Privatization & Government Reform Newsletter #28 (November 2016 edition)

Privatization and Government Reform Newsletter

Privatization & Government Reform Newsletter #28 (November 2016 edition)

November 2016 edition: highway PPPs, public pension returns, student-based budgeting, correctional privatization trends, and more

In this issue:

TRANSPORTATION: Investor Financed Toll Roads Are Not Failures

The recent bankruptcy filing by the toll concession company that financed, built and operated the portion of Texas SH-130 near Austin has prompted some observers to claim the history of PPP toll projects is one of failure. In a recent article, Reason’s Robert Poole counters that many toll projects are experiencing healthy demand, not to mention a strong market to acquire investor-financed PPP toll roads.

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PRISONS: Recent Developments in Criminal Justice and Private Corrections

Amid the gradual decline in the national prison population in recent years, the number of federal and state inmates held in privately operated correctional facilities fell by nearly 1.3% over the past year and stands at 8.9% overall, according to Reason Foundation’s Annual Privatization Report 2016. The report’s newly released section on criminal justice and corrections reviews developments in criminal justice reform, public-private partnerships in corrections, correctional health care privatization and more.
» FULL REPORT: Criminal Justice and Corrections 2016
» Annual Privatization Report 2016 homepage

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PENSIONS: CalPERS Says 7.5% Returns Over the Next Decade Unlikely

After announcing last year a gradual 20-year reduction in its assumed rate of return, the California Public Employees Retirement System (CalPERS) is now considering bringing that rate down faster. In a recent blog post, Reason’s Anthony Randazzo explains why this would be a sensible move and could portend a more widespread shift by other public pension plans nationally, given CalPERS’ position as an influential market leader.

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EDUCATION: Mississippi Pursuing Student-Based Budgeting

Mississippi officials are overhauling their state’s 20 year-old education formula to replace it with a weighted student formula—a “money follows the child” approach to school funding. In a recent blog post, Reason’s Tyler Koteskey explains why switching to a student-based budgeting model would be a step forward for equity and transparency in Mississippi’s education system.

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REGULATION: Examining Antitrust Immunity for Market-Participant-Dominated Regulatory Boards

The Texas Medical Board, which regulates the practice of medicine in Texas, tried to crack down on “telehealth,” the practice of doctors seeing patients by phone or video consultation rather than face-to-face appointments. The Texas Medical Board is dominated by practicing physicians, so this crackdown consisted of doctors regulating their own competitors. Teladoc, a telehealth firm, argued that this was invalid under federal antitrust law, based on recent precedent from the U.S. Supreme Court on the antitrust liability of regulatory boards dominated by market participants. In a recent article, Emory Law School Associate Professor Alexander Volokh explains how Teladoc won, in part thanks to an amicus brief that he wrote for himself and 54 other antitrust and competition policy scholars.

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INNOVATORS IN ACTION: Improving Services through PPPs in Sumter County, Florida

The latest installment of Reason Foundation’s Innovators in Action interview series—which profiles innovative policymakers in their own words, highlighting good government efforts delivering real results and value for taxpayers—focuses on Sumter County, Florida’s use of privatization and competitive contracting in the interest of improving the quality of public services. Reason Foundation’s Austill Stuart recently interviewed Bradley Arnold, county administrator for Sumter County, who led the drive toward many of its major contracting initiatives. Mr. Arnold spoke of the decision-making process, with a focus on a recent decision to contract out library management and operations.

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New Report Recommends Regional PPP Units: A new American Enterprise Institute report by Carter Casady and Rick Geddes recommends the creation of seven regional PPP units in the United States (based on economic megaregions) to help facilitate the continued growth of private investment in U.S. public infrastructure. Similar to PPP centers of excellence used in various parts of the world, the proposed regional PPP units would be quasi-governmental entities that help government partners advance PPPs through offering specialized services including pre-project screening, project prioritization, education, and advisory services. The authors suggest that such units would generate a range of benefits, including “lowering the costs of completing PPPs, and the wrapping and marketing of similar projects across state lines.” The full report is available here.

Cali Launches PPP for Public Safety LTE Network: California issued an RFI earlier this month seeking proposals to design, build, and operate a statewide public safety long-term evolution (LTE) radio-access network. The purpose is to see if a viable PPP arrangement can be provided as an alternative to “opt-out” of the nationwide First Responder Network Authority’s (FirstNet’s) arrangement, in which the authority would use its own contractor to construct such a network for the same purpose. If the state feels such an alternative better suits its operations, the contacting parties would be required to maintain a network in California that would allow for seamless integration with FirstNet, which is under the authority of the federal National Telecommunications and Information Administration.

MBTA Officials Award Cash-Counting Contract: In October, the Massachusetts Bay Transportation Authority’s fiscal control board awarded Virginia-based Brink’s a five-year, $18.7 million contract to take over cash-counting operations. The move is expected to save $8.6 million in its first year alone, according to the Boston Globe. The agency was recently cited as being costly and inefficient; a recent consultant report found that half as many private sector workers could complete a significantly greater amount of work at a higher level of quality than in-house operation, the Globe recently reported.

Federal Bureau of Prisons Renews Prison Contracts: As reported in the August edition of this newsletter, the U.S. Department of Justice (DOJ) announced that month that it would start phasing out its use of private prisons within the Federal Bureau of Prisons (BOP), yet BOP has since renewed two private prison contracts. At the end of September, private prison operator The GEO Group, Inc. announced an extension of its contract with the BOP for its D. Ray James Correctional Facility, effective until September 30, 2018. The move comes alongside a legal challenge by GEO to the recent decision to phase out the use of contract prisons in the BOP, saying the DOJ acted “illogically,” according to the Houston Chronicle. Separately, in November the BOP announced the renewal of its contract with CoreCivic (formerly Corrections Corporation of America) to operate the McRae Correctional Facility in Georgia. The BOP will make monthly payments to CoreCivic for 1,633 beds, down from the 1,780 provided by the previous contract, according to The Tennessean.

PPP Sought for US/Canada Border Crossing: Earlier this month, the Windsor-Detroit Bridge Authority issued an RFP asking three consortia—Bridging North America, Legacy Link Partners, and CanAm Gateway Partners—to bid for the task of designing, building, and maintaining the proposed Gordie Howe International Bridge, which would connect Detroit, Michigan in the U.S. to Windsor, Ontario in Canada. The estimated $2.1 billion bridge project would replace the existing Ambassador Bridge, which is currently utilized by 2.5 million large cargo trucks a year, around 30% of all such crossings between the two countries, according to Global Construction Review. “The Gordie Howe International Bridge is one of the most significant infrastructure projects in North America because of its vital role in maintaining and growing Canada’s most important trade relationship and closest partnership,” Amarjeet Sohi, Canada’s minister of infrastructure and communities, said of the plan.

North Carolina Advancing Toward Medicaid Managed Care: Community Care of North Carolina (CCNC), the nonprofit that manages health care for 1.6 million Medicaid patients in the state, released a report last month showing continued savings in costs (from $597 per patient per month in 2010 to $543 in 2015), as well as in hospital emergency room visits, admissions and readmissions. In the $110 million contract, the nonprofit serves as an umbrella group that oversees 14 different community-based networks, with a presence in all 100 North Carolina counties, ultimately serving 84% of the state’s 1.9 million Medicaid patients, according to the Charlotte News-Observer.

As the current Medicaid arrangement continues to tout savings, the state awaits response from the federal government over its more comprehensive privatization proposal, which would change statewide Medicaid delivery from the “fee-for-service” model under which it currently operates to a flat rate per-patient, managed-care model with up to three private providers, as well as up to 10 separate contracts with regional networks of providers, dubbed “provider-led entities.” Although the privatization model would end the current contract with CNCC, the nonprofit plans to participate in the bidding process, according to the News-Observer.

Kansas Seeks Private Operator for State Psychiatric Hospital: Earlier this month, the Kansas Department of Administration issued an RFP seeking a private contractor to operate the state’s Osawatomie State Hospital, one of two state facilities that provide mental health services for Kansans. The proposal would allow for a contractor to transfer up to about half of Osawatomie’s 206 beds to other areas in Eastern Kansas. The RFP calls for a five-year contract, which could be extended for three years. Due to Senate Bill 449, which Gov. Sam Brownback signed in May, any proposal to operate the hospital would ultimately require legislative approval before a contract could be executed, according to KCUR 89.3 News.

Wayne County, Michigan Jail Health Care Contract Approved: On October 20, Wayne County commissioners voted 10-5 to approve a three-year, $52 million contract with Correct Care Solutions to provide health care services for 2,000 of the county’s inmates, according to The Detroit News. County Executive Warren Evans sees the move as an opportunity to improve services for inmates, not cut costs. Concerns over the quality of healthcare for inmates in Wayne County jails date back to the 1970s, when the jails were first placed under a court-ordered consent decree to fix persistent health problems, which include poor ventilation, lack of care for chronic conditions, and inadequate bathroom facilities, according to the Detroit Free Press.

Illinois Announces Emissions Testing Contract: In late October, the Illinois Department of Environmental Protection announced changes to the state’s vehicle emissions testing program, including a new contract that officials expect to save the state $11 million per year, and $100 million over the contract term, according IEPA Director Alec Messina. Most of those savings would be achieved by streamlining testing to a single process, eliminating a second process that applied to very few vehicles, and did little to affect air quality, according to IEPA officials. The IEPA also expects quicker testing from the new contract, saving Illinois residents time.

PERC Releases California Wildfires Study: The Property and Environment Research Center (PERC) recently released a policy study focusing on providing economic perspective to policies governing wildfire management. From a theoretical standpoint, fire suppression efforts should be applied so long as an additional dollar spent on fire protection avoids more than a dollar’s worth of additional fire damage. In reality, many issues confound such an analysis, such as the formation of the fires themselves and incentives issues involving landowners and agencies. These issues plague many prospects and proposals for better management, but do note that some more-promising proposals exist: a combination of budgeting at a flat baseline and allowing agencies to bank remaining funds for future use could improve incentive issues, as could placing tighter controls over developed areas located adjacent to wilderness areas. The full report is here.

Audit of DC School Lunches Contract Released: An audit conducted by District of Columbia Auditor Kathy Patterson found that the 2008 decision to outsource food services at D.C. public schools neither saved money nor improved meals. Patterson recommends food services go back to in-house management by the school system. Carla Watson, Interim Chief Operating Officer of D.C. schools (DCPS), says that taking over food services is not something that they have planned currently, and she disagrees with the auditor’s recommendation to transition back to in-house operations, citing a fruitful relationship with contractors being monitored by DCPS staff. The response also noted while DCPS “carefully considered implementing a self-operated food service operation,” there are “many immediate risks that inform our decision” to not go back to an in-house arrangement, such as absorbing legacy workers and renegotiating contracts, WTOP reported. The response also noted that the new food service contracts were only approved this July, were not in effect during the timespan covered by the report, had only been in effect for a few weeks when the late-September DCPS response was written, and that they will likely achieve cost savings using operational methods the previous arrangements did not.

USF Student Housing PPP Approved by Florida Board of Governors: On November 1st, the Florida Board of Governors approved the University of South Florida’s (USF’s) plans to enter into a PPP agreement to build a new mixed-use student housing development. Capstone-Harrison Street, LLC—a partnership of Capstone Development Partners, LLC and Harrison Real Estate Capital—will finance, build and operate the new development. The project, which is expected to be completed in June 2018 and will result in a net gain of over 1,100 beds after the demolition of existing student housing that dates back to the 1950s, will also include dining and retail, as well as health and fitness facilities, according to the Tampa Bay Business Journal.

East Baton Rouge Parish Nearing Prison Health Care Contract: The parish looks to speed up plans to privatize prison health care for inmates in its prisons after lawsuits and the resignation of one of its staff physicians. While a vote for a one-year, $5.3 million contract for CorrectCare to provide those services was scheduled for November 9th, staff concerns have pushed the vote back to the 22nd, The Advocate reported. Overcrowding and a lack of mental health services for inmates have been big concerns since the state closed a nearby mental health facility—the Earl K. Long Hospital—in 2013, according to the Greater Baton Rouge Business Report.

Jackson, MS Looks to PPP to Improve Parking Operations: WDAM 7 News reports that the Jackson City Council continues to debate whether or not to outsource the operation of the city’s parking meters to Hudson Associates. Many of the city’s roughly 1,000 meters do not work properly, hurting revenue for the city, and, as part of the deal, Hudson would replace broken meters with ones that allow for credit card payment. The deal would also include an up-front payment to the city by Hudson for the opportunity to collect fares as revenue. Critics of the move say that increased enforcement of parking violations would improve revenues without the need to privatize. Separately, the city plans to increase hourly parking rates—from $.50 to $1.00 or more, according to WDAM.

Tazewell, Virginia Looks to Outsource Landfill Operations: The Board of Supervisors in Tazewell County is exploring the potential outsourcing of landfill operations to a private company, while retaining ownership of the landfill itself. The county received an unsolicited bid for such a proposal from Santek in February, leading to an RFP that generated two responses, with Santek delivering the favored proposal, according to the Bluefield Daily Telegraph. After making a further assessment of cost considerations compared to the current in-house arrangement in the county, the Board of Supervisors will make a decision on whether to approve the Santek’s proposal.

Killeen, Texas Seeking Solid Waste Outsourcing: On November 1st, Killeen’s city council agreed to draft an RFP to outsource the city’s solid waste pickup. An outside consultant will draft the RFP, which will allow companies to bid on a contract or enter in a franchise agreement with the city. Since the city’s mowing program is currently funded as a part of its solid waste management program, mowing would need to be moved under the city’s general fund or be outsourced separately, according to the Killeen Daily Herald.

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“If ever a public enterprise were ripe for privatization, its [Montgomery County, Maryland’s liquor monopoly]; the ineptitude of the county’s Department of Liquor Control, an 80-year-old remnant of post-Prohibition days, is notorious.”

—”Montgomery County’s unbreakable liquor monopoly” (editorial), Washington Post, November 20, 2016.
“Using actuarial sleight of hand to deny hard realities is a recipe for disaster. In the end, it’s no better than trying to recoup gambling losses by doubling down on the next bet.”

—Ed Bartholomew, “Public Pensions: Don’t Look Now, But…,” Milken Institute Review, November 1, 2016.
“Any claim that a specific policy will foster growth or decline should be treated with a great deal of caution. […] Confident predictions that economic growth is attainable if city leaders would just get with the program are seriously oversold.”

UVA law professor Richard Schragger, quoted in Alan Ehrenhalt, “The Reality of Mayors’ Economic Promises,” Governing, November 2016 edition.
“There is some justice, I suppose, in the [Pennsylvania] Legislature sending Gov. Tom Wolf a bill that finally allows beer distributors to sell six-packs. It’s now that much easier for the rest of us to drink away our sorrows over the Legislature’s abject failure (again) to clean up their own mess and pass a bill fixing Pennsylvania’s financially disastrous public employee pension system.”

—John L. Micek, “The sound of a pension can being kicked … again … rings hollow,” The Patriot-News, October 27, 2016.

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