Privatization & Government Reform Newsletter #29 (January 2017 edition)

Privatization and Government Reform Newsletter

Privatization & Government Reform Newsletter #29 (January 2017 edition)

January 2017 edition: federal barriers to private infrastructure investment, federal competitive sourcing, state privatization trends, and more

In this issue:


INFRASTRUCTURE: Federal Barriers to Private Capital Investment in U.S. Infrastructure

Before taking office, President Trump announced plans to pursue an ambitious program to foster private investment in aging U.S. public-sector infrastructure, including airports, highways, seaports, water-supply and wastewater treatment facilities. For the past 15 years, infrastructure investment funds, infrastructure companies and others have been eager to invest in U.S. public-private partnership (PPP) projects of this kind, but they have confronted a relatively small number of projects. According to a new Reason Foundation report, that problem stems from two causes: state and local policymakers’ unfamiliarity with PPP models and federal barriers to private capital investment in state and local infrastructure.

The report identifies thousands of potential project opportunities, in the form of existing airports, highways, seaports, water systems, etc. It then shines a spotlight on an array of federal obstacles that make it difficult, financially disadvantageous or impossible to do the kinds of PPP infrastructure renewal that take place routinely in Canada, Europe and Latin America.
» FULL REPORT

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CONTRACTING: Will Trump, Congress Try to Make the Federal Government Compete Again?

Given current federal policy toward outsourcing, the Trump administration and Congress have an opportunity to re-embrace competition. According to a new article by Reason’s Austill Stuart, expanding federal competitive sourcing would benefit taxpayers by using competition to drive down costs and innovate in service delivery.
» FULL ARTICLE

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STATE GOV: Reviewing the Past Year in State Privatization

Amid a slow economic recovery since the end of the Great Recession, states continue to advance privatization and public-private partnership initiatives, according to Reason Foundation’s Annual Privatization Report 2016. 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, the private sector’s expanding role in higher education, and the privatization of state liquor stores.
» FULL REPORT: State Government Privatization 2016
» Annual Privatization Report 2016 homepage

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PENSIONS: CalPERS Lowers Investment Return Assumption

The board of the California Public Employees Retirement System (CalPERS) sent shockwaves through the Golden State last month when it approved lowering its investment returns assumption from 7.5% to 7.0% over the coming years, a move that revealed the pension plan is billions more in debt than was previously recognized. In the short term, this change is going to mean increased pension contributions for the state and most local governments, which could potentially impact taxpayers through service cuts or tax increases. But as Reason’s Leonard Gilroy writes in a recent Orange County Register column, there is a definite silver lining for taxpayers in the long term.
» FULL ARTICLE

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ENERGY: CAFE Standards in Plain English

While the original Corporate Average Fuel Economy (CAFE) standards sought to drive automotive innovation to curtail fuel consumption, the purview of current standards has been expanded to address emissions of greenhouse gases. In the process, the standards have become increasingly complex. In a new issue explainer, Reason’s Baruch Feigenbaum and Julian Morris describe in plain English the development of the CAFE standards and how they function. They find that as the standards become more complex and administratively burdensome, legitimate questions arise as to their suitability for achieving fuel efficiency and environmental objectives.
» FULL EXPLAINER

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NEWS & NOTES

GAO Releases First Federal Fiscal Health Report: This month, the Government Accountability Office (GAO) released The Nation’s Fiscal Health: Action Is Needed to Address the Federal Government’s Fiscal Future, the first of a series of annual reports directed to Congress that provides a trajectory of federal spending and its largest drivers—Medicare, Medicaid, Social Security, Interest on the federal Debt and Defense programs—using alternative budget simulation forecasts from the GAO and Congressional Budget Office (CBO). For all of these major drivers of spending, the report paints a grim picture, with “Trust Funds” for Social Security Disability, Medicare Hospital Insurance, and Social Security Old-Age and Survivors Insurance depleted over the next 10 to 20 years, and debt-to-GDP levels reaching their previous high of 106% between 2031 and 2041, depending on the simulation. The report also outlines other drivers of spending and revenues resulting from tax code changes specific to the year, as well as other areas of focus and policy proposals to aid in bringing debt-to-GDP levels closer to their 44% average. The full report is available here.

Utah State Auditor Evaluates Impact of Rising Teacher Pension Costs: A recent report by Utah’s state auditor outlined the severity of unfunded liabilities affecting the state’s teacher pensions. While the required employer pension contributions rose sharply from 2008 to 2015 (nearly doubling from 12.72% of payroll to 22.19%), nearly half of those contributions are due to unfunded pension liabilities, a figure reaching $204 million in 2015. The report notes that if the pensions were fully funded, the money currently dedicated to amortizing unfunded liabilities could be used to increase teacher pay by 14%, to double the amount of teacher aides, or to operate an additional 40 elementary schools. The full report is available here.

Pew Releases Municipal Fiscal Landscape Report: In December, the Pew Charitable Trusts released the latest edition of its Fiscal Landscape of Large U.S. Cities. The two biggest sources cited for falling revenues in cities were property taxes—which grew for the sample of cities, on average, for the first time since 2009—and declines of intergovernmental transfers. On average, spending in the cities remains 1% below pre-recession levels. Average sales taxes grew 8.6%, the highest rate recorded by Pew since starting the report in 2007. Ranges of “Rainy Day funds” varied from 1% (Kansas City) to 28% (Boston), while averaging 22% across the sample. New debt issuances reached a five-year high for the group, with Chicago accounting for 22% of all new issuances. The full report is available here.

Maine Privatizes Welfare-to-Work Program: Maine’s Department of Health and Human Services (HHS) agreed to a four-year deal potentially worth $62 million with New York-based nonprofit FedCap, to run the state’s welfare-to-work program (previously known as ASPIRE). The contract is largely incentive-based, tying FedCap’s pay to the performance of the nonprofit in placing the state’s welfare recipients into jobs. As reported in the September 2016 edition of this newsletter, Maine looked to privatize ASPIRE after poor performance under state operation led to a $29 million fine from the federal government. More information is available here.

PPP Ports of Entry Legislation Signed By President Obama: U.S. Rep. Henry Ceullar (D) and Senator Jeff Cornyn (R), both of Texas, introduced legislation allowing greater use of public-private partnerships at U.S. ports of entry as a means to improve efficiency and wait times while minimizing further taxpayer risk. Rep. Cuelllar’s House version was signed into law by President Obama on December 16th after passing votes in both chambers earlier in the month. The legislation allows the Commissioner on U.S. Customs and Border Protection to enter into contracts with individuals to provide customs, agricultural processing, border security and inspection services. More information is available here and here.

Connecticut Nonprofits Cite $1.3 Billion in Savings From Privatization: The Connecticut Community Nonprofit Alliance, a coalition of private nonprofit human service providers in the state, released figures in January claiming $1.3 billion in savings over the next five years from privatizing many government services in the state, according to the Connecticut Post. Mental health, substance abuse programs and programs for people with developmental disabilities provide the main areas of focus. The state faces a $1.3 billion shortfall over the next fiscal year, which begins this July.

RFPs Issued for Fargo Moorhead Diversion Project: The Fargo Moorhead Area Diversion Project’s Board of Authority sent out a request for proposals to four short-listed consortiums that responded to an earlier request for information—Lake Agassiz Partners (Meridiam/Walsh/AECOM), Red River Valley Partners (Fluor/Plenary/Ames/Barnard), Red River Valley Alliance (Acciona/InfraRed/North American Enterprises/Shikun & Binui), and Red River Partners (Graham/Parsons/Alberici/BBGI). As reported in the August 2016 edition of this newsletter, the $1.8 billion diversion project—a joint effort between the Army Corps of Engineers and the states of North Dakota and Minnesota to control flooding on the Red River—involves two major components: the construction of a dam, to be handled by the Army Corps of Engineers, and a privately financed and constructed, 1,500 foot-wide diversion channel, which would be paid back over time by the states of North Dakota and Minnesota. The consortia face a fall 2017 deadline for submitting their proposals. More information is available here.

New Ohio Law Allows Private Prisons to House State Inmates: Ohio House Bill 185—originally intended to modify the state’s definition of arson, but ultimately modified to include language allowing Ohio state prisoners to be housed in private prisons—passed the Senate in December and was subsequently signed by Gov. John Kasich. The bill passed the House early in 2016. In March 2015, the federal Bureau of Prisons chose not to renew a contract at a CoreCivic-operated private prison in Youngstown, a facility that supporters of the bill hope to utilize to help overcome the state’s prison overcrowding problems. Ohio prisons are operating at 132% of capacity, according to inmate population figures released by the state’s Correctional Institution Inspection Committee this May.

MBTA Agrees to New Union Deal, Halting Some Privatization Plans: The Massachusetts Bay Transportation Authority (MBTA) has agreed to the terms of a $1.5 billion contract with the Carmen’s Union Local 589, which represents 6,000 MBTA employees, including many in areas that had been considered for privatization, such as bus drivers and maintenance workers, as recent editions of this newsletter have reported. The deal does not affect cash counting, which Brinks recently took over, and MBTA still could pursue privatization in other areas, such as fare collection, maintenance, warehouse operations and expanded service hours. More information is available here.

NIGP Releases PPP Procurement Guidelines: In November, the National Institute for Government Purchasing (NIGP), a professional organization representing over 15,000 government procurement professionals in North America and abroad, released its guidelines for public procurement through public-private partnerships (PPP). The guidelines rest on 10 elements that guide the entire PPP process, from establishing principles for PPP use and feasibility to negotiation and contract administration. The guidelines are available here.

Tennessee Issues RFP for State Park Facilities: Last month, the Tennessee Department of Environment and Conservation issued a request for proposals seeking private partners to demolish, rebuild and ultimately manage an inn, restaurant and conference center at Fall Creek Falls, the most-visited of all Tennessee state parks. Officials hope that demolition on the estimated $22 million project can begin late next year, with a target completion date sometime in 2020. More information is available here.

Mass. Supreme Judicial Court Affirms Mental Health Privatization Plan: Last month, Massachusetts’ highest court affirmed the State Auditor’s approval of privatizing government mental health services in the southeastern portion of the state, citing $7 million in savings. The local SEIU chapter filed suit to stop the proposal, but the Supreme Judicial Court found that the proposal “comports with the requirements of the Pacheco Law,” a longstanding law placing several procedural hurdles before implementation of state privatization initiatives can proceed. More information is available here.

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QUOTABLE QUOTES
“The Congress and incoming Administration face serious economic, security, and social challenges that will require difficult policy choices in the short term about the level of federal spending and investments as well as ways to obtain needed resources. They also face a government heavily leveraged in debt by historic norms and on an unsustainable long-term path. Decisions over the near term to enhance economic growth and address national policies need to be accompanied by a fiscal plan to put the national government on a more long-term sustainable path. I hope GAO’s findings will serve to sound the alarm and spur a longer-term approach to help turn things around.”

—Gene Dodaro, Comptroller General of the U.S., “Press Release: GAO Issues First Annual Report on the Federal Government’s Fiscal Health,” Government Accountability Office, January 17, 2017.
“We’re in an environment where everyone is starting to think about the next downturn and what that’s going to look like. A stress test is a tool for states to think about what types of programs they should commit to and how much to save now.”

—Moody’s Investors Service analyst Emily Raimes, cited in Liz Farmer, “To Prepare for the Next Recession, States Take Stress Tests“, Governing, December 12, 2016.
“By definition and design, the A-76 process seeks to compare the costs of public sector versus private sector performance for essentially the same work performed in essentially the same way. Innovation occasionally found its way into the process, but generally only inasmuch as it supported the same operational approach. Yet, today, more so than at any time in the past, there is an opportunity to fundamentally change how work is done at almost every level to improve performance and cut costs. But that opportunity hinges on an organization’s ability to change and evolve, often by adopting new, digitally-driven models.”

—Stan Soloway, “It’s Time to Bury A-76—It Worked Once, But Its Day Is Past,” Government Executive, January 4, 2017.

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Additional Resources:


Leonard Gilroy is Senior Managing Director of the Pension Integrity Project at Reason Foundation, a nonprofit think tank advancing free minds and free markets. The Pension Integrity Project assists policymakers and other stakeholders in designing, analyzing and implementing public sector pension reforms.