 Hello, and welcome to Hawaii Together on the Think Tech Hawaii Broadcasting Network. I'm Joe Kent, vice president of research at the Grass Street Institute of Hawaii. I'm filling in for Dr. Kaylee Iakina. He's president of the organization. And the Grass Street Institute is a nonprofit think tank that works to advance individual liberty, economic freedom, and accountable government in the state. And my guest today is Aaron Leaf. He's a researcher at the Grass Street Institute of Hawaii. Welcome, Aaron. Hey, thanks for having me. Yeah, and thank you for being here. And today we're going to talk about a very wonky topic, but I hope it doesn't wonk you out too much. This is a topic about privatization and public-private partnerships. But before we go and get to that, I want to learn a little bit more about your background, Aaron. You're a researcher at Grass Street, but where are you from? So I was born on Kauai just before Hurricane Aniki hit, so my family moved here after that. I graduated from Radford, and I was in the military as an intelligence analyst, got my bachelor's in nursing at HPU, and now I'm here. Oh, OK. And so you're studying nursing, you've got military intelligence, and you've decided to work at the...what inspired you to want to work at the Grass Street Institute? I was learning about just free market ideas, and my professor at the time, Ken Schoolin, introduced me to the Grass Street Organization, and that's how I became involved. OK. Well, economist Ken Schoolin is one of our dear friends at Grass Street, and he is an advocate for public-private partnerships and privatization efforts. So this public-private partner is a lot of peas in this title, but what is a public-private partnership? All right. So to keep it simple, a public-private partnership is when the government works with a private entity to provide a public service. OK. So governments can do things, private companies can do things, and this is when the two work together. Now, is that always a good thing when government and businesses work together? Well, generally, I believe that public-private partnerships are great because they bring competition into the government, which oftentimes there's not a lot of competition, and that competition breeds innovation and drives down prices. OK. So there's good things to public-private partnerships. Sometimes though, there could also be bad things to public-private partnerships. Maybe if business and government gets too close, for example, let's say a backroom where there's too much cigar smoking and maybe there's some special deal or something. So what's the difference between good public-private partnerships and bad public-private partnerships, would you say? Well, I guess what you would want to make sure you don't have all that handshaking would be to have a system that encourages competition where multiple businesses have to compete based off of their merit. The best man for the job. Exactly. If there's someone who's working with the government and has a partnership and maybe a competitor comes along and says, I can do it for a better, faster, cheaper, and everything, then they should have the right to compete. Is that what you're saying? Exactly. So why are you interested in public-private partnerships? Well, like I said before, I really like the competition factors. So in the private sector, if companies want to keep their customers, they have to make sure they can provide the best service at the best price compared to another company that might do the same thing. However, in government, the customers are the taxpayers, and we have to pay our taxes no matter what unless we want to leave Hawaii. We got a captive audience. They can't leave. So there's not as much incentive to have that competition because we're going to be paying no matter what. I see. So what you're saying is that private companies, costs often go down because of this competition, and the quality goes up. But in government, that's often reversed. The costs often raise and the quality goes down. Exactly. And why is that again? Why is it that government, I don't know if you would say they do a bad job, but maybe their costs go up and the quality goes down often compared to the private sector. Why is that? Well, I would say that in government, of course, they're going to say, the policies will say, oh, you should try to spend less money. You should be trying to innovate as, let's say, the Department of Waste Management trash collection. So they can tell the agency, you guys need to save money. But at the end of the day, even if they don't do their best work, they're still going to have the contract the next year because they're the only ones allowed to provide that service. So when a private company does a poor job, they go out of business because the competitor does it better, faster, cheaper, and everything. When a government does a poor job, they don't go out of business. Maybe they get a higher budget. Is that what you're saying? They might raise taxes and they'll get more money because they weren't doing that well. I see. So that's a public-private partnership we're talking about, some of the benefits of it. But what about privatization? Now, I think a public-private partnership is a form of privatization, but there is such a thing as 100% privatization. What's the difference here? We've got the public-private partnership model, and we've got the privatization model. What's the difference? So privatization and P3, we'll say P3. The difference is ownership. In P3, the government still owns that. The private company, although they may manage it or they may help with operations, they don't own it. The government still retains ownership. In privatization, the government no longer owns whatever that service that is being provided. That's the private sectors now. I see. So I visited a town called Sandy Springs in Georgia. They did a public-private partnership with almost all of their government agencies. They had the licensing department, the building codes, the water department, the traffic department, all owned by the government, run by a private company. And that would be under the P3 public-private partnership model. Because the government owns all those things, and they're just managed by a company. Whereas in a privatization model, it would be basically 100% sold off to the private sector. Is that right? Right. Okay, got it. Okay, well, what are some examples then in Hawaii? Do we have any examples of public-private partnerships? Well, we don't have many, but a recent one that a lot of people might have heard about, the three Maui County hospitals in 2015, I believe, began their transition to private management. So they're still owned by the government. They're just managed by a private company now. The government owns the hospitals. Correct. And a private company, what company is that? It's Kaiser. Kaiser Permanente manages those hospitals. And that helps with the cost overruns and the quality. Correct. So what kind of costs are we talking about here? So in the case of the Maui hospitals, I believe they're saving about 45 million a year. So that's significant amount of savings that we could see in that effort. So that sounds very good. It sounds like, well, maybe we should look elsewhere across the state to see what can we privatize. But that's not so easy, you found, right? No, not quite. So why is it, are there hurdles in the way? What's stopping the P3 efforts? There's a very specific barrier known as, it was the Kono versus the County of Hawaii court case, but it's referred to by politicians here as the Kono decision. The Kono decision sounds like the title of a John Grisham novel or something like that. Okay, so the Kono, what is this, the Kono decision, what does that mean? So the court ruling, it was basically on the, on the big island, they were opening up a new waste management plan. Okay. And the mayor wanted to staff the new plant with private employees to help save money in the new plant. Okay. And the union said that breaks civil service protections here in Hawaii, and they sued. Okay, so long ago, the County of, on the big island, Hawaii Island, wanted to save money. And they looked at their waste management and they said, well, maybe we can do a P3 here. And what happened, who is Kono, by the way? Kono was the representative for the union at the time. So the representative of the union versus the state, the county, and the judge ruled what? In favor of the unions, they said that it was violating civil service protections to have this new waste management facility staffed by private employees. Oh, okay. So they tried to privatize in a way, and the state said, you can't because there's an old law that says that you can't, and the old law is called the civil service protection law. Well, they'll just, it's referred to as the merit principles, which is what the court based their ruling off of. What are merit principles? So merit principles are pretty much the guidelines for civil service protections in Hawaii. And it's essentially to make sure that civil servants don't get fired unjustly. Maybe someone doesn't get passed up on a promotion just because someone else is someone's uncle. You can't just hire someone just because they're a nephew, they're a nephew, and you can't fire someone for no reason. That's called the merit principle. And that's protected under a Hawaii law. Am I following you so far? That's correct so far. Okay. This is a little, this is a little beyond me, but I think I've got it. Well, the merit principle sounds good. So what's the problem? So in their interpretation of the law, the Supreme Court found not only are there these civil service protections, these logical civil service protections, based on Hawaii's law, any position that has ever been held by a civil servant, a private employee cannot fill those, if it was ever held by a civil servant, or similar positions. So jobs that weren't even created yet. Okay. So the merit principle law, although it has very good things that it protects, might have gone a little too far, and basically it says that if a job has been done previously by a civil servant, a government civil servant, then it has to continue to be in the future. For all similar jobs as well. Even those jobs that haven't been created yet. Exactly. So let's say I want to start a waste management facility, let's say the mayor, and I want to start a waste management facility, and I want to hire all private sector workers in management. That can't be done according to this merit principle law. Correct. That's illegal. So even though you're not displacing any civil servants, which was, that was what the law was designed to make sure people weren't replaced unjustly by private employees, these jobs were never filled by anybody, and they still can't be staffed by private employees because civil servants have done similar work in the past. So that's a huge barrier to anyone who wants to do any kind of P3 or privatization, because you first have to look at, well, has this typically been done by government workers in the past? And there's a lot of, I mean, janitors, for example, there's government workers. Exactly. And so if I wanted to privatize the janitorial services in some future department or something. That would be against the law. That would be against the law. Yep. And that's what the judges said. Correct. They did say that they didn't weigh either way that they thought it was good or bad. They said that is just the interpretation of Hawaii's law. Okay. And the legislature does have the power to change that. Okay. So you're saying we're not talking about the Constitution here. We're talking about a law, and that law could be changed. And so maybe think of it as a door or something, and the door could open and the door could close and so on. And you're saying that they've done that in the past. Right. So immediately following the Kono decision, this put a bunch of state and county contracts at risk because the state and county did have private employees that were filling positions. And so because they were unclear on whether or not these were legal, there was an act called Act 230. Oh, hang on. We'll get to Act 230 in a second, actually. We're talking with Aaron Leaf. He's a researcher. He's talking about the open and closing of this privatization door in the state. And we're going to learn a lot more about it when we come back in a minute. Hello. I'm Yukari Kunisue. I'm your host of New Japanese Language Show on Think Tech Hawaii called Konnichiwa Hawaii, broadcasting live every other Monday at 2 p.m. Please join us where we discuss important and useful information for the Japanese language community in Hawaii. The show will be all in Japanese. Hope you can join us every other Monday at 2 p.m. Aloha. Living in this crazy world, so caught up in the confusion, nothing is making sense for me and there's got to be solutions, how to make a brighter day. Welcome back. I'm Joe Kent and you're watching Hawaii Together on the Think Tech Hawaii Broadcasting Network. And as I said, I'm Joe Kent. I'm vice president of research at the Grassroot Institute of Hawaii. And I'm filling in for Dr. Kelea Akinah. He's the president and CEO of the Grassroot Institute. Grassroot is a think tank and we research solutions to our economy that promote individual liberty and economic freedom. And one of those solutions is something that Aaron Leaf is talking about. He's a researcher at Grassroot. And one of those solutions is privatization or P3. Now before we left, you told us about this opening and shutting of this door. And long ago on Hawaii Island, that door was slammed shut and basically they said that it's very difficult from here on to privatize. Is that right? Correct. But sometimes the door has opened. That's right. So right after the Conan decision, when all of these contracts were in question and government services wouldn't have been able to be provided to a bunch of people without those private employees, the legislature passed Act 230. And when was that? That was in 1998. So 1998 that the legislature opened the door. Correct. What did that do? It just allowed the government to build civil servant positions with private employees as long as it doesn't displace any employees. So as long as we don't disrupt the employees we already have, we can put some private sector employees in the mix. Exactly. Okay. So public-private partnerships in that sense would have been allowed. Right. Okay. So that's great. So now we have the doors open, right? Well, unfortunately that was a temporary solution while they figured out what to do. Oh, no. Wait a second. I have a feeling the door is going to close again, huh? Yeah. So in 2000 Act 253 was passed. This gave the director of the Department of Human Resources and Development at the state level, he now is the person that has the authority to decide can this job be filled by a private employee or does it need to be filled by a civil servant? I see. So basically the deciding factor in a lot of privatization cases. Correct. Okay. But that kind of still opened the door a little bit, right? Slightly. But he's constrained. He or she is constrained by these guidelines which are only if a civil servant cannot do the work, can we have a private employee do it? Okay. So there's a lot of very nuanced things with this open door. So where would you say the door is right now? Is it open? It's closed. We've got a little crack. We've got a sliver. Yeah. There's a little sliver that you can kind of get in if you meet the certain criteria and that criteria is? A civil servant cannot perform that. If there's no civil servant to do it, then we can hire a private employee. I'm the governor and I see one of my departments is failing because and the reason it's failing is we can't find any other government workers to do it. And in that one scenario, we can privatize. That's true to an extent. There is a list of permanent exemptions, but it's more like interns or there's all these positions that couldn't be filled by government employees. There's a lot of nuance to all this. But the situation is such that there's a barrier to your privatization efforts and is that a good thing or a bad thing in your opinion? So essentially in order to have a P3 in Hawaii, a law has to be passed for each time it happens. Specifically just like in the Maui Hospital case, they had to pass a law in order to make that happen. I see. And so if you wanted to do a public private partnership for say some other government agency, you have to go back to the legislature and go through the whole thing. I know with the Maui County Hospital issue, I think they took three runs at it before they got into the end zone. It took a while. So it takes a long time for a lot of these efforts, right? And so, well, this seems kind of like a lot of hurdles. So what would you propose then? What are some solutions then to solving this problem? Well, I just want to be clear, I'm not a lawyer, so I can't give an explicit solution to how to word the law. You just play one on TV. But, so Act 230, which already, the act I talked about before, which allowed private employees... Act in 1998. Right. Okay, that opened the door. Right. If we... There were a few problems... And it closed in 2001. 2001 is when that expired. Okay. So the door opened, now it's closed and you're saying... I'm saying that if we had a law with similar wording to that, we could again have private employees filling certain governmental positions. We could open the door again. Right. Because the door is just a law, you're saying. It's not the Constitution, it's just if the legislature, for example, found a way to open that door through legislative efforts, they could open it. Correct. Okay, so that's one way to get through. What are some other ways? So another way to go about it would be, right now, the director of the Department of Human Resource and Development, this person is in charge of saying who can or cannot be a... Which civil servants positions can be filled by private employees? But they have to follow the guidelines of only when no civil servants can do it. If instead, their mission was changed so that they determined which jobs would be better suited and filled by the private sector versus the public sector, then they would have the power to open that door a little wider. I see. We have this director of human resources and he has a lot of basically power over privatization efforts and if that director's mission were changed to allow for more privatization in public-private partnerships, then we'd go in that direction, kind of visionary way. Right. Right. And there is one more. There was a law that, it was HB 2581 for Public-Private Partnership Agency in Hawaii. Okay. Oh, to create an agency that would help with privatization. Exactly. And P3s. Yep. So that law got deferred this year, it didn't make it. All right. Well, did you do a lot of research into that law? I didn't know the specifics of that one now. But an agency like that may or may not help, it's kind of up in the air. Right. What would be some ways that it would not be able to help? Well, it could cause some crony capitalism. Maybe they would just be... Okay, what is crony capitalism? What does that mean? Crony capitalism is when business comes together with government to guarantee that they have a sector. I see. Essentially they protect that business. The government protects the business and in return, some politicians will likely be getting some money from that. You've got businesses with big cigar chomping executives in the back room and government in the back room with their cigars. And I guess there's just a lot of cigars in that back room. And anyways, they're giving each other special deals. Right. Okay. And that's the wrong way to do it. Correct. Okay. And the right way? Is to have an open competition, a transparent process where the best company gets it. Or sometimes the government can outbid the private sector and they can do it for cheaper. Have you ever seen that happen where the government actually does it better than a private company? Yep. Actually, in Phoenix, Arizona in the 1970s, they decided to open up their trash collection for bidding and because their governmental agency that was doing it was losing a lot of money. That sounds like on the big island almost. Yeah. Okay. So this company got the bid at first, but after a couple years, the original agency, the government agency that was in charge, they looked at their plans and they came up with a way to do it even cheaper than that business and they regained control over it. So that's an example of the pressure of competition actually made the government compete better and do it faster and cheaper and better quality. Exactly. So this is a situation that doesn't have to necessarily be a private company doing it, but without that competition, prices just go up. So in Hawaii, what are some of the things that you'd recommend that we do in order to privatize the right way and avoid privatizing the wrong way? Well, personally, I liked X230 and 90 just because they gave a lot of leeway. It was a lot more open. However, there's also the managed competition process. What are X230 and 90? That's what you talked about before when we opened the door to allow for more privatization. It's just changing the law to let people walk through the door. Right. Okay, got it. And so that's one way. That's one way. But there's also the managed competition way, which is where essentially you would have the government competing with private companies to provide a service. Okay. So and that's what you talked about in Arizona where we put it up for bid, let the best man do the job. Right. Okay, well, then what is the problem with those hurdles? Is it just political hurdles or maybe information and how would more people find out about this? Well, I guess the biggest thing right now is the Kono ruling is so convoluted and hard to understand and you have to go back and dig through all of it that it's hard to push for any political movement when it's so hard to understand. So it's just a lot of basically information is one of the barriers here to public-private partnerships and a better government in Hawaii is that some people just don't know this solution. And it's really hard to talk to the people about the Kono decision because as we just showed there's a lot to it and you can't just sit down and tell someone about it in two minutes. And at the end of the day, what does this mean for Hawaii's government, the opportunity of this? Well, it would mean that we could save money by having competition, driving down prices and that would help us pay off our debts. We could lower taxes, give teachers the raises that they always are asking for. We just have all this extra money if we were able to do that. You heard it here first. The way to fix and help resolve a lot of Hawaii government problems is just by getting involved in the P3 and privatization conversation and easing restrictions. And the researcher's name you just heard from is Aaron Leaf. And I'm Joe Kent, Vice President of Research at the Grassroot Institute, filling in for Dr. Kay Lee Iakina. Thanks so much for watching Hawaii Together. Aloha.