Annual Privatization Report E d i t e d by L e o n a r d C. Gi l roy Reason Foundation 2009 Reason Foundation Reason Foundation’s mission is to advance a free society by developing, apply- ing 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 prog- ress. Reason produces rigorous, peer-reviewed research and directly engages the policy pro- cess, seeking strategies that emphasize cooperation, flexibility, local knowledge and results. Through practical and innovative approaches to complex problems, Reason seeks to change the way people think about issues and promote policies that allow and encourage individuals and voluntary institutions to flourish. Reason Foundation is a tax-exempt research and education organization as defined under IRS code 501(c)(3). Reason Foundation is supported by voluntary contributions from individuals, foundations and corporations. The views expressed in these essays are those of the individual author, not necessarily those of Reason Foundation or its trustees. Copyright © 2009 Reason Foundation. All rights reserved. Authors Editor • Leonard C. Gilroy Principal Authors • Leonard C. Gilroy • Robert W. Poole, Jr. • Anthony Randazzo • Lisa Snell • Samuel R. Staley • Adam B. Summers • Steven Titch • Ben Tonkin • Shirley Ybarra • Carson Young Contributing Authors • Clint Bolick is the director of the Goldwater Institute Scharf-Norton Center for Constitutional Government and a research fellow at the Hoover Institution. • Jonathan Williams is the director of the Tax and Fiscal Policy Task Force for the American Legislative Exchange Council. Annual Privatization Report 2009 Letter from the Editor By Leonard C. Gilroy elcome to Reason Foundation’s Annual Privatization Report 2009. Now in its 23nd year Wof publication, APR is the world’s longest running and most comprehensive report on privatization news, developments and trends. What a difference a year can make. In 2009, the national economic recession has swung the pendulum strongly toward federal intervention in the economy and there are many indications this interference is making the economy worse, not better. At the very same time, however, interest in privatization is sky-high and far reaching, with many state and local governments facing severe and prolonged fiscal crises. Even privatization-resistant states like California, New York, Massachusetts and New Jersey are now turning to the private sector to help solve major fiscal and capital investment challenges. APR 2009 details the latest on privatization and government reform initiatives at all levels of government. The “Federal Government” section forecasts a bleak outlook for competitive sourcing under the Obama administration and a hostile Democratic Congress. It also provides an update on NASA’s planned partial privatization of the manned space program, as well as the latest on military housing and lodging privatization initiatives. In the “State Government” section, we profile the increasingly dire fiscal conditions in the states and offer a comprehensive review of the latest state privatization actions. In addition to numerous discrete privatization initiatives in the states, policymakers’ interest in state privatization and government efficiency boards is demonstrably on the rise and advisory commissions on privately financed infrastructure have been established in California and other states. Similarly, the “Local Government” section reviews the proliferation of privatization activity in cities and counties nationwide. We profile Chicago’s groundbreaking—but troubled—$1.15 billion parking meter system lease, which has Los Angeles, Pittsburgh and other cities contemplating similar initiatives to generate municipal revenues in the economic downturn. We also review Georgia’s fifth new contract city, Dunwoody, along with a number of privatization initiatives proposed or announced in Los Angeles, Indianapolis and numerous other cities. This year’s APR also provides a comprehensive overview of domestic and international developments in air and surface transportation, including a wide-ranging overview of the current state of the infrastructure finance market, a review of the latest in highway and airport privatization and a review of the latest in air traffic control reform and aviation security. APR’s “Education and Child Welfare” section offers a comprehensive update on school choice, with the latest on the weighted student formula, charter schools, school voucher and tax credit programs and non-instructional school services outsourcing. This section also details several child welfare privatization proposals announced in various states in 2009. APR’s “Emerging Issues” section examines four issues attracting significant attention in policy circles. First, we offer a summary of the federal bailouts and stimulus spending to date, which currently totals a staggering $12.9 trillion spent since early 2008. We also review efforts that expand and modernize port infrastructure through public-private partnerships. Another article asks the question, “Are roads still public goods?” Last, we review efforts to improve government efficiency and asset management through the use of real property inventories. APR 2009 also covers the ever-changing world of telecommunications policy, with updates on IT outsourcing, the broadband stimulus and network neutrality. This APR also reviews the latest developments in the fields of private corrections and mental health services. We review Arizona’s groundbreaking prison lease proposals, a new Vanderbilt University study finding that private prisons reduce state corrections costs, the looming battle to protect private prison operators’ proprietary rights and numerous other privatization developments in domestic and international corrections. We also profile the emerging issue of state mental health services privatization, with case studies from Florida and Virginia. The “Water and Wastewater” section surveys the latest on the water and wastewater privatization market and ongoing efforts at the federal level to close the infrastructure funding gap. We also review the proposed water system lease in Milwaukee, now on hold. Lastly, we offer an update on land use and property rights, with feature stories on the resiliency of Houston’s housing market in the current economic recession and a review of property rights in Arizona after the 2006 passage of Proposition 207, a combined eminent domain/regulatory takings reform measure. We also provide the latest on the property rights front, reviewing recent developments in eminent domain reform. Your comments on the Annual Privatization Report 2009 are important to us. Please feel free to contact us with questions, suggestions or for more information. For more privatization news, check out Privatization Watch (www.reason.org/publications/privatizationwatch), now in its 33rd year of publication. For the most up-to-date information on the rapidly changing privatization world, please visit Reason’s Privatization Center (www.reason.org/areas/topic/privatization) and our weblog, Out of Control (www.reason.org/blog). Leonard C. Gilroy, Editor Director of Government Reform, Reason Foundation [email protected] Annual Privatization Report 2009 Annual Privatization Report Federal Update ........................................................................................................ 1 A. Outlook Bleak for Competitive Sourcing Under Obama Administration, Democratic Congress .........................................................................................................1 B. Program Assessment Rating Tool (PART) Update ..............................................................3 C. Federal Bill Would Encourage Competition for Commercial Government Services ..............4 D. NASA’s Partial Privatization of the Space Program .......................................................... 6 E. Military Housing Privatization .........................................................................................7 State Government ....................................................................................................9 A. State Privatization Update ..............................................................................................9 B. State Budget Outlook ................................................................................................... 31 C. State Budget Crises in Perspective: Illness or Fiscal Hangover? ......................................33 D. Rich States, Poor States: The 2009 ALEC-Laffer State Economic Competitiveness Index ...38 Local Government .................................................................................................. 41 A. Chicago Nets $1.15 Billion in Parking Meter Privatization, L.A. and Others to Follow ........ 41 B. Dunwoody Becomes Georgia’s Fifth New Contract City ...................................................47 C. L.A. City Controller Recommends Sweeping Privatization Program .................................49 D. Indianapolis Returning to Privatization Roots ................................................................50 E. Milwaukee County Board Nixes Privatization Push .........................................................50