Privatization and Government Reform News: Transportation P3s, solutions for space debris, and more

In this issue:

Main Articles

News & Notes

Annual Privatization Report 2021

The three transportation-focused chapters of Reason Foundation’s Annual Privatization Report, a publication now over three decades old, were recently released. The Transportation Finance section, authored by Reason’s Robert Poole, looks at transportation public-private partnerships (P3s) and infrastructure investment worldwide. Baruch Feigenbaum’s Surface Transportation chapter focuses on U.S. and foreign P3 projects related to highways and passenger rail, as well as federal and state-level enabling legislation and regulatory concerns. The Aviation chapter, also authored by Poole, examines trends in airport privatization and other airport regulation issues.

Fire “Alliance” Model Takes Competition Out of EMS 

In a series of articles, Reason Foundation’s Austill Stuart touches on various anti-competitive concerns with California’s Assembly Bill 389 and the so-called fire “alliance” model, which fire districts use as a stopgap to take over emergency medical services (EMS) fully without being subject to competitive bidding. With AB 389 passed and sent to Gov. Gavin Newsom’s desk, Stuart’s most recent article, “California passes EMS bill but doesn’t address anti-competitive landscape,“ discusses the remaining problems with competitive bidding in EMS.

Tackling Space Traffic and Orbital Debris

While space is vast, earth-bound humans use a limited and increasingly busy area to place satellites and space stations. In a new policy brief, Reason Senior Fellow Rebecca van Burken shows how public-private partnerships will need to play a key role in addressing the growing mand-made orbital debris (“space junk”) problems and managing space traffic in the coming decades.

Capitol Hill’s Spending Raises Concerns Amidst Inflation Unknowns

Current U.S. inflation numbers—which remained at a year-over-year rate of 5.4% in June and July—may turn out to be a worrying trend or just a blip over the long run. While some economists and federal oversight agencies continuously warn of the potential problems related to the federal government’s deficit spending, Congress keeps ignoring them. In a pair of articles in The Hill, Reason’s Marc Joffe warns against Congress’ continued spending and calls out budgetary and spending gimmicks embedded in the proposed $3.5 trillion reconciliation package. He also looks at credit rating agencies’ reactions to the current politics surrounding raising the U.S. debt limit. 

News & Notes

State Government

Puerto Rico Energy Agency Remains in Privatization Battle: The Puerto Rico Electric Power Authority (PREPA), subject to several privatization attempts over recent years, saw dueling political bodies fighting over the utility’s fate. In May, Gov. Pedro Pierluisi vetoed a bill that would have delayed privatizing PREPA, arguing that the bill undermines an established operations and maintenance (O&M) contract with LUMA Energy entered in 2020. The Puerto Rico House of Representatives tried to work around the governor’s veto by voting 43–0 (two abstaining) to deny authorizing $750 million to PREPA to implement the LUMA contract. After initially asking the legislature to reconsider and release the funding, the Financial Oversight and Management Board for Puerto Rico, which is responsible for moving the territorial government and PREPA through bankruptcy, voted to overrule the House. In doing so, the board cited its granted budgetary authority from the Puerto Rico Oversight, Management, and Economic Stability Act, or PROMESA, to implement PREPA’s obligations under the contract. The board won out, with the contractors taking over O&M duties in June.

Court Ruling Requires Kentucky to Rebid Managed Medicaid Contracts: A judge issued a ruling in April that nixes the state’s six managed Medicaid contracts, worth a combined $8 billion, and requires the state to rebid them. This is the state’s third denial over managed Medicaid contracts over the past few years. In 2019, Gov. Andy Beshear killed the first set, and a rebid resulted in the same contract winners: Aetna, Humana, Molina, UnitedHealthcare, and WellCare. Anthem, which submitted a bid but was not selected, challenged Molina’s placement over hiring a member of Beshear’s transition team. The challenge was denied, though Anthem was brought on as a sixth contractor. The current contracts will remain in place as dates for the new bidding process are secured.

Connecticut Lottery Releases RFPs after RFQ Gets Strong Response: In May, after receiving 15 responses to a request for qualifications (RFQ) earlier in the year, the Connecticut Lottery Corporation (CLC) released a request for proposals (RFP), seeking private firms capable of handling online and retail sports betting in the state. The terms call for providing up to 15 sports betting retail locations and roughly 2,900 lottery retail locations. While local news outlets pointed to a late July award announcement, pitting tribal casino operators against each other with respective online gaming operators—Foxwoods aligned with DraftKings, and Mohegan Sun with FanDuel—no further updates were available at press time. The state gaming agency released another RFP in August related to online gaming only, perhaps signaling a change in procurement strategy. 

Local Government

Chicago Moves Closer to First Casino: In April, the city of Chicago issued a request for proposals (RFP) from private firms that want “to apply for the sole casino license in the country’s third-largest metropolitan market.” The city seeks a developer to construct and operate the city’s first casino while meeting Leadership in Energy and Environmental Design (LEED) certification for all buildings, as well as requirements for using minority-owned businesses and local residents to complete much of the work. Proposals were due in late August and the city hopes to award a contract next year.

NYC Housing Administration Releases Repair RFP: The New York City Housing Administration (NYCHA) issued an RFP for a large-scale repair contract worth an estimated $360 million. The contract winner will be responsible for repairs in four Chelsea (Manhattan) developments that include 24 buildings and 2,073 apartments. The RFP review and the scoring process will all include residential input.

Dallas Issues P3 for Public Library: In August, the city of Dallas announced an RFP for a private partner to build or remodel the city’s library branch at North Oak Cliff, located southwest of the city. The contract sought will be more or less a design-bid project, as the city looks for its partner to create a “turnkey” facility that likely will require extensive worker training, but no long-term operations or management considerations.

Kansas City Releases RFP for Homelessness P3: The Land Bank of Kansas City, Missouri, released a combined request for proposals/qualifications (RFP/Q) to find partners to rehabilitate or rebuild, as well as manage and maintain, over 100 city-owned properties. The city would sell each property for $1 to qualified organizations, which would be required to begin construction within 120 days of the sale date. Partners would then offer the housing to homeless and low-income (≤30% area median income) households. Proposals were due in June. An additional RFP, released in August, seeks partners to develop more low-income housing by converting vacant buildings.

Oregon County Receives Green Light for Courthouse P3: In May, the Clackamas County (Oregon) Commission approved a competitive process to find a private consortium to design, build, and finance a new courthouse for the county, following up with an RFQ in July. The county will require a minimum 50-year useful life for the new building, which replaces a structure that dates to 1936. Officials hope a structure can be completed by 2025.

Corrections

Alabama Prison P3 Financer Exits, Leaving Uncertain Future: An Alabama private prison project’s underwriting and financing companies withdrew in late April over activist criticism. The project called for a CoreCivic-led consortium to design, build, partially finance, and maintain two new state-operated facilities that would be leased back to the Alabama Department of Corrections (ADOC). In response, Alabama State House Speaker Hal McCutcheon said some of his colleagues wanted a special legislative session to look for a “Plan B.” A 2019 notice from the U.S. Department of Justice describes conditions in ADOC facilities as violating the Eighth Amendment to the Constitution’s protections against cruel and unusual punishment. The ADOC’s many problems include overcrowding, violence, lack of supervision, and numerous overdoses on synthetic cannabis and other drugs. In late 2020, the U.S. Department of Justice filed a lawsuit against the state over the conditions. The state legislature is holding a special session that will include prison construction issues starting next week.

Tennessee Corrections Abandons Behavioral Health Contract Selection: In a brief press release, the Tennessee Department of Corrections (TDOC) announced in May that it would issue a new RFP to rebid its facilities’ behavioral health services and exit a $123 million contract awarded to Centurion last year. While not giving specifics, the decision appears to have come in response to a complaint about the contract filed by Corizon, a rival bidder who previously won contracts in 2012 and 2016 for the services. The complaint accuses Wesley Landers, chief financial officer for the Tennessee Department of Corrections, of having “ongoing communication with Centurion senior executives, including Wells, providing confidential information such as drafts of the bidding documents,” the Missouri Independent reports, while also increasing performance bond requirements from $1 million to $118 million, effectively eliminating Corizon from winning the contract. The trial over the contract is set for November.

Water

Santa Clara Retries Water Delivery P3: In May, the Santa Clara (CA) Valley Water Authority (SCVWA) issued an RFQ for its latest attempt at securing an expedited water P3 to deliver potable water to the city, a  design-build-finance-operate-maintain (DBFOM) availability payment project of up to 30 years. The authority hopes to benefit greatly from securing a partner who can deliver the project quickly and reliably while also committing to a lifecycle-focused maintenance schedule. SCVWA also looks to utilize performance-based metrics where possible, including for the needed pipeline’s construction, service reliability, and maintenance/stewardship. Either San Jose’s or Palo Alto’s wastewater treatment facilities will provide source water and will require constructing a nearby advanced wastewater treatment facility and, terminating the pipeline at the existing Los Gatos Recharge Station. SCVWA previously released RFQs for the project in 2016 and 2018 and had hoped to shortlist proposers this summer.

Fargo-Moorhead P3 Clears Milestone: The Fargo-Moorhead Flood Mitigation Project passed a major milestone in June when the Metro Flood Diversion Authority chose Miami-based Red River Alliance to design and build a $1 billion diversion channel to prevent flooding along the Red River in Fargo and neighboring parts of Minnesota. The Army Corps of Engineers is also assisting the local authority with the project. A financing package was also approved for the deal, which includes $569 million in guaranteed federal loans expected to save $438 million in borrowing costs. The P3 is also expected to save $330 million in construction costs compared to traditional procurement methods.

Buffalo Issues Largest-Ever Environmental Impact Bond: The Buffalo Sewer Authority issued a $54 million Environmental Impact Bond in June, the agency noted in a press release. The project—a collaboration between the agency; the Ralph C. Wilson, Jr. Foundation; Environmental Consulting and Technology, Inc.; Morgan Stanley; and Quantified Ventures—seeks to modify 200 acres of green infrastructure to better manage stormwater. Through planting trees, installing permeable pavement surfaces, and other stormwater-diverting technologies, the city hopes to prevent combined sewer overflows that occur when stormwater overwhelms “combined” (designed to divert sewage as well as stormwater) sewage structures prevalent in many large cities.

FEDERAL GOVERNMENT

Study of U.S. DOT Database Shows P3s Delivering for Disadvantaged Compared to DBB: A study published in July by the board of the National Academy of Sciences’ Transportation Research Record found that, despite P3 opponents’ claims to the contrary, P3s perform well in delivering opportunities for organizations within the U.S. Department of Transportation’s Disadvantaged Businesses Enterprises (DBE) program. While authors—University of Maryland engineering professors Kunqi Zhang and Qingbin Cui—also note the delivery method itself had little effect on DBE attainment, the greater scope of contracting and subcontracting opportunities within P3s compared to Design-Bid-Build (DBB) appeared to offer greater opportunities for DBE than DBB for the 134 project contracts they examined in the USDOT’s Major Transportation Project Database. Most likely due to the lack of available long-term data, their analysis focused on the design-build side of the P3 projects exclusively, although many projects in the study included operations and maintenance (O&M) in their respective contracts, which can provide even more opportunities for DBEs.

NASA Seeks Private Flight Support Partner: In late July, NASA released a draft RFP to solicit private partners to provide operations support at the agency’s Johnson Space Center in Houston. The support NASA seeks will focus on several key areas, including updating and maintaining navigation software and spaceflight enabling services and supporting research and development services.

National Fish and Wildlife Federation and International Paper P3 Announce Grant Awards: The National Wildlife Federation and International Paper Company announced in June that they would award nine habitat restoration grants to states in the Mississippi valley. Aggregate goals of the funded projects include planting 3.6 million trees and restoring 8,000 acres of wetlands. In addition to International Paper and the NFWF, the program received funding from the Walton Family Foundation, the Arbor Day Foundation, and the American Forest Federation. 

Coast Guard Waterways Commerce Cutter RFP: The United States Coast Guard issued an RFP in May for a partner to design, build, and deliver 30 new Waterway Commerce Cutter (WCC) vessels to replace its aging fleet. WCCs predominantly serve as “tenders” in U.S. intercoastal waterways for construction and repairs of marine aids. Responses to the RFP were due at the end of July, and the Coast Guard plans to award a contract next year, with full delivery of the ships by 2030, a Congressional Research Service release noted. 

Quotable Quotes

“This paper examined DBE goal and DBE attainment on 134 contracts, 37 of which have data on the DBE attainment. P3 was compared with two other groups: design–bid–build (DBB) and design–build (DB)/construction manager at risk (CMAR). The research addressed the long-held suspicion that small firms lose in P3s.”

—Authors Kunqi Zhang and Qingbin Cui in their Transportation Research Record study, which found major transportation P3 projects offer more opportunities for small and disadvantaged businesses than design-bid-build projects.

“The $750 million operational reserve is not a payment to LUMA Energy but a requirement under the operation and maintenance agreement that ensures PREPA would have sufficient funds to operate and pay vendors and fuel suppliers. A significant portion of the funding will also go towards investments in the grid and reconstruction projects that will eventually be reimbursed by FEMA…PREPA’s lack of funds to maintain the system and inability to maintain adequate cash reserves are some of the reasons that exacerbated PREPA’s problems and inability to respond quickly to hurricanes Irma and Maria. The operational reserve is a critical step toward ensuring that never happens again, especially when managed by a professional operator.”

– Natalie Jaresko, executive director of the Financial Oversight and Management Board of Puerto Rico, in a press release.

“After years of planning, we are beyond excited to begin the RFP process for Chicago’s first casino… We look forward to collaborating with world-class operators to develop a premier entertainment destination that will catalyze growth in our dynamic economy, create sustainable, good-paying jobs for our workforce and bring new financial opportunities to our businesses.” 

– Chicago Mayor Lori E. Lightfoot in a press release on the city’s casino-resort development project.