Privatization and Government Reform Newsletter (Issue 38, September 2019 Edition)
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Privatization and Government Reform Newsletter

Privatization and Government Reform Newsletter (Issue 38, September 2019 Edition)

Paying for water and wastewater projects, Denver’s hasty halfway houses decision, and more.

In this issue:

Main Articles:

  • Annual Privatization Report: Aviation, Surface Transportation Released
  • Water: Private Water Opposition Complicates Already Difficult Decisions
  • Water: Sewer Spills Should Be More of a Concern
  • Criminal Justice: Denver’s Hasty Recidivism Decision

News and Notes:

  • Energy: Louisiana Enters Public Facility Energy PPP
  • Corrections: States Eye Private Prison Bans
  • Federal: Pork Inspection Rule Finalized, Private Army Housing Problems
  • Water: NY, OH, PA Locales Confront Water, Wastewater Deals

Main Articles

Annual Privatization Report: Aviation and Surface Transportation Sections Released

Now in its third decade, Reason Foundation’s Annual Privatization Report 2019 published a pair of chapters over the late summer: Aviation and Surface Transportation.

The Aviation chapter, authored by Reason Foundation Director of Transportation Policy Bob Poole, gives a comprehensive global review of private sector management and operation of the world’s airports, air traffic control systems, and aviation security operations.

The Surface Transportation chapter examines private sector participation in managing the world’s highways, toll roads, and transit lines. Authored by Baruch Feigenbaum, Reason Foundation’s assistant director of transportation policy, the section also includes a global overview of privately-financed surface transportation projects, as well as sections covering U.S. federal and state policy changes related to private sector roles in transportation.

» Annual Privatization Report 2019: Aviation

» Annual Privatization Report 2019: Surface Transportation

Private Water Opposition Complicates Already Difficult Decisions

Critics of privately managed water and wastewater systems like to claim that affected customers get a raw deal, but closing the door on private water is likely to result in an even worse one. By denying the opportunity for the private sector to operate water systems and make improvements, municipalities are often left ill-equipped to handle the challenges alone. While making improvements will almost inevitably result in rate hikes, relying on the private sector can work to reduce them, Austill Stuart notes in a new article.

» FULL ARTICLE

Sewer Spills Should Be More of a Concern

While many are aware of the commonplace water and wastewater infrastructure investment shortfalls in the United States, one unfortunate (and unsanitary) effect of underinvestment in our nation’s water and sewer systems that gets little attention concerns the amount of raw sewage that enters the nation’s waterways. In a new article originally published in the Sarasota Observer, Reason Foundation’s Adrian Moore explores the problem as it exists in Florida, where “about 1.6 billion gallons of wastewater, including more than 370 million gallons of untreated sewage” has entered waterways since 2009. Moore concludes that public-private partnerships remain the best tool for municipalities experiencing difficulties overcoming significant capital requirements to minimize sewage spills.

» FULL ARTICLE

Denver’s Recidivism Contract Decision Hasty, Poorly Planned

The Denver City Council recently decided to end “halfway house” reentry contracts with the private corrections companies that operate detention centers for the federal Immigration and Customs Enforcement. Ending the contracts without a planned replacement, and then re-entering short-term contracts with the same companies, jeopardized the care of the formerly incarcerated and will result in even greater costs to taxpayers, writes Reason Foundation’s Austill Stuart in a recent article.

» FULL ARTICLE

News and Notes

Louisiana Enters Groundbreaking Energy PPP: In August, the Baton Rouge Advocate reported that the state of Louisiana reached an agreement with LA Energy Partners (a consortium of Johnson Controls and local firm Bernhard Energy Solutions) to maintain, operate, and upgrade energy systems in 31 state government-owned buildings, a deal that could potentially expand to agency- and/or university-level agreements. In addition to $54 million in upgrades to government buildings, the deal includes a $3 million, 20-year lease of chiller systems at the government-owned Shaw Center for the Arts, which the operator will use to sell the state chilled water (for the building’s cooling system) for $6 million.

California, Michigan Legislation to Ban Private Prisons: Passing both the state’s legislative houses in September, California Assembly Bill 32 will phase out, and end by 2028, the use of private prisons and detention centers in the state, excepting contracts needed to comply with court orders to meet prison population challenges.

Michigan State Senator Jeff Irwin introduced Senate Bill 489 in September, which would ban the private construction or operation of any prison or construction of a state building by private entities that “currently own, operate, or manage” a private corrections facility while keeping contracting for other prison services legal in the state. While no private prisons currently operate in Michigan, GEO Group announced in May that it planned on re-opening the North Lake Correctional Facility. As Austill Stuart noted previously on Reason.org, the state of Vermont previously contracted with GEO Group to house inmates in North Lake in an agreement ended by the private firm in mid-2017.

USDA Issues Final Rule for Private Meat Inspection: In mid-September, the United States Department of Agriculture (USDA) issued its final rule on allowing private pork producers to enter a voluntary regulatory regime known as the New Swine Slaughter Inspection System (NSIS). Under the new system, private hog slaughterhouses will receive greater leeway to perform “online” inspection duties previously under the jurisdiction of the USDA’s Food Safety and Inspection Service (FSIS), making more effective use of USDA personnel’s time:

“Because this final rule requires establishment personnel in NSIS establishments to sort and remove unfit animals before ante-mortem inspection by FSIS inspectors and trim and identify defects on carcasses and parts before post-mortem inspection by FSIS inspectors, the Agency’s inspectors will be presented with healthier animals and carcasses that have fewer defects, allowing them to conduct a more efficient inspection of each animal and each carcass. As a result, under NSIS, FSIS can assign fewer inspectors to online inspection, freeing up Agency resources to conduct more offline inspection activities that are more effective in ensuring food safety.”

Army Inspector General Report Finds Concerns With Private Housing Program:

The Department of the U.S. Army’s Inspector General (IG) released a survey report in September in response to repeated concerns from residents over the condition of privately managed housing in 49 U.S. installations. The responses show significant problems with how the properties are managed, how management teams communicate with residents over maintenance issues, and with how the Army communicates to its officers about the operations of the program. Staffing was often found to be inadequate, and residents, as well as officials, were often not aware of feedback channels to report concerns that may have provided better outcomes, as individuals who used such channels tended to be more satisfied. The report also found that the Army’s oversight of the program suffered from budget cuts over the last decade, leading to additional understaffing and training problems. The report also found the incentive fee structure used to compensate the private management companies to be only loosely tied to effective performance. In total, the IG issued 20 recommendations to improve operations of the programs to help address the numerous problems.

Louisiana Seeks Emergency Medicaid Contracts After Protests: After the state’s procurement office blocked five new managed Medicaid contracts with private providers over protests by losing bidders, the Louisiana Department of Health looked to finalize emergency contracts to prevent coverage disruption for 1.5 million participants, The Advocate reported. The protest, which includes allegations of a biased assessment system and conflict of interest, led to a stay being placed to prevent the state from negotiating the multibillion-dollar contracts. LDH and the winning bidders described the campaign to prevent the contracts’ implementation as based on “innuendo, assumptions, hypocrisy, their unjustified interpretation of certain emails, and, potentially, outright false statements.”

Pennsylvania County Finalizes Water Authority Sale: Earlier this month, the Delaware County Regional Water Authority (DELCORA) announced it would sell its wastewater system to Aqua Pennsylvania for $276.5 million, the largest sale of water or wastewater in state history, pending approval by the Pennsylvania Public Utility Commission. The move comes in part in response to an announcement by Philadelphia Water Department of pending rate hikes to treat sewage from the DELCORA customers, but also from expected enhanced U.S. Environmental Protection Agency programs to better manage combined sewers in the region needing significant investments. The proceeds will be used for debt reduction and a $210 million rate stabilization plan expected to save the average household $1,400. All 136 affected employees will be offered jobs by Aqua.

Prince George’s County Shortlists K-12 PPP: Inframation News reported in September that Prince George’s County, Maryland, had narrowed potential partners for its K-12 public school public-private partnership (PPP) to four consortia: Engie, Meridiam, Hensel Phelps; Fengate, Stantec, Gilbane, ABM Facilities Services; Edgemoor, Clark, Star America, Johnson Controls; and an additional team led by Preston Hollow Capital. A request for proposals is expected to follow in October for the estimated 30-year, $400 million–$500 million project, referred to in the previous issue of this newsletter.

New York State Thruway Selects Preferred Proponent: Inframation News revealed that a John Liang-led consortium would be chosen as the preferred proponent for the state’s PPP to upgrade 27 service plazas on the semicircle-shaped New York Thruway. The toll road stretches from the north of New York City to Albany, westward to Buffalo, and south to the state’s southwest border with Pennsylvania. The state looks for the private partner to make environmental improvements as well as provide greater retail and parking amenities for travelers and truckers.

Monterey Revising Ambulance RFP: After rejecting a single response from incumbent provider American Medical Response (AMR) to its initial request for proposals (RFP), the city of Monterey, CA, looks to release a revised version to attract more private firms to compete for providing services to the county for 10 years, the Monterey Herald reported in August. The contract with AMR expires on January 31 of next year, but officials are open to a short-term extension with AMR to provide more time to attract alternate proposals. If no contract agreement is reached, then private providers would be allowed to operate freely until one gets awarded.

Ohio City Mulls Water/Wastewater Sale: St. Clairsville, located in eastern Ohio roughly 70 miles from Pittsburgh, has been in talks with private company Aqua Ohio over the past few months over a potential sale of town’s water and wastewater systems. Since March, the small city’s water systems have operated without a Class 3 water operator, an Ohio Environmental Protection Agency violation that will result in daily $25,000 fines since a six-month exemption from fines expired on Sept. 11. Officials expect to decide on the proposed combined water/wastewater system sale shortly, with the bid then being presented to the city council for a vote.

Binghamton Sewage Treatment Privatization Receives Pushback: A plan to privatize a sewage treatment plant shared by a group of New York locales in the state’s Southern Tier that includes Binghamton and Johnson City met resistance led by former and current employees of the facility. The 50-year-old plant is currently is undergoing a $275 million rebuild, which, after interest charges, could reach as much as $400 million. The plan calls for a private entity to manage, operate, and maintain the treatment facility, which the New York Department of State and Environmental Conservation is threatening to fine $37,500 each day for delays in the rebuild. If the larger PPP does not move forward, separately, a panel is reviewing three private management proposals for the facility.

Quotable Quotes

“We looked at aging pipe that was rusty, we looked at antiquated pumps and systems…Again, I want them to have clean, safe drinking water at a fair price and Aqua is showing us that they can do this in a clean, safe way with a limited, minimal increase.”
– Jim Zucal, St. Clairsville City service director, quoted in “St. Clairsville Water Treatment Plant in poor condition” WTOV9.com, August 15, 2019.

“This regulatory change allows us to ensure food safety while eliminating outdated rules and allowing for companies to innovate. The final rule is the culmination of a science-based and data-driven rule making process which builds on the food safety improvements made in 1997, when USDA introduced a system of preventive controls for industry. With this rule, FSIS will finally begin full implementation of that program in swine establishments.”
– U.S. Secretary of Agriculture Sonny Perdue, in press release “USDA Modernizes Swine Slaughter Inspection for the First Time in Over 50 Years,” which announced a final rule on private meat inspection

“The stay will introduce additional, catastrophic delay and uncertainty in the operation of the program as we understand that the stay may bar LDH from proceeding further with negotiating the terms of the contracts and awarding the contracts to the four MCOs that will manage the Medicaid health care services.”
– Rebekah Gee, secretary of the Louisiana Department of Health (LDH), in a letter to Paula Tregre, the state’s chief procurement officer, quoted in “Louisiana moves to issue emergency Medicaid contracts as dispute continues,” August 29, 2019.

“Our number one goal throughout this process was to find a partner who could help us stabilize rates for our ratepayers in the face of large, looming capital costs. By partnering with Aqua Pennsylvania, DELCORA was able to develop a rate stabilization plan with an experienced operator with knowledge of the local community while also preserving all DELCORA jobs.”
– Robert Willet, executive director of the Delaware County Regional Quality Control Authority (DELCORA), quoted in press release, “DELCORA Board Approves Aqua Pennsylvania Wastewater Asset Purchase Agreement,” September 17, 2019.

Austill Stuart is a policy analyst at Reason Foundation, a non-profit think tank advancing free minds and free markets.