Privatization and Government Reform Newsletter (Issue 35, October 2018 Edition)
© Bogdan Caraman |

Privatization and Government Reform Newsletter

Privatization and Government Reform Newsletter (Issue 35, October 2018 Edition)

Pittsburgh considers private utility bid for water system, Florida county rejects library privatization, D.C. Metro privatizes bus garage, and more.

In this issue:

  • INFRASTRUCTURE: Pittsburgh Considers Private Utility Bid for Water System
  • GOVERNMENT REFORM: Florida’s Move to Clear, Accountable Data
  • SOCIAL FINANCE: Despite Setbacks, Pay-For-Success Attracts Capital
  • WATER: Baltimore Proposes Private Water Ban


» Pittsburgh Offered Water Deal, Should Seek Others Before Committing

The city of Pittsburgh (PA) continues to face problems with its aging water system, subject to regular boil notices and high lead levels. Local natural gas provider Peoples Gas recently offered Pittsburgh solution that would allow for updated water infrastructure as the gas company replaces water lines and makes other water improvements through a new water-focused entity, Peoples Water.

But rather than just accept an offered deal, Pittsburgh should test the waters and use Peoples’ offer as an opportunity to attract private sector suitors to operate and maintain its water system in an open, competitive sourcing process. While Pittsburgh’s water system needs attention relatively soon, city leaders should take time to ensure that the city gets the best deal for entering a long-term commitment potentially spanning decades. In the end, Peoples may offer the best option, but both the company and the city can afford the time to ensure Pittsburgh receives the best available option for its citizens.


» Switching to XBRL Reporting Standard a Win-Win-Win for Governments, Taxpayers, and Accountability

Clear, transparent government financial records are often elusive for individuals looking to see how their tax money is spent. In addition to a lack of clear and consistent practices that make data standardized and easy-to-compare, many governments provide their financial reporting in formats that make working with government data tedious.

In Florida, Reason has actively been working with lawmakers and officials on recently enacted legislation to require local government Comprehensive Annual Financial Reports to be submitted in eXtensible Business Reporting Language (XBRL) format—a variation of a machine-readable data format mandated by the SEC for corporate accounting reports—to provide Floridians with clear, transparent, and easy-to-work-with data. In a new article, Reason’s Marc Joffe discusses the merits of transitioning government financial reporting to XBRL format and summarizes a recent event in Florida that brought lawmakers and private sector companies together to discuss implementation of the new Florida law.


» Criticism of Maryland Managed Lane Plan Lack Substance

Maryland Gov. Larry Hogan hopes to reduce traffic congestion in Maryland’s busy D.C. suburbs by following the lead of its southern neighbor, Virginia, installing managed lane networks on part of the Maryland portion of the D.C. Beltway and I-270. In a recent article, Reason’s Austill Stuart responds to criticisms and mischaracterizations directed at the plan concerning financing, risk management, and decision-making.


» Pay-For-Success Interest Encouraging, Despite Investor Challenges

The limited history of pay-for-success (PFS) arrangements in the U.S. includes few investor successes, despite continued capital flows. While designing PFS programs that consistently meet investor targets will take considerable time and effort, one shouldn’t lose sight of improvements to services that can even accompany PFS investment “failures,” Reason’s Austill Stuart writes. Better PFS investment success should come with time and experience, so long as investors remain committed.


» Baltimore Plan to Ban Private Water Short-Sighted

A recent city charter amendment approved by the Baltimore City Council and supported by Mayor Catherine Pugh—and which voters will decide at the ballot next month—would prohibit the city from entering into an arrangement with a private entity for a sale or lease of the city’s water system. As’s Joe Setyon writes, banning private water outright shuts the city out from potential arrangements that could be beneficial to the aging system, including access to a capital structure that could place less stress on the city’s budget in terms of infrastructure financing and long-term capital maintenance.



Nashville Seeks Street Parking Proposals: In August, the Metropolitan Government of Nashville and Davidson County (“Nashville Metro”) announced it was seeking proposals to for private entities to operate the city and county’s roughly 1,900 metered street parking spaces, located in downtown and midtown Nashville, in a concession agreement. The private operator would operate and manage the spaces and pay Nashville Metro $15 million payments each of the first two years in exchange for being granted the privilege of revenue collection. Proposals are due in early November.

Think Tank Releases California-Focused PPP Guide: In August, the Bay Area Council Economic Institute released “Public-Private Partnerships in California: How Governments Can Innovate, Attract Investment, and Improve Infrastructure Performance.” The guide serves a comprehensive primer for government leaders considering PPPs for infrastructure projects, providing over 50 pages of case studies of a diverse set of PPPs—including courthouses and civic centers, highways and transit, and water systems—placing emphasis on how California has led and continues to lead the country as a hotbed for PPP activity. A concluding chapter focuses on contemporary topics associated with PPPs, including handling unsolicited proposals, best practices for procurement and contracting, and implementing a sound value-for-money analysis.

Relief of Pacheco Law Continues to Benefit MBTA, Massachusetts: In September the Massachusetts Bay Transportation Authority (MBTA) published its annual report concerning the transit agency’s changes due to waiver from the state’s “Pacheco Law,” which severely limits agencies from participating in competitive sourcing and outsourcing agreements. The agency continues to project large savings from a greater reliance on competitive sourcing of services—$450 million over the next decade—including over $80 million from outsourcing warehouse activities to Mancon, Inc., $96 million savings from outsourcing cash handling operations to Brinks (a 75% cost savings compared to its previous in-house operations), and over $275 million achieved from contract negotiations with the agency’s two largest labor unions. The report further notes “benefits from the waiver extend well beyond actual and projected operating dollars saved,” also noting considerable improvements in service delivery, including a drop in crime due to in part due to outsourcing police dispatch (allowing more cops in the field), improved fare collection through upgrades in automation through a public-private partnership, increased customer service hours and presence throughout the T system, and improved parts delivery and warehousing operations through outsourcing.

Cost Management Opportunities for Government: In August, the Deloitte Center for Government Insights released a new report, “Transferring the cost structure of government.” Drawing from private sector insights, it breaks down cost management opportunities into three categories of functions: “NextGen” (new digital opportunities, including artificial intelligence), broad “structural” changes (deciding on what larger functions can be shared, outsourced, curtailed or eliminated) and “traditional” cost management, which more focuses on improving costs of narrower functions using proven cost management methods (quality improvement, redesigning processes, eliminating redundant actions). For each category, the authors raise a series of simple but probing questions, which range in focus from effective of use of cloud computing to getting workers to accept lower-cost approaches, to provide further insight into how to best take advantage of cost management reform opportunities. The report’s appearance is timely, given cost pressures and structures that have placed agencies at all levels of governments in a difficult situation, a dilemma from which private firms can offer valuable lessons.

Kansas Lawmakers Call for Review of Private Child Welfare Program: Kansas’ privately-operated child welfare system continues to receive scrutiny from some lawmakers, with two working groups calling for a review of the program, saying the private model makes state oversight difficult, the Associated Press reported. State officials, including Department of Children and Families Secretary Gina Meier-Hummel, insist that the problems aren’t with the private operation of the system—first implemented in 1996 after a court ruling found the state-run system at the time to be in violation of the constitutional rights of the children it serves—and can be improved with changes in the system, including greater a greater focus on preventative practices to lessen the burden placed on the system.

NYC Eyes PPP For Grand St. Bridge Replacement: In July, the New York City Department of Transportation issued an RFP seeking partners to demolish the 115-year-old Grand St. Bridge, which sits over Newton Creek, between East Williamsburg in Brooklyn and Maspeth in Queens, reported. In addition to deterioration from over a century of traffic, the extremely narrow bridge presented other challenges, including the need to shut down opposing traffic to allow large trucks to pass through the bridge. The city seeks a partner that can replace the existing structure with a new one that will provide a 75-year minimum useful life and improve traffic flows, while also keeping a “moveable span” design of the previous structure to allow large boat passage underneath.

D.C. Metro Privatizes Bus Garage: Early in August, the Washington Metropolitan Area Transit Authority (WMATA, AKA D.C. Metro) picked private contractor Transdev over a local transit union to operate its new bus facility in Lorton, VA, the agency noted in a press release. WMATA expects to save $15 million over the 5-year, $89 million contract, which includes 15 performance metrics related to staffing, preventive maintenance, cleanliness, and timeliness.

Purdue University Pursues First Housing PPP: In August, Purdue University’s Board of Trustees gave approval for the school to enter into final contract negotiations with a Plenary-led consortium for the school’s first housing PPP, the Lafayette Journal & Courrier reported. In the 65-year agreement, Plenary Properties Purdue, LLC will build, operate and maintain two new campus residence halls with a combined 1,300 new beds with an expected opening in fall 2020. The school hopes to save roughly 15% on construction costs as the school welcomes 8,300 new students for fall 2018: the school’s largest-ever enrollment, and well-over its expected target of 7,800.

Seminole County, FL Rejects Library Privatization: In July, officials in Seminole County Florida decided not to pursue contract for Library Systems and Services, Inc. (LSSI) to manage and operate the county’s library system, the Orlando Sentinel reported. While officials admit the 5-year, $32.1 million contract with LSSI contract could have saved money, they didn’t see the savings as substantial enough to agree to the contract.


(T)he exemption from the Pacheco requirements has enabled the Authority to make significant improvements by enabling a careful, deliberate and transparent process to understand internal costs and test the market for more cost-effective ways to better serve MBTA customers. Going forward, the MBTA will continue to work to improve its internal productivity and cost-effectiveness and to carefully consider opportunities to partner with the private sector to better serve the customers and communities that rely on the T.

–The Massachusetts Bay Transportation Authority (MBTA), quoted in Annual Report to the Legislature: Waiver from Provisions of Sections 52-55 of Chapter 7 of Massachusetts General Laws, September 1, 2018.

“It has significant advantages, and it also has some degree of risks. But the advantages we see are substantial, especially in preservation of capital so we can use it for other things.”

–Purdue University Trustee Gary Lehman, referring to the school’s new student housing PPP, quoted in “Purdue calls in private developers for new dorms for first time as enrollment surges,” Lafayette Journal & Courier, August 3, 2018.

“I think what you see now is the result of a very stressed system that wasn’t built to handle the number of children we currently have in out-of-home care…And we haven’t been doing the prevention services that we need to be doing. So I think if we make wiser investments in the front to help preserve families, then the private system can do what it needs to do.”

–Kansas Department of Children and Families Secretary Gina Meir-Hummel, responding to critics of the state’s private child welfare system, quoted in “Review recommended of Kansas privatized child welfare model,” Associated Press, August 28, 2018.