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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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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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PublicPrivatePartnerships:Thestateshouldenactbroadbasedenablinglegislationthatwould
allowboththestategovernmentandlocalgovernmentstoenterintopublicprivatepartnerships
withoutrequiringstateauthorizationforeveryindividualproject.
MandatoryNegotiations:TheNewJerseyEmployerEmployeeRelationsActshouldbeamended
topermitpublicsectoremployerstooutsourceservicestoprivatevendorswithouttheneedto
negotiatetheimpactoftheseactions.
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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
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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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PrintingServices $1million
SecurityGuards $3million
Water,WastewaterPlants TBD
EmployeeParking TBD
HighwayMaintenanceContracts TBD
FleetManagement&
Maintenance $4million
ProgramEligibilityDetermination $4million
Total $210million+
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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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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.
EstimatedCostSavingsand/orOtherBenefits
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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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.
EstimatedCostSavingsand/orOtherBenefits
Throughacombinationofprivatizationandchangesinthedeliveryandmanagementofinmatemedical
services,thestateshouldrealizea15percentsavingsacrosstheboard.Forbehavioralhealthservices
alone,thesavingswouldbe$6.5millionperyear.
Opportunity
PrisonFoodServices
TheStateFoodDistributionNetwork
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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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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.
EstimatedCostSavingsand/orOtherBenefits
Withoutgoingthroughthecompetitivebiddingprocess,itisdifficulttoascertainwhatthesavings
wouldbe.Thatsaid,basedona10to25percentrangeofexpectedsavings,thestateshouldexpectto
saveanywherefrom$2.75millionto$7.13millionannually.
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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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EstimatedCostSavingsand/orOtherBenefits
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.
EstimatedCostSavingsand/orOtherBenefits
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.
EstimatedCostSavingsand/orOtherBenefits
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.
EstimatedCostSavingsand/orOtherBenefits
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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EstimatedCostSavingsand/orOtherBenefits
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.
EstimatedCostSavingsand/orOtherBenefits
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.
EstimatedCostSavingsand/orOtherBenefits
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.
EstimatedSavingsand/orOtherBenefits
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.
EstimatedCostSavingsand/orOtherBenefits
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.
EstimatedSavingsand/orOtherBenefits
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.
EstimatedCostSavingsand/orOtherBenefits
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.
EstimatedCostSavingsand/orOtherBenefits
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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EstimatedCostSavingsand/orOtherBenefits
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.
EstimatedCostSavingsand/orOtherBenefits
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.
EstimatedCostSavingsand/orOtherBenefits
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