Privatization and Government Reform Newsletter

Privatization & Government Reform Newsletter #21 (October 2015 edition)

October 2015 edition: local fiscal outlook, student-based budgeting, private prisons, and more

In this issue:

LOCAL GOVERNMENT: Cities Continue Recovery, But Fiscal Headwinds Loom

In early October, the National League of Cities issued the 2015 edition of its annual City Fiscal Conditions report, which found that cities continue to see slow, but sustained, growth in the wake of the Great Recession, though they still face significant future fiscal headwinds in the form of infrastructure demands, pension costs and retiree healthcare benefit costs.

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PENSIONS: Best Practices for Setting Pension Fund Discount Rates

The status quo approach to selecting discount rates for state and local governments is completely backward. Using the expected rate of return on assets to discount pension liabilities considers the risk of assets instead of the risk of liabilities. Public officials should instead adjust their discount rates to reflect the time value of money to their employees and the risks of the streams of cash payments to retirees. A new Reason Foundation policy brief presents an outline of best practices for setting the discount rate and tackles several myths and misnomers about the discount rate that are prevalent in discussions about public sector pension reform nationwide.

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EDUCATION: Student-Based Budgeting Helps Principals Be More Effective Educators

A primary concern when school district officials and state policymakers are considering shifting to student-based budgeting is whether or not principals have the time and skills needed to control and manage their school budgets. Quite often, this fear stems from a misconception about the relationship between student-based budgeting and instructional leadership, as well as fixed mindsets related to overly rigid implementation, according to a new Reason Foundation analysis.

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CRIMINAL JUSTICE: Banning Private Prisons?

In September, Senator Bernie Sanders (I-Vt.) joined three House Democrats in introducing criminal justice reform legislation that would ban the use of all private prisons by federal, state and local governments within two years. While the idea may appeal to progressives, it confuses symptom with disease and would have little impact on lowering incarceration rates nationwide. In fact, banning private prisons would be more likely to raise the costs of corrections by returning prisons to government monopoly control and, worse, increase overcrowding in public facilities.

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ENDANGERED SPECIES: Sage Grouse Conservation

The Interior Department recently announced that it would not list the greater sage grouse under the Endangered Species Act, instead opting to implement 15 amended land use plans governing over 60 million acres of federal land that will impose some strict Endangered Species Act-like restrictions. In two recent analyses, Reason Foundation’s Brian Seasholes finds that the greater sage grouse’s population has stabilized and gradually increased over the past two decades and that penalty-based plans may end up harming the sage grouse for essentially the same reasons the Endangered Species Act too often harms species-the creation of strong incentives for landowners and others to refrain from conserving species and even to destroy and degrade species habitat.
» ARTICLE: The Best and Worst Parts of the Decision Not to List the Sage Grouse as Endangered
» ANALYSIS: Sage Grouse Conservation: The Proven Successful Approach

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ENVIRONMENT: Devastating Fires Show Forest Management Reforms Are Badly Needed

In the past three decades, the area burned by wildfires in the U.S. each year has grown dramatically, while the number of fires has remained roughly constant, with millions of acres of trees destroyed every year and lives and livelihoods threatened. Yet, past efforts to reorient the priorities of the Forest Service and BLM have often floundered due to pressure from vested interests, and such pressures are unlikely to disappear. The challenge, then, is to identify practical and desirable reforms that are politically feasible. In a new Reason Foundation policy brief, Julian Morris identifies several such reforms that could reduce the potential for catastrophe in the Northwest, while simultaneously improving the prospects of the people living there and the environment in which they live.

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TRANSPORTATION: Are Exclusive Bus Lanes Warranted?

As bus rapid transit gains more adherents, ill-considered projects that would convert existing general-purpose lanes to bus-only lanes threaten to make arterial traffic congestion far worse. In his latest Surface Transportation Newsletter, Reason’s Robert Poole examines the situation and suggests that revamping major arterials as “managed arterials”-adding electronically tolled underpasses at key signalized intersections-would be far wiser than converting some of their lanes to bus-only use.

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First U.S. Social Impact Bond Success in Utah: Earlier this month, United Way of Salt Lake announced that its 2013 social impact bond project for early childhood education has reached an important milestone of success, generating performance results sufficient to trigger the first “success payment” for private investors Goldman Sachs and J.B. Pritzker Family Foundation, the first such payment in the U.S. social impact bond market. The two investors committed $7 million for a multi-year project to provide high-quality preschool to low income three- and four-year olds and reduce the utilization of special education in grade school. Of the 595 children who attended the preschool program in the 2013-14 school year, 110 of the four-year-olds were identified as at risk of needing special education in grade school. However, only one student of the 110 ultimately required special education services in kindergarten. Total savings for the first year cohort associated with avoiding special education were calculated to be $281,550 (or $2,607 per child), 95% of which will be returned to the investors. More information on the Utah social impact bond results and structure is available here.

New Reports on Social Impact Bonds: In recent weeks, both the U.S. Government Accountability Office and the Brookings Institution have released comprehensive reports on the social impact bond/pay for success contracting concept that are well worth a read. Those two reports are available here and here, respectively.

New Report on D.C. Charter Schools: A new Progressive Policy Institute authored by government reform guru David Osborne examines the performance of charter schools in Washington D.C. and finds that they excel because their governance framework-which includes school autonomy, full parental choice, and serious accountability for performance-is superior to the more traditional public sector approach. The report recommends that the city council should empower the District of Columbia Public Schools to transform a handful of schools each year into contract or charter schools, with autonomy, choice, closure if they fail, and the opportunity to replicate if they succeed. The full report is available here.

North Carolina Enacts Medicaid Privatization Legislation: In late September, North Carolina Gov. Pat McCrory signed into law Medicaid managed care legislation (House Bill 372) that authorizes the state to contract with three companies to provide statewide health insurance plans for Medicaid recipients, as well as additional contracts with regional networks of doctors and hospitals. Providers will be paid up front on a per-patient basis and will take on the risk of cost overruns. More information on the legislation is available from the Charlotte News & Observer here and here.

Ohio Task Force Recommends Privatizing University Assets, Non-Academic Functions: In late September, the Ohio Task Force on Affordability and Efficiency in Higher Education-created via executive order by Gov. John Kasich earlier this year to identify ways state higher education institutions can reduce costs-issued a set of recommendations that included having each institution analyze its non-core assets to determine their market value if sold or leased, as well as identify non-academic operations that might be run more efficiently by an outside entity (e.g., dining, housing, parking, facility maintenance, landscaping, etc.). The full report and other task force information is available here.

State-Level School Service Privatization Surveys Released: The Michigan-based Mackinac Center for Public Policy recently released its latest annual survey of school districts regarding the privatization of non-instructional services, finding that 70.8% of Michigan school districts outsource at least one of the three main school services (food, custodial and transportation), up from 66.6% in 2014. For the first time, the Mackinac Center expanded its annual survey to four other states-Georgia, Ohio, Pennsylvania, and Texas-finding a wide range of use of privatized non-instructional school services by state. More information is available here.

Chicago Mayor Rahm Emanuel Proposes New Privatizations: In recent weeks, Chicago Mayor Rahm Emanuel proposed two new privatizations-for 311 call center operations and HIV/AIDS primary care clinic operations, respectively-as part of his administration’s 2016 budget proposal. The 311 call center privatization was proposed as a way to tackle $40-50 million in needed capital investments and generate an estimated $1 million in annual savings, according to the Chicago Sun-Times. However, Emanuel subsequently took the proposal off the table after a majority of city aldermen wrote a letter indicating opposition to the plan. The proposal to outsource operation of the city’s two HIV/AIDS primary care clinics is seen as a way to quadruple the number of patients served in the facilities, according to WBEZ.

Chicago Infrastructure Trust Seeks Lighting Deal: In mid-September, the Chicago Infrastructure Trust issued a request for information seeking potential private partners for the Chicago Smart Lighting Project, which seeks to upgrade nearly 350,000 outdoor lights citywide to LED technology and to replace aging infrastructure to lower costs and improve performance. More information on the project is available here.

DC Approves Privatization of Non-Critical Ambulance Service: In early October, the Washington, D.C. City Council unanimously approved an ordinance allowing the city to contract with one or more private ambulance companies to supplement the city’s in-house ambulance operation. The move-designed to improve the timeliness of EMS response-will allow the city’s ambulance fleet to handle the most serious advanced life support cases while transferring responsibility for lower priority hospital trips to the private operators. The plan is based in part on a long-running model employed in Seattle, WA. More information is available in the Washington Post here.

Philadelphia Ports Seek Terminal PPP: In late September, the Philadelphia Regional Port Authority (PRPA) released a request for qualifications seeking potential private partners to develop three properties at the 194-acre Southport Marine Terminal Complex. PRPA envisions one or more development agreements to design, build, finance, operate and maintain the projects through lease agreements ranging between 30 to 50 years in length. More information on the Southport project is available here.

Scranton, PA Eyes Parking Garage Lease: Last month, Scranton, PA Mayor Bill Courtright announced that the city was likely to lease its five city-owned parking garages and on-street metered parking system to a nonprofit organization (National Development Council) in exchange for an upfront payment and a share of parking-related revenues, according to The Times-Tribune. The move would allow the city to retain ownership of the assets while retiring the Scranton Parking Authority’s current debt. The city is also currently evaluating proposals from four firms to take over operations of the city’s wastewater system, a move that could generate $20 million to help pay down the city’s unfunded pension liabilities.

Milwaukee County, Wisconsin Seeking To Privatize Mental Health Complex: In July, Milwaukee County’s Behavioral Health Division issued a request for proposals seeking psychiatric emergency, observation, and inpatient care services for the county’s public behavioral health system, a move that would allow the county to close its Milwaukee Mental Health Complex facility. County officials expect to award a 20-year contract to provide acute inpatient psychiatric care, a 24-hour psychiatric emergency department, and services for high acuity patients and for people under involuntary detention. Proposals are due by mid-November 16, 2015. More information is available here.

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“The fact is-and you’ve all experienced it-our transportation system needs attention. And, while conventional funding tools are effective, they’re no longer enough. Plus, with the recent history of short-term extension after extension, we can no longer count on Congress keeping even those tools available.

We need an all-of-the-above approach, and our work to improve the environment for Public-Private Partnerships is part of that.”

-U.S. Transportation Secretary Anthony Foxx, “To Build America, an all-of-the-above funding strategy,” (blog post), September 23, 2015.

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