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2010 Highlights in Local Government Privatization

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With many local governments entering 2011 facing continuing fiscal challenges, privatization remains an attractive and viable option for policymakers to ensure high quality and cost-effective services. Looking back at 2010, policymakers in scores of local governments embraced privatization across a broad spectrum of public services and assets, covering a broad range from simple landscaping contracts up to large-scale infrastructure deals. Some of these approaches may well be viable for local governments in Virginia or could be adapted to address unique challenges they face.

Local government privatization highlights from the last year include:

Parking assets:  My February 2010 Bacon’s Rebellion article discussed Chicago’s groundbreaking parking asset leases, where the city has received over $1.6 billion for long-term leases of its 36,000 downtown parking meters and four city parking garages in recent years. In November 2010, Indianapolis became the second city to follow in Chicago’s footsteps when officials approved a 50-year lease of nearly 3,700 city parking meters. Under the lease, a concessionaire team led by Xerox-subsidiary Affiliated Computer Services (ACS) and Denison Global Parking will take over responsibility for meter system operations, maintenance and capital investment, in exchange paying the city $20 million up front and a $600 million share of ongoing revenues over the 50-year lease term.  All city revenues generated from the parking meter lease will be dedicated to street, sidewalk and other infrastructure improvements.

Under the terms of the lease, the concessionaire would take on all of the operating, maintenance and capital costs currently borne by the city today, removing significant costs from the city’s books while increasing revenues available for citywide capital improvements. The ACS team would undertake an initial upgrade of all of the leased meters, converting them to a combination of solar-powered multi-space and single-space units that accept cash, debit and credit cards. The current 75-cent hourly meter rate would rise to $1.50 over a two-year period under the lease, and for the remainder of the term, all rate changes would be subject to city-county council approval, with any future rate increases capped to not exceed the rate of inflation. The lease also includes a termination for convenience clause that allows the city to cancel the contract at its discretion every 10 years.

More parking asset leases are expected in 2011, with New Jersey Transit and cities like Los Angeles, Las Vegas and Hartford currently in the midst of formal procurements.

Zoos: Though many taxpayers may not realize it, the majority of major urban zoos in the country have been privatized, most commonly through agreements between cities and nonprofit zoo conservancies. Dallas, Texas became the latest, highest profile example over the last year when it turned over zoo operations to the nonprofit Dallas Zoological Society in a partnership expected to save the city $16 million over the next five years.  Under the privatization, the Society is responsible for all zoo management, operations and animals, while the city retains ownership of all related land and the zoo’s nearly 200 physical exhibits.

In the short term, the city plans to continue contributing operating funds to the zoo, though the level of subsidy is expected to fluctuate over time as the operator implements strategies to increase visitation and self-generated revenues. The agreement also requires the Society to meet or exceed current operating standards, lest it risk having to return operations back to city control. Another benefit of the privatization is found in the potential for greater private sector support through donations, according to supporters. In Dallas’ case, four private donors pledged $2.25 million to the Zoo within the first four months after privatization.

Tulsa, Oklahoma may become the next city to embrace this approach in 2011. Tulsa officials are in negotiations with the nonprofit Tulsa Zoo Management, Inc. on a potential privatization agreement for the Tulsa Zoo. Similar to Dallas’s agreement, city officials plan to retain ownership of the Tulsa Zoo itself, while turning over operations and management to TMZI.

Libraries: Amid ongoing local government fiscal challenges, the privatization of public libraries has caught the attention of policymakers in several California municipalities, with several recently opting to contract out the management of their libraries to a national, for-profit operator. In several cases, municipalities sought out privatization concurrent with moves to withdraw their libraries from county-run library systems that are cutting services and staff amid lingering budget woes. In 2010, officials in Santa Clarita and Camarillo voted to withdraw from the Los Angeles County and Ventura County library systems, respectively, and award library management contracts to Library Systems & Services, Inc. (LSSI), which has promised to lengthen the hours of operation and increase the books and media budget. Ventura, Stockton and San Joaquin County are currently considering similar moves.

Back in 1997, Riverside County became the first municipal government in California—and the nation—to contract with a private library operator, entering a partnership with LSSI that is still in place today. In June 2010, the county published a report on the first 13 years of the partnership, highlighting an array of benefits that include decreased operating costs ($900,000 in the first year alone), over $15 million invested in new facilities and renovations, significant investments in new library technology, and a doubling in operating hours, circulation and staffing.

Animal Shelters: Officials in Kansas City, Missouri signed a contract with Veterinary Management Corporation—a nonprofit created by a local veterinarian—in 2009 to operate the city’s animal shelter, and by all accounts the first year of privatization was a major success. The annual contract cost of $626,000 is $175,000 less than the city spent under public operation, representing cost savings of over 20%. A February 2010 article in the Kansas City Star cited numerous other improvements resulting from privatization, including a tripling in the monthly adoption rate, a 30% decrease in the euthanasia rate and a reduction in crematorium costs exceeding 50%. The private operator has also entered a partnership with Spay & Neuter Kansas City to promote outreach and awareness on the benefits of sterilizing pets to reduce the number of stray and abandoned animals. After seeing nearby Kansas City transform its shelter through privatization, officials in St. Louis, Missouri have announced intentions in 2010 to close its beleaguered animal shelter and began soliciting private sector interest in a replacement shelter.

These examples show that service cuts and tax hikes are not the only options in tough economic times. As local governments in Virginia continue to grapple with ongoing fiscal woes, the initiatives described above demonstrate that policymakers can do more with less by partnering with the private sector to deliver—and improve—government service delivery.

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