Privatization and Government Reform Newsletter #6

Privatization and Government Reform Newsletter

Privatization and Government Reform Newsletter #6

April 2014 edition: State privatization, school choice, criminal justice, Detroit pensions, TVA privatization, and more

In this issue:

PRIVATIZATION: Reviewing the Past Year in State Privatization

The states continue to be a dynamic laboratory for privatization and public-private partnerships, according to the newly released State Government Privatization section of Reason Foundation’s Annual Privatization Report 2014. The report reviews developments in privatization and public-private partnerships in state government over the past year, with topics that include privatizing state lottery management, social impact bonds, public-private partnerships in social infrastructure and higher education, privatizing state liquor monopolies, child welfare privatization, and much more.
» FULL REPORT: State Privatization 2014
» Annual Privatization Report 2014 homepage

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EDUCATION: Developments in School Choice, Charter Schools, Funding Portability

Nationwide, states have continued to march forward in their efforts for more school choice, according to the newly released Education section of Reason Foundation’s Annual Privatization Report 2014. The report reviews developments over the past year in education, with topics that include the expansion of school choice programs, charter schools, student-based budgeting and school funding portability in the states.
» FULL REPORT: Education 2014
» Annual Privatization Report 2014 homepage

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CRIMINAL JUSTICE: Criminal Justice Reforms Prompt Evolution in Private Sector Rehabilitation Offerings

Detractors of private prisons often cite a supposed conflict between privatization and the growing trend towards criminal justice reforms and reduced prison populations. However, this mistaken view misses the forest for the trees, as the private sector continues to evolve in different ways in terms of how it provides the programs needed to help offenders effectively reintegrate into society. » FULL ARTICLE

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INNOVATORS IN ACTION: Reforming Defined-Benefit Pension Systems in Bakersfield and Kern County

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-examines current Kern County (California) Supervisor and former Bakersfield City Councilman Zack Scrivner, who championed successful reforms to financially unsustainable defined-benefit pension systems at both the city and county level.

As a city councilman, Scrivner spearheaded Measure D, a ballot measure approved by Bakersfield voters in 2010 that reformed the city’s pension system for newly hired public safety employees. Scrivner continued those efforts at the county level after being elected to the Kern County Board of Supervisors in 2010, having successfully negotiated for comprehensive pension and healthcare contribution reform with county public employee unions in 2012. I recently interviewed Scrivner on the rationale for the city and county pension reforms, the similarities and differences between them, lessons learned, and more. » FULL INTERVIEW

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PENSIONS: Pension Protection and the Detroit Bankruptcy

Public employee pensions have various protections in federal and state constitutions. In a recent article, Emory Law School associate law professor Alexander Volokh writes that constitutional pension protections interact interestingly with bankruptcy law, as we’re finding out in the context of Detroit’s ongoing bankruptcy. » FULL ARTICLE

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LAND USE: With Pension Costs Soaring, Should New Jersey Commit Billions to More Open Space Preservation?

New Jersey legislators are currently considering a bill that would amend the state Constitution to dedicate six percent of the state’s corporate tax revenues from FY2016 to FY2045 for the purpose of open space, farmland and historic preservation, and it would put this amendment on the ballot for voter approval in the next general election. Yet the state government already owns nearly 15 percent of New Jersey’s total land area outright and, altogether, it has set aside nearly one-third of its total land area as protected open space, according to state figures. That is on par with the amount of total state land area already developed. A new Reason Foundation policy brief finds that it is unclear why additional land preservation is needed when a significant portion of the state is already off-limits to development. Nor is it clear why there is a rush to lock in three decades of massive funding for land preservation when far higher spending priorities-primarily, rapidly rising government retiree pension costs-loom. » FULL POLICY BRIEF

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FEDERAL: Obama: Time to Divest TVA to Mitigate Taxpayer Risk

For the second consecutive year, the Obama Administration’s proposed budget contemplates a reduction or elimination of the federal government’s role in the Tennessee Valley Authority (TVA) to help mitigate risk to taxpayers. The TVA remains a government-sponsored enterprise, despite being the largest power generator in the United States-hardly a core government function given the robust private marketplace in electricity. In a recent article, former Conrail executive William B. Newman, Jr., proposes transferring ownership of TVA to the states it serves and explores some approaches for doing so. » FULL ARTICLE

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New Reason Foundation Actuarial Analysis of Proposed Ventura County (CA) Pension Reform Initiative: The Ventura County Employees’ Retirement Association is poorly positioned to stay properly funded in the coming years, and local taxpayers may be forced to pick up a hefty tab of unfunded liabilities if substantive changes are not made in the near future. A proposed ballot initiative by county residents would address the risk of long-term liabilities by putting new hires into a 401(k)-style defined-contribution system and phasing out the defined-benefit system over time. A new Reason Foundation actuarial analysis of the proposed reform finds that, if adopted, the initiative would save Ventura County $5.4 million in cash flow over the first two years, $51.6 million in cumulative savings over five years of reform, and $460 million in total savings over 15 years-all while separately eliminating $1.8 billion in pension debt. In the long run, moving to a new defined-contribution system would protect taxpayers from unfunded liabilities and investment return risks in public retirement systems.

Pioneering U.K. Social Impact Bond Pilot Project Shows Success, But Ends Early Amid Larger Restructuring: The U.K. Ministry of Justice announced last week that the world’s first social impact bond pilot program-a privately-financed recidivism reduction program launched at the HMP Peterborough prison in 2010-is being wound down early to make way for a nationwide payment-by-results program launching in 2015 as part of the Transforming Rehabilitation initiative. Officials report that the Peterborough pilot appears to have been successful thus far, with the Ministry of Justice reporting this month that reconvictions at Peterborough have dropped 11 percent since the social impact bond program launched, compared to a 10 percent rise nationally over the same period. For more information, see here and here.

California Assembly Passes Anti-Privatization Resolution: Earlier this month, the California Assembly passed House Resolution 29, a resolution sponsored by the American Federation of State, County, and Municipal Employees union that states that “the Assembly opposes outsourcing of public services and assets, which harms transparency, accountability, shared prosperity, and competition, and supports processes that give public service workers the opportunity to develop their own plan on how to deliver cost-effective, high-quality services.” Dozens of different organizations representing local governments registered opposition to the bill-including the League of California Cities, California Contract Cities Association, California Chamber of Commerce, and over 40 cities and towns-fearing that the resolution could be the first step towards limiting local governments’ ability to address ongoing fiscal challenges through solutions like privatization.

New Jersey Anti-Privatization Bill Reintroduced After Christie Veto: New Jersey legislators are back with a new version of a bill vetoed by Gov. Chris Christie in 2013 (Senate Bill 968) that would place a number of hurdles in front of future privatization efforts. This week, the New Jersey Senate Labor Committee approved Senate Bill 770, which, for any proposed privatization contract totaling $250,000 or more, would impose range of restrictions that include a five-year limit on state privatization contracts; requirements that the public not be subject to any fees, fares or other charges greater than those currently charged; and requirements that wages and employee benefits for each contracted position not be less than those for comparable agency employees (meaning it would be practically impossible to lower labor costs). The Assembly has not taken action on the bill yet, and according to The Record, prospects for the bill are “bleak” if it were to ultimately pass, given last year’s veto of similar legislation.

Georgia Child Welfare Privatization Pilot Launched: Despite the lack of legislative action on a proposed 2014 bill that would have created a three-year pilot program for privatized child welfare services-including adoption, foster care and other services-Gov. Nathan Deal’s administration has decided to push forward on its own with a two-region pilot program. Earlier this month, Georgia’s Department of Human Services announced the creation of pilot programs in two regions covering 20 counties in central, northeastern and northwestern Georgia, according to the Associated Press. The state’s Division of Family and Children Services plans to begin seeking outside partners to manage the recruitment and oversight of foster and group homes, manage placements, and more, according to the article.

Ohio Prison Food Contractor Fined for Missing Staffing Level Targets: The Associated Press reported this month that the Ohio Department of Rehabilitation and Correction has fined prison food service contractor Aramark $142,100 for missing staffing level targets this year at three state prisons. The company has a $110 million contract to provide food services to Ohio’s prisons through 2015. “While the process is working well at some facilities, we are disappointed that the company has not been able to meet and maintain our standards on a consistent basis,” an agency spokesman JoEllen Smith noted in a statement.

Georgia Regents Launch Procurement for Privatized On-Campus Housing: In mid-April, the Board of Regents of the University System of Georgia launched the first phase of a public-private partnership initiative for the operation and management of on-campus student housing. It issued a request for qualified concessionaires seeking a private partner to acquire and manage nearly 6,200 existing on-campus student housing assets on nine campuses statewide, develop and manage up to 3,000 beds of new, on-campus student housing on seven of the nine campuses, and obtain development rights for additional new, on-campus student housing on the nine participating campuses. The request and additional information is available here.

Indiana DOT Exploring Potential Privatization of Amtrak Line: In early April, the Indiana Department of Transportation issued a request for proposals seeking private partners to improve the Hoosier State passenger rail service connecting Indianapolis and Chicago. In the wake of federal legislation ending federal support of Amtrak lines less than 750 miles in length, INDOT is seeking private operators to compete with Amtrak to improve the Hoosier State passenger experience, increase the number of passengers on the train and decrease operating costs. Proposals are due this week. More information is available here.

Columbia, SC Considering Privatizing Parking Garages: Earlier this month, The State reported that Columbia city officials are planning to seek private proposals to take over operations of ten city-owned parking garages and develop two new ones in the Bull Street neighborhood. Officials are considering a range of options-from operations-only contracts to long-term leases using private financing-according to the article, and the city has hired a consultant to evaluate the current operations of its garages.

Evansville, IN Considers Privatizing Zoo Operations: City officials in Evansville are considering a potential public-private partnership for the operation of the Mesker Park Zoo and Botanic Garden as a means to address a $3 million annual operating deficit, declining attendance, and a long list of unfunded expansion projects. While the zoo is preparing to launch a new capital campaign to raise outside funds for new exhibits, in the long term, zoo director Amos Morris is urging a change in governance. “[A public-private partnership is] a better management system for a zoo, where the city puts in its contribution as a partner, and contracts with a nonprofit to run and operate it.” Morris told the Evansville Courier & Press earlier this month. “What it does for the city operation is, it fixes costs, reduces exposure … the city doesn’t really have to get involved in the administrative parts of operating the zoo.”

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“Partnerships like those with Staples can help narrow the gap between income and expenses, and as snail-mail use continues to drop, package delivery will assume a greater portion of its revenues. While that’s a more profitable venue for the [U.S. Postal Service], it also suggests less need for actual mailmen and -women, which is what worries the postal union. The existence of a “post office” at Staples precludes the need for even having high-cost brick-and-mortar buildings owned by the government along with the people to staff them.”
-Rich Duprey, “Staples Delivers First Blow for Postal Privatization,” The Motley Fool, April 28, 2014.

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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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