Privatization Could Have Michigan Seeing Green

ISSN 1092-7999 Privatize the UNIVERSITY OF MICHIGAN

A Quarterly Publication on Privatization Initiatives throughout the State • Mackinac Center for Public Policy • No. 2004-01 / Spring 2004

High School Fiddlers’ Group Goes Private Prison Privatization: A National Trend DNR Contracts out Ski Area Management and more... Mackinac Center for Public Policy Michigan Privatization Report • Spring 2004 1 ��

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MICHIGAN PRIVATIZATION REPORT Being an Editor: Samuel Walker Senior Managing Editor: Michael LaFaive informed citizen Graphic Designer: Daniel Montgomery has never been Michigan Privatization Report is published bi-annually by the this easy. Mackinac Center for Public Policy, a nonprofit, nonpartisan, tax-exempt research and educational organization devoted to analyzing Michigan public policy issues. Michigan Privatiza- tion Report is distributed to state senators and representatives and policy staff; department directors and staff; municipal officials and administrators; school superintendents and school board members. Additional copies are sent to Michigan radio and television news directors, print news editors and select industry leaders. Total circulation is over 22,000. Copyright © 2004 by the Mackinac Center. All rights reserved. Per- mission to excerpt or reprint is hereby granted provided that Michigan Privatization Report, the author, and the Mackinac Center for Public Policy are properly cited, and a copy of excerpt or reprint is sent to the editor. Please contact the Mackinac Center for Public Policy at 140 West Main Street, Your legislator’s entire P.O. Box 568, Midland, MI 48640; Phone: (989) 631-0900; voting record is at your Fax: (989) 631-0964; e-mail: [email protected]; or World Wide Web: http://www.mackinac.org if you wish to receive fingertips, 24 hours a day. Michigan Privatization Report.

2 Michigan Privatization Report • Spring 2004 Mackinac Center for Public Policy Mackinac Center for Public Policy Michigan Privatization Report • Spring 2004 3 A Quarterly Publication on Privatization Initiatives throughout the State • Mackinac Center for Public Policy • No. 2004-01 / Spring 2004

solicited bids for a private operator and awarded a one-year management FEATURES contract to Porcupine Mountain LLC. 4 The move means taxpayer savings of Golf Privatization: at least $200,000 in 2004. Fieldstone Should Be Private 11 Since taking office Gov. Privatize the 16 Granholm has sliced University of Michigan more than 9 percent The University of Michigan’s ranking Give MDOT a Potty Break from Michigan’s annual Michigan is replete with state-owned- as an academic and research power- and-run restroom areas. The Great revenue sharing to counties, villages house has declined relative to other and townships. One option for local Lakes State could reap great benefits institutions, such as privately funded from selling or leasing its rest areas to governments to make up for shortfalls Stanford University. Mackinac Center in revenue is to privatize assets they for-profit firms. Privatizing rest areas for Public Policy scholar Lance would generate revenue, save opera- own, or services they provide, such as Weislak and Director of Fiscal Policy public golf courses. tion and maintenance expenditures, Michael LaFaive explain why the uni- and probably improve services, too. versity would be better off as a private 7 institution. Private Companies Can Lock Up Jail Savings DEPARTMENTS In Michigan it is currently illegal for 12 local units of government to contract out for management of jails. If the AROUND THE STATE state allowed counties to privatize More updates of privatization initia- their jails, annual savings could reach tives, opportunities and controversies 10 percent to 15 percent. from around the Great Lakes State. 8 Prison Privatization: A Growing National Trend From Tennessee to New Mexico, states have been contracting with private, for-profit businesses to manage their prison populations. 13 9 High School Fiddlersʼ DNR Contracts Out Group Goes Private Management of A public school-affiliated musi- State-Owned Ski Area cal group originally organized by a In the summer and fall of teacher and students from Saline High 2002 Michigan Privatization School has been converted into a Report suggested privatiza- private, nonprofit group. The decision tion for a state-owned-and-run ski area to privatize was supported by district ADVERTISERS: at the Porcupine Mountain Wilderness officials, though not without some Earth Tech State Park. In June 2003, Michigan’s controversy. Operation Services 2 Department of Natural Resources MichiganVotes.org 2 Educlean Services 6

2 Michigan Privatization Report • Spring 2004 Mackinac Center for Public Policy Mackinac Center for Public Policy Michigan Privatization Report • Spring 2004 3 Feature Golf Privatization: Fieldstone Should Be Private By Michael LaFaive ment should sell off their golf courses erate $385,000 in property tax revenue. Since taking office Gov. Granholm completely. Without this money on the city’s books has sliced more than 9 percent from the as golf course revenue, the actual deficit state’s annual revenue sharing to coun- Taxpayers should never have to of the course would be much higher than ties, villages and townships to help foot the bill for facilities that serve no $2 million. balance the state budget. Michigan’s legitimate government function. Even local governments will need to make courses that have long since been paid Fieldstone also counts as revenue up the revenue shortfall somehow. One for and generate revenue exceeding their an “advance,” or loan, equivalent to the option is to privatize assets they own or true expenses represent untapped assets property tax bill generated by the prop- Last year services they provide, such as public with substantial opportunity costs. That erty from its owners. The property taxes golf courses. is, the revenue generated by a sale of and advance from the property owners city officials the property, plus all future annual tax totaled $770,000 in the city’s 2004 pro- stripped Municipal golf courses are payments generated by private owners, posed budget. This dramatically boosts its police expensive endeavors that can bleed are forfeited so a few thousand golfers Fieldstone’s revenue profile, and makes protection municipalities of much-needed cash. can enjoy one more golf option each the golf course appear like a better city They represent untapped assets that summer. investment than it actually is. fund of could be sold, generating revenue $500,000 from the sale, and adding property to a Take the Fieldstone Golf Club of Why would a local business in surplus municipality’s tax rolls. Perhaps most Auburn Hills as an example. It is situ- make such a loan? According to Wil- revenue to important, municipal courses compete ated on some of the most valuable land liam Ross, city manager of Auburn directly with private, for-profit courses in the state of Michigan, just south of Hills, such support evolved from a help finance for customers, and do so using the tax the Palace of Auburn Hills (where the public-private partnership between a $1 million dollars of private golf course owners. Detroit Pistons play) near Interstate 75 the city of Auburn Hills and Cardell clubhouse And from a “good government” point of in Oakland County. It cost the munici- Corp., an automotive parts supplier. for the view, government-run golf is, as Gov- pality $16 million to purchase in 1997 When the course originally went up erning Magazine has said, “the most and, according to Tom McMillin, for sale in the late 1990s it was pur- course. nonessential of nonessential services.” former Auburn Hills mayor, the course chased by Cardell Corp. which kept Can anyone seriously claim “golf” as a has officially bled the city of about a portion of the property for its busi- legitimate government function? $1.5 million in revenue since January ness and sold the course to the city of 2000 by generating less income than Auburn Hills. The state of Michigan, despite was necessary to cover the cost of run- its long winters, is a golf Mecca. ning the facility. The losses incurred at Furthermore, last year city According to the National Golf Fieldstone are paid for by loans from officials stripped its police protection Course Owners’ Association, there are other areas of the city budget. Once fund of $500,000 in surplus revenue 854 golf courses in Michigan — the the golf course starts making a profit to help finance a $1 million clubhouse third-highest number of courses in it is expected to pay this money back. for the course. These revenues are the country. In number of courses The city golf course officially owes not accounted for on the Fieldstone per capita Michigan ranks 14th in the $2,000,000. balance sheet as they would be if nation. In other words, if every one the course were privately owned. A of Michigan’s 81 government courses The city of Auburn artificially for-profit operation would have to vanished, there would still be enough brightens this negative picture by use capital it accumulated through courses to accommodate demand. including property tax revenue gener- its operation or borrow the money if ated by 100 acres adjacent to the course it wanted a new clubhouse. What it Yet there have been few public as revenue generated by the golf course couldn’t do is force taxpayers to fund discussions about privatizing govern- itself. It’s a complicated issue that it, or legally conceal its true cost. ment golf courses to save money. Even requires some explanation. when officials do discuss privatization Some maintenance costs asso- it generally involves contracting with The city’s logic is that, if it had not ciated with municipal courses are private management companies to bought the course, the private develop- shielded from public view because operate facilities still owned by munici- ment of the adjacent acres would not some courses use Department of palities. While this may save taxpayer have occurred. This is unlikely given Public Works employees or inmates dollars and improve services it doesn’t the demand for land in the area. In 2004, from jail work-release programs go far enough. Local units of govern- this adjacent property is expected to gen- to do landscaping, or pick up after

4 Michigan Privatization Report • Spring 2004 Mackinac Center for Public Policy Mackinac Center for Public Policy Michigan Privatization Report • Spring 2004 5 Feature

severe weather drops tree ment function” so clearly not branches and leaves on the essential to good government. course. These costs do not Indeed, municipal golf courses show up as part of a munici- represent an embarrassment of pal course’s expenses, but riches for the governments that they should. run them.

Selling Fieldstone to Currently, all levels of private developers would government combined take enable the city to re-deploy about 40 percent of national the annual property tax rev- income, jobs are leaving enue it now uses to subsidize the state of Michigan, and If for-profit the golf course. And if a local budgets are reportedly ventures fail 100-acre business develop- strained under the weight of ment adjacent to the course a struggling economy. Under to generate generates $385,000 in tax such circumstances, taxpayer revenue in revenue, it is not unreason- funded golf seems both waste- excess of able to suggest that the 280- ful and unfair to taxpayers and expendi- acre course might produce entrepreneurs. There may be double that amount annu- some benefits to government tures they ally, if it were converted to golf, but those are concen- eventually similar business enterprise. trated among a few golfers go out of and city employees who work business. The Fieldstone exam- at or enjoy operating a golf ple is not unique. Consider course. Municipal the new Lyon Oaks County operations Park municipal golf course, Private businesses pro- just reach with 18 holes and a 30,000 vide golf services without deeper into square-foot banquet and con- reaching into the pockets of ference facility. According non-golfers to do so. Golf the pockets to Dan Stencil, administra- privatization is more than just of taxpayers. tor of park operations, the Private golf course owners must compete for customers with courses smart economic policy. It is course cost $13.4 million subsidized by their own tax dollars. Aside from being unfair, this is fair to real entrepreneurs who to build (this price excludes economically counterproductive . risk their own money in order other new park features such to provide these services. as the dog park). In 2003 the course pal golf. It is unfair to private municipal MPR! had a built-in loss — in other words, the golf owners to use their tax dollars to county expected the loss and budgeted create golf courses with which they will Michael LaFaive is director of fiscal for it — of more than $200,000, but was have to compete — and on an unfair policy for the Mackinac Center for Public expected to make a profit of $84,000 in basis to boot. If for-profit ventures fail Policy and senior managing editor of Michi- 2004. That is, it will “profit” if you to generate revenue in excess of expendi- gan Privatization Report. exclude from the profit and loss ledger tures they eventually go out of business. the cost of paying off its debt service, Municipal operations just reach deeper which Oakland County does to the tune into the pockets of taxpayers. of $400,000 annually. As municipalities strain to pay Of course, excluding such costs the most essential bills common to makes the operation of the municipal operating a local unit of government, course appear more cost effective than those that operate golf courses should it really is. consider selling them before raising taxes. Certainly they should stop com- There is another, perhaps more plaining about state revenue-sharing cuts pernicious cost associated with munici- if they do not intend to cut a “govern-

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6 Michigan Privatization Report • Spring 2004 Mackinac Center for Public Policy Mackinac Center for Public Policy Michigan Privatization Report • Spring 2004 7 Feature Private Companies Can Lock Up Jail Savings The company, Security Specialists County inmates every month. Grand By Scott Walter and Plus (SSP), houses the prisoners and Traverse County may pay out approxi- Michael LaFaive charges the county just $28 a day per mately $400,000 to $500,000 in 2004 for When lawmakers discuss priva- inmate. Maintaining the same prisoners this service — much more than they pay tization as a way to save money on in the Whatcom County Jail costs $60 to house their own prisoners, according our penal system, prison privatization per day per inmate. It has been estimated to Inman. gets the majority of attention from that SSP has saved the county $3.9 mil- state officials, the media and political lion since 1991. To solve the problem, Grand Tra- pundits. But county officials across the verse County enlisted consultants from nation are becoming so interested in Jails have been privatized other states, who produced two reports the idea of privatizing jails that private throughout North America. Correc- concluding that the county needs 192 jail entrepreneurs are advertising for their tions Corporation of America, one of beds today (37 more than it currently business. Strangely, in Michigan it is has) just to keep up with the current In 1989, currently illegal for local units of gov- inmate population. According to Lt. several ernment to contract out for management David Spranger, deputy jail administra- legislators of jails. But if the state allowed counties tor, Grand Traverse County will need as introduced to privatize their jails, Michigan counties many as 227 beds by the year 2007. The could lock up annual savings of as much reports suggested that in order to take a package as 10 percent to 15 percent. care of immediate needs and to start in of 16 bills on future needs, the county should add that would County jails differ from state an additional 90 beds to its current jail. prisons in that jails are designed to Such an addition was estimated to cost permit jail incarcerate inmates with relatively county taxpayers approximately $10.5 privatization. short sentences — for a maximum of million. The 365 days. For inmates who have cases Michigan working through the court process, jails Local units of government have recently faced If Michigan’s jails could be priva- cuts in state revenue sharing. Jail privatization statutes serve as temporary detention centers. offers county officials one opportunity to make tized no tax increase would be needed, up for those losses. and neither would Grand Traverse that needed In 1989, several legislators intro- County need to find an additional $10.5 amending duced a package of 16 bills that would the industry’s best-known corrections million. Private firms often build, own were up to permit jail privatization. The Michigan businesses, manages jails from Bay and operate jails and recoup their invest- statutes that needed amending were up to County, Fla. to Tulsa Okla. and reports ments through contracts for management 141 years 141 years old. The bid failed in large part average savings of 10 percent annually. of prisoners. Often they can do all of this old. due to opposition from public employee Dickson County, Tenn. may be the next for less than it costs the government. unions, which regularly oppose privati- American jail to adopt private manage- zation because it can lower the number ment. In December 2003, Dickson State officials need not mandate of workers who pay dues to the union. officials voted to accept bids from pri- that counties turn to jail privatization Michigan counties do have experience vate firms to manage the jail’s inmates. — all they need do is change the law so contracting out for management of their Actual per-inmate savings have not yet the option is not prohibited. By doing so, prisoners since many routinely pay other been estimated, but the new private jail lawmakers would not only help counties counties to house their inmates. is expected to create a revenue stream for save money. They would enable them to the county of $300,000 annually, from be more flexible — and therefore more In August 2001, the Washington the taxes the private business will pay. effective in dealing with the responsibili- Policy Center, a Washington state-based ties of law enforcement. MPR! think tank, published a policy brief enti- Here in Michigan, Grand Traverse tled, “Private Prisons: A Sensible Solu- County is one unit of government that Scott Walter is a research intern and tion.” The paper focused primarily on could benefit greatly from jail privatiza- economics student at Northwood University prison privatization, but did include some tion. The county jail contains 155 beds. in Midland. Michael LaFaive is director of important jail references. For example, it According to County Commissioner fiscal policy for the Mackinac Center for told the story of Whatcom County, Wash., Larry Inman, demand for jail bed space Public Policy. which contracted with a private, for-profit has outstripped the supply, which has led company to oversee county prisoners on the county to contract with other jails a work-release program. to house as many as 37 Grand Traverse

6 Michigan Privatization Report • Spring 2004 Mackinac Center for Public Policy Mackinac Center for Public Policy Michigan Privatization Report • Spring 2004 7 Feature Prison Privatization: A Growing National Trend By Michael LaFaive ing prisoners grow almost 9 percent Correctional Facility, a conservative slower than states not using the priva- estimate of the savings resulting from Prison systems and their man- tization option. This point cannot the contract with Geo Group comes to agement represent the virtual “undis- be overstated. By slowing the rate 20 to 22 percent a year compared to covered country” of privatization in of spending growth through prison what it would cost the state to run the Michigan. The state has less than 1 privatization state officials change prison. percent of its prisoners under private the fundamental structure of govern- management. Yet two studies released ment spending in future years. One The privatized facility has been a in 2003 show that states can save money of the reasons Michigan’s budget has boon to local and state units of govern- by privatizing prisons and thereby slow been so hard to balance is that a lot of ment for several reasons. First, the state the rate of growth in prison costs. State its spending is mandated by law. So, didn’t have to finance construction of In 1998, officials should take advantage of the regardless of how well the economy is the facility, which probably saved mil- Tennessee savings available through outsourcing doing, or how much money is flowing lions. Michigan Privatization Report almost prisons, and save taxpayers money and into the treasury, the state must meet attempted to ascertain precisely what it improve services in the bargain. certain spending obligations. When would have saved, but state corrections signed a officials can slow the rate at which spokesman Leo Lallonde was unable to deal to From Tennessee to New Mexico, those spending obligations expand, provide an estimate. Second, the annual outsource its states have been contracting with pri- it will be easier to balance the state cost of running the prison is less than entire prison vate, for-profit businesses to manage budget — without increasing taxes. that of state-run facilities. Frank Elo their prison populations. No state has says the facility pays more than $1 system, and privatized the management of its entire This is particularly compelling million in taxes every year to state and officials correctional system, but New Mexico when one considers the degree to local government. there comes closest, with as much as 45 which prison costs in Michigan have estimate the percent of its prisoners housed under expanded. According to House Fiscal There is another benefit to private management. Agency analyst Marilyn Peterson, in having privately owned and operated move could the last two decades the portion of prisons: truth in spending. Most of have saved A 2003 study by the New total GF/GP spending dedicated to the costs associated with the Michigan as much as Mexico-based Rio Grande Foundation “prison population, inflation-adjusted Youth Correctional Facility are part 22 percent showed that New Mexico spent $9,600 corrections General Fund spend- of a private-sector business contract less per prisoner in 2001 than did states ing, and Corrections” has more than and, therefore, easily identifiable. For of that with no prison privatization. The state tripled. Prisons are expected to absorb instance, the Geo Group must spend stateʼs entire saved more than $50 million in 2001 an increasing share of the state’s rev- money on legal expenses (attorney’s correctional over the previous year, by contracting enues unless changes are made. salaries, for instance) that are factored system out for management of less than half its into its overall cost structure, which can prison system. Russ Marlan, spokesman for be examined easily, and at any time. budget. the Michigan Department of Correc- By contrast, the cost of salaries earned In 1998, Tennessee almost signed tions, reports that by the end of 2008, by lawyers at the Attorney General’s a deal to outsource its entire prison Michigan will need about 4,500 more office doing work on cases involving system, and officials there estimate prison beds than it has now. Barring the Michigan Department of Correc- the move could have saved as much any changes in state sentencing guide- tions are not charged to Corrections, as 22 percent of that state’s entire cor- lines that would reduce the inflow or thus making the true cost of providing rectional system budget. If the state of increase the outflow of prisoners, the state correctional services appear less Michigan saved just 20 percent of its state may have no other viable choice than it actually is. entire General Fund/General Purpose but to privatize. (GF/GP) budget contribution to prisons, Some goods and services that this would come to savings of $326 mil- Michigan does have experience governments provide — such as lion annually. with prison privatization. In 1999, it national defense and the judicial system contracted with the Wackenhut Corpo- — should remain the exclusive preserve In addition, a study published ration (now Geo Group, Inc.) to build, of government. They are much closer by Vanderbilt University researchers own and operate a youth correctional to the economist’s definition of true in August, 2003 showed that states facility in Baldwin, which is located “public goods.” There is little if any- using privately owned and/or run in Lake County. According to Frank thing inherent in the operation of pris- prisons saw their daily cost of hous- Elo, warden of the Michigan Youth see “Prison” on page 12

8 Michigan Privatization Report • Spring 2004 Mackinac Center for Public Policy Mackinac Center for Public Policy Michigan Privatization Report • Spring 2004 9 Feature DNR Contracts Out Management of Ski Area By John R. La Plante had passed, the economic impact study cupine Mountain LLC, a private, for- would have lasted through the 2004 ski profit company that was created for the In 2002, Michigan Privatization season, mandating that the state continue purpose of managing the ski area. The Report brought the first public attention to run it at a loss for one more year. For- company was put together by the same to the fact that the state of Michigan tunately, the amendment didn’t pass. people who own and operate neighboring was operating a ski area at the Porcu- pine Mountain Wilderness State Park. The park is located on Lake Superior in Ontonagon County in Michigan’s Upper Peninsula, and competed with three privately owned areas in nearby Gogebic County. (See “Privatize the ‘Porkies?,’” MPR, July 2002, and “No Business in Snow Business,” MPR, October 2002).

The cost of operating the ski area was a continual financial drain on the state budget, and in 2001 the state had even considered a partial closure of the hill. MPR recommended that Michigan sell the Porkies outright — but that the second best option would be to contract out management to a private company.

In June of 2003, stopping short of selling the resort outright, Michigan’s Department of Natural Resources (DNR) solicited bids for a private operator. So what’s happened since?

Initially, the prospect of change brought some fear to western Upper Peninsula residents, who thought the Porkies might change drastically under private management, or worse, close altogether. Some feared privatization would effect their employment.

Shortly after the DNR sent out requests for proposals, Sen. Mike Prusi D-Ishpeming, inserted an amendment to the DNR budget requiring the department to prepare an economic impact statement. That is, Prusi wanted a study The state of Michigan contracted with a private, for-profit company to manage the ski area it that would detail the positive or negative owns in the Upper Peninsula. The contract is expected to save taxpayers as much as $200,000 effects of privatizing the hill. This was during the 2003-2004 ski season. likely a political move simply to slow down the move to privatize. He touted Besides, legislative delay was Mt. Bohemia. The contract is expected his amendment by saying “My amend- not necessary. In October, the DNR to save the state as much as $200,000 ment requires the continued operation announced that it had found a way “to in 2004. Lowen Schuett, who was at of the ski area through the next season preserve the skiing opportunity in light the time the acting chief of the DNR’s should the DNR require additional time of ongoing state budget constraints.” Parks and Recreation Bureau, said that to find a lessee.” If his amendment It awarded a one-year contract to Por- continued on next page

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contracting out let the says “management department “focus its has been finding its resources on the DNR’s way” in what hills core mission,” rather should be groomed than waste taxpayer dol- and when. Previ- lars on a money-losing ously, he says, the ski resort. Negotiations state groomed on a for a 15-year contract set schedule, regard- are ongoing. less of the snow conditions. He faults the The transition new management for from reliance on a state not grooming enough subsidy to reliance on during the week, The new skier demand involves when attendance some trade-offs. The is sparse. “When it arrangement 43 kilometer cross- snows as often as it also means country trail system, has this season — 32 the resortʼs for example, is not days in a row — you managers groomed as frequently will have a problem if or as extensively as it was when the prize was actually won by a member you slack off in the middle of the week,” can presence of actual skiers made no dif- of the local “Friends of the Porkies” Bradley said. experiment ference to the bottom line. While cross- organization. with country skiers can now use the trails for On the other hand, some of the innovative no charge, some argue that the system is The new arrangement also means new practices have added variety to now unusable. There has been some talk the resort’s managers can experiment the terrain. One trail, for example, is marketing of local skiers taking over grooming. with innovative marketing strate- turning into a mogul run now that it is strategies. gies. For example, people who took not being groomed, something Bradley Also, Porcupine Mountain, LLC advantage of a special pre-season sale says “was probably a good decision.” has shortened operational hours and de- could buy a season pass for only $99. Moguls are a series of small and solid activated one of the lifts on weekdays to The move increased the sale of passes snow hills covering the larger hills. put the resort’s operations more in line approximately 12-fold. It’s also possible Skiers enjoy moguls because of the with current skier demand. now to buy a season pass good for both added challenge they represent. Many the Porkies and Mt. Bohemia, which is skiers consider powder (new snow) to But to increase that demand, the also run by Glieberman, but is owned by be the best snow for skiing, and a less management has set up a new web site, a different firm. automatic schedule for grooming allows and within days of winning the contract, the powder to linger. Powder was often printed 20,000 magazine inserts touting While children under 9 must eliminated under the state’s rigid groom- the hill and its features. Also, it has run now have a paid lift ticket, a family ing regimen. television commercials in markets as far of four who bought the discounted away as Wisconsin, something the state tickets could actually save money over As for the future, Bradley hopes to never did. the previous season. Nearby Indianhead see more chair lifts and some snowmak- resort offers free lift tickets to children ing equipment added. Unlike other ski Another new promotion, “the 6 and under, so perhaps competitive areas in the region, the Porkies has no Rubber Ducky Challenge,” invited pressure will bring a change over time. snowmaking capacity, meaning that the skiers and snowboarders to find rubber The discounted pass also encouraged hill has often had to be closed during ducks hidden throughout the hill, with a destination skiers — skiers who aren’t the vital Thanksgiving-to-New Year’s top prize of $5,000 for finding the most locals — to come more often, a move season. Given the sudden popularity of ducks, said the Porkies’ new manager, that could benefit other merchants in snowboarding, there may eventually be Lonie Glieberman. “There are many the region. room for a “halfpipe” run. Halfpipes are people throughout the Midwest who narrow runs with sides of snow that are intend to try the Porkies, and we want Jim Bradley a resident of nearby highly banked so snowboarders can do to make it especially attractive for them of Ontonagon since 1976, and president dramatic twists and turns as they make on Feb. 15 — the day of the challenge of Friends of the Porkies, gives Porcu- their way down the hill. — to give us a try,” he said. The top pine Mountain, LLC, mixed marks. He see “Privatized Porkies” on page 12

10 Michigan Privatization Report • Spring 2004 Mackinac Center for Public Policy Mackinac Center for Public Policy Michigan Privatization Report • Spring 2004 11 Feature Privatize the University of Michigan

By Lance Wieslak and deep cuts in state subsidies and find it A private U of M could also Michael LaFaive difficult to plan not knowing what state strengthen its financial outlook by sell- governments are going to do. During ing its hospital— hospital assets alone Since its founding in 1817, the 2003, the Granholm administration cut are valued at more than $600 million University of Michigan has attained a state university general operations sup- — and adding that revenue to its $3.5 global reputation as an academic and port by $193 million. At the same time, billion endowment. Further, campus research powerhouse, attracting some private universities have been poaching institutions such as the Nursing and of the world’s brightest students and top professorial talent from the best public Kinesiology schools could continue to faculty. Its ranking among other uni- universities. In the past decade, New be taxpayer supported, under contract versities, however, has dropped sharply York University alone has spent close with a privatized U of M. in recent years, and the school has seen to $1 billion to attract star faculty from top faculty lured away by more generous other institutions and establish presti- offers from private universities. gious research institutes.

One way to reverse this trend, and Both of these reasons may be perhaps to beat the private competition, contributing to U of M’s recent decline is for the University of Michigan to go in rankings among other universities private itself. The idea isn’t as drastic and colleges. In 1987, U of M was as it may sound. While the amount of ranked the No. 8 national university state money going to the University is by US News & World Report, ahead of substantial — some $320 million per such schools as Columbia and the Mas- year — this amounts to less than 8 sachusetts Institute of Technology. In percent of the 2004 operating budget 2003, and in the same category, U of M of the university and its health system. ranks No. 25. This fact has led James Duderstadt, U of M’s president emeritus, to describe the A privatized University of Michi- school as “a privately supported public gan would almost certainly raise its university.” tuition rates to help compensate for the loss of state revenue, as well it should. Were U of M to go private, tax- It is not unfair to ask those who benefit payers would save that $320 million per directly from earning the highly valued year, plus millions in construction costs. U of M degree to bear a greater burden Capital outlay expenditures by the state to pay for it, especially considering the for the Ann Arbor campus have totaled financial background of most of the Burton Tower is the centerpiece of the central campus $160 million since 1993. school’s students. of the University of Michigan.

Converting the university to pri- A 2003 Detroit Free Press story Cuts in state support are pushing vate status would place Michigan on the reported that over 51 percent of the public universities toward more private forefront of what appears to be a devel- University of Michigan’s freshman class models of operation whether they like it oping trend. In December 2003, South comes from households with incomes or not. It would show rare leadership and Carolina gave all 13 of its universities above $100,000 per year. Yet, only 12.7 practical savvy if Michigan lawmakers permission to go private; Colorado’s percent of Michigan households earn were to come up with a plan for making university system is preparing a con- such incomes, according to calculations the University of Michigan a private tingency plan to convert all four of its using 2000 Census figures. institution, for the benefit of students, universities to private status in 2009; professors, and taxpayers alike. MPR! and the trustees of Michigan’s own Tuition hikes could actually help Lake Superior State University have those students who truly need help — by Lance J. Weislak, a University of discussed the idea. enabling the school to offer greater out- Michigan graduate and MBA candidate at right gift aid and tuition reductions to the University of Chicago, is an adjunct Though it would require a change students from low-income families, as is scholar with the Mackinac Center for Public in Michigan’s Constitution, privatization often the practice at private universities. Policy; Michael LaFaive is director of fiscal would liberate U of M from many of its Needy students at public institutions cur- policy at the Mackinac Center. political hassles with Lansing. State- rently rely more on loans and work study sponsored universities are coping with programs.

10 Michigan Privatization Report • Spring 2004 Mackinac Center for Public Policy Mackinac Center for Public Policy Michigan Privatization Report • Spring 2004 11 Feature

“Privatized Porkies” continued from page 10

Of course, purchasing, install- The Story of Granite Peak ing, and running snow guns costs a lot of money, as does laying new pipes. Given the closure of the copper mines, Ontonagon County and the western U.P. Acquiring the required permits from could use a boost from enhanced tourist trade. The Porkies have always gotten good various government agencies could be press in the ski industry for their hardwood forests and spectacular views of Lake Supe- rior. For a look at the ways in which a private operator can bring new benefits to winter a lengthy, expensive task. Finally, it’s sports enthusiasts and the local area, consider the case of Granite Peak, a ski area in The U.S. not clear that even a 15-year contract Wisconsin’s Rib Mountain State Park. Forest is long enough to allow any private operator enough time to recoup the Established in 1937, the ski area at Rib Mountain was unremarkable until a private Service, by operator took over in 2000. Since then, a number of renovations and improvements have substantial investment required for contrast, brought praise from Ski magazine, which has called Granite Peak “an energetic destina- snowmaking. The U.S. Forest Service, tion resort.” typically by contrast, typically offers 40-year offers leases for ski operations in the western Charles Skinner Jr., who already had a record of success as part owner of United States. Minnesota’s Lutsen Mountain, signed a 30-year lease for Rib Mountain, and started to 40-year turn things around. Since then, his company has purchased 1,000 new rental skis and leases snowboards. It also renovated the tired chalet. Chairlift capacity has more than doubled, a new snowmaking system has been installed, and grooming greatly improved. Skinner’s for ski company has created over 50 new trails, bringing the total to 72.

operations These changes have brought improved revenue; by the start of this most recent in the season, skier days were up 20 percent. Destination travel was up 70 percent, and the western number of season-pass holders up 100 percent. Thanks to the improvements to the site, it’s now possible to spend the better part of a day without repeating a run. A sextuple chair United whisks visitors to the top, and Skinner hopes to build new lodging nearby.

States. While Granite Peak has some advantages over the Porkies, such as proximity to metropolitan areas, Michigan could give Porcupine Mountain, LLC greater incentive to invest in the Porkies ski area by awarding the company the type of long-term lease (40 years) afforded Granite Peak’s manager.

operated facilities in Bessemer and “Prison” Wakefield, not too far from the Porkies. continued from page 8 If that’s the case, there’s no reason for the taxpayers of the whole state to be on the hook for the pleasures of a few. ons, however, that should mandate they Thanks to the state’s new contract this remain government-run facilities. season, they won’t be. MPR! Governments around the globe The point is that consumer Frequent Mackinac Center con- have been hiring private companies to demand is now in the driver’s seat, and tributor John R. La Plante is a native of manage prison populations for decades according to Glieberman, the prospects Muskegon and a graduate of Kalamazoo now. Both companies and governments are looking good. “We’re excited,” College. He is a skier and creator of a web have acquired the expertise necessary he said. “It’s going well, expenses are site (graysontrays.com) dedicated to adults to negotiate, write and manage con- lower, revenue is up, and season pass learning how to snowboard. tracts for management. It is time for sales are phenomenal. We are on track the state of Michigan to more aggres- to grow the numbers; it’s a long-term sively pursue this option in order to proposition. We can make a difference save taxpayer dollars and improve for the taxpayers, too.” prison services. MPR!

It’s possible that the western U.P. Michael LaFaive is director of fiscal is oversupplied with ski area. There policy for the Mackinac Center for Public already are three privately owned and Policy.

12 Michigan Privatization Report • Spring 2004 Mackinac Center for Public Policy Mackinac Center for Public Policy Michigan Privatization Report • Spring 2004 13 Feature High School Fiddlers’ Group Goes Private A few Fiddler students and their It didn’t take long for the group to By Michael LaFaive parents complained that the move to decide that going private was the best A public school-affiliated musical privatize the group came too fast, and option. Only about a month transpired group originally organized by a teacher that it was unfair for the group to take the from the time administrators suggested and students from Saline High School name and any other assets of the famous the Fiddlers go private. The privatiza- may have hit the right notes recently ensemble away from the school district. tion idea was first floated in November, when students and parents voted by a 3- But the Saline Fiddlers have always been 2003, and the vote to privatize took place to-1 margin to make the ensemble a pri- quasi-private and self-funded. December 15. vate venture. The decision to privatize was supported by district officials. The group has been supported The Saline School District and through private efforts such as individual Fiddler participants recognized that the The ensemble began in 1994 donations, volunteer assistance, and rev- benefits of going private would likely when Saline High School teacher Bob enue derived from hosting concerts. And outweigh any costs associated with it. Phillips collected more than 20 high those efforts have paid off. The group’s school string musicians and persuaded assets — including instruments, lighting, them to be part of a new musical group. and sound equipment — are worth an The group, according to its official estimated $100,000. web site, “… would have two primary goals: to learn traditional American This success ended up being a fiddle music and perform for small major catalyst for the vote to go private. audiences, thus perpetuating this rich The founder of the group, Bob Phillips, musical heritage.” and his wife retired two years ago. When they left they took with them institu- The Fiddlers play a wide variety tional knowledge and management of music, “with styles as diverse as skills that were difficult for a school classical, jazz, country, rock, old-time, district to replace. Managing the group Texas-style, bluegrass, gypsy, eclectic, was deemed unwieldy and something of Celtic and electric.” They are currently a distraction for district officials. negotiating to provide entertainment for Student fiddlers must try out for the group much the same way student events hosted by at least one Fortune According to the Saline Fiddler’s athletes try out for football or other sports. 500 company, and to be the opening Winter 2004 newsletter, “The Fiddlers act for a well-known country music have grown beyond what can reason- artist. (The Fiddlers have asked the ably be operated as an extracurricular While this is often the case with priva- Michigan Privatization Report not to program of the schools. With the support tization, arts-related groups that are divulge the artist’s identity until the of the school system, Fiddler parents supported by government funding or are deal is finalized.) created a private, nonprofit corporation part of government institutions seldom for the sole purpose of perpetuating the recognize the benefits privatization can Due to demand for their services, group for future generations of Saline produce. the Fiddlers have traveled frequently. High School Students.” According to their official web site, Generating public enthusiasm www.salinefiddlers.com, the group has There were other reasons for can bring in far greater funding — and performed more than 600 times in 11 going private as well. For instance, dis- far greater artistic satisfaction — than states, Washington, D.C. and four for- trict officials feared that the high-profile having to curry favor with legislative eign countries. nature of the group might begin to cause committees year after year in order to animosity toward its participants from receive a fraction of what they might Officially part of the Saline Area other school clubs if the group retained otherwise generate through private Schools, students were recruited at its school affiliation. Officials sug- community efforts. MPR! Saline High School and were required gested the group consider privatization, to try out for the ensemble. Like tryouts but promised continued support for the Michael LaFaive is director of fiscal for sports teams, not everyone who program by using the school’s music policy for the Mackinac Center for Public auditions makes the cut due to talent classes as something of a farm club for Policy. and character requirements. the Fiddlers.

12 Michigan Privatization Report • Spring 2004 Mackinac Center for Public Policy Mackinac Center for Public Policy Michigan Privatization Report • Spring 2004 13 Around the State

Detroit Medical Center Needs million government subsidy. But appar- And that trash bill is well over $1 million Private Turnaround, Says ently, not only the financial till, but the dollars less per year than Hamtramck Former Bankruptcy Judge till of political good will, is now empty. was paying when it had city employees DETROIT—In a Feb. 13 com- The DMC simply has no other choice and equipment doing the trash work. mentary in the Detroit News, business but to sell its assets. Rizzo Services is a familiar vendor in consultant and former Detroit-based Hamtramck, since it provides snow U.S. bankruptcy judge Ray Graves wrote Granholm Budget removal services for the city, as well. that the floundering Detroit Medical Proposal Includes Asset Sale Center needed a “well-planned private LANSING—Gov. Granholm’s Western Michigan University turnaround, restructuring the operation new budget proposal includes the sale of Studies Privatization outside of the Bankruptcy Court.” The state property to the private sector. The KALAMAZOO—Western Center has lost more than $500 million Western Wayne Correctional Facility Michigan University (WMU) is bid- in the last six years and is in the process near Plymouth will redistribute its pris- ding out custodial and food services of selling five health clinics to private oners to other facilities, and structures at its main campus in Kalamazoo. The physicians, a move some DMC employ- on the 127-acre property will likely be new contracts would affect 51 unionized ees oppose. bulldozed to make way for the sale of university employees, according to the Graves suggests that going private the land to private investors. The move Western Herald, a publication of WMU. would help return DMC to sound finan- is expected to save the state $22 million American Federation of State, County, cial status because it may: a) provide annually, and generate a hefty one-time and Municipal Employees (AFSCME) creditors with payments superior to what cash payment as well. President Dan Birch has said that if Of course, would be manddated in bankruptcy court; private firms provided those services, a private b) provide an impetus for discussing the Hamtramck Further Down university employees now providing hard issues, such as employee pay cuts the Road of Privatization the work would lose their jobs. He also venture that and consolidation; and c) restore public HAMTRAMCK—As MPR read- told Herald News Editor Karolyn Glowe performed confidence by giving interested parties ers may remember, a state-appointed that he believes AFSCME employees thus would an additional reason to examine potential Emergency Financial Manager runs the could do a better job, adding that “the have gone conflicts of interest. city government of Hamtramck. Such union would be happy to discuss ways Last February, Michigan Privati- managers have state authority to run the to improve efficiency.” out of zation Report reported that clinics were day-to-day operations of a municipal- Don Alexander, professor of eco- business up for sale because of poor economic ity, including the power to negotiate nomics at Western Michigan University long ago. performance. And while it’s good — and labor and service-provider contracts. and adjunct scholar with the Mackinac But when a sign of progress — that privatization Three years ago then-Gov. John Engler Center for Public Policy disagrees with now seems to occur to public manag- appointed Lou Schimmel to run the city Birch over the job losses. “It is likely public ers as an option when faced with such of Hamtramck. that most of the current AFSCME ones fail to performance, the most amazing Since his appoint- employees would not lose their jobs, deliver, they thing about this story is the level ment Schimmel has per se, but would simply switch employ- simply ask of catastrophe that must over- negotiated all city union ers. Nationwide, we’ve seen for-profit take a public venture in order contracts, sold assets, vendors hire many, if not most of for- for — and for its managers to take action. and contracted out all merly public employees because of their often receive A November 2002 Detroit Free city Department of expertise,” Alexander told MPR. Pro- Press story explained just how Public Works services. fessor Alexander also pointed out that — more Motor City Needs bad the management of DMC a Budgetary Tune-Up Schimmel’s work in just the prospect of competitively bid- money. Say ‘Privatize’ to Da U.P., Eh? has been: “Under the DMC’s Destroying the Environment to Save It Hamtramck was high- ding these services has already worked The State Should Mind Its Own E-Business

Expanded “Around the State” Feature! See page 12 1 ownership, the clinics have never –What aboutReport Bioport? • Winter 2002 lighted in MPR in to improve them. Michigan Privatization

been profitable and are expected Mackinac Center for Public Policy 2002. This year, prior “The university’s announcement to lose $21.6 million this year,” the paper to the expiration of the city’s original that it may pursue a private vendor to reported. 3-year contract with a private company provide custodial and food services has Of course, a private venture that for refuse collection, Schimmel issued already led the union that represents performed thus would have gone out of a request for proposals from seven them to talk about ‘improving the effi- business long ago. But when public ones companies to pick up rubbish for the ciency of their operations,’” Alexander fail to deliver, they simply ask for — and city. Rizzo Services of Warren, Mich. said. “This probably wouldn’t have hap- often receive — more money. Indeed, won the contract, which will shave 23 pened without some competition knock- just last year the DMC received a $50 percent off the city’s current trash bill. ing at the AFSCME door,” he added.

14 Michigan Privatization Report • Spring 2004 Mackinac Center for Public Policy Mackinac Center for Public Policy Michigan Privatization Report • Spring 2004 15 Around the State

State Adopts Another services, competition March 2003 Mopping up between companies Mackinac Center Idea A Mackinac Center Report Savings at Metro Airport Recommendations to LANSING—In 1998 the will likely result in Strengthen Civil Society ROMULUS—As of April and Balance Michiganʼs Mackinac Center for Public Policy better, cheaper ser- State Budget 1, 2004, Detroit Metro Airport reported that the state of Michigan had vices. Blake Erickson, will contract with Knight Facil- Michael D. LaFaive ended a 40-plus-year history of mandat- President of Student Project Manager ity Management Services, Inc. to The Mackinac Center for Public Policy is an independent, nonprofit, nonpartisan research and educational organization devoted to analyzing Michigan public issues. For more information on this report or other publications of the Mackinac Center for Public Policy, please contact:

An Analysis of Fiscal-Year 2002-03 ing that public schools provide driver’s Driver’s School Cor- Appropriations and Recommendations for 2003 provide janitorial services at the -04.

140 West Main Street • P.O. Box 568 • Midland, Michiga (989) 631-0900 • Fax (989) 631-0964 n 48640 education classes to its students. Several poration,www.mackinac.org a • [email protected] private Smith Terminal. The Detroit News ISBN: 1-890624-33-0 districts opted to drop their programs, as company S2003-02 located reports that the contract will save it was something of a distraction from in Freeland, Mich., the airport about $1 million in 2004 teaching the basics. agrees. His company, which has been and $6 million over a three-year period. Last year, in a Mackinac Center in business for 25 years through word- Passengers will likely benefit from the report entitled, “Recommendations to of-mouth referrals, offers its customers change because the savings will be Strengthen Civil Society and Balance convenience they couldn’t get when passed on to the airlines that operate Michigan’s State Budget,” the Center schools provided the service. “School in the terminal, such as Northwest and encouraged the state to stop subsidizing districts offer the program only in the Spirit Airlines. Because the airlines are such programs altogether and the state summer, we offer the program year so competitive, such savings are often did just that, saving taxpayers more than round,” stated Erickson. Many families passed on to passengers in the form of $7 million annually. travel during the summer and are willing lower airfares. MPR! With so many students turning to to pay more to take the class at different private providers of driver’s education times of the year.

“Rest Area” continued from back page

sell just about anything. Unattractive, amend the 63-year old statute that cur- many objections to privatization. In old, inconvenient rest areas could be sold rently prohibits commercial activities at this case, if the state wanted to ensure if the price is right. If the state could rest areas on Michigan highways. (See a minimum number of bathrooms and tolerate the closing of some rest areas it www.MichiganVotes.org to track prog- parking spaces for use by the public it could make currently unappealing sites ress on the bill.) could do so by making these conditions more saleable because the new owner of any sale or lease of the properties to The would have more options for employing A state House Fiscal Agency the new owner or manager. the property. (HFA) bill analysis reports that the 16 American “service plazas” along the Ohio Turnpike Michigan need not even relinquish Associa- The American Association of generated $12.3 million in revenue to the management and ownership of every tion of State State Highway Transportation Officials state of Ohio in 2002. The Commission property to achieve savings through Highway (AASHTO), an organization of trans- that operates the Ohio Turnpike bids out privatization. The state could decide portation officers, is currently working the right to provide services (such as the best approach is to privatize its most Trans- to see the law amended to accommo- food) to vendors. The vendor’s rent is, attractive properties, retaining the rest. portation date privatization. “With the overall according to HFA, based on the percent Regardless of which approach lawmak- Officials is shortage of highway funds not meeting of total sales generated by the vendors ers choose, privatization of Michigan’s currently current needs, the AASHTO member at each location — the higher this per- rest areas would allow the state to save departments have supported commer- centage, the lower a vendor’s rent. Ohio money, generate additional revenue, working to cialization as a way to help rebuild and can engage in these commercial activi- and concentrate more on keeping roads see the law maintain the facilities in order to remove ties because the businesses are part of maintained, while leaving such ancil- amended to this continued expense to the public,” a turnpike and not a state highway. If lary duties as bathroom maintenance to acommodate states Ken Kabetsky, Program Director Michigan were to commercialize its rest others. MPR! for Engineering at AASHTO. areas it could turn them from money privatization. losers to money winners. James Hohman is a research assis- Rep. Frances Amos, R-Waterford, tant with the Mackinac Center for Public introduced House Bill 4883 into the As with any privatization, condi- Policy. state Legislature in 2003, which would tions of a sale or lease can dispose of

14 Michigan Privatization Report • Spring 2004 Mackinac Center for Public Policy Mackinac Center for Public Policy Michigan Privatization Report • Spring 2004 15 Feature Give MDOT a Potty Break: Privatize State Rest Areas By James Hohman Centers” owned and operated by the state. and Starbucks coffee shop — and the The value of the land itself may represent developer would be responsible for When Michigan’s snow and cold a gold mine for state coffers. Selling the maintaining the lavatories, lawn, park- give way to summer, people from across rest areas could generate substantial one- ing facilities and every other component the state and nation take to state roads time revenue, eliminate the $6.7 million of the rest area. hoping to enjoy annual cost of operating the sites and a few months avoid repair costs. In addition, the sale There are a number of hurdles that of comfortable would create new property tax revenue would have to be cleared, and questions outdoor recre- streams for local and state governments. answered, before the state should and/or ation. Along could proceed with such a plan. the roads they Selling every one of Michigan’s travel from rest areas and welcome centers would also Both federal and state statutes cur- S o u t h e a s t eliminate any “capital outlay” costs the rently prohibit using state rest areas for Michigan to the rest areas may incur. Capital outlay is an commercial purposes. The one excep- Tahquamenon expenditure made to improve old buildings tion to this is for vending machines, and Rest areas and Michigan Welcome Centers (such Falls — and or create new ones. This is an important even those may be operated only by the as the one shown above, near Clare) have the potential to generate significant revenue for the everywhere in factor to remember because many rest areas Michigan Commission for the Blind. state, and improve service for travelers. between — are were built in the 1970s and 1980s and are restroom areas in need of major repairs. The money oth- Of course, some of the rest area owned and run by the state. Michigan erwise spent on these facilities could be properties are not in ideal locations, or could reap great benefits from selling reinvested in some of Michigan’s roads. are relatively small, and the state might or leasing these rest areas to for-profit have trouble finding a vendor willing to firms. Either route would require a Selling Michigan’s rest areas also purchase such a property. The state may change in the law, which currently pro- could improve services. Many of these overcome objections to poorly located hibits such sales. properties are in ideal locations that or small properties with the simplest of would be coveted by for-profit compa- economic mechanisms: price. There is a The best solution would be to sell nies. A developer could bring in a Pizza price at which the state (or anyone) can off all 68 rest areas and 13 “Welcome Hut restaurant, Speedway gas station, see “Rest Area” on page 15

NON PROFIT ORG. U.S. POSTAGE PAID MIDLAND, MI 48640 140 West Main Street • P.O. Box 568 • Midland, Michigan 48640 PERMIT #275

16 Michigan Privatization Report • Spring 2004 Mackinac Center for Public Policy