NJ Privatization Task Force Final Report

8/9/2019 NJ Privatization Task Force Final Report

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TheNewJersey

PrivatizationTaskForce

ReporttoGovernorChrisChristie

May31,2010


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TheNewJersey

PrivatizationTaskForce

TheHon.RichardA.Zimmer

Chair

TheHon.ToddCaliguire

President,ANW/CrestwoodInc.

KathleenDavis

ExecutiveVicePresident&COO,ChamberofCommerceSouthernNewJersey

JohnGalandak

President,Commerce

&

Industry

Association

of

New

Jersey

TheHon.P.KellyHatfield,Ph.D.

Staff

JosephMilestone,Esq.,OfficeoftheInspectorGeneral

DavidWeinstein,OfficeoftheGovernor


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ExecutiveSummary

OnMarch11,2010,GovernorChristopherJ.ChristiesignedExecutiveOrder17,creatingthe

NewJerseyPrivatizationTaskForce,whichwasgivenuntilMay31,2010toundertakeacomprehensive

reviewofopportunitiesforprivatizationwithinstategovernmentandtoidentifyimpedimentsto

privatization.

Toachievethesestatedmandates,theTaskForceheardpresentationsfromnumerousexperts

andpractitionersontheuseandimplementationofprivatization,aswellasstakeholdersandthepublic,

includingextensivetestimonyatthreepublichearings,inTrenton,SummitandVoorhees.TheTask

Forcealsoconferredwithnearlyallthemembersofthecabinetandtheleadersofthestates

transportationauthoritiesandstudiedthereportssubmittedbyGovernorChristiestransitionteam.

TheTaskForcehascometotheconclusionthat,throughsensibleplanningandimplementation,

privatizationoffersavarietyofbenefitstogovernmentsandtaxpayers,includinglowercosts,

improvementsinthequalityofpublicservicesandaccesstoprivatesectorcapitalandprofessional

expertise.

PrivatizationhasbeenusedeffectivelybythefederalgovernmentandbyNewJerseyandmany

otherstates.

InNewJersey,successfulprivatizationinitiativeshavenotreceivednearlyasmuchattentionas

thosethatbeganunsuccessfully.TheTaskForceidentifiednumerousexamplesofprivatizationdone

well.Thatsaid,asprivatizationskepticsandopponentsremindedtheTaskForce,thestates

privatizationfailureshavemuchincommon:poorconception,uncleargoalsandlaxoversight. The

lessonslearnedfromthesefailureshaveinformedtherecommendationsinthisreport.

Themostsuccessfulgovernmentpractitionersofprivatizationhavecentralizeditsmanagement

andoversight.

New

Jersey

should

do

so,

too.

The

state

should

institute

sound

policies,

employ

best

practices,defineclearobjectivesandmeasureprogresstowardthem.

TheTaskForcehasidentifiedestimatedannualsavings,uponfullimplementation,from

privatizationtotalingmorethan$210million.


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TABLEOFCONTENTS

INTRODUCTION..Page1

PRIVATIZATIONOVERVIEW

Page

3

PrivatizationGoals

PrivatizationinOtherStates

NewJerseysPrivatizationEfforts

INSTITUTIONALIZINGTHEPRIVATIZATIONPROGRAM..........Page9

EstablishaCentralizedPrivatizationEntity

ApplyBestPracticesinProjectSelection&Contracting

InvolvePublicEmployeesintheProcess

CreateaProcessforUnsolicitedPrivatizationProposals

Protectthe

Environment

IMPEDIMENTSTOPRIVATIZATION........Page12

PRIVATIZATIONOPPORTUNITIESPage14

SummaryofSavings

Recommendations

APPENDIX......Page55

I. StakeholdersII.

Advisors


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1

INTRODUCTION

TheTaskForceheardpresentationsfromnumerousexpertsandpractitionersontheuseand

implementationofprivatization.ThereisnoquestionthatprivatizationcansubstantiallyhelpNew

Jerseystategovernmentaddressitsfiscalchallengesandpositionthestatetocompetemoreeffectively

inan

ever

changing

and

increasingly

global

economy.

Provided

that

it

is

implemented

sensibly,

privatizationoffersmanybenefitstogovernmentsandtaxpayers,includinglowercostsofservice

delivery,improvementsinthequalityofpublicservicesandaccesstoprivatesectorcapitaland

professionalexpertise.

Thetermprivatizationreferstoabroadarrayofstrategiesthatgovernmentsincreasingly

employtotakeadvantageofthecapabilitiesoftheprivatesectorandtherebyprovidebettervaluefor

taxpayers. Itcoversaspectrumrangingfromasimpleoutsourcingcontractforexample,withaprivate

firmtomowgrassaroundpublicbuildingstosalesofgovernmentpropertiesandtocomplexpublic

privatepartnershipsthataregovernmentownedbutfinanced,builtandoperatedbytheprivatesector

underlongtermleases.

Thoughcitizens

may

not

recognize

it,

privatization

is

an

ever

present

part

of

the

operation

of

theirgovernment.Forexample,morethanhalfofsuburbangovernmentsintheUnitedStatescurrently

contractwithprivatewastehaulersforgarbagecollection,asdoapproximatelyonethirdofcore

metropolitanmunicipalities,accordingtoa2007nationalsurvey.Nonprofitandvolunteerorganizations

provideawidearrayofsocialandcommunityservicesinmanycommunities,includingfireprotection,

educationandmentalhealth,aswellasenvironmentalandcommunitydevelopmentprogramsand

activities.CentralParkinNewYorkCityisoneofmanyurbanparksmanagedbyavoluntarycommunity

organization,andnonprofitsrunmorethanhalfofthemajorurbanzoosinthecountry,includingthose

inNewYork,Chicago,Dallas,Houston,SanDiegoandSeattle.Citizensandbusinessesroutinelyuse

governmentwebsitesandeservicesdesignedandoperatedbyprivateinformationtechnology

companies.Whathavenotbeenprivatizedacrossthecountryarestaterunlotteries.Althoughthey

havebeen

valued

and

targeted

as

saleable

assets,

aU.S.

Dept.

of

Justice

opinion

restricts

states

from

capitalizingontheirvalue.

Infrastructureisanotherareainwhichtherehaslongbeenalargeprivatesectorrole.

EntrepreneursbuiltthefirstroadsintheUnitedStates.Openingin1794,Pennsylvaniasprivatelybuilt

andfinancedPhiladelphiaandLancasterTurnpikewasthenationsfirstmajorlongdistancetoll

highway;25privatetollroadswereoperatinginNewJerseyby1857.Thetaxfinancedroadsand

highwaysofthemodernerahavebeenbuiltbyprivateconstructionfirmsundercontract,ashavenearly

allofthewater,wastewaterandothervitalinfrastructuresystemsthatsupportoureconomy.Today

morethan1,000localgovernmentsintheUnitedStatesincludingmanyNewJerseymunicipalities

haveenteredintopublicprivatepartnershipsforwaterorwastewaterservices,orboth,contractingout

theoperationandmaintenanceofthesesystemstoprivatecompanies.Similarly,governmentregulated

utilitiesfinance,

build

and

operate

the

vast

majority

of

the

energy

and

telecommunications

systems

uponwhichwerely.

Sterilephilosophicaldebatesaboutpublicvs.privateareoftendetachedfromthedaytoday

worldofpublicmanagement.Overthelastseveraldecades,ingovernmentsatalllevelsthroughoutthe

world,thepublicsector'srolehasincreasinglyevolvedfromdirectserviceprovidertothatofanindirect


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providerorbrokerofservices;governmentsarerelyingfarmoreonnetworksofpublic,privateandnonprofitorganizationstodeliverservices.


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PRIVATIZATIONOVERVIEW

Privatizationisusedbyleadersofbothmajorpoliticalpartiesandatalllevelsofgovernmentto

lowerthecostsandimprovetheefficiencyandperformanceofgovernmentservices.Prominent

examplesincludethefollowing:

UndertheadministrationofPresidentBillClinton,thefederalgovernmentsoldtheElkHillsNavalPetroleumReserve,theU.S.EnrichmentCorporation,theAlaskaPowerMarketing

Administration,SallieMaeandbillionsofdollarsworthofelectromagneticspectrum;and

institutedaseriousefforttocreateanonprofitcorporationtotakeoverairtrafficcontrol(as

morethan40countrieshavedonesince1987).TheClintonadministrationalsoconducted

competitionsfortheoperationofmorethan100airportcontroltowersandnumerousmilitary

basefunctions.Further,theClintonera EnvironmentalProtectionAgencydeclaredpublic

privatepartnershipsforwaterandwastewatersystemsaclassicwinwin.

TheadministrationofFloridaGovernorJebBushusedprivatizationandcompetitivesourcingmorethan130timesduringhiseightyeartenure(19992007),savingmorethan$500millionin

currentdollarsandavoidingmorethan$1billioninestimatedfuturecosts.GovernorBushalso

createdthestatesCouncilonEfficientGovernment,whichdevelopedacentralizedprocessforevaluatingwhenandwhereprivatizationisappropriate,aswellasassessingthecompetitions

forcontracts.

ChicagoMayorRichardDaleyprivatizedmorethan40cityservicesand,since2005,generatedmorethan$3billioninupfrontpaymentsfromprivatesectorleasesofcityassets,includingthe

ChicagoSkywaytollroadandseveralparkingassets.

FormerIndianapolisMayorStephenGoldsmithidentified$400millioninsavingsandopenedmorethan80cityservicesincludingtrashcollection,potholerepairandwaterandwastewater

servicestocompetitivebidding.

WhileservingasmayorofPhiladelphia,currentPennsylvaniaGovernorEdRendellsaved$275millionbyprivatizing49cityservices.

Leadersacrossthepoliticalspectrumhaveembracedprivatizationbecauseitintroduces

competitioninthedeliveryofpublicservicesandchallengespublicmonopolies.Implementedproperly,

competitiondrivesdowncostsandcreatesincentivesforperformanceandresults.Inwellstructured

outsourcinginitiatives,contractorshavestrongincentivestodeliveronperformanceforinstance,a

vendorsbottomlinewouldbehurtbythecancellationofanexistingcontractorbylosingtoa

competitorwhenthatcontractexpiresandisrebid. Apublicagencyexposedtocompetitionforthefirst

timemightbespurredtoimproveitsownperformance. Introducingcompetitionhelpsmanagers

determinetheirtruecostsandpromotesinnovation,efficiencyandgreatereffectivenessinserving

customersshiftingdemands.


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PrivatizationGoals

Governmentsturntoprivatizationtoachievemanydesirablegoals,including:

CostSavings:Costsavingsmayberealizedthroughprivatizationviaeconomiesofscale,reducedlaborcosts,bettertechnologies,innovationormoreefficientbusinessprocesses.AReasonFoundationreviewofmorethan100privatizationstudiesfoundthatcostsavingstypically

averagedbetween10percentand25percentdependingontheservice.Competitionoften

spursinhouseimprovementsthatmayobviatetheneedforoutsourcing.

QualityImprovements:Competitiveprocurementencouragesbidderstoofferthebestpossibleservicequalitytowinoutovertheirrivalsandtobecompetitiveforrebiduponcontract

expiration.

ImprovedRiskManagement:Throughprivatization,governmentsmaybebetterabletocontrolcostsbybuildingcostcontainmentprovisionsintocontracts.Privatizationmaybeusedtoshift

majorliabilitiesfromthegovernmenttothecontractor,suchasbudget/revenueshortfalls,

constructioncostoverrunsandcompliancewithfederalandstateenvironmentalregulations.

Timeliness:Whennewservicesmustberapidlyinitiated,privatizationcanprovideaquickstartbecauseprivatefirmscanhirepeoplemorequicklythangovernmentsgenerallycan.Similarly,

privatefirmscanincreasestaffmorequicklywhenadditionalworkersareneededtohandle

increaseddemandsortospeedupworkinanemergencybyofferingincentivestypically

unavailabletopublicworkers.

AccommodatingFluctuatingDemands:Privatizationallowsgovernmentstodealefficientlywithserviceswhosedemandvariesbyhour(forexample,busservice),dayorseason.Inwinter

monthsmany

states,

including

New

Jersey,

supplement

their

own

snow

plows

with

private

plowingcompanies,avoidingtheneedforstaffandequipmentthatareunderutilizedinthe

springandsummer.

AccesstoOutsideExpertise:Privatizationallowsgovernmentstoobtainstaffexpertisethattheydonothaveinhouseonanasneededbasis.Forexample,becauseofthefastpacedandever

changingnatureofinformationtechnology,governmentsroutinelypartnerwithprivate

companiestoprovidesuchservices.

Innovation:Theneedforlowercost,higherqualityservicesundercompetitionencouragesprivatevendorstocreatenew,cuttingedgesolutionstohelpwinandretaingovernment

contracts.

Allofthesegoalsfallunderthebannerof"performance."Usingprivatizationtoachievea

combinationofcostsavings,quality,timeliness,expertiseandinnovationarekeystoachievinghigher

performanceingovernmentservices.


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statecorrectionalsystem.ThesuccessofthismodelpromptedGeorgiaofficialstoapplya

similarmodelforthemaintenanceofnumerousfacilitiesacrosstheGDJJ,theGeorgia

DepartmentofCorrectionsandthestateBureauofInvestigation.

Privatizationcanplayaroleinenvironmentalprotection.Forexample,privatizationwasusedinNewJerseytoimplementregionalgroundwaterrestorationeffortsinCamden,Gloucesterand

Burlingtoncounties.IncoordinationwiththeNewJerseyDepartmentofEnvironmental

Protection,aprivatewatercompanybuiltandfinancedatnocosttothestatemorethan

$200millioninnewwatertreatmentandtransmissioninfrastructuretodelivertreatedsurface

watertoseveralcommunitiesandhelpaddressaquiferdepletionissues.

In2002,Floridabeganamajor$350millionprivatizationcontracttoconsolidateandautomatehumanresource,payrolladministration,staffingandbenefitsfunctions.Thestatehassaved$12

millionfromstaffreductionsand$80millionbyavoidingthecostofrebuildingitsownsystem,

inadditiontootherefficienciesgainedthroughtheeliminationofduplicativeservices.

Theseandmanyotherstateexperiencesofferoverwhelmingevidencethat,whenimplemented

carefullyusing

best

practices,

privatization

offers

state

officials

apowerful

means

of

reducing

costs

to

taxpayersandimprovingstateservicesatthesametime.Privatizationwillnotbeapanaceaforallof

NewJerseyscurrentfiscalchallenges,buttheTaskForcebelievesthatitcanandshouldplayarolein

streamliningstategovernment.

NewJerseysPrivatizationEfforts

SuccessfulInitiatives

TherehavebeenandcontinuetobenumerousprivatizationsuccessesinNewJersey.

Anational

model

for

public

private

partnerships

is

the

Hudson

Bergen

Light

Rail

line,

which

connectsthecommunitiesofBayonne,JerseyCity,Hoboken,Weehawken,UnionCityandNorthBergen.

OwnedbyNewJerseyTransit,theprojectwasfundedbythestateandfederalgovernments. Itwas

developedthroughtheawardofaDBOM(design/build/operate/maintain)contracttoanengineering

andconstructionconsultingfirm,whichagreedtodeliverafleetofvehicles,aguaranteedcompletion

dateand15yearsofoperationandmaintenanceofthesystemforafixedprice. Commencingoperation

in2000,theprojecthasmetorexceededitsobjectivesandthecontractwiththevendorhasbeen

extended. Thelightraillinehasbeenacatalystforbothresidentialandcommercialdevelopmentalong

therouteandhasplayedasignificantroleintherevitalizationofHudsonCounty.

Thestatespreschoolprogram,followingtheNewJerseySupremeCourtsrulingin1998,isan

exampleof

using

aprivatized

system.

Following

that

ruling,

which

required

that

the

state

provide

free

preschoolforthree andfouryearoldstudentsin28ofthestatespoorestschooldistricts,NewJersey

createdasystemwherecertifiedprivateprovidersofpreschoolinstructionwereallowedtoprovide

theseeducationalservices. Thetaxpayersavoidedtheexpenseofbuildingnewfacilitiesinthesestate

supporteddistrictsaswellastheextraordinaryexpenseofexpandingfacultyattraditionalpublic

schools. Theprogram,nowmorethanadecadeold,providespreschoolprogramsforapproximately

44,000students.


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AnotherhighprofileprivatizationprogramistheAtlanticCityInternationalAirport(ACY),

operatedbyaprivatecontractorfortheSouthJerseyTransportationAuthority. TheoperationofACY

throughthissuccessfulinitiativehasallowedforunprecedentedgrowthoftheairport,whichservesasa

keyeconomicdriverfortheSouthernNewJerseyregion.

Certainstatedepartmentsextensivelyoutsource. Forexample,almosteverydivisionwithintheDepartmentofHumanServices(DHS)hasapublicprivatepartnershipincludingMedicaidHMOs,the

developmentoftheNJKidschildsupportcomputersystem,theoperationofdayprogramsforthose

withdevelopmentaldisabilitiesandtheoperationofthecommunitymentalhealthsystem.

TheDivisionofStatePolicewasthefirstregulatoryagencyrequiringelectronicsubmissionof

fingerprints. Theinkandrollfingerprintingprocessrequiredbylawwassuccessfullyconvertedtoan

electronicsubmissionprocess(theMorphoTraksystem)byaprivatevendor.

TheNewJerseyTurnpikeAuthorityhasfullyprivatizedallserviceareasalongtheTurnpikeand

theGardenStateParkway.

TheDepartmentofCorrectionshasalongstandingprivatizationinitiativeforsubstanceabuse

servicesandreliesextensivelyonprivatelyrunresidentialcommunityreleaseprograms.

Individualswishingtoobtaintheirbirth,deathormarriagerecordsmaydosoonlinethrougha

privatelyrunprogramorganizedbytheDepartmentofHealthandSeniorServices.

TheDepartmentofChildrenandFamilies(DCF)alsohasarobustprivatizationinitiative. The

departmentsDivisionofYouthandFamilyServiceshasprivatizedalmostallgrouphomes,aswellas

specializedcasemanagementservicesandpostadoptionservices. WithinitsOfficeofEducation,most

occupational,physicalandspeechtherapyserviceshavebeenprivatized,alongwiththeSafeMeasures

program,

which

provides

DCF

with

essential

data

analysis

on

more

than

50

measures.

About80percentofallnewcarregistrationsareprocessedbydealersthroughaprivatevendor

thatcontractswiththeMotorVehicleCommission. TheMVCalsousesavendortoprocesssurcharges

paidbydriverswhohaveearnedexcessivepointsorcommittedspecificviolations;thevendorprovides

customerserviceandadministerspaymentplans.

AttheDepartmentofTransportation,alllinestriping,bridgepainting,guiderailworkand

resurfacinghasbeenoutsourced.

ThedevelopmentofcivilserviceexamshasbeenoutsourcedbytheCivilServiceCommission

andthedevelopmentoflicensingexamshasbeenoutsourcedbytheDepartmentofEnvironmental

Protection.

Ofcourse,thestateturnstooutsidevendorsformanyroutinetasksaswell,including

informationtechnologyservices,buildingmaintenance,snowremovalandsomevehiclerepairs.


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LessonsLearned

TheTaskForceinvitedtheStateInspectorGeneral,theStateComptrollerandtheExecutive

DirectoroftheStateCommissionofInvestigation(SCI)toitsfirstpublichearingtotestifyaboutthe

failedprivatizationeffortsinvestigatedbytheiroffices. TheytoldtheTaskForceaboutthelessonsthey

learnedfromfailuresintheprivatizationsinvolvingEZPass,EnCap,schoolsconstruction,motorvehicle

inspections,taxcollections,inmatehealthservicesandmunicipalutilities. Thesefailureshavemuchincommon:theywerepoorlyconceivedatthestart,goalswerenotclearlyarticulated,duediligencewas

superficial,contractorswereinexperiencedorundercapitalizedandgovernmentoversightwaslaxor

nonexistent.Inextremecases,governmentofficialshadclearconflictsofinterestandengagedinofficial

misconduct.

Thesefailureshaveledtotheenactmentofsignificant,albeitpiecemealandincomplete,

statutestoavoidfuturereoccurrences.

InresponsetotheEZPassprocurementfailure,thestatesPublicContractsLawwasoverhauled

toenhanceprocurementintegrityandbalanceadministrativeefficiencywithpublicaccountability.

InthewakeofthefailedEnCapenvironmentalcleanupandredevelopmentinthe

Meadowlands,lawswereadoptedrequiringredevelopersreceiving$50millionormoreinpublic

financialassistancetomeetenhancedfinancing,fiscaltransparencyandoversightstandards.

FollowingacriminalinvestigationbytheAttorneyGeneralintoallegationsthattheoutside

companyperformingtaxdebtcollectionswasoverbillingthestateandgivinggiftstostateofficials,the

stateindictedsixstateemployeesandthreevendoremployees.Thestatealsoenteredintoanon

prosecutionagreementwiththevendorunderwhichitpaidthestatenearly$2millionasrestitutionand

thecostsincurredfortheinvestigationandagreedtooversightbyanindependentmonitor. Thestate

hassincestrengtheneditsConflictsofInterestLawandmandatedethicstrainingforallstate

governmentemployees.

Althoughthenewlawsresultingfromfailuresofpastprivatizationinitiativesformagood

foundationtoensurethesuccessoffutureprivatizationinitiatives,NewJerseydoesnothavea

comprehensivesystemformanagingtheprivatizationprocess. NewJerseysprivatizationexperience

bothitssuccessesanditsfailureshaveinformedtherecommendationsmadebytheTaskForce.


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INSTITUTIONALIZINGTHEPRIVATIZATIONPROGRAM

ExperiencesinNewJerseyandelsewhereshowthat,toestablishprivatizationasaneffective

policy,anappropriatemanagementstructureisneeded,suitablepoliciesmustbeadoptedandbest

practicesmustbefollowed. Theprincipaldeterminantofsuccess,however,ispoliticalwill,whichbegins

withthe

Governor,

who

we

recommend

announce

as

an

administration

priority

that

achieving

efficiency

throughprivatesectorcompetitionisastandardpolicyforallstateagencies.

EstablishaCentralizedPrivatizationEntity

Statesthathavehadthemostsuccessinprivatizationcreatedapermanent,centralizedentityto

managebothprivatizationandrelatedpoliciesaimedatincreasinggovernmentefficiency. Suchan

entitycanconstantlyevaluateagencyperformance,andimplementandoverseeprivatizationinitiatives

inaconsistentwayacrossstategovernment. NewJerseywouldbewellservedbyanentitywhose

missionistoseekgovernmentefficiencyandcreatecompetitionforservicedelivery.Itshouldassist

governmentagenciesindevelopingabusinesscase,foranyproposedprivatization,thattakesinto

accountandevaluatespotentialcostsavings,servicequalityimprovements,risksandotherfactors,and

appliesarigorouscostbenefitanalysistodetermineifaprivatizationshouldgoforward.Thisentity

shouldalso:

Applyanddisseminatelessonslearnedandbestpracticesforprivatization. Conductanannualorbiannualinventoryofallfunctionsperformedbystategovernmentto

determinethoseactivitiesthatarenoncore,commercialfunctionsandappropriatefor

privatization,andpublishthisinventoryontheInternet.

Maintainaninventoryofsurplusstatepropertiesandotherunderperformingassetsthatcanbesold,andmakethisinformationavailableontheInternet.

Designcomprehensive,performancebasedcontractsforprivatizationvendors,andtheprocessfor

awarding

them.

Developprotocolsandproceduresforcontractmonitors,andassistthemonitorsincarryingouttheirresponsibilities.

Trackagencyperformanceinimplementingtheprivatizationstrategy. ReportperiodicallytotheGovernorandtotheLegislatureontheresultsandstatusofthe

privatizationprogram,andtheoverallefforttoincreaseefficiencyinstategovernment.

ApplyBestPracticesinProjectSelection&Contracting

Successfulprivatizationwillbeachievedonlythroughacombinationofbestpracticesforproject

analysis,forvendorselection,forcontractingandforperformancemonitoringandoversight.

Accordingly,the

Task

Force

recommends

that

the

following

policies

be

adopted

to

guide

privatization

efforts:

Basedecisionsonaccurate,activitybasedcosts,andauniformcostaccountingmodel. Ensurethatonlyqualifiedbiddersinsufficientnumbersparticipate. IfanRFPattractsonlya

singlebidder,itmaybedefectiveandinneedofrevisionandrebidding.


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Awardcontractsbasedonpredetermined,meritbasedcriteria,andfollowingadocumentedscoringprocess. Thisprocessshouldincludeconsiderationofamixoffactorsincludingquality,

experience,technologicalinnovationandrisktransfer,aswellascost.

Usequalifiedandunbiasedevaluatorstorankandjudgeproposals. Requiresuccessfulvendorstohaveastrongbalancesheet. Aperformancebondisnota

substitute

for

sufficient

financial

capital.

Ideally,

there

should

also

be

other

companies

with

the

interestandabilitytostepinshouldtheoriginalvendorfail.

Vetsubcontractorsanddownstreamcontractsasthoroughlyasprimecontractorsandsubjectthemtothesamerequirements.

Buildspecificmetrics,goalsandoutcomesintocontractssothatavendorsperformancecaneasilybemeasuredafterthecontractisawarded.

Enforcecontracttermsandimposeprescribedpenaltiesuptoandincludingcontractterminationifthecontractorfails. Toencouragebetterperformance,rewardthecontractorif

specificgoalsareexceeded.

Conductopen,competitiverebiddinguponcontractexpirationtocreateapermanentcompetitiveclimateandpreventthecreationofaprivatemonopolythatmerelyreplacesthe

previouspublicmonopoly.

Requirerigorousandvigilantmonitoringofeachcontractonarealtimebasistomaintaintheaccountabilityofthevendorandensurethatcontractualtermsareenforced. Monitoringmust

beindependent,transparentfromthebeginningofthecontractandinsertedintoeveryfacetof

theproject. Thecostofthemonitoringshouldbeincludedineachprivatizationproposaland

takenintoaccountintherequiredcostbenefitanalysis.

Ingeneral,itisessentialthatthepublictrusttheintegrityofthepublicofficialschargedwith

approvingandmanagingprivatizationinitiatives. Ineverystepintheprocess,fromprojectanalysisto

contractawardandprojectmonitoring,governmentofficialsmustbefreefromconflictsofinterestand

theappearanceofconflicts. Moreover,taxpayers,otherstakeholdersandthemediashouldunderstand

the

motivations,

goals

and

likely

effects

of

a

proposed

privatization

initiative.

As

much

information

as

possibleabouteachproject,includingRFPs,contractsandotherdocumentation,shouldbepostedon

theInternet.

InvolvePublicSectorManagers&EmployeesintheProcess

Privatizationismostsuccessfulwhenitisdoneincollaborationwithpublicsectormanagersand

employeesratherthanasanadversarialprocess. Thepublicemployeeswhoactuallyprovideaservice

onadaytodaybasisoftenhavethemostknowledgeaboutpotentialefficiencies. Givingthemthe

opportunity,wheneverpracticable,toimplementtheseefficienciesbyreengineeringthepresent

governmentoperation(eitherasastandaloneentity,orinpartnershipwithoneoftheprivatesector

bidders)sometimes

provides

amore

cost

effective

option

than

turning

over

the

operation

entirely

to

a

privatevendor. However,inordertoaccomplishatrueapplestoapplescomparisonbetweenpublic

sectorprovidersandaprivatecontractor,itisessentialthatallcostsassociatedwiththecurrent

governmentalstructure,includingpensionandotheroverheadcosts,beascertainedandincludedinthe

analysis.Whilethereareadditionalcostsassociatedwithallowingthepublicemployeestocompete,

suchasprovidingthemwithexpertstosupportthestructuringoftheirproposal,thesecostsare


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generallymorethanoffsetbytheenhancedlevelofcompetitionthatoccursastheresultoftheir

participation.

CreateaProcessforUnsolicitedPrivatizationProposals

Ataskforcewithalimitedtimeframecannotpossiblyproduceadefinitivestatementonallof

theopportunities

for

privatizing

functions

within

such

ahuge

and

complex

organization

as

state

government.Moreover,themarketenvironmentisalwayschanging. Newprivatesectorvendorswith

differentareasofexpertise,experienceandinnovativebusinessstrategiesarecontinuallyemerging.

Thesevendorswillpresentnewwaystotesttheefficiencyofpubliclyprovidedservices.

Whilethecentralizedprivatizationentityshouldbetaskedwithcompiling,maintainingand

publishinganinventoryofthecommercialactivitiesbeingcarriedoutbystateagenciestoidentify

potentialcandidatesforprivatization,thisaloneisnotsufficienttouncoverservicesappropriatefor

privatization. Thebestwaytochallengegovernmenttoprovideservicesinthemostefficientwayonan

ongoingbasisistoprovideaprocesswherebyprivatesectorvendorscanputforwardprivatization

proposals,

both

for

those

services

identified

on

the

inventory

of

functions

performed

by

state

governmentandalsoforothersthatareidentifiedbythemonanunsolicitedbasis.

Therelevantpublicsectoragency,undertheguidanceofthecentralizedprivatizationentity,

shouldberequiredtorevieweachproposalsubmittedbyapotentialvendorandrespondtoit.

Obviously,atthesametime,thisrequirementmusttakeintoaccountthelengthoftimesincethelast

privatizationprocessconcerningacertainserviceinordertoprovideabalancebetweenremaining

competitiveandtimespenthavingtorespondtonewproposals.

ProtecttheEnvironment

Privatizationcan

and

should

promote

environmental

stewardship

and

sustainable

development.

Itisessentialthat,whereapplicable,privatizationinitiativesreflectthestatespolicyprioritiesand

upholdexistingenvironmentallawsandstandards.Appropriateprivatizationcontractsshould:

Includeenvironmentalrequirementsaspartoftheperformancestandards; Incorporateenvironmentalgoalsearlyinthebiddingprocesssothatpotentialcontractorshave

theopportunitytoofferideasforimprovingprojectperformance;

Includemonitoringandcomplianceprovisionstoensurethatprojectscontinuetomeetenvironmentalperformancegoals;and,

Encourageprivatepartnerstoprovideplansforthereuseandrecyclingofmaterialsaswellasforthesafeandenvironmentallysounddisposalofnonreusablematerialswhereprivatization

projects

involve

the

replacement

of

aging

infrastructure.


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IMPEDIMENTSTOPRIVATIZATION

TheTaskForcehasidentifiedanumberofimpedimentsthatrestrictthemanagerialprerogative

ofgovernmenttobetterservethestatestaxpayersbyprivatizingitsservicesandfunctions.

CivilService:Thevenerablecivilservicesystem,createdin1883,replacedtheoldspoilssystem

andformanyyearsservedwelltoprotectpublicemployeesfromarbitrarymanagementactions.

Startingseveraldecadesago,however,aparallelsystemcollectivebargainingemergedtoprotect

employees,renderingthecivilservicesystemlargelyredundant.Todaycivilservicefrustratesgood

managementandimpedesthepursuitofpoliciessuchasprivatizationthatimprovegovernment

performance. Thelegislatureshouldreformcivilserviceforstateemployeesandpassthelegislation

proposedbytheGovernorinMay,2010,whichwouldprovidemunicipalitiesandcountiestheabilityto

optoutofcivilservicebyordinanceorreferenduminitiatedby15percentofthevoters. TheTaskForce

alsosupportstheGovernorsproposalgivingstatecollegesanduniversitiestheopportunitytoremove

classifiedemployeesfromcivilserviceandofferthemopportunitiestobeincludedintheinstitutions

personnelsystem

DisplacedWorkers

Pool

(DWP):

The

state

should

oppose

extension

of

current

labor

contract

languageregardingtheDisplacedWorkersPool(DWP),whichallowsworkerswhoarelaidoffor

displacedduetoprivatization,outsourcingorclosureoffacilitiestoremainemployedbythestateforup

tofourmonths,withtheoptionofanextensiontosixmonths.Thesestateemployeescontinueto

receivetheirfullsalary,healthandallothercontractualbenefits,andcontinuetoaccrueseniority,

withoutperforminganywork.

AuxiliaryServices:NewJerseyspubliccollegesanduniversitiesneedtheflexibilitytolookatall

availableoptionstocutcosts.UndertheEmployerEmployeeRelationsAct,statecollegeshavethe

managerialprerogativetoprivatizemaintenancefunctions;however,theymustcomplywithoverly

burdensomeCivilServiceproceduresbeforeprivatizationimplementation.Statecollegesand

universitieswould

saves

tens

of

millions

of

dollars

annually

if

they

could

outsource

avariety

of

facility

maintenancefunctions.

RestrictionstoSchoolDistrictContracting:Schoolboardshavethemanagerialprerogativeto

privatizecertainfunctions. IntheNewJerseySchoolBoardsAssociations2009survey,238(40percent)

ofthestatesoperatingschooldistrictsrespondedand84.2percentofthemreportedthattheyfully

contractfoodservices,maintenance,transportation,childstudyteamservicesorbusinessoperations.

Theyreportedanannualcostsavingsof$38.8milliondollars.Legislationhasbeenproposedinseveral

sessionsoftheLegislaturethatwouldplacedetrimentalrestrictionsonschoolboardsabilityto

contract. Inthesefinanciallychallengingtimes,schooldistrictsneedtobeencouragedtooutsource

moreoperations. Attemptstoplacerestrictionsoncontractingshouldbeopposed.

AdministrationofWorkers'Compensation:Statecollegesanduniversitiesshouldbeauthorizedtoexploretheservicesandinsurancecoveragerequiredtomanagetheirownworkerscompensation

programs. Currently,TreasurysDivisionofRiskManagementadministersthestatecollegesand

universitiesworkercompensationclaims,andtheAttorneyGeneralrepresentstheinstitutionsinthe

WorkersCompensationCourt. TheDivisionofRiskManagementbillstheinstitutionsquarterlyfor

moneypaidbythestateonbehalfoftheinstitutionsforadministeringtheirworkerscompensation

claims.


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13

PublicPrivatePartnerships:Thestateshouldenactbroadbasedenablinglegislationthatwould

allowboththestategovernmentandlocalgovernmentstoenterintopublicprivatepartnerships

withoutrequiringstateauthorizationforeveryindividualproject.

MandatoryNegotiations:TheNewJerseyEmployerEmployeeRelationsActshouldbeamended

topermitpublicsectoremployerstooutsourceservicestoprivatevendorswithouttheneedto

negotiatetheimpactoftheseactions.


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14

PRIVATIZATIONOPPORTUNITIES

ThenecessarilyshorttimetheTaskForcehashadtocompleteitsworkhasnotalwayspermitted

theexhaustivevettingandcostbenefitanalysisthatitrecommendsinthisReportforallprivatization

initiatives.

NorhastheTaskForcebeenabletocalculateprecisesavingsfortheproposalsthatfollow. This

isduenotonlytothefactthattheactualcostofaprivatizedalternativewilloftennotbeknownuntil

theendofafullfledgedcompetitivebiddingprocess,butalsobecauseNewJerseystategovernment

agencieshavedifficultycalculatingwithprecisionthefullcostoffunctionscurrentlyperformedatthe

statelevel.

TheTaskForce,giventheseconstraints,hasdoneitsbesttoestimatethemonetarysavings,if

any,ofeachoftheprivatizationopportunitiesidentified.


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SUMMARYOFESTIMATEDSAVINGS

OPPORTUNITY EstimatedAnnualSavingsUponFullImplementation

Dept.of

Community

Affairs

Housing&UniformConstruction

CodeEnforcement TBD

NewHomeWarrantyProgram TBD

Dept.ofCorrections

InmateMedicalServices $6.5million

PrisonFoodServices $6.8million

FoodDistributionNetwork TBD

InmateHighSchoolEducation $2.7million

Dept.ofEducation

PublicPreKReforms TBD

SpecialEducationScholarships TBD

TheOpportunityScholarshipAct TBD

Dept.ofEnvironmentalProtection

StateParks

Concessions

$6

million

GolfCourseManagement

&Maintenance $0.1million

Dept.ofHumanServices

ChildSupportServices $3.74 million

StatePsychiatricHospitals $9.6million

DevelopmentalCenters TBD

Dept.ofLabor&WorkforceDevelopment

OneStopCareerCenters $3.2million

Boiler/PressureVesselInspections $1.7million


20/61

16

OPPORTUNITY EstimatedAnnualSavingsUponFullImplementation

HigherEducation

AuxiliaryServices $27.4million

MotorVehicleCommission

PassengerMotorVehicleInspections $28million

Title,RegistrationPaperwork TBD

NJTransit

ParkingFacilities TBD

BusMaintenance $10million

BusRoutes $7.5million

TurnpikeAuthority&

SouthJerseyTransportationAuthority

ManualTollCollection $35million

SJTACashlessTolling $3.7million

NJTARestAreas&ServicePlazas TBD

SJTAAdvertising&NamingRights TBD

Dept.

of

State

TrentonWarMemorial $0.8million

Dept.ofTransportation

InterstateRestAreas $1million

EmergencyServicePatrol $12.3million

Dept.oftheTreasury

WorkersCompensation

ClaimsProcessing $4million

Payroll,Pensions

&

BenefitsDisbursement $1.1million

HospitalBadDebtCollection $26million

InterDepartmental

ThirdPartyPowerManagement $1million


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17

PrintingServices $1million

SecurityGuards $3million

Water,WastewaterPlants TBD

EmployeeParking TBD

HighwayMaintenanceContracts TBD

FleetManagement&

Maintenance $4million

ProgramEligibilityDetermination $4million

Total $210million+


22/61

18

DepartmentofCommunityAffairs

Opportunity

Housing&UniformConstructionCodeEnforcement

Background

TheDivisionofCodesandStandardsintheDepartmentofCommunityAffairsisresponsiblefor

establishingandenforcingbuildingcodes.Buildingplanreviewandinspectionofstatefacilitiesand

hospitals,casinosandnursinghomes,powerplants,amusementfacilitiesandotherlargeorcomplex

structuresfallwithintheDivisionspurviewwhenlocalcodeofficialsdonothaveresources,authorityor

licenses.

TheDivisionalsoenforcesbuildingcodesin37municipalitiesthatdonothavelocalcodeofficials.It

provideselevatorinspectionsto457municipalities.Additionally,theDivisionlicensesconstructionand

subcodeofficialsandinspectors. Enormousinspectionbacklogsforelevators,roominghouses,

boardinghomes,healthcarefacilitiesandmultipledwellingunitscurrentlyexist.TheTransitionReport

fromthe

Sub

Committee

on

the

Department

of

Community

Affairs

noted

that

more

than

200,000

units

aredueforinspectionthisyearalonebutthattheDivisionhasthecapacitytoinspectfewerthan

175,000.Thisisunacceptablewhenthereexistsavastprivatesectorthatiscapableandwillingto

completetheseinspections.

TheDivision,whichisdesignedtobeentirelysupportedbyfees,incurredalossmorethan$10millionin

FY2009.

AsnotedintheTransitionReport: fortheDivisiontoperformadequately,efficientlyandcost

effectivelyinmeetingitsstatutoryobligations,itmustchangethewayitdoesitsbusiness.

Citiesandstatesacrossthecountryhaveprivatizedinspections.Theyhaveseenpermitprocessing

backlogsshrink

while

at

the

same

time

saving

taxpayer

money.

Recommendation

Withcarefulmonitoringandrobustoversightofallcontracts,theDepartmentshouldoutsourcethe

followingcodeenforcementfunctions:

1. PlanReviewOutsourceplanreviewtodesignprofessionals,whoalreadyarestatecertifiedintheir

professions.ReviewbyregisteredArchitectsandlicensedProfessionalEngineerswillshorten

planreviewtimeframes.

2. HousingInspectionsOutsourceinspectionsofmultipledwellingunitstolicensedentitiestoreducethebacklogofinspections.

Retiredstateworkerswhoarelicensedinspectorsandwhoarecurrentlyreceivingpensionbenefits

throughPERScannotdostatecontractedworkabove$15,000annually. Thissignificantlydiminishesthe

universeofindividualsqualifiedtoperformtheseinspections.


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19

Thestateshouldconsiderrevisitingthearbitraryuseofa$15,000thresholdforretiredstateworkers

performingtheseandothertypesofservices.

EstimatedCostSavingsand/orOtherBenefits

Itisdifficulttoestimateaspecificsavingsbutitisclearthereisarobustprivatesectorofstatelicensed

buildingand

code

enforcement

inspectors

available

to

competently

and

safely

perform

this

work,

therebyeliminatingtheneedfortheDivisiontoundertakethisfunctionatafinancialloss.

Outsourcingplanreviewandfieldinspectionswouldimprovetheefficiencyofthecodeenforcement

processandultimatelysavestateresources. Additionally,inspectionbacklogsreductionwillenhance

publicsafety.

Opportunity

NewHomeWarrantyProgram(NHW)

Background

TheNewHomeWarrantyprogramwascreatedbytheNewHomeWarrantyandBuildersRegistration

Actin1977.

TheActrequiresallnewhomebuilderstoberegisteredwiththeDepartmentofCommunityAffairsand

toprovidetheircustomerswithalimited,10year,newhomewarranty. Thiswarrantyisinsured

throughthestateplanorthroughoneofthefivestateapprovedprivateplans.

Privateplansgenerateabout80percentofallenrollments.

Recommendation

ThereisarobustprivateinsurancemarketofferingbuildersNewHomeWarrantyplans.TheTaskForce

believesNewJerseyshouldsellthestatesNewHomeWarrantyprogramtoaprivateinsurance

companythroughacompetitivebiddingprocessthatmaintainsthecurrenthighlevelofoversightNew

Jerseyexercisesoverthehomebuildingindustry,registrationofbuildersandprivatewarranty

programs.


OnlyanunderwritercanplaceanaccuratevalueonthestatesNHWplan.

Duringthelast10years,nearly64,000homeshavebeenenrolledinthestatesplan,withamarket

valueof

$24.2

billion.

During

that

period,

the

state

has

collected

$71

million

in

premiums.

The

current

NHWfundhasareserveofapproximately$17million,whichneedstobeincreasedforthisassettohave

realmarketvalue.Annualclaimpayoutsbasedonthelast10yearsaverage$2.2millionperyear.

Withthesaleofthisassettherewouldbeanimmediatecashinfusionandlongtermcostsavingstothe

state.


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20

DepartmentofCorrections

Opportunity

InmateMedicalServices

Background

AlthoughnowprovidedbyUMDNJ,inmatemedicalanddentalserviceshadbeenprivatizedinthepast.

Undertheprivatevendor,poorfiscalmonitoringandweakcontractenforcementledtoincreasedcosts.

Recently,thecontractwiththeprivatevendorwascancelledandtheUniversityofMedicineand

DentistryofNewJersey(UMDNJ)expandeditspresenceatDOCtooffermedicalanddentalservicesin

additiontothebehavioralhealthservicesthatithadbeenprovidingpursuanttoamemorandumof

agreement.

Theprojectedfiscal2010annualexpenditureforinmatebehavioralhealthservicesalone,including

pharmaceuticals,is$44.5million.WhileUMDNJisrealizingsavingsforDOC,aportionofthosesavings

aremeasuredfromtheinflatedcostspreviouslychargedbytheprivatevendor.UMDNJisalsorealizing

additionalsavings

for

DOC

through

prudent

buying

of

prescription

drugs.

These

savings

are

both

short

term.

AprivatevendorwellmonitoredbyDOCshouldintroduceinnovativeprogramsdesignedtoachievereal

longtermsavings,suchashealthandwellnessprogramsdesignedtoreduceinmateneedformedical

servicesandprescriptiondrugs.Inallcases,vendorsshouldbemadetocompetefortheopportunityto

providetheseservices.Suchcompetitionwilldrivecostsdownandatthesametime,improveservice

quality.

ProvisionsoftheC.F.v.Terhunesettlement,aprisonerrightslawsuit,thatapplytomaleinmateshaveexpiredandprovisionsthatapplytofemaleinmateswillexpireonJuly2,2010. ThispresentsDOCwith

theopportunitytorevisitthedeliveryofinmatemedicalservicesandreconsiderthelevelofservices

provided.New

Jersey

is

generally

considered

to

provide

quite

generous

medical

services

in

its

correctionalfacilities.

Recommendation

Exploreprivatizationopportunitiesforinmatemedicalhealthservices.


Throughacombinationofprivatizationandchangesinthedeliveryandmanagementofinmatemedical

services,thestateshouldrealizea15percentsavingsacrosstheboard.Forbehavioralhealthservices

alone,thesavingswouldbe$6.5millionperyear.

Opportunity

PrisonFoodServices

TheStateFoodDistributionNetwork


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21

Background

Eachyear,theDepartmentofCorrections(DOC)spends$75milliontoprepareandservemorethan28

millionmealsforinmates,staffandvendors. Theaveragecostperdayis$8.18,or$2.73permeal.

DOChasacentralproductionkitchenatSouthWoodsStatePrison(Bridgeton),whichprovidespre

cookedmeals

for

the

DOC

institutions.

This

menu

meets

American

Dietetic

Associations

(ADA)

nutritionalrequirements.

ThiscentralizeddistributionnetworkfromTrentontothevastmajorityofthestatefacilities,including

thoseoperatedbytheJuvenileJusticeCommissionandtheDepartmentsofHumanServicesandMilitary

andVeteransAffairsisoutdated.Allbutthreestateshaveprivatizedthisfunction.

Kansas,forinstance,recentlyprivatizeditsprisonfoodservice.Insodoing,itrealizeda25percent

savings. Basedonthatexperience,reducingprisonmealcostsby$2perdayinNewJerseyfrom$8to

$6isareasonableexpectation.

Recommendations

1. LongtermsavingsofprivatizingtheentireDOCprisonfoodservicesfunctioncouldbegintobequantifiedthoughashorttermfoodserviceprivatizationpilotprogramattheCentralReception

andAssignmentFacility(CRAF). Currently,CRAFservesapproximately1.1millionmealsannually

foranannualcostof$3million.

2. DOCshouldalsoissueaRequestforProposaltoprivatizetheentireprisonspecificfoodservicesoperation.

3. NewJerseyshouldprivatizetheDistributionandSupportServicesinfrastructure.Thisprivatizationcanbedoneindependentlyoftheprivatizationofinmatefoodservices.

EstimatedCostSavingsand/orOtherBenefit

1. BasedontheexperienceofKansas,NewJerseywouldsave$400,000asaresultofapilotprogramatCRAF.DOCsupportsthispilotprogram.

2. BasedontheexperienceofKansas,NewJerseywouldsave$6.8millionannuallyifitprivatizedtheentireoperation.

3. AbsentaRequestforProposal,theTaskForcecannotestimateacostsavings.

Opportunity

InmateHighSchoolEducation&GEDProgram

Background

TheDepartmentofCorrections(DOC)isrequiredtoprovideeducationthroughwhichalloffenders

underage21whohavenotgraduatedfromhighschoolmightearnahighschooldiploma.


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22

Thehighschooldiplomaprogramisofferedin10institutionsandhasanenrollmentof404inmates.

Thetotaleducationalbudgetforinmatesunderage21yearsis$11.6million.Fundingforthehighschool

diplomaprogramisprovidedbytheNewJerseyDepartmentofEducation.

DOCalsoprovidesahighschoolequivalency(GED)programforadultoffenders21orolderwhohave

notgraduatedhighschool. TheGEDprogramisofferedinall13DOCinstitutionsandhasanaverage

annualenrollment

of

12,000

to

15,000

offenders.

The

budget

for

the

GED

program

is

$16.9

million.

IntheproposedFY2011budget,totalcombinedspendingforinmatehighschooldiplomaand

equivalencyprogramsis$27.5million.

Recommendation

Throughacompetitivebiddingprocess,thestateshouldcontractoutboththehighschooldiplomaand

equivalencyprograms.


Withoutgoingthroughthecompetitivebiddingprocess,itisdifficulttoascertainwhatthesavings

wouldbe.Thatsaid,basedona10to25percentrangeofexpectedsavings,thestateshouldexpectto

saveanywherefrom$2.75millionto$7.13millionannually.


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23

DepartmentofEducation

Opportunity

PreKReforms

Background

NewJerseystategovernmentspendsapproximately$12,000perstudentannuallytofundthe40,000

three andfouryearoldsenrolledintheSupremeCourtsmandatoryprekprogramintheformer

Abbottdistricts.NewJerseysnewschoolfundingformulaincludessignificantexpansionofprek

programsthroughoutthestate.Whentheplanisfullyimplemented,about20,000morechildrenwillbe

enrolledinpubliclysupportedpreschools. Taxpayerfundingforthisprogramwillincreaseby

approximately$240million,bringingtotaltaxpayerfundingforprektoabout$790millionannually.

Thisdoesnotincludecapitalcoststoprovideclassroomsforprekstudents.

AccordingtotheNewJerseySchoolsDevelopmentAuthority,theestimatedcostperclassroomforEarly

ChildhoodEducationCentersin2010dollarsismorethan$430,000.Includinglandacquisition,

relocationand

other

costs,

the

per

classroom

cost

jumps

to

more

than

$527,000.

The

estimated

per

seatcostforbuildingnewpreschoolclassroomsisbetween$43,000and$53,000.

Attheprogramsinception,nearly100percentofstudentswereservedbyprovidersintheprivate

sector,manyofwhicharewomenandminorityownedbusinesses. Now,approximately60percentare

servedbyprivateproviders,astraditionaldistrictshavebuiltpreschoolsatgreatpublicexpenseand

unfairlyregulatedtheirprivatesectorcompetitorsoutofbusiness.

Therearecurrentlytwosetsofstateregulationsgoverningprek. Themajorityofprivateprek

providersaresubjecttoDept.ofChildrenandFamilies(DCF)regulations,butprivateprekproviders

workingintheformerAbbottdistrictsandservinglowincomechildreninsomeotherdistrictsare

subjecttotheregulationoftheDOEandtherespectivedistrictsthemselves,effectivelycrowdingout

theprivate

sector

and

driving

up

costs

to

the

taxpayer

without

any

documented

benefit

to

the

children

theyserve.

Recommendation

Stoptheconstructionofnewprekfacilitiesatpublicexpense. Requirepublicprektochargeataratethatreflectsitsfullcost,includingthecostoffacilities

constructedatpublicexpenseandemployeebenefitspaidbythestate.

Districtsareeliminatingparentsabilitytochoosetheirpreferredschoolbydeclaringthatallfouryearoldsmustbeenrolledindistrictrunprekprograms.Thisprocessshouldbeended.

ReplaceDOEstafftostudentratioswithDCFstandards. ReplaceDOEsquarefootageandotherfacilitiesrequirementswithDCFstandards. Transitiontoavouchersystemforqualifiedprekproviderssimilartotheonescurrentlyusedin

federalwelfaretoworkprograms,familyassistanceprogramsandthesupplementaleducation

servicesprovisionsoftheNoChildLeftBehindAct.


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24


Thestatewillavoid$18.4millioninprojectedFY2011capitalcostsbystoppingtheplannedconstruction

ofpublicpreKfacilities.

Longtermsavingswillbemuchhigher;ifnewpublicschoolclassroomsareaddedforallofthepre

schoolersthat

will

enroll

by

2014,

New

Jersey

taxpayers

will

be

responsible

for

between

$870

million

and$1.1billioninnewdebt.TheNJSDAhasalreadyreceivedproposalsandestimatesfornewpublic

prekprojectsthatwillcost$172million.

Opportunity

SpecialEducation

Background

Theparentsofsomestudentswithdisabilitiesaredissatisfiedwiththeirchildrensprogressattheschool

theyattendandwouldliketohaveotheroptions. Suchparentsoftenfacetimeconsuming,expensive

andfrustrating

disputes

with

local

school

districts

that

may

result

in

their

children

being

deprived

of

the

bestappropriateeducationalopportunities.

Recommendation

Anyparentofapublicschoolstudentincludingastudentinanyofthe17regionalschoolsofthe

DepartmentofChildrenandFamilies(DCF)withadisabilitywhohasanIndividualEducationPlan(IEP)

andwhoisdissatisfiedwiththestudent'sprogresswouldreceiveascholarshiptoallowthechildtogoto

anotherschoolifthestudenthasspentthepriorschoolyearinattendanceataNewJerseypublicor

DCFschool.

Aneligiblestudentwithadisabilitywouldbegivenseveraloptions,including:

Attendanceatanotherpublicschoolwithinthestudentshomedistrict; Attendanceataneligiblepublicschoolinanadjacentdistrictthathasspaceandprovidesthe

servicesidentifiedinthestudentsIEP;or,

Attendanceataneligibleprivatesectarianornonsectarianschool.Theamountofthescholarshipwouldbeequaltothefullamountthatwouldhavebeenspentonthe

studentinthepublicortheDCFschooltowhichthestudentisassigned(basedonhisorherIEP)orthe

amountofareceivingschoolstuitionandfees,whicheverisless.Parentswillretainalltheirrights

undertheIndividualsWithDisabilitiesAct.

EstimatedSavingsand/orOtherBenefits

Theprincipalbenefitofthisprogramisthatstudentsareabletoattendaschoolthatprovidesthemwith

themostsuitableeducation.Whileitisdifficulttoestimatepreciselywhatsavingsmightaccruetothe

stateandtolocalschooldistricts,thevalueofthescholarshipcannotexceedthecostsincurredforthe

studentbytheschoolheorsheiscurrentlyattendingsooverallcostswillnotbeincreased.


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InNewJersey,approximately16,000specialeducationstudentsareservedbyaprivateeducation

provider.

StudiesoftheMcKaySpecialNeedsScholarshipprograminFloridaindicatethatavailabilityofspecial

needsscholarshipscreatesamoreresponsive,lessconfrontationalrelationshipbetweendistrictsand

parentsofspecialneedsstudents. Thisresultsinreducedlegalcostsforschooldistrictsandaggrieved

parents.

Opportunity

TheOpportunityScholarshipAct

Background

TheOpportunityScholarshipAct(OSA),asamendedbytheSenateEconomicGrowthCommittee,would

establishafiveyearpilotprogramthatwouldprovidetaxcreditstocorporationsthatcontributeto

scholarshipsforeligiblelowincomechildren. Thesecorporatecontributionswouldprovide

approximately3,200scholarshipsinthefirstyearoftheprogram,withanadditional3,200scholarships

tobeaddedeachsubsequentyearuptoanestimated16,000scholarshipsbythefifthyearofthe

program.

TheOSAprogramwouldpermiteligiblechildrentomovetoeitherpublicornonpublicschoolsthat

havebeenapprovedtoparticipateintheprogram. Scholarshipswouldbeupto$6,000forelementary

schoolsandupto$9,000forhighschools(foraweightedaverageof$7,000perstudent);innoevent

wouldscholarshipsbemorethanthecostperstudentofthereceivingschool.

Today,theweightedaverageamountofstateaidpaidperstudentpaidtoschooldistrictscoveredby

thebillis$15,725.

Thebill

requires

that

adistricts

state

aid

for

certain

categories

be

reduced

by

the

per

pupil

amount

generatedbythestudent.However,theentireamountofthestatessavingsfromreductionsinstate

aidwouldbededicatedbytheOSAtoanInnovationTrust,whichwoulddistributeinnovationgrantson

acompetitivebasistotheaffectedschooldistrictstoimplementcreativenewprograms.

Recommendation

PassS1872/A2830,theOpportunityScholarshipAct.


ThecostofthetaxcredittotheStateTreasurywillbemorethanoffsetbythesavingsachievedfrom

educatingstudents

in

lower

cost

settings.

Also,

to

the

extent

that

the

program

stems

the

closure

of

privateschools,italsowillpreventtheflowofdisplacedprivateschoolstudentsintohighcostpublic

schools.


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DepartmentofEnvironmentalProtection

Opportunity

ParkManagementConcessionAgreements

Background

NewJerseyalreadyusestheservicesofconcessionairesinseveralstateparks,butforalimitedvarietyof

services. TheNationalParkServiceisfarmoreaggressiveinitsuseofconcessionairesinsomeofthe

nationsmostbeautiful,andsuccessful,nationalparks,includingtheGrandCanyon,Yosemiteand

Yellowstone.

FederalagenciesliketheU.S.ForestServicehaveundertakenanevenbroaderuseofconcessionairesto

operatetheirrecreationalfacilitiesinamannergenerallyreferredtoasthe"wholepark"concept.Inthis

model,aconcessionwouldessentiallybealongtermlease10ormoreyears oftheentireoperation

ofaparkorgroupofparksunderaperformancebasedcontractwithaprivaterecreationmanagement

company.

Contractsaretypicallystructuredascommercialleasesinwhichtheconcessionairecollects100percent

ofgateandrecreationfeestofundtheparksoperationsandmaintenancecosts(includinglabor),and

theconcessionairepaysasetpercentageofthegaterevenuesbacktothepublicagencyasanannual

leasepayment.Publicexpendituresontheseparkscanbesignificantlyreducedifnoteliminated

entirelydependingonthelevelofongoinginvolvementbytheparksagency.

Concessionairesfunctionsarestrictlylimitedbythecontract;theycannotchangefees,operating

policiesandprocedureswithoutapprovalfromthecontractingagency. Thepublicauthoritywould

establishtherecreationorpreservationmissionforthepark,andadetailed,performancebased

contractwouldrequiretheconcessionairetomanagetheparktothatmission.

Recommendation

NewJerseyshouldenterintooneormorelongtermconcessionagreementswithprivaterecreation

firmsfortheoperationandmanagementofallstateparks.

Savingsand/orOtherBenefits

AnanalysisbasedonparkspecificexpenseandrevenuedatafromtheNewJerseyDepartmentof

EnvironmentalProtectionsuggeststhatthestatecouldsaveapproximately$6millionto$8.2million

throughthestrategicuseofwholeparkconcessionsthroughoutthesystem.

Opportunity

GolfCourseManagement&Maintenance

Background


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NewJerseyhasapproximately65governmentownedgolfcourses,includingtwostateownedcourses.

Inallcases,thesefacilitiesareultimatelyownedandpaidforbythetaxpayersofNewJersey.These

propertiesproducenopropertytaxes,whiletheprivatesectorpaysthehighestsuchtaxesinthenation

forprivatecourses.Governmentgolfcoursesareusuallyoperatedataloss.Thatis,theyaretaxpayer

subsidized.Forexample,thestateownedSpringMeadowGolfCourseisprojectedtolose$56,000this

fiscalyearonrevenuesofnearly$1million.

OutsourcingofgovernmentgolfmanagementinNewJersey,throughlongtermleaseofthesetaxpayer

ownedproperties,cangeneratetensofmillionsinfranchisepaymentstogovernmentsinlieuofreal

estatetaxeseachyear.

PrivateoperatorsofthestateownedCentertonGolfCoursepaythestateafixedrentof$104,000per

yearplusapercentageofgrossrevenueaboveathresholdamount.

Recommendations

Stategovernmentshouldenterintoalongtermmanagementandgroundsmaintenanceleaseofitsgolf

courses.TheRequestforProposalshouldrequirerespondentstoproposeanannualfranchisefee

paymentand

revenue

sharing

plan.

TheRFPshouldbemadeavailabletocountyandmunicipalgovernments,whoshouldalsooutsource

golfcoursemanagementtotheprivatesector.


Thetypicalgolfcourseoutsourcingconservativelygeneratesafranchisepaymentof$250,000and

providesfortheeliminationofgovernmentrelatedspendingofapproximately$100,000,foran

estimatedannualbenefitof$350,000.

Thesavingsandbenefitsincreaseaslocalandcountygovernmentsparticipate.


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DepartmentofHumanServices

Opportunity

ChildSupportServices

Background

TheDepartmentofHumanServicesDivisionofFamilyDevelopmentcompetitivelycontractsouteight

services.EachisconsideredasuccessbytheDepartment.Morecanbedonetosavetaxpayermoney

andincreaseserviceefficiencyandeffectiveness.NewJerseyschildsupportprogramisfragmented. It

involvesandentanglestheDepartmentofHumanServices,theAdministrativeOfficeoftheCourts,21

countywelfareagencies,aswellaslocalJudiciaryfiscaldivisions,allofwhichhaveahandinand

personnelprovidingtheseservices.

Thecurrentlyconfigured,inefficientsystemshouldbereformed.

Recommendation

Thestateshouldcentralizethedeliveryoftheseservices,issueaRequestforProposalsandexpand

existingcontractswherepracticable.

EstimatedCostSavingsand/orotherBenefits

PreliminarysavingscalculatedbyDHSindicatethepotentialforanimmediate$11millioninannualstate

andfederalsavings,ofwhich$3.74millionarestatedollars.However,thestatecanusethefederal

fundsforotherpurposes.

Opportunity

StatePsychiatricHospitals

Background

TheStateofNewJerseycurrentlyoperatesfourpsychiatrichospitals.

ThereisathresholdquestionastowhetherthestateorNewJerseyscounties,forthatmatter,which

separatelyoperateanumberofpsychiatrichospitalsshouldbeprovidingthisserviceatall.Experience

outsideNewJerseyindicatestheseimportantservicescouldbemoreefficiently,effectivelyandmore

comprehensivelyprovidedbyprivatesectororganizations.

StatepsychiatrichospitalshavebeenprivatizedinFlorida,Kentucky,SouthCarolina,Massachusettsand

NewHampshire;Texasisintheprocessofdoingso. InFlorida,anewstateoftheart300+bed

psychiatricfacility(SouthFloridaStateHospital),servingindigentandseverelymentallyillpatients,was

financedandconstructed,andhasbeenoperatedsince1998,byaprivatecompany. Itreplaceda40

yearoldfacilitythathadneverbeenaccreditedandsufferedfrompoorconditions.TheFlorida

DepartmentofChildrenandFamiliesreportedin2007thattheaveragecostperbedinprivately

operatedstatepsychiatricfacilitieswasasmuchas15percentlowerthanatthestaterunfacilities.A


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February2010reportbytheFloridaLegislaturesOfficeofProgramPolicyAnalysisfoundsimilarquality

ofcareatsixto14percentlessperbed.

Recommendation

Thestateshouldinitiallyconsidertheprivatizationofoneofthepsychiatrichospitalsitoperatesasa

steptoward

privatization

of

the

entire

system.


Absentanactualprocurement,itisdifficulttoquantifythetruepotentialcostsavingsthrough

privatization.

However,applyingthecostsavingsestimatesidentifiedinthe2010FloridaOPPAGAstudy(sixto14

percent)tothe$160millionthatAncoraislikelytocostinFY2011,NewJerseycouldpotentiallysave

between$9.6millionto$22.4millionperyearthroughcontractingoutoperationstoaprivateprovider.

Opportunity

DevelopmentalCenters

Background

ThestateoperatessevenDevelopmentalCenters: GreenBrook,Vineland,NorthJersey,Woodbridge,

Woodbine,NewLisbonandHunterdon. Throughoutthenation,statesareshiftingpublicfundingaway

fromlargeinstitutionslikethese.Thisreducedrelianceoninstitutionalizedcareisdriveninpartbythe

U.S.SupremeCourtsOlmsteaddecision,whichheldthatisolatingandsegregatingthoselivingwith

developmentaldisabilitiesininstitutionsviolatestheAmericanswithDisabilitiesActandconstitutes

discrimination.

Nationally,thepopulationinlargeresidentialcentersdeclinedby22.5percentfrom2000to2007. By

comparison,NewJerseyreduceditspopulationintheresidentialcentersduringthatsameperiodbyjust

15.6percent.

WhileNewJerseyisamongthestateswiththehighestspendingforinstitutions,NewJerseyisamong

thelowestinspendingoncommunityservices. Thecostofcareintheinstitutionscontinuestorise

everyyear. Communitybasedprogramsarecapableofservingaportionofthepopulationnowserved

inthecentersatamuchlowercostinmanycaseslessthanathirdandofprovidingappropriatecare

inanenvironmentfavorableforpatientsandtheirfamilies.

Reducingthecensusinthestatesdevelopmentaldisabilitiescentersnecessitatesthedevelopmentof

communitybased

services,

supports

and

residential

options

to

meet

emergency

needs

and

to

avert

out

ofhomeplacements.

Recommendation

Expandtheuseofcommunitybasedservices,supportsandresidentialoptionsforresidentsofthe

developmenttreatmentcenters.


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Thebenefitsofservingdevelopmentallydisabledindividualsinthecommunityversusstateresidential

centersarebeyondeconomics.Buildingcapacityinthecommunitycanalsoserveagreaterpopulation

duetoreducedcosts.


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DepartmentofLabor&WorkforceDevelopment

Opportunity

OneStopCareerCenters

Background

AcrossNewJersey,18OneStopCareerCentersassistthestatesunemployedwithjobtrainingand

searchsupport,careernetworking,aswellasvocationalandtradeschooltraining.Thistrainingoccurs

onsite,invariousschoolsandthroughapprenticeships.Thecentersprovidetechnologytoassistthe

unemployed,suchascomputers,telephonesandphotocopiers,whichaidthejobsearchandinterview

process.

Thesefacilitiesarefunded80percentbythefederalgovernmentand20percentbythestate;theyare

staffedby485fulltimeemployees.

California,Washington,Oklahoma,Ohio,FloridaandTexashavebeensuccessfulinprovidingthese

servicesin

aprivatized

setting.

These

states

have

competitively

bid

out

the

operation

of

their

centers

to

nonprofits,forprofitentitiesandtopublicworkers.

Recommendation

NewJerseyshouldoutsourceitsOneStopCentersthroughacompetitivebiddingprocess,similarto

whatwasdonebytheTexasWorkforceCommission.

EstimatedCostSavingsorOtherBenefit

Directstatespendingis$3.2millionannually.Othersavingswouldbedeterminedthroughthe

competitivebiddingprocess.

Otherbenefits

will

include

improved

outcomes

for

the

states

unemployed

workforce

if

vendor

contractsaretiedtoperformancebenchmarks.Additionally,NewJerseywillrealizemorefederal

fundingthroughimprovedperformance.

Opportunity

Boiler&PressureVesselInspections

Background

Understatelaw,theDepartmentofLabor&WorkforceDevelopmentmustannuallyinspectboilers

ownedbycertaincommercialandresidentialentities.

Atitsdiscretion,theDepartmentmayassigntheinspectionstoprivateinsurancecompanies. Boilersare

inspectedincompliancewithnationallyrecognizedstandardsandstateregulations. DuringFY2009,

nearly77,000inspectionsoccurredstatewide,withnearly70percentperformedbystatecertifiedand

licensedinspectorswhoworkforinsurancecompanies.Therearecurrentlymorethan100certified

inspectors.


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NewJerseysetstheinspectionrateschargedtocommercialandresidentialentities. Lastyear,thestate

collectedmorethan$4.1millionininspectionfees.

Today,thereisamorethanthreeyearbacklogofrequiredboilerandpressurevesselinspections,

accordingto

the

Department,

creating

asafety

issue

for

the

public.

Recommendations

Sincethebulkoftheinspectionsarenowhandledbyprivateinsurancecompanies,allinspectionsshould

beoutsourcedtoprivateinsurancecompaniesandprivatestatecertifiedandlicensedboilerand

pressurevesselinspectors.

TheDepartmentshouldproduceaplantoimplementafullyprivateinspectionprograminFY2011.

TheDepartmentshouldretainrobustoversightresponsibilities.


RemovingthisfunctionfromtheDepartmentwillproduce$1.68millionsavingsannually.


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HigherEducation

Opportunity

PublicCollegesAuxiliaryServices

Background

NewJerseyspubliccollegesanduniversitiesfaceincreasedfixedcostsandrisingcostsinabroadrange

ofareas,includingsalaries.Theseinstitutionsneedtheflexibilitytolookatallavailableoptionsto

controlspending.

Inconsideringtheprivatizationofcertaincampusauxiliaryservices,suchasfacilityandground

maintenance,significantimpedimentsarise. UndertheEmployerEmployeeRelationsAct,statecolleges

havethemanagerialprerogativetoprivatizemaintenancefunctions;however,theymustcomplywith

overlyburdensomeCivilServiceproceduresbeforeprivatizationimplementation.

Withoutreform,lengthy,expensiveprocesseswillcontinuetoleadtoadministrativehearingsandlegal

challengesthat

are

financially

significant,

handcuffing

higher

education

officials.

TheTaskForceapplaudsGovernorChristiesrecentrecommendationtoallowpubliccollegesand

universitiestooptoutofCivilService,whichisamongthegovernorstoolkitmeasuresthatwillhelp

highereducationinstitutionsinNewJerseytolowercosts.

Recommendation

Statecollegesanduniversitiesshouldoutsourceavarietyoffacilitymaintenancefunctions.


Intotal,theseinstitutionswillsaveapproximately$27.4millionannuallythroughoutsourcingthese

functions.


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MotorVehicleCommission

Opportunity

PassengerMotorVehicleInspections

Background

NewJerseypartiallyprivatizedthisprogrambyoutsourcingitin1998.In2010,thispublicprivate

partnershipisasuccessfulonethatleavesavastmajorityofmotoristssatisfiedwiththeexperience.

Still,athresholdquestionneedsanswering:WhyisNewJersey,atgreattaxpayerexpense,directly

providingmechanicalandemissionsinspectionsatall?Otherstatesprovideoroverseethisserviceina

varietyofways.

Approximatelyonethirdofstateshavecentralizedlanes,meaningtheyprovideallinspections;another

onethirdoverseeafullyprivateinspectionprogram;and,theremainingonethirdhaveahybrid

program,likeNewJerseyscurrentsystem,inwhichbothpublicandprivateinspectionsareavailable.

TheMotorVehicleCommissionhasproposedeliminatingmechanicalinspectionsinFY2011.Emissions

areanothermatter.

StatesarerightlyrequiredbytheU.S.EnvironmentalProtectionAgencytooverseeanemissions

inspectionprogrambuttheydonothavetooperatethemdirectly.Statecertified,privateemissions

inspectionshopscanandshouldprovidethisserviceasmanyalreadyarewithvigilantoversightby

theMVCandNewJerseyDepartmentofEnvironmentalProtection(DEP)professionals.

Recommendations

InFY2011,theMVCandDEPshoulddevelopatransitionplantomovevehicleemissioninspections

entirelyintotheprivatesector.Thisplanshouldincludeproperlycertifyingenoughprivateemissions

inspectionsshopstomakethetransitionseamlessformotoristsandassurethatprivateinspectionfeeswillbetransparentandreasonable.

BeginninginFY2012,NewJerseyshouldwithdrawentirelyfromdirectparticipationinthevehicle

inspectionprocess. Todoso,MVCwillhavetopayaterminationfeeunderitscontractwiththevendor

nowprovidinginspectionservicesforthestate.Thiswillproducealargenetsavings.

MVCwilllikelyrequireavendortooperatethevehicleinspectiondatacomputersystem. Additionally,a

vendorshouldbehiredbythestatetorigorouslymonitortheprivateemissioninspectors.

Followingthisplannedtransition,MVCshoulddeclaresurplusallappropriateparcelsoflandonwhich

itsinspectionfacilitiesnowoperate,thensellthelandforthehighestandbestuse.


TheFY2012buyoutnotedaboveis$7.9million;doingsowillproduceanetsavingsofapproximately

$28million.

Anadditionalbenefitisthepotentialreturnofcurrentlytaxexemptlandtomunicipaltaxrolls.


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Opportunity

Title&RegistrationProcessing

Background

Motorvehicletitlingandregistrationfunctionsarecurrentlyprovidedthroughahybridsystem.

Thissystemallowsaprivateentitytoprovidetitlingandregistrationservicesfornewcardealers,but

requiresthepurchasersofusedautomobilestoobtaintilesandregistrationsatMVCagencies.Motorists

cancompleteregistrationrenewalsonlineorinMVCagencies.Inotherstates,avarietyofprivate

entitiesprovidetitlingandregistrationservices.

ComputerandprocessupgradescurrentlyunderwaywillmakeitfeasibleforMVCtopartnerwiththird

partiestoperformadditionalfunctions.

Recommendation

Followingthecompletionofitsnewcomputersystemin2013,MVCshouldincreaseitspartnerships

withprivateentities.DoingsowillultimatelyreducefoottrafficinMVCagencies,allowthe

redeploymentofstatepersonnelanddecreasetheneedforstateownedorleasedofficespace.

Contractsshouldinallcasesprovideforthestringentprotectionofpersonaldata.

EstimatedSavingsand/orotherBenefit

Savingscannotbecurrentlyestimated.Motoristswillbenefitbybeingabletohavemanymoreoptions

forhandlingtheirtransactionswithMVC.


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NewJerseyTransit

Opportunity

ParkingFacilities

Background

NJTransitoperates144parkinglocationsaroundthestatethatincludeapproximately45,000rail

parkingspaces.

Recommendation

TheincomestreamfromNJTransitparkingfacilitiesmakesthemadesirableopportunityforapublic

privatepartnership. TheTaskForceacknowledgesandcommendsNJTransitsmovementinthis

direction,andbelievesitshouldcontinueexploringopportunitiesforpartneringwithaprivateentityfor

theoperationoftheseassets.

Estimated

Cost

Savings

and

/

or

Other

Benefit

Absentprocurement,itisdifficulttodeterminewhattheseassetsmightdrawthroughaPPP.However,

NJTransitshouldreceiveanupfrontpaymentshoulditenterintoanagreementwithaprivatefirmto

operateNJTransitparkingfacilitiesaswellasdevelopabuttingandotherlandownedbytheagency.

Inaddition,ifthetransactionisstructuredproperly,NJTransitshouldobtainapredictableincome

streamandavoidcostsofmaintainingandupgradingthefacilities.

Opportunity

BusMaintenance

Background

NJTransitmaintainsitsbusfleetat16maintenancegarageslocatedthroughoutthestate.Vehicle

maintenanceisacommoncommercialactivity,andmanygovernmentsoutsourcethiswork.

Recommendation

NJTransitshouldcreateacompetitivesystemforbusmaintenancethatallowsforfullprivatizationora

mixedsystemofpublicandprivatemaintenance. Spurredbycompetition,inhouseunitsmayimprove

theirperformance.NJTransitwouldlikelyendupwithseveralgaragesoperatedbydifferentcontractors

andseveralbyitsownemployees,creatingapermanentcompetitiveenvironmentandtherebyputting

NJTransitinabettermanagementposition.


AcostanalysisoftwooftheagencysmaintenancegaragesindicatesanFY2011savingsof$3.7million

ispossible,withsubsequentyearsavingsfromincreasedprivatizationrisingto$10millionormoreeach

year.


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Savingswillbedeterminedasafunctionofthenumberoffullprivatizationsandtheeffectthat

competitionhasontheremainingpublicmaintenancefacilities.TheNewYorkCityParksDepartment

(DPR)experienceisinstructive:Witheightgaragesforits2,000vehicles,ithiredaprivatecontractorto

maintainthevehiclesinonegarage.Afterayearofgoodresults,itcontractedouttwomoregarages

socontractors

maintained

35

percent

of

the

fleet

and

in

house

employees

maintained

65

percent.

Contractcostswere35percentlessthaninhousecosts.Totalautomotivemaintenancecosts(public

andprivate)inFY2001were26percentlessthantheywerefiveyearsearlieradjustedforinflationand

acostlierlaboragreement.

Opportunity

BusRoutes

Background

NJTransitBusOperationsprovidesbusserviceon197routeswithanFY2010operatingbudgetof$601

million. NJTransithasalreadyprivatizedsomeofitsroutes.Itcontractswithprivatecarriersfor67

routesthathaveanFY2010operatingbudgetof$46million.NJTransitoutsources25percentofits

routes,whichaccountsforsevenpercentoftheagencysoperatingbudget.

NJTransitdesignstheroute,setsthetimetableandissuesanRFPforacontractthatisgenerallyfor

sevenyearsthreeyearswithtwooptionaltwoyearextensions.NJTransitcomparesthebidsit

receivestowhatitwouldcosttodirectlyprovidetheservice.Inmostcases,theprivatecarriersbidsare

lowerandthecontractisawarded.Thecarrierdoesnotkeepthefares;NJTransitdoes,butpaysthe

contractorthefixedcontractprice,whichisbasedonseveralcostfactors.

Recommendation

NJTransitshouldaimforamoreequaldistributionbetweendirectandcontractservice,thelatterwith

multipleprivatecarriers.

ThiswouldcreateapermanentcompetitiveenvironmentinwhichNJTransitmanagementwouldbe

ideallypositionedtomanageboththepublicandprivatesidesmoreeffectively.Thisshouldbedone

graduallyandonlythroughattrition.Ifdoneinthismanner,noemployeeswouldbeterminatedandthe

federal13crequirementwhichmandatessixyearsofwagesandbenefitsforworkersdisplacedby

privatizationwouldbeinapplicable.


Outsourcinghas

led

to

large

savings

for

NJ

Transit.

For

example,

in

the

five

most

recent

contract

awards,

NJTsaved$59million,or25percent,overthesevenyearlifeofthecontract.IfonlyhalfofNJTransits

$647millionannualexpenditureforbusoperationswereoutsourcedgraduallyoversevenyears,as

recommendedabove,andifthatsamesavingsratewereachievedfortheoutsourcedhalfofthework,

NJTransitwouldsave$7.5millionthefirstyear,increasingto$150millionperyearbyyearseven.The

cumulativesavingsoversevenyearswouldtotalmorethan$300million.


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NewJerseyTurnpikeAuthority&SouthJerseyTransitAuthority

Opportunities

ManualTollCollection/NewJerseyTurnpikeAuthority

CashlessTolling

/Atlantic

City

Expressway

Background

About70percentofalltollscollectedontheNewJerseyTurnpikeandGardenStateParkwayarepaidby

electronictollcollection,knowninNewJerseyandmorethanadozenotherstatesasEZPass. Manual

tollcollectionaccountsfornearlyalloftheremaining30percentonthesetworoads.Manualtoll

collectionhasbeenoutsourcedsuccessfullybysuchtollfacilitiesastheFloridaTurnpikeEnterprise,a

muchlargerentitythantheNewJerseyTurnpikeAuthoritythathasasimilarelectronictomanualtoll

collectionratio.

TheSouthJerseyTransportationAuthorityintendstoinstallallelectronictollingontheAtlanticCity

Expressway,eliminating

the

manual

collection

of

tolls

completely.

SJTAs

plan

is

to

replace

existing

toll

plazaswith13strategicallyplacedgantriestosupportelectronictollingequipment.

Whiletherearesignificantbusinessanalysesissuestosolvebeforethistechnologyisoperational,other

tollfacilitiessuchasthePortAuthorityofNewYorkandNewJerseyarealsomovingtowardcashless

tolling.

Recommendation

AsastopgapuntiltheTurnpikeAuthoritytransitionstoallelectronic,cashlesstolling,itshouldissuea

RequestforProposalsforaprivatevendortoassumethemanualtollcollectionfunctiononthe

Authoritystwotollroads.

TheSJTAshouldmoveforwardwithitscashlesstollingplanandsharebestpracticeswiththeTurnpikeAuthority.


TurnpikeAuthority:

TheAuthoritycurrentlypays$85millionannuallyfortollcollectionlaborcosts.Basedonexperiencein

otherstates,theAuthorityispayingbetween40percentand50percentmoreperhourperemployee

thanaprivatevendormightcharge.

Basedontheseestimates,between$35millionand$42.5millionannualsavingsispossible.

SouthJerseyTransportationAuthority:

SJTAanticipatesanimmediateannualtollcollectionoperationalsavingsof$3.7millioninadditionto

significantcapitalcostavoidanceandassociatedannualdebtservicefrommovingtoallelectronic

tolling.


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Opportunity

TurnpikeAuthorityRestAreas&ServicePlazas

Background

Rest

areas

and

service

plazas

along

the

Turnpike

and

Parkway

are

currently

operated

and

maintained

throughacontractwithaprivatevendor.

Therevenuestreamgeneratedfromtheseoutsourcedoperationscanbeenhancedbyproviding

additionalandhigherqualityservices.

Recommendation

Assessthepotentialrevenuegeneratingcapacityofprovidingadditionalservicesatrestareasand

serviceplazasunderTurnpikeAuthorityoversight.


Anestimate

for

what

enhanced

use

might

produce

is

difficult

to

determine

absent

athorough

opportunitystudy.

Opportunity

SouthJerseyTransportationAuthorityAdvertising&NamingRights

Background

TheSouthJerseyTransportationAuthority(SJTA)wasestablishedbytheLegislatureinJune1991to

assumeoperationalresponsibilitiesfortheAtlanticCityExpressway,AtlanticCityInternationalAirport

(ACY)and

parking

facilities

in

Atlantic

City.

TheSJTAplanstoerect13gantriesalongthe44mileAtlanticCityExpressway. Thesestructuresare

intendedtoenableallelectronictollcollectionandtocommunicateinformationtomotorists.In

additiontoimportanttransportationandsafetymessagessuchastrafficandweatherconditions,the

displayswillhavethecapabilityofchangingimages,makingthemusefulforadvertisingshouldtheSJTA

navigateFederalHighwayAdministration(FHWA)guidelines.

Recommendations

TheSJTAsnewsystemofinformationgantriesshouldbedesignedtooffermessagingforcommercial

purposeswhenthesignageisnotneededfortraveloremergencycommunication.

SJTAshouldalsoidentifyandimplementadditionalopportunitiesfornamingrights,suchasthesaleof

namingrightsforexistingroadsideemergencycallboxesandareaswherewildflowers,ratherthan

grass,areplanted.

Inallcases,theserevenueenhancementsmustbeimplementedinamannerthatdoesnotaffecttraffic

safety,andshouldonlyproceedafteranyimpactontrafficsafetyisfullyassessed.


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TheSJTAestimatesthatthenetincomefromcommercialmessagespostedonthenewgantriescouldbe

$68millionannually.

Untilthetargetsfornamingrightsandadvertisingopportunitiesareidentified,itisdifficulttoplacea

valueontherevenuetoberealizedfromthesenewincomestreams.


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DepartmentofState

Opportunity

TrentonWarMemorial

Background

ATrentonlandmarksincethe1930sandtherecipientofa$35millionrenovationinthe1990s,theWar

MemorialislistedontheNationalRegisterandStateRegisterofHistoricSites. However,theWar

Memorialhasthepotentialtogenerateincreasedrevenuesifmanagedinconformitywiththeaterand

conferenceindustrystandards.Thefacilityisclearlyunderutilized.Themainauditoriumandballroom

cansupportmeetings,trainingandconferencesinconjunctionwithothernearbyfacilitiessuchasthe

MarriottHotelandtheMasonicTemple.Thereisanimportantopportunitytoseekoutsmart,

entrepreneurialmanagementthatmaximizesthisstateasset.

Adjustingfeesandchargestomatchindustrystandardsforthisstateoftheartfacilitywillimmediately

generateadditionalrevenue. Itwillalsomakeitattractivetoapotentialprivateoperator.

Recommendation

UseamanagementcompanytooperatetheWarMemorialunderalongtermagreementthatmaintains

thedignityandspecialusesofthefacilitywithoutundulyimpedingtheoperatorsopportunityto

increaserevenue.

EstimatedCostSavingsand/orOtherBenefit

NewJerseywouldrealizecostavoidanceof$800,000annually.


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Recommendation

DOTshoulddismantlethisprogramimmediatelyandceasecompetingwithprivatesectorroadside

assistanceentities.


DOTwillhavetheflexibilitytoreprogramapproximately$12.3millionannually.


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DepartmentoftheTreasury

Opportunity

WorkersCompensationClaimsProcessing

Background

TheDivisionofRiskManagementcurrentlyhandlesthemanagementandinvestigationofallWorkers

Compensationclaimsfiledagainststateagencies.WhiletheDivisionalreadyusesaprivateentityfor

medicalclaimsmanagement,stateemployeeshandleWorkersCompensationclaimsmanagementand

investigation.

Becauseofemployeeturnoverandhiringfreezesforthepastfewyears,stateworkerscompensation

investigators/adjustorsarehandlingacaseloadof1,0001,200claimseachcomparedtotheindustry

standardof250350.Thehugecaseloadmakesitimpossibletodomuchmorethanmovepaper,which

resultsinincreasedworkerscompensationcosts,prolongedworkerabsence,reducedproductivityand

increasedagencyovertime.

Usingathirdpartyadministrator(TPA)forworkerscompensationclaimsinvestigationmightprovide

betterefficiencywithmanagingtheseclaims,andwouldallowforashiftoftheremaininginvestigators

toperformcontractmanagementfunctionsrelatedtomanagedcare.

Recommendation

Throughacompetitivebiddingprocessandcarefulevaluation,outsourcethestatesworkers

compensationclaimsmanagementandinvestigation.


TheState

of

Louisiana

accomplished

asimilar

undertaking.

After

issuing

aRequest

for

Proposals,

it

outsourcedclaimsmanagementandadjustingofpropertyandcasualtyclaimsandlosspreventionunder

afiveyearcontractbasedonestimatedsavingsofatleast$20million,aswellasaccesstotechnology

withoutanycapitalinvestment.

TheRFPincludedarequirementthatthecompanyawardedtheserviceofferemploymenttoallstate

employeesdisplacedbytheprivatization,atasalarybasedonthecompanyspayscalesfortheirexisting

employees,andprovidingimmediateeligibilityforenrollmentinbenefitplansandtheestablishmentof

localofficestoservicethestate.

Opportunity

StateGovernmentPayroll&PensionsPayments

StateGovernmentBenefitPayments

Background


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NewJerseycurrentlyprocessesitshumanresourceandpayrolltrackingthroughthreeseparate

mainframesystems. Aswithalloldertechnologythathasnotkeptupwithcurrentcapabilities,thestate

systemisapatchworkofsolutionsandmanualprocesses.Thisdisparatesystemrequiresalargenumber

ofOfficeofInformationTechnologypersonneltooperate.

Furthermore,incalendaryear2009,thestateprintedapproximately26.7millionnonpayrollandnon

pensionchecks.

Of

that

NJ Privatization Task Force Final Report

Documents

Transcript of NJ Privatization Task Force Final Report