Category Archives: Public/Private.Partnerships

Editorial: Economic development: State’s plan to privatize comes with risks

Source: Winston Salem Journal, November 3, 2013

Gov. Pat McCrory wants to privatize the state’s economic development efforts and is likely to get his way. The legislature has provided initial funding for the change. But, as the Journal’s Richard Carver reported, the nonpartisan Washington research center Good Jobs First says such a change is risky. Privatization has created huge problems in several states. …

NOpinion: Public-private partnerships the wrong fix for more jobs
Source: ews & Observer, October 28, 2013

…Now the hacksaw is out for another fix. McCrory is moving to repair the state Department of Commerce by cutting off the department’s industrial recruiting, marketing, travel and tourism divisions and putting them under a new public-private nonprofit corporation known as the N.C. Partnership for Prosperity. The idea is that the partnership will free recruiters of red tape and allow for a more nimble approach to recruiting businesses to North Carolina and helping those already here to expand.

The idea is suspect on its face. Why would private business people be better at bringing in businesses than recruiters employed by the state? The answers offered by those who support the change is that the private sector knows more about business needs and has more sales and bargaining experience and that the new arrangement will allow for higher compensation for top recruiters.

The flip-side is that business people may have conflicts of interests – are they promoting what’s best for the state or what’s best for their company or industry? And adding a compensation motive for recruiters may tempt some to cut ethical corners to close a deal. Keeping watch for such abuses becomes harder when previously public functions become less public.

These concerns are not conjecture. As Rob Christensen reported in Sunday’s News & Observer, the type of public-private corporate recruitment partnership being pushed by the governor and Commerce Secretary Sharon Decker has had problems in other states involving misuse of taxpayer money. …

Related:
Privatization of N.C. Commerce Department gets under way
Source: Ken Elkins- Charlotte Business Journal, Jul 31, 2013

The machinery to convert the N.C. Department of Commerce into a public-private partnership is already under way, a week after the 2013-14 state budget was approved.

… The new 39-member N.C. Economic Development Board met two weeks ago in Raleigh. It heard from Gov. McCrory and Sharon Decker, N.C. commerce secretary.

Why Anytown, USA, Privatizes Its Water System

Source: Ellen Dannin, Truthout, 31 October 2013

In August 2013, Allentown, Pennsylvania, rented its water and waste systems for 50 years because it did not have enough money to pay the pensions owed to its employees or to maintain its water system.

Allentown is not alone in turning to infrastructure privatization to deal with cash-flow problems. Indeed, Allentown is Anytown, USA, as cities, counties and states across the country privatize basic infrastructure built and paid for by prior generations. However, water is not just another type of infrastructure to be sold to the highest bidder. As NASA scientists know, water is life. …

…Allentown and the Lehigh County Authority are public entities with many strong ties to one another. Does that mean that their public-public, 50-year infrastructure contract is different from public-private infrastructure contracts? The answer is no.

The 195-page LCA-Allentown contract (not counting any attachments) includes the same recursive language generally found in infrastructure privatization contracts. For example, it includes Article 14, the Adverse Action provision. In contract after contract, that section gives private contractors the right to reimbursement for claims that the public partner has done something that deprives the private “concessionaire” of anticipated revenues….

….This is not the way true partners treat one another. So why did the LCA want to include such a term in its contract? Is the standard contract the only alternative?

In fact, Food and Water Watch promotes a different model – a PUP, a public-public partnership – that retains local and public control of existing water systems. This FWW report provides an overview of domestic and international PUPs and publicly owned water. Among the many models and resources are a crowd-sourced online book on international public water control and management, remunicipalization of water and resources from Water Justice, including information about reclaiming and protecting public water….

On the Performance of the U.S. Transportation System: Caution Ahead

Source: Clifford Winston, Journal of Economic Literature, Vol. 51 no. 3, September 2013

From the abstract:
Transportation is a vital sector of the U.S. economy based on consumers’, firms’, and government’s enormous expenditures in money and time and on its effect on virtually all other sectors in the economy. I assess the performance of the transportation system and consider how it could be improved by analyzing whether the United States has the optimal mix of public and private provision. The empirical evidence indicates that our hugely important transportation system has been compromised by various government policies and the significant welfare costs motivate either vastly improving public provision or expanding the role of the private sector.

P3s are ‘bad business’

Source: Larry Hubich, Regina Leader-Post, October 28, 2013

Among the many issues addressed in the provincial government’s recent throne speech was building new schools in our province using a P3 privatization model. But what do P3s mean for us? Sometimes misleadingly called public-private partnerships, P3 privatization deals involve signing complicated contracts with construction and supply companies, where the companies construct and operate buildings and then lease them back to the government. Of course, companies only agree to participate in projects that are profitable, and corporate profits add significantly to the cost of construction. Instead of simply paying for construction, taxpayers are forced to pay for construction and corporate profit.

In Alberta, a number of P3 schools have been constructed since 2007. Before the projects even began, early estimates were that P3 privatized schools would cost 51 per cent more than publicly-built and operated schools. In 2007 alone, the budget for the P3 schools project rose from $200 million to $512 million. Three schools could have been built using conventional government construction deals for every two schools that were built under the P3 privatization scheme.

What’s worse, cost-cutting measures at one school, including the use of substandard roofing materials, caused the roof to leak only six months after it opened….

Army seeks to expand public-private partnerships

Source: Andy Medici, Federal Times, October 28, 2013

The Army is looking to expand privatization efforts to nearly all commercial-like services, according to Army officials. Lt. Gen. Michael Ferriter, the Army’s top installations official, told a conference of the Association of the United States Army that the privatization of housing and utilities has been a success and the Army is looking to expand privatization efforts further. … He noted that the Army’s privatization of housing and utilities has been a success and said a likely next step is in-home child care within local communities. He said the Army will test various business models to make sure they work financially before rolling out something across all installations. Another candidate: dining halls. The Army is looking at issuing dining cards that could be used at its installations and at local restaurants, according to Army officials. …

Creating Scandals Instead of Jobs: The Failures of Privatized State Economic Development Agencies

Source: Greg LeRoy, Thomas Cafcas, Leigh McIlvaine, Kasia Tarczynska and Philip Mattera, Good Jobs First, October 2013

From the abstract:
The moves by some states to outsource economic development functions to “public-private partnerships” have, by and large, become costly failures characterized by misuse of taxpayer funds, conflicts of interest, excessive executive pay and bonuses, questionable subsidy awards, exaggerated job-creation claims, lack of public disclosure of key records, and resistance to basic oversight.
See also:
Press Release

Water task force against privatizing Fort Worth water department

Source: Caty Hirst, Star-telegram, October 17, 2013

After a seven-month study, the task force studying privatizing the Fort Worth water department is recommending that the city continue running the department.

Privatization would likely force water rates up, increase costs for the city and the Tarrant Regional Water District and would limit Council’s flexibility in directing economic development, the nine-member task force decided on Wednesday. …
Related:
Fort Worth’s water task force delving deeper into privatization, outsourcing
Source: Scott Nishimura, Star-telegram, May 10, 2013

Fort Worth’s volunteer Water Utility Task Force, charged with determining whether any of the aspects of the city’s water department should be privatized or outsourced, has decided to pursue four different business models in sending out a request for information to interested vendors later this Spring. The task force ruled out a complete sale of the water department. The four other models it’s pursuing are leasing the utility to a public-private partnership, contracting out management of the bulk of the department, outsourcing specific services, and seeking ideas for new revenue streams or businesses. In the case of a full lease, the vendor would typically make an upfront payment to the city and annual lease payments….

Looting the Urban Commonwealth: Privatization and the Politics of Austerity

Source: Elliott Sclar, New Labor Forum, Vol. 22 no. 3, September 2013
(subscription required)

Privatization, the turning over of operational control of socially important goods to private parties, has far larger social costs than are recognized in the way its promoters frame the debate. They present privatization proposals in abstract terms that mask their true complexity: for example, contracting out the delivery of public education to charter schools is portrayed as little different, as a matter of market-based competition, from seeking a contractor for the delivery of office supplies. But measured in terms of social import, there is a vast difference between the purchase of a ream of paper and the education of the citizenry. The former is a commonplace transaction with little impact beyond the money for goods exchanged between buyer and seller. The latter is a core government responsibility, integral to the public sector’s primary duty to promote the general welfare. Social goods, such as public education, differ vastly from private goods such as office supplies because their full value to society is not captured in the dollar value of the market transaction between the buyer and seller. When goods that create these powerful and broad indirect benefits, called social goods, are left to the vagaries of private markets, it is well known that they will be under-produced relative to their social value. …

Is Private Capital A White Knight For America’s Water Infrastructure

Source: Frank McGrew and Jay Gorman, Water Online, September 2013

Understanding and acceptance of public-private partnerships continue to grow as the gap between infrastructure needs and funding widens…. The good news is providers of institutional private capital are extremely keen on the water sector and stand ready to provide the funding needed to restore our infrastructure to necessary standards. While political, cultural, and structural hurdles exist in deploying this capital, the private sector is now an integral piece of our water infrastructure puzzle. In this article, we will explore how localities are overcoming these hurdles and using a myriad of private sector solutions, ranging from consulting arrangements to full private ownership, to meet regulatory requirements, modernize facilities, unlock hidden value, and ultimately better serve their customers…

How Allentown Leased Its Utilities to Fund Pensions

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Source: Ryan Holeywell, Governing, View blog, September 9, 2013

…Initially, Pawlowski says, he and the city finance director explored the idea of privatizing the city’s parking authority and municipal golf courses, but neither were going to generate significant enough revenue to deal with the pension issue.

Then, they considered leasing out the water and sewer system. The system has been a moneymaker for the city, but for the most part Allentown — like many cities — faced legal prohibitions on transferring revenue from those sources into the general fund. The plan was to seek an upfront lease payment from a private entity, and then use that money to pay down the pension liability.

Pawlowski says the city spent eight months crafting the terms of the lease before soliciting bids, including requirements about hiring existing workers, operations standards, and rate hikes.

But the deal drew criticism from advocates who argue against privatization. Ultimately, when it was put out to bid, Allentown got four bites. But the winner was actually the local Lehigh County Authority, the non-profit water and sewer provider in the region, which beat out the private-sector offers.

In short, Allentown entered a public-private partnership, except in this case, the “private” partner was a public one. Here’s how it the deal works.

For 50 years, the LCA will operate, manage, maintain and collect revenue from the city’s water and wastewater facilities. In exchange, it gives Allentown $211.3 million up front and $500,000 annually, adjusted for inflation, starting in 2016.

The city will use that money for a variety of purposes, but the bulk of it will go toward its pension funds — about $160 million — with another $29.3 million paying down its water and sewer debt. About $15 million will also go into its reserves….

Related:
Allentown approves $220 million lease of water system to Lehigh County Authority
Source: Gregg Bortz, Express-Times, April 25, 2013

Allentown City Council tonight voted to approve a fifty-year lease of the city’s water and sewer system to Lehigh County Authority. Officially, council voted 6-1 to authorize Mayor Ed Pawlowski to sign the deal that would bring the city $220 million at closing and an annual royalty of $500,000 per year starting in 2016 and adjusted for inflation thereafter. In exchange, the authority gets raw water from the system and collects revenue on service to Allentown’s customers. …
Related:
Murky Waters in Allentown
Source: Wenonah Hauter, Huffington Post Business, March 29, 2013

…Allentown, Pa., is a telling example of how privatization can restrict transparency. Mayor Ed Pawlowski is pursuing a 50-year concession of the city’s water and sewer system, raising upfront cash that eases short-run budget choices but at the cost of much higher utility rates for five decades.

The public learned about the plan last July when the city issued a formal request for qualifications from interested entities. That is, the public learned about the plan after the city had already committed financial resources to pursuing it. It was later revealed that a small group of public officials and consultants had been investigating the idea since around December 2011, but they kept the plan private, preventing public debate. To date, the city still has not provided a real chance for the public to weigh in.

Pawlowski’s administration has refused to disclose important information about the deal. …

Pa. labor organization urges Allentown to reject American Water in proposed lease
Source: Colin McEvoy, Express-Times, February 19, 2013

The largest labor organization in the state has urged Allentown to reject one of the companies that may bid on its proposed water and sewer lease….American Water is one of six companies qualified to bid on the proposed 50-year lease, which Allentown officials hope will bring up to $200 million to pay its rising police and fire pension costs….

Allentown council authorizes mayor to seek proposals for water, sewer lease
Source: Colin McEvoy, Express-Times, October 31, 2012

Allentown water privatization draws concerns at hearing
Source: Alexandra Todak, lehighvalleylive.com, August 03, 2012

…Thursday marked the first public hearing for Allentown’s proposal to privatize its water and sewer plants in order to make up for pension shortfalls. Meeting the minimal municipal obligation of $18 million in 2013 alone would require a property tax increase of 35 percent, Pawlowski said…. The proposed 50-year lease is expected to bring an immediate $160 million to $180 million, but residents were concerned about water quality and the fate of the city’s water and sewer work force….