The ABCs of PPPs

The notion that government should even consider leasing public assets to the private sector evokes passionate debate. But whether or not one is disposed ideologically to support that strategy, it is clear that the number of public-private partnership (PPP) proposals will be increasing significantly in the near future - both locally and nationally - in light of the deteriorating condition of most government budgets.

That being the case, those on both sides of this issue would do well to consider a study released last week by the Pew Center for the States, succinctly described here on Pew's nonpartisan online news site.

The Pew study conducts a post-mortem on the largest PPP proposal in U.S. history - Governor Ed Rendell's plan to lease approximately 500 miles of the Pennsylvania Turnpike to a private company that would collect the tolls and manage the turnpike in return for an upfront payment of $12.8 billion. That plan died last fall when the winning bidders withdrew their proposal after continued inaction by the Pennsylvania Legislature.

The Pew researchers conclude the deal may have made sense for Pennsylvania, but it failed because of a series of strategic mistakes by Rendell and his administration. It offers several lessons for other governments contemplating PPPs - lessons that may be relevant for the City of Milwaukee and Milwaukee County, both of which have floated ideas for significant PPPs (the city for a potential lease of its water utility and the county for a potential lease of General Mitchell International Airport). Those lessons include the following:

1. Don't oversell it. The Rendell administration planned to use $1 billion per year in investment earnings from the upfront lease payment to fund other infrastructure projects. While sound on the surface, the Pew study points out the governor's strategy assumed a highly unrealistic 12% rate of investment return. That cast doubt on the credibility of the entire deal, other aspects of which were accurately projected. Lesson for Milwaukee: don't try to sell a major PPP as the grand solution to the city or county's budget problems unless there are accurate numbers to back up such a claim.


2. Properly assess and explain the specific need for and use of lease revenues. The Pennsylvania plan generally proposed spending investment proceeds on highway needs, but it did not delineate specific projects nor compare projected annual revenues to projected annual highway expenditure needs. This contrasts with the approach utilized for the Chicago Skyway and Indiana Toll Road PPPs, which carefully laid out plans for spending lease proceeds. Lesson for Milwaukee: be specific about why the lease revenues are needed and how much of a dent they will make in the fiscal problems they are purported to address.


3. Establish and maintain a spirit of partnership and transparency among different branches of government. The Pew study notes that Pennsylvania legislators did not feel they were equal partners in the deal, the timing and precise details of which were dictated by the governor's office. Lesson for Milwaukee: in order to advance a major PPP proposal, leaders from both branches should be involved from the beginning and proposal details should be formulated and shared by staff and/or outside financial advisors who are trusted by both. Of course, that may be easier said than done in Milwaukee County, where extreme conflict exists between the two branches, but the recent cooperative effort to develop a pension obligation bond proposal provides an excellent model.


4. Do not couch the debate solely in terms of the impact on the existing financial crisis. Pew researchers explain that in Pennsylvania and most other states where significant PPPs have been debated, the focus has almost exclusively been on the generation and use of large upfront payments to address short-term fiscal needs, while long-term economic and environmental risks and benefits have been downplayed. Lesson for Milwaukee: leasing major public assets to the private sector generates legitimate concerns with regard to future costs for users and future control of decision-making. Rather than being trivialized by proponents of the deal, these concerns must be properly anticipated, laid out and explained to the public and accompanied by analysis detailing how they may be outweighed by perceived benefits.

The lease or sale of public assets may not end up as a viable and appropriate part of the solution to pressing budget problems facing Milwaukee County and the City of Milwaukee. Still, as the Forum argued in a report issued last week as well as earlier commentary, the magnitude of those problems demands that this concept at least be debated. Leaders in both governments would benefit from examining the experiences of other states and municipalities where PPP proposals both have succeeded and failed.

Wisconsin's sticky brains

I have a secret algorithm for filling out my NCAA basketball bracket, since I know nothing about basketball, that entails complex calculations filling numerous spreadsheets. In collecting the data I needed to make my picks last week, I came across two interesting slices of Census data, which when juxtaposed got me thinking beyond basketball. Which is worse, when brains drain, or when brains don't attain?

Wisconsin, it seems, ranks 5th "stickiest" in terms of the adult population residing in the state that was born in the state, with 68.6% of those born here still living here as adults. The top ten, in order, are:

1. Texas


2. North Carolina


3. Georgia


4. California


5. Wisconsin


6. Michigan


7. Tennessee


8. Minnesota


9. Utah


10. South Carolina

Of the top ten sticky states, two are very big states, Texas and California, which afford their population the opportunity to move around to quite varied environments without leaving the state, and one is Utah, which has a family-centered culture among young people unlike any other state, with a very low median age for first marriages and the nation's highest birth rate.

Of the remaining 7 states, 4 are Southern states (North Carolina, Georgia, Tennessee, and South Carolina). The others are upper Midwestern (Wisconsin, Michigan, Minnesota). I guess you could reason something about the hardiness of our genes allowing us to brave the winter year after year, after year.

But the striking chart above shows a difference between us and the Southerners more dramatic than our climates: Of the ten most sticky states, only Utah and the three upper Midwest states have rates of secondary and post-secondary education surpassing the national average. Could the other states' stickiness result less from a choice to stay put and more from their native population lacking opportunities anywhere else?

Maybe a slight brain drain is the price of having a good educational system. It would be easy to stem all out-migration if we hobbled young people by not educating them sufficiently. Trickier is to enable them to be able to compete with anyone, anywhere in the world, for a job--and then ensuring that they have jobs worth competing for right here in Badgerland. Trickier, even, than a Hardaway crossover move.

Milwaukee County's fiscal condition: crisis on the horizon?

It has been almost three years since Milwaukee County Executive Scott Walker launched a “reality tour” to warn citizens about county government’s deteriorating financial situation, and the Milwaukee Journal Sentinel followed up with a multi-part investigative series detailing the fiscal crisis. So what has happened since that time, and is the prognosis today any better?

Those are the questions the Forum seeks to answer in its comprehensive assessment of the fiscal condition of Milwaukee County government, commissioned by the Greater Milwaukee Committee and released today. The basis of our analysis is the Financial Trend Monitoring System of the International City/County Management Association (ICMA). First developed in the 1980’s, this analytical methodology is routinely used by municipalities and counties to assess fiscal health.

What we find is a government that, on the surface, appears to be in reasonable fiscal shape: revenues and expenditures have grown steadily; budgets have balanced, at least since 2004; cash position and fund balance have improved.

Yet, a closer look reveals a more complex and alarming picture – even before the current economic downturn – that has grown worse with each successive year, and that may now be so severe that radical solutions are required.

The full report, which can be accessed here, not only assesses the county's existing condition, but also details the strategies it has utilized to balance budgets during the past five years. We conclude that while those strategies have staved off crisis so far, they leave the county with few options to address the challenges of the next five years, which will be at least equally arduous.

We also conclude that year-to-year budget balancing is no longer a tenable strategy. Instead, what is needed is a comprehensive approach that considers all alternatives, from implementing new or enhanced local revenue sources; to eliminating, transferring or outsourcing programs and services that are not essential to the county's core mission and that could be performed just as well by others; to selling or leasing assets to generate capital as a means of paying down liabilities or re-investing in other assets that must be retained.

The report is intended not to set off another round of finger-pointing, but to provide county policymakers and civic leaders with baseline information that can serve as the factual underpinning for discussion of strategies to address the fiscal challenges facing Milwaukee County government. Despite inevitable disagreement about the nature of those strategies, there should be no disagreement over the need for comprehensive action now.

Regional identity could help Great Lakes cities leverage their assets

We’ve all heard of the brain drain—that powerful vacuum sucking all of the college-educated young professionals out of cities like Milwaukee. More recent reporting suggests that many who leave later return to the Milwaukee area. What do these returned brain drainers like myself have to say about their beloved but struggling Midwestern cities? Detroit’s Sarah Szurpicki and Abby Wilson of Pittsburgh have the answer. After stints in New York City and South Africa, the duo returned to their hometowns to co-found GLUE (Great Lakes Urban Exchange), an organization seeking to bolster regional identity among older industrial cities.

GLUE just completed its second annual conference in Milwaukee, featuring an inspirational mix of post-boomer urbanites from rust-belt cities like Buffalo and Cleveland sharing ideas about urban renewal, the green economy, sustainability, transit, community journalism and more. Following tours of the Growing Power urban farm, Menomonee Valley’s sustainable redevelopment, and the Great Lakes Water Institute, I’m still on a high from hearing so many people call Milwaukee a beautiful and impressive city. One participant from St. Louis commented, only partially joking, that he was now deciding between Paris and Milwaukee for his honeymoon.

If that didn’t warm my Milwaukee-loving heart enough, there was also serious information about how the Midwest can leverage its assets to compete in the post-industrial economy (covered locally here and here). Conference speaker Richard Longworth, senior fellow at the Chicago Council on Global Affairs, first laid out some bad news: the Midwest has in some ways lost its embrace of change and its former knack for innovation and creativity. Moreover, independent-minded Midwesterners are not accustomed to working across borders to create regional, shared solutions. No Midwestern university teaches even one course on the Midwest. Fragmented efforts, such as the fact that each state has its own separate bioscience organization, lead to duplication and competition. Longworth didn’t mince words. “The good news is this era is so new. The bad news,” he said, “is that so much of the Midwest is already behind.”

The advantages that Great Lakes cities share include having existing infrastructure and appealing street grids, a density that can support development, an intense work ethic, access to bioscience raw materials, and, of course, plentiful fresh water. Opportunities exist if the region plays its cards right, in industries of the future such as clean water technology, bioscience, nanotechnology, green industry, and transit.

But how can the Midwest and its Great Lakes cities maximize assets? Multiple speakers at the GLUE conference stressed the need for regional planning and geographic unity (as did this recent local editorial), what Longworth characterized as a need for a Midwestern Marshall Plan. Tom Wolfe of the Northeast Midwest Institute described how sustainability should be a principle criterion for the distribution of federal dollars. Kate Rube of Smart Growth America showed how current zoning and land growth laws need to be revised because they often make “smart growth” sustainable development illegal. John Austin of the New Economy Institute highlighted affirmative, targeted immigration policies as a promising strategy for bringing innovation back to the Midwest, an especially important approach for Midwestern cities that are losing population.

The winds of change blowing off the lake appear to suggest that Great Lakes cities would do well to adopt an open attitude toward regionalism, the new green economy, and the feedback of young professionals who are reversing the brain drain in their post-industrial Midwestern cities and beginning to speak with a unified voice through organizations like Great Lakes Urban Exchange.

Experimental policy: when social science trumps politics

The "broken windows" theory of policing proposes that crime arises out of certain conditions and that tolerance of misdemeanor crimes can result in greater incidences of more serious crimes. If crime-ridden neighborhoods are cleaned up, if graffiti and jaywalking and loitering ordinances are enforced, the broken windows theory predicts violent and property crimes will abate in those neighborhoods.

As a theory, it sounds reasonable, and it has in fact been put into place as policy in many cities across the globe, including New York (where it is known as "zero-tolerance policing"), Boston, and yes, Milwaukee. Some of the cities saw crime rates drop dramatically, some saw smaller improvements, and some saw no change. So, as theories go, maybe it's less like a scientific theory, to be proven or disproven, and more like a philosophy, unable to be proved. (And of course, some of this variance in success is probably explained by the fact that not every police force is willing or able to implement all the elements of the practice and other neighborhood improvement efforts may have played a part, as well.)

Policymakers and public safety officers in Lowell, MA were adherents to the philosophy, but open to the possibility that, as a theory, it could be tested. So they worked with researchers from Harvard and Suffolk universities to implement a local policy experiment--something extremely rare in public policy research.

The experiment involved implementing "broken windows" policing practice in some high crime neighborhoods and policing as usual in others. Yes, you read that right, in some high crime neighborhoods they resisted making a policy change they believed in, so that they could measure the effect of the change in other neighborhoods. Policy effectiveness is most often measured after implementation and usually by third-party researchers such as academics. Local policymakers testing out a policy themselves, prior to adoption, is not the norm.

Why is this not done more often? Well, as you can imagine, no matter how the experiment turns out, testing a policy is quite a risk, politically. If the policy is proven not to work, local critics will not only argue time and money was wasted on it, all critics will now have data as ammunition against the policy. If the policy is proven to have a positive effect, there's an argument that time and money were wasted in waiting to fully implement it. For elected officials, research is not often worth the political risk. When it comes to crime, there are obviously other, more imperative risks as well.

Beyond the political risks, there are other reasons officials tend not to experiment with policy. At the local level, there is often neither the time nor money to give a new policy a test-run. At the state level, pilot projects are more common but, rather than being designed as empirical tests of effectiveness, they are usually seen as ways to phase-in implementation of new policy.

Kudos to Lowell for using scientific method to make policy decisions (the experiment confirmed their hypothesis and they have implemented the new policy) and for creating data that other policymakers can utilize. More municipalities should follow their lead. After all, in times of tough budgets, having reliable data can help when making the hard decisions.

Don't loan money to friends, family...or state government?

Here's one positive spin on Wisconsin's state budget woes...at least we're not in the position of having to delay processing 2008 state income tax refunds, as they have in California and Kansas. It seems collecting taxes is one thing, returning them is another.

The economic crisis is affecting nearly every state's budget and at least two are so broke they do not have the cash on hand to issue tax refunds due state taxpayers who withheld too much from their 2008 income. California's $42 billion budget deficit has resulted in the suspension of tax refund payments indefinitely. Kansas stopped issuing refunds on a temporary basis while the governor and legislature hashed out the differences in their proposed budgets; once the details in the compromise have been worked out, refunds are expected to resume.

So far no such proclamations have come from our state department of revenue, which has received 1.09 million 2008 tax returns to date. But Badger State pols shouldn't be too smug. Wisconsin may be keeping company with those deadbeat states next fiscal year. According to the National Conference of State Legislatures, for 9 states, the fiscal year 2010 budget gap is predicted to be more than 15% of each state's general fund. The 9 states include Wisconsin, California, and Kansas.

"Shrink gracefully, rust belt," suggests Florida

Richard Florida, that is. In this month's cover article in the Atlantic Monthly, the professor famous for his "creative class" theory of urban renewal suggests that the recession will result in growth in a few mega-regions across the country and cause other cities (read Midwest, rust-belt cities) to shrink. Florida's suggestion is for policy to allow these cities to shrink gracefully by funding a temporary cushion as they adjust to their new size.


As counter-intuitive as his idea might seem, he does have a track record of influencing urban policy based on his novel research, which means this new theory could gain traction. In addition, there is a fledgling shrinking cities movement (originally blogged about on Milwaukee Talkie in May 2007), that aims to adjust declining cities' geographic and service areas to better match their smaller populations.


But Prof. Florida has his detractors, both inside and outside the rust belt. So expect there to be real debate (also here) in many struggling cities over Florida's ideas, which he describes rather simply, leaving some room for interpetation.


Florida suggests that public policy should favor rental housing over home ownership, as home ownership is not economically healthy for today's post-industrial age, preventing workers from relocating with jobs. He also advocates for investing in the current mega-regions that have succesfully attracted a density of talent and innovation, the Silicon Valleys and Research Triangles of the world, by making them more affordable for more people and more environmentally sustainable. Finally, he posits that improving quality of life for people who remain in shrinking cities can be achieved by cultivating high-growth services and industries in those locations.


And what are the implications for Milwaukee? Florida doesn't specify, but one interpetation is that Milwaukee has a choice of how to fit in this new economic theory: to be a shrinking city or to join the Chicago mega-region.

Milwaukee Community Justice Council: Reaching Its Full Potential?

There was much praise for Milwaukee’s year-old effort at criminal justice coordination at Marquette Law School's February 20th conference, “The Future of Community Justice in Wisconsin.” But, more than merely showering members of the Milwaukee Community Justice Council with acclaim, panelists also discussed ways the group can reach its full potential.

The intergovernmental council seeks to coordinate and improve area criminal justice efforts. The Milwaukee group’s executive committee includes the county executive, the mayor, the sheriff, the police chief, the district attorney, and is headed by the chief judge. Multiple sub-committees focus on areas such as juvenile justice and public health.

At one component of the Marquette conference, three panelists from Indiana shared lessons learned from their own community justice efforts, such as the advice to create “action plan” meetings and be willing to measure results. One panelist stressed that community involvement and relationships were key to the success of her group, such as using a university professor from outside government to mediate.

The panelists appeared to be empowered by their access to funding -- $25 million in the Indiana state budget for community justice council administration and related programming. When asked how they got judges to agree to the councils' changes, the response was “We were the ones with the checkbooks.” Funding was tied to evidence-based practices. In fact, the phrase “evidence-based practices” was mentioned repeatedly, underscoring its importance in community justice efforts.

One of the most useful pieces of information at the conference, research by Ben Kempien of the University of Wisconsin Law School, was distributed in print.* Kempien explored collaborative criminal justice efforts in seven Wisconsin counties: Barron, Dane, Eau Claire, La Crosse, Marathon, Portage, and Waukesha. He estimates there are at least 24 criminal justice councils in Wisconsin, some over 10 years old. His findings suggest that Milwaukee’s Community Justice Council may be missing opportunities to realize the greatest impact possible.

Some councils, like Portage County's, now enable the use of sophisticated data to evaluate outcomes and determine ways to more effectively deploy county resources. The Milwaukee council’s Data Analysis and Information Committee is exploring how to better integrate criminal justice data. All counties Kempien studied except for Barron conducted a thorough system assessment or “mapping” early in their group’s existence, which participants found highly instructive. This echoes the Milwaukee conference attendees who have been calling for a local master planning effort after a National Institute of Corrections report criticized Milwaukee for lacking a criminal justice master plan.

Such data analysis and widespread planning efforts are difficult given the Milwaukee council’s absence of dedicated staff and funding. When Kempien contrasted the community justice groups with dedicated staff to those without, he found striking differences in organization and access to system data, leading him to conclude, “There was little doubt that the full benefit of collaborative planning could not be achieved without dedicated resources and staff.”

At the Marquette conference, Community Justice Council members agreed that adding a dedicated staff person would be invaluable to the group. Finding the money for such staff is a different matter. Kempien says state-level support for such collaborative efforts is the appropriate “next step” to continue and expand progress, but given the state's budget difficulties, acquiring such funding would be challenging.

*Research forthcoming in Justice System Journal, Vol. 30, Is. 1.