Privatization & Government Reform Newsletter #13

Privatization and Government Reform Newsletter

Privatization & Government Reform Newsletter #13

December 2014 edition: state/local fiscal update, local government contracting, water/wastewater privatization, and more

In this issue:

BUDGETS: New Reports on State, City Fiscal Conditions

Two recent reports by the National Association of State Budget Officers and the Pew Charitable Trusts, respectively, offer the latest evidence that the post-recession fiscal situation at the state and local levels remains in a virtual holding pattern, with states seeing a continuing slow recovery and many cities still under pressure.

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PENSIONS: Omaha, Tulsa Underestimating Pension Debt, Investment Risks

Two different cities in the U.S. Heartland-Omaha, Nebraska and Tulsa, Oklahoma-are currently facing major problems with their defined-benefit pension systems that pose a looming threat to taxpayers, according to recently released Reason Foundation analyses. Some of the challenges facing both cities include increased unfunded liabilities, poor actuarial assumptions, and lingering financial risks for taxpayers. The Reason reports conclude that fundamental structural reform to the way these cities provide employee retirement benefits is the only real way to protect taxpayers and reduce the cities’ reliance on the speculative forecasts of financial risk professionals.
» FULL REPORT: Pension Debt: Omaha’s Billion Dollar Problem
» FULL REPORT: Tulsa Pension System Underestimating Debt, Investment Risk

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PRIVATIZATION: University of Michigan Survey Finds High Use, Satisfaction with Local Government Privatization

With the heated rhetoric that often surrounds the privatization of government services, a perspective often lost is that of those officials who actually implement it. A new University of Michigan survey of local officials in Michigan adds some interesting new insights from practitioners, finding that most jurisdictions privatize something, and by and large they’re happy with it.

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WATER: Ending a Busy Year in Water/Wastewater Privatization

In what was already a busy year in the water and wastewater public-private partnerships space, the last few months have brought a number of new and noteworthy developments in this dynamic market sector.

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INNOVATORS IN ACTION: Modernizing Procurement in Missouri

The latest installment of Reason Foundation’s Innovators in Action monthly interview series-which profiles innovative policymakers in their own words, highlighting good government efforts delivering real results and value for taxpayers-focuses on recent legislation introduced in Missouri to allow for “best value” procurement and create a statutory framework for public-private partnerships to develop social infrastructure projects. Earlier this month, I interviewed Missouri State Representative Paul Curtman on his interest in best value procurement, social infrastructure partnerships, and more.

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TRANSPORTATION: Frequently Asked Questions on Toll Concession PPPs

A toll concession public-private partnership (PPP) is a design-build-finance-operate-maintain highway contract in which the principal funding source is tolls charged to users of the highway project, which are used to support long-term revenue bonds, in addition to covering operation and maintenance costs of the project. Despite their growing use in various states, there remain a number of myths and misconceptions about these projects among policymakers. A new report from Reason Foundation answers many of the most frequently asked questions about toll concession PPPs.

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GAO Report Cites Shortcomings With Federal Program Inventory Development: Though the GPRA Modernization Act of 2010 (GPRAMA) called for the development of an inventory of all federal government programs to help identify duplication and redundancy, a lack of consistency in reporting and communication among agencies has hampered this effort, according to a recent U.S. Government Accountability Office (GAO) report. As one example, GAO tried to find 179 science and nuclear non-proliferation programs in the inventory that it had identified in previous work, but only nine of the programs were an exact match and 51 others were identified using program descriptions. The report finds that the 24 agency inventories developed in 2013 “did not provide the programs and related budget and performance information required by GPRAMA [, limiting] the usefulness of the inventories to various decision makers, including Congress and stakeholders.” The full report is available here.

New Brookings Report on Infrastructure PPPs: A new Brookings Institution report by Patrick Sabol and Robert Puentes-both researchers with Brookings’ Metropolitan Policy Program-aims to improve public officials’ understanding of infrastructure public-private partnerships (PPPs). It provides a useful overview of the basics of PPPs and issues like risk sharing and reward sharing, and it offers nine recommendations for successful PPP development, including creating a strong legal framework at the state-level, creating a clear and transparent PPP process, and understanding what the private sector needs in a PPP transaction. The full report is available here.

Indianapolis Selects Preferred Bidder for Criminal Justice Complex: Earlier this month, Indianapolis Mayor Greg Ballard announced WMB Heartland as the winning bidder to design, build, finance, operate and maintain a new, $408 million Marion County Justice Complex. WMB Heartland is a consortium consisting of equity members Meridiam Infrastructure, Balfour Beatty Investments, and Walsh Investors and nonequity members Walsh Construction, Heery International, Cofely Services, Skidmore Owings & Merrill, and Dewberry Architects. The new facility will be built on the former General Motors Stamping Plant and will consolidate criminal courts, a 3,000-bed county jail facility, a 960-bed community corrections facility, sheriff’s department offices, and surface parking into one site. The 35-year deal will see the city make annual availability payments of $46.8 million starting after the facility opens in 2019, a total less than the $50 million the city estimates that it currently spends on its criminal justice facilities, according a press release. More information is available here.

Indiana Seeks Private Operator for State Parking Facilities: The Indianapolis Business Journal reported last month that the Indiana Department of Administration has issued a request for proposals seeking a private operator for nearly 7,000 parking spaces in several state-owned parking garages and surface parking lots in order to find a cost-effective way to create 700 new spaces to replace those currently leased for state employees in private garages downtown. The paper reports that the agency hopes to turn over parking operations to a private partner by February 2015, and six potential bidders attended an October pre-bid conference.

Scranton, PA Officials Seeking Parking, Sewer Privatization: Officials in financially distressed Scranton, Pennsylvania are considering sales, leases or outsourcing for two major city assets-its parking facilities and sewer authority-to reduce debt and unfunded pension liabilities, according to The Times-Tribune. Earlier this month, the city issued a request for qualifications seeking potential bidders for a long-term lease of its system of five parking garages, one surface parking lot, and 1,100 metered parking spaces. Responses are due in early January.

Ohio State University Considering Potential Lease of Energy Systems: The Columbus Dispatch reported in late October that Ohio State University (OSU) officials are considering a long-term lease of the university’s utility and lighting operations. The proposal would involve the private financing of energy-efficiency upgrades to generate cost savings that would be shared to allow the private lessee to recover their costs while enhancing revenues for the university to deploy towards supporting its academic mission (e.g., scholarships, research, etc.). OSU’s current energy spending totals approximately $100 million per year, and it faces a $250 million backlog of needed energy-related infrastructure improvement projects, according to the Dispatch.

University System of Georgia Selects Housing Partner: Last month, the University System of Georgia announced the selection of Corvias Campus Living to build, operate and maintain student housing in a $517 million, 65-year partnership that will span nine university campuses. Corvias will acquire and manage nearly 6,200 existing on-campus student housing beds and will develop and manage over 3,600 new on-campus beds on the nine participating campuses. According to the University System, the deal will “help maintain the affordability of housing for students and improve the fiscal health of the University System by providing financial tools and resources while reducing student-housing debt by nearly $300 million.” More information on the procurement is available here and here.

Unions Avert Privatization of New Jersey Cash Toll Collection (Again): For the second time in three years, the New Jersey Turnpike Authority (NJTA) has used the prospect of potential privatization to garner significant salary concessions from unions representing cash toll collectors, supervisors and management. Late last year, the NJTA issued requests for proposals to potentially privatize electronic and cash toll collection on the New Jersey Turnpike and Garden State Parkway in 2016 to lower operating costs. After delaying the bid deadline several times throughout 2014, the Authority announced last month that it had reached a deal with unions representing cash toll collectors that will see significant salary cuts in exchange for job security through 2019. A similar privatization threat prompted voluntary salary reductions back in 2011. More information is available here.

University of Kansas Seeking Partners for Major Facilities PPP: The University of Kansas has issued a request for qualifications seeking a public-private partnership with a developer to finance, design, build, operate and maintain an array of facilities as part of its new Central District Development Project, consisting of academic science facilities, student union space, two housing facilities totaling 1,200 student beds, a power plant, and additional parking and infrastructure to support the new facilities. Qualifications from interested private partners are due by December 30th. More information is available here.

D.C. Enacts Infrastructure PPP Policy Framework: Earlier this month, the Washington Sun reported that the D.C. City Council unanimously approved an ordinance introduced by Mayor-Elect Muriel Bowser creating a policy framework for infrastructure public-private partnerships and a new Office of Public-Private Partnerships to guide the process. “We have unfunded infrastructure needs that total in the billions of dollars,” Bowser told the Sun. “The Public-Private Partnership Act gives us an innovative tool to close that gap and deliver on major projects in an efficient and cost effective way.”

UNLV Approves PPP for Parking Garage, Police Facility: The Las Vegas Review-Journal reports that Nevada’s Board of Regents has approved an $18 million public-private partnership that will see a private developer finance and build a new 610-space parking garage and university police headquarters for the University of Nevada, Las Vegas (UNLV). The project will add needed parking capacity near the campus and will expand the size of the campus police station.

PennDOT Seeks Partner for CNG Facilities: Last month, the Pennsylvania Department of Transportation issued a request for qualifications seeking a private partner to design, build, finance, operate and maintain compressed natural gas (CNG) fueling stations at 37 public transit facilities around the state. In addition to providing clean fuel for public transit vehicles, the CNG stations would also be open to the general public. “Natural gas is a valuable resource that provides affordable, cleaner options for vehicles in Pennsylvania,” PennDOT Secretary Barry Schoch said in a press release. “This project will ensure we can capitalize on this resource and also benefit the authorities that provide vital transportation services.” More information on the project is available here.

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“Pension concerns in Detroit coincide with a high-level debate among actuaries about their standards for funding public pensions and whether the public is adequately protected from more bankruptcies and Detroit-style disasters. The widespread practice of lowballing pension contributions today so that people will pay more down the road comes from the actuarial standards of practice.

Last month, the president of the Society of Actuaries, Errol Cramer, sent a letter to the Actuarial Standards Board expressing concern over ‘a misperception’ on the part of the public. People have the idea, he said, that actuarial funding schedules were designed to produce enough money to pay for the pensions, ‘which they are not.'”

-Mary Williams Walsh, “Detroit Emerges From Bankruptcy, Pension Risk Still Intact,” The New York Times, November 11, 2014.

“Gov. Inslee’s message to smokers is clear: please, don’t quit. The government needs your money.”

-American Vaping Association president Gregory Conley in a press release, commenting on Washington State Gov. Jay Inslee’s proposed new excise tax on e-cigarettes and vapor products, which would nearly double the price of these products.

“Philosophically, there has to be an embrace of the idea that the private sector can create value that government cannot achieve on its own. In advising a major U.S. city, a senior official once stated that ‘a contractor is nothing more than someone trying to get money out of the government’s wallet.’ With any variant of this attitude-viewing a P3 [public-private partnership] partner in an adversarial way before even entering into a transaction-an initiative cannot succeed. In places as varied as Indiana and Florida, the public sector has embraced P3s because there is an underlying belief that, properly structured, they can create more value than traditional procurement approaches.”

-Stephen Goldsmith and Andrew Deye, “A 5-Part Test for Public-Private Partnerships,”, December 17, 2014.

“It’s easy to dump all of the blame for the pension underfunding jam that Illinois is in on bad decisions made by generations of elected officials. But in a democracy, it’s voters who have the final say. That’s why, angry though they may be, Illinois’ citizens ultimately have only themselves and their predecessors to blame for the state’s pension troubles.

[…] And whether it’s through higher taxes, service reductions or a combination of the two, Illinois voters will likely pay far more for far longer than they would have had they not allowed their elected representatives to shirk their pension responsibilities for over half a century. ”

-Charles Chieppo, “The Real Culprits in Illinois’ Pension Disaster,”, December 2, 2014.

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Reason Foundation’s Pension Integrity Project has helped policymakers in states like Arizona, Colorado, Michigan, and Montana implement substantive pension reforms. Our monthly newsletter highlights the latest actuarial analysis and policy insights from our team.

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