Privatization & Government Reform Newsletter #20 (August 2015 edition)

Privatization and Government Reform Newsletter

Privatization & Government Reform Newsletter #20 (August 2015 edition)

August 2015 edition: pay-for-success contracting in community corrections, pension-related ballot measures in Arizona, carbon regulation and more

In this issue:

CRIMINAL JUSTICE: Pay for Success Contracting Reducing Recidivism in Pennsylvania

Pennsylvania’s recent efforts to make payments to the private operators of the state’s dozens of community corrections centers dependent on their performance at reducing recidivism appear to be yielding some promising early results and could prompt other states to consider similar approaches.

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PRIVATIZATION: An Outsourcing Tale of Two California Cities

When it comes to dealing with municipal fiscal woes and rising pension costs, two California cities-Costa Mesa and San Bernardino-offer an interesting contrast, especially when it comes to using outsourcing as a means of lowering costs and ensuring the continued delivery of public services. In a recent Orange County Register column, we noted that officials in Costa Mesa recently negotiated a moratorium on privatization with public employee unions, while San Bernardino’s bankruptcy exit plan relies heavily on outsourcing (including its fire department, notably) as a primary strategy for restoring fiscal solvency.

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PENSIONS: Arizona Election Results on Pensions

Elections on two local ballot measures in Arizona will likely interest those who follow public pension issues. Last Tuesday, Prescott voters rejected a proposed sales tax increase that would have used the new revenues to pay down the city’s unfunded liabilities for public safety pensions, while Phoenix voters approved a measure aimed at cleaning up a mess made by a previous attempt at pension reform.

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TRANSPORTATION: Why Truckers Should Reconsider Their Opposition to Tolling

Could the trucking industry eventually come to see toll-financed reconstruction and modernization of our aging Interstate highways as the best way forward? In a recent Public Works Financing article, Reason Foundation’s Robert Poole observes that what the trucking industry really opposes is expansion of 20th-century tolling, where legislators in states like Pennsylvania have turned their tolled Interstates into cash cows for their state DOTs (and in some cases for pork-barrel “economic development” projects in their states). Instead, Poole argues for a “value-added tolling” approach that would reinvent tolling and highway management in a customer-friendly-and trucker-friendly-way for the 21st century.

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ENERGY: Assessing the Social Costs and Benefits of Regulating Carbon Emissions

A new Reason Foundation study shows that estimates of the “social cost of carbon” have been falling and would fall further if new scientific evidence were incorporated. The study calls into question the analyses used to underpin the Obama administration’s new Clean Power Plan and other federal regulations targeting emissions of greenhouse gases. The study finds the administration’s estimates of the social cost of carbon are “biased upwards” due to their reliance on three “simplistic models, all of which use estimates of climate sensitivity that are likely too high and two of which likely overestimate the economic impact of climate change.” The study shows that by combining more-reliable estimates of the sensitivity of the climate to changes in concentrations of greenhouse gases with more-realistic assumptions about both the benefits and costs of carbon dioxide emissions, the social cost of carbon falls dramatically.

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EDUCATION: Unionization Efforts Could Halt Progress at Innovative Los Angeles Charter Schools

A move by United Teachers Los Angeles seeking to unionize the teachers at Alliance College-Ready Public Schools risks damaging the charter school network’s independent management methods, which have produced some of the most highly functioning schools in the state thanks to their flexible decision-making and collaborative environments. In a recent column, Reason Foundation’s Lisa Snell and Savannah Robinson assert that unionizing these schools will limit teachers’ academic innovation and constrain opportunities for their students, which will slow the educational improvements that have been made in each of these low-income communities.

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New Report Compares Defined-Benefit and Defined Contribution Retirement Plans: The Manhattan Institute has released a new report comparing the costs of public sector defined-benefit (DB) and defined-contribution (DC) retirement plans. The report finds that claims by defined-benefit plan advocates that such plans are more cost-effective are based on false assumptions, that investment performance is similar between the two plan types, and that any differences have been shrinking over time, as DC plan designs have improved. The report also finds that proponents of DB plans ignore the massive unfunded liabilities the plans often generate for state and local governments. The full report is available here.

White House Releases Occupational Licensing Report: Last month, the White House released a report prepared by the Department of the Treasury Office of Economic Policy, the Council of Economic Advisors, and the Department of Labor assessing the growth of occupational licensing over the past several decades, its costs and benefits, and its impact on workers and work arrangements. The report details a five-fold growth in occupational licensing since the 1950s and notes that while some narrowly crafted licensing regimes can be beneficial to consumers, licensing can also make it harder to enter a profession, reducing employment opportunities and lowering wages for excluded workers, while increasing costs for consumers. Ultimately, the report recommends “limiting licensing requirements to those that address legitimate public health and safety concerns to ease the burden of licensing on workers.” The full report is available here.

Tennessee Issues Facilities Management RFI: Earlier this month, the administration of Tennessee Gov. Bill Haslam issued a request for information (RFI) to identify vendors to potentially provide outsourced facilities management services at a variety of state facilities, including higher education facilities, hospitals, parks, prisons and military facilities. Services specifically listed in the RFI include building operations (e.g., management, security, cleaning, maintenance, administrative, etc.), purchasing, energy management, and financial and accounting services, with potential future services that could include food services, event planning, master planning and more. The RFI is available here.

Chicago Asset Privatization Review Ordinance Introduced: Late last month, Chicago Mayor Rahm Emanuel and Alderman Roderick Sawyer introduced an ordinance that would require financial/cost evaluations, public meetings, performance reports and inspector general oversight of any future asset privatizations valued at over $400 million and of at least a 20-year duration, as well as service privatization contracts valued at $3 million or more. The ordinance would also require the city to invest 10% of privatization-related upfront payments not used for investment earnings, expenses, debt service, public infrastructure, or pension payments into an intergenerational fairness fund to be invested by the city treasurer. Aimed at addressing lingering policymaker concerns over the process used to approve the city’s 2008 lease of its parking meter system, “[t]his ordinance would insert accountability and transparency into the process to ensure that any potential privatization in the future would be appropriately evaluated, publicly debated, and, if accepted, would be subject to ongoing oversight,” Mayor Emanuel said in a press release.

Iowa Selects Medicaid Managed Care Partners: In mid-August, the Iowa Department of Human Services issued a Notice of Intent to Award contracts to four bidders for the state’s Medicaid Modernization initiative, aimed at implementing a managed care approach for the state’s Medicaid program to improve quality and access through better coordinated care, promote accountability for outcomes, and create a more predictable and sustainable Medicaid budget. The winning bidders were Amerigroup Iowa, Inc., AmeriHealth Caritas Iowa, Inc., UnitedHealthcare Plan of the River Valley, Inc., and WellCare of Iowa, Inc. “Starting January 1, these experienced [managed care organizations] are positioned to help us achieve savings at a time when there is an ever-growing demand on our state’s medical assistance program,” DHS Director Charles M. Palmer said in a press release.

Arkansas to Privatize In-Home Care: The Arkansas Department of Health announced this month that it plans to privatize its in-home services program in 2016, citing decreased revenue, declining patient loads and competition from the private sector over the last five years. The program currently serves more than 13,000 patients, providing hospice, home health and personal care services. “This is an example of a government program that is no longer sustainable and can be ended because the private sector has stepped in to meet demand,” Gov. Asa Hutchinson said in a press release. “In the long run, this transition will preserve jobs, save taxpayer dollars and result in a more efficient, viable and sustainable in-home care program for Arkansans.”

Arizona DOT Exploring PPP for Electronic Truck Screening at Ports of Entry: Last week, the Arizona Department of Transportation issued a request for information (RFI) seeking industry feedback on a potential PPP to design, supply, install, finance, and maintain a mainline electronic truck screening system that can be custom deployed at the state’s six major ports of entry. The ultimate solicitation may include the equipment, technology, construction and installation, technology implementation, maintenance of the system, and possibly finance. Responses are due in mid-September. More information is available here.

Texas A&M Announces Major New Housing PPP: Late last month, officials at Texas A&M University announced that it had selected Servitas, LLC and NCCD-College Station Properties LLC to develop a 48-acre property in College Station for student housing in a 30-year lease that will pay the university $18.5 million upfront and a stream of $20 million annually. The project-Park West-is the largest of five recent PPPs Texas A&M has entered in recent years, which are collectively expected to generate more than $900 million in benefits to the university. “Every extra dollar we can generate or save is one less dollar from the students, their parents or Texas taxpayers,” said Texas A&M University System Chancellor John Sharp in a press release. “Besides the revenue it generates, the Park West project also puts the debt and the risk on the books of the private sector, not with the A&M System.”

Kentucky Seeks PPPs for New State Park Lodging: Earlier this month, Kentucky’s Tourism, Arts and Heritage Cabinet issued two requests for proposal seeking developer-operators for new lodging facilities at General Burnside Island State Park in Pulaski County and Wasioto Winds Golf Course in Bell County. Both projects could be eligible for state tourism incentives through the state Tourism Development Finance Authority in the form of tax rebates of up to 50% of the investment amount over a 10-year period. Proposals for both projects are due in mid-September.

Palo Alto Privatizes Parking Enforcement: The Palo Alto City Council recently approved a $1.5 million contract with Serco to better enforce the city’s new residential parking permit program, which will institute time limits on parking on downtown residential streets and require parking permits for those residents and employees wishing to park longer. The City Council’s approval of this contract rejected the calls against privatization by the Service Employees International Union. More information can be found via the Palo Alto Weekly here and here.

Camden, NJ Rejects 911 Dispatch Privatization: Earlier this year, Camden, New Jersey’s city council considered the possibility of privatizing the city’s police dispatch services to reduce spending. Upon reviewing two bids from private companies, the city council announced that Camden will be keeping the current system intact given, reportedly, a lack of cost savings from privatization. The decision was announced after unions held a rally at City Hall by advocating against privatizing police dispatch services. More coverage on this story from is available here and here.

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“Until California’s leaders address the three elephants-retirement, healthcare and corrections costs-that are crowding out public services and causing unproductive tax and fee increases, citizens will continue to suffer and inequality will continue to grow.”

-David Crane, “Why Public Services in California Decline Even As Revenues Rise,”, August 24, 2015.

“Conditions that led to large market returns in the 1980s and 1990s no longer exist […] It is not reasonable to look at 30 or 40 years of returns and assume they will continue.”

-Matthew Smith, State Actuary for Washington State, cited in Darrell Preston, “Making U.S. Pensions Honest About Returns Means Bigger Deficits,” Bloomberg Business, August 13, 2015.

“[N]obody can say for sure how much safer e-cigarettes are because the products haven’t been around long enough for long-term studies. But it is plain as day that they are far less risky than cigarettes. Countries use tax policy all the time to affect behavior. Using tax policy to move people from cigarettes to e-cigarettes would, to be blunt, save lives. The e-cigarette has the potential to be the greatest tobacco cessation device ever invented.”

-Joe Nocera, “Lowering a Tobacco Tax to Save Lives,” The New York Times, August 18, 2015.

“Sooner or later, probably later, the political arms of government will have to deal with the looming fiscal crisis in an insecure world-think perpetual sequestration, Greek austerity and defending American interests with an outdated military force. A more efficient, cost-effective civil service could contribute much toward the wide-ranging and unprecedented actions required.”

-David Hornestay, “Why the Government Doesn’t Work,” Government Executive, August 18, 2015.

“Over the past several decades, the share of U.S. workers holding an occupational license has grown sharply. When designed and implemented carefully, licensing can offer important health and safety protections to consumers, as well as benefits to workers. However, the current licensing regime in the United States also creates substantial costs, and often the requirements for obtaining a license are not in sync with the skills needed for the job. There is evidence that licensing requirements raise the price of goods and services, restrict employment opportunities, and make it more difficult for workers to take their skills across State lines. Too often, policymakers do not carefully weigh these costs and benefits when making decisions about whether or how to regulate a profession through licensing. In some cases, alternative forms of occupational regulation, such as State certification, may offer a better balance between consumer protections and flexibility for workers.”

-The White House, Occupational Licensing: A Framework for Policymakers, July 2015.

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Special thanks to Reason Foundation intern Brenna Butler for assistance in developing the News Notes for this newsletter.

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