Privatization & Government Reform Newsletter #33 (April 2018 edition)

Privatization and Government Reform Newsletter

Privatization & Government Reform Newsletter #33 (April 2018 edition)

Examining Puerto Rico's long-term fiscal plan, per-mile tolling, last-mile delivery services, and more.

In this issue:

  • GOVERNMENT REFORM: Puerto Rico Fiscal Plans Approved
  • HIGHWAYS: Per-Mile Tolling Best Path for Highway Funding
  • FEDERAL: Ending U.S. Postal Service Monopolies Offers Opportunities
  • TRANSIT: Outsourcing Operations Best for Phase II of WMATA’s Silver Line
  • CORRECTIONS: Contracted Delaware County, PA Jail Outperforms Peers


GOVERNMENT REFORM: As Puerto Rico Oversight Board Certifies Fiscal Plans, Attracting Labor Remains Key to Long-Term Fiscal Solution
Last week, the Financial Oversight and Management Board (FOMB) of Puerto Rico certified fiscal plans for the commonwealth and its electricity and water power utilities as it looks for ways to restore its fiscal solvency. The plans look to implement policy strategies that improve and upgrade transportation and utility infrastructure, offer cleaner and more diverse energy sources, and attract labor and financial capital.

Getting Puerto Rico rebuilt and refinanced will require a strong commitment to attracting human and financial capital. In a new commentary, Reason Foundation’s Marc Joffe provides insight on how Puerto Rico can work to achieve those twin goals, which require handling existing bondholders fairly and implementing economic reforms that incentivize the movement of money and people to the U.S. territory.
» PRESS RELEASE: FOMB Approves Fiscal Plans | FOMB Reports

HIGHWAYS: Per-Mile Charges Best for Transportation Funding
Federal and state per-gallon taxes on motor fuel continue to become less effective to fund transportation. This is largely due to flaws inherent in fuel taxation, such as the mismatch between fuel taxpayers and beneficiaries, the subjection of fuel tax revenues to the political process, and a lack of indexing of fuel taxes to inflation. Meanwhile, alternate vehicle propulsion technologies and improved fuel efficiency curtail or eliminate the need to use fuel sources subject to the tax, but these vehicles still degrade highways and should pay to maintain them. In a recent Public Works Financing article, Reason’s Robert Poole explains why transitioning from fuel taxes to mileage-based user fees (MBUFs) can work to eliminate those inherent problems, ultimately ensuring a stronger link between fee payers and road-using beneficiaries, as well as between fee revenue and transportation funding.

FEDERAL: Last-Mile Delivery: Tough Road for USPS, Opportunity for Private Sector
The global e-commerce market surpassed $2 trillion in 2017, a figure expected to nearly double by 2021. As this market expands, last-mile delivery services—from distribution center to the end user—has been targeted as a key differentiator. Despite many of USPS’ favorable tax treatment and other advantages denied private entities, it has been losing billions annually for years. To help soften some of those financial blows, USPS has been allowing private firms to handle aspects of their operations. As Reason’s Nicholas DeSimone notes in a recent article, permitting USPS to operate as a private entity would not represent a huge leap, given its extensive outsourcing.

TRANSIT: Outsourcing WMATA’s Silver Line Phase II Could Improve Operations
D.C. Metro officials issued a request for information to outsource station operations and track maintenance for Silver Line Phase II, which will extend the rail line to Ashburn, VA, roughly seven miles northwest of Dulles International Airport. Metro has seen decreased ridership over recent years, while also failing to meet its targets for on-time service, employee and customer safety, rail car reliability, and customer satisfaction. Under the right management, Silver Line Phase II could begin to restore public confidence, while also producing savings.

CORRECTIONS: Calls to End Delaware County PA’s Prison Contract Lack Basis
Delaware County, Pennsylvania’s Hill Correctional Facility is the only privately-run prison in the Commonwealth. Despite proven cost savings and favorable data on security incidents relative to its government-operated peers statewide, local activists are calling for an end to private jail contracting in Delaware County. Given the facility’s performance under private operation, calls for ending the arrangement lack supporting evidence.


Brennan Center Releases Criminal Justice Guide for Officials
The Brennan Center recently released a guide for public officials offering a comprehensive criminal justice approach centering on six key objectives: eliminating financial incentives for incarceration, sentencing reform, marijuana reform, improving law enforcement, responding to the opioid crisis, and reducing female incarceration. The report supports a growing bipartisan consensus that sees long prison sentences, especially for nonviolent offenses, as an ineffective policy and incarceration as a costly and often unnecessary approach to ensuring public safety.

NYC Housing Authority Seeks PPPs
In March, Curbed New York reported that the New York City Housing Authority (NYCHA) seeks to enter PPP agreements with private developers to manage many of its housing units, envisioning 15,000 units under private management over the next decade. NYCHA, which relies heavily on the U.S. Department of Housing and Urban Development for its funding, currently faces a $25 billion repair backlog and hopes to enter agreements that attract private capital to help ease the backlog, while also preventing further deferred maintenance issues.

Officials Nix Outsourcing Airport Security in Orlando International
Orlando International Airport (OIA) officials announced plans to cancel privatizing airport security following a meeting between TSA, airport authority members, Democratic Party lawmakers, and its union—who picketed the airport over the potential move in late February. OIA has suffered from long lines at security checkpoints to the point where, in November 2017, OIA officials advised travelers to arrive at the airport up to three hours before departure time. Even still, J.D. Power survey results released last September noted OIA received the highest overall customer satisfaction rating of all “Mega” airports (defined as having at least 32.5 million annual commercial passengers), even when travelers’ evaluations came during a $3.5 billion construction project. With security privatization off the table, OIA officials hope new security lanes expected to open in April (but weren’t as of press time) will ease some of the time burdens.

MBTA Automated Fares Agreement Reaches Financial Close
The Massachusetts Bay Transportation Authority (MBTA) and the consortium of Cubic and John Laing finalized a $701.3 million PPP agreement to design, implement, operate and maintain a new Automated Fare Collection system, known as AFC 2.0, after approving the agreement in November of last year. Benefits of the new system include expanded and improved payment options, faster buses and Green Line trains, and other accessibility improvements.

Louisiana Seeks First Transportation PPP
In February, Louisiana’s Department of Transportation and Development (LADOTD) announced it would enter its first PPP, a replacement of the Belle Chasse Tunnel and bridge, located about 10 miles southwest of New Orleans. LADOTD released a Notice of Intent for the $122 million project in February, and responses were due in early April.

ALEC Releases OPEB Liabilities Report
In March, the American Legislative Exchange Council (ALEC) released a new report—Other Post Employment Benefit (OPEB) Liabilities, 2017— which draws attention to the myriad problems in treating OPEB liabilities, including how they are assessed in terms of financial risk, the transparency of OPEB finances, and the concern (or lack of) over the low level at which OPEB liabilities are funded, often understated due to the open-endedness and uncertainty of OPEB obligations when compared to pension obligations, which are more predictable.

DC Shortlists Streetlighting Project
The District of Columbia’s Office of P3 (DCOP3) shortlisted three consortiafor its streetlighting modernization project in late March. Competing for the contract are DC Smart Lighting Partners II (Star America Fund GP, Aldridge Electric, Fluor Enterprises, WSP, Chesapeake Electric Systems, Sharp & Company, Business Transformation Group), MAB Smart Solutions (Meridiam Smart Solutions, Ameresco, Broadspectrum Infrastructure, Parsons Transportation Group, C3M Power Systems, Monrad Engineering, L.S. Caldwell & Associates, S2N Technology Group), and Plenary Infrastructure DC (Plenary Group USA Concessions, Kiewit Development Company, OpTerra Energy Services, Mass Electric Company, Indigo Mid-Atlantic, Engie Services). As covered in Reason Foundation’s Annual Privatization Report 2017: Local Government Privatization¸ DC OP3 received 11 Statements of Qualification in response to an RFQ released last year for the project, which looks to upgrade the District’s network of over 75,000 streetlights by installing LED technology.

GAO Releases Report on Privatized DoD housing
The U.S. Government Accountability Office (GAO) released a report in March scrutinizing how DoD has assessed and reported the financial condition of its privatized housing projects. This includes a failure to report financial conditions semi-annually since 2014 in violation of requirements. The report also noted difficulties comparing financial data among various projects, due mostly to differences in recordkeeping procedures within the DoD. GAO issued eight recommendations mostly addressing recordkeeping and risk-assessment inconsistency issues, to which DoD all concurred.

Nassau County, NY and Suez Water Management Enter Water Recycling Facility Partnership
Water management firm Suez and Nassau County, NJ announced at the end of February that they would jointly pursue the construction of the county’s first water recycling facility, at the Cedar Creek Water Pollution Plant in Wantagh. The facility is projected to be complete by 2019 and will save close to one million gallons of water per day by reusing treated plant effluent. Suez expects to pay around $1.1 million for the project, which is estimated to cut the Cedar Creek plant’s operating expenses by $350,000 per year.

Texas County, MO Privatizes Indigent Defense
In late February Texas County, MO began its new practice of hiring solely private attorneys to handle criminal cases for defendants who cannot afford representation, the Associated Press reported. Though figures for projected savings weren’t available as of press time, the county feels it can save significant money by not having to pay an in-house public defender, especially given the county’s small population. Other Missouri counties may follow—a proposal introduced in the Missouri House of Representatives would see 90% of the state’s indigent defense cases transferred to private law practices. Additionally, the state’s public defender office’s operations have received scrutiny over the years, with the ACLU filing a suit alleging an inability to provide defendants “minimally adequate representation.”


“It is like leaving a modern traffic control system to one operating in a third world country.”

– An unnamed commercial pilot, on leaving Canadian airspace and entering the U.S.’, quoted in: “Congress to Pass Comprehensive FAA Reauthorization Bill”  Metro Airport News. March 5, 2018.

“The Proposed New Fiscal Plans map the transformative change agenda Puerto Rico needs. Several years of economic decline, excessive borrowing, and fiscal mismanagement drove thousands of people and businesses to leave the Island. Then the historic Hurricanes Irma and María forced even more to leave Puerto Rico as it struggled to recover from the storms’ catastrophic devastation. These plans offer a once-in-a-generation opportunity to do things right and turn these trends around.”

–José Carrión, Chairman of the FOMBPR, quoted in “PRESS RELEASE: Oversight Board Publishes New Commonwealth, PREPA & PRASA Proposed Fiscal Plans Charting Puerto Rico’s Turnaround and Transformation.” Financial Oversight and Management Board of Puerto Rico. April 19, 2018.

“Crime is no longer a wedge issue, and voters desire reform. A 2017 poll from the Charles Koch Institute reveals that 81 percent of Trump voters consider criminal justice reform important. Another, from Republican pollster Robert Blizzard, finds that 87 percent of Americans agree that nonviolent offenders should be sanctioned with alternatives to incarceration. And according to a 2017 ACLU poll, 71 percent of Americans support reducing the prison population—including 50 percent of Trump voters.”

–From the Executive Summary of the Brennan Center’s “Criminal Justice: An Election Agenda for Candidates, Activists, and Legislators.” March 2018.

“State-administered OPEB plans represent nearly $1 trillion of unfunded promised benefits. Transparency would enhance the capacity of taxpayers and public workers to hold politicians and investment managers accountable for keeping promises, while simultaneously safeguarding taxpayers from undue risk. All such stakeholders deserve comprehensible, navigable, and accessible information.”

–Quote from the American Legislative Exchange Council’s “Other Post Employment Benefit (OPEB) Liabilities, 2017.” March 2018.

“The dynamics are completely different when you offer someone actual housing. It’s been a pretty amazing feat.”

–Tyler Jaeckel, developer of Denver’s Homelessness Social Impact Bond program, quoted in: Brown, Jennifer. “Denver sold bonds to reduce the human and financial costs of homelessness. The results so far are promising.” The Denver Post. March 19, 2018.