Privatization & Government Reform Newsletter #18 (May 2015 edition)

Privatization and Government Reform Newsletter

Privatization & Government Reform Newsletter #18 (May 2015 edition)

May 2015 edition: Annual Privatization Report, best value procurement, and more

In this issue:


PRIVATIZATION: Reason Foundation Releases Annual Privatization Report 2015

Earlier this month, Reason Foundation released its Annual Privatization Report 2015, detailing the latest on privatization and government reform initiatives at all levels of government. Now in its 28th year of publication, Reason’s Annual Privatization Report is the world’s longest running and most comprehensive report on privatization news, developments and trends.
» FULL REPORT: Annual Privatization Report 2015

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STATE GOV: Reviewing the Past Year in State Privatization

The states continue to be a dynamic laboratory for privatization and public-private partnerships, according to Reason Foundation’s Annual Privatization Report 2015. The report reviews developments in privatization and public-private partnerships in state government over the past year, with topics that include the status of state budgets, privatization of state liquor stores and state lotteries, the use of social impact bonds, and the private sector’s current role in higher education and child welfare programs.
» FULL REPORT
» Annual Privatization Report 2015 homepage

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FEDERAL GOV: Reviewing the Past Year in Federal Privatization

Reason Foundation’s Annual Privatization Report 2015 provides an overview of the latest on privatization and public-private partnerships in the federal government. Topics include federal privatization and insourcing initiatives, private medical care for veterans, and initiatives to expand private investment and collaboration in major infrastructure sectors.
» FULL REPORT
» Annual Privatization Report 2015 homepage

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TRANSPORTATION: The Latest in Airports, Highways, Transportation Finance

With 40 of the largest 100 airports in the world either fully or partially controlled by private investors, private airport management and development continues to grow, according to Reason’s Annual Privatization Report 2015. The report also examines the status of the Transportation Security Administration’s expedited airport security screening program, major public-private toll road and bridge projects, and the evolving role of debt funds, pension funds, and special investment funds in financing infrastructure projects across the globe.
» FULL REPORT: Air Transportation 2015
» FULL REPORT: Surface Transportation 2015
» FULL REPORT: Transportation Finance 2015
» Annual Privatization Report 2015 homepage

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PRISONS: Recent Developments in Criminal Justice and Private Corrections

Despite a slight uptick in the national prison population, the number of federal and state inmates held in privately operated correctional facilities declined by nearly three percent over the past year and stands at nine percent overall, according to Reason Foundation’s Annual Privatization Report 2015. The report’s section on criminal justice and corrections reviews developments in criminal justice reform, public-private partnerships in corrections, correctional healthcare privatization and more.
» FULL REPORT
» Annual Privatization Report 2015 homepage

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INNOVATORS IN ACTION: Implementing Best Value Procurement in Oklahoma

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 the state of Oklahoma’s use of a type of best value procurement known as the Performance Information Procurement System (PIPS), developed nearly two decades ago by Dr. Dean Kashiwagi and promoted by his team at Arizona State University’s Performance Based Studies Research Group (PBSRG).

Oklahoma’s Office of Management & Enterprise Services has been working with PBSRG as a research partner on implementing PIPS, which identifies and leverages the knowledge of experts in the supplier community to provide clients with a plan to accomplish their objectives. In this interview, Steve Hagar, Oklahoma’s State Purchasing Director, reflects on the state’s use of best value procurement, the PIPS model, successes seen thus far and more.
» FULL INTERVIEW

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PPPs: Mitch Daniels Receives Reason Foundation’s 2015 Savas Award for Public-Private Partnerships

Earlier this month, Reason Foundation presented its inaugural Savas Award for Public-Private Partnerships to Purdue University President and former two-term Indiana Governor Mitch Daniels. The annual Savas Award for Public-Private Partnerships-named for City University of New York Presidential Professor and privatization research pioneer E.S. “Steve” Savas-recognizes an individual or organization whose actions improved the cost-effective provision of public services through partnerships with private organizations.
» FULL ARTICLE
» REASON INTERVIEW: Mitch Daniels on How to Cut Government & Improve Services

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NEWS & NOTES

Court Strikes Down Illinois Pension Reform Law: On May 8th, the Illinois Supreme Court struck down a 2013 pension reform law that reduced cost of living adjustments, increased retirement ages and made other changes to current worker and retiree pension benefits aimed at reining in unfunded pension liabilities at the state level that exceed $110 billion. The Court found the 2013 law to violate the pension clause in the Illinois State Constitution, which states that membership in a public pension plan is “an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.” The full ruling is available here, and an analysis of the implications of the ruling by Governing‘s Liz Farmer is available here.

Moody’s Downgrades Chicago Credit Rating to Junk Status: In the wake of the Illinois Supreme Court ruling on pensions earlier this month, Moody’s Investors Service downgraded its rating on Chicago’s $8.9 billion in general obligation, sales tax revenue and motor fuel tax revenue debt from Baa2 to Ba1, a two-step drop into “junk” (speculative, non-investment grade) status. Explaining the downgrade, Moody’s cited “expected growth in the city’s highly elevated unfunded pension liabilities” based on the court ruling, with the expectation that “the costs of servicing Chicago’s unfunded liabilities will grow, placing significant strain on the city’s financial operations absent commensurate growth in revenue and/or reductions in other expenditures.” More details are available here.

Indiana Toll Road Lease Transfer Approved: Two weeks ago, the Indiana Finance Authority approved a transfer of control of the Indiana Toll Road lease to the Australian global fund manager IFM Investors, and the acquisition closed yesterday. Back in March, IFM announced that it had reached an agreement to take over the lease from the Indiana Toll Road Concession Company (ITRCC)-the private consortium now in a Chapter 11 bankruptcy proceeding that has operated the Indiana Toll Road since 2006-for $5.725 billion. IFM will take over the remaining 66 years of the lease contract and will 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. More information is available here and here.

San Bernadino Bankruptcy Exit Plan Proposes Privatized Fire, Other Services: Last week, the San Bernadino (Calif.) City Council approved the city’s bankruptcy plan of adjustment by a 6-1 margin, and the plan includes large-scale proposals to privatize fire services and solid waste collection/disposal. The fire and solid waste proposals are among 15 privatization opportunities specified in the plan, including fleet maintenance, street sweeping, engineering, inspections, information technology, code enforcement and street maintenance. The proposal to privatize fire services alone is expected to generate approximately $7 million in annual cost savings, with millions in additional annual savings and new franchise fees (from solid waste privatization) expected if the other privatization proposals are implemented. The full plan of adjustment is available here and a summary is available here.

EPA Releases Stormwater PPP Guide: The U.S. Environmental Protection Agency has released a new report intended to help communities develop public-private partnership (PPP) programs designed to meet stormwater regulatory commitments and community stormwater management needs. One of the pioneering projects cited is Prince George’s County’s (Maryland) recently enacted 30-year agreement with Corvias Solutions designed to improve stormwater management and reduce pollution into the Chesapeake Bay. Under the deal, Corvias will manage the design, construction and long-term maintenance of stormwater management systems for up to 4,000 acres, leveraging a $100 million investment by the County. The full EPA report is available here, and more details on the Prince George’s County initiative are available here.

Louisiana Considers State Asset Sale: The Advocate reported earlier this month that Louisiana Governor Bobby Jindal’s administration is interested in selling the 4,242-square-foot Capitol Park Welcome Center and a nearby parking garage on the Capitol complex in Baton Rouge, facilities with a combined appraised value of nearly $11.4 million. The properties would need to be declared as surplus by the legislature’s natural resource committees, but the committees have thus far deferred action on the proposal. “The welcome center is a great facility that just isn’t being utilized enough to justify the expense for taxpayers,” Commissioner of Administration Kristy Nichols told The Advocate.

Arizona Governor Seeking State Aircraft Sales, Fleet Consolidation: The Arizona Capitol Times reported last week that Arizona Governor Doug Ducey’s administration is seeking to reduce the size of the state’s 10-plane fleet and open up use of the remaining aircraft to all state agencies in order to reduce maintenance and storage costs and avoid the need for certain agencies to lease aircraft. “Right now, you have planes that are sitting and not being utilized while we may be out paying for another vehicle,” Ducey spokesman Daniel Scarpinato told the Capitol Times. “We want less planes overall. So…we’re figuring out what’s most cost-effective, given what we have in the fleet right now.”

Hawaii Hospital PPP Legislation Passes: After several stalled legislative attempts to privatize public hospitals in recent years to help stem growing red ink, the Hawaii legislature enacted a bill (HB 1075) in early May that authorizes the Hawaii Health Systems Corporation to enter into public-private partnership with a nonprofit organization to operate its Maui-based hospitals, including the Maui Memorial Medical Center. The Maui News reports that the hospitals are facing an operating deficit of approximately $800 million over the next decade. The legislation caps the amount of state subsidies to the facilities, transferring financial risks to the private operator, and provides for the continued employment of current hospital employees.

Dallas Park Board Approves Privatization of Fair Park: The Dallas Morning News reported last week that Dallas’s Park Board has approved a task force recommendation to turn over the operations and management of the 277-acre Fair Park to a nonprofit organization in order to streamline its governance and create new opportunities for investment. The task force, created by Mayor Mike Rawlings, recommended placing the park under nonprofit management in a report last year, a concept similar to the structure used in the privatization of the Dallas Zoo in recent years. The board’s resolution approving privatization now goes to the City Council for review and approval.

West Bend, WI Sees Nearly $1M in Savings from Privatizing Legal, Engineering Services: Last week, West Bend, Wisconson Mayor Kraig Sadownikow and City Administrator T.J. Justice announced that the city has saved nearly $1 million through the privatization of legal and engineering services in 2011 and 2013, respectively, helping the city to hold property tax rates flat. According to the officials, the privatization of engineering services has yielded about $420,000 annual operating cost savings, with another $125,000 in annual cost reductions through privatized legal services. “The costs associated with these functions of city government have cut in half its demand on the city’s operating budget,” Mayor Sadownikow said in a press release.

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QUOTABLE QUOTES

“For as long as there have been public pension systems in Illinois, there has been tension between the government’s responsibility for funding those systems, on the one hand, and the costs of supporting governmental programs and providing governmental services, on the other. In the resulting political give and take, public pensions have chronically suffered. As long ago as 1917, a report commissioned by the General Assembly characterized the condition of State and municipal pension systems as ‘one of insolvency’ and ‘moving toward a crisis’ because of financial provisions which were ‘entirely inadequate for paying the stipulated pensions when due.'”

-Illinois Supreme Court, In re Pension Reform Litigation (Heaton v. Quinn), 2015 IL 118585, May 8, 2015.

“The Ba1 [junk] rating on Chicago’s [general obligation] debt incorporates expected growth in the city’s highly elevated unfunded pension liabilities. Based on the Illinois Supreme Court’s May 8 overturning of the statute that governs the State of Illinois’ […] pensions, we believe that the city’s options for curbing growth in its own unfunded pension liabilities have narrowed considerably. Whether or not the current statutes that govern Chicago’s pension plans stand, we expect the costs of servicing Chicago’s unfunded liabilities will grow, placing significant strain on the city’s financial operations absent commensurate growth in revenue and/or reductions in other expenditures. The magnitude of the budget adjustments that will be required of the city are significant.”

-Moody’s Investor Service, “Moody’s downgrades Chicago, IL to Ba1, affecting $8.9B of GO, sales, and motor fuel tax debt; outlook negative (press release),” May 12, 2015.

“Given the current size of the federal estate, and the extent of the management needs on those lands, spending hundreds of millions of dollars annually through the [Land and Water Conservation Fund] to acquire new lands is irresponsible. These acquisitions exacerbate the problem by creating even more unfunded maintenance projects. They also forgo a steady source of funding that could help address these critical needs on existing federal lands.”

-Shawn Regan, Testimony before the Subcommittee on Federal Lands, U.S. House Committee on Natural Resources, Property and Environment Research Center, April 15, 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.