Privatization and Government Reform Newsletter: 2020 Voters’ Guides, Federal Deficits, and More

Privatization and Government Reform Newsletter

Privatization and Government Reform Newsletter: 2020 Voters’ Guides, Federal Deficits, and More

Plus: Private sector’s facilitating role in water systems, Puerto Rico finalizes energy deal, private prisons face lawsuits, and more.

In this issue:

Main Articles:

  • Election Issues: Reason Foundation’s Voters’ Guides to 2020 Ballot Initiatives
  • Budgeting: The Federal Government’s Deep Deficit Dilemmas
  • Water and Environment: Private Sector’s Role in Water Systems, Subprime “Green” Bonds, and Solutions to Florida’s Blue-Green Algae Problem

News & Notes

  • State Government: Boston Extends Commuter Rail Contract, Puerto Rico Finalizes Energy Deal
  • Corrections: New Study Highlights Incarceration’s Lost Income, Private Prisons Face Lawsuits,  Idaho Enters, Oklahoma Ends, and Vermont Extends Private Contracts
  • Local Government: Seattle Cruise Terminal Cancels P3, Miami-area Water Contracts End, NJ and Texas Locales Finalize Water/Wastewater P3s, Wichita Outsources Art Center Management
  • Federal Government: Department of Energy P3s Reach Milestones, Joint Base Selects Water Deal Partner


Reason Foundation Releases 2020 Ballot Initiatives Guide

Reason Foundation’s Voters’ Guides to the 2020 ballot initiatives examine a wide variety of issues on ballots across the country. Highlighting and dissecting over 40 ballot initiatives, Reason’s policy experts aim to decipher the initiative language and critical issues that voters in California, Florida, Georgia, Michigan, Nevada, and many other states are considering on policy issues ranging from budgeting to criminal justice reform to drug policy to individual freedom. Reason’s 2020 Voters’ Guide tries to strip out the political noise and highlight the best existing research to analyze each initiative, providing voters with the real-world pros and cons and potential impacts of these initiatives.

Massive Federal Government Deficits Require Structural Reforms 

“The federal budget deficit hit an all-time high of $3.1 trillion in the 2020 budget year,” the Associated Press recently reported. The COVID-19 pandemic and recession have thrown fuel on the massive fires that Congress has normalized over the past century, with annual federal deficits nearing $1 trillion regularly. In a recent article, Reason Foundation’s Marc Joffe and Austill Stuart explore why any fiscally-sustainable solution to the federal government’s deficit spending will require significant structural reforms that effectively challenge norms developed over decades. Since many state and local governments face their own budget deficits and expect at least some federal help with the pandemic, the task becomes even more difficult. A recent report from the National Academy of Public Administrators provided some key insights for tackling both the deficits created by federal budget practices and the deferred maintenance problems facing so much of the nation’s critical infrastructure.

Beware of Subprime “Green Bonds”

Property Assessed Clean Energy (PACE) loans, which rely on property tax assessments for their viability, have become increasingly common in recent years for financing home energy efficiency improvements. Financial companies then package PACE loan portfolios into securities. Unfortunately, consumers often agree to such loans with limited understanding of the arrangements they are entering into, increasing borrower default risk. In a new commentary, Reason Foundation’s Marc Joffe explores some of the potential problems that may arise from an improper risk assessment of these types of green bonds.

Banning Water Privatization Makes Affordable Municipal Water More Difficult

Movements all over the world aim to solve the problems of access to clean water and sanitation by declaring that those are two “rights” and demanding governments provide them to everyone regardless of their ability to pay. In addition to calling for governments to step up to the challenges of managing good water systems that are affordable, reliable, and safe, many groups are also trying to insist that governments do all of the above without the private sector. In a new piece, Reason Foundation’s Austill Stuart explains why banning private management of municipal water and related systems further complicate the already difficult effort to achieve the balance of affordability and reliability, increasing costs over the long term. 

Tackling Florida’s Blue-Green Algae Bloom Problem

Long under-studied, the negative effects of blue-green algal blooms are starting to become clearer to researchers, with the Florida peninsula serving as especially vulnerable to its negative effects on wildlife, erosion, and public health. In a policy brief, Reason Foundation’s Vittorio Nastasi explores how Florida can better manage its blue-green algae problem and its numerous negative effects.



MBTA Extends Commuter Rail Contract: This summer, the Massachusetts Bay Transit Authority (MBTA) announced a four-year extension to its contract with Keolis to manage and operate the transit agency’s commuter rail lines. The original eight-year, $2.7 billion contract dates back to 2014 and now will be extended to 2026, with an option to leave the contract after 2025. The agency estimates the four-year extension will cost $173.4 million, not including an assumed $100 million per year (minimum) in capital expenditures over the term. The contract also builds off of its established performance-based structure and includes financial penalties and rewards for customer satisfaction, staffing levels, and timely performance, with a fixed-price base.

Puerto Rico Signs Electricity Transmission and Distribution Contract, Launches Legacy Assets Project: The Puerto Rico Electric Power Authority (PREPA) signed a 15-year agreement with LUMA Energy—a joint venture of ATCO Ltd., Quanta Services, and Innovative Energy Management—to manage and operate the electric authority’s transmission and distribution assets, leaving generation in the utility’s hands. According to LUMA’s estimates, the estimated $1.5 billion deal could generate $323 million in savings over the first half of the contract. In a September article in the Puerto Rico-based The Weekly Journal, Puerto Rico Financial Oversight & Management Board Executive Director Natalie Jaresko defended the deal’s performance-based focus, with a full award “paid because it does well—if not, they don’t get the same pay.”


Port of Seattle Cancels Cruise Terminal P3: The Port of Seattle (PS) canceled a request for proposals that aimed to find a private partner to build and operate a new cruise terminal for the port, an estimated $200 million public-private partnership (P3). The Port of Seattle previously issued an RFP in August 2019 for the project, shortlisting four proponents in February of this year for a revised RFP. Officials cited the COVID-19 pandemic as playing a major role in the cancellation while suggesting the project might be revisited at some point in the future. “Our current focus remains on public health…The last two decades of growth indicate that there is durable demand for Seattle cruises. When we can, we will convert that demand into more business opportunities and jobs for our region,” remarked Port of Seattle Executive Director Steve Metruck. 

Camden, NJ, Signs Contract to Rehab Combined Sewer Regulators: The city of Camden, New Jersey signed a $5.1 million contract with American Water to rehabilitate 28 combined sewer regulators. For combined (wastewater/stormwater) sewer systems, regulators serve to divert excess stormwater so wastewater treatment plants don’t get overwhelmed by inflows as well as combined sewer overflows where untreated wastewater mixed with stormwater gets discharged into waterways.

North Miami Beach Exits Water Service Contract: In August, the city of North Miami Beach ended its water outsourcing contract, a $190 million 10-year deal originally signed in 2017, with Jacobs Engineering (formerly CH2M Hill) in a 5-2 vote. While opponents of the contract were pleased with the decision after a three-year fight to end the contract, city staff recommended, rather than ending it, to pare the contract down to just operations and maintenance, with the city retaining control of customer service. The city manager and other officials are worried about the transition back to in-house operations, including staffing obligations that must be met within six months: “You could be … simply setting up this process for failure without additional support from Jacobs,” City Attorney Dan Espino noted, noting filling needed positions could take “upwards of a year.”

Texas Town Selects Partner for Desalination Deal: The town of Alice, Texas, announced it had chosen Seven Seas Water (acquired in March by Morgan Stanley) as a partner for its design-build-finance-operate-maintain (DBFOM) desalination plant project. When operational, the brackish water reverse osmosis plant will allow a lower-cost supply for the city’s residents compared to relying on neighboring Corpus Christi in a separate contractual arrangement.

Wichita Votes to Outsource Management of Art Center: The Wichita (KS) City Council approved a new budget that includes outsourcing management of the city’s Century II Performing Arts & Convention Center, a deal on which the city hopes to save $5.7 million over the next 30 months. Wichita hopes to release an RFP for the contract after this year.


Pair of U.S. Department of Energy Partnerships Reach Milestones: Two U.S. Department of Energy (DoE) partnerships reached milestones in late summer 2020. In early September, DoE selected Albermarle as its private partner for lithium research projects, one based at DoE’s Argonne National Laboratory to streamline the process for creating lithium-based batteries, and the second at DoE’s Pacific Northwest National Laboratory, a project that aims to commercialize new high-energy cathodes that extend battery life for electric vehicles, through the use of lithium salts.

In August, DoE and Microsoft announced a partnership to develop AI tools to improve disaster response. The two will lead a group deemed the “First Five Consortium” (referring to the first five minutes following a natural disaster), where DoE will develop and test technologies, while Microsoft will provide data storage, software, and other technological capabilities. Systems currently in development include better tools to track and predict the effects of wildfires and floods.

Washington State Joint Base Selects Water Contract Partner: In September, the U.S. Department of Defense (DoD) selected American Water as its partner to own, operate, and maintain the combined water and wastewater systems for the Joint Base Lewis-McChord in Washington state. It is a 50-year contract estimated at around $770 million.


Brennan Center Report Highlights Economic Impact, Lost Income from Incarceration: The Brennan Center for Justice at New York University released a report that provides estimates of an under-studied effect of prison time: income lost from incarceration and criminal convictions. The authors estimate income losses of people touched by the criminal justice system to be $372 billion a year, with the report finding: “People who have spent time in prison suffer the greatest losses, with their subsequent annual earnings reduced by an average of 52 percent. People convicted of a felony but not imprisoned for it see their annual earnings reduced by an average of 22 percent. People convicted of a misdemeanor see their annual earnings reduced by an average of 16 percent.” The study also finds, “People who were imprisoned early in their lives earn
about half as much annually as socioeconomically similar people untouched by the criminal justice system.”

Judge Upholds Most of California Private Prison Lawsuit: A federal judge issued a tentative ruling in July that mostly confirms California’s plan to phase out and ban privately-operated prisons and immigrant detention centers in the state, codified by Assembly Bill (AB) 32, which became law at the beginning of the year. The federal government and GEO Group, in bringing suits against the state, claimed the state cannot intervene in the management of federal corrections facilities. U.S. District Judge Janis Sammartino ruled that the state’s actions do not constitute such an infringement, citing an unsuccessful federal challenge to the state’s “sanctuary” law, AB 54. The ban potentially affects over 11,000 beds in 10 private prison facilities in the state, seven of which are managed by GEO Group.

Arizona Corrections Faces Lawsuit Over Private Prison Use: Five inmates and the Arizona Chapter of the National Association for the Advancement of Colored People (NAACP) filed suit against the state of Arizona’s Department of Corrections and Management and Training Corporation (MTC) over the state’s use of private prisons, alleging that contracting out corrections to private companies violates the U.S. Constitution’s Eighth Amendment protections against “cruel and unusual punishment.” A spokesman for Arizona Gov. Doug Ducey and representatives from private corrections firms claimed the suit is baseless, citing the re-entry programming and educational services provided in private corrections facilities.

Idaho Enters Contract to Send Inmates to Arizona Private Prison: In August, the Idaho Department of Corrections (IDOC) announced it had agreed to enter a contract with CoreCivic to send Idaho inmates to the Saguaro Correctional Center west of Phoenix. The move will result in IDOC transferring inmates from a privately run facility in Texas to the Arizona prison, which allows for roughly twice the available inmate capacity (620 vs 1,200) as under the previous arrangement. The IDOC cites the availability of educational and vocational training opportunities as additional factors in the move.

Oklahoma Ends Private Prison Contract: The Oklahoma Department of Corrections, citing a $24.4 million budget crunch, announced it was ending its contract with CoreCivic to house inmates at the 1,650-inmate Cimarron Correctional Facility in Cushing, which the company has owned and operated since 1997. While the Department of Corrections was open to housing a reduced number of inmates in a reduced contract, the company elected to close the facility instead.

Vermont Extends Mississippi Private Prison Contract: The Vermont Department of Corrections announced in October that it would exercise a one-year extension on a contract to house 225 inmates in the Tallahatchie County Correctional Facility in Mississippi, run by CoreCivic. Signed in 2018, the original contract initiated the move of inmates from a state-run corrections facility in Pennsylvania and allowed for the year-long extension, which comes in the wake of many of the Vermont inmates in Tallahatchie contracting the COVID-19 virus (from which they all have recovered). Looking forward, the VDOC plans to eventually eliminate all contracts to send inmates out of state within the next two years.


“Our main goals are to provide continuity and the best possible service for our Commuter Rail customers, as well as provide adequate time to plan for a future transformational procurement. With this extension in place, we look forward to continuing this partnership with Keolis…This extension includes a number of additional benefits for riders, including further incentives for on-time performance, measures to address fare evasion, and flexibility and cost certainty in a challenging market.”

Massachusetts Bay Transit Authority General Manager Steve Poftak, quoted in a press release announcing the agency’s commuter rail contract extension with Keolis

“This public-private partnership places Puerto Rico on the path to achieving the reliable and resilient infrastructure that will give the people of Puerto Rico the peace of mind they deserve. For decades, our electric power system has undergone countless changes and challenges that have affected its operation and the delivery of service to its customers. These challenges were compounded by the impact of Hurricanes Irma and María and the recent earthquakes. The Puerto Rico Public-Private Partnerships Authority is extremely pleased with the selection of LUMA as the company that will lead the historic transformation of the Island’s electrical system.”

Fermín Fontanés, executive director of the Puerto Rico Public-Private Partnerships Authority, in a press release noting the approval PREPA’s new 15-year contract to manage and upgrade its power grid. 

“We understand from previous studies done by the city of Alice (our cost) is a lower cost than the cost of buying rural water from Corpus Christi and treating it.”

Richard Whiting, vice president of Seven Seas Water, quoted in the Corpus Christie Caller announcing the selection of the company as partner for its desalination plant project