2006Gov Privatization Rprt

Topics: Net present value, Cash flow, Public utility Pages: 32 (10996 words) Published: March 11, 2015
Government Privatization
History, Examples, and Issues

Commission on Government
Forecasting and Accountability
703 Stratton Office Building
Springfield, Illinois 62706
October 2006

Commission on Government
Forecasting and Accountability

COMMISSION CO-CHAIRMEN
Senator Jeffrey M. Schoenberg
Representative Terry R. Parke
SENATE

HOUSE

Don Harmon
Christine Radogno
Steven Rauschenberger
David Syverson
Donne Trotter

Mark H. Beaubien, Jr.
Frank Mautino
Robert Molaro
Richard Myers
Elaine Nekritz

EXECUTIVE DIRECTOR
Dan R. Long
DEPUTY DIRECTOR
Trevor J. Clatfelter
REVENUE MANAGER
Jim Muschinske
AUTHOR OF REPORT
Benjamin L. Varner
EXECUTIVE SECRETARY
Donna K. Belknap

TABLE OF CONTENTS

Government Privatization:
History Examples, and Issues
PAGE

Executive Summary

i

I.

Privatization

1

II.

Forms of Privatization

1

III.

Privatization around the World

3

IV.

Reasons for Privatization

4

V.

Valuation of Assets

7

VI.

Privatization Examples

9

VII.

Issues Associated with Privatization

VIII. Conclusion

19
21

TABLES:
1
2
3
4
5

Risk Distribution in Various Delivery Systems
Net Present Value Example
Internal Rate of Return Example
Illinois Tollway Revenues and Expenses
Prisoners Held in Private Facilities

5
8
8
11
14

APPENDIX:
A
B
C

Weighted Average Cost of Capital (WACC)
Map of the Illinois Tollway System
IDOC Facility Information, FY 2003

22
24
25

EXECUTIVE SUMMARY
With the growing trend of privatization and public private partnerships in state and local governments, the Commission has put together this report to inform interested parties on forms of privatization, the history of privatization, reasons for privatization, methods of valuing public assets, examples of privatization that could be relevant to Illinois, and issues associated with privatization.

Some highlights of the report are:


Privatization is the process of transferring property from public ownership to private ownership and/or transferring the management of a service or activity from the government to the private sector.



Types of privatization include complete privatization, privatization of operations, privatization through contracts, franchising, and open competition.



Privatization of public assets has historically occurred more frequently outside the United States. This is most readily seen in nationally run industries in former socialist countries that are moving towards more free market economies.



Privatization of public services has occurred at all levels of government within the United States. Some examples of services that have been privatized include airport operation, data processing, vehicle maintenance, corrections, water and wastewater utilities, and waste collection and disposal.



Reasons for privatization include cost reduction, risk transfer, a source of revenue, the desire for a higher level of service, a need for greater expertise, and flexibility.



Commonly used methods of valuing public assets include net present value, internal rate of return, and multiples.



Common areas of privatization that are examined in this report include: 1.
2.
3.
4.
5.
6.
7.



Toll Roads, Bridges, and Tunnels (Page 9),
Utilities (Page 12),
Corrections (Page 14),
Lotteries (Page 15),
Loan Portfolios (Page 16),
Airports (Page 16),
and Other Assets and Services (Page 17).

Issues associated with privatization include the affects to public employees, transparency after privatization, ownership of public assets, competition within the system, and the importance of the contract or agreement.

i

I. Privatization
As defined by Wikipedia, privatization (also known as denationalization or disinvestment) is the process of transferring property from public ownership to private ownership and/or transferring the management of a service or activity from...
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