of a long-term Turnpike lease, relative to other "leveraging" options. More here from the Plain Dealer.
  • "Analysis: State could make $ from privatized booze measure" (Seattle Post Intelligencer): The Washington State Office of Financial Management (OFM) has released a fiscal impact statement for Initiative 1183, a November 2011 ballot measure that would privatize the state's monopoly on the sale and distribution of distilled spirits. The OFM report estimates an increase of $216-253 million to the state general fund over the next six fiscal years, as well as an increase to local government revenues of $186-227 million over that same period. The full OFM analysis is available here.
  • "State, feds hammer out Medicaid overhaul" (Miami Herald): This year, Florida policymakers moved to expand their 5-county Medicaid privatization program statewide, and they're currently negotiating an agreement with the Federal government on how implementation will proceed. For more information on this initiative (and the original pilot), see the Florida Agency for Health Care Administration's information archive here.
  • "Route 460 advances" (Suffolk News-Herald): The Virginia Department of Transportation recently issued a request for detailed proposals to build and operate a 75-year concession for a new 55-mile toll road to replace the aging Route 460 between Petersburg and Suffolk. Proposals are due by the first quarter of 2012 from three investor-operator consortia shortlisted in an earlier round of the procurement. Virginia plans to contribute up to $500 million in state funds toward construction in order to lower toll rates.
  • "Corbett: Prison Healthcare, State Park Services Could Be Privatized" (Capitol Ideas with John L. Micek): Pennsylvania Gov. Tom Corbett—who recently announced the upcoming formation of a state privatization task force—told reporters recently that while his administration has taken the privatization of the PA Turnpike and correctional facility operation off the table, it's open to considering potential privatization opportunities in state parks and correctional health care delivery.
  • "Hickenlooper gives old idea a new look: privatizing Pinnacol" (Denver Post): Though the idea has seen fits and starts in recent years—most recently having been rejected by legislators last year—Colorado Gov. John Hickenlooper is re-starting the conversation on privatizing Pinnacol Assurance, the state-run workers'-compensation insurance fund. The administration is in an exploratory phase, and no decisions have been made yet.

Local Government

  • "L.A. City Council to consider measure to privatize zoo management" (Los Angeles Times): Today, the L.A. city council will consider a measure that would authorize a procurement for a potential PPP to operate and manage the Los Angeles Zoo. At the same time, it would task city analysts with evaluating potential alternatives to privatization that would reduce city expenditures on the zoo. Be sure to also check out this L.A. Daily News editorial noting the potential benefits of privatization.
  • "City official proposes that group run shelter" (Los Angeles Daily News): Los Angeles City Administrative Officer Miguel Santana is proposing a PPP with a nonprofit animal society to take over operations of the city's Northeast Animal Care Center in Mission Hills. According to Santana, the move would save the city over $3 million annually. The nonprofit Best Friends Animal Society was selected based on the proposal it submitted in response to an earlier request for information issued by the City.
  • "Nonprofit will manage curb market" (Greensboro News & Record): The city council in Greensboro, North Carolina has voted 5-4 to proceed with a contract with a nonprofit to take over operations and management of the Greensboro Farmers’ Curb Market. Four bidders submitted proposals, and the selected vendor, Farmers’ Market Inc., was formed by a group of current market vendors, farmers and customers. More here from Yes! Weekly.
  • "Asheville considers leasing Municipal Golf Course" (Asheville Citizen-Times): City officials in Asheville, North Carolina are considering the potential privatization of the Asheville Municipal Golf Course, which has lost approximately $500,000 over the last three years and has seen declining play.

For more on privatization, see Reason Foundation's privatization research archive.

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Friday Privatization News Highlights (7/29/2011 edition)

Posted on July 29, 2011, 8:11am | Leonard Gilroy

News articles on some of the more interesting developments on the privatization and public-private partnership (PPP) front over the last week include:

Federal

  • "Postal Service eyes thousands of post offices for privatization" (Central Valley Business Times): The U.S. Postal Service announced this week that it was considering closing over 3,600 largely rural post offices (representing slightly over 10% of the total post offices nationally) and outsourcing some of their basic functions to local businesses. More here from The New York Times.
  • "Lawmakers examine proposals to reduce federal government's real estate holdings" (The Hill): While it certainly makes sense for the Federal government to reduce its real property holdings—it spends $20 billion annually to operate a whopping 1.2 million buildings—it's definitely presents a political challenge. This interesting read discusses a recent House Oversight and Government Reform Committee hearing in which Obama administration and Congressional Budget Office officials offered contrasting views on the potential costs and savings associated with the administration's asset divestiture plan.

State Government

  • "Jindal administration announces firms for Medicaid privatization" (Times-Picayune): In major state Medicaid privatization news, the Jindal administration announced this week that it has selected five firms to provide state-subsidized health insurance policies to over 800,000 state Medicaid patients in Louisiana. Under the plan, the state will transition Medicaid recipients into “coordinated care networks,” where the state will pay the private insurance companies to cover Medicaid patients, and the insurers will manage patient benefits and reimburse providers for services rendered. Each firm will operate statewide, and Medicaid recipients will be able to choose from the plans offered by the competing providers.
  • "Kasich touts Ohio Turnpike privatization while in Toledo" (Toledo Blade): Ohio Gov. John Kasich touted the potential benefits of a long-term lease of the Ohio Turnpike at a Toledo press conference this week. The recently passed state budget authorized the administration to pursue a Turnpike PPP, and Kasich told reporters that a deal could potentially bring billions to the state to invest in needed transportation infrastructure, along with a share of annual toll revenues over the life of the lease.
  • "Bidding begins to privatize prisons in South Florida" (Miami Herald): This week, the Florida Department of Corrections issued the solicitation for the state's large-scale, 18-county corrections privatization initiative, which was authorized in the budget passed earlier this year (see this recent commentary for more details). According to the Herald, state corrections secretary Edwin Buss is expecting "some of the most competitive bidding the country has ever seen for private prisons." For more on Secretary Buss's take on the ambitious initiative, see this recent NorthEscambia.com article.
  • "State seeks private partner for two I-95 travel plazas" (Baltimore Sun): The Maryland Transportation Authority is taking a mulligan in its attempt to replace two aging travel plazas on I-95 via a PPP, issuing a new request for proposals this week. The agency is revamping its approach after vendors offered a tepid response to the original solicitation last year, which was so overly prescriptive that the request for proposals itself totaled over 700 pages.
  • "Workers comp is on the right track" (Charleston Daily Mail): While not a news article, this editorial highlights the ongoing benefits of West Virginia’s 2006 privatization of its state-run workers compensation insurance monopoly. Since privatization and the onset of competition—over 170 companies compete to provide this insurance today, versus one in 2006—workers comp insurance rates have dropped by over 40% in West Virginia. For more on this initiative, see my 2010 my June 2010 post on Governing’s “Better, Faster, Cheaper” blog.

Local Government

  • "LA is one step closer to privatizing zoo" (Los Angeles Times): Yesterday, a Los Angeles city council committee unanimously approved a proposal to enter into a PPP for the operations and management of the Los Angeles Zoo...with a catch. Under pressure from labor, the committee also asked city staff to prepare an analysis of what in-house changes the city might do on its own to lower zoo costs and avoid privatization (presumably to be released before the full council vote). As I wrote last week, the overwhelming majority of accredited urban zoos nationally (over 70%, according to some estimates) have already shifted to a PPP model as a means to increase private fundraising and reduce or eliminate government subsidies.
  • "Osceola looks at privatizing libraries, security officers" (Orlando Sentinel): Osceola County, FL officials are considering the privatization of county library operations and some security functions. According to the article, the county manager estimates that outsourcing the operation of the county's six libraries would save approximately $12 million over five years—the system is currently running a $3 million annual deficit. For more on recent moves in library privatization, see Reason Foundation’s Annual Privatization Report 2010: Local Government Update.
  • "Privatization—and Pushback—Proceed in Santa Clarita" (American Libraries): Speaking of library privatization, this article takes a look at Santa Clarita, California's recent shift to private library management. I should note that this is a remarkably balanced article, given that it was published by the American Library Association, which has taken a firm position against privatization.
  • "Ramsey Board of Public Works rejects bids for purchase of water and sewer system" (NorthJersey.com): Officials in Ramsey, NJ have rejected three private bids received on the potential privatization of the borough's water and wastewater systems, as they came in lower than officials had anticipated.

For more on privatization, see Reason Foundation's privatization research archive.

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