State Government Privatization
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Reason Foundation 3415 S. Sepulveda Blvd., Suite 400, Reason Foundation Los Angeles, CA 90034 April 2012 310/391-2245 www.reason.org Annual Privatization Report 2011: State Government Privatization By Leonard Gilroy and Lisa Snell Edited by Leonard Gilroy and Harris Kenny Reason Foundation Reason Foundation’s mission is to advance a free society by developing, applying and promoting libertarian principles, including individual liberty, free markets and the rule of law. We use journalism and public policy research to influence the frameworks and actions of policymakers, journalists and opinion leaders. Reason Foundation’s nonpartisan public policy research promotes choice, competition and a dynamic market economy as the foundation for human dignity and progress. Reason produces rigorous, peer-reviewed research and directly engages the policy process, seeking strategies that emphasize cooperation, flexibility, local knowledge and results. 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Reason Foundation Annual Privatization Report 2011: State Government Privatization Update By Leonard Gilroy and Lisa Snell Edited by Leonard Gilroy and Harris Kenny This is an excerpt from Reason’s Annual Privatization Report, which is available online at http://reason.org/apr2011 Reason Foundation Table of Contents Part 1: State Budget Outlook .......................................................................................... 1 Part 2: Christie Administration Expands Privatization Portfolio in New Jersey .............. 4 Part 3: Jindal Continues Louisiana Privatization Push ................................................ 10 Part 4: Kasich Administration Advancing Privatization in Ohio .................................. 15 Part 5: Washington State Approves Privatization of State Liquor Monopoly; Other States May Follow .................................................................................................... 18 Part 6: Puerto Rico Building Robust Infrastructure Privatization Program ................... 26 Part 7: Arizona Commission Completes Privatization, Efficiency Review ................... 28 Part 8: Texas, Connecticut Enact Broad-Ranging Infrastructure PPP Laws .................. 31 Part 9: Corbett Administration Embracing the “Yellow Pages Test” in Pennsylvania ... 33 Part 10: Restructuring Opens Door to More Privatization in Washington State .......... 35 Part 11: Interest in State Parks Privatization on the Rise ............................................ 37 Part 12: States Exploring Private Lottery Management ............................................... 44 Part 13: Indiana’s Welfare Eligibility Privatization Program Expands, Improves Performance ............................................................................................................. 47 Part 14: Higher Education PPP Update ..................................................................... 49 Part 15: Privatization and Child Welfare Reform: Implementation Update ................ 52 A. The Importance of Funding Flexibility for Privatization and Child Welfare Reform ............ 52 B. Examples of Waiver Outcomes in the States ..................................................................... 55 C. Nebraska Struggles with Statewide Child Welfare Privatization ......................................... 57 Part 16: Virginia, Georgia Advance Highway Rest Area Partnerships ......................... 59 Part 17: Other State Privatization News .................................................................... 61 Endnotes .................................................................................................................. 72 Annual Privatization Report 2011: State Government Privatization Update | 1 Part 1 State Budget Outlook State governments continue to face fiscal pressures amid an uncertain economic recovery, according to several reports on states’ fiscal health in 2011. While the fiscal picture is beginning to improve as revenues rebound, overall state revenues remain below their FY 2008 pre-recession high. An October 2011 report by the Nelson A. Rockefeller Institute of Government at the State University of New York found a significant improvement in state revenue collection, with states seeing an 8.4% revenue increase over the 2011 fiscal year, representing six straight quarters of growth and the strongest year-over-year gains since 2005.1 However, the researchers noted that the recent growth in state revenues might be short-lived, given the ongoing weakness in the national and international economy. The National Conference of State Legislatures’ (NCSL) State Budget Update: Summer 2011 struck a similar tone, finding that state budgets are slowly recovering but still face uncertainty amid a sluggish economic recovery.2 While state revenues are projected to continue increasing at a slower pace in FY 2012, the NCSL report suggests that states still face significant financial challenges, including the fragile economic recovery, health care cost inflation rising faster than state revenue growth, and numerous competing budget priorities and trade-offs. FY 2012 marked the fourth consecutive year of large-scale aggregate state budget deficits, according to the report, though the total size of state deficits has been on a decline since hitting a peak of $174.1 billion in FY 2010. Figure 1 illustrates historical and projected state budget deficits from FY 2009 through FY 2014. According to the NCSL report, states closed approximately $478 billion in aggregate budget deficits between FY 2009 and FY 2012, and they still face an estimated $44 billion in deficits in FY 2013 and FY 2014. The report finds that: . States closed a cumulative $96.2 billion deficit in their FY 2011 budgets, compared to $174.1 billion in the previous fiscal year. FY 2011 general fund revenues increased 6.1% above FY 2010 levels. State FY 2011 general fund spending increased 4.6% over FY 2010 expenditures, and 39 states reported year-over-year increases in FY 2011 spending. Four states reported year-over-year spending increases exceeding 10%, with the largest in Florida (13.3%), Massachusetts (12%), Tennessee (10.6%) and Nevada (10.4%). Still, 11 states and Puerto Rico reported lower year-over-year spending in FY 2011. 2 | Reason Foundation . Entering FY 2012, 38 states and Puerto Rico confronted aggregate deficits of at least $91 billion during the enactment of their FY 2012 budgets. A total of 21 states reported FY 2012 deficits exceeding 10% of their general fund budgets, with the highest found in Alabama (33.7%), Nevada (31%) and California (28%). Additional budget deficits may materialize in some states, given tenuous economic and fiscal conditions. For example, the report found that FY 2012 general fund revenues are projected to increase 1.9% over FY 2011, while FY 2012 state spending is projected to increase at a higher rate of 2.7%, suggesting that states will continue to face ongoing budgetary pressures. The size of state deficits and the number of states experiencing them are expected to decline in FY 2013 and FY 2014. A total of 29 states have projected deficits for FY 2013, with early estimates of a total cumulative deficit of $31.9 billion. Nine states have taken steps to close those deficits already, while another 11 states still face FY 2013 deficits totaling over $15 billion. Nine states currently project budget deficits in FY 2014 of $12.2 billion. Figure 1: Cumulative State Budget Deficits, FY2009–FY2014 ($Billions) Amount Before Budget Adoption Amount After Budget Adoption Projected $200 $174.1 $180 $160 $140 $117.3 $120 $96.2 $91.0 $100 $80 $60 $31.9 $40 $12.2 $20 $0 2009 2010 2011 2012 2013 2014 Source: National Conference of State Legislatures, State Budget Update: Summer 2011, July 2011, p.6. The NCSL report concludes that, “Much uncertainty continues to surround the trajectory of economic recovery, however, which threatens spending and revenue assumptions underlying these gap estimates.”3 Despite the uncertainty, state fiscal directors appear to be seeing light at the end of the tunnel. NCSL released the results of a survey of state fiscal directors in December 2011 that found that 35 states and Puerto Rico reported strong revenue growth or performance in the first several months of FY 2012.4 Fiscal directors in 30 states described their overall fiscal outlook as either “positive” or “cautiously optimistic” in FY 2012, while officials in the remaining 20 states Annual Privatization Report 2011: State Government Privatization Update | 3 and Puerto Rico were “concerned” about their fiscal outlook. Notably, the report found that no state official was “pessimistic” about his or her state’s FY 2012 fiscal outlook. Last, the National Governors Association (NGA) and the National Association of State Budget Officers (NASBO) issued their biannual state fiscal survey in June 2011, noting “somewhat improved” state fiscal conditions relative to those experienced in 2009 and 2010. Among the findings in the NGA/NASBO survey:5 . FY 2011 general fund expenditures ($651.5 billion) increased 5.2% from FY 2010 ($619.3 billion),