Occupational Licensing Reduces Consumer Benefits from Online Platforms 

“The share of U.S. workers required to hold an occupational license has exploded from around 5% in 1950 to 25% in 2020,” writes Reason Foundation’s Vittorio Nastasi. Occupational licensing has a documented history of limiting competition and stifling innovation while making certain classes of professionals into protected classes. Nastasi reviews recent literature pointing to yet another negative impact of occupational licensing: making it harder to use the online platforms that rate home improvement contractors. Using data from the popular home improvement site Angi’s HomeAdvisor, a Harvard researcher estimated that a recent New Jersey pool contractor licensing law resulted in customers becoming 16% less likely to find at least one qualified contractor on the site, with an overall negative impact of licensing as high as 25%. As Nastasi notes, licensing, in this case, squanders some of the benefits buyers and sellers can enjoy from online platforms. 

ESG Investing Violates Fiduciary Duty in Public Pension Plans 

Investing based on environmental, social, and governance (ESG) standards is a hot topic. Reason Foundation Senior Fellow Richard Hiller argues that ESG investing must be subject to clear fiduciary standards for public pension funds, so they first ensure secure retirement benefits for their members and limit costs to taxpayers. Hiller points out the important differences between individual investors, who are free to pursue any investment strategies—such as boycotts of companies and industries for ESG or activist reasons— they want and pension systems, whose advisors have a fiduciary duty to pursue the best strategies to maximize returns. When public pension fund managers make decisions based on ESG or any other political motivations, they violate that fiduciary duty, Hiller writes. 

NEWS & NOTES 

STATE GOVERNMENT 

West Virginia University Seeks Potential Energy P3: Inframation News revealed that West Virginia University released a request for proposals (RFP) for financial advisors to assist in developing a public-private partnership (P3) for the school’s utility systems, including energy and chilled water facilities. According to the RFP’s language, the school “envisions some form of public/private partnership, whether in the form of a concession agreement, design-build-finance-operate-maintain agreement, or some other transactional structure.” 

Hawaii Rejects P3 for Aloha Stadium: After three years of planning and millions spent on the project, Hawaii Gov. David Ige revealed he would reject using a public-private partnership to redevelop Aloha Stadium near Honolulu. Instead, a state agency (The University of Hawaii has been mentioned, though a final decision is still pending) will pursue the project itself with $350 million set aside by the state legislature earlier this year, according to the Ige administration and the state’s Department of Business, Economic Development, and Tourism. 

LOCAL GOVERNMENT 

Mississippi City Begins Outsourced Public Works: This month, the city of Petal, Mississippi, began a contract with Alabama-based ClearWater Solutions to take over most of the duties of the town’s public works division. Aside from solid waste management, which WastePro handles for the city in a separate contract, the ClearWater contract will cover all other division functions, including water and sewer operations, as well as road and fleet maintenance. Town aldermen voted to enter into the contract in August, citing difficulties in hiring and keeping employees, performance and compliance issues, as well as rising costs of pensions and health insurance.     

Towamencin Faces Vote That May Make Sewer Sale Illegal: In November, residents in Towamencin Township, Pennsylvania, will vote on a referendum that could potentially void a pending sale of the city’s sewer system to NextEra Energy for $115 million. Supporters of the referendum hope that by creating a home rule charter, the sale of the sewer system could be canceled, but admit the strategy “hasn’t been tested yet.” In May, town supervisors approved the deal, which still awaits an approval decision by the Pennsylvania Public Utility Commission. 

Economic Study Shows Benefits of Police Work Outsourcing: A report by the Montreal Economic Institute showed how large American cities can save taxpayers money by delegating non-critical police functions to private employees. By outsourcing a combination of administrative work and traffic enforcement, the study found that Los Angeles, Miami, and Milwaukee could annually save anywhere from $31 million, Milwaukee’s low estimate, to over $350 million, Los Angeles’ high estimate. The authors also cite the advantages of competitive bidding to ensure those functions are handled by the most capable and accountable actors. 

Texas City Releases RFP for Publicly-Owned Waterfront Parcel: The city of Beaumont, Texas, released a request for proposals to seek a purchaser and developer for 555 Main Street, a 2.7-acre downtown lot that sits on the Neches River waterfront. The city is providing $25 million for the project and also cleaned up a rail yard site to facilitate the purchase. Attracting economic development is a primary concern the city says. Beaumont’s population doubled from 1940–1960 but has mostly remained stagnant for the past 60 years. 

FEDERAL GOVERNMENT 

U.S. Air Force Releases Microreactor RFP: The United States Air Force released an RFP for a pilot program dedicated to creating a nuclear microreactor at Eielson Air Force Base in Alaska. The Air Force hopes to develop microreactors for its more remote installations, citing their adaptability to changing conditions and ability to operate independently from the power grid. The microreactor resulting from the project will be privately owned and operated. 

QUOTABLE QUOTES 

“Our (Public Employees Retirement System), we pay 17.4 percent on that, which kind of hurts us,” Ducker said in a previous story. “And we’ve noticed over the last year or so that we’re losing people that are going into construction and other jobs that are just able to pay more…So the privatization could be a good thing for some of the employees because they would get a pay increase. It’s tough when you’re paying folks $15 and $16 an hour, and other municipalities and private entities are paying $19 to $22 an hour.” 

—Petal Mayor Tony Ducker on the decision to outsource the city’s public works division 

“(T)he reality of policing in the United States is that we have asked police to take on more and more responsibilities that are increasingly far removed from critical policing tasks.” 

—From “Enhancing Public Safety While Saving Public Dollars with Auxiliary Private Security Agents” by the Montreal Economic Institute

“I am concerned that we spent three years and $25 million to get to this point, and we were all ready to go. And here we are two months before the end of their term, they’re saying that they somehow have a miraculously better idea to hasten this project?” 

–Hawaii State Sen. Glenn Wakai on the decision not to pursue a P3 for the redevelopment of Aloha Stadium 

“The release of the RFP for the Eielson AFB micro-reactor is a critical next step in furthering the development and deployment of reliable and clean energy technology at Department of the Air Force installations. This program is extremely important to mission assurance and sustainment in the face of climate change and continued national defense threats, and demonstrates the department’s commitment to ensuring our installations have a safe, reliable supply of energy, no matter their location.” 

– Deputy Assistant Secretary of the Air Force for Environment, Safety, and Infrastructure Nancy Balkus on a pilot program to develop a nuclear microreactor at Eielson Air Force Base

The post Privatization and Government Reform News: Impact of occupational licensing, ESG investing, and more appeared first on Reason Foundation.

New Medi-Cal Amendment Ensures More Expensive Ambulance Rides 

A recently passed amendment to California’s Medicaid program, Medi-Cal, is set to raise the average cost of an ambulance ride from about $120 per trip to over $1,000 per trip without justification. Local California fire departments were a large advocate for the change, which they seem to see as a potential financial windfall if they are can shift emergency medical services (EMS) to be under the purview of their departments. In a new article in the Orange County Register, Reason Foundation’s Austill Stuart explains why the Medi-Cal amendment will hurt taxpayers and how it could potentially disrupt EMS services across California.  

Jackson’s Water System Problems Need Long-Term Commitments 

The residents of Jackson, Mississippi, had already been without drinkable water for weeks when the city’s water and sewer systems failed amid major flooding last month. While the boil advisory has been lifted and service has mostly returned, Jackson’s water infrastructure problems remain, including malfunctioning equipment in the city’s treatment facilities and a lack of personnel capable of operating and maintaining the equipment itself, according to a recent U.S. Environmental Protection Agency inspection report. The city has deep financial problems, too. Jackson’s bond rating is barely investment grade, and it has lost over 14% of its residents over the last 10 years. The situation is so bad that a bipartisan mix of officials agree that an entity other than Jackson should operate the city’s water systems, with Mississippi Gov. Tate Reeves suggesting privatization as an option. In a new article, Reason Foundation’s Austill Stuart examines the depths of Jackson’s water problems, why the city is likely going to require private capital and solutions to address them, and how to best protect taxpayers.  

Long Overdue Reforms to the FDA Regulation of New Drugs Could Save Lives 

“There are few areas of public policy where the results have been as diametrically opposed to the intentions as pharmaceutical regulation in the United States,” writes Reason Foundation’s Managing Director of Drug Policy Geoffrey Lawrence in a recently released policy brief on how to reform the Food and Drug Administration. The paper includes recommendations on how to reform the FDA, streamline the drug approval process, use pharmaceuticals approved by the European Union, reduce prescription drug costs, and help achieve the broad public goal of improving the lives and health of all Americans.

Uneven Progress Toward Transparent and Machine-Readable Financial Reporting In Florida 

The Florida Division of Auditing and Accounting released a business reporting language taxonomy that local governments can use to release their financial reports digitally. A 2018 Florida House Bill mandated XBRL as a necessary common standard. But after the bill’s passage, the Government Finance Officers Association said it “opposes efforts to mandate the use of specific technologies by state and local governments for financial reporting and disclosure.” In a recent commentary, Senior Policy Analyst Marc Joffe explains why XBRL is the best fit for financial reporting by local governments and how it can help provide taxpayers and policymakers with data in a consistent and usable manner to increase transparency and accountability. 

Keep Congress Away from College Football  

While college football players can now earn money from their name, image, and likeness (NIL), the National Collegiate Athletic Association continues to cling to the “amateur” status of players. This long-outdated idea has reached the point of being a fairy tale, allowing universities and their athletic departments to rake in billions of dollars annually in revenue, as Reason Foundation Director of Education Reform Aaron Garth Smith describes in a recent commentary. The NCAA knows its rules may be on shaky legal grounds, which is why it is lobbying Congress for a federal policy that would preserve the NCAA’s strong grip while keeping players from reaching their full market potential.

NEWS & NOTES 

STATE GOVERNMENT 

Puerto Rico Chooses Partner for Cruise Ports Public-Private Partnership: In August, the Puerto Rico Ports Authority (PRPA) selected Global Ports Holdings as its partner for a 30-year concession of the San Juan Cruise Port. The deal includes an initial $75 million payment to the PRPA and $350 million in capital investments in the port by the company to improve services and expand capacity. 

Hawaii Modifies Resort RFP Action to Exclude Sale: Earlier this month, the Hawaii Board of Land and Natural Resources modified an action it made in July to disallow a sale of state properties, opting instead for a lease. The Hawaii Department of Land and Natural Resources (DLNR) wants to tear down or renovate a waterfront hotel and a nearby condo building, but funds are not available for the project or for an environmental assessment and impact statement (EIS). Therefore, a long-term lease is seen as the only way to attract developers to fund both the EIS and the renovation work. DLRN staff canceled a previous request for qualifications/proposals process for the project last year after it couldn’t fully verify the financials of its preferred proponent. 

LOCAL GOVERNMENT 

Los Angeles Jail Diversion Program Shows Promising Results: The Rand Corporation recently released a report evaluating the early results of the Los Angeles County “Just in Reach Pay For Success” (JIR PFS) program, which provides permanent supportive housing (PSH) for individuals eligible for diversion from jail. In early results, participants spent an average of 24 fewer days in jail compared to a control group. The Los Angeles County Department of Corrections oversees the program, which was originally started in 2017 and is funded by $10 million from the Conrad Hilton Foundation and United Healthcare. Success payments are based on maintaining a 92% and 90% PSH retention rate after six- and 12-month intervals, respectively, and a 42% jail avoidance rate for participants over two years. 

Miami-Dade Releases $10 Billion Downtown Redevelopment RFP: Miami-Dade County released a request for proposals in August for a $10 billion downtown redevelopment project. The county is providing 17 acres of land adjacent to most of the county government’s offices. It hopes to find partners to develop potentially 17-to-24 million square feet in a combination of housing, offices, retail, parking, a transit terminal, and a minimum of 2.5 acres of green spaces. The chosen developer for the project would pay the county to lease the land for up to 99 years.   

Annapolis Closes on Parking and City Dock P3: Earlier this month, the city of Annapolis and the Maryland Economic Development Corporation reached financial close with Annapolis Mobility and Resilience Partners on a $70 million public-private partnership that includes renovations to a downtown parking garage and the Annapolis City Dock. The parking improvements will be procured as a design-build-finance-operate-maintain project. For the dock, the work will be design-build-finance and includes a raised seawall and storm surge barriers as well as green spaces to capture stormwater.  

Pittsburgh Announces Micro-mobility Pilot: The city of Pittsburgh, Carnegie Mellon University, and mobility services provider Spin announced the creation of a pilot program to provide micro-mobility solutions to low-income workers. The pilot program will provide 50 selected individuals free access to public transit, bikes, scooters, and zip cars in a year-long test. This program is intended to track socioeconomic progress and will compare results to a 50-person control group evaluated by Carnegie Mellon. The Richard King Mellon Foundation is providing $200,000 for the funding alongside $50,000 from Spin. 

Baltimore Starts Guaranteed Income Pilot Program: In August, Baltimore revealed it had started processing payments to individuals in its Baltimore Young Families Success Fund. A group of 200 individuals is scheduled to receive monthly cash payments of $1,000 for two years in exchange for participating in interviews and answering surveys about their experiences. Local nonprofit the CASH Campaign of Maryland and personal finance portal Steady will provide operational support for the city’s project, which will be evaluated by Johns Hopkins and is being funded by $4.8 million in American Rescue Plan Act funds as well as grants from private donors.  

New Jersey Town Forced to Outsource Animal Control After Resignations: Last month, two animal control officers in Stafford Township, New Jersey, resigned, leading the town to temporarily outsource the town’s animal control services to A-Academy. The contract, which Mayor Greg Myhre made clear is an “emergency decision,” will last until the end of the year. 

QUOTABLE QUOTES 

“The Just in Reach Pay for Success program appears to significantly reduce participants’ use of many county services…The program may provide a feasible alternative—from a cost perspective—for addressing homelessness among individuals with chronic health conditions involved with the justice system in Los Angeles County.” 

—Sarah B. Hunter, lead author of a Rand Corporation Report about Los Angeles County’s “Just in Reach” jail diversion program, in a press release.

The post Privatization and Government Reform News: Expensive ambulances, Jackson’s water crisis, FDA reform, and more appeared first on Reason Foundation.

Conditions are so bad that Rep. Bennie Thompson (D-MS) and Mississippi Gov. Tate Reeves (R), who agree on little else, agree that Jackson needs a new water operator. Gov. Reeves raised the possibility of water privatization at a recent  press conference:

“I’m open to all options. Privatization is on the table,” Reeves said.

 “Having a commission that oversees failed water systems as they have in many states is on the table… There have been even a number of city council members that I have seen over the last several weeks that have talked a lot about the need to hire outside contractors to come in and run different pieces of or the system as a whole.”

“I think you’re seeing more and more individuals recognize that the operations of city government in general, but particularly the operations of the water system… it ain’t Republican or Democrat or ideological, it’s about delivering a basic service to the people you represent,” he said.

Reeves and the state government will play a role in helping Jackson overcome its water problems. Still, the financial and productive capital required for such a large undertaking will likely need to come from the private sector. Long-term, Jackson’s water, sewer, and stormwater system need an estimated $2 billion to get them working again and back in compliance with the Environmental Protection Agency.

Jackson’s shaky finances and the dire shape of its water and sewer operations mean merely outsourcing maintenance, as Jackson Mayor Chokwe Antar Lumumba suggested as an alternative to privatization, would not solve the long-term water system replacement concerns, attract the needed capital investments to repair and rebuild, or truly address the city’s more extensive environmental compliance and staffing concerns.

While outsourcing would certainly help some of the day-to-day operations issues, Jackson would still be mostly on its own for getting itself back into compliance and finding the $2 billion needed for system repairs and upgrades. 

Jackson’s previous bad contracting experience with its water system should not prevent the city from seeking a long-term deal now. A few years into a 2013 water contract with Siemens to repair sewer infrastructure and upgrade billing and meter systems, Jackson filed a complaint in court against the company, claiming it was misled into the 15-year $90 million contract with promises of increased revenues that never materialized and work that was never done. Before going to trial, the parties agreed to a settlement equal to the original contract’s total amount, $90 million, paid to the city.

In the future, a well-written, long-term privatization contract can set clear benchmarks for the private company to meet and instill financial penalties for failing to do so. Any privatization contract should protect Jackson’s taxpayers, make it easy to hold the private water company accountable for meeting its commitments and avoid some of the problems from the Siemens deal. 

Six weeks without drinking water has drawn public attention to the government’s failures in Jackson and decades of failing to comply with EPA standards. For example, drinking water quality is partly ensured by monitoring the turbidity—cloudiness from impurities—of water samples taken from the system. A 2020 EPA inspection found that the turbidity monitoring equipment at one of Jackson’s two water treatment plants didn’t work because it hadn’t been calibrated in around three years, resulting in continuously inaccurate readings. And, in an example of how hard it will be for the city to fix all of its water problems itself: The technician position needed to perform water turbidity maintenance and monitoring is not filled right now. In fact, the job no longer exists in the city government at all.  

Additionally, the EPA found that when Jackson’s lead levels rose above acceptable limits, the city didn’t notify residents. The EPA report also noted that Jackson did not have a plan to remove lead service lines from its water system—something the city has been required to do but has been failing since 1992. 

Among other problems, the EPA report also discovered that filter membranes in water treatment facilities were not functioning and were damaged beyond repair, automated treatment systems were failing, and low staffing levels were a constant problem.

Jackson’s water problems are severe, and solving them won’t be inexpensive. Still, the right long-term partnership could help the city overcome its obstacles as cost-effectively as possible. Hiring capable partners legally bound to perform well would put Jackson on a path to bring its system into compliance and start reducing its backlog of maintenance and repairs.  

Without a privatization deal, Jackson’s water system will likely worsen. Procuring a multi-decade lease will undoubtedly be challenging, but without one, there is no path to address Jackson’s many water and sewer management problems fully.

The post Jackson’s boil advisory lifted, now must address long-term water problems  appeared first on Reason Foundation.

Innovators in Action: Rethinking K-12 Transportation

Whether K-12 transportation is handled in-house or outsourced to private companies, it typically uses large school buses that can often hold 50 or more students. In rural areas especially, traditional school buses can be unnecessarily costly as larger, often-unfilled, and less fuel-efficient vehicles struggle to handle routes where students live further apart. In Arizona, a state grant program aimed at improving K-12 school transportation had many rural families concerned about their lack of flexibility and options. State Senator Sine Kerr, a dairy farmer who represents a rural district, saw an opportunity to help fix the problem by allowing the use of smaller passenger vans—those carrying 15 or fewer passengers—to transport students. In June, her efforts resulted in the legislature passing and Gov. Doug Ducey signing Senate Bill 1630, which allows K-12 students to be transported in passenger vans. In addition to being more fuel efficient, easier to maintain, and less costly, the vans do not require a commercial driver’s license (CDL) to operate. In a recent Innovators in Action interview with Reason Foundation’s Christian Barnard and Ari DeWolf, State Sen. Kerr discusses the new law, how it addresses concerns with safety and gives schools and families more efficient options, and how urban and suburban school districts plan to utilize the legislation’s flexibility.  

States Need Forward-Thinking Approaches to Meet Water Demands

With Arizona’s recent passage of a water infrastructure financing law, Senate Bill 1740, the state is helping ensure Arizonans have access to adequate drinking water and sanitary sewer conditions going forward. As the Bureau of Reclamation demands additional cuts in water allotments to states that rely on the Colorado River, it is important that states give local governments the tools and funding they need to pursue agreements and projects with private and public entities to secure water rights, as well as building resiliency and diversifying sources to prepare for changing climate conditions and increased demand from growing populations. In a new commentary, Austill Stuart highlights Arizona’s legislation as an example that other states should take into consideration as securing water rights becomes more difficult and projects become more expansive.

Changing the Conversation on New Highway Tolls

Due to a combination of the improved fuel efficiency of cars and public and political resistance to tolling and gas tax increases, policymakers and transportation agencies face increased difficulty in financing the needed reconstruction and expansion of highway systems, especially ones with bridges, tunnels, and other expensive assets. Many highways and bridges are nearing the end of their original useful lives and operating capacities. In this column, Reason’s Robert Poole explores these road funding debates, examines multiple recent examples of opponents stopping potential toll-financed projects, and outlines why tolling and mileage-based user fees are likely to provide a more stable, sustainable means of building and maintaining highways going forward.

Housing Regulations Increase Prices, Hurt Young Homebuyers

Homeownership was already becoming historically difficult for younger Americans before inflation rose to levels not seen in decades, prompting the Federal Reserve to raise interest rates, which makes it more difficult for homebuyers. State and local governments have long contributed to the housing problem in two key, related ways: excessive regulatory costs and restricting new housing supply. In a new post, Reason’s Vittorio Nastasi details recent research and trends in housing affordability and reforms that local governments can implement to reduce barriers to homeownership.

NEWS & NOTES

LOCAL GOVERNMENT

NYC Seeks New Ferry Operator After Audit Report Reveals Massive Expense Underreporting: The comptroller for New York City released an audit report in July revealing that the New York City Economic Development Corporation (NYCEDC) underreported expenses for operating ferry routes. Between July 2015 and the end of 2021, the comptroller’s office found NYCEDC should have reported $758 million in ferry-related expenses but only reported $534 million, an undercounting of over 40%. NYCEDC also dramatically understated its taxpayer subsidies per trip over the six-and-a-half-year period, including $8.59 per trip instead of $12.88 last year. In response to the comptroller’s findings, NYCEDC has agreed to issue a request for proposals (RFP) to find a new ferry operator. NYCEDC also noted in its response that it feels it “accurately and properly enforces” its ferry operating contract agreement, but would look to address other reporting issues in its next contract.

NYC Announces New Homelessness P3: In July, New York City Mayor Eric Adams announced the creation of the Homeless Assistance Fund, an $8 million public-private partnership (P3) between the city and over 60 local businesses and nonprofits. The effort seeks to offer support networks to homeless people with an emphasis on outreach and location. The public-private partnership represents an extension and expansion of the “Connect to Care” initiative created by local nonprofit Breaking Ground.

Fort Lauderdale Cancels Shared Government Center With Broward County: In July, the city of Ft. Lauderdale canceled its pursuit of a project to build a government complex to be shared with Broward County, according to an email from Fort Lauderdale City Manager Chris Lagerbloom sent to Infralogic. After planning on a joint project with the county for several years to replace the existing city hall and Broward County Government Center East, Ft. Lauderdale plans instead to pursue a standalone city hall building through a separate procurement.

Wichita Creates New Golf Course Oversight After Privatization Rejection: In July, the Wichita City Council approved an ordinance to create a board of governors that would replace the current advisory committee in overseeing the city’s four municipal golf courses. The change was recommended after the city council voted 5–2 to reject the privatization of the four courses earlier this year. Unlike the advisory committee, which reported to the Wichita Board of Park Commissioners (that recommended privatization), the board of governors would report directly to the city council.

Monterey Water Utility Releases Microgrid RFP: Monterey, California, public water utilities Monterey One Water and the Monterey Regional Waste Management District released a request for qualifications/proposals (RFPQ) looking for qualified firms to provide consulting services concerning the feasibility of potential microgrid and renewable energy projects. The two agencies seek three major objectives from the projects: to find the best use of waste products derived from agency activities (such as waste-to-energy, composting materials, or fertilizer), to enable an energy microgrid that includes “islanding” capabilities—where smaller energy generation and storage sources (referred to as “distributed generators”) feed the larger grid in the event of power plant outages—and to assess the integration of renewable generation sources and energy sources. Responses to the RFPQ were due at the beginning of August, and the agencies hope to announce contracts next month that will be implemented in October.

Louisiana Parish May Pursue P3 for New Jail: At the encouragement of Lafayette Mayor-President Josh Guillory, the Lafayette Parish Council voted 4–1 to approve a resolution that allows the parish to potentially partner with a private firm to build, finance, and maintain a new jail. The parish sheriff’s office would operate the jail. The parish plans on releasing an RFQ for the potentially 25-to-40-year project later this month and selecting a development partner in October.

Florida County Cancels Broadband Contract: Last month, Jackson County, Florida, canceled a contract with private firm P3 Group to build out broadband capability in a “middle mile” project. The cancelation occurred in response to plans by P3 Group to change major provisions of the contract, including using wireless instead of installing a fiber network and applying for grant funding instead of 100% private financing. The county plans to solicit bids in the near future.

Indiana City Finalizes Broadband Contract: In July, the city of Boonville and AT&T reached financial close on a project to install a fiber network with over 4,000 access points around the city. AT&T expects the $4.4 million project to be completed by Jan. 2024.

STATE GOVERNMENT

Connecticut Launches $75 Million P3 for Small Business Development: In July, Connecticut Governor Ned Lamont announced a $150 million small business P3 that will provide low-interest loans of $5,000 to $500,000 to small businesses and nonprofits in the state. Dubbed the Connecticut Small Business Boost Fund, recipient firms will be required to employ no more than 100 people and have less than $8 million in annual revenues. The state will provide half of the funding ($75 million) initially, hoping to increase the program’s size through additional private investments to reach the $150 million total.  

Alaska University Issues RFQ for Utilities Systems: Earlier this month, the University of Alaska–Fairbanks issued a request for qualifications to find a partner to operate, maintain, and invest in its energy and utility systems in a 50-year agreement. The school hopes to receive an up-front payment as well as transfer the risks of maintaining safe and reliable systems, which include energy generation and distribution, water, sewer, compressed air, and steam.

QUOTABLE QUOTES

“Walt Whitman waxed poetic about New York City’s ferries, but EDC’s [Economic Development Corporation’s] responsibility is to provide adequate oversight and report accurately. For a successful 21st-century ferry system, we need more transparent reporting, better cost controls, and a new RFP to operate the system.”  

–New York City Comptroller Brad Lander in a press release on NYC Economic Development Corporation underreporting ferry expenditures

“The P3 Group presented a change in the proposal from potential fiber to wireless, as well as alternative funding avenues. The P3 Group’s original proposal was to bring 100 percent financing to the project. At the July 26, 2022 Board meeting, the P3 Group proposed a completely new strategy for broadband by way of a wireless solution rather than fiber optic cable. They also proposed to go after grant funding rather than 100 percent financing.”

–A Jackson County press release cited in the Dothan Eagle on ending a municipal broadband contract

The post Privatization and Government Reform News: Rethinking K-12 transportation, water needs, and more appeared first on Reason Foundation.

Annual Privatization Report: Aviation 

For over three decades, Reason Foundation has published its Annual Privatization Report, a thorough examination of government contracting and public-private partnerships at all levels of government. The report has long provided valuable information to bring greater accountability, competition, innovation, and transparency into how governments partner with the private sector in delivering public services. This month, Reason released the Annual Privatization Report 2022: Aviation, authored by Senior Transportation Policy analyst Marc Scribner. This report reviews developments in the United States and worldwide regarding private-sector participation in airports, air traffic control, and airport security. 

Arizona Legislation Aims to Secure Water-Supply Future with Public-Private Partnerships 

The Arizona State Legislature ended its session with a major win for the public-private partnership approach to major infrastructure investment, setting aside $1 billion over the next few years for water projects and overhauling the state agency tasked with providing water to ensure robust and mutually beneficial collaboration with the private sector for many years to come. In a recent Arizona Republic op-ed, Reason Foundation’s Austill Stuart and Leonard Gilroy explain how the P3 model addresses a key dilemma for a large and fast-growing state whose farmers are already facing haircuts in water supplies resulting from drought conditions in the Colorado River. Private investors can assume much of the up-front costs and risks in building the considerable infrastructure required, while the state government and rate-paying water consumers face more predictable and consistent costs. 

Michigan Budget Includes XBRL Provision, Funding  

Michigan’s 2022–2023 state budget proposal includes a provision requiring the state’s Treasury Department to begin the process of migrating local government financial reporting to machine-readable form. Unlike publicly listed companies, the Municipal Securities Rulemaking Board requires U.S. state and local governments to disclose financials in .pdf documents, impeding the collection of government financial data. The Michigan XBRL provision follows House Bill 1073 in Florida, which requires some machine-readable financial reporting. But while the Florida bill only applies to a type of financial report used by agencies in Florida, the Michigan provision applies to reports filed by government agencies in most states, in addition to Michigan, making duplication easier. The bill’s language is expected to result in a partnership between the Michigan Treasury Department and the University of Michigan’s Center for Local, State, and Urban Policy which has already been working on machine-readable government financial standards in connection with the city of Flint.  

Government, Not Private Enterprise, Failed Flint 

The tragic water quality crisis suffered by the people of Flint, Michigan, has been linked to the deaths of 12 residents and the illnesses of dozens more. Reason Foundation Senior Policy Analyst Marc Joffe writes that “the biggest failures in Flint were made by the government,” not private water companies. “It is important to recognize that government officials have managed Flint’s water system since 1912 and made the decisions, or failed to make the decisions, that triggered the water crisis,” Joffe writes. He also urges public and private actors to follow best practices to ensure citizens get full transparency and accountability from private water providers and for governments to conduct meaningful oversight.

NEWS & NOTES 

STATE GOVERNMENT 

Court Rules Arizona’s Inmate Health Care Services Violates Constitution: In a June ruling, U.S. District Judge Roslyn O. Silver found the standard of inmate health care services overseen by the Arizona Department of Corrections, Rehabilitation and Reentry (ADCRR) violates 8^th Amendment protections against “cruel and unusual” punishment. Codefendants ADCRR and contracting partner Centurion were cited as overseeing a prisoner health care program that “failed to provide, and continue to refuse to provide, a constitutionally adequate medical care and mental health care system for all prisoners.” While staffing has consistently fallen short of maximum levels, the plaintiff inmates assert that Centurion knew that the low staffing levels that ADCRR agreed to would be insufficient to deliver adequate care. The court now must appoint an individual to create an injunction to bring services back to a constitutionally-acceptable level. 

LOCAL GOVERNMENT 

Denver Extends Pay-for-Success Supportive Housing Program: The city of Denver announced its Supportive Housing Social Impact Bond (pay-for-success) initiative would be retained and extended through a new initiative dubbed “Housing to Health” (H2H), which began in July. The program includes nearly $12 million from private funders, along with up to $6.3 million from the US Treasury to deliver comprehensive supportive housing services for up to 125 chronically homeless persons. A federal Social Impact Partnership Pay for Results Act grant of up to $5.5 million will be dependent on whether federal health care and incarceration costs are reduced among the chosen population over a seven-year period. The Urban Institute received a separate grant to evaluate the program at its 2029 conclusion. 

Philadelphia Expands Homelessness Partnership Initiative: Philadelphia announced an expansion of its “Shared Public Spaces” initiative—a partnership between local civic organizations, businesses, and government to find humane solutions to reducing chronic homelessness in the city. Its leaders noted a 38% drop in homelessness in its Center City District since 2019 through efforts that include employment offers, showers, and laundry services. Chronic homelessness counts by police have shown dramatic falls in parts of the city since the program started. 

Colorado Springs Transitions Community Center to P3: Last month, Colorado Springs announced it had halted a search for a new private operator for the city’s Westside Community Center and would convert the city-owned community center into a public-private partnership. The proposed P3 plan includes city operational staff as well as staff and resources for partnered organizations for services at the center, which the city plans to start choosing in September. After implementation, Colorado Springs expects the center’s budget to almost quadruple—from around $100,000 to nearly $375,000. The P3 arrangement replaces the nonprofit Center for Strategic Ministry, which had run the center under contract since 2010 when the city first sought an outside operator. 

Mississippi City Seeks Public Works Outsourcing Contract: In June, the Petal Board of Aldermen voted in favor of receiving non-binding proposals for firms to operate the Mississippi city’s public works department. Proponents are hoping that the move could help Petal tackle the rising costs of providing guaranteed retiree pension and health care benefits for its workers. Public employee retention has been a problem, too, with the city losing workers to higher-paying jobs, so local officials feel privatizing the department could produce a workforce that would be better equipped and better paid. 

New Jersey City Rescinds Sewer Concession: In June, the Pleasantville City Council voted 4–3 to abandon a concession agreement of the city’s sewer system to Bernhard Capital Partners. The deal called for Bernhard to operate the sewer system and collect user charges from customers for 39 years, with the New Jersey city receiving an upfront $15 million payment as well as $57.1 million guaranteed in capital investments over the agreement’s term. The city’s initiation of the termination likely means it must compensate Bernhard for up to $1.5 million in expenses made from pursuing the deal. Pleasantville previously terminated negotiations with New Jersey American Water in 2019 before the present attempt at an agreement, for which New Jersey American Water and Plenary groups were also shortlisted alongside Bernhard. 

Oregon County Courthouse Reaches Financial Close: The Clackamas County Board of County Commissioners voted 4–1 to approve a public-private partnership to develop a new county courthouse facility. A Fengate-led consortium—which beat out shortlisted teams led by Plenary and Balfour Beatty—will design, build, finance, operate, and maintain the $300 million, 258,000 square foot facility for 39 years. County officials expect the deal to reach financial close in August. 

QUOTABLE QUOTES   

“Denver’s Social Impact Bond program proved we can break the cycle from streets to emergency rooms to jails and back to the streets for our residents facing chronic homelessness, and we’re going to expand those efforts. Our community is incredibly fortunate to have such strong partnerships among funders, providers, and other government organizations. This is a proven strategy of providing housing first with the right supports in place for people to exit homelessness, remain housed, and prosper. Together, we’re making this innovation possible.” 

—Denver Mayor Michael B. Hancock, on the city’s Pay-for-Success supportive housing program and the announcement on its expansion via the Housing to Health Initiative 

“Our [Public Employees Retirement System], we pay 17.4 percent on that, which kind of hurts us. And we’ve noticed over the last year or so that we’re losing people that are going into construction and other jobs that are just able to pay more…So the privatization [of the Petal Public Works Department] could be a good thing for some of the employees because they would get a pay increase. This isn’t something that should cost anybody employment, and there would be a few positions that [the city] would need to retain as well.”

—Petal Mayor Tony Ducker, quoted in a June 2022 article on exploring the outsourcing of the city’s public works services to a private firm 

The post Privatization and Government Reform News: Trends in aviation, Arizona water P3s, and more appeared first on Reason Foundation.

In the second half of the 20th century, the world’s airports and air traffic control (ATC) systems were essentially all departments of governments. Two events in 1987 launched an ongoing wave of organizational and government reforms. Those events were the privatization of the British Airports Authority (BAA) and the corporatization of the New Zealand government’s ATC functions as Airways New Zealand.

BAA was privatized as a single entity comprising the three major London airports plus several other airports in the United Kingdom. Later government policy decisions led to selling Gatwick, Stansted, and two Scottish airports to new private owners. The improved performance of the privatized airports inspired a global wave of airport privatization and long-term public-private partnerships (P3s) that has resulted in over 100 large and medium-sized airports being either sold to investors or long-term leased as revenue-based P3s—in Europe, Asia, Latin America, and elsewhere. The outlier has been the United States, which has only one P3-leased airport (San Juan International) and a small number of public-private partnership arrangements for airport terminals and other individual facilities.

The corporatization of Airways New Zealand in 1987 also led to a global trend under which more than 60 countries subsequently separated their ATC systems from the government’s transport ministry and set them up as self-supporting corporations, regulated for safety at arm’s length from the government. Within the first decade of this trend, the leading ATC providers organized a trade association called the Civil Air Navigation Services Organization (CANSO). Today CANSO has 86 full members (providers of ATC services) and 88 associate members (mostly supplier companies). CANSO is the ATC counterpart of the global organizations for airlines (IATA) and airports (ACI).

The corporatization of Airways New Zealand in 1987 also led to a global trend under which more than 60 countries subsequently separated their air traffic control systems from the government’s transport ministry and set them up as self-supporting corporations, regulated for safety at arm’s length from the government.

This report reviews developments in the United States and worldwide regarding private-sector participation in airports, air traffic control, and airport security. While the United States remains an outlier when it comes to airport and air traffic control organization and governance, interest in airport privatization via long-term public-private partnership leases continues.

The post Annual Privatization Report 2022: Aviation appeared first on Reason Foundation.

With the state’s elected leaders prudently setting aside more than $500 million for water augmentation and conservation projects and overhauling the state agency responsible for financing water infrastructure in the closing days of the legislative session, Arizona’s robust tradition of using public-private partnerships (P3s) to deliver critical water investments appears set to enter a transformative new phase. 

The state’s economy today would not exist without the legacy of major waterworks like the Central Arizona Project or Salt River Project’s network of dams, reservoirs, and canals—projects built with extensive collaboration between federal, state, and private entities. Cities like Phoenix have also used public-private partnerships to deliver major new water and wastewater infrastructure.  

Financing water infrastructure is complex, but the fundamental issue for Arizona is simple: There aren’t enough traditional tax or ratepayer dollars today to deliver the future water infrastructure Arizona needs.

Offshore desalination plants, new reservoirs, and multistate pipeline agreements are among the types of promising—but costly—new-build water supply projects that have captured the minds of policymakers.

These projects could easily cost billions of dollars on their own and, back in 2013, the U.S. Environmental Protection Agency estimated the state would need $7.4 billion by the mid-2030s just to improve, repair, and upgrade existing water infrastructure, a figure that excludes costly expansions needed to accommodate population growth.  

Public-private partnerships provide opportunities to overcome many of the water infrastructure challenges that Arizona faces, including sourcing, conveyance, and treatment. They have been used extensively around the world to ensure water systems and treatment facilities are financed, built, operated, and upgraded in ways that minimize taxpayer exposure. 

When government water agencies enter partnerships designed to manage major financial and operational risks, they shield taxpayers and users from unexpected repairs and other costly problems.  

While water P3s typically involve large projects with high upfront costs, they also include decades-long commitments to operations and maintenance that government agencies typically lack the resources to do alone, resulting in lower operating costs over the long term. 

Private partners are on the hook for decades for managing the systems under performance-based contracts, as well as handing managed assets back to government owners in good shape. Contracts designed to protect the public interest while outlining clear terms for project delivery give partner firms the incentive to find value through the right capital investments that balance cost and quality.  

Some major P3 investments are being used to secure and deliver water from new sources to accommodate population growth. In 2016, fast-growing San Antonio, Texas, entered a 30-year, $923 million P3 to deliver up to 50,000 acre-feet of water per year via a new 140-mile pipeline to provide about half of the water needed to meet future population demand.

The partnership puts the risks of securing the water on the private partner responsible for negotiating with local landowners to secure drinking water supplies, as well as the risk of building and operating a 140-mile pipeline to deliver the water to the city from its watershed source. The project was financed with loans taken out by the private partner, which will be repaid by the city over several decades from collected user fees.

Santa Clara, California, after an unsuccessful attempt a few years back, is close to finalizing a similar 30-year, $600 million public-private partnership that would secure water from multiple sources. 

Just as Arizona’s water challenges aren’t confined to sourcing clean water, P3s can be and have been used to overcome numerous ecological and environmental challenges. Chicago, Atlanta, Baltimore, and many large cities have partnered with private firms to deliver and operate wastewater treatment and processing facilities to help prevent massive pollution problems, often to comply with EPA and state consent decrees.  

Opportunities also exist to encourage land ownership practices through P3s that reduce the strain put on water and sewer infrastructure: Prince George’s County in Maryland has worked with landowners and developers to integrate more porous ground surfaces capable of diverting stormwater from the area’s overburdened sewer systems. And San Mateo, California, is in the process of exploring an advanced water treatment P3 that can keep clean water in reserve for droughts and other hazardous conditions. 

Innovations in leak detection, a problem that results in 1.7 trillion gallons worth of lost revenue for water systems each year, are also becoming a source of water agency contracting, as technology allows detection using acoustics without digging.  

With the Arizona state legislature setting aside a major down payment for critical water projects and simultaneously expanding the state finance agency’s toolkit to deliver them the key to success will be giving governments the greatest flexibility to enter long-term public-private partnerships designed to increase water supplies through acquisition, treatment, conservation and more. 

Arizona’s continued economic success will require effective partnerships between public, private, and stakeholder interests to secure the state’s clean water future in a fiscally responsible way going forward.  

A version of this commentary first appeared in The Arizona Republic.

The post How to maximize Arizona’s water investment appeared first on Reason Foundation.

Former Green Beret Receives Savas Award for Afghanistan Rescue Efforts

Scott Mann, who spent over 20 years in the Army in special operations, founded a private network of former military personnel that rescued over one thousand Afghan nationals who worked with the United States. Dubbed Task Force Pineapple, the operation grew from Mann coordinating efforts on his cell phone in the wake of the Taliban’s return to power in Afghanistan to a full-fledged public-private partnership, with government agencies calling on Task Force Pineapple to save Afghan nationals at risk of retaliation. For his valiant efforts to save American allies left behind after the U.S. withdrawal from Afghanistan, Reason Foundation presented Mann with the 2022 Savas Award for Privatization earlier this month.

Municipal Water Systems Vary in Fiscal and Environmental Soundness

Municipal water systems often struggle when their user charges don’t cover operations costs, especially when those costs are rising to comply with the Enviromental Protection Agency’s regulations. Indeed, there is a bit of a chicken and egg problem where lack of sufficient revenue from users and/or high internal cost structures lead to deferred maintenance that causes challenges in meeting EPA standards. Reason Foundation Senior Policy Analyst Marc Joffe reports the results from a detailed study of 900 municipal water systems’ financial health and violations of EPA standards. Through a combination of mapping, data visualization, and three case studies, he shows how poor financial conditions and regulatory compliance challenges can push water systems toward failure. 

Annual Privatization Report 2022: Transportation Finance

Reason Foundation has published its Annual Privatization Report (APR), a thorough examination of government contracting and public-private partnerships (P3s) at all levels of government, for more than three decades. APR has long provided valuable information to bring greater accountability, competition, innovation, and transparency into how governments partner with the private sector in delivering public services. Late last month, Reason Foundation released the Annual Privatization Report 2022: Transportation Finance. In this report, Reason Foundation Director of Transportation Policy Robert Poole gives a review of developments over the past year on infrastructure finance funds, with a strong emphasis on their role in transportation infrastructure, as well as investments in transportation made by pension funds.

Informal Sector Critical for Effective Child Care

”Large federal spending on center-based and other licensed daycare will not solve the childcare crisis,” argues Reason Foundation Senior Policy Analyst Max Gulker. In a recent article, he focuses on the individual daycare choices parents make, noting the significance of the informal sector, where arrangements based on close social relationships are particularly important. These arrangements have certain positives, including flexibility and preexisting trust, that daycare centers cannot fully match. President Biden’s Build Back Better plan offers billions in subsidies for daycare centers, but a truly “better” approach should offer smaller-scale ways to foster informal care from the bottom up.

NEWS & NOTES

LOCAL GOVERNMENT

JFK Airport Reaches Financial Close on Terminal One Project: Earlier this month, the Port Authority of New York and New Jersey (PANYNJ) reached financial close with a Ferrovial-led consortium for their Terminal One project, a 38-year public-private partnership (P3). Financiers will provide $6.3 billion in loans and 2.3 billion in equity for the project, which replaces a previous procurement attempt that ended in 2020 after financiers withdrew commitments. In addition to upgrading and expanding facilities at the international terminal, the consortium aims to increase reliance on renewable energy to 50% while cutting back on energy usage by 30%. PANYNJ expects the construction phase of the project to be completed by early 2026.

Richmond Plans Coliseum Redevelopment, Future RFP, Sale Likely: In May, Richmond’s City Council approved two measures aimed at the eventual sale of the Richmond Coliseum, which officially closed back in early 2019. The ordinances include the transfer of ownership to the Richmond Economic Development Authority, which must issue a request for proposals to solicit buyers to demolish the structure, clean up the site within a year of demolition, and redevelop the seven-acre site within three-and-a-half years.

Indiana Town Considers Aquatic Center P3: Pendleton, Indiana, located northeast of Indianapolis, released a Request for Proposals and Qualifications (RFPQ) for a new indoor/outdoor aquatic center P3. The town and a local school district each operate a community pool, and each pool would require significant financial resources to maintain viability. The two pool owners see their combined efforts as a way of sharing costs and obtaining improved facilities that can accommodate all parties’ needs. They plan to offer a 13-acre plot as a site for the aquatic center, which would operate under a 99-year lease agreement. Responses to the RFPQ are due at the end of June, and the town hopes to have the center fully operational by 2024.

STATE GOVERNMENT

Colorado Enacts Expanded P3 Enabling Legislation: In May, Colorado Governor Jared Polis signed SB 22, which allows any state agency, except the Colorado Department of Transportation and higher education institutions (which have existing guidelines), to enter public-private partnerships (P3s). The executive director of the state’s Department of Personnel now has a year to develop procurement guidelines for P3s, sales, and leases, including unsolicited proposals as well as competitive bidding arrangements. State agencies selling real property would transfer proceeds into a newly established fund with the state treasurer. The legislation also creates a P3 subcommittee within the state’s economic development commission, which would review all potential “contracts, sales, and leases” of state property, but the initiating P3 agency would not be obligated to act on their recommendations. 

California Releases RFQ for Dam Removal: In May, the California Department of Parks and Recreation (CDPR) released a request for qualifications (RFQ) for services related to removing the Rindge Dam, located in Malibu State Park. The nearly 100-year-old structure was decommissioned in 1967 and has since disrupted the habitat of spawning aquatic life, in addition to blocking the movement of sediment to replenish nearby ocean beaches. Statements of qualification are due in July, and CDPR hopes to be awarding contracts this fall.  

HIGHER EDUCATION

William & Mary Moves Forward with Housing and Dining Redevelopment P3: In May, William & Mary (W&M), located in Williamsburg, Virginia, issued an RFQ for a proposed project to develop housing and dining facilities. According to an April presentation made with advisors Brailsford & Dunlavey, the school plans to demolish and replace 2,350 beds worth of residence halls and renovate roughly 1,700. W&M hopes to have the project completed by 2032, after which on-campus housing will remain about the same as present (5,000) but will be fully equipped with air conditioning and ventilation (compared to 42% at present) and will be confined to 15 fewer residence halls. 

Kentucky University Selects Housing and Dining P3 Partner: In June, Murray State University’s Board of Regents voted unanimously in favor of the school entering a predevelopment agreement with RISE Real Estate to develop new dining and housing facilities for the school. The school and RISE will next work on development plans, which will include the demolition of a residence hall for two new halls expected to house a combined 600 students. The school also plans to solicit for a nonprofit to join the venture soon and hopes a full plan can be greenlit in October. 

QUOTABLE QUOTES

“[Task Force Pineapple] represented a public-private partnership that was agile and working. We started getting phone calls from the government to move their own people out…When that last plane left Kabul, we had 6,000 people on our manifest. Twenty babies were born in our safe house, and their medical care was fully sustained by donations from the private sector. It was all the private sector. It was all volunteers. There was no humanitarian aid.”

—Scott Mann, retired Green Beret and founder of Task Force Pineapple, in accepting the Savas Award for Privatization earlier this month

“Rindge Dam has changed the ecological, hydrological, and aesthetic character of Malibu Creek. It is a total barrier to high-quality spawning and rearing habitat for the federally endangered Southern California steelhead trout (Southern steelhead). Rindge Dam also has resulted in segmented habitat for other aquatic and terrestrial wildlife species. Moreover, it has interrupted the natural sediment transport regime of the watershed, which means the sediment trapped in the reservoir behind the dam cannot flow downstream to nourish the beach and nearshore habitats. On a broad scale, this changed sediment transport regime has contributed to a loss of coastal resilience in the area.” 

—From a May 2022 request for qualifications issued by the California Department of Parks and Recreation for the removal of Rindge Dam

Correction June 27, 2022: The “Colorado Enacts Expanded P3 Enabling Legislation” section was updated to clarify the procurement guidelines and process.

The post Privatization and Government Reform News: Savas Award and Annual Privatization Report 2022 appeared first on Reason Foundation.

In 2021, National Public Radio reported:

The Michigan Attorney General’s Office Thursday announced criminal charges for eight former state officials, including the state’s former Gov. Rick Snyder, along with one current official, for their alleged roles in the Flint water crisis.

Together the group face 42 counts related to the drinking water catastrophe roughly seven years ago. The crimes range from perjury to misconduct in office to involuntary manslaughter.

The drinking water debacle is linked to at least 12 deaths and at least 80 people sickened with Legionnaires’ disease after untreated water from the Flint River caused lead to leach from old pipes, poisoning the majority Black city’s water system.

Snyder, a Republican who left office two years ago, is facing two counts of willful neglect, both misdemeanors which each carry a maximum sentence of one year in prison and a fine up to $1,000.

While it seems clear the biggest failures in Flint were made by the government, some observers have characterized the crisis in Flint as primarily a failure of water privatization. Michigan Citizens for Water Conservation, for example, characterized the decision to switch water sources as “a straight-up power grab in service to corporations seeking to privatize water and public infrastructure.”

Similarly, environmental justice activist Thomas Stephens of Detroiters Resisting Emergency Managemen told listeners of Democracy Now: “The very essence of life itself, water, is being privatized and being subjected to a corporate bottom-line approach that is in violation of the human rights of the people, the most vulnerable people, in the state.” 

A headline at The Intercept conveyed a similar message: “From Pittsburgh to Flint, the dire consequences of giving private companies responsibility for ailing public water systems.” The headline’s implication is that a large private water company, Veolia, was responsible for the Flint disaster. But, The Intercept notes “the initial elevation of lead levels there has been traced to the city’s decision to switch its water source from Lake Huron to the Flint River, which occurred before the city hired Veolia.”

When Flint switched water sources, it transitioned from one government water supplier to another. The new supplier, Karegnondi Water Authority (KWA) is governed by an appointed 15-member board and was created pursuant to Act 233, Michigan Public Act of 1955. Its financial reports follow government accounting standards. As such KWA is not a private, for-profit entity. 

In February of 2015—almost 10 months after Flint switched water sources—Veolia received a $40,000 contract to evaluate the city’s water supply and make recommendations after residents complained about water quality issues and the city had received three violation notices from the Michigan Department of Environmental Quality. 

The violations did not involve lead contamination. Two were related to bacteria and one involved total trihalomethanes (TTHM), a disinfection byproduct that has been linked to bladder cancer.

Veolia was asked to assess the Flint water system in light of bacteria and TTHM issues, not for lead. However, there are credible allegations that Veolia’s investigation was insufficient. Families of four children impacted by contaminated Flint water have sued the company and, in January of 2022, a judge denied Veolia’s motion to dismiss the suit. Recent testimony at the trial indicates that Veolia employees were aware that lead was in some samples of drinking water, but that company management decided to remove any mention of this issue from the company’s report. 

For its part, Veolia has put up a website to give its side of the story. According to the company’s timeline of events: 

Despite the mandate for VNA [Veolia North America] to focus on TTHMs, when VNA detected corrosive water that could result in lead issues in the future, VNA brought the issue to the attention of City officials, investigated the lead testing data provided by city officials, and made recommendations to address the potential future issue. 

Further, although lead is not specifically mentioned in Veolia’s report from March of 2015, the company did make the following recommendation: 

Contract with your [Flint’s] engineer and initiate discussions with the State on the addition of a corrosion control chemical.  This action can be submitted and discussed with the state at the same time as the other chemical and filter changes saving time and effort.  A target dosage of 0.5 mg/L phosphate is suggested for improved corrosion control. 

Phosphate is known to reduce lead levels in drinking water, so had this recommendation been followed, the health impact on Flint’s children may have been reduced. But this recommendation came 11 months after the water supply switch and only six months before the lead issue was widely publicized, so most of the damage had already been done. 

Irrespective of whether Veolia could have done more to warn the city about lead problems, it is important to recognize that government officials have managed Flint’s water system since 1912 and made the decisions, or failed to make the decisions, that triggered the water crisis. The government’s chronic management and financial issues set the background for the failures in Flint.

A new University of Michigan report on Flint’s financial situation states: 

State-appointed receivers made temporary improvements to balance budgets and improve short-term liquidity, but failed or were simply unable to address the structural causes of Flint’s fiscal distress…

These cost pressures are felt acutely in the water system, leading to increasingly unaffordable user rates for residents. Between 1980 and 2018, Flint’s inflation-adjusted user rates increased by 320 percent. In an effort to spare residents confiscatory rates, cities often look for opportunities to cut costs. Often, the choice is to defer maintenance. In Flint, deferred maintenance has led to water main breaks and leaks that have become a hazardous and expensive problem. Flint loses 40 to 60 percent of its potable water to leaks—a typical amount is 10 percent. This drives up user rates further. 

Given the rapid escalation in Flint’s water rates, it is somewhat understandable that city officials and emergency managers would have preferred less expensive water from KWA as a short-term way to reduce costs—if they were unaware of the problems that came with it.

As the University of Michigan report notes, business-type activities like water systems are intended to be self-sustaining. Even if Flint wanted to subsidize the water system with general revenues, it would have been a challenge to do so because tax revenues have been flat to declining since 2000 due to employers and individual taxpayers moving out of the city. 

This certainly doesn’t excuse the government’s failures and the decision to use KWA, which had serious negative unintended consequences that were not identified and remediated quickly enough to avoid serious harm.

As the public awaits conclusions from the numerous criminal and civil court cases related to the failures in Flint, private companies continue to provide water services in numerous cities to millions of Americans. So it is important to focus public policy discussion on how both public and private water providers can improve their procedures to avoid such terrible consequences in the future. 

Given the nation’s need to rebuild and modernize so many local water systems, public-private partnerships are going to continue to play a key role in delivering safe water to Americans. Public and private actors in the process need to follow best practices, use water contracts that ensure taxpayers and citizens get full transparency and accountability from private providers on water quality and rates, and governments must conduct meaningful oversight to ensure the terms of the contract are met.

The post Government failures, not privatization, are to blame for Flint’s water crisis appeared first on Reason Foundation.

Mann’s remarkable leadership shows how private actors can take initiative to solve real-world problems and provide life-saving humanitarian support. Mann co-founded Task Force Pineapple, a network of former Navy SEALs, Green Berets, and other intelligence professionals, that refused to abandon their former comrades—Afghan allies—after the US launched its chaotic military withdrawal process from Afghanistan in 2021.

Mann himself coordinated the first rescue efforts from his cell phone, instructing his friend and former translator to use the code word “pineapple” to identify those who would help the translator make it safely out from behind the Taliban’s lines. In just a few months, Task Force Pineapple rescued more than 1,000 local translators and professionals who had worked with the U.S., ensuring that they and their families could start new lives in freedom. As Mann recounted during the Savas Award presentation:

“[Task Force Pineapple] represented a public-private partnership that was agile and working. We started getting phone calls from the government to move their own people out…When that last plane left Kabul, we had 6,000 people on our manifest. Twenty babies were born in our safe house, and their medical care was fully sustained by donations from the private sector. It was all the private sector. It was all volunteers. There was no humanitarian aid.”

Mann is a retired Green Beret with over 22 years of Army and Special Operations experience around the world. He has deployed to Ecuador, Colombia, Peru, Iraq, and Afghanistan. As the chief executive officer of Rooftop Leadership and the founder of a 501(c)3 committed to helping veterans tell their stories in transition, Mann regularly speaks to, and trains, corporate leaders, law enforcement, and special operations forces on best practices for going local and making better human connections.

Reason Foundation’s Savas Award for Privatization is given annually to a remarkable individual who is advancing innovative ways to better and more cost-effectively provide public services through partnerships with private organizations. The award is named for E. S. “Steve” Savas, who pioneered the concept of privatization while serving as deputy city administrator of New York City. Privatization has been central to Reason’s work for 50 years, when founder Bob Poole began refining the concept and published the first book-length treatment of municipal privatization, Cutting Back City Hall, in 1980.  

Previous recipients of the Savas Award include then-Federal Communications Commission Chairman Ajit Pai, former Indiana Governor and current Purdue University President Mitch Daniels, aerospace engineer and XPrize winner Burt Rutan, Success Academy co-founder Eva Moskowitz, former Indianapolis Mayor Stephen Goldsmith, and Alliance for College-Ready Public Schools co-founder Ambassador Frank Baxter.

To find out more about the Savas Award for Privatization or to join Reason’s exclusive Torchbearer Society, please visit www.reason.org.

Contact

Kelvey Vander Hart
Communications Specialist
Reason Foundation, Reason magazine
kelvey.vanderhart@reason.org

The post Task Force Pineapple co-founder Scott Mann receives 2022 Savas Award appeared first on Reason Foundation.

Since the late 1980s, governments have privatized many state-owned enterprises, including infrastructure such as airports, electricity, gas, railroads, seaports, telecommunication providers, and toll roads. Some of these facilities were sold to investors, in whole or in part (as is the case with many European airports). In other countries, public infrastructure facilities were leased to investors under long-term public-private partnerships (P3s). Thereafter, a growing number of governments also used such P3s to finance, build, and operate new airports or airport terminals, electricity facilities, seaports, and toll roads. The sale or lease of an existing facility is called a “brownfield” transaction (in part because significant refurbishment may be needed). By contrast, P3s for brand new facilities are referred to as “greenfield” transactions.

The sale or lease of an existing facility is called a “brownfield” transaction (in part because significant refurbishment may be needed). By contrast, P3s for brand new facilities are referred to as “greenfield” transactions.
In the United States, a significant amount of infrastructure is owned and operated by the private sector, including most U.S. energy production and distribution plus electric and gas utilities, as well as a fraction of water and wastewater infrastructure. These assets may be held through publicly traded corporations or (in the case of energy) master limited partnerships, or they may be owned directly by private investors. In transportation, however, nearly all U.S. airports, seaports, and toll roads are government-owned enterprises, generally by either state or local governments.

Infrastructure projects of both brownfield and greenfield types require long-term financing. In the public sector, such facilities are often financed 100% by government bonds, which in the United States are tax-exempt. When the private sector invests in infrastructure, it typically invests equity to cover part of the cost and finances the rest via either bank loans or long-term borrowing, such as via revenue bonds. These large financing needs have led to the development and growth of infrastructure investment funds, most of which raise equity to invest in privately owned or P3 infrastructure (though a more recent development is infrastructure debt funds, as well). Public pension funds, seeking to increase their overall return on investments, are also making significant equity investments in revenue-generating infrastructure.

Infrastructure Investor reports that during 2021 investors put $136 billion in new money into infrastructure investment funds. Pension funds continued to increase their investment in infrastructure, in most cases by placing a specific allocation with one or more of the infrastructure funds, but a handful of large pension funds have built professional staffs that enable them to make direct investments in individual facilities.

This report reviews 2021 developments in the infrastructure investment fund world, focusing on transportation infrastructure. While the scope of the report is global, it pays particular attention to U.S. developments in P3 infrastructure and the growth of U.S. pension fund investing in this field.

Part 2 reviews the continuing growth and scope of infrastructure investment funds worldwide.

Part 3 then provides an update on the largest companies and major P3 projects underway globally and in the United States.

Finally, Part 4 reviews pension funds’ increasing investment in revenue-generating infrastructure.

Annual Privatization Report 2022 — Transportation Finance

The post Annual Privatization Report 2022 — Transportation Finance appeared first on Reason Foundation.

• ANNUAL PRIVATIZATION REPORT 2022: Surface Transportation Trends
• INFRASTRUCTURE: Long-Term P3s Deliver Value and Effective Risk Management
• TRANSPORTATION: California High-Speed Rail Slows, Becomes Less Safe 
• HOUSING: Local Governments Must Take Affordable Housing Lead
• NEWS & NOTES
• QUOTABLE QUOTES

Annual Privatization Report 2022: Surface Transportation

Reason Foundation has published the Annual Privatization Report, a thorough examination of contracting and public-private partnerships (P3s) at all levels of government, for more than 30 years. In the first section of the Annual Privatization Report 2022: Surface Transportation, Reason’s Baruch Feigenbaum details highway and passenger rail service public-private partnership projects throughout the world, including a thorough review of transportation policy trends across the United States.

Long-Term Infrastructure Partnerships Deliver Value, Shield Taxpayers from Risks 

Private firms are often well-positioned to assume financial risks associated with potential cost overruns and delays that can occur on infrastructure projects. Public-private partnerships allow government agencies to work with companies to effectively deliver and maintain infrastructure, providing an essential risk management tool for agencies looking to limit risks to taxpayers while maintaining infrastructure assets. In this backgrounder, Reason’s Robert Poole explores some of the benefits and tradeoffs of revenue-risk and availability payment approaches to long-term transportation P3s. 

California High-Speed Rail Meets Facts on the Ground

The original California high-speed rail ballot initiative promised voters a trip from San Francisco to Los Angeles in under three hours, with trains traveling 220 miles per hour. In a new article, Reason’s Marc Joffe details some of the project’s latest developments including the decision to share sections of track with commuter trains, which significantly slows speeds and presents a growing safety risk to drivers and pedestrians.

Local Governments Must Play Lead Role in Affordable Housing

As housing prices continue to rise and impact more Americans, many of the key solutions are more likely to be found at a local level. In a recent article, Baruch Feigenbaum outlines how changes to zoning laws, building-approval processes, and height limits could help increase the supply of housing.

NEWS & NOTES

WATER

California Coastal Commission Votes Down Los Angeles Area Desalination Plant: The California Coastal Commission voted unanimously to deny the construction of a $1.4 billion desalination plant in Huntington Beach. The plant would have been similar in size to the existing desalination plant in Carlsbad, which can generate up to 50 million gallons of potable water per day and provides around 10% of drinking water to San Diego area residents.

Maryland and Baltimore Spar Over Wastewater Treatment Plant Takeover: Maryland’s secretary of environment directed the Maryland Environmental Service to take over operations at the city of Baltimore’s Back River Wastewater Treatment Plant. Inadequate maintenance and staffing have long contributed to the treatment plant’s excessive pollution problems, which include a backup of underground sewage that extends 10 miles. After a recent inspection, Maryland’s Department of the Environment (MDE) notified the city that it had two days to comply with established pollution discharge permits and then issued the directive after the city could not comply in the short window. The directive requires MDE to charge the city for the work it completes until the city addresses pollution and operational issues. In response, Baltimore filed a complaint aiming to end the takeover through an expedited court decision that would occur between late May and late July.

Pennsylvania City Gets Agency Approval for Sewer Sale: In April, the Pennsylvania Public Utility Commission approved the sale of York’s sewer system to Pennsylvania American Water. The $235 million deal affects over 40,000 customers in the city and surrounding townships. Local government leaders cited a budget shortfall and the need to avoid service cuts as motivations for the sale. Local ratepayers will endure an initial heavy rate increase of about 48%—the city was planning a 41% increase prior to the sale—in the first year of the agreement, preceding a three-year rate freeze.

TRANSPORTATION

Renewed Purple Line Agreement Reaches Financial Close: The Maryland Department of Transportation, the Maryland Transit Administration, and private consortium Maryland Transit Solutions reached financial close on the $3.7 billion restructured Purple Line P3 project. The light rail project stretches 16 miles through DC-area Montgomery and Prince George’s counties.  The route includes 21 stations with four providing easy access to the DC Metrorail system. Delays have pushed the project’s expected completion date to 2026.

Retired CalTrans Contract Manager Guilty of Corruption: Former California Department of Transportation (Caltrans) Contract Manager Choon Foo “Keith” Yong pled guilty to rigging competitive bidding processes and receiving bribes for contracts he oversaw. From 2014 until his 2019 retirement, Yong worked with companies bidding on around $8 million in Caltrans contracts so preferred firms would win. Co-conspirator firms would receive a kickback from the winning firm and Yong would receive bribes, which totaled around $800,000 in cash, wine, furniture, and remodeling services. Yong faces up to a total of 20 years in prison and $1.25 million in fines. 

LA Seeks Parking Management Partner: The Los Angeles Department of Transportation issued a request for proposals (RFP) for the management of parking violations and permits. The estimated $70 million annual contract would also have the private contractor develop and operate software and hardware systems for managing parking, assisting in parking enforcement, and supplying customer service. After a July deadline on proposals, the city hopes to announce a winner in late September.

Michigan K-12 District Considers Transportation Contracting: Bay City Public Schools (BCPS) issued an RFP to find a partner to handle student transportation for the Michigan school district. BCPS looks to enter an initial two-year contract, with the school district retaining the right the negotiate an extension. After a late May deadline on proposals, BCPS hopes to announce the contract winner in June, which would begin the contract in July. BCPS will supply facilities, fleet, and maintenance for providing the service, making the contract focused on driving operations.

LOCAL GOVERNMENT

Indianapolis Suburb Gets Strong Response for Sports Complex Sale: As of early May, the city of Westfield, Indiana had received 16 responses from firms interested in purchasing or operating the Grand Park Sports Complex, which spans 400 acres and includes the training facilities for the Indianapolis Colts. The city announced the sale in March, with supporters noting the park covered its operating expenses but has started to lose money overall due to depreciation nearly equal to operating expenses. If the facility is sold, Westfield hopes to pay off $80 million in debt secured for the complex. The city will continue to accept proposals, which must include the retention of all city employees involved for at least two years, until late June.

La Crosse Explores Outsourcing Entertainment Complex Management: The city of La Crosse, Wisconsin, issued a request for expressions of interest to find a potential partner to operate and manage the city’s La Crosse Center. The entertainment and convention complex opened in 1980 and has grown over the years to include 120,000 square feet of space, including a recently completed $40 million renovation and expansion. If the city is satisfied with the responses, it will issue an RFP to shortlisted firms later this year.

QUOTABLE QUOTES

“The [Maryland Department of the Environment] has determined that the decline in the proper maintenance and operation of the plant risks catastrophic failures at the Plant that may result in environmental harm as well as adverse public health and comfort effects.”

– From a directive issued by the Maryland Department of the Environment calling for the state takeover of the Baltimore-area Back River Wastewater Treatment Facility.

“The City of York is facing an unsustainable financial situation, which will require significant tax and fee increases and painful cuts to essential services – including the police department – to balance the budget and pay the City’s bills. Such a plan would be catastrophic to City residents and businesses and would likely reverse the recent economic gains that have been made in the City of York.”

– From York’s FAQ page on why the city’s sewer was put up for sale.

“The City has been fortunate to have excellent leaders and staff to guide Grand Park since its inception, as well as great partners for its operations. But even their monumental efforts have a ceiling because of red tape inherent in operating Grand Park as a municipality. So, we are at a point at which we need the private sector’s input on how Grand Park can reach new heights for the benefit of the City and its residents.”

– Andy Cook, mayor of Westfield, on the proposed sale of a 400-acre sports complex.

The post Privatization and Government Reform News: Surface transportation trends, revenue-risk, and more appeared first on Reason Foundation.

Governments have used long-term public-private partnerships (P3s) for surface transportation projects for the past 60 years. As documented by José A. Gómez-Ibáñez and John Meyer, the phenomenon began in the 1950s and 1960s as France and Spain emulated the model pioneered by Italy prior to World War II.1 Italy’s national motorway systems were developed largely by investor-owned or state-owned companies operating under long-term franchises (called concessions in Europe). In exchange for the right to build, operate, and maintain the highway for a period ranging from 30 to 70 years, the company could raise the capital needed to build it (typically a mix of debt and equity). The model spread to Australia and parts of Asia in the 1980s and 1990s, and to Latin America in the 1990s and 2000s.

Nearly all the projects in those regions from the 1950s to 1980s were financed based on the projected toll revenues to be generated once the highway was in operation. Some projects went bankrupt as a consequence of reduced traffic and revenues during severe economic downturns (e.g., the oil price shock of 1974), leading to the nationalization of some companies. In the late 1990s and early 2000s, however, the governments of France, Italy, Portugal, and Spain all privatized their state-owned toll road companies and formalized the toll concession P3 model. Australia has allowed several concession company entities to go through liquidation, with the assets (in each case major highway tunnels) being acquired by new operators at a large discount from the initial construction cost.

Other governments in Europe adopted a different form of highway concession. Generally, not favoring the use of tolls, they created the concept of availability payments as a means of financing long-term concession projects. In this structure, the company or consortium selected via a competitive process negotiates a stream of annual payments from the government sufficient (the company expects) to cover the capital and operating costs of the project and make a reasonable profit. The capital markets generally find such a concession agreement compatible with financing the project, via a mix of debt and equity. Since no toll revenues are involved, this model applies to a much broader array of transport and facility projects, including rail transit and public buildings. In the highway sector, nearly all long-term concession P3 projects in Canada, Germany, the UK, and a number of Central and Eastern European countries have been procured and financed as availability payment (AP) concessions.

In a small but growing number of cases—major bridges, as well as highway reconstruction that includes the addition of express toll lanes, for example—governments collect the toll revenues and use the money to help meet their availability payment obligations. These cases are called “hybrid concessions” in this report.

Seven of the top 10 worldwide P3s that reached financial close in 2021 used availability payments, continuing a growing trend over the last seven years. The increasing use of AP concessions has enabled P3s for projects that do not generate their own revenues, as well as hybrid concessions in which toll revenues help the government cover the costs of its AP obligations.

Part 2 Private Highway Projects

Part 3 International Surface Transportation Infrastructure 2021
3.1 Largest International Surface Transportation Public-Private Partnerships
3.2 Countries Reaching Financial Close On First P3
3.3 International P3 Activity By Region

Part 4 U.S. Surface Transportation Concessions, 2021
4.1 Largest U.S. Surface Transportation P3s
4.2 2021 Surface Transportation P3s

Part 5 Federal Policy On P3 Concessions
5.1 Surface Transportation Reauthorization
5.2 Overview Of Financing Tools
5.3 Other Federal Tolling Policy

Part 6 P3 Legislation And Highway Activity Per State
6.1 Overview Of State P3 Legislation
6.2 2021 State Legislative P3 Activity
6.3 State Concession Activity

Annual Privatization Report 2022 — Surface Transportation

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Transportation Finance by Robert Poole

Surface Transportation by Baruch Feigenbaum

The post Annual Privatization Report 2022 appeared first on Reason Foundation.

The key advantages of a long-term DBFOM P3

• Long-term financing up-front, so the project gets implemented sooner.
• The private partner, rather than taxpayers, takes on the major financial risks, including cost-overruns and late completion.
• It minimizes the project’s life-cycle cost instead of just choosing the option with the lowest initial construction costs.
• It offers potential design innovations.
• There is guaranteed maintenance due to long-term stewardship of the asset.

The alternative ways to finance a long-term P3

Revenue Risk (RR)

• Financing is based on user fee revenues from the project.
• The P3 company finances the project based on “investment-grade” revenue projection.
• RR financing is “non-recourse”—the state is not responsible for the private company’s debt service or bankruptcy.
• The P3 company has a direct customer-provider relationship with project’s users.
• RR project adds to total infrastructure investment due to new revenue source.

Availability Payments (AP)

• The state agrees to make annual payments linked to performance measures.
• The P3 company finances the project based on the state’s commitment.
• Generally, the state draws on existing revenues for the annual payments.
• The AP commitment is a liability on the state’s balance sheet.

When is revenue risk the better financing choice for the state and taxpayers?

• If direct user fees are feasible for the project.
• If the AP model is not allowed, due to state policy.
• If the state prefers non-recourse financing.                                  
• If the state sees value in a direct customer-provider relationship.

For further information: “Availability Payment or Revenue-Risk P3 Concessions? Pros and Cons for Highway Infrastructure,” Reason Foundation, Nov. 2017

The post What is a revenue-risk public-private partnership? appeared first on Reason Foundation.

Local Governments Lost Millions of Dollars Running Golf Courses in 2020

Local governments across the country lost millions running golf courses in 2020, a Reason Foundation analysis found. In a recent analysis, Senior Policy Analyst Marc Joffe reports that in a sample of 217 golf courses and systems run by local governments, 70 percent (155) reported losses totaling $61 million for the year. The 62 municipal golf operations that made money reported a combined income of $16 million. The analysis includes an interactive map with results for all 221 local course systems identified. In an additional piece, Joffe details how $20 million of the losses came from public golf courses in California.

Pennsylvania House Bill Seeks To End State Liquor Monopolies

“Pennsylvania House Bill 2272 would wisely remove the state’s government control of distilled spirits sales and distribution but needs supporting legislation to replace the state’s needless monopolies,” writes Reason Foundation’s Austill Stuart in a one-page backgrounder. Instead of calling for an end to the state’s distilled spirits monopolies and replacing them with a competitive framework, however, the bill would merely make the monopolies illegal. It also lacks the language to specify how private firms could actually enter the liquor retail or wholesale industries.  

Philadelphia Suburb Confronts Criticism Over Potential Sewer Sale

Towamencin Township, Pennsylvania, is conducting town hall meetings to discuss the possible sale or lease of the Philadelphia suburb’s sewer system. While local officials see the opportunity to help shore up finances and better manage sewer management risks, public criticism has grown louder as a final decision approaches. In a new article, Stuart shows why some criticisms of the deal mischaracterize water and sewer public-private partnerships and why it is important for public officials to communicate the costs and trade-offs involved if the government continues to operate the system. 

NEWS & NOTES

LOCAL GOVERNMENT

Fort Lauderdale Selects Partner Water Treatment P3: Fort Lauderdale’s City Commission selected a consortium of IDE Technologies, Kiewit, and Ridgewood Infrastructure to design, build, finance, operate and maintain a $385 million replacement water treatment plant (with a 50 million gallons per day capacity) over a 32-year period. The consortium and the public works division must still negotiate the final terms for the agreement.

Loudoun County Approves School-to-Housing Conversion: Loudoun County, Virginia, voted to approve a transfer of a vacant K-12 school to a private developer to create affordable housing. The agreement calls for private firm Capretti Land, Inc. to convert the vacant Old Arcola School and a surrounding six-acre parcel into 74 rental housing units. Capretti submitted the plan as an unsolicited proposal. It also calls for the construction of two bus stops and facilities for both recreation and recycling. The land under consideration must now undergo zoning approvals.

New Orleans Releases Solid Waste RFPs: New Orleans issued a pair of requests for proposal (RFPs) for solid waste pickup services in Service Area Two, which covers portions of the city east of the French Quarter and north of the Mississippi River. The area has had trouble maintaining consistent solid waste services and the city government is looking to find more reliable service by splitting it into two portions. The city hopes to evaluate proposals by early May.

STATE GOVERNMENT

LSU Utilities P3 Reaches Financial Close: The Louisiana State University (LSU) Board of Supervisors reached financial close with CenTrio and Tiger Energy Partners in March on a 30-year, $810 million public-private partnership to upgrade and operate the school’s water and energy utilities. Tiger—a joint venture of Bernhard Energy and Johnson Controls—will design initial (and potentially future) upgrades to the school’s utility systems, which include gas-powered steam and water chilling plants. CenTrio will finance, operate, and maintain the systems in a deal expected to save over $1.5 million annually, while also improving efficiency and reliability.

University of Louisville Shortlists Utility Project Partners: The University of Louisville released a shortlist of four potential partners for its utilities P3 project. The P3 partner will operate under a 50-year agreement to manage and operate the steam and chilled water system for the school’s main campus. The school also wishes to secure an upfront payment to contribute to its endowment, for which it will pay $5.9 million annually to cover the project’s financing, as well as a separate fee for operations, maintenance, and lifecycle improvements. The school hopes to choose a preferred partner by the end of the year.

Oregon Spirits Initiative Survives Challenge: The Oregon Supreme Court recently rejected a challenge to a ballot initiative that would end the state’s distilled spirits retail monopoly. The initiative would allow private grocers to sell distilled spirits, which the state has handled since Prohibition’s repeal. The initiative needs to obtain 112,000 petition signatures by July 8 to make it on the state’s November 2022 ballot.  

One Mississippi Wholesale Spirits Bill Fails, Another Passes: After passing both chambers, Mississippi House Bill 512 died in conference late last month. The bill would have ended the state government’s monopoly on the wholesale and distribution of distilled spirits. Senate Bill 2844, which calls for the construction of a privately-operated warehouse for the state’s Alcohol Control Board, was adopted by a conference committee in early April after passing both houses. The warehouse would replace an existing structure and require $55 million in state general obligation bonds.

Florida University Closes on Housing P3: Florida Polytechnic Institute announced it has shortlisted six teams for a student housing public-private partnership project calling for 700 total new beds to be developed by the fall of 2026. The partner would also operate an additional 542 existing units refinanced through the combined transaction.

FEDERAL GOVERNMENT

GAO Report Notes Progress on Military Housing Privatization Problems: A March report by the Government Accountability Office (GAO) noted progress in improving oversight of the Department of Defense (DoD) private housing program. Starting in 2018 through March 2022, GAO issued four reports raising concerns about the DoD’s oversight of its private housing program, which includes about 99% of military housing. The March 2022 update notes progress in areas of concern, including housing oversight, clear communication with residents, and performance measurement. A total of 15 of the GAO’s 30 recommendations from previous reports have now been implemented.

IRS Collection Contractor Underperforming: A report by the U.S. Treasury’s Inspector General chided the Internal Revenue Service for improper recordkeeping and raised concerns about unscreened contract employees having access to taxpayer data. The report found from Fiscal Year 2017 through FY 2020, the program collected $969 million in revenue, netting $679 million total, but still falling well short of a projected $1.9 billion in collections. 

QUOTABLE QUOTES

“In addition to the projected annual cost savings of around $1.5 million in electricity, natural gas and maintenance, other benefits to LSU include budgeting predictability, improved reliability of its infrastructure, and built-in redundancy from generating excess capacity.”

–Louisiana State University’s Executive Vice President of Finance and Administration and Chief Administrative Officer Kimberly J. Lewis announcing the university’s 30-year utilities public-private partnership.

“Amongst many other flaws in various aspects of our government, the pandemic exposed our liquor system as outdated and the PLCB [Pennsylvania Liquor Control Board] as inept.  It has been 88 years since the end of prohibition, and it is time for this Commonwealth to modernize the sale of liquor once and for all.”

—Pennsylvania State Rep. Natalie Mihalek on her proposal to privatize Pennsylvania’s state-run liquor system.

The post Privatization and Government Reform News: Municipal golf losses, sewer sale, and more appeared first on Reason Foundation.

A group of citizens, the Towamencin Neighbors Opposing Privatization Efforts (NOPE), has been driving much of the local opposition to the sewer deal, raising fears over rate increases and a lack of local control over the sewer infrastructure. Both sets of concerns suffer from misinformation or misunderstandings about sewer leases or privatization, how the sewer system is regulated, and how it would be operated if there’s a deal. For example, the town’s answers to frequently asked questions (FAQs) make it clear that because of the system’s needs for capital improvements and maintenance, residents’ sewer rates are going to rise whether or not there is a lease or sale and those rates increases could even be higher if there isn’t a sale. The FAQ says:

Any future capital expenditures, of which there is an identified ~$11 million over 10 years on the sewer conveyance side and ~$10.5 million through 2025 for the sewer treatment side, would likely be funded through a combination of fund balance and publicly issued debt. Any publicly issued debt would likely be supported through future rate increases.

Aside from the capital costs outlined the Township would also likely have to raise rates to keep pace with inflation and the effect it has on the various inputs that are used in the sewer collection and treatment process. Similarly, it is likely that there would be increased operational costs that are associated with permitting changes.

These types of cost increases are inevitable issues for water and sewer systems.

Additional concerns are raised within the FAQs document about maintaining regulatory compliance and meeting the town’s pension obligations. Preventing the sewer sale would not eliminate those needs and concerns, it would just give the local government fewer ways to address them.  

Local leaders should try to demonstrate how residents’ concerns over a potential lack of local control would be legally addressed in any sewer contract with a private partner. The sewer system’s buyer or lessor would be governed by terms specified in a contract to ensure the town wouldn’t get blindsided by poor service or unexpected rate increases. If sold, the Pennsylvania Utilities Commission would have to approve all rate increases. If leased, the agreement would set the permissible rate increases agreed to by both the township and the company. As is the case with continued government operation, rate hikes will happen, but they would be predictable and set by the contract.  

Towamencin officials should also make it clear that the locality would not lose control over how the sewer is operated, either. As part of any lease or sale, the new sewer operator would have to comply with contractual terms set by Towamencin specifying how the sewer is going to be operated and maintained for decades, as well as the upgrades and replacements that must be made over the life of the contract. Towamencin can and should set the standards to be met and the penalties for failing to meet those terms. These deals often include financial penalties through contract provisions. And if a private sewer operator completely fails to do those things, the contract would have termination agreements that allow Towamencin to get out of the deal. The operator would also be subject to fines from the Environmental Protection Agency and other regulators.  

In contrast, if the government continues to operate the sewer system, there’s a greater likelihood of putting off needed investments. Deferred maintenance issues add even more costs that taxpayers must ultimately bear. If the town falls behind on replacement and a sewer pipe breaks, for example, taxpayers have to pay to replace the broken pipe and to clean up the mess. The breakage could also damage roads or other infrastructure the pipe is buried under or cause other issues that ultimately fall upon residents to pay for.

A private provider under a multi-decade lease or sale agreement will want to avoid such problems, which add costs the company has to absorb in addition to losing money for failing to meet the terms of the agreement. The company has financial incentives to do maintenance on schedule and prevent costly problems that come from deferring maintenance.

Sales and leases can be valuable tools when governments lack the resources internally to effectively manage all that’s demanded of them. Such agreements allow local agencies to set detailed terms that must be met while transferring financial risks from taxpayers to private partners, who may be better capable of handling them.

It’s understandable for local residents to demand more information about potential sewer leases and sales but completely removing risk management tools like public-private partnerships and privatization would make governing more difficult.

Towamencin’s sewer system is clearly in need of repair and modernization, which means an increase in rates and costs regardless of who is running the system. Local officials and residents should look at all available options and solutions to determine how the needed repairs, maintenance, and upgrades can most efficiently be provided. 

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Amongst the 221 entities, 27 are local governments in California. And of those 27 local governments, 24 lost money operating municipal golf courses in 2020. These 24 local governments lost a combined $20 million of taxpayers’ money on their golf-related operations.

The largest operating loss, over $4 million, was recorded by the Indian Wells Golf Resort, owned by the city of Indian Wells. The course earned $11 million in revenue but had $15 million in expenses. The other California golf courses showing financial losses greater than $2 million in 2020 were in the cities of Carlsbad and Dinuba. Carlsbad’s facility, The Crossings Golf Course, roughly breaks even on a cash flow basis but does not cover its depreciation expenses. Dinuba’s Ridge Creek Golf Club also reported revenues largely offsetting cash operating expenses but not covering depreciation.

There were three local governments—Mission Viejo, Pacific Grove, and Seaside—that turned an operating profit, making a combined $300,000 operating public golf courses in fiscal 2020.

There are many other government-run golf courses that could not be included in this examination due to the way some governments report this information. Los Angeles, for example, owns 13 golf courses but the city does not separately report the courses’ financial results. Instead, financial information about Los Angeles’ golf courses is included in the larger bucket of the city’s larger parks and recreation fund.

Based on the national and state data showing so many local governments losing money, it is clearly time to sell these municipal golf courses or partner with the private sector to run them.

Antioch, California, for example, contracts out the operation of its municipal golf course to a private company. Antioch Public Golf Course, Inc. has been operating the city’s Lone Tree Golf Course since 1982 and has the concessions contract through 2033. It is not subsidized by the city and its operating results are not reflected in the city’s financial statements.

As Reason Foundation Vice President Adrian Moore put it, “Government-owned golf courses are a real head-scratcher. They serve no public interest that is not already served well by the private sector. Indeed, they are most often a nice subsidy for relatively wealthy golfers, paid for by all the non-golfing taxpayers.”

Ideally, local governments should be looking to sell this valuable real estate they are sitting on to pay down unfunded public pension liabilities, fund needed infrastructure repairs and expansions, and maximize the value for taxpayers rather than losing money on golf. Between home builders, companies looking for large swaths of land, and professional golf course management companies, many of California’s municipal golf courses would generate significant money in sales.

Some state legislators are eyeing these money-losing public golf courses as a way to help reduce the state’s housing crisis.

California Assemblymember Cristina Garcia, D-Bell Gardens, recently proposed a measure, Assembly Bill 1910, that would give local governments an incentive to convert their public golf courses into a mixture of housing and public open space. Under the proposal, state redevelopment grants would be provided only for projects that make at least 25% of new residential units affordable units limit non-residential units to one-third of the development’s square footage. While some of the restrictions are onerous and ideally would not be in the final bill, they are imposed as a condition for unlocking state grant support and may be necessary to build the coalition of Democratic support needed to advance the policy.

There are important debates to be had about how to best proceed with these golf courses and properties, but, ultimately, it’s clear that governments should not own and operate golf courses, especially when they are losing millions of taxpayer dollars.

A version of this column first appeared in the Orange County Register.

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In contrast, 62 of the 221 local governments broke even or turned a profit on their public golf courses in 2020. In the aggregate, these 62 governments made $16 million via their public golf courses in fiscal 2020.

Four governments did not provide net income results.

Thus, combining the profits and losses of the 221 entities identified, local governments across the country lost a total of $45 million operating public golf courses in fiscal 2020.

Five government-run golf facilities reported losses of greater than $2 million in 2020, three in California.

The largest operating loss by a public golf course—over $4 million—was recorded by the Indian Wells Golf Resort, owned by the city of Indian Wells. The course earned $11 million in revenue but had $15 million in expenses.

The other California golf courses showing losses greater than $2 million were in the cities of Carlsbad and Dinuba. Carlsbad’s facility, The Crossings Golf Course, roughly breaks even on a cash flow basis but does not cover its depreciation expenses.

The two other public golf courses that lost over $2 million in 2020 were the Mallard Cove Golf Course in Lake Charles, Louisiana, and the Wailua Golf Course on the Hawaiian Island of Lihue, which is owned by Kauai County.

Obviously, the extent of COVID-19-related lockdowns likely played a role in the 2020 financial results of many courses, particularly in California, Hawaii, and other states with strict or long shutdowns.

The 221 golf course funds Reason Foundation identified in municipal financial statements represent a subset of all golf facilities owned by local governments across the country. There are a variety of reasons not all of the public golf courses can be listed here. Los Angeles, for example, owns 13 golf courses but the city does not separately report the courses' financial results. Instead, financial information about Los Angeles' golf courses is included as part of the city’s larger parks and recreation fund.

Due primarily to the value of the land, the 221 local governments reported net assets of almost $800 million related to their golf courses. In many cases, these figures likely underestimate the current market property values of public golf courses, especially in metropolitan areas.

The operating expenses, revenues, profits and losses, assets and liabilities reported by the local governments for 2020 are available in the spreadsheet below.

Local Governments’ Expenses and Revenues Related to Public Golf Courses in 2020

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Pennsylvania House Bill 2272—Making the State’s Distilled Spirits Monopoly Illegal

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