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Competition Watch Vol. 2, No. 5 December 1997
VIRGINIA PROGRAM RECEIVES 1997 AWARD The National Council for Public-Private Partnerships recently announced the winners of their prestigious 1997 Public-Private Partnership Awards. Virginia's Child Support Enforcement Program received the 1997 Project Award. Recipients of this award exemplify outstanding public-private partnerships on the basis of originality, quality, implementation and costs. Winning nominees demonstrate high degrees of innovation, design improvements, efficiency and effectiveness of operation, and appreciable cost savings. The award was presented on Friday, October 17th, in St. Louis, Missouri, during the Council's 11th Annual Conference. COUNCIL PROVIDES TESTIMONY TO CONGRESSIONAL SUBCOMMITTEE On September 29,1997, Shirley Ybarra, Deputy Secretary of Transportation, a member of the Commonwealth Competition Council, testified before the Subcommittee on Government Management, Information and Technology. The subcommittee was holding hearings on H.R. 716/S. 314, the Freedom from Government Competition Act of 1997. The purpose of this bill is to inject market competition into government actvities. Virginia was requested to make remarks regarding its privatization/competition program. Representative Stephen Horn, chairman of the subcommittee is quoted as saying, "I was impressed with the different laws Virginia has." EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) FINAL REPORT As required by Senate Joint Resolution No. 284 (1997), the Secretary of Administration and the Commonwealth Competition Council have concluded their findings and recommendations. The final report will be issued to the Governor and the 1998 General Assembly later this month. Copies will be available after December 15th by calling the Council's office at (804) 786-0240. AND MORE ON EMPLOYEE STOCK OWNERSHIP PLANS (ESOPs) ESOP companies see economic performance increases. Sales, profitability, and productivity were up in 1996. ESOP companies are outperforming themselves yearly, with increased sales and profits, according to a recent Employee Ownership Foundation survey of corporate ESOP Association members. Sixty-five percent of the ESOP companies performed better in 1996 than in 1995, seventy-two percent of the companies surveyed saw an increase in sales, and sixty-three percent reported an increase in profitability. According to J. Michael Keeling, president of the Employee Ownership Foundation, "The ESOP community contributes this economic strength to the increased motivation employees have when they share in the wealth they help create." (See table below).
1 -- Estimates from The National Center for Employee Ownership
PUBLIC-PRIVATE PARTNERSHIPS ENDORSED The U.S. Conference of Mayors has endorsed a resolution supporting the use of public-private partnerships. The Conference considers partnerships as an option to improve efficiency in operations and maintenance; bringing existing facilities into environmental compliance; attracting private capital investment for improving, expanding, and developing infrastructure; and assisting in meeting existing and future federal and state environmental mandates. The Conference also called for state governments to remove barriers to public-private partnerships. States often limit public-private partnerships with procedural rules that require legislative approval for each deal. Only a few states have passed broad enabling legislation. PRIVATE FIRMS TO RUN WELFARE-TO-WORK PROGRAMS Welfare privatization is occurring throughout the United States. In Prince George County, Maryland, Maximus signed a contract to provide welfare-to-work services. The $500,000 contract is to place county welfare recipients in job training and placement programs. In Indiana, the state awarded 129 contracts valued at $53 million to 56 different providers of welfare-to-work job services. Among national firms securing contracts are Curtis & Associates, America Works, Training, Inc., and TTI. In Wisconsin, non-profit and for-profit firms will administer the state's W-2 welfare-to-work program. Providers include Maximus, the Kaiser Group, United Migrant Opportunity Services, and the Opportunities Industrialization Center. COMPETITIVE ROAD MAINTENANCE PROPOSED Michigan has proposed a number of changes to how the state manages its roads, including a shift to competitive contracting for road maintenance. Currently, the state maintains about one-third of the roads itself, and contracts with county or city governments, in a noncompetitive setting, to maintain the rest. Governor Engler has proposed the state transportation department obtain competitive bids from counties, cities, and private contractors to maintain state roads. A major legislative initiative to encourage the privatization of federally aided infrastructure was recently announced. The aim of the proposed Infrastructure Investment Act of 1997 is to remove federal barriers to the private ownership and/or operation of major infrastructure, including airports, highways, bridges, and water and wastewater systems. The major provisions of the proposed legislation address major barriers. For the tax code, it would codify and expand the 1997 IRS rules that made it easier to sell infrastructure facilities without losing their bond tax-exempt status, and which also increased the length of management contracts to up to twenty years. The legislation also proposes expanding the list of exempt facilities to include toll roads, waterways, and prisons and would expand the types of qualified private-activity bonds that are not subject to state volume caps. FIRST COUNTYWIDE LIBRARY PRIVATIZATION Riverside County, California became the first county in the nation to privatize its library operations. Maryland-based Library Systems and Services, Inc. (LSSI) won a $5.3 million contract to run the 25-branch system. LSSI is a subsidiary of Follett Corporation and offers cataloging, purchasing, and automation to libraries nationwide, including the Library of Congress, the Boston Public Library, and several federal agencies. PUBLIC-HEALTH PRIVATIZATION RISING A new national survey by the Atlanta-based Centers for Disease Control sheds new light on the state of privatization in the public health arena. In the survey of 47 states and 10 large cities, 70 percent of state public health officials and 60 percent of city officials reported that privatization activities have increased over the past five years. The majority of the respondents said that privatization will increase over the next five years. Cost savings, flexibility, lack of personnel/expertise, and speedy implementation were cited as the major reasons for privatization. Some of the examples include:
STATES IMPROVE INFORMATION TECHNOLOGY After years of lagging behind the private sector, information technology outsourcing is beginning to emerge as a top privatization target in the public sector. Michigan, Texas, Arkansas, Pennsylvania, Connecticut, and the City of Indianapolis have outsourced, or have proposed outsourcing their IT functions.
EDUCATION COMPANIES EXPAND SCHOOL CONTRACTS The trend toward contracting out student instruction continues. Sylvan Learning Systems signed a contract with the Philadelphia Public Schools to give individualized instruction to students who are having difficult learning. Sylvan has also doubled the number of schools it will serve in Detroit, from five to ten. Another specialized education firm, Children's Comprehensive Services (CCS), recently announced new residential and alternative education contracts in Utah and Arkansas. In Utah, CCS signed a contract for a 24-bed facility for adjudicated male juvenile offenders to provide evaluations and assessments. CCS also signed contracts for three new alternative schools in Arkansas. This represents continued growth in private sector delivery of educational services. Sylvan alone gives educational support to students who are falling below grade level in 77 public and 204 private schools nationwide. PRIVATIZATION OF GROUNDS MAINTENANCE PRAISED Clifton Forge, Virginia owns and maintains more than 38 acres of cemeteries and parks. The city was paying well for proper maintenance with marginal results. The complaints concerning the lackluster appearance of the facilities prompted the city manager to solicit bids for cemetery and park maintenance. A managed competition bid process, which included a proposal from the Department of Public Works (DPW) was initiated. In conjunction with DPW, the city manager prepared an RFP which set a clear scope-of-work schedule, safety regulations, and standards of excellence. DPW submitted a proposal along with several private firms. The results were as follows: DPW at $53,650, low private proposal at $40,400. The overall results are above and beyond expectations. In addition to $13,250 in reduced cost (a 25 percent savings over the public works bid), there has been almost a 100 percent elimination in supervision, a significant reduction in emergency repairs, and major reductions in indirect costs, including unemployment and workers compensation claims for seasonal employees. And, most of all, a significant level in improvement in the overall appearance of the facilities. Many residents have said the facilities look the best they have ever looked in 60 years. GREAT BRITAIN'S "NEXT STEPS" PROGRAM PROVES THAT COMPETITION WORKS The Center for Restructuring Government, in Boston, recently hosted a discussion featuring Jeffrey Ling, British Consul in New York and Director General of British Trade and Investment in the United States. Ling described the "Next Steps" program, which has revolutionized the British civil service system through the introduction of competition. "Next Steps" has the goal of delivering essential services in the most cost-effective manner possible. The process begins with the threshold inquiry of whether it is essential for government to provide the service. If the answer is no, the activity may be contracted out. Or, in a variation called "market testing," a government agency is divided into contractually definable activities, or business units. The new business unit is then given a year to prepare for competition with the private sector for the business of the parent agency. During the one-year period, the government supports the new unit in its preparation for competition by providing services like management consulting or training. At the end of the year, the agency's business for the activity is put out to bid. The new business units often win the contract, but if they don't, British law requires the private company that wins the bid to hire the former civil service employees and provide a comparable compensation package. The ultimate goal is for some of these units to be spun off and become private businesses. Until they do, they may compete only for the existing government business, not for private sector contracts. (NOTE: Great Britain is a world leader in transferring government functions to employee stock ownership plans - ESOPs). The results have been stunning. Seventy-five percent of the British civil service now work in "Next Step" units. Each unit has realized at least a 20 percent savings over its traditional government predecessor. As Mr. Link says, "the success of the program proves the simple principle that an entity exposed to competition will perform better than a monopoly." Illinois - The Illinois State Comptroller and Western Illinois State University have initiated a partnership to form the Center for Competitive Government. The center will conduct cutting-edge technology research demonstrating how to more effectively manage local government through privatization. Utah - The Utah Legislature enacted a bill that legalizes private toll roads. Shortly thereafter, the Utah DOT approved a proposal for a 1.5 mile private toll road called the I-84 connector. Utah thus became the 12th state with a modern private tollway law. Phoenix - A team led by a subsidiary of HDR Engineering, authorized by the Arizona Transportation Board is negotiating a franchise to finance, build, and operate its $650 million MetroRoad project. AMTRAK - A special advisory panel, appointed by Congressman Bud Shuster, has recommended that Amtrak be broken up and forced to compete with private providers of rail passenger service. "Privatization is a tool that can help public officials provide essential services in a cost-effective manner. Introducing competition and privatization to government services requires real cost information. Privatization increases competition and competition increases productivity." Competition Watch is published quarterly by the Commonwealth Competition Council. Information appearing in this newsletter is gathered from various sources. The Commonwealth Competition Council does not attest to the accuracy or authenticity of the information provided.
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