Commentary

Privatization Figures Prominently in Trump’s FY2018 Budget Proposal

Budget offers several policy proposals involving greater utilization of the private sector.

The Trump Administration’s FY2018 proposed budget offers several significant policy proposals that involve greater utilization of the private sector, whether through public–private partnerships (PPPs), increased competition with the private sector in delivering services or federal asset divestiture. While Congress must approve any final budget, President Trump’s opening salvo offers a deeper insight into the his administration’s priorities with respect to the role for the private sector in managing and delivering federal programs and assets.

For example, a theme with many of the federal assets being proposed for sale is a disconnect between the federal government owning and maintaining infrastructure serving local customers in all corners of the U.S., echoed in a fact sheet that focuses the Administration’s Infrastructure Initiative. On the other hand, proposing to reduce the reserves of commodities like petroleum or helium reflects changing times and a diminished need to maintain large strategic reserves.

While many of the following priorities merely reflect a willingness to go forward with policies first developed by previous administrations, some reflect newer approaches to embracing the private sector:

  • Air Traffic Control: Calls for the air traffic control (ATC) function of the Federal Aviation Administration to be transferred to a self–funded, nonprofit corporation. In addition to efficiencies achieved through a less bureaucratic management structure, the transfer will facilitate much–needed upgrades to the U.S. system, which relies on radar technology developed in the 1960s. My colleague Baruch Feigenbaum recently wrote a piece on the Trump FY2018 budget proposal from a transportation perspective that handles this issue more thoroughly.
  • NASA: Expands the use of PPPs for many of the National Aeronautics and Space Administration’s (NASA) projects, including deep space habitation, developing new technologies, and space station operations. As mentioned in past editions of the Reason Foundation’s Annual Privatization Report and our Privatization and Government Reform e-Newsletter, NASA has worked more closely with the private sector in recent years, developing and seeking PPP’s relating to variety of functions, including spacecraft development, in–space manufacturing, small launch vehicles, advanced communications.
  • Veterans Affairs: Calls for a renewal and expansion of the Department of Veterans Affairs’ (VA) “Veterans Choice” program, which allows eligible veterans to seek medical care from either VA facilities or a private provider. President Trump signed an Executive Order in April removing the August 2017 expiration date from the program, allowing it to grow and continue. The infrastructure fact sheet linked above includes proposals to ease the leasing out of vacant VA facility space and calls for the future use of PPPs, but avoids specifics.
  • Power Marketing Administrations (PMAs): Proposal calls for the sale of power transmission assets of the four federal Power Marketing Administrations, which market hydroelectric–generated energy from various federal dam projects.The Southwestern Power Administration (SWPA) operates and maintains 1,380 miles of high–voltage power transmission lines and 26 substations throughout Arkansas, Louisiana, Missouri, and Oklahoma, as well as portions of Texas and Kansas; the Bonneville Power Administration (BPA) controls 15,000 circuit–miles of high–voltage lines and 261 substations in the Pacific Northwest, while the Western Area Power Administration operates 17,000 circuit–miles of transmission lines and 300 substations the western half of the U.S not covered by BPA or SWPA. The remaining PMA, the Southeastern Power Administration, owns no transmission assets. Bill Clinton most recently explored this path in his FY1996 budget proposal, which did result in legislation privatizing the formerly–federal Alaska Power Administration, but abandoned privatization of PMA’s in later proposals.
  • Partnership Grants: Federal agencies often face limitations in entering into the forms of asset partnerships universities and state and local governments have forged with private sector partners to deliver financing, operations and/or management. For instance, OMB scoring strongly inhibits private investment in federal real estate. New “partnership grants” would allow the federal government to work with private partners by allowing for grants to be used in place of loans to pay down privately-financed improvements to federal assets over time.
  • Washington Aqueduct: The aqueduct, primary drinking water source for the District of Columbia as well as Arlington County, the City of Falls Church, and part of Fairfax county in Virginia, originally began operation in 1859. Today it supplies an average of 300 million gallons of water per day to 1.1 million customers.The system is owned by the federal government and operated by the Army Corps of Engineers in an arrangement where citizens directly finance operations, maintenance, repairs, and capital improvements with revenues from customers. The budget proposal calls for the sale of the Washington Aqueduct, on which the FY2013 Financial Report from the Army Corps places a $326 million asset value. As noted in Reason Foundation’s Annual Privatization Report, many municipalities, facing both short–term financing difficulties and aging water infrastructure, have turned to long–term concession lease agreements and asset sales to better ensure water and wastewater infrastructure remains safe, functional and well–maintained.
  • Strategic Petroleum Reserves (SPR): The Budget proposal calls for a continuation of currently authorized sales from the U.S. Strategic Petroleum Reserve (approximately 255 million of 687.7 million barrels total combined sweet and sour crude, as of 5/19/2017) while planning to sell an additional 270 million bbls by 2027, leaving the SPR with roughly half the inventories following the currently authorized sales. The proposal also calls for the closing of two of the four SPR facilities during the process.
  • Federal Helium Reserve: The U.S. government established the Helium Reserve through the Helium Act Amendments of 1960 to collect the gas to use for its purposes, mostly aviation. The Helium Privatization Act of 1996 called for the eventual privatization of the Helium Production Fund and its eventual liquidation, after the Reserve amassed a billion cubic meters of the gas and $1.4 billion in debt that was fully paid off by 2014. The proposal calls for the end of the program and liquidation of all its assets by 2021.

The Budget Blueprint also hints at future opportunities of utilizing the private sector to deliver services, notably as a part of a larger plan to reorganize the executive branch. An executive order issued in March first signaled the Administration’s intent to develop the plan, which is expected to be completed in about a year and most certainly will include plans to reinstitute some means of competitive sourcing, whether by removing the moratorium on A-76 competitive sourcing, or by adopting some new framework.

As stated, most of these proposals do build off of past efforts, the offering of federal–owned power and water infrastructure assets for sale appears to indicate a greater stronger embrace of privatization than previous administrations, as does the Air Traffic Control corporatization proposal. Further, the drawdown of stocks of helium and petroleum allow those commodities to be utilized by private actors for functions that add more value than hoarding them, such as cooling MRI scanner magnets or being refined into fuels. Even after all of the proposed SPR sales, assuming imports of oil into the U.S. remain consistent, the U.S. will still have enough reserves to easily cover the International Energy Agency’s recommended 90 days of imports.

Regardless of whether Congress decides to embrace these divesture, privatization, and PPP opportunities, the Trump Administration’s FY2018 budget priorities seem to reflect a White House willing to get the private sector involved in administering federal government services, as well as maintaining infrastructure.