Privatization and Government Reform Newsletter

Privatization & Government Reform Newsletter #30 (March 2017 edition)

March 2017 edition: federal competitive sourcing, ATC privatization, private corrections, school finance reform, and more.

In this issue:

PRIVATIZATION: Executive Order Could Increase Competitive Sourcing, Reorganize Agencies

President Trump recently issued an executive order that, following in a tradition of sorts for recent presidents, sets forth a process aimed at reorganizing the federal government. Time will tell if the Administration’s forthcoming reorganization plan will yield much in the way of substantive reform proposals or meaningful policy change, and the barriers to implementation are many. Nonetheless, any efforts that enhance the prospect of more competitive sourcing could ultimately yield important benefits to taxpayers, from cost savings to more effective service delivery.

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AVIATION: Trump Budget Proposes Shifting Air Traffic Control to Nonprofit Corporation

The Trump administration’s budget blueprint includes a proposal to shift the Federal Aviation Administration’s air traffic control function to an independent, non-governmental organization. With this endorsement, Reason’s Robert Poole writes that in many ways we are back to where the Clinton administration was in 1994–95, except that today a strong aviation and business coalition has embraced the idea. And there is also an excellent track record of 60 other countries that have already carried out this reform, which bodes well for the U.S. to finally get in step with the rest of the world on separating a high-tech air traffic control service business from politics and bureaucracy.

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TRANSPORTATION: Examining Claims About America’s Crumbling Infrastructure

U.S. Department of Transportation data show that most of America’s infrastructure is not crumbling, but its performance—especially that of urban highways—is a major drag on the productivity of our economy. In a recent Public Works Financing column, Reason’s Robert Poole writes that pumping a trillion dollars willy-nilly into infrastructure risks wasting large fractions on projects that would subtract value from our economy. Instead, shifting as much infrastructure investment as possible to public-private partnership concessions is the best way to ensure productive investment in these vital facilities.

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CORRECTIONS: Examining the Inspector General’s Private Prison Report

Last month, U.S. Attorney General Jeff Sessions issued a memorandum rescinding an August 2016 Department of Justice (DOJ) memorandum calling for the federal Bureau of Prisons to phase out, and eventually end, its use of private prisons. The 2016 memo referenced a DOJ Office of Inspector General (OIG) report in justifying the agency’s position at that time; however, while that evaluated how the BOP oversees its contracts, it did not analyze whether or not the BOP should terminate, or even reduce, its use of private prisons. A new Reason policy brief highlights the OIG’s actual findings and examines what they actually tell us about the effectiveness of contracted prison operations.

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CRIMINAL JUSTICE: Safety Valve for Florida’s Drug Trafficking Offenses

Florida routinely sentences individuals to unnecessarily long prison terms for illegally possessing or selling a quantity of prescription medication that contains very small amounts of oxycodone and/or hydrocodone. Due to the rigid nature of Florida’s mandatory minimum sentencing laws for these offenders, judges are required to sentence all individuals convicted of these offenses to the same mandatory prison term regardless of whether or not there are any mitigating circumstances present. In a new James Madison Institute study, Reason’s Lauren Krisai recommends that Florida legislators consider enacting a safety valve exception for certain individuals convicted of these trafficking offenses, which could save the state millions of dollars per year and prioritize prison space for more serious offenders.

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EDUCATION: Building Blocks for School Finance Reform in Texas

The way Texas funds its schools creates systemic inequities, resulting in districts and students with similar needs receiving wildly disparate resources, in some cases leading to lawsuits. Districts allocating schools staff members rather than actual funding, and other practices, prevent principals from fixing problems and serving student needs. A new report by Reason’s Aaron Smith recommends three systemic changes to better serve Texas students: decreasing the reliance on local revenues to fund public education, adopting student-based budgeting, and expanding access to high-quality education options.

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INFRASTRUCTURE: Reinventing the Port Authority of New York & New Jersey

The Port Authority of New York & New Jersey was established in 1921 to create a sustainable, de-politicized way to provide and manage bi-state transportation infrastructure. At the time, the highly centralized, Progressive-Era public authority model was state-of-the-art. Nearly a century later, however, the model’s three key limitations have become evident: politicized decision-making, money-losing facilities, and declining financial viability. In a recent report jointly published by Reason Foundation and the Manhattan Institute, Reason’s Robert Poole recommends that the Port Authority instead moves toward a model where infrastructure facilities are funded by dedicated revenue streams and facility-specific accountability, via long-term public-private partnerships, which today mobilize hundreds of billions of new capital for infrastructure around the world.

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PUBLIC HEALTH: Proposed State E-Cigarette Taxes Would Hurt Public Health

Rhode Island Gov. Gina Raimondo’s state budget plan would change the definition of “other tobacco products” to include e-cigarettes and would impose a new 80% wholesale tax on these products. And over in New Mexico, the Senate just passed bills that would label e-cigarettes “tobacco products,” create a new 76% tax on them, and ban vaping anywhere that smoking is currently prohibited in the state. Instead of fighting a misguided war on e-cigarettes, Reason’s Brian Fojtik writes that policymakers in Rhode Island and New Mexico should consider them a tool that can reduce smoking rates, lower health care costs and save lives.
» ARTICLE: RI’s Proposed E-Cigarette Tax Would Hurt Public Health and Economy
» ARTICLE: NM’s Plan to Raise Taxes on E-Cigarettes Would Hurt Public Health

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Colorado Issues Final RFPs for I–70 Project: Early this month, the Colorado Department of Transportation’s High Performance Transportation Enterprise released its final requests for proposals to design, build, and maintain a project that calls for reconstructing a 10-mile stretch of I-70, while adding managed express lanes in each direction and lowering a portion of the Interstate, in part so that a four-acre park can be built on top of the road. The move follows approval in January from the Federal Highway Administration. Construction is expected to start in early 2018. For more information, see here.

Louisiana Issues RFI for I-10 Bridge: Earlier this year, the state of Louisiana issued a request for information seeking private partners to enter into a PPP to help finance and build interchange improvements along Interstate 10 in Baton Rouge. Drivers in the city endure heavy congestion along I-10, especially near the Mississippi River crossing. Some policymakers, such as Gov. Jon Bel Edwards, have expressed strong support for the project, marking a contrast with the unsolicited proposal for an I-10 PPP submitted to the state in 2015, which failed to gain traction in the governor’s office and legislature at the time, according to The Advocate.

St. Louis Exploring Potential Airport Privatization: In March, the city sent a preliminary application to the Federal Aviation Administration (FAA)’s Airport Privatization Pilot Program, seeking permission to study a long-term lease with a private partner to operate the city’s Lambert International Airport, while retaining ownership of the airport itself. The city seeks the preliminary approval to obtain one of the five remaining spots in the pilot program. “We owe it to taxpayers and the airport’s users to reap the maximum benefits of the airport, and we believe this pilot program has the potential to do just that by improving airport revenue through private partner innovation, diversification, and improved use of land assets,” St. Louis Mayor Francis Slay said in a press release. The FAA’s decision is expected later this spring.

NASA Seeks PPPs to Advance Commercial Space Technologies: NASA’s Space Technology Mission Directive issued an Announcement of Collaborative Opportunity (ACO) solicitation in early February, seeking private sector partners to aid in developing and accelerating space technologies in four key technology development areas: small launch vehicles, reliable electronics, advanced communications, and in-space propulsions, with an emphasis on projects valuable for commercial and governmental use. Preliminary responses to the ACO are due on March 15, with final proposals due at the end of May. More information is available here.

L.A. Metro Seeks Private Partners: As L.A. Metro plans for expansion after voters approved sales Tax Initiative Measure M last December, the agency is now considering four unsolicited proposals designed to deliver two of its projects ahead of schedule—the West Santa Ana Branch Transit Corridor (Skanska USA and Kiewit) and the Sepulveda Pass Transit Corridor (Parsons Transportation Group, Inc. and Cintra)—according to the transportation blog “The Source.” The four proposals will now move on to a more detailed analysis phase, after a couple of other proposals were rejected during an initial review process.

Illinois Issues “Smarter Cities” RFP: At the end of January, the state of Illinois issued an RFP to help its municipalities more easily benefit from connected LED street lighting, according to Government Technology. The RFP asks for private companies to bid on a statewide project, allowing for larger scale benefits while facilitating financing for smaller communities that otherwise would have found funding difficult. As reported in the Local Government Privatization section of Reason Foundation’s Annual Privatization Report 2016, the city of Chicago issued an RFP last summer for its own LED street lighting upgrades, with Mayor Rahm Emanuel announcing a demonstration project late last year.

PERC Releases New Public Lands Report Focusing on Interior Reform: Earlier this month, the Property and Environment Research Council (PERC) released its newest Public Lands Report, A New Landscape: 8 Ideas for the Interior Department. Each of the report’s eight recommendations targets a specific area of the Interior Department’s broad scope—national parks, tribal policy, endangered species, and oil and gas extraction among them—with targeted reforms designed to improve land and resource management by allowing greater extent of the market, while maintaining federal oversight. Examples include enhancing grazing permits to the treatment of a secure property right, while also allowing non-ranchers to purchase grazing rights to promote bargaining and negotiation over the legal and political battles that presently settle such disputes, and allowing tribal communities to maintain greater control over their own natural resources. The full report is here.

UT-Dallas Begins Second Phase of Mixed-Use PPP: The University of Texas at Dallas reached financial close with a consortium led by Balfour Beatty to complete Phase 2 of its Northside project, a $65 million project that will add 275 additional housing units and 6,600 square feet of retail space to Phase 1 of the project, which opened last year, according to BusinessWire. Dallas-based commercial developer Wynne/Jackson, New York-based infrastructure developer Star America, Andres Construction, and Architecture Demarest join Balfour Beatty in the consortium, which expects a completion date of August 2018.

Studies Recommend Alaska Mental Health, Juvenile Justice Remain In-House: Feasibility studies recently submitted to the state’s Senate Health and Social Services Committee recommend keeping management of the Alaska Psychiatric Institute (API) and the state’s juvenile justice facilities in-house, citing the potential for higher costs from privatization. While the API report did suggest some outsourcing in the Institute concerning administrative and communications positions, the consultants found full privatization could require substantial initial costs to account for a lack proper skills in the area. More information is available here.

Gov. Cuomo Vetoes NYRA Privatization Bill: In March, lawmakers in the state’s General Assembly and Senate each introduced budget proposals for 2017–18 that include re-privatization of the New York Racing Association (NYRA), five years after Gov. Andrew Cuomo put the association under state control. Earlier in January, Gov. Cuomo chose not to sign legislation passed at the end of the last legislative session (Bill #A10429) that would have returned management of the NYRA back to the private sector, but Cuomo also introduced a budget proposal earlier in the month taking a different approach to privatization. All three of the budget proposals call for NYRA to be run by a 15-member board, but the Assembly and Senate proposals limit the number of state appointees to four, while Gov. Cuomo’s proposal calls for six state-appointed board members while also giving more control to the state’s Franchise Oversight Board, which oversees NYRA. For more information, see here.

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“This is a first step in positioning the state to leverage private sector resources in delivering major enhancements to the I-10 capital corridor. We aren’t likely to have the revenue needed to make a [public-private partnership] work for the entire corridor today, but we will be ready to advance such a partnership if the Legislature acts in a meaningful way to fund transportation during the upcoming regular session.”

—Louisiana Governor John Bel Edwards, quoted in Chris Hill, “Louisiana DOTD issues RFI to accelerate 1-10 Capital Corridor work through a P3“, Equipment World, February 1, 2017.
“Misleading consumers is unethical, and consumer protection laws aim to prevent companies from engaging in such behavior. Tobacco companies were held to account for misleading the public. But we now have government agencies engaging in similar behavior, and it is no less unacceptable.”

—David Sweanor, University of Ottawa Centre for Health Law, Policy and Ethics, cited in David Hill, “‘Smokeless Doesn’t Mean Harmless’ campaign may be doing more harm, researchers argue (press release)“, University of Buffalo, February 8, 2017.
“This ACO continues to build on STMD’s strategy to advance commercial space capabilities aligned with NASA’s long-term strategic goals. These partnerships will leverage NASA’s unique engineering expertise and test facilities to increase U.S. industry competitiveness in the space sector.”

—Steve Jurczyk, associate administrator for NASA’s Space Technology Mission Directorate, quoted in “NASA seeks partnerships with U.S. companies to advance commercial space technologies (press release)“,, February 2, 2017.

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