Part 6- Defining Public Accountability for PPPs

Accountability has long been recognized as the cornerstone of successful public management.

In an environment of proliferating partnerships, the tools of government needed to maintain accountability are not the same as those needed for insular agency activities. PPPs change the dynamics of public accountability by involving private partners in government decision making and program delivery. The terms and conditions of this involvement deserve careful scrutiny and understanding by public officials, before entering into a PPP, as private partners enter into these arrangements for different reasons than governments. While governments work to serve the public in capital investment projects, private partners are understandably focused on recouping their investment and on generating a profit. Accountability in PPPs requires the creation of proper safeguards to ensure that public services are not compromised for the sake of private profits.

In this sense, public entities need to consider not only the mechanisms they will use to hold their private partners accountable, but also how government will be accountable to their private partners.  In place of vertical chains of authority in typical bureaucratic institutions, or principal–agent relations in short-term contracts, the horizontal relations in PPP arrangements place unique challenges on public managers. PPPs display a variety of these horizontal relationships through collaborative mixing, consensual decision making, and other recognized characteristics of organizational partnerships. While these characteristics vary, the nature of such agreements fosters organizational interdependence at greater levels than that achieved through short-term contracts.

Thus, Public sector employees are called upon to serve many, sometimes conflicting stakeholders through both informal and formal control mechanisms. Informally, public managers’ report not only to a multitude of elected officials, but also to a plethora of interest groups, clientele, media, and other actors.

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Part 5- The Uniqueness of PPP

PPPs reflect a unique relationship between the government and a private firm- the government retains ultimate responsibility for the delivery of the good or service, but becomes a partner with the private sector in decision making and delivery.

While there are many reasons for the creation of PPPs, they are often justified on

one fundamental assumption and one fundamental presumption. The accuracy of these two conditions—and they vary from case to case—illustrate both the promise and the pitfalls of PPPs with regard to public accountability.

The assumption is that governments often do not have the in-house knowledge of the most

Cost-effective ways to deliver many types of public goods and services—either directly or through contracts. Governments have radically reduced their research and development capacity and increasingly have relied on consulting firms to do their thinking and even to manage their contracts.

Moreover, with globalization governments simply may not possess the prerequisite knowledge, capacity, or managerial skills. When this is the case, governments need to engage partners that have the necessary expertise, know- how, and managerial adroitness needed to carry out government responsibilities.

The presumption is that governments can partner with private firms in a relationship in which

Government gains access to the technical expertise it requires and can assess the cost-effectiveness of private delivery, and firms are willing to share their expertise in exchange for long-term service contracts. Thus, the formation of a PPP ties the two parties together in a common goal, where both of their fortunes are linked to the success of the overall project, providing the incentives for both sides to cooperate, innovate, and work collaboratively toward the success of the enterprise.

Accountability in PPPs, therefore, is linked to the specific relationship created and the obligations and requirements accepted by both the government and the private firm. If the PPP is designed properly, the incentives that guide public bureaucracies and private organizations will provide mutuality to the partnership. If PPPs are poorly designed, there is no reason to expect that the presumption just detailed will materialize, and PPPs may leave the public no better—and perhaps worse off—than if the government had relied on its own resources to carry out the tasks

However, understanding what constitutes the best design to ensure public accountability is case specific. Public managers need to sort out, assess, and address various dimensions of public accountability when considering a PPP.

Comparing the House and Senate versions of the Tax Cuts

The Joint Committee on Taxation released a report Thursday comparing the House and Senate versions of the Tax Cuts and Jobs Act, highlighting differences that include where tax brackets begin, the standard deduction, maximum rate on business income of individuals and the child tax credit.

For personal income tax, the House version of the tax bill consolidates the current seven income tax bracket rates to four but keeps the top marginal rate at 39.6 percent. The Senate version, on the other hand, keeps the seven brackets but reduces the top marginal rate to 38.5 percent. The House and Senate also both have slightly different rates for the standard deduction.

The House and Senate bills also treat pass-through income differently. The House bill introduces a top rate of 25 percent for members of pass-through entities while individual tax rates can go as high as 39.6 percent. The lower rate would apply to only 30 percent of income that can be categorized as qualified business income. The remaining 70 percent would be attributable to wages or labor income and be taxed at individual rates — a mechanism put in place to prevent tax avoidance maneuvers to characterize personal wages as business income. The Senate’s tax bill introduces a 23 percent deduction for pass-through income, bringing the top effective rate to 29.6 percent.

Both the Senate and House increase the child tax credit, but while the House increases it to $1,600, the Senate increases it to $2,000. The phase-out amount for joint filers comes at $230,000 for joint filers in the House version and at $500,000 in the Senate version. The House version creates a $300 per-person nonrefundable family tax credit for those not eligible for the child tax credit that would expire by 2023, whereas the Senate version would create a $500 nonrefundable tax credit for non-child dependents.

The House also repeals the alternative minimum tax for corporations and individuals, while the Senate retains both alternative minimum taxes but increases the exemption rate for individuals.

For homeowners, the House lowers the limitation on qualifying indebtedness for the mortgage interest deduction to $500,000, grandfathering in indebtedness incurred on or before Nov. 2, 2017, at $1 million. The Senate version keeps the mortgage interest deduction for new debt but eliminates the deduction for home equity interest indebtedness.

On the health care side, the House bill repeals medical expense deductions while the Senate retains them and decreases the floor for the medical expense deduction to 7.5 percent from 10 percent for taxable years 2017 and 2018. The Senate also reduces the penalty for failure to obtain health coverage under the Affordable Care Act to $0, while the House version doesn’t touch the penalty under the individual mandate.

The House version increases the estate tax exemption from $5 million to $10 million, reduces the gift tax rate from 40 percent to 35 percent for gifts made after Dec. 31, 2024, and repeals the estate and generation-skipping transfer taxes for estates of decedents dying, gifts made, and generation-skipping transfers made after Dec. 31, 2024. The Senate version doubles the basic exclusion amount for estate and gift tax purposes from $5 million to $10 million.

Martin J. Milita

Part 4. PPPs Contrasted with Outsourcing and Privatization

PPPs are often associated with other government reforms or functions involving the private sector. For example, the outsourcing of government functions (transferring them to the private or nonprofit sector) is an effort to achieve greater fiscal control and more efficient service delivery. Government outsourcings is an application of the classic make or buy decision to government operations, even functions that have been the traditional domain of governments. The presumption is that private vendors can provide some public services more cheaply than government agencies. However, there is nothing intrinsic to outsourcing that requires a partnership.

Privatization of traditional state-owned or state-run enterprises is another popular reform strategy. Privatization involves the transfer of some activity and its assets that in the past was operated by the public sector to the private sector, through a sale, concession, or some other mechanism. In privatization, either a government eliminates direct control and ownership of the function and the delivery of services (full privatization), or it retains some influence by holding stock in the privatized firm. The intention in all such arrangements is that the day-to-day production and delivery of these goods and services will be left to private operators, and thus the market, and that the government’s involvement will be primarily regulatory. Again, there is nothing intrinsic to privatization that requires a partnership.

House Tax Bill-next steps

The House took a step toward arriving at a final tax bill Monday, setting up the process to reconcile the differences between the Senate-passed tax overhaul and the House’s own bill passed last month.

Congressional leaders have said they want to arrive at a final tax bill by Christmas and intend to iron out the differences between the two chambers’ legislation over the next several weeks.

The bills have substantial differences in treatment of intellectual property, offshore profits, pass-through enterprises, and even a resurrected alternative minimum tax. The Senate version of the bill also includes a repeal of the Affordable Care Act’s individual mandate and provisions opening parts of the Arctic National Wildlife Refuge to oil exploration.

House leaders, including House Ways and Means Committee Chairman Kevin Brady, R-Texas, said they wanted to move forward on a singular tax bill.

“It is time to go in a new direction. It is time to be pro-growth. And it is time to leave this slow-growth tax code for good,” Brady said.

Sen. Mitch McConnell, R-Ky., made similar remarks on the Senate floor Monday, after praising his party’s effort to pass the tax measure 51-49 in the early hours of Saturday morning.

“This is a once-in-a-lifetime opportunity, and we are going to meet the challenge,” McConnell said. “We’re looking forward to getting a bill to the president’s desk soon.”

Monday’s vote came after a significant amount of the House Freedom Caucus withheld its support for close to half an hour, threatening to sink the House conference effort. Members of the conservative group have complained about the way the chamber is proceeding on a temporary government funding bill and planned to have a meeting Monday night to discuss this issue.

Meanwhile, congressional leaders have already put their eyes on portions of the Senate bill they want to change. During a Sunday appearance on CNBC, House Majority Leader Kevin McCarthy, R-Calif., said some provisions like the Senate’s revived alternative minimum tax “should be eliminated for sure” from the final bill. He said that provision might choke off research and development funding in private industry.

In addition, the two chambers will have to iron out their differences on individual tax brackets — the House plan has four, and the Senate kept the seven that exist under current law — the mortgage interest deduction, estate tax and other provisions.

Speaking before a failed effort to change the conference instructions Monday, Rep. Richard Neal, D-Mass, said that Republicans were gleefully adding $1 trillion to the national debt “that they’ve beaten Democratic presidents with” in previous administrations.

Democratic leaders have also bashed the plan, but opposition from House Minority Leader Nancy Pelosi, D-Calif., and others cannot sink the bill without more Republican defections.

The Senate is expected to take up its own motion to instruct a conference later this week

 

The tax bill, reconciliation & the ACA

The tax bill making its way through Congress will more than likely get rid of the Affordable Care Act’s individual mandate.

As the House and Senate versions of the tax bill are reconciled, lawmakers are likely to agree on eliminating the requirement to purchase health insurance, Kevin Brady, who chairs the House Ways and Means Committee, said. (AP)

The Senate scrapped the mandate in the version of the Tax Cuts and Jobs Act that chamber passed early Saturday. The legislation passed in the House last month did not address the issue, but as the two versions of the tax bill are reconciled, lawmakers are likely to agree on eliminating the requirement to purchase health insurance, Brady, who chairs the House Ways and Means Committee, said in an interview that aired on CNBC.

Brady also said tax writers are likely to hold their ground on keeping the corporate tax rate at 20 percent despite President Donald Trump’s indicating on Twitter he was open to increasing that rate to around 22 percent.

When asked about the Senate’s decision to reinstate the corporate alternative minimum tax, Brady said the House and Senate would have to work out that difference. He said he still opposed the corporate and individual alternative minimum taxes because they are costly and complex.

House Majority Leader Kevin McCarthy, R-Calif., said in a separate interview on CNBC Monday he wanted to eliminate the corporate AMT because keeping it would destroy research and development.

McCarthy also addressed the disparity between the individual income tax rates in the House and Senate versions of the bills. The House bill would collapse the individual income tax brackets to four, with a top rate of 39.6 percent, while the Senate bill would maintain seven brackets and decrease the top rate to 38.5 percent.

McCarthy said he expected to have the tax bill finalized by the end of the year.

The House on Monday took a step toward reconciling the two bills by voting to send the legislation to a conference committee. House Speaker Paul Ryan, R-Wis., also named nine Republican lawmakers to the committee and designated Brady to chair the panel. House Democratic Leader Nancy Pelosi, D-Calif., meanwhile, named five Democrats to the committee, with Rep. Richard Neal, D-Mass., as ranking member.