Privatization & Government Reform Newsletter #16 (March 2015 edition)

Privatization and Government Reform Newsletter

Privatization & Government Reform Newsletter #16 (March 2015 edition)

March 2015 edition: Atlantic City's fiscal distress, Texas tolling backlash, corporatizing air traffic control, and more

In this issue:


LOCAL BUDGETS: Amid Fiscal Distress, What Can Atlantic City Learn from Pontiac, Michigan?

Given Atlantic City’s severe fiscal distress and imminent liquidity crisis, the city’s appointed emergency manager is proposing to significantly downsize government to adjust to the new normal of a lower revenue base. Proposed downsizing strategies include eliminating operational inefficiencies, reducing headcount, exploring outsourcing/consolidation opportunities, regionalizing services, and leveraging assets. The recent experience of Pontiac, Michigan-which went through a similar process over the last several years-offers a good example demonstrating that major changes along these lines are indeed achievable in a relatively short timeframe.
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AVIATION: Corporatizing the U.S. Air Traffic Control System

In testimony last week before the U.S. House Aviation Subcommittee, Reason’s Robert Poole analyzed the problems plaguing the Federal Aviation Administration’s Air Traffic Organization (ATO) and recommended making air traffic management independent of the FAA. Specifically, Poole concludes that corporatizing the ATO as a federally chartered, nonprofit, tax-exempt, stakeholder-governed corporation-akin to Canada’s NavCanada-is the best organizational form most likely to produce the kind of organizational culture we need to regain U.S. leadership in air traffic control.
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HIGHWAYS: Texas Backlash Against Tolling, PPPs

Ten years ago Texas was emerging as the nation’s leading venue for tolling and public-private partnership highway projects. With strong political support, the Texas Department of Transportation was tapping the private sector to finance, build, and operate all-new toll roads and express lanes added to congested freeways. But the politics has recently changed, with several high-profile political leaders proposing a series of roadblocks to tolling and PPPs. In a recent article, Reason’s Robert Poole observes that these proposed shifts away from the users-pay/users-benefit model are exactly the wrong direction to take in surface transportation. Ironically, what right-wing populist toll opponents want to return to is socialized, politicized highways funded by taxes rather than user fees and highway project selection to be done by politicians rather than by transportation professionals.
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ENERGY: Federal Report Overstates Wind Power’s Potential, Understates Costs and Limitations

The U.S. Department of Energy recently released a report claiming that consumers and the environment would benefit from increasing the proportion of electricity derived from wind power. But according to Reason’s Julian Morris, such assertions are based on hope that some as-yet unimagined future technology will change the economics of wind power, making it more cost effective than fossil fuel-based generation-a prospect that is not impossible, but very unlikely.
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PENSIONS: Analyzing California’s 2013 Pension Reform Law

The state of California and its local governments are saddled with unfunded public pension liabilities estimated to be as high as $583 billion, prompting state legislators on both sides of the political aisle to enact the California Public Employees’ Pension Reform Act of 2013 (PEPRA) to address these liabilities. While the law will lower costs and reduce future unfunded liabilities, its provisions have very little impact on the existing pension debt. A new Reason Foundation policy brief provides an overview of PEPRA’s key features, analyzes the weaknesses of the law, and offers recommendations for substantive reform of California’s public pension systems.
» FULL REPORT

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CRIMINAL JUSTICE: California Should Embrace More Sentencing Reform

Over two years ago, California voters passed Proposition 36, which prohibited individuals from being sentenced to life in prison for nonviolent offenses under the state’s notorious Three Strikes Law and also allowed certain inmates who had already been sentenced to life in prison for nonviolent offenses under the old law to petition for resentencing. While Prop 36 opponents feared the measure could endanger public safety, Reason’s Lauren Galik notes in a recent article that new data suggest inmates released under the law are not committing new crimes and lend support for additional sentencing reform in California.
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NEWS & NOTES

IFM Investors Announces $5.7 Billion Deal to Acquire Indiana Toll Road Lease: Australian global fund manager IFM Investors announced earlier this month that it had reached an agreement to acquire the Indiana Toll Road Concession Company (ITRCC)-the private consortium operating the Indiana Toll Road, now in a Chapter 11 bankruptcy proceeding-for $5.725 billion. If ultimately approved by the Indiana Finance Authority, the state agency serving as the lessor in the 2006 toll road lease, IFM will take over the remaining 66 years of the lease contract and will thus be held to the same contractual performance and maintenance standards as ITRCC. ITRCC entered bankruptcy last fall, citing an inability make its debt payments due to lower than estimated toll revenues in the wake of post-recession traffic volume reductions.

IFM won out over three other bidders, including a consortium led by the Canada Pension Plan Investment Board and current ITRCC co-owner Cintra, an Abertis-led team, and a public nonprofit created by LaPorte and Lake Counties. A Bond Buyer article notes that IFM investors standing to benefit from the acquisition are major U.S. public pension funds, including the California State Teachers’ Retirement System, the New York City Employees’ Retirement System, the State Board of Administration of Florida, the Arizona State Retirement System, and the Illinois State Board of Investment.

Federal Dollars Account for 30% of State Revenues, Pew Finds: A recent analysis by the Pew Charitable Trusts found that federal dollars accounted for 30% of state general revenues in FY2013, down from the FY2010 peak of 35.5% but higher than the average in the decade prior to the Great Recession. Federal dollars accounted for $513.5 billion of states’ total $1.7 trillion in FY2013 collections, second only to states’ own tax collections. Mississippi and Louisiana topped the list, with over 40% of state revenue derived from federal funds, and North Dakota had the lowest share at 19.0%. Pew’s related data and visualization tools are available here.

National Parks System Faces $11.5 Billion Maintenance Backlog: Last week, the National Park Service (NPS) released its annual deferred maintenance statistics for national parks finding that in FY2014, the system faced a $11.49 billion nationwide maintenance backlog, up from the $11.3 billion in FY2013. The total is almost evenly split between paved roads/bridges/tunnels ($5.63 billion) and all other facilities ($5.86 billion). The report covers 75,780 assets within 407 NPS sites; it does not include maintenance needs at concession-operated facilities like lodges, restaurants, hotels, etc. The largest deferred maintenance backlogs are in parks in California ($1.72 billion), Washington D.C. ($1.19 billion), New York ($906.61 million), Wyoming ($866.41 million), Virginia ($665.49 million), and Arizona ($516.87 million). The NPS deferred maintenance reports are available here.

Congressmen Reintroduce Social Impact Financing Legislation: Congressmen Todd Young (R-IN) and John Delaney (D-MD) re-introduced their bipartisan social impact financing legislation-the Social Impact Partnership Act (H.R. 1336)-earlier this month, which would allow state and local governments to compete for a share of a federal funding allocation dedicated to pay-for-success projects addressing recidivism, long-term unemployment, reduced welfare dependence, child abuse and neglect, and other social challenges currently targeted by federal programs. The goal is to fund projects that work, both in terms of delivering positive social outcomes and taxpayer savings. Reason’s interview with Congressman Young on the subject last August is available here, and more information about the current legislation is available here.

Harvard Announces New Round of Pay-For-Success Project Technical Assistance Recipients: Earlier this month, the Harvard Kennedy School’s Social Impact Bond Technical Assistance Lab (SIB Lab) announced the selection of five state and local governments to receive technical assistance to help develop Pay for Success (PFS) projects that align payment for social interventions with verified outcomes. The winners of the competition-selected from 30 applications-were Arkansas, DC Water (District of Columbia), Nevada, Pennsylvania, and San Francisco. The SIB Lab will provide these jurisdictions with technical assistance in designing, implementing, and evaluating PFS initiatives in areas like early childhood education, recidivism reduction, economic self-sufficiency, and green infrastructure. More details are available at: http://hks-siblab.org

Ohio State University Issues RFQ for Energy System Management: Late last month, Ohio State University (OSU) issued a request for qualifications from firms interested in a potential 50-year lease of the university’s energy system operations, which could include the private financing of energy-efficiency upgrades. OSU’s current energy spending totals approximately $100 million per year, and it faces at least $250 million in needed energy efficiency projects, according to Columbus Business First. Reducing energy spending and transferring responsibility for costly efficiency upgrades would allow the university to redirect resources towards supporting its academic mission (e.g., scholarships, research, etc.), according to officials. Responses are due from interested bidders in early April. The RFQ and other information on the energy management initiative is available here.

Indianapolis Parking PPP Continues to Increase City Revenues: The Indianapolis Business Journal reported last week that the city received over $3.3 million in net revenue from its privatized parking meters in 2014, the highest level over the first four years of the 50-year concession. As discussed in a 2014 Reason Foundation article, net parking revenues to the city in the last year of public operation tallied just over $339,000 and have increased every year under the long-term lease agreement with ParkIndy, a public-private partnership the city formed with a Xerox-led consortium. Total meter-related collections have also remained on an upward trajectory, reaching $9.9 million in 2014, up over $1 million since 2013.

Georgia Social Infrastructure PPP Legislation Passes Senate: The Georgia State Senate has unanimously passed the “Partnership for Public Facilities and Infrastructure Act” (Senate Bill 59), sponsored by Sen. Hunter Hill, which would authorize state agencies, local governments, school boards and other governmental units to use PPPs to develop any infrastructure project on government-owned or leased land that serves a public purpose. The bill would also create a Partnership for Public Facilities and Infrastructure Act Guidelines Committee to prepare model guidelines for governmental authorities to use in developing PPP projects. The legislation is currently awaiting a hearing in the House Governmental Affairs Committee.

Missouri House Passes Bill to Privatize Medicaid Eligibility Verification: Earlier this month, the Missouri House overwhelmingly approved House Bill 985, which would require the state’s Department of Social Services to solicits bids for a private partner to verify initial and ongoing eligibility data for Medicaid, SNAP and other welfare programs. The company would be required to evaluate the income, resources, and assets of each program applicant and recipient on a quarterly basis and would also be required to, on a monthly basis, identify program participants who have died, moved out of state, or have been incarcerated longer than 90 days. More information is available in a recent St. Louis Post-Dispatch article.

Legislation to Potentially Privatize North Carolina Ferry System Introduced: Last week saw the introduction of a North Carolina Senate bill that would direct the state’s Board of Transportation to issue a request for information to gauge market interest for the potential privatization of the North Carolina Ferry System. Senate Bill 382 would also require the Board to issue a report to the Joint Legislative Transportation Oversight Committee and the Fiscal Research Division by February 2016 on the results of the RFI and whether privatizing the ferry system would be a cost-effective solution.

Wisconsin Considering State Park Naming Rights: Wisconsin Gov. Scott Walker’s proposed biennial budget proposes to wean the state park system from general fund support and make the system self-sufficient through fees and other revenues. The Wisconsin State Journal reported earlier this month that one option under consideration is the potential sale of naming rights for parks. State general fund support for parks currently accounts for $4.7 million (28%) of the total $16.7 million parks budget, according to the Journal. The Walker administration has proposed increasing park entrance and camping fees to help make up for the loss of general fund support; other revenue options under examination include expanded electrical hookups at park campgrounds.

Monmouth County, NJ Officials Vote to Privatize Two Nursing Homes: NJ.com reports that Monmouth County, New Jersey freeholders have approved a plan to privatize the county’s two nursing homes, which have seen $45 million in operating deficits since 2007. Cuts to Medicare and Medicaid reimbursement rates have been cited as a primary cause of the deficits. Dozens of other private nursing homes and long-term care centers serve the area, according to the article.

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QUOTABLE QUOTES

“In fact, nothing requires a closed pension plan to pay off its unfunded liabilities rapidly, and there’s no reason it should. Unfunded pension liabilities are debts of the government; employee contributions are not used to pay off these debts. Whether new hires are in a defined-contribution pension or the old defined-benefit plan, the size of the unfunded liability and the payer of that liability are the same.”

-Andrew Biggs, “Pension Reform Doesn’t Mean Higher Taxes,” The Wall Street Journal, March 25, 2015.

“While dissatisfaction with government is by no means a new issue to the American people, it has not in recent months been as clearly the leading problem as it is now, given that fewer Americans mention the economy.”

-Justin McCarthy, “Americans Name Government as No. 1 U.S. Problem,” Gallup.com, March 12, 2015.

“Of the 1,000 American adults surveyed [by Alllstate and National Journal], just 26 percent said that national-level institutions were making progress, compared to the 64 percent who favored the state and local levels. This conclusion cuts across the lines of gender, education, socioeconomics, and even different regions of the country. In short, Americans are fed up with the sniping and paralysis at the federal level and instead are turning their attention to local governments and groups for solutions.”

-Nancy Cook, “Americans Give Up On Washington,” National Journal, March 9, 2015.

“[O]nly a handful of states appear to go back to see what the impact of its [efficiency] commissions has actually been. Most states never do any kind of “call-to-accounting” to see whether or not recommendations were implemented or made a difference. Without this kind of self-evaluation, states are left without the information they need to make sure that subsequent commissions continue to provide more value to the state.”

-Katherine Barrett and Richard Greene, “The Paradoxical Truth About Efficiency Commissions,” Governing.com, March 5, 2015.

“[Massachusetts] Assistant State Treasurer for Debt Management Colin MacNaught said [the state’s new transparency initiatives] will save taxpayers tens of millions in borrowing costs over the long term. ‘Whether the credit news for Massachusetts is good or bad, investors know that they’ll always get good and current disclosure from the state,’ he said. ‘We think that gives them an added measure of confidence in our bonds, thus enhancing the liquidity of our paper. And every dollar we save on our borrowing is one more dollar we can redirect elsewhere to other budget areas.'”

-Quoted in Liz Farmer, “Transparency Could Save Governments Billions in Borrowing,” Governing.com, March 12, 2015.

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Additional Resources:


Leonard Gilroy is vice president of government reform at Reason Foundation, a nonprofit think tank advancing free minds and free markets. He also serves as senior managing director of the Pension Integrity Project at Reason Foundation, which assists policymakers and other stakeholders in designing, analyzing and implementing public sector pension reforms.