Annual Privatization Report

Christie Administration Expanded Privatization Portfolio in New Jersey in 2011

Initiatives advanced in toll collection, road maintenance, racing facilities and more

New Jersey Gov. Chris Christie's administration continued to expand its portfolio of privatization initiatives in its second year of office as part of its broader government streamlining and reform agenda.

The administration’s push to lower the costs of state government through private competition began in earnest in 2010 with the creation of the New Jersey Privatization Task Force, an advisory body that issued over 40 privatization recommendations in a May 2010 report. These recommendations, if fully implemented, were estimated to realize cost savings and/or other benefits totaling over $210 million on an ongoing, annualized basis. Since then, the Christie administration has begun to advance some of the Task Force’s recommendations along with other opportunities identified by the administration (see Reason Foundation’s Annual Privatization Report 2010 for an overview of the administration’s 2010 initiatives and the Task Force report.)

Major current and recent privatization initiatives advanced in New Jersey include:

Highway Maintenance: In September 2011, the Department of the Treasury issued a request for proposals (RFP #12-X-22209) from private firms interested in providing privatized highway maintenance services for the state Department of Transportation (NJDOT) in a pilot program advancing one of the Privatization Task Force's recommendations. Under the initiative, the state could hire up to three firms under a three-year contract to provide a full range of highway maintenance services—including pothole repair, landscaping, snow removal and emergency response—in three regions of the state to compare the relative costs of public and private sector provision. According to the request for proposals:

In 2010, the governor’ s privatization task force issued a report that recommended NJDOT explore the idea of privatizing highway maintenance work. That recommendation has resulted in the specification contained herein. In order to fairly compare the cost of performing the work using state forces vs. contract forces, this specification was written to allow NJDOT to insert a contractor’s crew seamlessly in place of a DOT crew, performing the same functions with the same management flexibility that currently exists with state DOT crews. Such a contract will allow a level comparison between outsourced vs. in-house work.

The contract would include a variety of performance standards, including requirements that the vendor remove hazardous road kill and debris immediately upon notification, repair potholes within 48 business hours, and arrive on the location of emergencies within two hours. Bidder responses were due in mid-November 2011.

State Parks: In November 2011, Gov. Christie announced the release of a parks sustainability plan designed to improve the financial self-sufficiency of the state parks system and improve visitor services by partnering with private for-profit and nonprofit entities to expand revenue-producing amenities (e.g., food, boating) in the parks. Under the plan, the New Jersey Department of Environmental Protection (NJDEP) will continue to own, manage and operate the parks, and park entrance fees will increase (though some amenity-related fees may increase). In the near term, the plan aims to increase non-tax resources to $15 million by 2015 through an initial round of partnerships at some of the state’s largest parks, and in the longer term, the plan seeks to raise about two-thirds of the annual operating budget for the park system from alternate funding sources, reducing reliance on budgeted funds. Currently, the parks system generates just $8 million in fees and concessions, or 21% of the total $39 million parks operating cost.

The state has already begun taking steps to implement the plan. In March 2011, NJDEP announced a five-year concession contract with Linx Golf Management and H&L Golf Course Maintenance Co. to take over operations and management of the 18-hole Spring Meadow Golf Course in Monmouth County. Later in August, NJDEP issued a request for proposals for the private management and operation of two additional state-owned, 18-hole public courses. NJDEP also issued a request for proposals in September 2011 for the private operation and management of food service, catering and events services at Liberty State Park in Jersey City.

For more details on the parks sustainability plan and the procurements described above, see Part 11 (“Interest in State Parks Privatization on the Rise”) of Reason Foundation's Annual Privatization Report 2011: State Government.

Manual Toll Collection: The Christie administration is using privatization to achieve its goal of driving down the costs of manual toll collection on state-run toll highways operated by the New Jersey Turnpike Authority (NJTA) and South Jersey Transportation Authority (SJTA).

In November 2011, the SJTA’s board unanimously approved the privatization of manual toll collection on the Atlantic City Expressway, a move estimated to save the agency over $1 million per year. Four firms responded to an August 2011 request for proposals to provide toll collection services on the Expressway, and SJTA selected the Virginia-based Faneuil, Inc. as the winning bidder. The agency had selected the same firm in a similar procurement the previous year, but that privatization was ultimately dropped after SJTA officials negotiated a one-year package of concessions with the existing public sector toll collectors that lowered their pay scale.

The SJTA sees the privatization as a step toward the agency’s ultimate goal of eliminating manual toll collection altogether in favor of a transition to all-electronic tolling. In a November 2011 interview with the Press of Atlantic City, SJTA Executive Director Bart Mueller noted that, “[t]he toll collector is going the way of the elevator operator [...] This is the last step before we move to all-electronic tolling, hopefully within 24 months.”[1]

State Transportation Commissioner and NJTA Chairman James Simpson told state officials earlier in the year that the larger tolling agency—which operates the New Jersey Turnpike and Garden State Parkway—plans to move in a similar direction toward all-electronic tolling in the future. According to Simpson’s figures, it costs NJTA $100 million annually to collect $290 million in cash toll revenue; by contrast, it costs the agency $53 million per year to collect $670 million in electronic toll revenue.[2] “Manual toll collection is simply way too expensive. In the future, all electronic tolling technology, which is being implemented by tolling agencies around the country, will one day be implemented on the Authority’s roadways thereby replacing all of our toll collectors,” Simpson said.[3]

Like SJTA, the NJTA initiated a procurement to solicit private bids for manual toll collection on the agency’s tollways in early 2011, but in late April the agency abandoned privatization after negotiating significant concessions from two toll collector unions in a two-year agreement that included significant salary cuts and lower operational costs than bidders had proposed. According to the Press of Atlantic City, the concessions are expected to generate approximately $35 million in cost savings over the two-year agreement, after which the NJTA plans to transition to either private operation or all-electronic tolling.[4]

State-Run Horse Racing Facilities: The Christie administration has made significant progress toward its goal of putting the horse racing industry on a self-sustaining path without taxpayer and casino subsidies, selecting private sector operators for the Meadowlands Racetrack and Monmouth Park. On June 1, 2011, both racetracks were turned over to private sector operators that, under the terms of agreements in principle, assumed the costs to operate those facilities and took over responsibility for all simulcast wagering at the racetracks and the operation and future development of off-track wagering facilities. The New Jersey Sports & Exposition Authority (NJSEA) had previously operated the two facilities, which were losing an estimated $6–10 million per year each.

In December 2010, Gov. Christie announced an agreement with the Standardbred Breeders and Owners Association (SBOA) and partner Jeff Gural, a New York developer and racetrack operator, to take over operations of the Meadowlands Racetrack in a $1 per year, five-year lease. Under the agreement, there will be no ongoing subsidies for purses or racing operations. Gural also plans to invest more than $90 million in a new grandstand and an off-track wagering facility in Bayonne.

In April 2011, the NJSEA selected New York developer and casino owner Morris Bailey as the winning bidder for a five-year lease of Monmouth Park under similar terms. Under the agreement, Bailey also took over operations of the off-track wagering facility in Woodbridge and will work with Gural on the development of future wagering facilities.

At press time, formal leases had not been executed and were pending regulatory approval, but since June the private operators have already been working under memoranda of understanding with the state to operate the facilities until leases are finalized. Changes in state law have also been necessary to facilitate the transfer. For example, Gov. Christie signed legislation (A-3710) in August 2011 authorizing the operational takeover of horse racing from NJSEA by the private sector operators and authorizing the joint management of Monmouth Park and the Meadowlands Racetrack for a one-year transitional period.

“There are many beneficiaries,” Gov. Christie said of the privatization in a May 2011 press release. “We’re saving a New Jersey tradition with the continuation of live horse racing at the Meadowlands and Monmouth Park; we are saving and creating jobs; and we are helping to preserve New Jersey farmland and a way of life for many people, from horse farm owners and employees, to jockeys to racing enthusiasts.”

New Jersey Lottery: In early 2011, the New Jersey Department of the Treasury contracted with a consultant to assess the financial performance of the New Jersey Lottery and assess the desirability of privatizing its management.[5] At press time, the results of this evaluation were not yet available. A 2010 transition report recommended that the incoming administration consider privatizing lottery operations. According to the report, “The Lottery would benefit from privatization with operations conducted by private management contracted by the State to manage, staff, and operate the administration of the Lottery. [...] The committee believes a significant increase in gross and net revenues to the State will result from privatization.”[6]

Vehicle Fleet Ownership, Operation and Maintenance: Seeking to lower the state's vehicle fleet costs, the New Jersey Department of the Treasury issued a request for information (RFI) in 2011 soliciting private vendor responses on potential options and strategies for the ownership and maintenance of the state's Central Motor Pool and Department of Transportation passenger vehicle fleets, totaling approximately 6,500 vehicles. The Department of Transportation operates 12 maintenance facilities throughout the state to service its 450-vehicle passenger fleet (in addition to trucks and other equipment), while over 6,000 other passenger vehicles are serviced and repaired by the Central Motor Pool in its eight statewide facilities. The state specifically requested vendor feedback on a range of options that include leasing vehicles instead of purchasing them, selling existing fleet vehicles and having a private company own the vehicles that compose the state's passenger fleet, and outsourcing all or some vehicle maintenance and repair. At press time, the agency was evaluating RFI responses received at the end of October 2011, and the responses are likely to inform a future fleet services procurement.

Correctional Food Services Pilot Project: In November 2011, the New Jersey Department of the Treasury issued a request for proposals on behalf of the state Department of Corrections for a pilot project to provide correctional food service operations and management at Bayside State Prison and two satellite locations. Bidder responses are due in January 2012.

Child Support Payment/Receipt Processing: In October 2011, the New Jersey Department of the Treasury issued a request for proposals on behalf of the state Department of Human Services to solicit bids on a project that would develop, implement and transition the state from a partially privatized State Disbursement Unit (SDU)—a federally mandated, centralized location for the receipt and disbursement of child support—to a fully privatized SDU. The project is intended to complement and integrate with the state's new Web-based automated child support enforcement system, New Jersey Kids Deserve Support, which was designed to streamline business practices. New Jersey's current SDU services are partially privatized, covering receipt, payment processing, debit card maintenance, banking and limited customer services associated with those functions. The proposed privatization would incorporate additional services currently provided by various state agencies, including manual paper check and electronic disbursements, full banking disbursement operations, reconciliation, receipt adjustments and check voids/re-issues and other customer services. Bids are due in December 2011.

Montclair State University Housing PPP: In August 2011, Montclair State University announced the completion of The Heights, a new, state-of-the-art residential complex that is the first public- private partnership (PPP) completed under the 2010 New Jersey Economic Stimulus Act. The new $211 million complex was financed by tax-exempt bonds issued by Provident Resources Group—the owner-operator that developed, operates and maintains the complex under a long-term lease—under the auspices of the state's Economic Development Authority. “The State of New Jersey has not invested any direct capital funding in higher educational facilities in more than 25 years,” University President Susan Cole noted in an August press release. “Therefore, in order to grow and develop as a competitive university, we have had to find creative and cost-effective solutions to build new facilities and make capital improvements to existing structures.”

The title to the facility will transfer to the university in 40 years, unless bonds are paid off early, and until that transfer the operator is responsible for collecting rents and managing and maintaining the property in top condition. The new housing complex—which accommodates approximately 2,000 students and includes a 24,000-square-foot dining area—was built by the Alabama-based Capstone Development Corporation and the New Jersey-based Terminal Construction Corporation and opened in September 2011.

New Jersey Network: The privatization of the New Jersey Network—transitioning the 40-year-old, state-run broadcasting network to private, independent management—was completed in July 2011 when New York PBS affiliate WNET-TV launched its successor, NJTV. The Christie administration selected WNET the previous month to take over the state-run network as part of its initiative to end decades of taxpayer subsidies to public television broadcasting in the state while preserving New Jersey-specific programming. The new NJTV will blend stronger overall programming with enhanced state-centric programming, including a nightly news broadcast, live broadcasts of significant New Jersey political events, a new state-centered public affairs program and more.

“In the end, WNET presented the strongest, most complete plan that met my priorities for this process, most importantly the ability to deliver Jersey-centric programming, including a nightly news program, for the citizens of the Garden State and without the burden of taxpayer subsidy,” Gov. Christie noted in a June press release. “With the myriad resources and extraordinary track record of WNET, New Jerseyans can be confident that public broadcasting in New Jersey will not only continue, but also has a bright and dynamic future with a strong operational plan to enhance New Jersey programming.”

In addition, the Christie administration announced that all of New Jersey Network’s radio licenses will be acquired outright, with station WHYY acquiring five licenses and New York Public Radio acquiring four others.

NJ Transit Parking: Plans to privatize parking at 81 New Jersey Transit (NJ Transit) train stations failed to materialize this summer, but officials hope to get back on track this fall, according to a July 2011 article in the New York Post. A NJ Transit spokeswoman told the Post the delay boils down to the fact that “The (RFP) process is taking more time than first anticipated. There are more complexities.”[7] Specifically, NJ Transit does not control all the parking spaces in all its train station lots, with local townships controlling approximately 35% of the spaces in most of the facilities.

Last fall, NJ Transit issued a request for qualifications (RFQ) for a 30- to 50-year concession for some of its commuter parking facilities throughout the state. The proposed concession program—known as System Parking Amenity and Capacity Enhancement Strategy (SPACES)—aims to expand parking capacity and enhance services at up to three-quarters of the approximately 48,000 spaces controlled by NJ Transit statewide. The agency received statements of qualification from 10 bidder teams in November 2010, and the following month the agency narrowed the list down to seven qualified concessionaires eligible to bid when the agency issues a formal request for proposals.

Leonard Gilroy is director of government reform at Reason Foundation. A modified version of this article was published in Reason Foundation's Annual Privatization Report 2011: State Government report.


Notes

[1] Brian Ianieri, “Atlantic City Expressway privatizing toll collectors,” Press of Atlantic City, November 15, 2011.

[2] Peter Samuel, “'Manual toll collection way too expensive’—NJ Pike chairman Simpson,” Tollroadsnews.com, April 22, 2011, http://goo.gl/uaLaq (accessed November 16, 2011).

[3] Ibid.

[4] Ianieri, “Atlantic City Expressway privatizing toll collectors,” 2011.

[5] James Kilsby, “New Jersey Lottery Mulls Private Management Move,” Gambling Compliance, February 9, 2011.

[6] New Jersey Gaming/Sports and Entertainment Committee, Draft Transition Report to Gov. Chris Christie, January 5, 2010, p.15, http://goo.gl/f2N3K, accessed November 11, 2011.

[7] Josh Kosman, “NJ Transit parking plan derailed,” New York Post, July 15, 2011.

Leonard Gilroy is Director of Government Reform





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