Update: Upcoming Outsourcing Issues. January 20, 2015
1) National: President Obama proposes a new class of municipal bonds to spur “public private partnerships.” Qualified Public Infrastructure Bonds, which would be available only for publically-owned infrastructure, would not expire, there would be no cap on issuance, and they wouldn’t be subject to Alternative Minimum Tax. “The new type of debt for public-private partnerships, or P3s, would build upon the $10 billion private-activity bond market by including funding for airports, ports, mass transit, water and sewer initiatives. There’s a $15 billion limit to issuance of private-activity bonds. The proposed bonds can’t be used to privatize public systems or finance privately owned facilities.” The budget proposal of which the QPIBs are a part will be released February 2. Because the new program will require Congressional approval, Matt Posner at Municipal Market Analytics doesn’t think it is likely to materialize. But The Bond Buyer reports that the proposal may be taken up as part of a Congressional tax reform initiative. The Obama administration is also proposing that an office be created in EPA to spur private investment in water infrastructure.
2) National: The Associated Press takes a close at the private prison healthcare industry, focusing in on Corizon. Corizon “is under growing pressure around the country after losing five state prison contracts, downgrades by credit analysts and increased scrutiny of care of inmates held by some of its largest customers, including New York City. But Corizon, whose responsibility for 345,000 inmates at prisons and jails in 27 states makes it the country’s biggest for-profit correctional health provider, is just one of many firms using a similar model to vie for the billions of dollars states and counties spend on prisoner care.”
3) National: Corrections Corporation of America blocks Alex Friedmann’s shareholder initiative to require CCA to invest in reentry programs. “Friedmann calls it the ‘height of hypocrisy,’ given the company’s trumpeting of its commitment to reentry programs and efforts to reduce recidivism last year.”
4) National: Transurban, one of the leading road privatization companies, expands its “public private partnership” management and contracting staff in North America. Karl Rohrer will lead project delivery, and Simon Shekleton will negotiate contracts and agreements. Rohrer is a former deputy project director of the Dulles Corridor Rail project; and Shekleton comes to Transurban from Aecom, “where he served as P3 specialty practice leader, identifying, structuring, negotiating and securing pre-development agreements for major P3 projects.” [Sub required]
5) National: Writing in The Progressive, Yohuru Williams critiques education reformers whomisappropriate the imagery and words of Rev. Dr. Martin Luther King, Jr. “The leaders of this effort, including US Secretary of Education Arne Duncan, are fond of appropriating the language of the civil rights movement to justify their anti-union, anti-teacher, pro-testing privatization agenda. But they are not social justice advocates. And Arne Duncan is no Reverend King.”
6) California: CalPERS wants to reduce the number of private equity managers it hires and team up with other institutional investors to get better terms. “CaLPERS’ 10-year return on private equity of 13.3 percent as of June 30 fell short of its own benchmark by 2.1 percentage points, according to the pension system’s data. The performance also missed in one-, three- and five-year periods.”
7) California: Oakland Unified School District moves to bring in more charter schools. “Critics say it’s another move by Oakland to privatize public education.” The district will review proposals in May and June. It already has 38 charter schools “and their overall performance has been mixed.”
8) California: The Long Beach Civic Center DBFOM “public private partnership” is to be funded with tax exempt debt. “Plenary’s tax exempt structure involves City debt issuance through a nonprofit corporation, a contract for development services to Plenary’s project company, and Plenary purchased subdebt to backstop effective risk transfer.” The arrangement has its critics: it provides the city with flexibility but “leaves the city without a fixed price bid.” One developer who didn’t compete on the project says “the City has now put themselves in a position of finalizing pricing, financing, specs, etc. without the benefit of competitive pressure and the innovation that brings.” [Public Works Financing, December 2014; sub required]
9) California: The LA Streetcar project has attracted expressions of interest from 24 companiesthat responded to its September RFI. “We knew there were possibilities in developing a public-private partnership for the L.A. Streetcar project, but two dozen firms responding at this early stage shows undeniably strong private sector interest in helping the City of Los Angeles achieve this regionally significant transportation project,” said 14th District City Councilman José Huizar, a key supporter of the project.
10) Georgia: The chaplain of the Stewart Detention Center, who is paid by Corrections Corporation of America, is accused of whitewashing immigration detention abuses.
11) Illinois: Chicago janitors, including many who work in the Chicago public schools, launch a contract campaign on Martin Luther King’s birthday. “Roughly 10,000 commercial and 2,000 institutional Chicago-area janitors represented by SEIU Local 1 will be affected by the expiration of contract agreements beginning in April, union leaders said. The labor union will host a local convention on January 31 to lay out its specific contract demands. Contract negotiations are expected to start in the first week of March, according to union representatives.”
12) Indiana: Les Zwirn weighs in with a plea to rethink the Indianapolis Justice Center, a $500 million “public private partnership” project that Public Works Financing says has “drawn the big guns to the U.S. P3 market” and successfully put together an innovative financing plan. Zwirn says “for reasons hard to understand, [Mayor] Ballard seems to think our community lacks the vision, know-how and collaborative spirit to plan, finance and build” the complex. Ballard’s approach “avoids public participation through a referendum or transparent citizen participation, creates counter-productive financial incentives to fill 1,000 unneeded jail beds, and ensures that guaranteed out-of-state corporate profits take precedence over local investments in violence prevention.” He calls “the proposed decision timeline calling for the City-County Council to approve the project in March is premature and ill-advised.” [Public Works Financing, December 2014; sub required]. The city was advised by KPMG, Nossaman, and others.
13) Indiana: Indiana Toll Road executives could reap big bonuses if the road fetches a rich price in federal bankruptcy court. “The bonus pool available if the road sells for more than $5 billion is based on multiplying any amount above $5 billion by 20 basis points, which is 20/100ths of 1 percent. For example, if the road fetches $5.01 billion, the $1 million bonus pool already in place would grow by just $20,000. But if the road fetches $6 billion, the $1 million bonus pool would swell to $3 million total.”
14) Maryland: Larry Hogan is to take office as governor this Wednesday, and is expected to soon announce his decision on whether to proceed with the $2.4 billion light rail “public private partnership” project linking Bethesda to New Carrollton. The P3 industry is “quaking in their boots” about the outcome, according to Public Works Financing. In an Oct. 16 campaign fact sheet, Hogan “called the Purple Line a fiscal and environmental ‘disaster’—stating costs had spiraled out of control, with no end in sight.” Congressional Democrats are strongly supporting the project, and sent a letter to Hogan last week.
15) Massachusetts: Task Force begins looking into the possibility of privatizing Pittsfield’s water and wastewater systems. Two previous efforts at privatization were rejected by the city because of cost escalations, but this time the city may be targeting benefits. “After an hour of conversation outlining issues to examine, the committee agreed that they’d like to first speak with current Commissioner of Public Utilities Bruce Collingwood about the capital needs. And they would like to speak with Tom Landry, who operated the plant for a number of years. In the meantime, each member is planning on looking for information resources and literature to bring to the table.”
16) Michigan: Parent and community members speak up at a public forum, among other thingsopposing the outsourcing of bus drivers’ jobs to a private, for profit company. Board trustee Mark Johnson “said he doesn’t want to privatize jobs, either, saying he’s comfortable having people the district knows working in and around students.” Another forum will be held tomorrow.
17) Michigan: Muskegon County Commission moves to offload its responsibility for the Brookhaven Nursing Home. The county’s corporate counsel, Doug Hughes, “said that approval also meant that the commissioners occasionally have taken the heat for cost-reducing decisions about the facility. Months ago, a proposal to privatize part of the facility’s kitchen and cleanup staff led to a controversial vote on the part of the commissioners. Giving Brookhaven autonomy “kind of keeps us out of the hailstorm,” Doug Hughes said. Hughes advised that if Brookhaven is given more freedom, it should be responsible for its own deficit spending.”
18) New Jersey: Gov. Christie decides to close the public Izod Center and move its events to the private Prudential Center at the end of this month. David Sirota looks at the politics and potential conflicts of interest.
19) New York/National: Oral arguments began last week in Wright v. New York, a lawsuit seeking to overturn state laws protecting teacher tenure. Union attorneys asked a judge to dismiss the case, which was filed by a group headed by former TV presenter Campbell Brown. It has been consolidated with Davids v. New York. “‘Have you heard or read one line—one line—in plaintiffs’ papers that define an ineffective teacher?’ asked Charles Moerdler, a partner at Stroock & Stroock & Lavan representing the United Federation of Teachers.” Meanwhile, Brown’s group, the Partnership for Educational Justice, launched a social media campaignattacking the teacher tenure process. New York State United Teachers spokesperson Carl Korn responded “just because [PEJ] prints something does not make it true,’ later adding, ‘You have to look at who runs Partnership for Educational Justice. They are funded by billionaires with hedge funds who want to have control over public education.’” [PEJ Board]
20) New York/New Jersey: Among the future “public private partnership” projects being considered by the Port Authority is an $8 billion replacement for its bus terminal in Manhattan. PANJNY has approved $4 billion of P3s in the past two years if you take into account the new LaGuardia terminal, on which agreement is expected in April. The bus terminal project’s “astronomical” costs would be funded partly by selling air right and by Tax Increment Financing. [Public Works Financing, December 2014; sub required]
21) North Carolina: Durham school custodians who were left high and dry when the subcontractor they worked for went bankrupt, will be paid by the district. “The board initially thought they would have to pay around $200,000 for the loss, but now believe the payout will be less than $100,000.”
22) North Carolina: An anti-toll group that opposes toll lanes on I-77 north of Charlotte plans to file a legal complaint today. “Widen I-77’s request for a preliminary injunction could lead to a trial against the N.C. Department of Transportation and I-77 Mobility Partners, a subsidiary of the project’s contractors, said Vince Winegardner, spokesman for the citizens group. The filing would come two days before Cintra, the project’s contractor, has to secure funding for the $655 million project, said Kurt Naas, a member of Widen I-77.”
23) Ohio: The state may be stepping in to give Corrections Corporation of America a contract to fill beds at its Youngstown facility with state prisoners. CCA recently lost a federal contract for 600 beds at the complex. “I’m sure we’ll be talking in the near future with CCA and other options that may be out there,” says Prison Director Gary Mohr.
24) Rhode Island: City employees turn out to a public meeting to efforts to outsource the jobs of city bus monitors. “In addition to union members, at least six members of the City Council—including Council President Luis Aponte and Majority Leader Kevin Jackson—attended the meeting to show support for the union workers. Aponte and Jackson told WPRI.com they would not support an attempt to privatize the monitoring services.” The employees are represented by Local 1033 of LIUNA.
25) Revolving Door News: New York Gov. Andrew Cuomo appoints the Blackstone Group’s Bill Mulrow as his top aide. “As the New York Racing Association—where Cuomo carries significant influence, appointing nearly half of its board—discusses re-privatization of the state’s race tracks, Mulrow is a close business associate of the only gaming mogul who has publicly expressed interest in bidding on the privatized tracks.”
26) Upcoming Conference: The American Road & Transportation Builders Association (ARTBA) is to hold its annual P3 conference July 15-17 in DC. The theme of the conference is “P3s in Transition: The Next Chapter.”
Legislative Issues:
1) National: Sen. Sherrod Brown (D-OH) warns that the Republicans are going after Social Security disability. “Every time they had a chance, they went after Social Security. The most recent major assault was President Bush trying to privatize it a decade ago and [it] got a lot of pushback all over the country—not just from Democrats, of course”
2) Georgia: Republican state lawmaker renews push to bypass the public child welfare system. “Senate Bill 3, which will be introduced in the chamber when lawmakers next convene Jan. 26, would allow a struggling parent to give temporary custody of their children to a friend or person they know for up to one year as they get back on their feet. The pairing would not be handled by the state or the Division of Family and Children Services, which controls Georgia’s foster care system. Instead, it would be made through faith-based groups or nonprofit organizations trained in crisis intervention.” [Sub required]
3) Kansas: The state’s “school efficiency commission,” headed by a Wichita businessman,issues a report calling for a curb on teachers’ bargaining rights. The commission also includes “a lobbyist for the Libertarian think tank Kansas Policy Institute.”
4) Louisiana: State Treasurer John Kennedy, who has been battling state contractors over costs, compliance and accountability, proposes giving Louisiana colleges a first shot at government contracts, and an expanded role in contractor oversight. “While privatization was meant to be a reform—or at least has been touted as one—it has created new problems, as the state’s experience with NGOs shows. By contracting with a multiplicity of smaller entities, it becomes harder for the state to keep tabs on what is being done with the public’s money by each organization.” Legislators may take up the proposal this spring.
5) Virginia: Gov. McAuliffe and a Republican state senator introduce reforms to tighten up the “public private partnership” procurement process in Virginia. “I am pleased to work with Chairman Chris Jones on a legislative package that puts the taxpayers first, making sure transportation dollars are invested wisely, while addressing critical transportation needs across Virginia.” [Bill]
Provisions include: “Private partners must disclose risk that is transferred to the commonwealth. The intent is to minimize risk for taxpayers by selecting projects in which the private sector is willing to make the appropriate investment in expectation of getting a reasonable return. The transportation secretary will be accountable by signing a finding of public interest before a P3 deal is finalized, certifying that the risk transfer and all other findings are still valid. This would prevent situations like the U.S. 460 P3 deal, where procurement changed over the course of the project, yet no one was held accountable. There will be no way to duck responsibility for transportation decisions. The bill will protect taxpayers from undue risk, while using the P3 process in the intended way to deliver projects that move Virginia’s economy.”
6) Wisconsin: State Senator Julie Lassa (D) denounces a Republican-backed bill that would take away local control of local public schools and hand it to “a group of unaccountable political appointees in the state capital.” Lassa says that the proposed legislation “simply uses the idea of accountability as a Trojan horse to advance a politically-motivated agenda to privatize public education.” Dan Sivek writes that “AB 1 appears to be a rehash of an ‘education accountability’ bill written by the American Legislative Exchange Council, a group funded by Exxon Mobil, Koch Industries and others. Not surprisingly, two members of the Assembly Education Committee have served on ALEC’s Education Task Force (which might be better termed a ‘task farce’).” Bob Peterson, president of the Milwaukee Teachers Education Association, says “this bill weakens accountability. It attacks local control and democracy.”