Out of Control

Tacking on to my last post, from Reason's Annual Privatization Report 2008:

In August 2007, the Alaska Board of Agriculture and Conservation announced its decision to privatize Matanuska Maid Dairy, a state-run dairy enterprise. The 71-year old dairy was a private cooperative until 1985, when the state bought it out of bankruptcy. Over the past two years, Mat Maid has lost nearly $700,000. According to Board member Kristin Cole, the dairy should have been privatized a long-time ago as it "was never intended that the state be the owner of this asset long-term."

From my read of the background story on this, Gov. Palin didn't come on board immediately , but she did eventually:

Governor Sarah Palin today accepted the recommendation of the Creamery Board to look at options to transition the Mat Maid Dairy into the private sector. The decision comes following a 10-week evaluation of the state’s oldest dairy by the Creamery Board and an appointed task force.

Governor Palin replaced the Creamery Board earlier in the summer after Mat Maid executives announced the dairy would shut down without evaluating the consequences the closure would have had on the state’s dairy industry. The new board was charged with taking a fresh look at Mat Maid’s operations while cutting costs and increasing sales. Non-critical expenses were immediately cut in an effort to temporarily bring Matanuska Maid to a break-even point without using outside funds.

"I applaud the hard work by the members of the Creamery Board and the task force," said Governor Palin. "Because of recent market forces that are beyond our control, including the soaring price of outside milk, I agree with the board’s decision to look at other options for Mat Maid.

"Continuing operations through the summer has put us in a better position to attract potential buyers. Privatizing Mat Maid will provide our local farmers with options, something they didn’t have three months ago, so I am please to accept the Board’s recommendation."

» Reason's Annual Privatization Report 2008
» Reason's Privatization Research and Commentary

The New York Times writes last August on Gov. Palin's sale of former Gov. Murkowski's jet on eBay:

It grounded one governor and did not exactly fly off the shelf on eBay, but the jet that came to symbolize the troubles of the former Alaska governor Frank H. Murkowski has landed with a new owner.

A businessman from Valdez, Alaska, Larry Reynolds, paid $2.1 million this week for the state-owned Westwind II jet that Mr. Murkowski’s successor, Gov. Sarah S. Palin, promised to purge from the state inventory when she ran against Mr. Murkowski last fall in the Republican primary.

Mr. Murkowski’s office tried to obtain money from the Homeland Security Department to buy the jet, saying it would help “defend, deter or defeat opposition forces.” He was denied. Later, in 2005, against the wishes of the Legislature, Mr. Murkowski used state money to buy it for $2.7 million. [. . .]

Ms. Palin said in a statement: “If the Department of Public Safety decides at a future date that it needs another aircraft, we will invest in something more sensible that can land on Alaska’s rural airstrips. Any purchase, if deemed necessary, will go through the normal legislative budget process.”

While this represents just a drop in Alaska's state government bucket, we should applaud sensible asset divestiture when we see it, whether federal, state, or local. See Reason/TSAugust's policy brief on asset divestiture here, and more here.

» Reason's Annual Privatization Report 2008
» Reason's Privatization Research and Commentary

Great news from West Virginia today. First, some context from Reason's Annual Privatization Report 2008:

In West Virginia, the privatization of the state run workers compensation insurance program was completed in July 2008. A 2005 bill signed by Governor Joseph Manchin transformed the state’s Workers’ Compensation Commission into a private insurance carrier, BrickStreet Insurance. Brickstreet was given a two-year virtual monopoly on workers’ compensation insurance in West Virginia, which ended on July 1st when the market was opened to other competitors. West Virginia now joins most other states in allowing private insurers to offer workers compensation insurance. Today, only Puerto Rico, Ohio and three other states continue to operate state insurance monopolies. Brickstreet is currently exploring plans to expand its operation into other states.

Today, the Charleston Daily Mail details benefits thus far to the state from this overdue privatization initiative--such as (1) helping facilitate a dramatic reduction in the remaining $3.2 billion in unfunded liabilities from the old system by about 40% in just two years (it's now at $1.9 billion), potentially accelerating the payoff of these liabilities by some two decades; (2) robust market competition; and (3) a 30% drop in rates:

The $3.2 billion unfunded liability that existed when the state began transitioning to a private workers' compensation insurance system on Jan. 1, 2006, has since been reduced to about $1.9 billion, state Insurance Commissioner Jane Cline said.

When the transition to a private system began, it was estimated the "Old Fund" liability wouldn't be paid off until 2034. The state's ultimate goal is to remove the state from any workers' comp claims liability, Cline said. Now, "we think we can do a risk portfolio transfer by 2014 or, at the latest, 2016."

Cline said it's important to pay off the Old Fund because employers are currently helping to finance it through a debt-reduction surcharge. The Old Fund liabilities are also being met by taking chunks of money from the severance tax on natural resources, the video lottery and the state personal income tax.

[. . . ]

Since the privatization process began, workers' comp rates have gone down an average of 30.3 percent, resulting in annual employer savings of more than $150 million. "That's $150 million that companies have to invest in improvements for employees or for infrastructure, for other capital improvements," Cline said. "That's huge. Especially when you're talking about a state that wants to be welcoming to employers."

She said 176 companies have made workers' comp filings with the Insurance Commission. Of that total, 26 have been licensed that are new to the West Virginia insurance market. She said 75 companies have actually written workers' comp insurance in the state since July 1, when the market opened to competition.

The number of days between when an injury occurs and when the injury is reported has been dramatically reduced, Cline said. That is a good thing because the quicker an injury is reported, the sooner a claimant can get treatment and the better the possibility of a good outcome, she said.

A total of 46,076 protests were filed with the Office of Judges in 2005 and 2006 and it took an average of 335 days for a ruling to be made on a protested claim. Cline estimated 8,532 protests will be filed this year. She said the amount of time required for a ruling also has gone down.

Lesson: competition works. Kudos to Governor Manchin and the legislature on what looks to be a big privatization success story.

» Reason's Annual Privatization Report 2008
» Reason's Privatization Research and Commentary

Well, the Democratic National Convention is over, and their message was clear: they don't like George W. Bush and John McCain is more of the same. While its a good start to denounce human rights violations and a mismanaged economy (never mind that the US economy grew rapidly in the second quarter, despite consumer confidence concerns and inflation worries), the answers to the problems they highlighted were falling short. The message of the Democrats is you can't do it on your own, so the government is here to help. The paternalism was summed up by VP Candidate Joe Biden in his acceptance speech:

"The middle class of this country has never been as unsure of their future, and we have never been as isolated...Barack Obama has been very explicit about how he's going to level the playing field for the firemen and the cops and the linemen and the salespersons and the nurses to improve their circumstance, so their next generation is better off than they were." (bold added)

I actually was somewhat enjoying his speech until the dreaded "level the playing field" phrase left his lips. There it was, the political philosophy that is decidedly against "liberty and individual choice in all areas of human activity"--which, by the way, is what Reason has the mission to support.

To level the playing field Obama and Biden have been suggesting raising taxes on "big oil" and "the rich" to "give money back to the middle-class" who deserve it more than the evil companies that worked so hard in the first place to create that wealth. Obama suggested that his administration would support "the small businesses and the start-ups that will create the high-wage, high-tech jobs of tomorrow." Of course, once they start making too much money he would have them taxed and their profits trimmed. So why would they even start?

As Reason staff noted for Reason.TV, issues of real hurt for Americans were largely ignored at the DNC, like the ill-fated war on drugs that is wasting kilo's of cash every day and unnecessarily imprisoning countless citizens.

The spotlight shifts to the Twin-Cities and the GOP next week, though its likely their convention will be more of the same.

Just 8 miles from my home office, thousands of Republicans are cheering Sen. John McCain as he introduces his running mate Alaska Gov. Sarah Palin. Many pundits are likely acratching their heads and wondering: Why Palin? I'm asking a more important question for the campaign: Why Dayton, Ohio? After all, the selection of the VP is arguably the most important decision a presidential candidate can make after he or she decides to run.

The choice of Ohio is not that big of a stretch: It's a key battleground state. It has a lot of votes (electoral and otherwise) and the presidential race is up for grabs. Most Ohio observers see the two candidates running neck and neck. That's a tactical reason to choose Ohio.

There's also a strategic reason. Ohio is not a free market, libertarian state. It's voters are populist, both as conservatives and liberals. The liberal populists tend to be progressive--they like big, expansive government on social and economic issues. They are sympathetic to the idea that competent politicians can take over the economy because they can manage it better. The conservative populists tend to like government on social issues (particularly abortion) and, except for business leaders, aren't opposed to the idea of a managed economy with the right people at the helm. Social conservatives are okay with expanding Medicaid because its the government's responsiblity to take care of people. This is the progressive government tradition inherited by Republicans from politicians like Teddy Roosevelt.

Notably, Ohio was a hot-bed (and national leader) of socialism and progressive government in the early 20th century, even electing socialists to majorities on a few city councils (including Dayton). Progressivism's legacy is evident from the widespread adoption of the city manager form of government to public ownership of utilties (including more recently cable and wireless systems).

But, why Dayton, Ohio? Columbus is the biggest city (closing in on 700,000), Cleveland is the oldest and largest metropolitan area, and Cincinnati has one of the highest concentrations of Republican contributors in the nation (in Hamilton County).

I'm sure we'll know more after the text of McCain's speech if printed and made publicly available, but I suspect my home town was chosen because it is a symbol of decline and economic uncertainty. The region has a proud economic history, and I've chronicled that elswhere in the "Rise and Fall of an Industrial Juggernaut," but the economic hits have been steady and big for the last three decades.

General Motors and Delphi are scaling down and two more automobile assembly plants are closing, taking another 3-5,000 jobs with them (blame that on China). Nearby by DHL (owned by the German postal sevice) is closing its air freight hub in Wilmington, Ohio, taking another 8,000 jobs with them (and shifting them to Louisville). Both events play into the economic xenophobia that has marked both the Obama and McCain campaigns (particularly during the primary). They also reinforce an inferiority complex that feeds well into presidential campaigns where party platforms highlight the things that government can do for the people to save them (even from themselves).

More to the point, Dayton is an important strategic symbol of the struggles of the "old" US economy and the kind of place (with voters) that progressive, populist politicians would target with their policies of using public largess to bring "the people" out of an economic quagmire.

From the perspective of political leadership, making the VP announcement in Dayton also reinforces McCain's tendancy to embrace the political challenges of hard problems. With the election of New Deal-styled progressive Democrat Ted Strickland (another Democratic Party rising star in the mold of Obama), McCain is going deep into enemy territory and attempting to defeat him from the inside. That's a smart and bold political strategy, and helps perpetuate the political myth of McCain as maverick.

The old saying was "If it plays in Peoria it will play anywhere." Perhaps, for this election, we can change that to "If it plays in Dayton, Ohio it will play anywhere."

If you saw my op-ed earlier this week, then it'll be clear why I think this Indianapolis Star editorial today is worth posting in it's entirety:

A governor, searching for the means to pay for much-needed improvements in public infrastructure, strikes a deal to lease to private investors one of his state's key holdings: a toll road.

The prospective payoff is in the billions, enabling the state to finally repair crumbling roads and bridges. But the deal isn't without controversy, especially in the state legislature, which must sign off on any agreements. Critics argue that the state, in order to reap short-term gains, is cashing in one of its key assets. Some also worry that, ahem, foreigners are involved in the deal.

Sound familiar? Well, it's not Indiana this time around. It's also not a hard-charging Republican governor who seeks to pour billions of dollars raised by a toll road lease into a massive building program.

The state in this story is Pennsylvania. And the governor is Democratic stalwart Ed Rendell, who reached a $12.8 billion agreement with a group of investors to take over operation of the Pennsylvania Turnpike.

As The Wall Street Journal detailed this week, Rendell was inspired by the work of Indiana Gov. Mitch Daniels, who raised $3.8 billion for much-needed infrastructure work by leasing the Indiana Toll Road in 2006. Other states, including Florida and New York, also are poised to forge lease agreements involving transportation assets.

Indiana's lease has enabled the state to jump start long-delayed road and bridge projects. It also had an unexpected benefit this year: Standard & Poor's, citing the state's improved financial outlook, upgraded Indiana's credit rating to triple-A, a development that will carry substantial savings for taxpayers.

As noted, the Pennsylvania deal has run into strong opposition. Rendell calls the proposal a "decided underdog'' in the legislature. Similarly, critics in Indiana, especially Democratic partisans, continue to attack the Toll Road lease.

But opponents neither there nor here have been able to credibly explain how to pay for road improvements without benefit of the lease revenue. Leaders in both states long lacked the political will to raise either taxes or tolls to the level necessary to adequately maintain the highways, let alone fund other projects.

Indiana's lease also carried the benefit of an upfront payment. The state not only pocketed $3.8 billion immediately, right away earning substantial interest, but it also was able to start work on road projects earlier than otherwise would have been possible. The accelerated roadwork pays off in reduced construction costs.

Two years later, the Toll Road lease continues to look like one of the smarter moves Indiana has made in a long time. So smart, in fact, leaders from other states want to travel the same path.

Well put. And I'm glad they mentioned that antis aren't offering alternative solutions--this is one my biggest pet peeves. From Texas to Pennsylvania to Indiana and corners in between, I find that the case over and over again (where's your solution, Lou Dobbs?). Antis are full of bogus or uninformed arguments against privatization, but don't stop and wait to hear them articulate alternative solutions--you'll be met with the sound of crickets. Unless you get this gem: "just raise the gas tax." Right--brilliant idea.

A June ruling from the California Third District Court of Appeals will allow prisons to continue their reform process, Reason reports in its recent Annual Privatization Report 2008. With over 165,000 inmates overcrowding the state prison system, Governor Arnold Schwarzenegger ordered the state to start using private contractors to ship its prisoners to other states. So far, 3,900 inmates have been sent to prisons in Mississippi, Tennessee, Arizona and Oklahoma, reducing what is considered “an imminent and substantial threat to the public safety.”

The issue before California’s courts was whether the transfers violate state provisions limiting the use of private contractors for state jobs. The California Correctional Peace Officers’ Association sued in 2006 to stop the transfers and won in a Sacramento County Superior Court. The officer’s union has announced it will appeal the Third District Court’s reversal of that decision to the state Supreme Court. Gov. Schwarzenegger’s office says that before they started moving prisoners over 15,000 inmates across 29 of the state’s 33 prisons were being housed in makeshift conditions that posed substantial safety risks. The appellate court justices agreed, finding that the prison overcrowding forced early releases, prisoner back-ups, greater potential for the transmission of infectious diseases and polluted groundwater with spills from overtaxed local sewage systems. More humane conditions for prisoners by utilizing transfers are at the core of the state’s prison reform project. For those remaining in state, inmates are more and more likely to find themselves in a privately run facility.

As the state continues to utilize private prisons for its low-security inmates, Gov. Schwarzenegger has requested a $67 million increase in spending from the legislature for its contract with The GEO Group, Inc. The increase would help cover increasing food costs, health care and utilities, along with added funding for more inmate rehabilitation. Some state lawmakers say the pay increase is too much, especially in light of the state’s projected $8 billion budget deficit through 2009. However, the new total would still be substantially lower than the $118 per inmate per day rate the state pays to house prisoners in its own facilities. GEO’s rate is $60 per inmate per day.

For more information about privatized corrections operations see the Public Safety section of APR 2008 and the Corrections and Prisons page on our website.

The Associated Press is reporting that Alaska Gov. Sarah Palin will be McCain's choice for VP. Apparently, she flew into Dayton last night unbeknowst to many McCain campaign aides. Her bio on wikepedia has already been updated.

Palin is an interesting and provocative choice for McCain, but perhaps not as suprising as many people might think. McCain clearly sees the need to balance the progressive ticke of Obama-Biden. Progressive, here, is meant in the good way (race/gener breaking) and in the bad way--Obama is a true old style progressive politician, offering up the government as a solution to economic, social, and cultural ills.

Palin is pro-life, and that will play very well in Ohio and other Midwestern states (as well as other key "battleground" states). She also walks the talk--she has 5 chilcdren, delivering her last while serving as governor.

The downside is lack of experience--will voters see her as a credible replacement for McCain if he dies in office? That's an important question for many as they think about casting a vote for someone that will be the oldest person ever elected to the presidency in their first term.

...then look no further than my colleague Bob Poole's excellent overview in Reason's new Annual Privatization Report 2008.

Bob covers the latest in the evolving world of domestic and international airport privatization, airport security, global air traffic control commercialization, and U.S. air traffic control reform. Highly recommended.

And while you're at it, just a reminder to check out APR 2008's "Surface Transportation" section for an excellent and thorough review of the latest developments in transportation finance, federal transportation policy, tolling and public private partnerships in the U.S. and around the globe. Should be required reading for anyone interested in transportation policy.

» Reason's Annual Privatization Report 2008
» Reason's Airport Policy Research and Commentary
» Reason's Aviation Security Research and Commentary

While it seems many are incessantly clamoring for an ever-increasing, government-mandated minimum wage, a recent article from Southwest Economy, a publication of the Federal Reserve Bank of Dallas, illustrates some of the fallacies of, and problems with, the minimum wage.

Increasing the costs of doing business only forces entrepreneurs to try to pass along those costs to consumers and/or cut costs elsewhere by laying off workers, cutting workers' hours, or postponing planned investments in their businesses. If we could simply legislate prosperity, why not just pass a law setting a minimum wage of $100 an hour. We'd all be rich!

Here are some excerpts from the article:

Not setting a higher wage floor has its advantages. Low employment costs attracted businesses, encouraged entrepreneurship and spurred job growth in Texas, particularly on the low-skill end. Consumers benefited from lower prices, and some low-wage workers found jobs. At the same time, the policy likely enticed more low-wage workers to move to the state because of job opportunities that might not have existed under a high minimum wage policy.

[. . .]

Simple employment growth regressions for 1994–2008, which control for business cycle effects, suggest that a $1 increase in the minimum wage on average reduces Texas payroll employment by about 15,500 jobs. The job losses are concentrated in the leisure and hospitality, manufacturing, and education and health industries.

[. . .]

The irony of minimum wage increases is that they may hurt the people they are designed to help—namely the least-skilled workers. Employers that face mandated wage hikes often try to offset higher employment costs by hiring more-productive workers.

[. . .]

In the long run, higher minimum wages will raise employment costs, compelling students to get more education and businesses to invest more in workers through on-the-job training. Job growth may be slower as a result, however, and employment rates among low-skill workers could decline.

The federal minimum wage increased from $5.85 an hour to $6.55 in July, and will increase again to $7.25 in July 2009.

As cities across the nation reel from the steepest housing market decline since the 1930s, Houston’s real estate market is surprisingly strong. While new housing sales have fallen dramatically, they haven’t fallen as far or as steeply as in other cities across Texas or the nation. At least part of this resilience is due to the market-driven nature of the city’s land development process, including a real-estate market unencumbered by zoning.

More than 2 million people live within the city’s borders while another four million round out the metropolitan area. Houston may well emerge as the archtype city of the 21st century. Urbanist Joel Kotkin used the term “Opportunity Urbanism” to describe the city in a study for the Greater Houston Partnership, pointing out that Houston’s entrepreneurial drive, affordability, tolerance for diversity, and willingness to adapt to changing economic circumstance may well propel it to become the next U.S. megacity.

Underappreciated in the city’s success may be its uniquely flexible and adaptable approach to land-use regulation. Unlike every other major city in the US, Houston has shunned zoning regulation, preferring to leave choices about land uses up to the real estate market.

The benefits of this market-based approach are most apparent immediately adjacent to and inside the “Loop” (the I-610 beltway, a ring road about 10 miles from the city center). Redevelopment occurs at a rapid pace inside the Loop, creating a mix of land uses rare in most U.S. cities, where aggressive zoning segregates and highly regulates land uses. High-rise apartment buildings and commercial towers emerge on redeveloped property quickly, and notices of higher density and mixed-use redevelopment dot parcels of land throughout the inner-loop area.

Despite the lack of municipal zoning, land development is not completely unregulated. Houston has adopted several statutes to set standards for infrastructure, parking, building setbacks, and building location. More importantly, in many parts of the city, private deed restrictions that limit future land uses run with the land, not the property owner. Nevertheless, substantial amounts of land are unrestricted by private deed, and property owners aggressively promote the flexibility and economic opportunity resulting by the lack of regulation.

Such dynamism in the housing market has created uneasiness among some neighborhood groups, and political tensions have risen. Recently, a grassroots flare-up over the proposed redevelopment of an older apartment complex into a 23-story residential tower triggered neighborhood protests that threatened to undermine the market-driven nature of development. In addition, a city council member is currently running for mayor using a “Smart Growth” banner that would inevitably lead to a more regulated development environment. As a result, local housing and real-estate developer have organized to raise public awareness of the dangers of adopting conventional planning rules, founding Houstonians for Responsible Growth.

If these changes result in less flexibility in the real-estate market, Houston residents may suffer in the long run. The market-driven nature of the city’s land market means that the housing sector is likely to rebound faster than in other cities facing traditional regulation through zoning. “The resulting correction,” economists at the Houston Branch of the Federal Reserve Bank of Dallas write in a 2008 report, “takes place in the context of prices that are squarely in line with local construction costs and without the painful supply-induced downturn underway in many other markets.” They point out that even some academic research suggests that Houston homes on more regulated neighbourhoods tend to be less affordable than those in other zoned cities or even in deed-restricted neighbourhoods within the city.

“In summary, Houston’s low-and-slow home prices have made real estate a relatively accessible and safe investment for the area’s residents even as other cities’ markets have become expensive and volatile. The early phases of the current housing downturn—the boom and bust in prices—were barely felt in Houston.”

Houston has felt some pain, but the regional began to feel the pinch in its housing market when credit dried up as the subprime mortgage crisis narrowed mortgage availability throughout the economy.

Houston’s permissive approach to land development, combined with benefits of a strong global commodity market, has helped the city avoid the peaks and valleys of the housing market evident in other U.S. cities, where regulation delays supply-side adjustments to rising demand and magnifies the effects once the bubble bursts.

Just last week I noted how San Diego was struggling to implement its managed competition program. Unfortunately, the city has suffered yet another setback. The California Public Employment Relations Board has ruled that the administration did not bargain in good faith with the city's unions and did not follow proper impasse procedures in its efforts to implement the program. This, despite the fact that the city had undergone 68 bargaining sessions over the course of 130 days before the city attorney advised the mayor to stop negotiating. As voiceofsandiego.org reports,

Specifically, the ruling stated that Sanders must rescind the managed competition guidebook completed in late 2007, which includes the statements of work for individual city services, and start over again at the bargaining table with the unions.

The ruling also requires that City Council hold proper impasse hearings on managed competition and on a charter amendment passed in 2006 that requires voters to approve increases in pension benefits.

So, in effect, a state government administrative court has ruled that city employees' labor unions have veto power over the implementation of a program overwhelmingly approved by voters who felt that the city employees were not providing certain services efficiently enough in the first place. Mayor Jerry Sanders has reportedly decided not to appeal the ruling, although the administration is consulting independent legal counsel.

When voters approved the managed competition measure in November 2006, Mayor Sanders predicted that private-sector bidders would be competing to provide city services by the summer of 2007. It is now over a year and nine months later and the city has yet to complete a single competition. The PERB decision is expected to delay implementation of the managed competition program by at least several more months.

The city labor unions have been stonewalling the competition process and fighting tooth and nail every step of the way. Apparently, they are terrified of actually having to compete with the private sector to provide city services. That should tell you all you need to know about San Diego's bloated budget and fiscal problems.

For more on San Diego's managed competition program, see this article (pp. 25-26) from Reason's Annual Privatization Report 2008 and the study "Streamlining San Diego: Achieving Taxpayer Savings and Government Reforms Through Managed Competition," published last year by Reason Foundation and the San Diego Institute for Policy Research.

As detailed in Reason's Annual Privatization Report 2008, privatization in state government has become a volatile political issue in Rhode Island over the last two years.

Faced with the challenge of closing a record budget deficit, Governor Donald L. Carcieri stated in May 2007 that he would privatize “every state service that could possibly be performed more efficiently by the private sector.” He included sweeping plans in his FY 2008-09 state budget proposal to replace several hundred unionized state employees—including janitors, food service workers and prison counselors—with private sector contractors.

In response to labor union pressure, the state General Assembly passed an amendment to the FY 2008 state budget in June 2007 containing sweeping revisions to the state’s contracting procedures. What has come to be described in state media as the “anti-privatization law” directs state agencies to conduct detailed cost comparisons before awarding contracts to private sector firms. It also requires that cost savings to the state through privatization be “substantial” (though the term is not defined in statute). Further, before privatization, current employees would first be given a chance to present new cost estimates for their work to reflect any new business practices they could incorporate. Finally, the law gives “affected parties”—program recipients, state employees or labor unions—60 days to appeal state privatization decisions to a Superior Court judge.

Undaunted, in August 2007, the Carcieri administration selected the contractor Hurley of America, Inc. to replace dozens of housekeeping employees at Eleanor Slater Hospital in an effort to save an estimated $13 million over a five-year period. According to the Governor’s office, the state Department of Administration reviewed the new law and concluded that it didn’t apply to this particular contract since negotiations began before the anti-privatization law passed in June.

In March 2008, Gov. Carcieri formally asked the Rhode Island Supreme Court to rule on the constitutionality of the law and determine whether it violates the separation of powers clause in the state Constitution, exceeds the legislature’s constitutional authority and intrudes upon the authority of the executive branch. In a letter to Chief Justice Frank Williams, Gov. Carcieri argued that the new law “makes it virtually impossible to privatize any governmental services or renew contracts of existing services being rendered by private vendors,” disrupting dozens of critical state services across agencies and rendering the governor’s office unable to reduce state spending to address the current state budget crisis.

He also argued that the law gives standing to an excessively large number of people to challenge privatization decisions, which could clog the state’s judicial system with frivolous lawsuits. As Gov. Carcieri wrote to Williams, “capable vendors will be dissuaded from bidding on new or renewal contracts when faced with the possibility of enduring a process that could be held up for years in internal analysis and litigation.”

As recently as July, it looked like the 2007 anti-privatization law may not survive 2008. According to press reports, the General Assembly appeared poised near the end of the session to approve a bill (not yet been introduced at press time) that would give the governor more flexibility in replacing unionized state workers with private contractors. The new bill—reportedly compromise legislation negotiated late in the session between the governor’s office and labor leaders—would effectively roll back the 2007 law. Given this development, a Carcieri spokesman indicated in late June that the governor’s office will likely withdraw its request for a state Supreme Court advisory opinion on the anti-privatization law.

However, more recent developments have complicated matters. In late July, we saw this:

It was no secret that the budget passed before the state’s part-time General Assembly recessed last month was based on rosy scenarios. To be balanced, it required the aggressive implementation of unprecedented changes to the state’s health-care system. It assumed the state’s economy wouldn’t sink further into recession. And it required state government’s unionized work force to voluntarily concede tens of millions of dollars in salary and benefit reductions.

All three are now in question.

Most notably, Rhode Island’s largest state employee union announced last week it had rejected a contract that would have saved the state more than $10 million this year by delaying pay raises and increasing employee health-care contributions. The savings are included in the state budget.

[. . .] As part of the [Carcieri/union] deal, the governor agreed to rescind layoff notices for hundreds of workers he sought to replace with private contractors. [. . .] The agreement also gave the governor more flexibility to replace state workers with private contractors by weakening the state’s “privatization” law.

Other highlights include: pay raises of zero, 2.5 percent, 3 percent and 3 percent during each of the next four years; a one-day pay reduction in the current year that employees can recoup as a paid leave day; and escalating increases in the percentage of the premium the employees will be required to pay for their health insurance.

And then today, we see this:

The contract dispute between Rhode Island’s Republican governor and its largest state employees’ union may span the next year.

That’s the word from Governor Carcieri’s legal team, which spent several hours shuffling from courtroom to courtroom yesterday as the case with substantial implications on the state budget and the paychecks of thousands of state workers trudged through Rhode Island’s legal system.

“This whole thing, once it’s all said and done, could take 12 months,” Carcieri deputy legal counsel Daniel Majcher argued in Superior Court yesterday, shortly before lawyers for the governor and Council 94, American Federation of State, County and Municipal Employees, were sent to the Supreme Court three floors above.

The future of the case now rests with Supreme Court Chief Justice Frank J. Williams.

The governor wants Williams to overrule Superior Court Judge Patricia Hurst, who again yesterday insisted that Carcieri cannot unilaterally impose higher health-care costs on nearly 5,000 state employees whose unions rejected a tentative four-year contract last month.

With Rhode Island one of about a dozen states currently in a recession, this battle has profound implications for the state's fiscal health and will be an interesting situation to watch.

Reason's Privatization Research and Commentary

PPIC has new California polling data today as the state heads into another dazzling array of ballot initiative campaigns. Polling shows decidedly little support for parental notification, banning same-sex marriage (Prop. 8) and redistricting. Results on Proposition 4 (parental notification) and Proposition 11 (redistricting) closely track with the breakdown of the Field Poll released July 22 by the Sacramento Bee on the same measures.

Also from today's PPIC poll:

Seven in 10 likely voters (71%) say that state government is pretty much run by a few big interests looking out for themselves, while far fewer say that it is run for the benefit of all the people. This distrust is apparent across party lines (seven in 10 believe that the influence of special interests is pervasive in state government) and across regions. [...] Latinos (66%) and whites (69%) as well as men (66%) and women (69%) say the state government is run by a few big interests, an opinion more prevalent as age increases.

Fully 75 percent of likely voters in the survey think California is headed for bad times financially in the next year.

Now that Gov. Jon Corzine’s plan to “monetize” the New Jersey Turnpike to pay down state debt has been abandoned, the state still faces the need to come up with $2 billion to fund a long-needed widening of 35 miles of the Turnpike’s central section. Two senior legislative leaders have come up with an innovative proposal: let the private sector finance the expansion via premium tolls it could charge if the new lanes became premium lanes, either for congestion-relief (express toll lanes) or specialized truck-only toll (TOT) lanes. As Peter Samuel points out in a recent article, there is a strong case for the TOT lanes alternative.

First, the planned widening would follow the same lane configuration that already exists north of that 35-mile section: a so-called dual-dual configuration in which there are two separate three-lane sections northbound and the same thing southbound (3/3/3/3). Currently, the inner three lanes each direction are cars-only, with mixed traffic in the outer lanes. But under a TOT lanes alternative, trucks (and buses) could be required to use the inner lanes, which would be built strong enough to handle the heavy weights and axle loadings. The outer lanes, if reserved for light vehicles (cars, SUVs, pickup trucks), could easily be re-striped to 11 feet instead of the current 12 feet, for a resulting configuration of 4/3/3/4.

What might make this plan appealing to truckers? As Samuel, co-author Jose Holguin-Veras, and I argued in our 2002 toll truck lanes study, such truck lanes could offer not merely time savings and trip-time reliability but also the ability to operate turnpike doubles and short triples—bigger rigs now illegal in New Jersey (but operating routinely on the Indiana Tollway, Ohio Turnpike, New York Thruway, and Florida Turnpike). The combined productivity gains from higher payloads and time savings would be worth paying premium tolls to obtain. Trucks already pay tolls to get mediocre services on the New Jersey Turnpike, constituting about 12% of the traffic volume and 34% of toll revenue.

Politically speaking, the two legislators promoting the idea are both Democrats—Richard Cody (the state senate president) and Ray Lesniak (chairman of the senate economic growth committee), as is Gov. Corzine. The strongest congressional opponent of liberalizing federal truck size and weight limits is probably Sen. Frank Lautenberg, (D, NJ). His concern has always been the safety implications of mixing longer combination vehicles (LCVs) like turnpike doubles with automobiles. That concern does not exist with completely separated truck-only lanes.

So the potential is there for America’s first long-haul truck-only toll lanes. It will be interesting to see whether New Jersey Democrats can seize the opportunity.

Privatization efforts in the prison industry are moving forward steadily in the Eastern US, though not without some challenges and setbacks. Reason highlighted several states in our recent Annual Privatization Report 2008, including Tennessee, Florida, and Rhode Island.

In Tennessee, Corrections Corporation of America (CCA) announced in February that it is going to build a $143 million, 2,000-bed facility outside Nashville. The Trousdale Correctional Center, when completed sometime in early 2010, will be CCA’s eighth prison in the state, but will also house some federal and out-of-state prisoners.

Florida may be building its sixth and largest private prison. GEO has a new facility for Jackson County on the drawing board, a $70 million, 1,500-bed prison called Graceville Correctional Facility. GEO has also said they are considering building a seventh prison, this one in Marion County. Florida’s five privately run state prisons currently house 7,000 prisoners.

Rhode Island officials are facing a frustrating problem as they try to make budget cuts across the board. A plan to privatize prison counselor positions, saving the state over $450,000, has been stalled because state laws grant job and salary security to those who’ve worked for the state for over 20 years. Lawmakers seeking to rectify the problem also have to adjust a law that limits the privatization of state services.

To read more about these measures and see news on Mississippi, Pennsylvania and other states, see the Public Safety section of APR 2008. For more information about privatized corrections operations in general visit the Corrections and Prisons page on our website.

Having now researched toll truckways to serve two major ports (Los Angeles/Long Beach and Miami), I have an ongoing interest in intermodal goods-movement issues. In an increasingly globalized economy, ensuring that goods can move efficiently to and from major ports relates directly to economic growth. But for ports like those in Los Angeles that are located in non-attainment areas for air quality, continued growth depends on reducing port-related emissions. In particular, that means reducing particulate emissions from diesel trucks, locomotives, and ships. But here we run into jurisdictional problems, as dramatized by recent developments at the Los Angeles area ports.

The ports of LA and Long Beach are trying to put into effect a program to phase out pre-2007 diesel trucks, which includes providing financial assistance to help pay for the replacements. But the mechanism both ports have proposed includes a new regulatory approach that would permit only trucking companies that sign “concession agreements” to haul containers to and from the ports. (In the case of the LA port, one of the provisions would require the elimination of non-unionized owner/driver rigs in favor of trucking company fleets, which the Teamsters intend to organize.) Everyone has agreed that the old diesel trucks need to be replaced, but the trucking industry has filed suit against the concession agreement requirement, arguing that when Congress deregulated the trucking industry, it pre-empted economic regulation of trucking anywhere in the country, a position upheld in a unanimous Supreme Court case earlier this year.

While that drama plays itself out, the state legislature passed SB 974, which authorizes the LA and Oakland ports to charge a $60 per 40-foot container fee, whose $500 million per year proceeds would be spent on port-related emission reduction and transportation (rail and truck) infrastructure improvements. (That would be in addition to the LA ports’ $70 per 40-foot container fee, to assist with replacing pre-2007 diesel trucks.) Earlier versions of this plan lacked broad support, and one was vetoed by Gov. Arnold Schwarzenegger, but this one looks more defensible. It is better targeted, and its cost impact--$500 million on the $378 billion annual value of goods—is just 0.13%.

Meanwhile, the California Air Resources Board is trying to require all ships serving California ports to switch from dirty bunker fuel to low-sulfur fuel within 28 miles of shore. When fully implemented by 2012, that change would reduce ship particulate emissions by 83%, at a cost of $30,000 per docking. The Pacific Maritime Ship Association argues that CARB lacks jurisdiction, hoping that the International Maritime organization will assert jurisdiction when it takes up the matter in October. PMSA blocked an earlier attempt by CARB by arguing that it could not proceed without a waiver from the federal EPA, which was not forthcoming.

As if diesel particulate emissions were not enough, California is also roiling truckers and ship operators over greenhouse gas emissions. On July 31, the state joined several other parties in suing the EPA for not granting it a waiver to regulate GHGs from ships and aircraft. And the trucking industry is considering litigation to block a CARB proposal, to be decided upon in October, to regulate GHGs from all trucks operating anywhere in the state.
In short, goods-movement companies are facing jurisdictional chaos over both particulates and GHGs. Since both international trade and interstate commerce are clearly federal interests, we’re overdue for Congress and the EPA to straighten out this mess.

Several of Reason's journalists and experts are covering this week's Democratic National Convention and will also attend next week's Republican National Convention. You can find Reason's coverage of both conventions here.

In his latest column, Reason's Leonard Gilroy says Indiana Gov.Mitch Daniels' privatization efforts, like the Indiana Toll Road lease, are paying off in big ways.

...the lease payment is funding permanent assets to serve the needs of current and future Hoosiers. Further, the concessionaire has spent over $88 million in 2008 so far on construction contracts for work on the ITR itself. Over 97 percent of this work went to Indiana businesses, well exceeding the 90 percent target specified in the lease contract for the roughly $4 billion planned in ITR construction work over the 75-year term. That's $4 billion in addition to the $3.8 billion upfront payment that will remain in Indiana.

Without the toll road lease, these projects would likely have never materialized, or they would have necessitated tax increases to move forward. And Indiana has also earned over $360 million in interest on the upfront payment in just two years (over $185,000 per day, at current rates), which will be used to fund additional state and local transportation projects for decades.

This sort of wise fiscal stewardship was a key factor in Standard & Poor's recent decision to award Indiana its first-ever AAA bond rating in July, indicating top-notch financial conditions and management. Indiana's excellent credit rating means it will save millions of taxpayer dollars in interest payments when it issues bonds to fund capital construction projects and the like.

The Indianapolis Star got it right in a recent editorial, saying that the S&P rating "has validated several difficult, controversial decisions that Gov. Mitch Daniels and the General Assembly made to bring Indiana's budget back into balance. [...] [T]he $3.8 billion in capital leveraged through the [ITR] deal has enabled the state to make much-needed improvements in infrastructure while handing off management of an underperforming asset."

Before the lease, it cost more to collect each toll than the actual toll amount itself under government operation. Gov. Daniels wrote in the 2006 Annual Privatization Report:

"Tolls had not been raised in twenty years; at some booths the charge was 15 cents. (As the new governor, I innocently inquired what it cost us to collect each toll. This being government, no one knew, but after a few days of study the answer came back: '34 cents. We think.' I replied, only half in jest, that we'd be better off going to the honor system.) With politicians in charge, neither sensible pricing nor businesslike operational practices were likely, ever."

So today, it's quite accurate to say that through privatization, Indiana essentially turned a liability into an asset.

And even in these tough economic times, the state comes out a winner. Indiana's budget director recently announced a decline in traffic on the toll road. Fortunately for Indiana, the $3.8 billion upfront payment they received from the concessionaire is already in the bank earning interest and funding new transportation infrastructure, and the revenue risk was shifted from government to the concessionaire. If future toll revenues fall short of expectations, it is the concessionaire-not taxpayers-that will take the hit.

Full Column

Yesterday’s major outage at one of two FAA facilities that processes flight plans is yet another example of an air traffic control system that has aged beyond its useful life. Yes, the FAA promises to replace that particular “decades-old” system soon. But merely replacing components—while necessary in the short term—misses the point. Today’s ATC system is built on a 1950s paradigm or concept of operations. Because it is so imprecise, it must create huge buffer space around each plane, wasting valuable airspace. All communications between ATC and planes go by voice—on frequencies that are jammed and relaying numbers that can be mis-heard. It is hugely labor-intensive, when software could accomplish many routine tasks in keeping planes safely separated. In short, we need 21st-century ATC, and we need it soon. But a cumbersome civil-service bureaucracy, funded in dribs and drabs by annual congressional appropriations, is more likely to impede that transition than to facilitate it. Fixing air traffic control requires major organizational and funding reform, as has already been done in Australia, Canada, and most of Europe. Sadly, Congress has ignored such reform ideas in its endlessly-delayed efforts at FAA reauthorization, now nearly a year overdue.

Reason Foundation's Air Traffic Control Research

Reason's Shirley Ybarra's new column:

The California Public Employees' Retirement System (CalPERS) says it will allocate up to 3 percent, or $7 billion, of its $234 billion fund for investment in transportation, energy, water, utilities, communication and other infrastructure over the next few years.

Anyone sitting on the state's gridlocked roads should be thrilled by the possibility.

As U.S Transportation Secretary Mary Peters recently noted, staggering pools of capital have been raised in global markets to invest in critical infrastructure. At the end of 2007, the Financial Times estimated between $50 and $150 billion is available for infrastructure investment. CalPERS has certainly kept abreast of the emerging U.S. infrastructure market and sees opportunities to invest in infrastructure that will provide returns for its members.

The McKinsey Quarterly noted that in some situations $1 billion of equity can be leveraged to finance as much as $10 billion in projects. Even assuming a more conservative leveraging estimate-for example 3 to 5 times-the CalPERS investment could support between $20 and $45 billion in infrastructure projects.

Right now, California simply cannot finance the big-ticket infrastructure modernization and expansion projects it desperately needs. Additional public bond issues, the way the state has funded projects lately, are not the best long-term answer. With the help of the CalPERS money, projects that would otherwise not materialize can actually be paid for and completed - despite the state's staggering budget shortfalls and the historical limitations of traditional government financing.

If the entire CalPERS investment would be put towards California's infrastructure, at least $20 billion of necessary infrastructure projects could be completed. California, like other states, is in a severe crunch for transportation dollars. The CalPERS investment is a real solution that will help cities coping with traffic congestion, as well as the state's economy. Issuing more and more bonds to make it look like the projects are "paid" for is not.

Many of the large-scale, mega road and highway projects that would be possible using public-private partnerships might never be built without the private sector's involvement. The state simply doesn't have the money. Other projects that public-private partnerships can help deliver ahead of the state's "normal" schedule could produce a large inflation savings. This translates to "time is money" in any construction project. With CalPERS' possible investment, certain projects can be brought to fruition in a much shorter amount of time and at a lower cost.

Full Column

Privatization efforts in the prison industry are moving forward steadily in the Western US, though not without some challenges and setbacks. Reason highlighted several states in our recent Annual Privatization Report 2008, including Colorado, Texas, and Oklahoma. Though mainstream private corrections got it's start in the East--CCA in Tennessee and The GEO Group in Florida--the largest strides forward have been in Western states like Colorado and Arizona.

In April, Colorado Gov. Bill Ritter signed into law a bill that provides financial incentives for private prisons to develop innovative security programs and provide education. The legislation allows the state more flexibility in setting rates for prisoners in private facilities; previously there was no flexibility in negotiating adjustments to existing contracts. Given the state’s rising prison population, Colorado is increasingly turning to private prisons to provide beds for its inmates. Roughly 22% of the state’s prisoners are held in private facilities and that number could rise to 40% in the next few years, according to state Department of Corrections Executive Director Ari Zavaras.

Oklahoma, already with six private prisons, is potentially planning a seventh in Warner. The proposed prison design came from a local Muskogee County architect in coordination with Detention Solutions Inc. out of Tulsa. Elsewhere in the state, CCA said it would complete the expansion of its 1,800 bed Cimarron Correctional Facility in Cushing by January 2009.

Marc Levin, director of the Center for Effective Justice at the Texas Public Policy Foundation, believes Texas can decrease the number of repeat offenders by offering incentives to private prisons. In a June 2008 article, Levin said that the state should change its current contracts with private prisons, which house nearly 15,000 inmates. The current contracts outline all procedural matters for private facilities, making them carbon copies of state-run institutions. Instead, contracts could give private companies freedom to innovate in their corrections operations, offering bonuses based on reduced recidivism and increased inmate education growth. A contract system like this would be the first of its kind in the United States and allow greater growth for the industry. Private prisons have great incentive to rehabilitate their prisoners to help develop reputation. Allowing firms to explore more practically effective means make sense.

To read more about these measures and see news on Idaho, Hawaii and other states, see the Public Safety section of APR 2008. For more information about privatized corrections operations in general visit the Corrections and Prisons page on our website.

Reason’s Leonard Gilroy’s new column:

As the Commonwealth grapples with a $1-billion-plus budget shortfall — and the inevitable calls by some to "solve" it through tax hikes — policymakers seek every opportunity to tap the demonstrated cost savings possible through privatization to help close the gap. Ad hoc approaches won’t cut it. Virginia must develop more effective tools to systematically evaluate competition and efficiency opportunities across state government.

One logical place to start is with the Commonwealth Competition Council (CCC). An independent advisory body in state government since 1995, the CCC is a bipartisan council charged with providing long-term strategic direction for privatization and competition initiatives. Over the last dozen years the CCC has done excellent work on privatization, identifying and researching a plethora of opportunities to achieve cost savings, service quality improvements, and higher customer satisfaction.

Unfortunately, the CCC lacks a mandate to ensure follow-through on its recommendations. Its role as an advisory body, its lack of a clear statutory mandate drive statewide privatization initiatives, and its lack of integration into the executive branch have constrained its effectiveness at limiting the size and scope of government.

Until 2008, the state of Utah was in the same boat. For two decades, Utah has had its Privatization Policy Board (PPB), which has a similar mission to Virginia's CCC. But with its membership heavily tilted towards public sector representation, the lack of clearly defined duties in its statutory mandate and no dedicated staff, the PPB’s efforts have been piecemeal at best. Only two of its major outsourcing recommendations have been implemented.

In 2008, the Utah state legislature overwhelmingly passed two bills designed to give the PPB more teeth. First, lawmakers adjusted the membership of the Board so it had a nearly equal split between the public and private sector. Also, the PPB is now required to develop a biannual inventory of "inherently governmental" and "commercial" activities performed by state agencies, with commercial activities being those widely performed in the private sector and prospects for privatization.

The Secretary of Administration prepares a similar inventory in Virginia. However, Utah went a step further by requiring most Utah cities and counties to prepare similar commercial activity inventories for the PPB. The underlying premise is that taxpayers deserve transparency in how their state and local tax dollars are spent.

Full Column

The Sacramento Bee is editorializing today to promote the proposed 25-cent California grocery bag tax, AB 2769 (Levine). They've got a mix of fact and fiction (e.g. paper and plastic grocery bags recycling rates were 25 and 9 percent, respectively, in 2006 and rising--more than double the editorial's claim) in the lead-up to this unfortunately-worded conclusion:

AB 2769 would provide shoppers with a choice: Bring reusable bags or pay the true cost of a disposable bag.

The editorial also calls the tax the "market-based solution."

Just to set the record straight: there already is a market for grocery bags, and on average most consumers already pay the true cost of grocery bags. What is being proposed is arguably more "market-based" than an all-out ban, but saying that it provides shoppers with a choice is just cruel. If and when this tax is approved, it will not benefit shoppers.

Contrary to the Sac Bee editorial, the proposed bag tax is also unlikely to save grocery stores money. If charging for bags saved grocery stores money, they would have done so long ago--they, too, have choices--without any legislative help from Sacramento. The extra time it takes to charge for bags (as a proxy, think of just the amount of time it takes to make change) and handle home-brought bags will probably eventually cost grocery stores more than the kick-back they'll get from the bag tax, and that cost will be paid in higher food prices.

Browse Reason Foundation's ongoing coverage of the great grocery bag debate here.

Reason's Sam Staley looks at California's latest plan to curb emissions in his latest column:

The state government has decided Californians are going to drive less, whether they like it or not. Want to buy a Prius or insulate your home as your contribution to lowering carbon emissions? Sorry, but that's not doing enough for the government's tastes. California wants politicians and planners to have a bigger say in where you live, shop and work so that they can make sure you don't drive that Prius too far.

Senate Bill 375 is the state's latest far-reaching piece of legislation intended to help to meet one objective: reduce greenhouse gas emissions by 30 percent by 2020.

To cut emissions, the government will take a more active role in where you live, how you get there, and what kind of home you live in. While this legislation thankfully stripped away specific regional targets that would have been far more draconian, the core governing values underlying California's approach should sound alarms in and out of the state.

Analysis prepared by the California Senate notes the legislative intent of the bill is to integrate housing planning with regional transportation planning. Regional planners are supposed to determine housing needs and use statistical modeling to "allocate housing units within the region consistent with the development pattern included in the SCS [sustainable communities strategy]."

A sustainable communities strategy is planning jargon for reducing carbon dioxide. It's the only criterion that counts in SB 375. Neighborhoods could become mired in crime, failing infrastructure, and poor schools, but if they reduce carbon dioxide emissions they would be considered sustainable and conform to the SCS. This is Sacramento's idea of "smart growth."

An outcome as dire as this isn't as far flung as it seems. The way California communities are expected to achieve lower carbon dioxide levels is by dramatically reducing mobility. Automobiles and light trucks, the legislation claims, emit 30 percent of the state's greenhouse gas emissions. So the solution is to reduce driving, measured by vehicle miles traveled.

Such a grand, sweeping overhaul of land development will have significant negative consequences. Mobility will be greatly reduced since public transit (and walking) almost always takes significantly longer to reach destinations than automobile travel in California. Economic productivity will fall because companies will have access to fewer qualified workers within acceptable commuting distances. Job mobility will be limited since changing jobs will likely entail moving an entire household to a new home to avoid inordinately long commutes.

Fortunately, California planners can't outright ban the use of cars - yet, or limit them to particular groups of people, as they do in places such as Singapore. Instead, cities and counties are required to achieve their greenhouse emissions targets using the obtuse and indirect method of changing land use. In other words, communities are expected to make driving so difficult and expensive that people will either walk or use transit.

Politicians in Sacramento don't seem bothered by the fact that driving a hybrid automobile, such as the Prius, beats every public transit mode on carbon dioxide emissions except heavy rail.

Regional planners nevertheless are supposed to use their models to dramatically increase residential densities, and use smart growth planning to funnel new growth into "transit priority projects." A transit priority project must have a minimum density of 20 dwelling units per acre, a standard that effectively prohibits single-family homes with a yard. Dramatically reducing automobile use means stuffing families into dense urban-living environments. Goodbye house, hello high rise. You didn't really want a yard (or a car) anyway.

Full Column

A recent report from The Pew Center on the States says that one in every 100 American adults is behind bars today. Between 1987 and 2007 the national prison population has nearly tripled from 585,084 to 1,596,127. Pew also estimates another 723,131 inmates in local jails, putting the total U.S. prison population over 2.3 million—more than any other nation on Earth.

As Reason reported in its Annual Privatization Report 2008, Florida had the highest rate of prison growth in 2007, up 4.5%, while California decreased its inmate population nearly that much. The percentage of state budget spending on prisons has also grown dramatically in the past few years according to the Pew study. Oregon comes in at the top of the list, committing 10.9% of its budget to corrections. Florida and Vermont share second at 9.3%, with Colorado (8.8%) and California (8.6%) rounding out the top five. Virginia has made great strides according to the Pew Study, having reduced its corrections spending 8.1% in the past 20 years to 6.7%, one percentage point below the national average.

The increasing general prison population has spurred growth in the private corrections sector. Total capacity in private facilities has nearly reached 200,000 beds across 312 institutions in 35 states and the District of Columbia. According to the Association of Private Correctional and Treatment Organizations, as of June 2008 at least 24 states (including DC) have capacity for 1,000 or more prisoners across their various facilities. Texas is the largest state contracting out to private firms for corrections services with 79 different facilities with a total capacity of 57,011.

For more information about privatized corrections operations see the Public Safety section of APR 2008 and the Corrections and Prisons page on our website.

Nothing captures the American imagination like Hollywood—and now, lovers of liberty will gather on the Walk of Fame to explore the ways in which film and freedom converge. Come find out more about the future of American cinema—and join in the party of the year as we celebrate Reason's 40th anniversary!

What: Reason Goes Hollywood
When: Friday, November 14 - Saturday, November 15
Where: Hollywood Roosevelt Hotel, Hollywood, California

Confirmed Speakers:

• Bjorn Lomborg, author, The Skeptical Environmentalist and Cool It
• Congressman Jeff Flake (R-AZ)
• Michael Burns, Vice Chairman, Lionsgate Entertainment, and Producer of Atlas Shrugged
• David H. Steinberg, writer, American Pie II, Slackers
• Dan Gifford, writer, Waco: Rules of Engagement
• Martin Torgoff, writer/consulting producer for VH1's documentary series The Drug Years and Sex: The Revolution
• Frayda Levy, former President, Moving Picture Institute

Registration for Reason Goes Hollywood is now open, but space is limited, so sign up today!

Pardon my tardiness on this, but it appears a few weeks ago the New York State Senate voted to repeal the egregious statute aimed at collecting sales taxes from out-of-state Web merchants. As I wrote back in May, The New York law declared any in-state Web affiliates of an out-of-state retailer to be a “nexus” as per Quill Corp. v. North Dakota, the 1992 U.S. Supreme Court decision that ruled retailers were not liable for sales taxes in states where they had no presence.

The law became effective June 1, but just 24 days later, the state senate voted 44-18 to repeal the law, although that bill, S. 8638, seems to have fallen into oblivion. After reading about the repeal on a few marketing industry blogs, The New York Times’ Saul Hansell went in search of it.

It took me a bit of time on the phone to Albany to figure out what was going on. The legislature’s own computer system provided limited information on the bill (S8638). There was no sponsor listed for the bill, which was introduced on June 19, five days before it was passed. It now sits in the Assembly Ways and Means Committee, again with no sponsor listed.

Scott Reif, a spokesman for the Senate majority leader’s office, said the bill was written by the counsel to the Senate Rules Committee. That committee was controlled at the time by Joseph L. Bruno, who retired as majority leader shortly thereafter. I asked Mr. Reif why the Senate would reverse itself on the sales tax issue so soon after imposing it as part of the budget.

“The budget bill is a ‘take it or leave it’ vote,” he said. And some members wanted the chance to express their views on the sales tax separately. The repeal bill passed the Senate 44 to 18, with all the Republicans and some Democrats supporting it.

When I called over to the Assembly, I didn’t find much interest in the bill. Moreover, the regular legislative session is over for the year. On Tuesday night, Governor David A. Paterson called on the legislature to return next month to help fill a $26 billion budget gap. An Assembly spokeswoman said it is unlikely that the body would have time to take up the tax issue. And it’s hard to see why lawmakers trying to fill a huge budget hole would be eager to repeal a provision that brings in $50 million a year in revenue for the state.

An official in the Paterson administration, who spoke on the condition of anonymity, said he did not expect the sales tax repeal bill to pass the Assembly and he assumed that the governor would veto it if it did.

I provide a more detailed critique of the New York law in the 2008 Annual Privatization Review (p. 95). Affiliate Web sites generally provide ads for companies like Amazon.com and Overstock.com. Should a user clickthrough from an affiliate site to the retailer and then make a purchase, the retailer will pay the affiliate a commission. As I wrote:

"…[U]p until now, no lawmaking body has attempted to define an in-state, but independent third party as a nexus for an out-of-state business. Critics of the new statute consider it an overreach.

Amazon.com and Overstock.com, while registering in New York to be in compliance, have responded with lawsuits, claiming that the statute runs counter to Quil. Both companies also say they can’t determine whether affiliates are actual legal residents of New York, whether their websites are hosted within the state at all, nor can they control the affiliate websites, nor determine whether a specific ad is a direct or indirect solicitation for business."

Just as younger siblings can learn from the mistakes of the older, so too are other nations seeing America’s mistakes and seeking to pre-empt problems. With less than one third the population of China, we imprison more than anyone in the world. American has finally woken up to its corrections crisis, now that the national prison population has topped 1.6 million, which is one in every 100 American adults. Responses put in motion include revamping rehabilitation processes, reforming sentencing procedures, and privatizing prison facilities to reduce costs.

As Reason reported in its recently published Annual Privatization Report 2008, foreign nations are watching this and aren’t waiting for the same problems to overtake them:

Citing the success of Brazil’s Humaita Prison, a South Korean firm has begun construction on the nation’s first private prison. The prison, located in Yeoju, Gyeonggi Province, is scheduled to open in 2010 with a capacity to hold 500 inmates. The government granted permission for the prison to open in 2002, but it has taken several years to get the approval of the Yeoju community. The prison will provide a wide-range of programs to rehabilitate inmates and help their transition back into communities.

Peru has announced plans to build several new prisons as it seeks to solve its inmate overpopulation crisis. Two will be built and managed by private firms in the nation’s first foray into privatizing corrections facilities.

South Africa has also developed its first public-private partnership prison program and has accepted several bids to build five new facilities in the county.

To read about more prison privatization measures see APR 2008’s Public Safety section and Reason.org’s Corrections and Prisons page.

Until recently, the frequent refrain coming from controllers' union NATCA was that the FAA was failing to recruit and train enough new controllers to replace the coming wave of retirements of controllers hired after President Reagan's mass firing of striking controllers in 1981. But now that the agency has massively expanded hiring and training, today's complaint is that operational facilities-centers, TRACONs, and towers-are being overwhelmed with developmental controllers, to the point where needed on-the-job training cannot be fully accommodated.

The House Aviation Subcommittee held a hearing on this subject on June 11th, and I've reviewed the testimony of both the GAO and the DOT Inspector General's Office. Both agreed that the FAA has stepped up hiring and taken other useful actions, but both suggested that some facilities do appear to have more developmental controllers than is wise. Let's go to the numbers.

First, the GAO reports the good news that, when it comes to comparing the number of controllers at a facility with what it "should" have, we are no longer trapped by the 1990s-era negotiated staffing levels, based on bargaining between FAA and NATCA. In 2007, the FAA replaced that with facility-specific staffing ranges based on a combination of traffic levels, productivity trends, expected retirements, and controllers in training. As of April 2008, GAO found that 45% of the 314 facilities are not within the desired ranges-but the vast majorities of these cases are above the staffing range (145 facilities) while only 12 are below. That's the good news.

The bad news is that while there are slightly more total controllers on the payroll today (December 2007) than in 2004, the IG finds the overall percentage of trainees has increased from 15.2% of the workforce to 24.5%. Overall, FAA says that each facility should be able to have up to 35% trainees and still control its traffic properly. Even if that percentage is valid (and the IG found a number of people who think it's too high), FAA figures show that 70 out of 314 facilities exceed that percentage today, compared with only 22 in 2004. And some of these are very busy places: Teterboro tower (52% trainees), Las Vegas TRACON (50% trainees), and Oakland center (38% trainees). A table in the GAO testimony is more reassuring as to towers, listing 50 of the country's busiest airports. Only five of these exceeded the 35% trainee figure-Tampa, Cleveland, DFW, LaGuardia, and Houston Hobby. The majority are in the 10-25% trainee range.

Still, the fraction of trainees is likely to continue creeping upward over the next five years, as retirements continue and the pace of training is constrained by the amount of time fully certified controllers have available, as well as the physical space for training at some facilities (e.g., Miami Center). GAO cites FAA data to estimate that by 2011 up to 59% of the controller workforce will have less than five years of experience (compared with about 25% today).

FAA is offering bonuses to controllers eligible to retire to stay on for several more years, which may help. It is also installing high-fidelity training simulators at busy airport towers; NASA Ames has found that use of such a simulator reduced training days for ground control training by 60% at Miami Tower. And it is under strong pressure from NATCA and Congress to re-open the current contract to restore some of the premium pay controllers no longer get. For its part, NATCA should be willing to ditch the controller-favored 2-2-1 shift schedule which researchers have found contributes significantly to controller fatigue, due to disruption of diurnal rhythms. According to the National Transportation Safety Board, about 61% of controllers work such shifts, which give them a longer weekend and no more than one midnight shift per week.

In addition, I wonder if Pat Forrey and other NATCA leaders have thought about the implications of their encouraging eligible controllers to retire, thereby increasing the pressure on the FAA. As noted above, that means in a mere three years' time (2011), nearly 60% of the controller workforce will have less than five years' experience. That means less than five years of absorbing the NATCA culture, at a time when air traffic control will be fundamentally changing to the partially automated NextGen paradigm. You would have thought NATCA would put a premium on keeping as many of the old guard on the job as possible, in hopes of teaching the new guys the "us versus them" way of relating to the FAA. Such wholesale turnover gives Hank Krakowski and his team at the Air Traffic Organization a better opportunity to break this mindset and develop a healthier relationship with their controller workforce.

In a column in The Wall Street Journal, Reason’s Lisa Snell and Shikha Dalmia write:

Barack Obama says he believes in universal preschool and if he's elected president he'll pump "billions of dollars into early childhood education." Universal preschool is now second only to universal health care on the liberal policy wish list. Democratic governors across the country -- including in Illinois, Arizona, Massachusetts and Virginia -- have made a major push to fund universal preschool in their states.

But is strapping a backpack on all 4-year-olds and sending them to preschool good for them? Not according to available evidence.

"Advocates and supporters of universal preschool often use existing research for purely political purposes," says James Heckman, a University of Chicago Noble laureate in economics whose work Mr. Obama and preschool activists routinely cite. "But the solid evidence for the effectiveness of early interventions is limited to those conducted on disadvantaged populations."

Mr. Obama asserted in the Las Vegas debate on Jan. 15 that every dollar spent on preschool will produce a 10-fold return by improving academic performance, which will supposedly lower juvenile delinquency and welfare use -- and raise wages and tax contributions. Such claims are wildly exaggerated at best.

In the last half-century, U.S. preschool attendance has gone up to nearly 70% from 16%. But fourth-grade reading, science, and math scores on the National Assessment of Educational Progress (NAEP) -- the nation's report card -- have remained virtually stagnant since the early 1970s.

Preschool activists at the Pew Charitable Trust and Pre-K Now -- two major organizations pushing universal preschool -- refuse to take this evidence seriously. The private preschool market, they insist, is just glorified day care. Not so with quality, government-funded preschools with credentialed teachers and standardized curriculum. But the results from Oklahoma and Georgia -- both of which implemented universal preschool a decade or more ago -- paint an equally dismal picture.

A 2006 analysis by Education Week found that Oklahoma and Georgia were among the 10 states that had made the least progress on NAEP. Oklahoma, in fact, lost ground after it embraced universal preschool: In 1992 its fourth and eighth graders tested one point above the national average in math. Now they are several points below. Ditto for reading. Georgia's universal preschool program has made virtually no difference to its fourth-grade reading scores. And a study of Tennessee's preschool program released just this week by the nonpartisan Strategic Research Group found no statistical difference in the performance of preschool versus nonpreschool kids on any subject after the first grade.

What about Head Start, the 40-year-old, federal preschool program for low-income kids? Studies by the Department of Health and Human Services have repeatedly found that although Head Start kids post initial gains on IQ and other cognitive measures, in later years they become indistinguishable from non-Head Start kids.

Why don't preschool gains stick? Possibly because the K-12 system is too dysfunctional to maintain them. More likely, because early education in general is not so crucial to the long-term intellectual growth of children.

Full Column
Reason Foundation's Universal Preschool and Education Research

Reason's Lisa Snell's new column looks at a new study on universal preschool and the lack of lasting academic benefits it finds:

The Pre-K Now report praises Tennessee Gov. Phil Bredesen (D), calling him "among the nation's leaders in high quality pre-K innovation and funding." They note that Gov. Bredesen's pre-K investments have increased by more than 200 percent since fiscal year 2006 and he's recommended another 31 percent funding increase for fiscal year 2009.

The Tennessee program is considered a gold-standard. It meets 9 out of 10 criteria for a high-quality program set by the National Institute for Early Education Research (NIEER)--such as preschool teachers with teaching credentials, small class-size, and comprehensive early-learning standards.

Yet, despite this extremely high quality program, an interim study on the program's progress done for the Tennessee Comptroller's Office finds no lasting academic value for Tennessee students who participated in the public pre-kindergarten program.

Two groups of students participated in the study. The first consisted of pre-K students who were identified in assessment records and then individually matched to the second group - other students with the same demographics who did not attend preschool. As the study's authors note "this rigorous precision matching technique was employed to construct a random sample of non-pre-K students that matched the pre-K group as closely as possible in all possible respects given the data available for the analysis."

The report conducted by Ohio-based Strategic Research Group finds that the advantages of participating in Tennessee's public pre-kindergarten program disappear by the time students reach the second grade.

The study shows that children who attended pre-K performed better in reading, language and math in kindergarten and in the first grade than students who did not attend pre-school. However, by the second grade, there was no statistically significant difference between those who went to pre-K and those who did not.

The report measured student achievement using the results of standardized tests given in three academic years between 2004 and 2007. As the study authors conclude, "…although Pre-K students initially demonstrated an advantage on these assessments over peers who did not participate in pre-k, by the second grade there was no statistically significant difference in these groups."

In addition, the students who participated in pre-K did not outscore their peers in the third through fifth grade either. In every case, in every subject, there was no statistical difference between the children who attended preschool and those who did not. There was no advantage for low-income children or middle-income children.

This study adds to the growing evidence that students who participate in early education programs do not have lasting academic gains.

Amid a renewed discussion on Gov. Daniels' proposal to lease the Hoosier Lottery, privatization remains a front burner issue in Indiana. As we report in Reason's Annual Privatization Report 2008, the Indiana Family & Social Services Administration's (FSSA) welfare eligibility modernization initiative is well underway, but has experienced some hiccups along the way (see APR2007 for more details on this initiative).

Indiana began privatizing welfare delivery last fall in a pilot program covering a dozen central and eastern Indiana counties. Each county had previously run its own welfare office, but under the pilot program, operations in the 12-county region were consolidated in the Marion call center run by IBM and Affiliated Computer services. The initiative has since expanded to 59 counties statewide.

Since the beginning of the pilot program, social service agencies have reported complaints from people who have lost their food stamps or Medicaid coverage or who have had difficulty utilizing either the call center or the new, Web-based application for welfare benefits. In July, the Feds asked Indiana to delay the rest of the project rollout due to delays in processing food stamp applications (though this is a complex issue, well explained here).

FSSA Secretary Mitch Roob has acknowledged some implementation glitches but defends the privatization. According to Roob, FSSA is addressing problems with the rollout and will not expand the program to other counties until the agency is satisfied with progress in the pilot area. For instance, after resolving some technical issues in a Web program earlier this year, the number of applications in the pilot area increased 67% from 426 to 712 in just one week. He also noted implementation delays caused by the attention FSSA has given the state’s new health plan for low-income adults. Roob also points out that FSSA is currently serving record numbers of people as food stamp recipients increased nearly 4% between 2007 and 2008.

It's predicatable that you'll face some challenges along the way with any major modernization initiative—a whopping 10 percent of Hoosiers (over 600,000) utilize this program, so it's big. It seems to me like Sec. Roob and the private contractors are handling things the right way—working out kinks as they arise and modifying the rollout plan to accommodate that. In fact, just yesterday we learn that the Feds have acknowledged improvements:

The Indiana Family and Social Services Administration, along with private contractors handling the eligibility process, have improved the time it takes to process food stamp applications, according to a new letter from the federal government released Wednesday. [. . . ] A letter sent by the U.S. Food and Nutrition Service clarified that an earlier memo sent on timeliness problems used outdated data from the period of March 2007 through August 2007. It showed that 83 percent of the time the state met the timeliness goal of turning applications around in 30 days. But that was before the state privatized a large portion of the eligibility process.

The state awarded a team of vendors – led by IBM Corp. and Affiliated Computer Services Inc. – a $1.16 billion, 10-year contract to process applications for Medicaid, food stamps and other benefits. Then FSSA piloted the welfare changes in a 12-county region of north-central Indiana in October, later expanding it to all but 33 counties in northern and central Indiana by May. [. . .]

The latest letter from the Food and Nutrition Service shows that from August 2007 through January 2008, Indiana improved its timeliness rate to nearly 89 percent. States falling below 90 percent compliance must have a corrective action plan.

“We’re doing better, but we are not where we want to be yet,” said Mitch Roob, secretary of the agency.

If I'm reading between the lines correctly, it sounds like overall state performance is improving, and stands to improve further in some of the counties where the modernization rollout has already taken place. More from Roob in this Indy Star piece:

While the project has not provided any savings to this point, Roob said he still expects significant savings in later years of the deal over the cost of state employees doing the work. He said the state should begin to realize some of the estimated $340 million in projected savings within the next year.

Roob said the project is not just about saving money. He said it also is intended to improve service and access while containing future cost increases.

But in the political world, patience apparently isn't a virtue. Daniels' gubernatorial challenger Jill Long Thompson has vowed to create a commission to study the FSSA privatization, the Indiana Toll Road concession, and other privatization deals if elected in November.

If elected, Long Thompson promised to appoint a bipartisan committee of Hoosiers from various sectors to examine the effectiveness of privatized functions and cost-savings claims. She said all legal options surrounding the contracts would be pursued, including amending, renegotiating, canceling and/or buying out contracts. This includes the $3.8 billion Indiana Toll Road lease.

To be clear, I think it’s good practice for govern