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Weekly Privatization Report 7-24-2017

1) National: The New York Times has published several letters to the editor pushing back against an op-ed it ran last week by Mary Peters and Samara Barend, two industry leaders, advocating for private financing of public works.

Ed Delaney, a Democratic member of the Indiana House Committee on Ways and Means, says “Indiana has been a leader in the use of public-private partnerships. We have had mixed results. One big failure—created by Mike Pence, then our governor—was a complex public-private arrangement involving a Spanish contractor and a Canadian pension fund to upgrade some 21 miles of Interstate Highway along Route I-69, a relatively simple project. It resulted in a fragmentation of accountability and a two-year delay, and the state has had to take over the project.”

John Forrer and James Edwin Kee write, “The tremendous backlog of infrastructure needs in the United States suggests that there is an important role for both public and private finance. But public-private partnerships without strong public management are a recipe for disaster.”

Amanda K. Phillips says, “Let us take great pains to avoid getting stuck in partnerships that go bankrupt, limit public access or ruin our health. And let us hope that our politicians have the foresight to develop infrastructure policy that emphasizes public use over private gain.”

Frank Lysy, a retired World Bank economist, warns that ‘public-private partnerships’ that are poorly structured can create major problems. “The proposed Purple Line light rail line in suburban Maryland is an example. The private concessionaire will not face any revenue performance risk: It will receive the same payments from the state, regardless of what ridership shows up. Nor will it provide much of the financing. The federal government will provide 80 percent of the funds to build the line; the state and local counties, 14 percent; and the private party, only 6 percent. With so little money at risk, the private concessionaire can walk away with little lost if there are significant cost increases or delays. This shows why it is critical to look at the specifics. Just calling a project a private-public partnership does not mean that it is any good.”

For background see In the Public Interest’s “Statement on the Trump administration’s infrastructure plan,” and suggested readings.

2) National: Mixed signals continue to come out of Washington regarding the Trump infrastructure initiative. Yesterday the New York Times reported that the initiative was “stuck near the rear of the legislative line,” hobbled by a combination of administration infighting and congressional gridlock. “Despite his public swagger, [Treasury Secretary Gary Cohn] tends to tread gingerly on sensitive political matters and is reluctant to release details of the administration’s infrastructure proposal, or even a legislative strategy, for fear of having it shot down. ‘Right now, it doesn’t appear that they have a plan,’ said Richard L. Trumka, president of the AFL-CIO, who is pushing for more federal spending. ‘The president doesn’t know what his own party wants, and he’s not sure what he wants. He can’t get his own party to pony up the money for infrastructure.’”

On the other hand, last week APM Marketplace published a comprehensive report on where the issue stands. While offering a more detailed and slightly rosier view of the plan’s prospects than the Times, Marketplace itemized the many difficulties the Trump plan would have to overcome if it is to see the light of day or amount to more than a minor congressional fund injection. Among these are the risks involved in private financing of public infrastructure and the likelihood of urban bias in project selection. Of the 46 projects that could rely on private investment, they report “just two are located in and would serve rural America. Both are in Alaska.”

Donald Cohen, executive director of In the Public Interest, called Trump’s vision “an attempt to ‘sell off America’ to Wall Street investors. He said private investors will collect their returns by creating toll roads, increasing fees or finding other sources of revenue to get a return on their investment. ‘There may be lots of folks who actually want to rebuild America but their top job is to generate returns, and they’re going to do pretty well under Trump’s plan,’ Cohen said.”

3) National: Speaking on an earnings call on Thursday, Blackstone President Tony James said there are enough existing investment opportunities in infrastructure without having to rely on new government funding to support projects for Blackstone’s planned $100 billion investment fund (ASCE has estimated that at least $1 trillion is needed to fix the transportation sector alone over the next decade). Saudi Arabia has reportedly agreed to anchor the fund with $20 billion, and Blackstone will initially raise another $20 billion starting in the fall. They expect “first close by early 2018, followed by subsequent closes thereafter.” James told analysts “we don’t need any changes in Washington to invest these funds, simply put. We think there are some things that the administration could do and would like to do that will really help America address its sorely underinvested infrastructure (…) but our investment is not premised on any changes in Washington. And that’s not necessary.”

James also said the majority of Blackstone’s infrastructure investments would be in brownfield (“core”) rather than greenfield (new) projects: “You should also know that, yes, new build infrastructure will be a part of the fund, but it will be a minority of the fund. Most of their fund will be more in core+ than in greenfield stuff. We’ll also do some core. The beauty of this fund is that it can do the full spectrum of things, it can hold assets a long time and let them appreciate a long time so you get high multiples of money, and it can do things in scale that others can’t. But it’s not just a new build fund.”

Blackstone Chairman and CEO Stephen Schwarzman told analysts he was confident the new infrastructure business would “generate outsized returns” for his company. To get it off the ground, in addition to deploying Blackstone staff he said “we are going to be adding without side hires some other partners with expertise, in particular silos, a world-class operating partner that I think will just knock the people’s socks off and some other things like that.” He played coy and said there was also another “asset class that has been largely mismanaged and underserved and which is vast in size and potential” that Blackstone was going to move in on, but which he was not ready to announce yet. Public assets and real estate?

4) National: Sue Binder, author of Bodies in Beds: Why Business Should Stay Out of Prisons, talks to the Pueblo Chieftain about her experience in the 12 years she worked as a mental health/addictions counselor at the Bent County Correctional Facility as an employee of Corrections Corporation of America (now CoreCivic). “Binder feels CCA put profits ahead of the prisoners’ welfare. She writes that the emphasis on the bottom line led CCA to cut corners by cheating the personnel and ignoring prisoners’ health care needs. Add to that the mountains of paperwork, she alleges, and it created unsafe conditions because there often wasn’t enough manpower to go around.”

5) National: CoreCivic announces its second quarter 2017 earnings release and conference call dates: financial results after market close on August 7, and conference call at 11 am ET on August 8.

6) National: Prof. Andrew Russell and Lee Vinsel call on the public to think again about the importance of maintenance as a policy issue. “All varieties of American infrastructure—roads, bridges, airports, sewers—are in decrepit condition,” they write. “Unlike innovation, which has a cottage industry devoted to its study and cultivation, maintenance is not something we spend a lot of time trying to understand better. Perhaps if we thought harder about it, we would grant it the prestige and the funding it deserves.”

7) National: American Federation of Teachers president Randi Weingarten delivers a blistering speech denouncing Trump’s pro-privatization education secretary, Betsy DeVos. “But Trump and DeVos are not backing off their support for vouchers, for-profit charters and other privatization schemes. They have proposed a $250 million ‘down payment’ they want to follow with billions of public dollars for vouchers and tuition tax credits. And you know how they plan to pay for it? By cutting federal education spending that goes directly to educate children in public schools by $9 billion. Make no mistake: This use of privatization, coupled with disinvestment are only slightly more polite cousins of segregation. We are in the same fight, against the same forces that are keeping the same children from getting the public education they need and deserve. And what better way to pave the path to privatize education than to starve public schools to the breaking point, then criticize their shortcomings, and let the market handle the rest. All in the name of choice.” A few hours later, DeVos responded from the Denver meeting of the Koch-funded American Legislative Exchange Council, delivering a union-bashing speech. DeVos’ visit was met with protests even before she arrived.

Over the weekend, hundreds of teachers, students, and parents rallied in Detroit to support public education as part of a nationwide effort. “Organizers say the rallies are designed to raise awareness about state funding for public schools and school privatization efforts at the federal level.  They’re also calling on legislators to address the student debt crisis in higher education, and to oppose efforts to funnel public funds to private or for-profit institutions.”

8) National: President Trump issues an executive order establishing a 15-member Presidential Advisory Council on Infrastructure. Members will represent the following infrastructure sectors: real estate, finance, construction, communications and technology, transportation and logistics, labor, environmental policy, regional and local economic development, and “other sectors determined by the president to be of value to the council.” The council is charged with making findings and recommendations on, among other things, “identifying methods to increase public-private partnerships for infrastructure projects, including appropriate statutory or regulatory changes.”

9) Arizona: A state contract with prison healthcare company Corizon has led to “severe understaffing,” KJZZ reports. “Corene Kendrick is an attorney for the plaintiffs in Parsons v Ryan — a federal court case that was settled between the state and inmates over prison health care in Arizona. The state contracts with a for-profit company called Corizon to provide health care. But the state is in violation of many performance measures established in the Parsons case. ‘The root cause is that there is not enough staff to provide health care to prisoners,’ Kendrick said. She said the state is not doing enough to hold its contractor accountable. ‘Arizona taxpayers are paying $12.06 per day, per prisoner to Corizon to provide health care,’ Kendrick said, ‘And honestly, they’re not getting their money’s worth.’” Testifying for the plaintiffs at a recent hearing, Dr. Pablo Stewart said, “This understaffing directly contributes to ADC’s high rate of suicide.”

10) Florida: Public school supporters rally in Miami against the state’s support of charter schools as part of a nationwide protest organized in part by the group behind the Women’s March. “Though the march in Washington drew attention to efforts to privatize schools under the new education secretary, Betsy DeVos, those at Miami’s rally were quick to point to inequities in state funding they said hurt local schools. Several speakers criticized Gov. Rick Scott’s signing of HB 7069 last month, a $419 million K-12 public schools bill that calls for public schools to share with privately run charter schools millions of local tax dollars earmarked for school construction.”

11) Louisiana: A case affecting funding for 30 charter schools is heading to the state Supreme Court. “At issue in September’s hearing will be funding for charters approved by Louisiana’s Board of Elementary and Secondary Education, rather than local school boards. The state has been funding the schools through its annual funding formula approved by the Legislature. Some local education officials and a teachers union argued in lawsuits that the formula is meant to fund local school districts. They say using it to fund state-approved charters violates Louisiana’s constitution. An appeals court agreed in January, but has allowed the funding to continue pending appeals.”

12) Massachusetts: The MBTA has begun soliciting bids from private contractors to take over some bus maintenance work. “The Machinists Union Local 264, which represents the maintenance workers, has rallied against the plan. On Friday, the union called the contracting process ‘a corporate takeover of core MBTA services.’ The machinists are part of a coalition of other T unions that last week launched an advertising and public relations campaign, featuring bus maintenance employees who say they voted for Governor Charlie Baker and now feel betrayed. Congressman Joseph Kennedy III has been among the union’s allies. In an interview with the Globe, Kennedy said that although it may make sense for the MBTA to contract some services, bus maintenance should not be among them. ‘When it comes to the machinists and the maintenance of buses, that sort of seems like a core competency to me,’ he said.”

IAM Local 264 Bus Mechanics and a coalition of public transit riders and community supporters “are ramping up their campaign against the outsourcing of bus maintenance garages.” See this video.

13) Pennsylvania: A charter school that got itself into hot water for violating sunshine rules and initially failing to have any of its leaders show up for the Catasauqua Area School Board’s special meeting on its operations is trying to smooth over its bumpy relations with the board. “The School Board emerged from that first meeting angrily determined to get answers to the questions it already had about the charter school and the new ones raised that night — and to make sure charter school leaders understood that the School Board was prepared to revoke the school’s charter if it didn’t get the answers it needed.”

14) International: Nasim Chatha of the Alliance for Global Justice looks at how the U.S. is exporting the worst of its prison paradigm abroad. She writes, “Many in Honduras suspect their government is now using the continuing crisis and dysfunction in the new prisons as an opportunity to privatize the prison system. Omar Rivera of the Association for a More Just Society (ASJ), a Honduran organization that gets a significant portion of their funding from several agencies of the US government, just came out in favor of privatizing Honduras’s prisons, or putting them in the hands of ‘friendly governments.’ Cesar Cáceres, too, strongly supports prison privatization. Before joining the CONAPREV, Cáceres worked at the office for public-private partnerships of the Honduran government. ‘Many American, Colombian, Mexican, Israeli companies came who wanted to offer their services in managing prisons,’ he said, but under President Zelaya, who was deposed by the 2009 coup, ‘there wasn’t the political will.’ A newly privatized market in Honduran prisons will further open the country to U.S. business interests.”

15) International: Asset recycling or asset accumulation? Canada’s Hydro One power company, which was privatized despite strong bipartisan opposition, has turned around and gobbled up a U.S. company in a $6.7-billion deal, drawing criticism. “The Avista takeover would mark Hydro One’s first corporate acquisition since its partial selloff in November 2015, a move opposed by both the Tories and the NDP. Earlier that year Premier Kathleen Wynne unveiled the Liberal government’s plan to privatize up to 60 per cent of Hydro One through a stock launch. The goal was to pay off its hydro debt and bankroll transportation infrastructure to the tune of $9 billion, despite broad opposition and a damaging report from the budget watchdog. Progressive Conservative Leader Patrick Brown saw the transaction as a jolt to ratepayers. ‘The purchase of Avista by Hydro One is the direct result of Kathleen Wynne’s fire sale. Hydro One is gouging ratepayers while using our money to buy up foreign companies. In the end, Ontario families will be left paying even more for hydro,’ Brown said in a statement.” [Sub required]

16) Think Tanks: Mariana Valverde of the University of Toronto takes a shot at “the downright Orwellian terminology used by infrastructure insiders,” confusing the public.

Legislative Issues

1) National: Major veterans groups issued a joint statement on Saturday urging Congress to fully fund the Veterans Administration. “Their joint statement comes after the House Veterans Affairs Committee unveiled a plan Friday that would shift $2 billion from other VA programs to continue funding the department’s Choice program. Put in place after a 2014 wait-time scandal at the Phoenix VA hospital, Choice provides veterans federally paid medical care outside the VA and is a priority of President Donald Trump. To offset spending, the VA would trim pensions for some veterans and collect fees for housing loans. The veterans’ groups criticized the plan as unacceptable privatization. They urged the House to embrace a bill that “ensures veterans’ health care is not interrupted in the short term, nor threatened in the long term.””

2) National: Air traffic control privatization has stalled, possibly for good. With no place yet on the legislative calendar this week, it looks like Trump and Shuster’s plan will fail to get traction before the August recess (if that actually happens). “Amid concerns from national security hawks, rural members, and appropriators, Republicans remain short of a majority and, without the bill on the calendar next week, appear unlikely to move it before recess.” [Sub required]

3) Pennsylvania: Republican Rep. Ron Marsico has introduced a bill to amend the Prevailing Wage Act for local road maintenance contracts [HB1681]. Marsico says, “Like HB 665, my legislation will countermand the Commonwealth Court decisions issued in 2006 and 2007 (Ebensburg and Youngwood) which ruled that previously exempt road repair actions (curb/sidewalk replacement and milling/repaving) are subject to the Prevailing Wage Act.”

4) Pennsylvania: Sen. Stewart J. Greenleaf (R-Montgomery) introduces a resolution urging President Trump and the Congress to pursue criminal justice reform. “WHEREAS, despite recent reductions, the United States has the highest incarceration rate in the world, holding approximately 2.2 million people in prisons and jails on any given day, a 500% increase over the last 40 years; and… ”

Last week, the Brennan Center and the Coalition for Public Safety, a bipartisan group that advocates shrinking the prison population, held a conference in DC to spur momentum for criminal justice reform, which has political support across the spectrum (including from conservative Oklahoma governor Mary Fallin) but has been set back by the Trump administration and Attorney General Sessions. “Republican leadership in the states has a totally different perspective than the administration’s archaic, tough-on-crime rhetoric,” said Holly Harris, executive director of the Justice Action Network. “That’s why it’s so important to lift up the voices of the conservative governors to counter that narrative.” [Sub required]

5) Pennsylvania: The Republican-controlled House has hotfooted it out of town, leaving it to the Senate to balance the budget. One of the items considered to raise revenue, liquor privatization, has been left in the lurch. It has been a perennial favorite of House leader Mike Turzai (R). House Democrats say Turzai needs to bring his troops back and negotiate a bipartisan deal. The Senate is expected back this week.

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