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Time to Step It Up on Privatization in Virginia

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As I wrote in these pages in June, the ongoing fiscal crises in Virginia’s state and local government demand that policymakers rejuvenate their privatization efforts as part of a broader cost-cutting and budget strategy. The Commonwealth is generally regarded as a pioneer and early adopter in the privatization of various state government programs and functions.  At the same time, the state’s privatization efforts of late have tended to advance slowly and in piecemeal fashion, lacking a robust policy framework that would allow the state to reap more benefits from this valuable policy tool.

Given the pace at which other states are moving forward with privatization initiatives large and small, Virginia policymakers will need to step up their game. With politicians nationwide looking for solutions to growing deficits, even seemingly 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, according to Reason Foundation’s new Annual Privatization Report 2009.

The report profiles numerous recent privatization developments in the states, including:

  • In Louisiana, policymakers established the new Commission on Streamlining Government to explore ways to reduce the cost of state government through downsizing, streamlining and privatization to get ahead of a looming budget crisis set to hit in 2011 with the expiration of temporary stimulus dollars. A similar commission will undertake a similar review of the state’s higher education system.
  • Though Virginia and other states have been leaders in developing privately-financed infrastructure projects through public-private partnerships (PPPs), in 2009 California, New York and Michigan became the first states to embrace the idea of a centralized state authority-a PPP center of excellence, if you will-to ramp up statewide PPP program and project development.
  • Virginia will also now have to compete for private infrastructure investment dollars with California, Arizona, Alabama, Puerto Rico and several other states that enacted new PPP-enabling laws in 2009.
  • Florida’s Council on Efficient Government identified 511 outsourced projects at the state level in 2008 totaling roughly $8 billion in lifetime contract value. That same year, a review of 21 potential privatization projects forecast $94 million in savings for Florida taxpayers.
  • Illinois policymakers passed a partial privatization of the Illinois Lottery to help fund a massive, $29 billion public works bill.
  • In Arizona, policymakers are considering budget proposals to divest dozens of state assets-including the Capitol complex and every state prison-to generate up-front funds and lower long-term operations and maintenance costs.
  • New Jersey policymakers are achieving a major environmental goal by privatizing the cleanup of nearly 20,000 contaminated properties in the state.
  • In the 2009 legislative session, the Washington state legislature approved a pilot project in performance-based contracting for foster care that will roll out in 2012.

Privatization is also a hot topic at the local level these days. The report profiles Chicago’s groundbreaking-but controversial-$1.15 billion parking meter system lease and finds that things are proceeding much more smoothly there than its detractors suggest. Los Angeles, Pittsburgh and other cities are closely monitoring Chicago’s situation as they contemplate similar parking meter initiatives to generate municipal revenues in the economic downturn.

The report also reviews Georgia’s fifth new contract city, Dunwoody, which recently incorporated under a privatized city government model in which contractors provide nearly all non-safety-related services. There are also a number of privatization initiatives proposed or announced in Los Angeles, Indianapolis and numerous other cities and counties that local Virginia policymakers should consider replicating as they address their own fiscal challenges. If five new cities in Georgia totaling over 200,000 people can manage to privatize nearly their entire city governments, then there should be nothing sacred in any city and county in Virginia.

To be sure, there are several major privatization proposals or initiatives moving forward in the Commonwealth today. Policymakers are sorting through three multi-billion-dollar bids from firms vying to operate the Virginia Port Authority’s marine terminals. Similarly, the state is developing an interim agreement with a private consortium to finance and develop the $1.3 billion Midtown Tunnel/MLK Extension in Norfolk and Portsmouth. And there’s pressure building on the feds from Virginia legislators and colleagues elsewhere to allow states to privatize rest areas in order to spare them the budget axe.

Further, Republican gubernatorial candidate Bob McDonnell recently announced that one of his top policy priorities is a proposal to get the state out of the liquor business by privatizing ABC’s archaic retail monopoly and investing a portion of the proceeds and tax revenues into state road maintenance where it is sorely needed. Various ABC privatization proposals have languished in Richmond for years, but the combination of ongoing fiscal woes and declining transportation revenues will hopefully prompt policymakers to revisit this sensible idea.

After all, there’s nothing inherently governmental about selling liquor. Private businesses sell beer, wine and distilled spirits in over 30 states (including neighbor West Virginia), and those states have not experienced increased drunk driving, per capita alcohol consumption, underage alcohol use nor any of the other social ills predicted by opponents. And Iowa and West Virginia saw revenues to the state increase after privatization-even as they lowered alcohol taxes-because they were able to eliminate their significant costs of overhead, staff, facilities, maintenance and employee retirement and health benefits.
This is the kind of strategic thinking that Virginia taxpayers deserve more of at both the state and local level. You can effectively kill two birds with one stone-you can cultivate those numerous opportunities in government to partner with the private sector to cut costs and improve the delivery of public services, and by doing so, you advance a true “stimulus” by creating new opportunities to expand private enterprise and reduce the price of government to taxpayers. To be sure, privatization cannot solve all of Virginia’s budget problems, but it can play a vital role in expanding economic development opportunities and improving the fiscal outlook for state and local governments.

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