Be careful before putting state eggs in privatization basket
By Andy Brack, editor and publisherMAY 20, 2011 – On paper and on the stump, “privatization” of parts of government has a great appeal to proponents of less government.
But a word to the wise. Based on experiences in other states, be careful. You might just get less than you want.
In recent weeks, Gov. Nikki Haley has been toying with ideas to privatize mental health care for 120 sexual predators and about 200 mentally ill patients. She’s also asked for suggestions on the merits of having a private company run the state’s school bus fleet.
The rhetoric – put faith in the private sector to offer services more efficient than that nasty, old government can ever do – may sound good. But in reality, turning over the keys of state services to private companies or partnering with them through creative strategies isn’t working that well everywhere.
Just this week, The New York Times reported that privatized prisons in Arizona offered no real savings, or in some cases, cost $1,600 more per inmate than government-run prisons. With South Carolina’s per-inmate cost being the lowest in the nation, it’s hard to see how turning over prisons to outsiders would save money. [Not to mention that having for-profit companies keep track of prisoners could be a security risk.]
Other examples that highlight privatization pitfalls:
- New Jersey: An outside company performing tax debt collections was found to be overbilling and providing wrongful gifts to state officials, according to a state review of privatization efforts. The scandal forced ethics law changes.
- Maryland: A privatization pilot project for child support operations was inconclusive, according to a 2008 review. Some privatized operations were more efficient; others cost more.
- North Carolina: The Tarheel state wasted up to $400 million in letting unqualified firms run its mental health system, according to news reports and state audits.
- Florida: More than 10 years ago, the state contracted with a private group to operate some of its psychiatric facilities. According to a 2008 story in the Atlanta Journal-Constitution, “the privately-run facilities reduced patients’ average stay and the use of restraints and seclusion. State auditors say cost savings and improvements in care are negligible.”
Respected government analyst Richard Greene, a principal with Barrett and Greene, Inc., of New York, urged caution for states considering privatization.
“There’s no reason to assume that the private sector can do anything so much more efficiently than the public sector -- and that it can make a profit and deliver the service just as well,” he said. Sometimes, he suggested, the public sector can do a better job, in part, because it doesn’t have to make a profit.
Often when governments consider privatizing functions, they do so in a tight fiscal environment to save money. But that often puts them in a weak negotiating position, according to a story Greene co-wrote last year for Governing magazine. Additionally, government officials negotiating complex deals often don’t have the savvy that private sector professionals have, which can lead to unintended consequences.
He said any government really needed to do three things before moving ahead with privatization of services:
1. Perform a cost-benefit study that embraces all of the details involving a deal to see if it makes financial sense. For example, if a state wants to privatize a toll road, does it specify whose responsibility it is to pick up road kill?
2. Level the field for negotiations by getting professionals just as clever as those in the private sector. Consider performance contracts that have clauses with penalties for companies that fail to meet service levels.
3. Ensure there is appropriate government oversight to ensure a company will actually do what it claims it will.
If South Carolina’s leaders keep flirting with the idea of privatizing some services, it’s probably wise first to take the evaluative baby step of setting up a blue ribbon Privatization Task Force to look realistically at which state services might be better run by outside vendors. Then it should do cost-benefit studies to see if privatized services would save money and be effective here. Only when officials have more than textbook, knee-jerk political rhetoric should the state move further.
Nuke regulations mushrooming
Settlement leads to potentially stronger policy
By Bill Davis, senior editorMAY 20, 2011 – A settlement agreement signed this week between Duke Power and the state has mushroomed into a force that could shape state nuclear energy policy for the next decade or longer.
The origins of the settlement were relatively mundane, according to several sources. Duke Power, which provides power for consumers in several Southern states, originally approached state government in South Carolina with a question as to whether it was still “prudent” of the company to expend seed money on the permitting process for two proposed nuclear reactors at the Lee Nuclear Station in Cherokee County.
That site is currently a green field, but before Duke Power spent any more money, it wanted to make sure the “nuclear option was still on the table,” according to company spokesman, Jason Walls.
That request caught the attention of several parties in the conservation and environmental communities in the state. They were concerned, in part, that going forward with double reactors might not be needed because of the economic downturn that has plagued the state, region and nation.
So Tom Clements from Friends of the Earth and the South Carolina Coastal Conservation League challenged the request, which asked, essentially, for permission to go ahead with spending $210 million more in seed money.
That challenge led through several rounds of testimony, which included the grilling of Duke Power chief executive officer Jim Rogers by Clement, and several rounds of negotiations between the Charlotte-based utility, the conservationists and the state Office of Regulatory Staff, which also joined the fray.
Wednesday’s settlement agreement still has to pass muster with the state Public Utilities Review Commission (PURC), made up of legislators and concerned citizens.
Commission member and House Minority Leader, Harry Ott (R-St. Matthews) praised the settlement as the next step “down the exact path this state needs to be headed in” concerning power generation.
The settlement itself does some mechanical things, such as allowing Duke Power to spend $90 million over the next few months in pre-construction costs, which will likely be passed onto consumers via higher base rates once the PURC approves and accepts the settlement as expected.
But the settlement also does some relatively exciting things, observers agreed. Namely, it hands control to the commission of the power output of the proposed reactors, which could cost between $11 billion and $20 billion to construct.
That means Duke Power can’t build the new reactors here and then zap their electricity to other states, like Florida, with which it already has power-sharing agreements. Instead, South Carolina will get the first crack at new nuclear power generated here before other states can access it.
Hamilton Davis, a lawyer and energy and climate director at the SCCCL, argued that if South Carolina were to take on the economic and environmental risks of more nuclear power, it should be first in line for the power generated from those proposed reactors, which have yet to receive federal safety approval.
Add to that, South Carolina could become the short-term storage destination for dangerous and radioactive material generated by the proposed reactors, according to Davis. The location probably would be in Aiken at the Savannah River Site, he said.
The settlement also requires Duke Power to report back to the state how baseload generation legislation, similar to laws passed in South Carolina in recent years, is snaking its way through the North Carolina legislature. With federal carbon-footprint tax a near certainty, our legislators could use additional insight, according to conservationists.
The last big opportunity the settlement provides is that it clears the way for multiple owners of the nuclear station, a provision that could directly affect nuclear expansion in the state in the future.
This means Duke Power has agreed to partner with other utilities like SCANA and Santee Cooper, increasing levels of management, safety and regulations.
So what does Duke Power get out of the deal? In two words, more nukes.
According to Walls, Duke Power entered into the settlement, in part, because it dovetailed with its “regional” approach to nuclear power, where it seeks more partners to spread out the economic costs and risks, thereby lowering individual consumer power bills.
Crystal ball: The PURC is going accept and approve of the settlement later this year, which will resolve the policy future for nuclear power generation in South Carolina. Not only will we get the first pull of the new electricity, but there will be more watching eyes and more reporting of what’s going on throughout the region.
Bill Davis, editor of Statehouse Report, can be reached at: email@example.com.
Can you say "budget?"
Next week in the Senate was supposed to be the when senators tackled tort reform, or the Amazon deal, or anything other than the budget. Tough. They’re still on the budget.
In the House, there will be five days of redistricting committee meetings, with discussion on the floor focused on a bill that would create tax rebates for families with kids in private schools. More.
Medicaid = ‘E-vil’
Judging from rhetoric coming out of the legislature, especially the Senate, the state’s Medicaid system will soon become the “welfare queen” of the new political generation. Understandable complaints about the program’s “unsustainable growth” are growing louder … and louder … and shriller. Rhetoric aside, it’s unclear when they’ll do more than talk about it beyond cutting provider rates.
When will it end?
Four weeks wasn’t enough in the Senate to produce a state budget for the coming 2011-12 fiscal year. Why? According to Senate sources, the budget “debate” is being used as a delaying tactic, to submarine a couple politically sticky issues. The first, according to sources, being the ratification of the House’s tax-break deal for Amazon, and second, tort reform. A third: Unemployment tax reform. An additional reason for the slowdown this year: It's just taking a lot of time to do the actual voting on scores of amendments because of the Senate's new roll-call voting requirement.
The Senate will take up the budget (again) starting on Tuesday, even though Finance Committee chairman Hugh Leatherman (R-Florence) has already said publicly that there is not enough time to finish the budget before the scheduled adjournment, and the legislature will have to deal with passing it in the second week of June when the General Assembly is slated to return to deal with redistricting.
House Minority Leader Harry Ott (D-St. Matthews) has already said his fellow members aren’t excited in the way the Senate plans to deal with an extra $210 million (tax breaks and education spending) in projected new revenues are handled. That influx is expected to inflate the General Fund portion of the budget to close to $6 billion.
Sources also say House members aren’t thrilled by the Senate plan to plug another $4 million into the Department of Revenue in hopes of hiring enough investigators to go after out-of-state tax scofflaws to bring in an additional $80 million.
For the legislature to be able to pass a budget by even the end of the second week in June, there will have to be work committees in the House and Senate after adjournment to lay the groundwork for a conference report spending bill to be discussed in and around redistricting.
Amazin’ Amazon deal(s)
The House this week reversed course and voted overwhelmingly for a bill that would give the online giant a five-year state sales tax moratorium in exchange for more investment and more jobs.
Amazon countered by hinting at additional distribution centers, like the one on hold in Lexington County. But the new deal may have come too late, as the Senate is embroiled in a month-long battle over the state budget. There simply may not be enough time to pass the House bill before adjournment, especially since some in the Senate, according to sources, are purposefully slowing budget debate so they don’t have to take a position, much less vote, on the contentious plan.
No surprise, Horry County will become the centerpiece in the proposed new 7th Congressional district under a plan unveiled by the state House this week.
Interestingly, the plan, created by the Republican-controlled House, would shift the district represented by a Democrat, U.S. Congressman Jim Clyburn, away from Charleston County to center more on Orangeburg County, another Democratic powerhouse.
The question is, will the new lines protect U.S. Congressman Tim Scott (R), whose district would shift away from Horry County, which helped propel him to Congress, and now include Beaufort County? For a bird’s eye view, go here.
S.C. Hospital Association
The public spiritedness of our underwriters allows us to bring Statehouse Report to you at no cost. This week's spotlighted underwriter is the South Carolina Hospital Association, the Palmetto State's foremost advocate on healthcare issues affecting South Carolinians. The mission of SCHA is to support its members in addressing the healthcare needs of South Carolina through advocacy, education, networking and regulatory assistance.
Founded in 1921, the South Carolina Hospital Association is the leadership organization and principal advocate for the state’s hospitals and health care systems. Based in Columbia, SCHA works with its members to improve access, quality and cost-effectiveness of health care for all South Carolinians. The state’s hospitals and health care systems employ more than 70,000 persons statewide. SCHA's credo: We are stronger together than apart. To learn more about SCHA and its mission, go to: http://www.scha.org.
SC’s budget: An Energizer bunny still growing and growing
By Ashley Landess
Special to Statehouse Report
MAY 20, 2011 -- Sometimes repeating the obvious is the quickest way to get readers’ attention, so here goes: people are struggling financially more than they have in decades and our state has been hard by the economic downturn. They aren’t rebounding at home. They do not have more disposable income for vacations or upgrades to appliances and automobiles. Gas prices are crunching, the cost of goods and services is rising and savings accounts are dwindling.
But they don’t seem to hear that in the Statehouse, where legislators are poised to pass the largest budget in state history. At $22 billion, it’s more than $1 billion up from last year. That’s right – state government’s bank account is growing at the direct expense of ours. That isn’t demagoguery, folks. Government spending is a zero-sum game. For every dollars they spend, that’s a dollar we don’t. And Columbia’s spending is growing twice as fast as our income levels, which are still among the lowest in the nation.
We could talk about all the waste in the budget. And yes, it is still there. Millions to fund tourism and advertising, incentives for film producers, undisclosed economic development recruitment, etc. There is no point in arguing the value of any of that here, although I will say none of it has had measurable impact on job growth or income levels. But the question is whether in this economy taxpayers can afford to pay for any of it. The answer is no, and we shouldn’t have to. Businesses in all counties are shutting the doors because they can’t afford to pay their employees, much less cover the cost of industry-specific advertising campaigns.
Taxpayers shouldn’t be fooled by the “Statehouse Economics” spin about how the general fund shrunk over the years, and we’re just trying to get it back up again. The general fund is one of three pots of money that pays for government programs. It has shrunk over the last couple of years, in no small part because we waive more corporate income tax than we collect, and exempt more sales tax than we collect. That means while some get special tax breaks because of their connections in Columbia, the rest of us are paying the bills through “other funds,” the fees that are tacked on to individuals and businesses for services we should already be funding through our income and sales taxes.
Legislators have been growing the size and cost of government for more than a decade. If the money isn’t available in one fund, they get it from another. The federal government pays for more than a third of state government and this new budget contains more than $8 billion from Washington. The “other funds is also up, and over $7 billion. The legislature has not cut the cost of government at all, and they are not doing so this year.
There isn’t any point in discussing what should be cut over what shouldn’t, because all of it has to be. The irresponsible spending is crippling our state’s economy and taxpayers simply can’t afford it anymore. The question is no longer whether we want to give children health care or cut taxes for the rich. SC politicians of both parties have given away billions to wealthy out-of-state companies at the direct expense of taxpayers, and taken DC money to make up the difference. Today, it is middle-income taxpayers who cannot afford their medical bills. Who should spend that extra $1 billion – lawmakers or citizens?
Every government program has its defenders, and legislators thought every one of them valuable at some point. But reality dictates that we cannot afford them all, and this General Assembly is comprised of a majority who claim to believe taxpayers deserve to spend as much of their own money as possible. They need to remember that right now. There is no excuse to grow government by $1 billion. Lawmakers should cut programs this year and send money back home. Right now, we need it more than they do.
Ashley Landess is president of the South Carolina Policy Council.
Let's restore sanity to rhetoric
To Statehouse Report:Thanks so much for your factual, common-sense reporting with regard to the National Labor Relations Board's complaint against Boeing. The vehement hatred and total disrespect for unionized labor in this country is appalling. Since when is it a horrible thing that a federal agency set up to monitor labor/management relations actually looks into a complaint in order to protect a state's work force?
I think the Republican Party is way over the edge on the entire subject of labor relations. They seem to think that business is all-powerful and all-knowing and they don't need any supervision to ensure fairness, equity and safety in the work place. May I remind them of the days of child labor, horrific, dangerous working conditions and sub-minimum wages? Reform of all of these issues would not have taken place without the labor movement and federal enforcement.
Can we please restore sanity in the political rhetoric (dominated by the GOP) in South Carolina?
-- Roxanne Walker Cordonier, Taylors, SC
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From dredging to s-l-o-w-d-o-w-n
Sensitivity. House and Senate leaders are putting forward a bill to drop the phrase “mental retardation” from the state’s lexicon, and replace it with “intellectual disability.” More.
Relevancy. Charleston is set to host a GOP presidential town hall debate Jan. 19. More.
Dredging. South Carolina’s congressional leaders secured a federal dollars down payment on the money to study dredging Charleston Harbor, which could lead to a deepening capable of handling substantially bigger boats and commerce. More.
Storms. While forecasters don’t believe the upcoming hurricane season will be as bad as last year, they think will still be bad, with as many as 18 named storms, and as many as 10 hurricanes. More.
S-l-o-w-d-o-w-n. Slowing the budget in the Senate might make political sense (e.g., not having to vote on contentious bills) but it only serves the politicians, not the citizens.