Reason Foundation - Authors (Reason Foundation) Port Privatization <h3>Executive Summary</h3> <p>By facilitating international trade, U.S. seaports play a significant role in shaping the country's economic health. All major U.S. ports are owned by public port authorities; many are also operated by public authorities. A 1990 report by the American Association of Port Authorities showed that 30 percent of the 66 port authorities surveyed were operating at a loss.</p> <p>Government-owned and operated ports face many problems. Lacking exposure to full commercial competitive pressures, publicly owned and operated ports may have reduced incentive to operate efficiently and are often subject to political interference. These public ports can absorb scarce funds from local governments and drag down local economies. On the other hand, efficiently operated public ports, such as the ports of Los Angeles and Long Beach, are often targeted by cities that want to siphon off surplus funds.</p> <p>Overseas, 36 governments including Argentina, Brazil, Hong Kong, Malaysia, Mexico, New Zealand, Panama, Singapore, and Venezuela are considering or are in the process of privatizating&mdash;through concessions or asset sales&mdash;some or all of their major shipping ports.</p> <p>The 1985 divestiture of the container operations at Kelang Port Authority (KPA), Malaysia's principal port, resulted in more than a halving of repair, maintenance, and administrative costs. In 1983, the United Kingdom sold the 19 ports that formed the Associated British Ports. Asset-sale privatization enabled the ports to adopt efficient practices, diversify their assets, and increase capital investment.</p> <p>The overseas trend in transferring government port operations and assets to the private sector suggests that U.S. public ports can benefit from greater private-sector participation. By improving incentives to perform, greater reliance on private management and capital will increase autonomy, efficiency, and competitiveness of U.S. ports.</p> 127650@ Thu, 01 Apr 1993 00:00:00 EST (David Haarmeyer) Privatizing Infrastructure <h3>Executive Summary</h3> <p>Many municipal water-supply systems in the United States face serious problems associated with capital deterioration, deferred maintenance, unreliable water supply, and underpricing of services. In addition, local governments are projected to fall $17 billion short of the estimated $49 billion cost (1993&ndash;2000) to comply with the Safe Water Drinking Act amendments.</p> <p>Because municipal water-supply systems, frequently publicly owned and operated, face little capital-market competition and generally cannot go bankrupt, they lack incentives to operate efficiently. Private systems also face operational and management problems as a result of rate-of-return regulation and unequal tax treatment with publicly owned systems. Rate regulation removes incentives to innovate and adopt least-cost practices. In addition, in contrast to municipally owned systems, privately owned systems pay taxes, do not have wide access to tax-exempt funds, and thus operate at a considerable competitive disadvantage.</p> <p>Privatization in the form of long-term, competitive-franchise agreements or asset sales, introduces elements of competition that can generate incentives for efficient water-supply system management. France currently uses the franchise model to provide water to over 75 percent of its population. The United Kingdom now provides water to nearly 100 percent of its population through fully privatized watersupply systems. A growing number of other countries&mdash;including Argentina, Australia, Chile, and Italy&mdash;are turning to similar privatization models to gain private-sector operating expertise and investment.</p> <p>In the United States, the over 300 operations and maintenance contracts between private operators and municipalities are a form of competitive franchising. These contracts, which generally run for five years, have achieved cost savings of between 20 and 50 percent. Contractual performance and cost guarantees enable municipalities to secure operation's accountability. Removing state and federal laws that restrict the length of contracts would give private contractors more opportunity to make and finance capital improvements, and hence increase potential cost savings.</p> <p>Compared to competitive franchise, implementing full privatization would be considerably more difficult, but could yield greater benefits by taking advantage of the stronger incentives associated with private ownership. Moreover, the 1989 sale of Britain's 10 major public water authorities, for example, had the important advantage of identifying $40 billion in investment needs and arranging for the investment to be financed through private-capital markets and rate increases&mdash;not public subsidies.</p> <p>To remove the need for rate regulation, privatization transactions could be structured so that private companies become wholesalers and not retailers of water services. Problems with &ldquo;cost-plus&rdquo; rate regulation could also be addressed by replacing it with price-cap regulation. Used to regulate an increasing number of utility services in both the United Kingdom and the United States, this incentive regulatory approach partially decouples compensation that the utility receives from actual cost incurred by linking changes in the price of the regulated service to changes in the retail price index.</p> <p>To level the &ldquo;playing field&rdquo; in which publicly owned and privately owned systems compete, publicly owned water-supply companies could be transformed into standalone, government-owned enterprises subject to the same tax and regulatory policies as private water companies. Both this transitory phase and full privatization would expand a municipality's tax base, encourage full-cost pricing, and lead to less reliance on all levels of the government to finance the cost of upgrading facilities and meeting state and federal drinking water regulations.</p> 127745@ Thu, 01 Oct 1992 00:00:00 EDT (David Haarmeyer) Mining the Government Balance Sheet <h3>Executive Summary</h3> <p>President Bush's Executive Order (No. 12803) on Infrastructure Privatization of April 30, 1992 cleared away federal barriers to cities and states selling or leasing existing public works infrastructure to private investors. This report reviews the potential for state and local governments to make use of the new option granted them by the Executive Order.</p> <p>Selling infrastructure enterprises can provide financial benefits to all three levels of government. For hard-pressed state and local governments that sell these assets, the immediate gain is the one-time retrieval of their capital, for use on other pressing needs. Local governments will thenceforth benefit from ongoing property tax payments, as formerly exempt highways, bridges, airports, water systems, and waste disposal facilities are added to the tax base. Each enterprise that is privatized also represents a new stream of state and federal corporate tax revenues. And the federal government will receive the depreciated value of its previous grant investment, at the time of sale.</p> <p>Privatization of infrastructure is a worldwide phenomenon. Airports have been privatized in Britain; seaports in Britain and several Asian nations; water supply in Argentina, Britain, and France; electric and gas utilities in a number of countries; and highways in many parts of Europe, Asia, and Latin America.</p> <p>Based largely on this international experience, estimations of the market value of privatized infrastructure are derived in this report. Applied to the numbers of commercial infrastructure enterprises owned by cities and states, valuation rules of thumb yield estimates of the potential sales value which cities and states could realize via privatization. This preliminary estimate is $227 billion.</p> <p>In light of the easing of federal policy and the sizable potential benefits, state and local governments should consider the transfer of public assets to the private sector.</p> 127659@ Wed, 01 Apr 1992 00:00:00 EST (Robert Poole) Toward Accountability and Efficiency <h3>Executive Summary</h3> <p>The U.S. electric industry's increasingly competitive structure is likely to have important ramifications for the Pacific Northwest. The gradual interconnection of local utilities, the growing significance of independent suppliers of electricity, and the increasing use of wholesale power markets have the potential to reduce the cost of power and increase service reliability. As a federal agency not directly accountable to the region's electric consumers and producers, the Bonneville Power Administration's (BPA) structure is likely to prevent the Pacific Northwest from realizing the benefits emerging from this trend.</p> <p>The BPA was established by Congress in 1937 to market and transport power generated by the Bonneville Dam on the Columbia River. The agency's early objective was to promote economic development by supplying "affordable" electricity to a group of preference customers. Over time, the BPA's status as a federal government agency and its access to interest-rate subsidies has enabled it to develop an extensive transmission network and play a dominant--often counterproductive--role in the Pacific Northwest's electric industry.</p> <p>The BPA's practices and policies have generated a number of adverse effects. The BPA's failure to price electricity to reflect the cost of securing additional supplies has encouraged overconsumption of electricity, discouraged conservation, and artificially stimulated the expansion of financially and environmentally costly power capacity. In addition, as a result of not paying off its federal debts, the BPA and the other federal agencies involved in the Federal Columbia River Power System owe the U.S. government an estimated $9 billion in cumulative investment. The Bush administration's National Energy Strategy has proposed a debt repayment program for the BPA and other federal power marketing administrations in order to ensure that the full federal cost of providing power is covered.</p> <p>The fundamental changes taking place in the U.S. electric industry and the Pacific Northwest's growing demand for power make it particularly important that the BPA's practices and structure be reassessed. Reforms which would make the BPA more compatible with emerging competitive trends in the U.S. electric industry and make the agency more accountable to the region's electric consumers and producers include:</p> <ul> <li value="0">allowing BPA preference customers to resell electricity to those who value it more highly;</li> <li value="0">transferring the ownership of the BPA's transmission system to the region's electric power consumers and generators; and</li> <li value="0">removing artificial and counterproductive incentives for conservation and instead relying on efficient market pricing of electricity for promoting wise use of energy.</li> </ul> <p>These reforms would enable the Pacific Northwest to gain greater control over the agency's power marketing decisions and provide the region with greater access to economically and environmentally low-cost electricity. They should benefit not only the BPA's preference customers, but the region's electric retail customers, independent power generators, and groups interested in promoting conservation and preserving the environment as well.</p> 126638@ Wed, 01 Apr 1992 00:00:00 EST (Kenneth W. Costello)