Governing Magazine/May 1992

GOVERNING GUIDE/PRIVATIZATION: WHO, WHAT AND HOW

By Anne Chase

The privatization trend shows no signs of slowing. Governments that
hired private janitorial services and contracted out the maintenance
of their public works trucks are now looking to the private sector to
build and manage major chunks of infrastructure.
 Travelers to Dulles Airport from Leesburg, Virginia will before long
drive on a private toll road. Florida may soon house 900 inmates in a
private prison. Private companies run the water system for West
Frankfurt, Illinois, collect recyclables for Seattle and manage
Mobile's civic center. Dade County is experimenting with privatizing
schools, and Los Angeles is thinking about selling its airport.
 Several factors propel the current surge to privatize. One is the
recession. States, counties and cities simply don't have the money to
do all they need to do, and private industry is looking for new
sources of revenue. Another force is global. The United Kingdom has
sold off numerous state owned enterprises. Eastern Europe and the
former Soviet Union are hurrying to embrace private ownership.
 This Guide will examine four different areas of privatization--
environmental services, corrections, infrastructure, and facilities
management--all points at which the government's need to get things
done has intersected with business's desire to make money.

* * *

Money may be the main reason governments privatize, but it is
certainly not the only reason. When asked in a recent survey, state
comptrollers told Apogee Research they saw privatization as a way to
provide higher quality services, reduce implementation time and solve
labor and political problems.
 Privatization takes varying forms. Initially, governments simply
contracted out for services, hiring a management firm to manage the
city convention center, for example. Now, they are turning to private
firms to design, finance, construct and operate public facilities.
These arrangements are sometimes described as public-private
partnerships. The newest form of privatization involves selling public
assets to a private firm. At that point, new considerations arise.
 It's one thing to hire a private janitorial service to mop the floors
at city hall. If the company hired doesn't get the floors clean, the
public works department can relet the contract. If the experiment
doesn't work with a second contractor, public works can hire a few
more janitors. It's not final.
 It's another thing to sell Kennedy or LaGuardia Airports, the
Brooklyn Bridge or the Massachusetts Turnpike. Once these assets are
gone, and the money from the sale spent, the city of New York or the
Commonwealth of Massachusetts is unlikely to be able to buy them back
if the experiment fails.
 Hiring a private company to build and run a plant means the city has
some recourse if the plant does not operate properly. A well-drawn
contract specifies what constitutes adequate performance and sets
financial penalties if the terms are not met.
 But public managers must be wary. Private ownership alone does not
guarantee efficiency, warn John B. Goodman and Gary W. Loveman,
writing in the Harvard Business Review. Public managers must continue
to manage. ``It's inaccurate to believe that privatization will
automatically lead to better, more efficient service,'' Goodman says.
``Continued monitoring will be necessary.'' Private managers will be
more likely to work for the public interest if they have financial
incentives to do so and competition to keep them on their toes.
``Because infrastructure often has the characteristic of a natural
monopoly, it's often more efficient to have a single provider,'' he
continues. ``The competition comes in the original bidding process.''
 Government's challenge is to manage privatization to provide the
taxpayer with the best deal for his money, while keeping the private
partner happy as well. Here's how some state and local governments are
meeting that challenge:

ENVIRONMENTAL SERVICES
Privatization is not new in the environmental field; private companies
have collected trash in many communities for years. But today, private
firms are taking over landfills, wastewater treatment plants and
recycling centers.
 WATER. Four years ago, the town of West Frankfurt, Illinois, burdened
by a balky water system plagued by low pressure, leaks and labor
problems, contracted to pay $400,000 a year to Environmental
Management Corporation of St. Louis to manage the town water system.
EMC hired the employees of the town water department and took over
maintenance and billing.
 Since then, EMC has helped the city float a $4.5 million bond issue
to pay for a new system which EMC installed and the town owns. A
second five-year contract has been signed. The new contract has
several important features. The city was losing 35 percent of its
water from the old leaky pipes. In the new system, EMC guarantees no
more than 5 percent of the water will be lost. Should a water main
break occur, EMC will pay for water lost. Mayor Richard Simmons
estimated that feature of the contract alone could save the town
$90,000 a year. In addition, the cost of operating the water system
has gone down to $315,000 a year under the new contract. Debt service
on the bond issue is paid for by a $5 per month surcharge on water
bills.
 Not least of the benefits from Mayor Simmons' point of view is that
EMC deals with the U.S. Environmental Protection Agency. ``I'm in the
grocery business,'' he says. ``The only thing I know about the water
is, you go to the faucet and turn it on. When the EPA people come in,
the only thing I can say is `Okay.'''
 And indeed, says Jerry King, president of EMC, the know-how offered
by private contractors is ``the most compelling reason for small and
medium size communities to privatize. Public officials just don't have
the knowledge, expertise and sophistication to deal with the public
regulatory agencies.''
 RECYCLING. Seattle, one of the leaders in the recycling movement,
contracts with private business for recycling services. That
arrangement has given Seattle access to the economies of scale offered
by a large recycler. One contractor, Waste Management of Seattle,
built a $2.5 million recycling facility that separates the recyclables
it collects from 170,000 Seattle households and processes them for
resale. Waste Management is currently paid $55 a ton to pick up glass,
aluminum, tin-lined food cans, plastic soft drink containers,
newspaper and wastepaper from plastic bins householders set out at the
curb.
 ``A city dealing with us would be far better off (than trying to
market its own material),'' said Don Kneass, an executive with Waste
Management of Seattle. ``We take a lot of the risk out of marketing;
we have stable markets.''
 Seattle early this year negotiated a five-year extension of its
recycling contract with Waste Management. In acknowledgment of the
vagaries of the secondary markets for recyclables and of the
partnership that now exists between the city and the contractor, the
new contract contains a risk sharing provision. The city pays Waste
Management $78 a ton for collection. If the market price of the
material drops below a certain level, Seattle makes up the difference.
If the price rises above a certain level, Waste Management returns the
excess to the city. Even with the risk-sharing factor, the city
estimates that it saves $10 a ton by recycling these materials. The
city retains responsibility for the recycling function with a consumer
complaint hot line staffed by city workers and a staff of inspectors
to check out complaints.
 SEWAGE TREATMENT. Privatization ``came in the back door,'' for the
tiny borough of Mercersburg, Pennsylvania which is working through a
public- private partnership to upgrade its sewage treatment capacity
using a spray irrigation process and a public- private partnership
grant from EPA.
 The borough council was preparing to spend $2.6 million on a
conventional upgrade to improve the quality of its effluent when an
alternative form of sewage treatment was suggested. Two deep pits are
used to store and aerate the sewage; the liquid effluent will be used
to irrigate farm land. A local company formed a consortium called
Future Water of Pennsylvania that designed the project, obtained land
and is now obtaining permits. Once the project is built, Future Water
will operate it under contract with the borough. Judy Chambers, the
borough manager, estimates that the borough will save $500,000 by
using a private company and the new technology.
 The borough plans to finance the project through the municipal bond
market or with a revolving loan from a Pennsylvania revolving fund
created by EPA. Future Water will hold a note equal to 20 percent of
the cost. Repayment of the note will be tied to Future Water's
performance in running the plant, says Chambers: ``We're buying
ourselves risk insurance.''
 From her perspective in the midst of this project, Chambers offers a
few words of advice to communities interested in public-private
partnerships:
 --``Get some pros on your side. This stuff is too complicated for `on
the job training,''' she says.
 --Legal representation is crucial. ``Where it really came in was to
make sure we had an ironclad agreement. Sure, public-private
partnerships are supposed to be based on trust, but we have a
responsibility to our sewer rate payers,'' she emphasizes.
 --Pick a partner with experience in dealing with regulatory agencies.
Future Water did not have such experience and has had difficulties
obtaining permits, Chambers said.
 --Educate the funding authority before the time comes to approve
financing. ``You don't want to get down to the wire and have them turn
you down,'' she warns.

CORRECTIONS
Prisons are a growth industry these days. States beset with a growing
inmate population and court orders forbidding overcrowding are looking
to private companies to help run existing prisons or build and operate
new ones.
 California, Kansas, Louisiana, New Mexico, Tennessee and Texas have
turned over some state prisons to private companies, as have the U.S.
Immigration and Naturalization Service and Bureau of Prisons. Robert
Britton, vice president of the Corrections Corporation of America, is
fond of saying that his company has more prisoners in its jails than
the corrections departments of 25 states.
 Privatizing prisons poses some unique problems. Control is one major
issue. Many states install a senior employee as contract administrator
at each facility. There has to be a plan for the state to take back
control of the facility in the event of a riot or contract
noncompliance. And in prisons operating under federal court order,
changes as innocuous as giving a prisoner a different colored jump
suit can be illegal.
 SERVICES. Corrections officials have found they can rid themselves of
a number of headaches and save money by turning over functions such as
food service, health care and education for inmates to private
companies. The Massachusetts Department of Corrections has signed a
$100-million three-year contract with Prison Health Services to
provide medical services for all state prisoners. Consultant Doyle
Moore estimates the commonwealth will save between $7 million and $12
million a year.
 The vendor has incentive to treat prisoners inside the institutions
and hold down costs. The contract allows 500 trips per year outside
the institution for medical reasons. If more trips are needed, the
company pays the department $100 per visit.
 OPERATIONS. Texas has found that privatizing the operations of
correctional facilities can indeed save money. In 1988, the state
contracted with Corrections Corporation of America and Wackenhut
Corporation to build and run four pre-release centers for inmates who
are within two years of leaving prison. Somewhat less restrictive than
a traditional prison, these centers provide education and vocational
programs. These facilities, housing 500 men each, opened in 1989.
 By law, the vendors' price cannot exceed 90 percent of the state's
cost of operating the centers. At first glance, the private providers
appear not to have met that mark. The state per diem cost for an
inmate is $35.76; it pays Wackenhut and CCA just 51 cents less--$35.25
per day. Savings come, however, in not having to pay employee
benefits, a factor not included in the state's per diem cost, but
contained in its overall cost calculations.
 Monitoring the contract amounts to a daily operation, says Michael
Daniels of the Texas Department of Criminal Justice. The state has an
experienced monitor at each center. This does not impose an additional
burden because such oversight of the state's prisons is already
required by federal court order. The contracts are tightly written to
fulfill not only the state's safety mandates but also the judicial
mandates.
 Texas renegotiated its contracts with Wackenhut and CCA in 1991 at
the same per diem cost, and is now considering having private vendors
operate secure drug treatment centers.
 CONSTRUCTION. Flexibility is essential in negotiating privatization,
Florida officials have learned.
 Two sets of negotiations for construction of a new state prison came
to naught, in part because the state was asking contractors to build a
private prison that looked exactly like a state prison, down to the
last brick.
 At length, Governor Lawton Chiles directed the state to relax its
specifications to give bidders more freedom to cut costs, so long as
the private prison would provide sufficient bed space.
 Private firms must build the prison for 3 percent less than the
state's calculated cost, and run it for 10 percent less.
 The process itself is now designed to elicit the best possible bid.
In response to the state's request, vendors submit technical
proposals; the state evaluates them and returns them with comments,
including a list of deficiencies. Vendors amend the proposals and
return them with a bid.

INFRASTRUCTURE
It is a sign of the times. Ralph Stanley was administrator of the U.S.
Urban Mass Transit Administration during the Reagan Administration,
now he's head of the Toll Road Corporation of Virginia, a private
company that is building a private toll road. The road will connect
Dulles International Airport to Leesburg, Virginia, running parallel
to a congested state highway.
 Stanley is confident that the traffic is bad enough that drivers will
pay tolls to get out of it.
 ``What you're selling is time. You're giving people their time back.
People will pay for time,'' Stanley says. Debt service and profit to
the investors will be paid out of tolls; the toll charges are
regulated by the state.
 PRIVATE PROJECTS. Such projects are not easy to get off the ground.
Stanley initiated the project in 1988, expecting to break ground in
1989. The cost has gone from $147 million to $360 million since it
began. Private developers face the same forces opposing highway
construction as do state officials.
 Skittish private lenders can also be a problem. Since they're buying
into a revenue stream fed by tolls on a road that does not yet exist,
they must have faith that the public will pay. Calming words come from
Steven Steckler, senior manager of Price Waterhouse's privatization
group: ``Public toll roads would have been an extraordinarily good
investment if they had been a business. They are much less volatile
than the stock market.''
 Thanks to the U.S. Congress, private road builders may now have an
easier time. In December 1991, Congress passed the Intermodal Surface
Transportation Efficiency Act. It may revolutionize the private road
building industry by allowing states to loan federal highway money to
private road builders. State DOTs can levy tolls on traffic on roads
and bridges originally built with federal funds and use the toll
revenues to rebuild them.
 CALIFORNIA EXPERIMENTS. Caltrans, the California Department of
Transportation, has signed agreements with four consortiums of
construction firms to study the feasibility of four private tollways.
One particularly promising project, according to Roy Nagy, deputy
assistant director of Caltrans, is a 10-mile stretch of road built in
the median strip of State Route 91 in Orange County.
 Tolls will fluctuate, higher at rush hour than at off-peak times, and
will be electronically collected, providing, Nagy hopes, a good
demonstration of the impact of congestion pricing.
 State law leaves it to private decision makers to decide where roads
should go. It does, however, specify that any route adopted for a
private toll road must have a free road going between the same two
points.
 The alternative is necessary, Nagy explains, for there to be ``a
market decision. Is it worth the toll to go from point A to point B?''
 The roads will be built under the Build-Transfer-Operate model. Once
the roads are completed, the private investors will deed them to the
state, lease them back and operate them. This is done for liability
purposes, Nagy said.
 The law also limits investors to a ``reasonable rate of return,'' a
rate high enough to make it worth the risk, but not too high. Setting
a maximum rate of return was also seen as an easy way to make sure
tolls would not be too high.
 BRIDGES. Owning a toll facility is not necessarily a license to coin
money, as Clifford Moore of the Bridge Company of Fargo, North Dakota
has learned. Moore, president of a small engineering firm, formed the
company in 1983 to build a private toll bridge between Fargo and
Moorhead, Minnesota after voters rejected a special assessment to
finance a publicly built bridge.
 The bridge opened in 1988, but the company is still losing money.
Because it is privately owned, the bridge pays $35,000 a year in real
estate taxes. That is the difference between profit and loss.
 A 15-cent increase in the toll, to 50 cents, would put the bridge in
the black. Moore could do that, but for now he feels that it is more
important to keep the promise he made to the public not to raise tolls
``sky-high'' than to make a profit right away.

FACILITIES MANAGEMENT
In the 1970s and `80s, cities had great hopes for the revitalizing
quality of stadiums, convention centers and indoor sports arenas.
Dozens of facilities were built around the country, and mayors waited
for the money to roll in. Too often it didn't.
 City officials found there was a science to running these places that
wasn't taught in Public Administration 101. They imagined classy acts
and big rock tours playing in their town, but discovered too late that
you had to have more than a brand new civic center to lure the likes
of the Rolling Stones. You had to have the contacts. Approach was
important, too. For a facility to make money, officials had to run it
like a business, or find someone who could. With losses mounting, many
cities turned to facility management firms.
 --Baltimore's Arena was losing more than $1 million a year when the
city signed a contract in 1989 with Centre Management. Centre turned
the losses into modest profits in three years. Barry Silberman, the
president of Centre, said his company has to be creative because it
cannot rely on subsidies. ``We definitely have brought in more
events,'' Silberman said. ``Since we've been in the business a long
time, we could use our clout and get promoters to deal with us.''
 --Under city management, Mobile's Civic Center was losing $1 million
a year. After some city employees went to jail for taking kickbacks
from promoters, Mayor Michael Dow and the city council in 1990 hired
Spectacor Management Group of Philadelphia to operate the civic
center. It's not yet making money but Spectacor has cut the losses by
$250,000, attracting big concert tours that once gave Mobile the back
of their hand. Dow is pleased with Spectacor's performance. The city
recently signed a contract for the company to manage Mobile's new
convention center as well.
 Management contracts must be tailored to a city's particular
situation. When performance bonuses depend on reducing losses, a city
will have to step up its audits to ascertain whether those terms are
being met. Spectacor hired the city employees who had been working at
the convention center. That entailed a complicated process of
transferring out pension rights and benefits.
 --Spectacor also operates the Richmond Coliseum, and City Manager
Robert Bobb is pleased that the company has reduced the coliseum's
losses. However, Bobb cautions, public officials can find themselves
``outnegotiated'' by an industry powerhouse like Spectacor.
 Richmond has its own visitors' bureau that books large conventions
into the coliseum. Sometimes, the visitors' bureau offers the facility
rent-free to a large convention to reap the benefits from having
thousands of conventioneers renting hotel rooms and spending money at
restaurants and tourist attractions. Cities negotiating with
facilities management firms must be careful to strike a balance
between renting to conventions, which benefit the city, as well as
shows with a large daily attendance, like auto and boat shows, which
benefit the management firm.
 Spectacor insisted that a``ghost'' figure be added to its revenues,
representing money lost when conventions use the coliseum rent-free.
Spectacor's income from the city depends on cutting losses below a
certain level, so these ``ghost'' revenues can cost the city money,
Bobb says.
 Bobb is nonetheless grateful for Spectacor's resources. Recently he
authorized them to book the Grateful Dead into the coliseum. With the
Dead and their fans come Spectacor's security specialists from other
cities to handle the crowds.
 ``Privatization is a big idea,'' emphasizes one advocate, John
Giraudo, the former counsel for the President's Council on
Privatization. He urges public managers to forge ahead, turning over
chunks of public functions to private management. ``It's not a small
idea. It's a gigantic idea.''
 Giraudo paints an extremely attractive picture of the benefits that
would accrue to New York City if it sold both Kennedy and La Guardia
Airports. Assuming that the city would net around $2 billion, to be
invested at 7 percent interest, he calculates that the sale would
generate for the city an income of $140 million a year forever.
 However, privatization is not the only idea. Governments can use some
of the strategies of private business without privatizing, says
Goodman of Harvard Business School.
 A state can put a toll on a road to pay for repairing it just as
easily as a private company. State and local government agencies can
cut costs and ``bid'' against private entrepreneurs to provide
services.
 The city of Phoenix privatized its trash collection and later
returned it to its Department of Public Works after the department
found ways to provide the service at a lower cost than the private
contractors.
 Nor is privatization a magic wand, cautions Irwin David, vice
president of Apogee Research.
 Privatization is simply a management technique, one that should be
considered along with other options when trying to figure out how to
deliver a service.
 Privatization will not by itself transform a disorganized, poorly run
city or town into a model government.
 Well run governments tend to write well crafted contracts that set
out clearly what is expected of the contractor. Poorly run governments
tend to jump in without thinking the process through and are unhappy
with the result.
 Privatization of a government function, says Goodman, rarely divests
government of responsibility for the matter. ``We shouldn't think that
privatizing something means we can wash our hands of it,'' he warns.


WHO'S WHO IN PRIVATIZATION

Privatization is a rapidly growing field for business as well as
government. The following directory lists the names of some of the
companies, large and small, who are active in working with governments
in privatizing services and operations.

CORRECTIONS
Alternative House, Inc., Joseph V. Gutierrez, executive director, P.O.
Box 1280, Albuquerque, NM 87103. Phone: 505-247-0484.

Corrections Corp. of America, Butch Britton, Suite 800, 102 Woodmont
Blvd., Nashville, TN 37205. Phone: 615-292-3100.

Correctional Medical Systems, Gary McWilliams, 999 Executive Parkway,
St. Louis MO 63141. Phone: 800-325-4809.

National Corrections Corp., O.L. Linn, information, P.O. Box 4460,
Santa Fe, NM 87502. Phone: 505-984-2912.

Pricor, Inc., Steve Norris, P.O. Box 8, Murfeesboro, TN 37133. Phone:
615-896-3100.

Prison Health Services, Inc., Robert A. Wern, P.O. Box 472, 101 Lukens
Drive, Suite A, New Castle, DE 19720. Phone: 800-969-3142.

Private Prisons of America, Sonny Emerson, 731 W. Wadley, Building M,
Midland, TX 79705. Phone: 915-682-6852.

Szabo Correctional Services, Daniel E. Jameson, 2000 Spring Rd., Suite
300, Oak Brook, IL 60521. Phone: 800-777-7090.

U.S. Corrections Corp., Michael J. Montgomery, 624 West Main St. Suite
600, Louisville, KY 40202. Phone: 502-585-2212.

Virginia Correctional Enterprises, George Hesser, P.O. Box 27423,
Richmond, VA 23261. Phone: 804-674-3600.

Volunteers of America, Inc., Bill Nelson, 1771 Kent St., Roseville, MN
55113. Phone: 612-488-2073.

Wackenhut Corp., Richard Wackenhut, president, 1500 San Remo Ave.,
Coral Gables, FL 33146. Phone: 305-666-5656.

TRANSPORTATION
Howard Needles Tammen and Bergendoff, John Wight, 515 West Greens
Road, Suite 200, Houston, TX 77067. Phone: 713-875-9292.

Louis Berger International Inc., Gerald P. Shea, P.O. Box 270, East
Orange, NJ 07019. Phone: 201-678-1960.

Maglev Transit Inc., Sam Tabuchi, 200 S. Orange Ave., Suite 2400,
Orlando, FL 32801. Phone: 407-843-4000.

Morrison Knudsen (Colorado E470), Jess Hawley, director of corporate
communications, 720 Park Blvd., Boise, ID 83729. Phone: 208-386-5000.

Moore Engineering (Fargo-Moorhead Bridge), Clifford Moore, president,
1042 14th Ave., West Fargo, ND 58078. Phone: 701-282-4692.

Parsons Development Co. (California Tollway), Paul Nagle, president,
100 W. Walnut St., Pasadena, CA 91124. Phone: 818-440-2000.

The Perot Group (California Route 57), Larry J. Cain, 12377 Merit
Drive, Suite 1700, Dallas, TX 75251. Phone: 214-788-3079.

Virginia Toll Road Corp., Ralph Stanley, president, 7 E. Market St.,
Leesburg, VA 22075. Phone: 703-771-9510.

ENVIRONMENTAL SERVICES
American Energy (resource recovery), 900 19th St. N.W., Suite 600,
Washington, DC 20006. Phone: 202-457-6610.

American Ref-Fuel Company (waste to energy), P.O. Box 3151, Houston,
TX 77253. Phone: 713-531-4233.

ABB Resource Recovery Systems (waste to energy), 7 Waterside Crossing,
Third Floor, Windsor, CT 06095. Phone: 203-285-9922.

Environmental Management Corp. (water and sewer), R. Jerrad King,
president, 689 Craig Rd., Creve Coeur, MO 63141. Phone: 314-432-8070.

International Process Systems, Inc. (composting), Salmon Brook
Corporate Park, Liberty Lane, Hampton, NH 03842. Phone: 203-657-3447.

Metcalf & Eddy Services, Inc. (wastewater treatment), 30 Harvard Mill
Square, Wakefield, MA 01880. Phone: 617-246-5200.

Parsons Brinckerhoff (wastewater treatment), 1 Penn Plaza, 4th Floor,
New York, NY 10119. Phone: 212-465-5000.

Ogden Martin Systems, Inc. (waste to energy), Gloria A. Mills,
managing director, 40 Lane Road, Fairfield, NJ 07007. Phone: 201-882-
9000.

Waste Management of North America (recycling), 3003 Butterfield Road,
Oak Brook, IL 60521. Phone: 708-572-8800.

Westinghouse Electric Corp. (waste to energy), John J. Zebroski,
manager, Resource Energy Systems, 1501 Ardmore Blvd., Pittsburgh, PA
15221. Phone: 412-247-6000.

Wheelabrator Technologies, Inc. (waste to energy), William I. Greener
III, Liberty Lane, Hampton, NH 03842. Phone: 603-929-3000.



FACILITIES MANAGEMENT

Centre Management, Barry Silberman, 1 Harry S. Truman Drive, Landover,
MD 20785. Phone: 301-499-6300.

Johnson Controls World Services, Paul V. Roundy, 7315 N. Atlantic
Ave., Cape Canaveral, FL 32920. Phone: 407-784-7320.

Spectacor Management Group, 701 Market Street, Philadelphia, PA 19106.
Phone: 215-592-4100.

CONSULTANTS
Apogee Research, Inc., Irwin T. David, 4350 East-West Highway, Suite
600, Bethesda, MD 20814. Phone: 301-652-8444.

Arthur D. Little, 25 Acorn Park, Cambridge, MA 02140. Phone: 617-864-
5770.

Deloitte & Touche, 1001 Pennsylvania Ave. N.W., Suite 350N,
Washington, DC 20004. Phone: 202-879-5600.

Jeffrey A. Parker & Associates, Jeff Parker, 5224 42nd St. N.W.,
Washington, DC 20015. Phone: 202-362-2925.

Kimley-Horn and Associates, Craig Miller, 5100 NW 33rd Ave., Suite
157, Ft. Lauderdale, FL 33309. Phone: 305-739-2233.

The Mercer Group, Inc., Jim Mercer, One Lakeside Commons, 990 Hammond
Drive, Suite 6510, Atlanta, GA 30328. Phone: 404-551-0403.

Price Waterhouse Transportation and Utilities Finance Group, Steven
Steckler, 1801 K St N.W., Washington, DC 20006. Phone: 202-296-0800.


Sources: William Reinhart, publisher, Public Works Financing, 908-654-
0397; National Criminal Justice Reference Service, 800-851-3420; June
Beittel, International City/County Management Association, 202-962-
3615; Kent Burton, Institute of Resource Recovery, 202-659-4613.


COMPARING COSTS
The language of privatization is so full of discussions of comparing
apples (private costs) and oranges (government costs) that officials
may feel like they are making fruit salad rather than government
policy. In Tennessee, there's no doubt that the state will be
comparing apples and apples when it looks at its prison privatization
experiment.
 Tennessee has three new 998-bed medium security prisons. Two are run
by the state department of corrections; the third will be operated for
the next three years by the Corrections Corporation of America under
contract with the state. Tennessee law specifies that the cost of
having a private company run the prison must not exceed the state's
cost.
 After two years, the state legislature's fiscal review committee will
compare CCA's costs with the state's costs. The committee will look at
all operating costs involved with running the prison, including
personnel, supplies, equipment, transportation, health services and
education. Also factored in will be the overhead involved directly
with running the prisons and the cost of the three state employees on
site, a ``commissioner's designee'' who decides on the classification
of prisoners, a contract monitor and a clerical worker.
 And the comparison will involve factors other than dollars, says Jeff
Reynolds, Tennessee's corrections commissioner. The contract monitor
will examine incident reports and grievance reports from the inmates
to get an idea of the quality of life for the inmates.


PRIVATIZING SCHOOLS
If privatization is a revolutionary concept, David Bennett is the Tom
Paine of education. Bennett, president of Educational Alternatives
Inc., and a former public school superintendent, is waving the red
flag of private management over the nation's school systems.
 Americans should think of public schools as public utilities, Bennett
says. It is time to discard the idea of an executive branch--the
superintendent--and a legislative branch--the school board. ``Public
utilities are regulated by public bodies, but are owned by for-profit
organizations,'' Bennett says. And, he notes, unlike too many of our
school systems, they work.
 ``If you flip the light switch in a poor home, the lights go on, but
when we flip the switch in schools with poor children, the education
does not go on,'' he says.
 EAI is currently operating South Pointe Elementary School in Miami
Beach, Florida under contract to the Dade County Board of Education.
The company is raising $2.4 million from foundations and other private
sources. Half of that will be its management fee; half will supplement
the school's $2.3 million budget.
 While EAI is proud of South Pointe, Bennett sees the future in
managing entire school systems. He believes there is enough waste in
the average school budget to improve education and make a profit. And
he's ready to take on the job: EAI has formed an alliance with Johnson
Controls World Services of Cape Canaveral, Florida and KPMG Peat
Marwick to handle all the jobs involved in running a school system.
The elected board of education would set policy and manage contracts,
EAI would do the rest.


CORRECTION (published July 1992)
Correctional Care, a division of EMSA Limited Partnership, has
contracted with the Massachusetts corrections departments to provide
health services to state prisoners. The wrong company was listed in
May's GOVERNING Guide to privatization.

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