REASON PUBLIC POLICY INSTITUTE PRIVATIZATION CENTER
316 APRIL 2003
CORRECTIONS PRIVATIZATION OUTLOOK
BY GEOFFREY F. SEGAL
Corrections outsourcing has had its ups and downs over the
past several years. After many years of rapid growth, things
tapered off a bit in 2000, which saw the first decline in rated
capacity. However, capacity did rise slightly in 2001. Public
officials privatized for several reasons, driven mainly by cost
savings, overcrowding pressure, quality improvements, and
sometimes a desire to bring some competition to correctional
services.
At present, cost savings continues to dominate the debate.
Despite several studies showing significant savings, many public
officials are hesitant. Those that have privatized in states like
Texas, Arizona, and Florida have achieved consistent savings
around 10 percent. The competition in these areas has also
driven down the cost of the publicly operated facilities.
As the federal government and states continue to face severe
budget crunches, corrections privatization should become a
more compelling option. Faced with the unpopular options of
cutting services or releasing inmates, public officials are forced
to do more with less. Full facility or partial outsourcing is a
proven and attractive alternative.
At the state level, corrections spending is one of the big
three expenditures along with education and welfare. This
has started to raise some eyebrows in states like California and
New York. Faced with deficits and tighter budgets in years
to come, policy makers can’t afford to keep an uncompetitive
system intact.
Meanwhile, prison population at the state level is on a
slight decline. The U.S. Bureau of Justice Statistics cited tight
budgets and the rise of alternate programs for the slight decline.
However, with the recent rise in crime rates (a leading indicator
of future prison population rates), and the continued sluggish
pace of the economy (another leading indicator), prison popu-
lations are sure to rise soon, placing even more fiscal pressure
on the states and an increased push in favor of privatization.
Outside of entire facility privatization, partial or service
See PRIVATIZATION on Page 7
T H E C O R R E C T I. O N S I S S U E
NO.
COMMENTARY: BUREAU OF PRISONS
RELEASES FAIR LIST—WON’T COMPETE
GUARDS
BY GEOFFREY F. SEGAL
Under the Federal Activities Inventory Reform Act, federal
agencies are required to classify their jobs in their most basic
form as either commercial or inherently governmental. The
Office of Management and Budget is responsible for compil-
ing the list and publishing it each year. This year’s list for the
Department of Justice can be located at http://www.usdoj.gov/
jmd/pe/preface.htm. The federal Bureau of Prisons, which falls
under the purview of the DOJ was included.
BOP included the full-time equivalent (FTE) employment
numbers associated with existing federal low and minimum
security prisons on the commercial activities list for informa-
See BUREAU on Page 11
INSIDE THIS ISSUE...
THE CORRECTIONS ISSUE
 Read about corrections privatization news, awards, and con-
tracts from around the world on page 2.
 Page 4 features a commentary from Washington Policy Center
analyst Eric Montague that calls for privatizing corrections
health care.
 National energy expert, Lynne Kiesling, discusses a new
national survey that shows how electricity deregulation can
work on page 10.
 Robert Poole writes about the positive response that a new HOT
Network proposal received around the nation on page 12.
 A Virginia panel headed by former Governor Wilder finds
waste and inefficiency in government and makes recom-
mendations, including privatization, to improve services
and lower costs. See page 5.
 See how freshman governors from Massachusetts and Min-
nesota are balancing their budget using privatization and
other policy tools on page 15.
2 APRIL 2003  PRIVATIZATION WATCH

PRISON NEWS FROM THE STATES AND ment of Corrections for the continued operation of the 400-bed
Phoenix West DUI facility. Sinc 1996 CSC has operated the
AROUND THE WORLD: CONTRACTS,
facility that provides specialized services to felony offenders
RUMORS, AND AWARDS convicted under Arizona’s DUI statutes. The new contract
is for a base period of 10 years with two five-year renewal
BY GEOFFREY F. SEGAL options.
Alabama—A senate committee approved an emergency In addition, the state is moving ahead with plans to send
$3.6 million appropriation to help relieve overcrowding at hundreds of inmates to private facilities in Texas. Up to 650
Tutwiler Prison for women. The money will be used to partly medium- and medium-high-security inmates would be sent.
to ship up to 300 women to private prisons in Louisiana. A budget bill last year authorizes the DOC to place batches
Tutwiler was built in the 1940s to house 364 women. Despite of 445 and 200 prisoners at private prisons in Arizona or out
recent expansions to house 617; the facility currently has about of state, mostly as a way to delay costly expansion during the
1,000 inmates. current budget crunch.
Arizona—Correctional Services Corporation (CSC) Colorado—Wackenhut Corrections Corporation (WCC)
received notice of contract renewal with the Arizona Depart- was notified by Colorado’s Department of Corrections of its
intent to enter into a contract for construction and operation
of a 500-bed pre-parole and parole revocation center in Pueblo.
PRIVATIZATION FEEDBACK The 5-year contract (1 year, plus 4 1-year options) is valued
at approximately $9.6 million annually.
Furthermore, the state issued statements that it would
like to contract with private prisons for an additional 5,000
medium-security beds. Colorado law prohibits privatizing
high-security prisons, and the governor has put a cap of 30
SEND US YOUR CALL OUR CHECK OUT EMAIL THE percent of minimum- and medium-security capacity to be
QUESTIONS HOTLINE OUR WEB SITE EDITOR privatized. The increase of 5,000 would take the total in
3415 S. Sepulveda Blvd., 310-391-2245 www.privatization.org geoffrey.segal@
Suite 400 reason.org
Colorado to approximately 7,500—well within the limit.
Los Angeles, CA 90034 Florida—South Florida State Hospital, the nation’s only
entirely privatized mental hospital, received re-accreditation
from the Joint Commission on Accreditation of Healthcare
PRIVATIZATION WATCH Organizations. The facility, which is run by Atlantic Shores
EDITOR: Healthcare, a wholly owned subsidiary of WCC, is the first
Geoffrey F. Segal (geoffrey.segal@reason.org) state treatment facility for people suffering from severe and
PUBLISHER: persistent mental illness to achieve re-accreditation.
Adrian T. Moore (adrian.moore@reason.org)
The facility was measured against about 500 standards
WRITERS:
Adrian T. Moore (adrian.moore@reason.org), Robert W. Poole, Jr. and received a score of 94. Two of the hospital’s programs
(robert.poole@reason.org) , Lynne Kiesling (lynne.kiesling@reason.org), and were selected as “best practices” and will be included in the
Lisa Snell (lisa.snell@reason.org)
educational component of the Joint Commission. Only 32
DESIGN/PRODUCTION:
Ray Ng (ray.ng@reason.org) percent of the 11,000-plus hospitals surveyed received scores
PRESIDENT, REASON FOUNDATION: of 94 or better.
David Nott (david.nott@reason.org) Additionally, the Florida Department of Children and
EXECUTIVE DIRECTOR, REASON PUBLIC POLICY INSTITUTE: Families will exercise its option to renew the contract to con-
Adrian T. Moore (adrian.moore@reason.org)
tinue operating the South Florida State Hospital with Atlantic
FOUNDER, REASON FOUNDATION:
Robert W. Poole, Jr. (robert.poole@reason.org) Shores for the first five-year renewal period. The total value of
the extension is estimated at about $30 million annually. Two
Published by Reason Foundation  3415 S. Sepulveda Blvd., Suite 400 
additional five-year options remain on the contract.
Los Angeles, CA 90034  310/391-2245; 310/391-4395 (fax) 
www.privatization.org  Copyright © 2003 Reason Foundation. All rights reserved.
See PRISON on Page 8
CELEBR ATING 25 YEARS OF PRIVATIZATION
PRIVATIZATION WATCH  APRIL 2003 3

GUEST COMMENTARY: COMPETITIVE

CONTRACTING FOR CORRECTIONS AND
JUVENILE REHABILITATION

BY JASON MERCIER, BUDGET RESEARCH

ANALYST, EVERGREEN FREEDOM FOUNDATION,
JMERCIER@EFFWA.ORG
In an effort to address Washington State’s current budget
difficulties, Governor Locke has proposed releasing 1,200
prison inmates and eliminating all follow-up supervision
for more than 24,000 low and moderate-risk offenders who
have served their time. These include many property, drug,
and low-level sex offenders. While some of these steps may
be beneficial, legislators should consider all options before
making a decision.
include prison facility construction, prison operations, health
Legislators should carefully weigh budget savings against
and dental care, alcohol and drug treatment, and mental
the potential costs of implementing these proposals. We agree
health services.
with the governor’s plan to eliminate supervision for moderate-
A recent Reason Foundation study and Harvard Law
to-low-risk offenders recently released from jail (those serving
Review article found significant cost savings from competi-
terms of one year or less), but we question the wisdom of elimi-
tive bidding. Depending on the extent of the contract and
nating supervision of more serious offenders leaving prison.
the freedom of the contractor, average savings ranged from 5
Are the potential costs to public safety worth the estimated
to 15 percent. If Washington were to competitively bid all of
savings? Before risking public safety with these endeavors, it
its correctional services, a conservative 5 percent savings of
would be prudent to explore other cost savings measures that
current expenditures would save approximately $55 million.
have been successfully adopted across the nation.
At 15 percent, $164 million in savings would be realized.
Locke reached his decision as a result of his Priorities of
While not generally recommended, some states have
Government (POG) exercise. While the governor made these
adopted statutorily required savings in exchange for competi-
decisions based on his prioritization of current agency activi-
tive contracts. Examples include Florida, which requires at
ties, he failed to explore every option, e.g., competitively bid-
least 7 percent cost savings and Texas, requiring a minimum
ding correctional services to obtain cost savings. In looking at
of 10 percent savings. Other states such as Arizona require
the options other states have adopted, legislators should ask
contracted prisons to operate at a lower cost or provide supe-
themselves whether it is necessary for state employees to be
rior quality at the state cost.
the ones overseeing prison services and constructing prisons
Perhaps the most innovative model of competitive bidding
in order to fulfill the state’s obligation to protect citizens’
is that of Australia. Rather than having a savings target, one
safety.
state in Australia utilizes a toughly constructed performance-
Competitive Bidding based contract that sets up a pay-by-performance model.
States around the nation are dealing with increasing Rather than a bulk payment from the state, the contractor
prison populations and the corresponding increase in budget receives three types of payment: 1) An accommodation service
demands. Many are addressing the issue by putting services fee which pays for the prisoner’s housing; this generally offsets
up for competitive bid. the debt incurred for the prison’s construction. 2) A correction
Some states currently taking advantage of this option service fee covering the cost of personnel, health care, food,
include Florida, Texas, and Pennsylvania. Internationally, education, and other programs, and 3) A performance-linked
countries such as Australia, New Zealand, South Africa, and fee, which pays the contractor based upon a set agreement of
the United Kingdom have also adopted competitive bidding performance indicators; this ties the contractor’s performance
practices. The most common correctional areas contracted to receipt of the full payment. 
THE CORRECTIONS ISSUE
4 APRIL 2003  PRIVATIZATION WATCH
GUEST COMMENTARY: CORRECTIONAL
HEALTH CARE PRIVATIZATION: HEALING A
SICK SYSTEM THROUGH COMPETITION
BY ERIC MONTAGUE, POLICY ANALYST, WASHINGTON
POLICY CENTER
The primary function of government is to protect the lives,
liberty and property of its citizens. Public safety is thus essential
to the continuance of civil society. Public safety depends on
a reliable and effective criminal justice system, and central to
the administration of justice is a humane, secure and efficient
prison system.
In Washington State, the cost of maintaining the state-run
prison system is becoming increasingly unsustainable. The
Washington State Department of Corrections (WSDOC) budget
has more than doubled over the last 10 years, rising from $502
million in the 1991-1993 biennium to $1.07 billion in the cur-
rent biennium. The increasing cost of operating the state prison
system has outpaced the rise in total General Fund spending and
the rate of inflation in every biennium in the 1990s, and is now
one of the fastest growing areas of state spending.
A key component of the high cost of incarceration is inmate
health care. Throughout the 1990s, for each dollar spent on
corrections in America, an average of eleven cents went towards
health care, which includes physical, mental and dental services.
With the growing number of physically and mentally ill people
entering the criminal justice system, and the increasing focus on
treatment and rehabilitation for substance abusers, that number
is likely to grow.
In Washington State the high cost is particularly apparent.
WSDOC spends more than $60 million each year to provide
medical care for about 15,000 inmates—roughly $4,000 per
inmate. At the county level, costs are similar. In King County,
the largest in the state, inmate health care costs taxpayers more
than $22 million a year, far greater than the cost of the county’s
entire public parks system.
The rising cost of health care is not the only factor threat-
ening the viability of the current state monopoly system. The
quality of health care services provided is also suffering as a
result of overstretched facilities, inadequate staffing and an
inflexible work environment common to many government
bureaucracies. Faced with similar problems, prison officials in
other areas of the nation are turning to the private sector for
quality, cost effective alternatives for managing the health care
needs of the growing inmate population.
CELEBR ATING 25 YEARS OF PRIVATIZATION
Unfortunately, the advantages of private competition are not
available to WSDOC. Jobs with the State of Washington are
protected by strict civil service rules that outlaw private competi-
tion. While WSDOC does use the services of private medical
professionals, they are only allowed in extreme circumstances
that require specialized care that cannot be provided by a state-
or county-employed doctor. Today, the prison system maintains
a costly army of doctors, nurses, psychologists, counselors and
dentists to meet the demanding medical requirements of the
inmate population.
A modern prison system must provide adequate medical care
to inmates. Elected leaders and prison officials must now decide
the best way to provide that medical care. By changing state law
to allow contracting with private hospitals, clinics and doctors,
the WSDOC can lower cost and improve the quality of inmate
care. Many other states already employ private contractors to
help reduce cost and improve flexibility and performance.
The practice of working with private health care organiza-
tions is not new. At the beginning of 1997, 12 states had con-
tracts with private firms to provide health care to their entire
prison systems, and another 20 states had contracted health care
for part of their systems—a total of 498 prisons in the 32 states.
By 2000, 34 states had some privatized health care for inmates
while 24 state inmate health care systems were run completely
by private contractors.
In one example, prison officials in Illinois began contracting
for health care services in the early 1980s to help contain grow-
ing corrections costs. Today, the entire state system is contracted
to three competing companies. As a result, the state’s health
care costs, at just under $1,700 per inmate a year, are lower
than they were in 1991 and second lowest in the nation. Mis-
sissippi, Indiana, New Jersey and Washington D.C. also began
contracting with private health care providers during the 1990s,
all with similar positive results.
In the federal system, private health care providers are
being used to supplement the similarly overstretched prison
infrastructure. In one early study, six large federal facilities
with similar prison populations were analyzed. Five had health
care cost increases of more than 15 percent per year, while the
sixth, which used private competition for health care services,
saw an average increase of only 3 percent per year. As a result,
nearly every federal prison now has some competition for health
care services.
Critics claim that private companies have little incentive
to provide quality care. Indeed, in at least one case, prison
See HEALTH Page 5
PRIVATIZATION WATCH  APRIL 2003
Continued from Page 4
HEALTH CARE
officials terminated a contract with a private company because
of poor care. But this appears to be the exception rather than
the rule. In fact, several cases of government medical care
were so bad that courts found they violated inmates’ rights
and ordered jails to hire a private company. Recognizing this
concern, many states require private contractors to achieve and
maintain accreditation through the highly regarded National
Commission on Correctional Health Care.
The promising results of prison health care privatization
should not imply that full privatization of all correctional health
care is always the right answer, but authorizing prison officials
to make the decision freely, without the civil service barriers in
place today in Washington State, is the best alternative for our
state and the nation. Forty-seven states and the federal gov-
ernment face staggering budget deficits in the coming year. By
allowing competition for prison health services, policymakers
can reduce cost and improve quality at all levels of the correc-
tions system. 
THE CORRECTIONS ISSUE
5
VIRGINIA PANEL FINDS SAVINGS IN STATE
GOVERNMENT
BY GEOFFREY F. SEGAL
A bipartisan commission chaired by former governor
L. Douglas Wilder (D) said the state could save nearly $1.3
billion by operating more like a private business, mostly by
abolishing outmoded agencies and modernizing the way it
buys goods and services.
The report, which sharply criticizes state government for
widespread inefficiencies, was delivered by the panel just in
time for the 2003 general session. It further stated that this
would undermine Virginia’s national reputation as a well-
managed state.
The Wilder Commission singled out the state’s procurement
process for needing serious reform, noting that the process the
state uses to buy everything from paper clips to buildings and
roads is “either not working optimally or simply broken.”
The panel concluded that of the $1.3 billion in savings, $750
million could be saved on an annual basis, $500 million of
that in procurement without any reduction in services.
Current Gov. Mark Warner, who ran on the issue of stream-
lining government, welcomed the report calling the suggestions
“bold and meaningful” and suggested that they “will form
the core of…government reform efforts” to reduce the cost
of Virginia’s $25 billion a year bureaucracy.
The panel concluded that of the $1.3 billion in savings,
$750 million could be saved on an annual basis, $500 mil-
lion of that in procurement without any reduction in services.
Besides centralizing purchasing (expected to save tens of mil-
lions) the panel recommended:
 privatizing state-run liquor stores as part of a move to save
$500 million over several years through streamlining and
eliminating certain agencies;
 abolishing the Herndon-based Center for Innovative Tech-
nology;
 reducing inventories at large agencies; and,
 negotiating better contracts for services and goods.
Virginia’s legislators have acknowledged that hard financial
times, like this one, can turn into positive change to improve
accountability and have better management. 
6 APRIL 2003  PRIVATIZATION WATCH
PRIVATIZATION LAW: “THE GOVERNMENT
CONTRACTOR DEFENSE” IN OUTSOURCING
BY WILLIAM BIERCE, BIERCE & KENERSON, P.C.,
WWW.OUTSOURCINGLAW.COM.
Summary. Outsourcing service providers that contract to
deliver services to a governmental entity generally are entitled
to the “government contractor defense,” namely, that if the
government is immune from a lawsuit by a third party for
services rendered by the government, then the independent
contractor that performs such services is likewise entitled to
immunity. In a December 2002 court decision in New York,
a federal court ruled that the sovereign immunity defense is
not available against claims by former inmates of a federal
correctional facility against the private company that oper-
ated the facility for negligence and violation of constitutional
rights. Scainetti v. United States, __ F.3d __, NYLJ Dec. 26,
2002, p. 32, cols. 1-3 (S.D.N.Y. 2002).
Government Contractor Defense.
General Rule. Broadly defined, the “government contrac-
tor defense” dictates that “if a private party has contracted
with the federal government to carry out a project on behalf
of the government, that private party, like the federal govern-
ment, is shielded from liability under the doctrine of sovereign
immunity.” Norwood v. Esmor, Inc., 1997 WL 65913, *4
(S.D.N.Y. Feb. 13, 1997). As another court said, “stripped
to its essentials,” the government contractor defense claims
that “[t]he Government made me do it.” In re Joint Eastern
and Southern District New York Asbestos Lit., 897 F.2d 626,
632 (2d Cir. 1990).
Exceptions and Exclusions. If the government contractor
defense were to immunize any independent contractor from
liability to third parties, the immunity could be abused in
extreme cases such as gross negligence, willful misconduct,
or breach of contract by the service provider. Thus, the
government contractor defense was intended to shield the
outsourcing service provider only from claims arising out of
the provider’s actions “where the government has exercised
its discretion and judgment in approving the precise speci-
fications to which the contractor must adhere.” Malesko
v. Correctional Services Corp., 229 F.3d 374, 382 (2d Cir.
2000), rev’d on other grounds, 534 U.S. 61, 122 S.Ct. 515,
151 L.Ed.2d 456.(2001).
Consequently, government contractors may be held liable
to third parties in various situations:
CELEBR ATING 25 YEARS OF PRIVATIZATION
 The government contractor exceeded the authority given
to it by the federal government, sometimes referred to as
“abuse of power” or breach of contract.
 The federal government’s authority was not validly con-
ferred. Yearsley v. W.A. Ross Constr. Co., 309 U.S. 18,
S.Ct. 412, 84 L.Ed. 554 (1940).
 The government contractor is charged with not following
the reasonably precise federal government specifications.
Scainetti v. United States, __ F.3d __, NYLJ Dec. 26, 2002,
p. 32, cols. 1-3 (S.D.N.Y. 2002) (the applicable Federal
Bureau of Prisons Community Corrections Manual that
provides for the safety that requires supervision and the
separation of criminals by sex to provide privacy and pro-
tection).
Lessons Learned. The sovereign immunity defense becomes
available, vicariously, to government contractors only if they
conform to the contract. Where a third party alleges that the
outsourcing service provider failed to conform to “reasonably
precise” responsibilities under the contract, the provider is
vulnerable to a claim for negligence.
Government contractors should not engage in activities
that constitute a breach. But if they succeed in showing their
conduct was not in breach, then they might wish to be pro-
tected by an indemnification for attorneys’ fees in addition
to the defense of sovereign immunity. And if they are liable
for negligence, they might obtain some form of limitation of
liability by insurance or indemnification.
The most prudent solution would be to establish and moni-
tor “foolproof” procedures, including training and supervi-
sion, for compliance with rules intended to protect the rights
of third parties. 
PRIVATIZATION WATCH  APRIL 2003
STOCKTON PRIVATIZES WATER,
WASTEWATER, AND STORMWATER UTILITIES
BY ADRIAN T. MOORE
On February 19th the Stockton city council voted 4 to 3 in
favor of a $600 million, 20-year operations and maintenance
(O & M) contract for the city’s water, wastewater, and storm-
water utilities. The decision to partner with a joint venture of
OMI and Thames Water came after years of preliminary work
by the city, especially by the mayor, Gary Podesto.
Stockton’s water system provides roughly 178 MGD (mil-
lion gallons per day) of water to nearly 35,000 service connec-
tions. The wastewater system flows are just under 35 MGD.
Substantial investment in the system is necessary to remain in
compliance with drinking water and discharge standards. The
municipal utility district (MUD) proposed a planned series of
upgrades and expansions and a 35 percent increase in water
rates to fund them.
Mayor Podesto’s research on public-private partnerships
convinced him the city could do better than the MUD proposal,
so the city issued an RFP (request for proposals) for a long-term
O&M contract that would include all of the necessary capital
improvements to all three utilities. You can view the city’s RFP
at http://www.stocktongov.com/mudRFP/index.htm.
The process led to the city selecting OMI-Thames water
under terms that will save $175 million from the MUD’s
estimated costs of O&M and capital improvements over 20
years and will require a 7 percent rate increase to fund the
improvements rather than the 35 percent increase in the MUD
plan. OMI-Thames provides a series of cost and performance
guarantees in the contract and shoulders nearly all of the con-
trollable risks in the deal, including a clause for termination for
convenience with a low $1 million price tag. You can view the
contract at http://www.stocktongov.com/clerk/MUDContract/
MUDPage.html.
Ralph Nader’s organization, Public Citizen, which has a
project aimed at opposing all privatization of water utilities,
immediately began agitating in Stockton against the contract.
One of its early strategies was to fund a successful campaign to
gather 18,000 signatures to put a measure on the city’s March
2003 ballot that would require public vote for all utilities
contracts valued at over $5 million. That initiative passed,
but does not affect the current contract.
Public Citizen also helped organize a local citizen’s group to
oppose the contract and speak out at all the public hearings on
THE CORRECTIONS ISSUE
7
the contract. The group argued that you can’t trust the private
sector to have any role in providing as precious a commodity
as drinking water, even more so if it is a foreign company.
Ironically, it turned out that the leaders of the citizen’s group
opposing the contract live in the service area of California
Water Company, and so have long received their own drinking
water from a privately owned and operated utility.
On the evening of the vote, emotions ran high and city
workers held an opposition rally on the steps of city hall. The
theme was “let the people vote.” Realizing the contract would
pass, they shifted to pushing for a delay until after the March
4th referendum. Each city council member offered a lengthy
explanation of where he stood on the contract. The four who
voted for the contract all argued that it was a good deal for the
city and ratepayers, that while objections were raised there were
no facts to back them up, and that this is a decision the council
must make. The three council members who voted against
the contract all asked their colleagues to make approval of the
contract subject to the outcome of the referendum.
While the approval of the limits on city utility contracts going
forward does not affect the current contract, it has energized
opponents to pursue lawsuits. Meanwhile, they have raised
money and launched a signature-gathering campaign to have
the public vote on a measure to overturn the contract. 
Continued from Page 1
PRIVATIZATION: A LOGICAL ALTERNATIVE
privatization will keep growing. Faced with large increases in
spending, medical and pharmaceutical privatization continues
to be one area where increased privatization is likely. Several
states have already privatized these services to achieve signifi-
cant cost savings and higher quality care too.
Food service, transportation, and facility maintenance are
also likely to see increases in privatization. As budgets con-
tinue to tighten, these non-core functions are likely to be the
first to privatize. This can lead to full facility privatization.
As public officials get comfortable with these service level con-
tracts, they may be more willing to privatize entire facilities.
Ultimately, given the current fiscal climate with an unknown
recovery time, governments at every level will need to continue
to find efficiencies and cost savings. Full facility and service
privatization will be an attractive alternative in the coming
months and years. 
8 APRIL 2003  PRIVATIZATION WATCH

Continued from Page 2 legislative session.

PRISON NEWS
Georgia—Gov. Sonny Perdue included $40 million in bond
money in his budget to buy and complete a 1,524-bed private
prison in west Georgia. The facility has lain dormant and
unfinished since June 2000 when state officials told Corrections
Corporation of America it no longer was interested in using
private prisons. CCA has invested approximately $35 million
into the facility, which is 70 percent complete.
Elsewhere in the Peach Tree State, the Federal Bureau of
Prisons awarded CCA a contract to house approximately
1,500 federal detainees at the McRae Correctional Facility.
The three-year contract was awarded as part of the Criminal
Alien Requirement Phase II Solicitation and includes seven
one-year renewal options. The contract could be worth up
to $109 million in the first three years of the deal.
Mississippi—Gov. Ronnie Musgrove’s attempt to close a
1,000-bed private prison was blocked in the Mississippi House
of Representatives. The issue will now go in front of a special
Musgrove wanted to close CCA’s Delta Correctional Facil-
ity but fears of job losses prevented the shut down. In 2001,
Musgrove vetoed efforts to build more private prisons in the
state.
Montana—The private prison in Shelby could soon be
allowed to house prisoners from other states. HB451, which
lawmakers approved 81-18, would overturn a ban on out-
of-state prisoners at privately owned prisons. This is seen as
a boon to the prison that was struggling to survive with only
Montana prisoners.
The bill would require that all out-of-state inmates be
housed separately from Montana prisoners and calls for
them to be returned at least three months before release. The
measure also prohibits federal prisoners convicted in other
states from being housed at Shelby. Furthermore there is a
sunset provision that would allow the legislature to end the
importation of prisoners by mid-2006.
See CORRECTIONS on Page 9

See TOLL on Page 12

CELEBR ATING 25 YEARS OF PRIVATIZATION

PRIVATIZATION WATCH  APRIL 2003
Continued from Page 8
CORRECTIONS UPDATE
New Mexico—Cornell Companies executed a lease for the
old Bernalillo County Jail in Albuquerque. The facility will
be remodeled and used to provide secure confinement for a
number of government entities including the U.S. Marshall’s
Service. The facility will have a total rated capacity of
1,000.
New York—Despite escalating costs and four times the
personnel to take care of fewer than one and a half times
as many inmates when compared against Chicago and Los
Angeles, Gov. George Pataki signed AB6038 into law requiring
that “the duty of maintaining the custody and supervision of
persons detained or confined by the Department of Corrections
of the City of New York be performed solely by members of the
uniformed force of the City Department of Corrections.”
North Carolina—The American Correctional Association
bestowed national accreditation on the facility maintenance
division of Keith & Keith Corrections (KKC). KKC was rec-
ognized for its work with the Mecklenburg County jail system
where it has provided turnkey facility maintenance services
since 1996. Only 3 percent of the nation’s jails receive such
recognition from the ACA; it’s the first in North Carolina.
Ohio—The Ohio Department of Rehabilitation and Cor-
rection chose to close an 88-year old public facility and transfer
inmates rather than altering either of the state’s two private
prisons. The move has angered officials for the Ohio Civil
Service Employees Association, however state officials noted
that closing both private facilities would not have achieved
the same level of savings this closure produced.
Puerto Rico—The Commonwealth of Puerto Rico termi-
nated its contract with CCA for management of the 1,000-bed
medium-security Guayama Correctional Center. The contract,
which was extended in 2001 through 2006, was terminable
at any time without cause by the Puerto Rican government.
CCA also had contracts for operation of Ponce Adult Cor-
rectional Facility and Ponce Young Adult Correctional Facility
terminated in 2002 by the Puerto Rican government.
Tennessee—In order to reduce overcrowding the state has
begun shifting some inmates into private facilities. It is the first
time the state Department of Corrections has housed inmates
in private prisons.
Officials plan on shifting 1,536 state inmates into CCA-
operated Whiteville Correctional Facility by May. The state
will pay CCA $42.50 a day for each inmate. It costs the state
$47.62 a day to house the average inmate.
THE CORRECTIONS ISSUE
9
Texas—The Texas Adolescent Center in San Antonio will
be opened and operated by Cornell. The 121 bed residential
treatment center will generate revenues of about $6 million a
year. Cornell operates a second facility in the area that had to
turn away over 700 referrals due to space limitations.
The center will provide specialized programs for male and
female juveniles classified by the state as Level 4, Level 5, and
Level 6 (extreme acute care).
United Kingdom—A joint venture company between
WCC and Serco have signed a contract for the design, build,
and operation of a new 326-bed Immigration and Removal
Centre and Short Term Holding Facility in Harmondsworth,
Middlesex. The 8-year contract is valued at approximately $76
million for construction and $229 million for operation.
Vermont—Representative Gene Sweetser introduced a bill
that would allow the state to use private prisons to house
inmates. The bill would let a private company build, lease
or run a prison. All correctional facilities in Vermont are run
by the state, although the state does send some inmates to be
housed in Virginia DOC facilities.
Virginia—WCC was selected to negotiate with the Com-
monwealth of Virginia Department of Corrections and Depart-
ment of Correctional Education to operate the Lawrenceville
Correctional Center, a 1,536-bed, medium security, adult
male facility.
The 5-year contract became effective March 23rd and is
valued at approximately $20 million annually and is renewable
annually for up to 10 additional years.
Wisconsin—CCA has received a recommendation for a
three-year contract to house Wisconsin inmates at its facilities.
The new contract would give the Gov. Jim Doyle the option of
continuing to send inmates to seven private prisons in Okla-
homa, Minnesota, Georgia, Mississippi, and Tennessee. 
10
NORTH AMERICAN SURVEY: ELECTRICITY
DEREGULATION CAN WORK
BY LYNNE KIESLING
A recently published Cap, Gemini, Ernst & Young survey
of 130 electricity industry executives called “Delivering Value
Through Competition” suggests that electricity deregulation in
North America is working in wholesale markets, although it
can be improved. However, stalled retail market deregulation
is hampering opportunities for value creation in the industry.
Thus, even in light of the dramatic failures to deregulate in
California and Ontario, policymakers should continue moving
their regulatory approaches toward integrated wholesale and
retail deregulation.
Among the survey respondents who said that their impres-
sions of electricity deregulation were less positive in 2002 than
previously, two dominant factors cited for that pessimistic
outlook were “continued interventions in markets by govern-
ment and regulators, and a loss of confidence and liquidity
in wholesale markets.” Respondents also indicated that they
viewed the industry’s relatively intact survival of the Enron
collapse as a positive feature on which to build asset-backed
trading of financial instruments in electricity in the future,
although the short-run credit problems of the industry and the
associated lack of liquidity in wholesale markets are slowing
growth in the industry.
The North American responses to this year’s study were
reflective of the challenging economic environment and the
aftershocks of California and Enron. Executives are con-
cerned about finding ways to create a more liquid market
for wholesale electricity and still support energy trading as
long as the industry has strong risk management tools in
place. However, executives remain cautious as a result of
the potential for political and regulatory intervention in
the markets. Regulatory uncertainty is always detrimental
to investment and action.
The survey also indicates that electricity industry execu-
tives recognize the opportunity to create value for their large
customers through creative retail service offerings and demand
response. They also generally believe that existing demand
response programs approved by state regulators could be
improved. The survey’s executive summary states that
“responses point to strong competition on prices, with large
and growing numbers of customers choosing to switch retail-
CELEBR ATING 25 YEARS OF PRIVATIZATION
APRIL 2003  PRIVATIZATION WATCH
ers. There was also strong agreement that the benefits of retail
competition for these customers outweigh the costs involved.”
The survey also revealed differences between North American
and European focuses, with more policy attention in North
America on wholesale markets and more attention in Europe
on meeting E.U. retail competition targets by 2007. In fact,
the survey indicates that the policy debate in the European
Union takes retail competition as a given, and has moved on
to discussing how to implement it.
The responses suggest that shifting focus in North America
to incorporate retail competition would better enable the elec-
tricity industry to deliver value to consumers, particularly for
industrial and commercial customers. Residential customers
are much less likely to benefit from demand response and
innovative retail service offerings, but that fact should not
deter state regulators from allowing utilities to offer innova-
tive retail services to industrial and commercial customers who
could take advantage of such offerings.
The Cap, Gemini, Ernst & Young authors also state that
“one of the clearest messages from the survey responses was
about the negative effects that regulatory or political interven-
tions can have. Survey responses were critical of regulators
and politicians as being too quick to react to occasional high
prices.” The authors conclude by observing that the industry
is more ambivalent about deregulation that it was a year ago,
but that they still believe deregulation can enable them to
create value for customers. The report also points out one of
the most important lessons of trying to restructure electricity
market regulation: “outcomes are not always smooth and
predictable—but this does not mean that the market is not
working. Interventions create regulatory risk, and the clear
view from survey responses is that these can easily make mat-
ters worse, not better.”
Information on the survey is available at http:
//www.ca.cgey.com/news/global_utilities_survey_mediakit/
index.html. 
PRIVATIZATION WATCH  APRIL 2003 11

Continued from Page 1
BUREAU OF PRISONS
tional purposes only. These FTEs are shown as “commercial
in-house” (reason code A - explained below). Ultimately the
7,256 FTEs in the low and minimum security prisons were
classified as “commercial in-house” stating that they “will
not be subject to the OMB Circular A-76 process, since com-
peting them would not be in the best interests of the federal
government.”
They base this decision on three considerations:
1. the need to “ensure the safety and security of the institu-
tions and staff,”
2. the observation that “facilities are operating at a superior
performance level and, therefore, it would be ill-advised to
change their management, staffing and operations,” and
3. the opinion that “recent studies comparing the costs
of federally operated low and minimum security institutions
with those of privately operated prisons have concluded
(using OMB Circular A-76 cost methodology) that the feder-
ally operated prisons are more cost effective than their private
counterparts.”
The study the BOP is pointing to is a BOP-commissioned
study between Taft (a private facility) and several other federal
institutions. Among other problems, the operators of Taft were
instructed to follow BOP procedures, literally removing innova-
tion and flexibility, taking cost savings along with it. Several
BOP officials have commented that the contract in the study
was structured to preclude any savings. Using this rationale, the
BOP has “no plans to compete or privatize” the positions.
This flies in the face of logic. For years, the BOP has con-
tracted with private prison companies to operate a number
of minimum and medium security facilities across the nation.
If the BOP adheres to its stated rationale, it would stop
awarding new contracts—but just last May the BOP agreed
to terms with Corrections Corporation of America (CCA) to
send 1,500 inmates to a private facility in Georgia. Ultimately,
the BOP has taken the stance that competing and privatizing
new facilities is good for the agency—as long as the current
federal employees are not relegated to competition.
While individuals can challenge the agency’s decision to
list activities as inherently governmental and commercial,
they cannot challenge reason codes. Even though challenges
can’t be officially made, each comment must be read before it
is rejected. Comments can be faxed to the Office of Manage-
ment and Budget, Office of Federal Procurement Policy at:
202-395-3888.
Studies by Reason Foundation and a Harvard Law Review
article point to the significant savings corrections outsourcing
can have. Absent competition, or even the threat of compe-
tition, the existing federal facilities will have no pressure to
contain costs or provide quality services. BOP should be held
accountable for its decision. 

REASON CODE EXPLANATION

A This is a commercial activity but the Department has determined that it must be per-
formed in-house.

B This is a commercial activity that is subject to an A-76 cost comparison (a competition

between in-house, private sector, and other government agency offers), or to the direct
conversion requirements of OMB Circular A-76.

C This is a commercial activity that is performed in-house but has been specifically made
exempt from the full cost comparison provisions of the Circular and the Supplemental
Handbook by Congress, Executive Order, or OMB.

D This is a commercial activity currently under competition.

E This activity is performed in-house as a result of a cost comparison.

THE CORRECTIONS ISSUE

12
HOT NETWORKS IDEA GETS POSITIVE
RESPONSE
BY ROBERT W. POOLE, JR.
A packed hearing room in the Rayburn House Office Build-
ing was the site for the unveiling of a new urban transportation
proposal on February 25th: HOT Networks. As proposed
by Ken Orski and Robert Poole in a new Reason Founda-
tion policy study, the idea is to create seamless networks of
congestion-free lanes, overlaid on existing freeway systems in
highly congested metro areas. Super high-occupancy vehicles
(vanpools and express buses) would use the network at no
charge; all others would pay a variable toll. Thus, the idea
marries two recent innovations: HOT lanes and bus rapid
transit (BRT).
Speaking in support of the concept at the news conference
was a four-member panel of transportation experts, illustrating
the potential breadth of support for HOT Networks. Shane
Ham of the Progressive Policy Institute/Democratic Leader-
ship Council noted that PPI/DLC has endorsed the idea in
its recommendations to Congress for this year’s reauthoriza-
tion of the federal surface transportation program. Dr. Ron
Kirby, head of transportation planning for the Metropolitan
Washington Council of Governments, noted his organization’s
current exploration of HOT lanes to be added to a portion
of the Beltway as well as a planned study of other HOT lane
possibilities in northern Virginia. Michael Replogle of Envi-
ronmental Defense also commended the idea, while stressing
its transit benefits and raising the possibility that some of the
needed lane capacity could come from converting general
purpose lanes rather than building new lanes. Also endors-
ing HOT Networks was Lon Anderson, spokesman for the
mid-atlantic region of American Automobile Association.
Anderson’s statement noted that his previous opposition to
HOT lanes has been overcome by today’s lack of money for
needed highway improvements, along with the transit benefits
of HOT Networks.
The Reason proposal calls for converting existing carpool
(HOV) lanes into super-HOT lanes at the outset, and using
the current and projected revenues from the entire network
to support toll revenue bonds to pay for filling gaps and
missing links, especially the costly flyover connections at
freeway interchanges, which are necessary to create seamless
networks of premium lanes. The study draws on long-range
transportation plans from eight of the most congested metro
CELEBR ATING 25 YEARS OF PRIVATIZATION
APRIL 2003  PRIVATIZATION WATCH
areas: Atlanta, Miami, Houston, Dallas, Washington, D.C.,
Seattle, San Francisco, and Los Angeles. In each case, the costs
of completing the network were estimated, along with traffic
and projected toll revenues for using the network. Overall,
building out the eight networks (largely in accord with existing
transportation plans) would cost $43 billion, of which $29
billion (two-thirds) could be funded by toll revenue bonds.
The balance would come from conventional state and federal
(gas tax) sources.
From a total cost of $43 billion, $29 billion (two-thirds) could
be funded by toll revenue bonds.
Poole and Orski suggested that Congress modify existing
legislative provisions to permit metro areas to convert HOV
lanes into the beginnings of HOT networks. They also pro-
posed a joint initiative by the Federal Highway and Transit
Administrations (FHWA and FTA) to target funding toward
the capital costs of these networks, where metropolitan plan-
ning organizations choose to adopt this approach. The FHWA
funds would supplement the toll revenue bond proceeds, and
would be used to pay for the highway infrastructure involved.
The FTA funds would be used for express buses and BRT sta-
tions and other transit-related capital costs.
The HOT Networks proposal received extensive media
coverage, with articles in the New York Times, Atlanta Journal-
Constitution, South Florida Sun-Sentinel, Houston Chronicle,
Fort Worth Star-Telegram, Los Angeles Daily News, Orange
County Register, San José Mercury-News, San Francisco
Chronicle, and Seattle Times, among others.
The complete report may be downloaded from
www.rppi.org/ps305.pdf. 
PRIVATIZATION WATCH  APRIL 2003 13

HOT LANES GAINING INTEREST AND

CREDIBILITY

BY ROBERT W. POOLE, JR.

Around the nation a growing number of metropolitan
planning organizations are embracing HOT lanes as a way
to make better use of urban freeway capacity. And the Federal
Highway Administration (FHWA) has now published a guide
to HOT lanes to make their job easier.
A Guide for HOT Lane Development was published in
December by FHWA. In eight chapters and 106 pages, it
explains the rationale for HOT lanes and discusses ways of
achieving public acceptance of the concept. Drawing on recent
experience with HOT lanes in California and Texas, it provides
valuable information on technical and operational issues, as
well as a good summary of lessons learned thus far. This is the
most complete and comprehensive document on HOT lanes yet
produced. It can be downloaded at www.itsdocs.fhwa.dot.gov/
JPODOCS/REPTS_TE/13668.html#_Toc17693416.
Nationally, serious interest in implementing HOT lanes
continues to increase.
Nationally, serious interest in implementing HOT lanes
continues to increase. The Virginia DOT, with support from
the Metropolitan Washington Council of Governments, has
requested a Value Pricing Pilot Program grant from FHWA to
study potential HOT lanes in its region. The request comes as
VDOT is considering a proposal by Fluor to add such lanes
to the southeastern quadrant of the Washington Beltway. As
noted here previously (PW, November 2002), the most recent
long-range transportation plan from the San Diego Associa-
tion of Governments calls for adding HOT lanes to nearly all
of the region’s major freeways.
The two biggest metro areas in Texas, Dallas and Houston,
have approved HOT lanes as part of the expansion and mod-
ernization of key freeways. In the former, it’s the LBJ Freeway
(I-635) while the latter will add HOT lanes to the congested
Katy Freeway (I-10). In the latter case, second-generation HOT
lanes open to single-occupant vehicles and using variable pric-
ing will replace today’s first-generation QuickRide lane, which
allows HOV-2s to buy their way into a lane otherwise reserved
for HOV-3s. In addition, the Dallas/Ft. Worth area has under
way a value pricing study, funded by FHWA and being con-
ducted by URS Corporation, looking into the possibility of a
network of HOT lanes on the regional freeway system.
A number of other metro areas have HOT lane proposals
in various stages of study, including:
 Denver: The city is exploring an HOV conversion to HOT
on I-25 and the addition of new HOT lanes on C-470.
 Honolulu: An addition of an elevated reversible commuter
tollway/busway between downtown and Kapolei, has been
proposed by the new governor, Linda Lingle.
 Miami: Florida DOT has requested a FHWA Value Pricing
grant for studies on converting the HOV lanes on I-95 to
HOT lanes.
 North Carolina: An NCDOT study is under way on pos-
sible HOT lanes on I-40 in the Piedmont and Research
Triangle areas.
 Portland: An ODOT study is under way for HOT lanes on
Hwy. 217.
 San Francisco Bay Area: The Alameda County Congestion
Management Agency is studying HOT lanes for the Sunol
Grade on I-680, a major commuter route to and from
Silicon Valley from the East Bay.
 Seattle: Washington DOT plans to study HOT lanes as
part of the planned expansion of I-405.
And the HOT lane idea has even begun to spread beyond
the United States. Toll Roads Newsletter (Winter 2002/2003)
reports that a 7-mile HOT lane is under study for Highway 1,
a major commuter route into Tel Aviv, Israel. Variable pricing,
as on San Diego’s I-15 HOT lanes, would be utilized, making
use of the same technology already in operation on the Cross
Israel Highway, Israel’s first toll road. 

THE CORRECTIONS ISSUE

14
PRIVATIZATION BRIEFS
BY ROBERT W. POOLE, JR., ADRIAN T. MOORE AND
GEOFFREY F. SEGAL
BAA Award in Pittsburgh
Over the last decade, airport retailing has undergone a
revolution in this nation, with the introduction of brand name
stores and restaurants, competition, and reasonable pricing.
The pioneer in bringing this approach to America was BAA,
the former British Airports Authority, privatized in 1987 by the
government of Margaret Thatcher. In January, BAA’s achieve-
ment received recognition, when its pioneering AirMall at
Pittsburgh International Airport was named “Airport with the
Best Overall Concessions Program.” The award was made by
Airport Revenue News, based on a nationwide survey.
UCI Partners for Student Housing
The University of California, Irvine started construction
on what is considered the largest single-financed, privatized,
on-campus student housing development in the nation. The
$105.89 million development is a public-private partnership
with American Campus Communities. The 1,488-bed student
housing community closed financing in December through a
tax-exempt bond. The project comes as a response to several
years of record-breaking enrollment at UCI. The 32-acre East
Village Campus Apartments will open in time for the fall of
2004. The project consists of 42 buildings and will be comprised
of separate undergraduate and graduate communities.
Five Bid to Manage Convention Center
Five companies submitted bids to manage the Albuquer-
que Convention Center. Mayor Martin Chavez had called
for the proposals in an effort to improve the performance
of the Convention Center and try and turnaround consistent
financial losses of over $9 million in the past six years. An
operator should be selected from the top three candidates by
early April.
Boston Eyes Privatizing School Cleaning
As have many other communities, in February Boston
Mayor Thomas Menino and Boston Schools Superintendent
Thomas Payzant confronted the district’s looming $120 million
shortfall by raising the possibility of teacher layoffs. They also
CELEBR ATING 25 YEARS OF PRIVATIZATION
APRIL 2003  PRIVATIZATION WATCH
announced plans to privatize cleaning services at the district’s
68 schools.
School officials estimate the plan could save about $2 mil-
lion per year, but still have not met with the custodian’s union
to work out terms. The initial proposal would affect 92 cus-
todians, about 40 of whom may be laid off as a result. City
Council President Michael F. Flaherty told the Boston Globe
that the city council would likely oppose the plan.
Dallas County’s New IT Outsourcing
Dallas County first outsourced its IT department seven
years ago. Last year it recompeted the contract and Schlum-
bergerSema won, taking over the job from Affiliated Computer
Services (ACS). The new 5-year contract is valued at $40 mil-
lion and expands the services provided to the county as well
as stabilizing county IT budgets.
The partnership covers 14 service areas from data center
operations support to telecommunications support, including
networking infrastructure, help desks, and strategic IT plan-
ning. New terms in the contract include more custom applica-
tions and new technologies such as wireless services for public
safety agencies, and standardized electronic data interchange
to bring county health organizations into compliance with the
Health Insurance Portability and Accountability Act. But the
biggest changes in the new contract are the addition of well-
defined service levels and performance penalties, such as a 50
percent first-call resolution rate for the help desk service.
Lessons Learned from IT Outsourcing
A recent article in Federal Computer Week points out that
“although there are plenty of benefits to partnerships with the
private sector, the decision to do so needs to be made with
great care.”
The article points out that Connecticut and San Diego
County, California experienced problems after deciding to
enter into large information technology outsourcing arrange-
ments, and puts the blame on both governments not doing
their homework and defining requirements and expectations
properly. At the same time, many other state and local gov-
ernments have outsourced IT with great success.
The article offers the following lessons learned for IT
outsourcing:
 Ask if this is the best course. Cost savings is a definite
plus, but a third-party vendor should offer some value
above and beyond what your in-house staff can provide.
See BRIEFS on Page 15
PRIVATIZATION WATCH  APRIL 2003
Continued from Page 14
BRIEFS
Other benefits include access to better technology, greater
expertise than you have in-house, or the ability to move to a
common platform or spread efficiencies across agencies.
 Prepare yourself for the difficult job of administering an
outsourced environment. It requires not only technology
expertise but also contract expertise—understanding how
to properly source an IT project to an external vendor and
the ins and outs of measuring vendor performance.
 Determine your goals up front. Know what your require-
ments and expectations are and set them out in clearly
defined, measurable service-level agreements.
Be very deliberate when choosing a provider. Gauge
candidates by their experience, their knowledge of state and
local governments’ missions and regulations, their operations
and—not to be overlooked in today’s shaky business environ-
ment—their financial stability.
New Orleans Revisiting Privatizing Water Service
Faced with more than a half-billion dollars in sewer system
repairs mandated by a federal consent decree, no more bond-
ing capacity and a city council that is loath to raise customer
rates, Mayor Ray Nagin has revived his plans to hire a private
company to manage some Sewerage & Water Board (SWB)
operations. He has “clean[ed] up” the contract a bit and the
board has asked that both (United Water and USFilter) private
companies and employees submit adjusted bids.
The initial drive was criticized for not getting the best deal
for the consumer—and in October the SWB abruptly voted 6-5
to kill the idea. Nagin has since replaced two of the board mem-
bers who voted against the deal, but the board remains heavily
dominated by former Mayor Marc Morial appointees.
The vote ended a three-year process and Nagin has promised
that it will be much quicker this time around—most likely taking
90 to 120 days. The recent board vote is not one on privatiza-
tion itself, but simply keeps the option on the table after the
council was forced to raise rates by 15 percent last year.
Romney Budget To Overhaul Government
First term Massachusetts Governor Mitt Romney unveiled
his $22.85 billion state budget to little fanfare in late February.
The plan calls for dramatic changes in the way state govern-
ment operates and closes a $3 billion spending gap.
THE CORRECTIONS ISSUE
15
The budget identifies $2 billion in waste and inefficiencies
that Romney insists must be removed. Furthermore the plan
effectively abolishes the Massachusetts Turnpike Authority,
privatizes some state colleges, hikes registry fees, slows down
the state’s prescription drug program, consolidates the courts,
and lays off 2,000 state employees (3 percent of the state
work force).
Besides including no new taxes, the budget will also reduce
aid to cities and towns by about 5 percent while creating a
new distribution formula to favor poor communities. The
reform package would reduce state spending by about $2.2
billion through a mix of consolidations, cuts, and higher fees.
Overall state spending will increase by half a percent—far less
than Romney opponents called for to maintain services at the
current level.
Some specific Romney proposals include:
 Eliminate the Pacheco Law, which makes privatization of
state services nearly impossible, and abolish some civil ser-
vice protections for state workers and reduce the number of
employees in unions. Estimated savings from this reform:
$263 million a year.
 End the Prescription Advantage program, which provides
low cost drugs to senior citizens. Estimated savings: $98
million next year.
 Cut the $10 million state subsidy for the Hynes Convention
Center.
 Eliminate the UMass President $309,000-a-year job and
$14 million budget.
Minnesota Governor Proposes More State Privatization
Facing a $4.56 billion deficit Minnesota Gov. Tim Pawlenty
was forced to make some hard decisions to balance the state
budget. While offering no specifics, Pawlenty suggested that
outsourcing was an area to consider, especially for social
services, where nonprofit agencies often do a better job than
government. To do so, he called for the repeal of a state law
that hinders the governor’s ability to outsource services. The
law was enacted with bipartisan support under former Gov.
Arne Carlson, but Pawlenty has called the law “outdated,
archaic and overly protective.”
He also called for changing union work rules to save money,
ultimately proposing off the clock lunches and unpaid days off
for state workers—shortening the work week to avoid layoffs
while lowering costs. 
16
WHO, WHAT, WHERE
Conferences
26th Annual Resource Bank Meeting, April
24-25, Sheraton New Orleans, New Or-
leans. Presented by the Heritage Founda-
tion. For more information, call 202/546-
4400 or visit www.heritage.org.
Competitive Sourcing Under a Revised
A-76 Process, April 22-23, Hilton Gar-
den Inn, Arlington, VA. Presented by
the Performance Institute. For more
information, call 703/894-0481 or visit
www.performanceweb.org.
Competitive Sourcing & Performance-
Based Contracting, April 24-25, Hilton
Garden Inn, Arlington, VA. Presented
by the Performance Institute. For more
information, call 703/894-0481 or visit
www.performanceweb.org.
Meeting Financial Challenges, May 18-21,
New York. Presented by the Government
Finance Officers Association. For more
information, call 888/469-8473 or visit
www.gfoa.org.
Reason Studies
HOT Networks: A New Plan for Conges-
tion Relief and Better Transit, Robert W.
Poole, Jr. and Kenneth Orski, Policy Study
No. 305. Available at: www.rppi.org/
ps305.pdf.
PRIVATIZATION WATCH
Reason Public Policy Institute
3415 S. Sepulveda Blvd., Suite 400
Los Angeles, CA 90034
www.privatization.org
Contracting for Road and Highway
Maintenance, Geoffrey F. Segal, Adrian
T. Moore, and Samuel McCarthy, How-
to Guide No. 21. Available at: http:
//www.rppi.org/htg21.pdf
Designing a Performance-based Competitive
Sourcing Process for the Federal Govern-
ment: 37 Proposed Changes to Regulations
and Approaches to Competing and Out-
sourcing Commercial Activities in Govern-
ment, Carl D. DeMaio, Adrian T. Moore
and Vincent Badolato. Available at: http:
//www.rppi.org/competitivesourcing.html
Improving Airport Passenger Screen-
ing, Robert W. Poole, Jr., Policy Study
No. 298. Available at: www.rppi.org/
passengerscreening.html.
Rethinking Checked Baggage Screen-
ing, Viggo Butler and Robert W. Poole,
Jr., Policy Study No. 297. Available at:
www.rppi.org/baggagescreening.html.
Navigating the Politics of Privatization,
Robin A. Johnson, How-to Guide No. 20.
Available at: www.rppi.org/htg20.html.
Publications
Rebuilding the Marquette Interchange via
a Public-Private Partnership, Robert W.
Poole, Jr. and Kevin Soucie, Published by
PRIVATIZATION WATCH
the Wisconsin Policy Research Institute,
December 2002, www.wpri.org.
Liquid Assets: Privatizing and Regulat-
ing Canada’s Water Utilities, Elizabeth
Brubaker, Published by the University of
Toronto’s Centre for Public Management,
2002, http://www.environmentprobe.org/
enviroprobe/pubs/EV560.html.
The New Public Management: Lessons
from Innovating Governors and Mayors,
edited by Paul J. Andrisani, Simon Hakim,
and E.S. Savas, Kluwer Academic Publish-
ers, Boston, 2002.
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