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Policymakers Turn to Privatization Amid Prolonged Government Fiscal Crises

Privatization, public-private partnerships increasingly prominent in fiscal policy debates

Leonard Gilroy
August 6, 2009

Governments at all levels are facing severe budget deficits and prolonged fiscal crises amid the national economic recession. With the federal government facing a record $1 trillion deficit and at least 44 states facing a cumulative $281 billion in budget deficits through 2011, privatization and public-private partnerships have become increasingly prominent in fiscal policy debates and will remain so over the coming year as policymakers attempt to reduce the price of government in response to ongoing budget woes.

Now in its 23rd year of publication, Reason Foundation's Annual Privatization Report is the world's longest-running and most comprehensive examination of privatization news, developments and trends. The 2009 report finds politicians looking for solutions to growing deficits. Even seemingly privatization-resistant states like California, New York, Massachusetts and New Jersey are now turning to the private sector to help solve major fiscal and capital investment challenges.

The report's federal government section forecasts a bleak outlook for privatization and competitive sourcing under the Obama administration because the current Congress, controlled by Democrats, has been openly hostile to many competition-based initiatives. There are some highlights at the federal level, such as NASA's planned partial privatization of the manned space program, which will use private companies to design, build, and launch manned spacecraft while NASA finishes its own fleet to replace the Space Shuttle. Also, the highly successful military housing privatization initiative—which is modernizing and improving the quality of hundreds of thousands of military housing units nationwide—has spawned a new initiative to privatize on-post lodging for soldiers at Army installations.

In the state government section of the Annual Privatization Report, we profile the increasingly dire fiscal conditions in the states and offer a comprehensive review of the latest state privatization action. Due to deficits and falling tax revenues, policymakers’ interest in state privatization and government efficiency boards is demonstrably on the rise, and advisory commissions on privately-financed infrastructure have been established in California and other states. In Louisiana, the new Commission on Streamlining Government (CSG) is exploring ways to reduce the cost of state government through downsizing, streamlining and privatization to address a looming budget crisis. In other highlights, New Jersey enacted a law with overwhelming bipartisan support that privatizes the cleanup of nearly 20,000 contaminated properties in the state, while Illinois policymakers passed a partial privatization of the Illinois Lottery to help fund a massive public works bill.

At the local level, we profile Chicago's groundbreaking—but controversial—$1.15 billion parking meter system lease. Los Angeles, Pittsburgh and other cities are closely monitoring Chicago's situation as they contemplate similar parking meter initiatives to generate municipal revenues in the economic downturn. We also review Georgia's fifth new contract city, Dunwoody, which followed the lead of neighboring Sandy Springs by incorporating under a privatized city government model in which contractors provide nearly all non-safety-related services. There are also a number of privatization initiatives proposed or announced in Los Angeles, Indianapolis and numerous other cities.

The Annual Privatization Report also provides a comprehensive overview of domestic and international developments in air and surface transportation, including a wide-ranging overview of the current state of the infrastructure finance market, a review of the latest in highway and airport privatization, and a review of the latest in air traffic control reform and aviation security.

The report also examines four emerging issues attracting significant attention in policy circles. First, we offer a summary of the federal bailouts and stimulus spending to date, which currently totals a staggering $12.9 trillion spent since early 2008. We also review efforts that expand and modernize port infrastructure through public-private partnerships.

The report also reviews the latest developments in the fields of private corrections and mental health services. We review Arizona's groundbreaking prison lease proposals, a new Vanderbilt University study finding private prisons reduce state corrections costs, the looming battle to protect private prison operators' proprietary rights, and numerous other privatization developments in domestic and international corrections.

This week, the Associated Press reported: "Tax receipts are on pace to drop 18 percent this year, the biggest single-year decline since the Great Depression, while the federal deficit balloons to a record $1.8 trillion."

The federal deficit is astronomical. But states are also swimming in red ink and local governments are out of cash. Taxpayers have been hit hard by the recession and cannot be expected to bail out big spending politicians. To deal with today's economic realities, political leaders need to seek out innovative public-private partnerships and tap the efficiencies in the private sector. The Annual Privatization Report details hundreds of ways to move towards better, cheaper government.

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


Leonard Gilroy is Director of Government Reform


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