Privatization and Government Reform Newsletter: Private Sector’s Recovery Role in the COVID-19 Pandemic
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Privatization and Government Reform Newsletter

Privatization and Government Reform Newsletter: Private Sector’s Recovery Role in the COVID-19 Pandemic

Plus: government's coronavirus response, the pandemic's impact on bond ratings, why state and local governments are fighting over Airbnb, and more.

In this issue:

Main Articles:

  • COVID-19 Pandemic: Private Sector’s Role in Fighting Coronavirus, Bond Rating Threats
  • Transportation: FAQ on Mileage-Based User Fees
  • Water: Tradeable Permits, Private Innovation Key to Florida’s Water Future
  • Government Reform: Short-Term Rentals Pit States Against Municipalities
  • Pensions: New Mexico Enacts Bipartisan Pension Reform

News & Notes:

  • Energy: Feds Investigate Failed Jacksonville Electric Privatization
  • Corrections: KY, MS Sign Emergency Contracts, WA Looks to Follow CA Private Prison Ban
  • Health Care: LA, KY Hit Reset on Managed Medicaid
  • Higher Ed: Arizona State Finalizes P3, NJIT Announces P3

MAIN ARTICLES

Federal Government’s COVID-19 Response Failed to Tap Private Resources Quickly

Facing a pandemic that may be unprecedented in recent history, the United States’ federal government has not managed its response well. The Trump administration initially downplayed the severity of the coronavirus threat, while also thwarting health care agencies’ attempts to test for COVID-19. The federal government utilized faulty Centers for Disease-Control and Prevention (CDC)-approved tests, blocked private testing, and lagged in relaxing approval regulations and guidelines so tests could be made more quickly and on a larger scale.

In a new article, Reason Foundation’s Austill Stuart shows how the federal government’s initial coronavirus response could’ve been improved by more quickly taking advantage of private sector resources, better communicating with the public, and better coordinating with state and local governments. State agencies and local providers could have conducted more testing and gathered critical information, while vast private production resources could have been harnessed to create, distribute and conduct coronavirus tests and boost production of masks, safety equipment, and more.

Pandemic Threatens Transit Bond Ratings

The Bay Area was the first major U.S. metropolitan area to issue a “shelter-in-place” order in response to the coronavirus pandemic. While it certainly signals that local officials are taking the COVID-19 outbreak seriously, one unfortunate consequence of the restrictive measures has been the impact on the region’s transit systems. Bay Area Rapid Transit (BART) relies heavily on ridership fare revenues and sales tax revenues, which have fallen drastically as a result of the pandemic and government response. BART’s looming financial problems might threaten its general obligation bond rating and could foreshadow similar problems in other major cities, Reason’s Marc Joffe explains.

Frequently Asked Questions About Mileage-Based User Fees 

Many services citizens receive from governmental or private utilities employ a “user-pays” approach — electricity and water customers are typically charged based on how much electricity and water they use in their homes, for instance. For decades, treating roads similarly—tying user fees directly to roadway use—has mostly been rejected in favor of using fuel taxes as a proxy for road usage. But gas taxes will continue to weaken as alternative-fuel vehicles replace traditional fuel vehicles on roads and as traditional fuel vehicles become more fuel-efficient.

In a new publication, Reason Foundation’s Baruch Feigenbaum and Austill Stuart write that fuel taxes’ shortcomings will only continue to get worse over time and explore why replacing fuel taxes with mileage-based user fees (MBUF) could put road funding on a more predictable funding path, help alleviate traffic congestion, and treat drivers more equitably. The authors also work to address various fears and misconceptions over adopting an MBUF system, in part by looking at the results of Oregon’s OReGO pilot program assessing a per-mile charge to drivers.

Market-Pricing, Private Sector Can Alleviate Florida’s Water Troubles 

Despite the abundance of water in and around Florida, fresh water supplies within the state mostly sit well north of the vast majority of the state’s population, which continues to grow at a healthy pace. While municipal water systems typically charge citizens based on the water and sewer services they use, the going rates are subject to political realities that give great incentive to underprice their provision. In a recent analysis, Reason Foundation’s Vittorio Nastasi explains how market-based pricing reforms in water markets, such as tradeable water permits, could help lead Florida to the innovative solutions needed to ensure residents have sustainable and reliable supplies of clean water for generations.

Short-Term Rentals Pit States Against Their Municipalities 

State and local governments quibble over many issues, but a growing example of such disputes concerns the legality and terms of short-term rental platforms, such as Airbnb and HomeAway. As local governments look to ban or restrict them, would-be hosts look to state governments to preempt local restrictions from coast to coast. 

Reason Foundation’s Adrian Moore provides an analysis of the issue based on his firsthand experiences on the subject, which include (a) numerous conversations with local officials, (b) providing expert testimony in lawsuits over the issue, and (c) living in a community with numerous short-term rentals. Moore details how existing laws and homeowners’ associations can serve as effective barriers against the most common objections to allowing short-term rentals.

New Mexico Enacts Bipartisan Pension Reform to Improve PERA Solvency

This month, New Mexico Gov. Michelle Lujan Grisham signed into law Senate Bill 72, bipartisan legislation designed to begin tackling the solvency challenges of the Public Employees Retirement Association (PERA)—the public employee retirement system for state and local workers with over $6.7 billion in unfunded liabilities—through benefit design changes and increased employer and employee contributions. 

The legislation largely codified into law a set of recommendations made by Gov. Lujan Grisham’s Pension Solvency Task Force last fall. PERA administrators have warned that deteriorating cash flow trends may create major financial challenges down the road in underperforming markets, necessitating increased contributions today to avoid benefit payout issues down the road.

The bill passed with bipartisan support and was backed by a diverse array of labor associations and other stakeholders. In the wake of the Solvency Task Force’s report, and throughout the 2020 legislative session, the Pension Integrity Project at Reason Foundation provided actuarial and policy analysis to legislators and an array of other stakeholders. As described in a recent Reason.org commentary, the Pension Integrity Project believes that while additional phases of reform will be needed to ensure long-term solvency, the recently enacted legislation is an important step in the right direction for New Mexico, both from a pension finance and a bipartisan consensus-building perspective.

NEWS & NOTES

Jacksonville Power Privatization Effort Scrapped, Faces Federal Investigation

A probe into the attempted privatization of the Jacksonville Electric Authority (JEA) initiated by Florida State Attorney Melissa Nelson’s office was handed off to federal prosecutors in January. The city abandoned plans to privatize the utility in December at the urging of Mayor Lenny Curry, a week after forcing the resignation of then-CEO Aaron Zahn. In November, auditors discovered a bonus program that would’ve paid out large, uncapped bonuses to employees for meeting modest goals.

NYC Housing Authority Announces Senior Residential P3

This month, Inframation News reported the New York City Housing Authority intends to enter a public-private partnership with a private partner to design, build, finance, operate, and maintain a pair of new housing developments for seniors, one in the Bronx, one in Brooklyn. The two developments are expected to contain a combined 300-to-400 units, with each development occupying a roughly-25,000 square-foot footprint.

Private Prison Company Sues California Over New Law

Private corrections management company GEO Group filed a lawsuit against the state of California over its implementation of Assembly Bill 32, legislation set to phase out privately-operated corrections and detention facilities in the state by 2028. The suit, filed last December, alleges that the California law aims “to undermine and eliminate the congressionally-funded and approved enforcement of federal criminal and immigration law” of federal agencies. The Trump administration filed a separate suit over the law in January, saying the state can prohibit private sector corrections facilities under its own control, “[b]ut it cannot dictate that choice for the federal government, especially in a manner that discriminates against the federal government and those with whom it contracts.”

Washington Private Prison Ban Bill Passes Both Chambers

Similar to California’s AB 32, Washington Senate Bill 6442 would ban the use of private, for-profit corrections companies from operating prisons in the state and also prohibit governmental units from operating privately-managed prisons, or contracting with private corrections facilities outside the state. It passed the state’s House and Senate and is awaiting the governor’s signature. The Washington Department of Corrections would still be able to contract out with private companies for most services, including behavioral and medical health care, educational training, and re-entry. According to the state’s Department of Corrections, Washington’s prison facilities operated at 102 percent of average daily capacity in February 2020.

Miami Courthouse P3 Reaches Financial Close

In late January, Miami-Dade County reached financial close with a consortium for its Civil and Probate Courthouse Public-private Partnership (P3) project, according to a press release. The 34-year, $588 million design, build, finance, operate, maintain (DBFOM) P3 includes $310 million in private placement notes financed by Wells Fargo. The county plans to sell the existing courthouse property, using a 17-acre plot of public land for the greenfield project.

Louisiana Bridge P3 Reaches Financial Close

Fueled by a transportation committee vote in the state legislature to approve the project, the Louisiana Department of Transportation Development (La DOTD) reached financial close with a Plenary-led consortium for its Belle Chasse Bridge and Tunnel Replacement P3, a $162 million, 30-year DBFOM toll-financed project. While many residents expressed opposition to the tolling of the project, DOTD Secretary Shawn Wilson noted the tolling component was critical in obtaining a $45 million federal grant to fund a large portion of the project. Construction is supposed to begin this summer, with an opening date scheduled for 2024.

Outgoing KY Gov. Bevin Signs Emergency Private Prison Contract

Last December, in his last day in office, then-Kentucky Gov. Matt Bevin signed an emergency 10-year, $41 million contract to lease a previously closed private prison in Floyd County. The CoreCivic-owned facility will be managed by the Kentucky Department of Corrections in an arrangement where the state will pay $3.75 million each of the first two years, with 5 percent annual increases for the remaining term of the contract.

New Kentucky Gov. Beshear Announces Managed Medicaid Contract Rebid

Bevin’s successor, Gov. Andy Beshear, announced that the state would rebid all contracts for the state’s managed Medicaid program, which were initially awarded to managed care organizations (MCOs) Aetna, Anthem, Humana, Passport Well Plan, and Wellcare. The state’s Cabinet for Health Services hopes to select new MCOs this spring.

Louisiana Ends Managed Medicaid Contracts

Louisiana Chief Procurement Officer Paula Tregre scrapped the state’s managed Medicaid contracts, saying they resulted from a “fatally flawed procurement process” conducted by the state’s health department, including allegations of breaking state laws and failing to follow the agency’s own established procedures. The total three-year contract awards are estimated worth $21 billion, serving over 1.5 million Louisiana residents, roughly one-third of the state’s population. 

Mississippi Signs Emergency Private Prison Contract

Mississippi’s Department of Corrections (MDOC) signed an emergency 90-day contract in January to send 375 inmates from the Mississippi State Penitentiary in Parchman to a nearby prison in Tutwiler run by private corrections company CoreCivic, the AP reported. Officials said that they lack the security personnel to ensure inmate safety at the state’s prison in Parchman, which has seen several violent incidents recently. Later in the month, it was revealed that the contract may violate a state law that says that any private prison contract must show 10 percent savings on a per-diem basis compared to in-house operations under the MDOC, though officials noted that a lack of available staff makes keeping the inmates in the state-run prison impossible. 

Gulfport Selects Preferred Proponent for Port Lease

The Mississippi State Port Authority selected Turkish-based Yilport as its preferred proponent in a potential 50-year lease agreement with an additional 49-year option, Inframation News reported. The estimated $250 million (minimum) deal would also include expanding the terminal’s capacity nearly threefold compared to 2017 within the first two years after Yilport takes over operating the facility, from 217,000 20-foot equivalent units (TEUs) to 600,000 TEUs. Gulfport would be the first U.S-based facility operated by Yilport, which in 2019 lost out to Macquarie to secure a concession lease of the Long Beach (CA) Container Terminal.

The University of Iowa Closes on Utilities P3

This month, the University of Iowa (UI) announced it had reached financial close with an Engie/Meridiam consortium over a 50-year lease of the university’s energy assets. UI will receive a $1.165 billion upfront payment from the consortium, of which about 15 percent ($168 million) would be used to pay off existing debt as well as consulting fees. The project includes goals to reduce or eliminate energy generation from fossil fuels, including a goal to be coal-free by January 2025. The consortium will receive $35 million annually for their services, while UI plans to make $15 million available annually for grant proposals that help to contribute to the school’s plans.

ASU Reaches Financial Close on Housing P3

Arizona State University (ASU) and a Capstone-led consortium reached financial close on the school’s $118 million mixed-use housing development P3, the company noted in a press release. Capstone will be working with architect Studio Ma and builder DPR Construction for the DBFOM project, which will be located on ASU’s campus in downtown Phoenix and will house an estimated 530 students in 207,000 square feet of residential space. 

Downtown Birmingham Property Owners Sue Parking Authority

Owners of the Birmingham Financial Center, a 17-story building in downtown Birmingham, Alabama, filed a lawsuit against the city’s parking authority over the use of parking spaces in an adjoining parking structure. The Birmingham Parking Authority (BPA) has closed access to the spaces, claiming that previous owners had an agreement to use only 240 of the 350 parking spots. However, documents dating from the building’s origin (in 1980) and its most recent purchase (2016) show an agreement for 350 spaces. While the BPA eventually handed over access to five of the disputed spaces, it refuses to give any access to the remaining 105 spots, even though the owners would have to pay the BPA to use them, resulting in no lost revenue to the authority.

Virginia Announces Study for Comprehensive I-95 Plan

Directed by 2019 legislation (Senate Joint Resolution 276 and House Joint Resolution 581), a group of four state-level agencies [Commonwealth Transportation Board, supported by the Office of Intermodal Planning and Investment, the Virginia Department of Transportation, and the Department of Rail and Public Transportation] will conduct a data-driven study to help drive multimodal improvement projects along Virginia’s 179-mile portion of Interstate 95. 

NJIT Announces Housing P3

The New Jersey Institute of Technology (NJIT) released a request for qualifications (RFQ) for a new student housing DBFOM P3. The RFQ calls for a mixed-use development likely to include office and retail space in addition to apartment-style on-campus homes for 500 students. While a value has yet to be estimated, NJIT hopes to open the new development in 2021 or 2022.

QUOTABLE QUOTES

“The new Civil and Probate Courthouse project is the first social infrastructure public-private partnership of its kind in the State of Florida and represents a significant milestone for the County in its efforts to deliver critical public infrastructure projects through innovative and cost-effective delivery methods.”
—From a Miami-Dade County press release on its Civil and Probate Courthouse P3 project 

“California, of course, is free to decide that it will no longer use private detention facilities for its state prisoners and detainees. But it cannot dictate that choice for the federal government, especially in a manner that discriminates against the federal government and those with whom it contracts.”
– From the federal government’s suit challenging California’s ban on private prisons

“The 2015 Legislature directed the Department of Corrections (DOC) to explore options to increase prison capacity at medium-security through various approaches. The DOC is near capacity and the Caseload Forecast Council (CFC), through its adopted June 2015 forecast, projects the offender caseload to exceed capacity in the near future. While a shortage is estimated for both minimum and medium-security beds, medium-security beds have been the most critical need. For example, a shortage of over 1,000 beds is expected by Fiscal Year (FY) 2024, of which, will include a shortage of approximately 1,100 medium-security beds. The DOC is also experiencing a shortage at minimum security and expects to have a shortage of over 200 minimum security beds in FY2024.”
From a Washington State Department of Corrections report for the state legislature

Austill Stuart is the director of privatization and government reform at Reason Foundation and editor of Reason's Annual Privatization Report.