Privatization & Government Reform Newsletter #14 (January 2015 edition)

Privatization and Government Reform Newsletter

Privatization & Government Reform Newsletter #14 (January 2015 edition)

January 2015 edition: state & local fiscal outlook, PPP finance, renewable portfolios, urban mobility, and more

In this issue:

BUDGETS: GAO Sounds Warning on State, Local Budgets (Again)

While the short-term fiscal trends now appear to be trending in a positive direction for state and local governments, the Government Accountability Office (GAO) offered a dire long-term outlook in its latest state and local fiscal outlook report, which found that both sectors will continue to face long-term fiscal challenges, with a growing gap between revenue and spending through the year 2060, absent significant policy changes. Overall, the message to state and local policymakers should be, “We’re not out of the woods yet.”

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PENSIONS: Millennials and Pension Reform

California currently has at least $142.7 billion in unfunded pension debt at the state level. This has particularly serious ramifications for the millennial generation, who will be on the hook for these and other public debts and obligations made by people years before they were even born. Millennials won’t be the only losers if elected officials do not have the courage to reform the state’s broken pension systems, but according to Reason Foundation’s Lance Christensen, reform won’t happen unless millennials get informed and engaged.

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INFRASTRUCTURE: Leveling the Financial Playing Field for Infrastructure PPPs

One of the perennial arguments raised against infrastructure public-private partnerships (PPPs) is that the financing cost will be higher-revenue bonds issued by the private sector carry higher interest rates since the interest on those bonds is taxable. If the same project were carried out by a government agency, the bonds would be tax-exempt and therefore have lower interest rates. According to Reason Foundation’s Robert Poole, this is a foolish distinction-tax-exempt bond status should depend not on who the project developer/operator is, but rather on whether or not it is available for use by the public. Luckily, Congress has begun to embrace this logic over the past decade, and a new Obama administration proposal would go further by creating a new tax-exempt bond vehicle intended specifically for PPPs in airports, seaports, highways and bridges, transit, water and wastewater projects, and more.

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ENERGY: Assessing the Costs and Benefits of Renewable Portfolio Standards

More than half the states have renewable portfolio standards in place requiring certain and growing percentages of electricity to come from specified sources. Are these policies providing society with measurable benefit? Are they too costly for what they provide? In an attempt to answer these fundamental questions, the National Renewable Energy Laboratory and Lawrence Berkeley Laboratory published a survey of estimates from the state regulatory agencies and utilities entitled A Survey of State-Level Costs and Benefits of Renewable Portfolio Standards. Unfortunately, the Survey failed to assess the quality of the estimates and ends up potentially misleading policymakers, according to a new Reason Foundation report, and should not be used to formulate or justify policy in any state or federal legislation.

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TRANSPORTATION: Improving Mobility in Denver

With significant growth projected over the next 25 years, Denver’s economic productivity and quality of life are threatened by a lack of mobility. Yet, the region’s long-range transportation plan admits that despite its $133 billion price tag, congestion will only get worse if the plan is implemented. A detailed new Reason Foundation plan shows how Denver can actually cut its long-range transportation plan’s costs from $133 billion to $52 billion while focusing on reducing the bottlenecks and traffic jams that plague the region. By focusing on improving mobility, Reason’s plan would save Denver commuters $27.6 billion worth of time that would otherwise be wasted sitting in traffic jams over 20 years. The Reason Foundation proposal calls for $22 billion in highway additions-including $11 billion in new toll lanes; $15 billion to widen arterial roads and build new interchanges at busy intersections; and $15 billion to expand bus services.

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Economic Recovery Slow to Hit Counties: A new report from the National Association of Counties reviewed the economic health of counties in 2014 and found that while job growth had picked up in a majority of counties over the previous year, only 65 of 3,069 counties had fully recovered to pre-recession levels on four key indicators (jobs, unemployment rates, economic output, and median home prices). It also found that unemployment rates have not returned to pre-recession levels in 95% of counties. The full report is available here, and an associated data mapping tool is available here.

University of California, Merced Shortlists Developers for Campus Expansion: In early January 2015, the University of California, Merced announced that it had shortlisted three developer teams for its 2020 Project, a mixed-use development to combine academic, administrative, research, recreational, residential and student-services facilities sufficient to accommodate 10,000 students by the 2020-2021 academic year. The project will be developed across a 219-acre university-owned site that includes the current campus and 136 acres of adjacent, undeveloped land. The three teams will now develop detailed proposals, which will be submitted in late 2015. The project is aimed to cost effectively expand the rapidly growing, decade-old university campus, which is approaching the physical capacity of its current facilities.

PennDOT Shortlists for CNG Fueling Station Project: The Pennsylvania Department of Transportation (PennDOT) recently announced that four teams will be invited to submit proposals for a public-private partnership to develop compressed natural gas (CNG) fueling stations at public transit agencies around the state that would also be available for use by the public. The teams invited to submit proposals are led by Clean Energy, GP Strategies, Spire, and Trillium CNG. PennDOT plans to issue a final RFP in the spring and could make an award in late summer or early fall. The agency is seeking a private partner to design, build, finance, operate and maintain CNG filling stations at up to 37 transit facilities across the state, with each providing access to CNG for public transit and other CNG vehicles. More information on the project is available at

High Interest in Scranton, PA Parking PPP: Earlier this month, officials in Scranton, PA announced that they had received expressions of interest from ten potential bidders for a long-term lease or sale of the city’s parking garages, one surface parking lot, and 1,100 metered parking spaces, according to The Times-Tribune. Qualified firms will be invited to submit detailed proposals, and a deal could be struck later this year. Officials in the financially distressed city are considering privatizing two major city assets-its parking facilities and sewer authority-to reduce debt and unfunded pension liabilities.

Utahns Support Liquor Privatization: Though Utah is generally viewed as the most aggressive alcohol “control” state-all distilled spirits, wine and beer over 4% alcohol are sold through the state’s retail alcohol monopoly-voters are of a mixed mind about the system and generally support some form of privatization. A November 2014 poll of active voters by found that a slight plurality (36%) of Utahns think the state should privatize all liquor sales, while another 27% would prefer the state to retain control over distilled spirits sales while privatizing retail sales of beer and wine. Only 31% of respondents preferred the status quo. In contrast to some other states, a majority of Democrats (64%) supported privatization, compared to only 26% of Republicans and 38% of independent voters. Meanwhile, 40% of Republicans prefer the status quo of state control, compared to 27% of independent voters and 6% of Democrats.

Massachusetts Expands Motor Vehicle Registry Services Partnership: Earlier this month, Massachusetts officials announced plans to expand their public-private partnership with AAA to provide vehicle license and registration renewal services to an additional six locations and add additional services for AAA customers. The expansion will double the number of locations AAA customers can receive registry services from six to 12 across the state and will now allow for commercial renewals, registration amendments/transfers, and duplicate titles, in addition to the current batch of service options (license renewals, duplicate licenses or ID cards, passenger vehicle registration). “Essentially doubling the Registry transactions offered and doubling the locations greatly increases our reach to our thousands of mutual customers,” Massachusetts Department of Transportation Acting Secretary & CEO Frank DePaola said in a press release.

Columbia, SC Solicits Private Interest in Water, Wastewater Systems: Officials in Columbia, South Carolina have issued a Request for Expressions of Interest to gauge private sector interest in a potential public-private partnership to operate and maintain the city’s water and wastewater treatment systems. The city is currently under a federal consent decree over violations of the Clean Water Act and is responsible for making $750 million in wastewater improvements over the next decade, according to The Free Press. “We are just trying to get some ideas,” Mayor Steve Benjamin told The Free Press. “As you might expect, we receive numerous inquiries every year from private companies, and even from nonprofits in the past, all looking into how we can run a more efficient water and sewer system [and] due diligence requires, if the ideas are out there and we get a bunch of inquiries, we should at least listen and see what folks have to say.” Responses are due in late February.

Jefferson Parish, LA Announces Hospital Privatization Agreement: Last week, officials in Jefferson Parish, Louisiana announced that they had reached a preliminary agreement with LCMC-a private hospital firm that operates several hospitals in the New Orleans metro area-for a 45-year lease of the parish-owned West Jefferson Medical Center that will bring between $225 million to $340 million in needed capital improvements, according to the New Orleans Advocate. Financial problems prompted Parish officials to seek private operators for its two public hospitals in 2012. The lease terms must be approved by the parish council before the deal can proceed.

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“Most young people aren’t looking for a single employer over the course of their careers. In today’s world, does it really make sense to offer the promise of a government pension to a 22 year-old who is just entering the workforce? And how reliable is that promise?

Postal Service’s financial issues are similar to those facing the federal government. At some point the costs have to come down and those promises of benefits have to be paid. Just look at the unfunded liabilities with military vets and federal, state and local retirement systems.

We’ve proposed transitioning from a defined benefit program to a defined contribution program for postal employees. A thrift savings plan or IRA would give our employees much more mobility and flexibility. It may also be a much more responsible and honest arrangement when all is said and done.”

-Postmaster General Patrick R. Donahoe, in a farewell address at the National Press Club Newsmakers news conference on January 6, 2015.

“[Dallas’ Deferred Retirement Option Plan (DROP)] also shines a light on the underlying problem of a system that allows public workers to begin collecting pensions after 20 years, regardless of age. While I have no problem with enhanced pensions for public-safety workers, taxpayers should not be expected to provide ex-police officers and firefighters in their 40s with pensions for life as those former public employees embark on second careers.”

-Charles Chieppo, “The Wrong Way to Keep Cops and Firefighters on the Job,”, January 23, 2015.

“We often pay lip service to professional and managerial values in the public sector, but we rarely permit those values to be applied. At one end of the spectrum, the politicians in charge do not regard managerial values as consistent with their political interests. At the other end, the labor unions that represent millions of government employees regard professional management as their mortal enemy. […] As long as this remains the case, and it looks like it may remain the case in perpetuity, institutions of government will continue to operate without professional management. The public pays a huge price for this, but as yet neither politicians nor labor have been called upon to pay any price at all.”

-Richard Clay Wilson, Jr., “Why Professional Government Doesn’t Stand a Chance,”, January 12, 2015.

“How to keep the system apolitical has itself become the most politicized aspect of civil service reform. To some, the convoluted process of dealing with poor performers in government is the major burden holding back an effective bureaucracy; to others it’s the only thing holding it together.”

-Eric Katz, “Firing Line,” Government Executive, January/February 2015 issue.

“A whopping 78 percent of federal employees say the process for letting someone go is so cumbersome it discourages firing bad apples.”

Results from Government Business Council survey of federal employees, cited in “The People Problem,” Government Executive, January/February 2015 issue.

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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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