Commonwealth Competition Council, P. O. Box 1475, Richmond, VA 23218 Vol. 3, No. 4 December 1998

GOVERNOR RECOGNIZES EMPLOYEE OWNERSHIP MONTH

Governor Gilmore officially recognized October 1998 as Employee Ownership Month in Virginia. The Governor made the recognition in a formal proclamation given to The ESOP Association's Mid-Atlantic Chapter, which includes Virginia, West Virginia and Maryland.

J. Michael Keeling, president of The ESOP Association, said the recognition shows that legislators have "taken note" on ESOPs. "This kind of recognition is important because it shows that government officials realize that they have employee owners in their cities, districts, states, and commonwealths. It's fitting that an idea that makes wealth more common would be recognized in the Commonwealth of Virginia," said Keeling.

A revolution is occurring in the way that health care providers meet the needs of the indigent and uninsured. As greater and more cost-effective health care choices become available, governments are finding it less desirable to directly operate their own hospitals and clinics. Privatization of these publicly-owned and operated health care facilities has become an important alternative to providing health care to the poor.

The main force driving this revolution is the vigorous competition that exists between private, for-profit hospitals and non-profit hospitals. Governments exploring hospital privatization have several options, depending upon the nature of the region's present system and the external market area. They might:

• Sell the hospital assets to a private company;
• Lease it to a private management firm;
• Enter into a joint operating agreement whereby the government relinquishes direct management of the hospital but maintains a presence via board membership;
• Begin a joint venture where both private and public sector members maintain ownership of the hospital;
• Start a public-private partnership where government sells the hospital but purchases back bed space for indigents; or
• Engage in comprehensive outsourcing of hospital duties.

The new, nonprofit NOMC financed the $50 million deal so that the city could retire its outstanding debt on the hospital, fund retirement plans for the employees, and pay for a number of other transactions necessary to convert the hospital to a 501 (c) 3 nonprofit status. No public funds were used in the transition and NOMC pays the city a lease fee of $1 million annually plus $50,000 for the land on which the hospital is located.

PRIVATIZING MENTAL HEALTH SERVICES

Poor service quality and tight budgets are what led the state of Florida to consider privatizing a mental health facility. In Florida, the state found itself unable to effectively run the Pembroke Pines Hospital, one of Florida's four state mental health facilities.

Officials in Florida saw privatization as a way to reduce costs and increase service quality. Florida has awarded a 20-year contract to Atlantic Shores Healthcare to run the Pembroke Pines Hospital. The contract states that the cost per patient per day must drop by at least 15 percent, a savings of more than $110 million over the life of the contract. The state stipulated the level of service in the contract, with a series of fines (up to $1 million), to be paid if the private provider fails in any of its obligations or misses any of the contract's performance goals. The provider must show measurable improvement in at least 80 percent of its patients and must cut complaints and injuries in half. Atlantic Shores Healthcare is in the initial stages of taking over the facility and has already hired over 350 of the 550 employees that had been with the state.

CALIFORNIA PRIVATIZES STATE TELECOMMUNICATIONS

California has contracted with a joint effort by Pacific Bell and MCI to operate the telecommunications system that serves the state government. The $929 million contract is the largest in privatization in state history.

The system includes 300,000 phone lines and related services. The 10-year contract requires the parties to provide all equipment upgrades and absorb nearly $10 million in costs of moving systems from earthquake-damaged buildings. Services will be expanded to include improved internet access, video conferencing, and billing services.

• The enhanced efficiency of allowing others to perform tasks ancillary to core functions;
• The sufficiency of market and contractual mechanisms to assure that competitive factors will keep price and quality at levels comparable to those obtainable internally;
• The capability of technology and communications to assure performance as agreed to;
• The efficiency of use of capital markets to spread both funding and risk diversely on a basis economically superior to host financing.

In the next century, outsourcing - narrowly defined as shrewd and effective long term service alliances - is going to be the distinguishing characteristic of successful public and private entities. These entities will define what their value added will be. Then they will bolt together the most cost-effective way to assure flexible services that allow them to provide that value added.

More than 600 Denver students are now attending Denver's first for-profit charter school. The Edison project teamed with a neighborhood organization called New Cole Economic Development Corporation to organize the school.

Edison uses the state's per pupil allocation and makes a profit if there is anything left after expenses.

Charter Schools - Eight new charter schools opened in Colorado, six of them in the Denver metropolitan area. With 14,000 students in 60 charter schools, Colorado ranks fourth in the nation in the number of charter schools.

Nationally, 70 charter schools opened this school year. To date, the 33 states that have laws allowing charter schools have approved 1,200 charters, enrolling over 200,000 students.

Highway Maintenance - The Washington Institute Foundation (www.wips.org/wif.htm) has released a new study: "Highway Maintenance: Putting the Market to Work." The study examines a number of existing privatized highway maintenance programs and the lessons learned.

World Trade Center - The board of the Port Authority of New York and New Jersey voted unanimously to lease the giant World Trade Center to a private firm for 99 years.

St. Lawrence Seaway - The 175-mile long St. Lawrence Seaway is no longer run by the Canadian government; it is now run by a private group representing major users of the waterway.

Military Housing - The Air Force is implementing innovative financial solutions to military housing shortages. Lackland Air Force Base in San Antonio, Texas, became the first Air Force facility to privately finance base housing. Stephens, Inc. broke ground for 400 new single-family homes. A corporation was formed to issue almost $30 million in privately placed taxable bonds for the project.

Dyess AFB in Abilene, Texas, plans to privately finance 402 new housing units through a private developer.