helps policy and opinion makers understand the fast-moving arena of
privatization, outsourcing, and government reform. And now APR is
evolving to better suit your needs.

Entering its 18th year of publication, the Annual Privatization Report has chronicled trends, developments, and experiences of local, state, and federal governments subjecting public services to competition. It seems that what APR has been chronicling all these years has finally hit mainstream. In their new book, The Price

While saving money is important, experience shows it\u2019s not the only benefit that can be achieved through
competition. Governments at every level use competition and privatization to enhance quality, spur
innovation, and complete projects more quickly.

Osborne and Hutchinson further state that privatization and the many other tools they write about are
\u201cwell beyond the experimental phase...[they] have proven their value in many different public contexts\u201d and
jurisdictions should \u201cwaste no time in implementing them.\u201d After 18 years of publishing APR and 27 years
of publishing Privatization Watch we here at Reason Foundation are happy to have secured at least one
vote. In this 18th Annual Privatization Report, Reason Foundation once again provides information and
analysis on the benefits of privatization.

Reason Foundation staff recently helped the states of Florida and California develop and implement exciting
privatization programs. Those efforts are chronicled in the \u201cState Update,\u201d but also be sure to see the
update from the federal government and President Bush\u2019s ambitious plans to privatize 850,000 federal jobs.

For those travelers out there, check out the latest developments in air travel, airport security, and ATC
reform. And of course, if you prefer to drive, see the section on highways and toll roads. You can also read
up on the follies of urban light rail. And Ed Hudgins delves into the idea of private space flight and its
continued deregulation.

In this issue we also dive into private corrections, welfare and education and their recent challenges and
innovations. See these sections and the States section for updates on these programs. Lastly, no annual
report on privatization would be complete without a discussion of offshoring. See our article for an in-
depth examination of this controversial issue. Your comments are important to me. Please feel free to
contact me with questions, suggestions, or for more information. To stay abreast of these issues be sure to
read our monthly newsletter Privatization Watch. For the most up-to-date information on the rapidly
changing privatization world, visit our Web log, Out of Control.

Letter from the Editor..................................................................................................................................... i
Federal Update................................................................................................................ .............................. 1
State Privatization Update.............................................................................................................................. 5
California................................................................................................................................................... 6
Budget Crisis.......................................................................................................................................... 6
California Performance Review.............................................................................................................. 7
Reorganization....................................................................................................................................... 8
Asset Sales.............................................................................................................................................. 8
Competition........................................................................................................................................... 9
Future Optimistic, Uncertain.................................................................................................................. 9
Florida...................................................................................................................................................... 10
New York................................................................................................................................................ 13
South Carolina......................................................................................................................................... 15
Virginia.................................................................................................................................................... 16
Corrections.................................................................................................................................................. 17
Education..................................................................................................................................................... 19
Philadelphia\u2019s School Privatization Produces Student Achievement Gains............................................... 22
Environment................................................................................................................................................ 24
Water/Wastewater.................................................................................................................................... 24
Columbia Basin Water Transactions Program.......................................................................................... 26
Fisheries................................................................................................................................................... 28
Energy: The North American Blackout Report: A \u201cMore Rules\u201d Solution.................................................. 30
Outsourcing Human Resources Management.............................................................................................. 33
Who is Outsourcing?................................................................................................................................ 33
Why Outsource HR?................................................................................................................................ 33
Why Outsource Now?.............................................................................................................................. 34
HR Outsourcing Case Studies.................................................................................................................. 34
Lessons Learned....................................................................................................................................... 35
A Taxpayer Bill of Rights (TABOR): Challenging the\u2019Girly Men\u2019 in Our Legislatures................................ 37
Related Links........................................................................................................................................... 39
Offshore Outsourcing.................................................................................................................................. 40
More Good Than Harm: Can America Learn To Love Outsourcing?...................................................... 40
The Politics of Offshore Outsourcing................................................................................................... 40
The Economics of Offshore Outsourcing.............................................................................................. 41
Creating Jobs at Home......................................................................................................................... 41
The Outsourcing-Education Connection.................................................................................................. 42
Would Better Schools Keep Better Jobs at Home?................................................................................ 42