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This Week’s Outsourcing Scan 02-03-14

Update: Upcoming Outsourcing Issues. February 3, 2014

1) National: In the Public Interest issues recommendations for public interest protections that should be included in state legislation on “public private partnerships.” Citing the critical need for investment in infrastructure, ITPI recommends that P3 agreements include good paying jobs and career-enhancing skills to lift people out of poverty; broad public participation and contractor accountability; rigorous cost-benefit analyses and Public Sector Comparators; full appropriate transparency at all stages; affordable user fee levels; living wages and decent benefits for construction, maintenance, and operations workers; prohibition of non-compete clauses, limitation of compensation clauses, and robust oversight structures in P3 contracts; and other provisions to protect the public interest.

2) National: Dennis Compton analyzes the pitfalls of outsourcing EMS and fire services in the wake of the December 2013 bankruptcy of First Med EMS. “Even though the officials acted surprised, they must have known that this was not the first time this happened. Private companies providing fire suppression and EMS have gone under in many places, each time without warning. Of course, there is no warning, because the company does not want its creditors or contractors to know of the plans to fold for fear they might intervene. (…) Elected officials deserve to be well informed of these types of system failures and the real potential of their decisions concerning whether to privatize emergency response services.” [Sub required]

3) National: The Washington Post’s Steve Pearlstein criticizes the federal outsourcing boom, which he writes “has been driven by politics and ideology. To demonstrate their commitment to ‘shrinking’ the size of the federal government, both Republican and Democratic politicians set about shrinking the federal workforce and then capping it at 2 million workers, despite continued growth in the economy, the size of the federal budget and demand for government services.”

4) National: Thirteen states step up investigations into the private, for profit education industry. State attorneys general have sent subpoenas “to Career Education Corp., Education Management Corp., Corinthian Colleges Inc. and ITT Educational Services Inc., said a spokesman for Jack Conway, Kentucky’s Democratic attorney general who is leading the effort.” [Sub required]

5) National: The Sentencing Project has issued two briefing papers on state prison closures in 2013 and sentencing policy reforms, written by Nicole D. Porter. “State officials continue to modify sentencing policy in an attempt to address correctional populations. At least 31 states adopted 46 criminal justice reforms to potentially reduce state prison populations in 2013.”

6) National: The Justice Department’s Inspector General has published an audit of Federal Prison Industries, Inc.

7) National: Slate’s Chris Kirk draws a map of public schools across the nation that are using taxpayer money to teach “creationism.” “Creationist teachers don’t even need to be sneaky about it—the Texas state science education standards, as well as recent laws in Louisiana and Tennessee, permit public school teachers to teach ‘alternatives’ to evolution. Meanwhile, in Florida, Indiana, Ohio, Arizona, Washington, D.C., and elsewhere, taxpayer money is funding creationist private schools through state tuition voucher or scholarship programs.” Builds on an earlier report by Zack Kopplin on Texas charter schools that are teaching “creationism.”

8) National: Booz Allen Hamilton, the major federal government contractor, sees its fiscal third quarter earnings slide 16%. “Revenue sank 8.6% to $1.27 billion, partly owing to headcount reductions and fewer billable hours amid tight federal budgets.

9) National: Citing strong demand, Macquarie Group has decided to raise the investment target of its MIP III infrastructure fund to $2.5 billion from $2 billion. It has already raised $1.89 billion. Macquarie is part of the consortium rebuilding the Goethals Bridge connecting New York to New Jersey. “The P3 is being partly funded through a $474 million [Federal] TIFIA loan, while the Port Authority of New York and New Jersey also undertook a $457 million bond offering to help finance the project” [Sub required]. Macquarie was also contracted by Gov. Chris Christie’s administrationto advise it on the privatization of the New Jersey lottery. According to the Bergen Record, “Macquarie, the consultant, eventually recommended the move, and the state advertised for bids. But there was only one formal application—from a joint venture of two firms that have had business relationships with Macquarie.”

10) National: Speaking at the winter meeting of the Government Finance Officers Association, Rebecca Harrigal, director of the IRS’ tax-exempt bond office, says the IRS will be auditing small issue private activity bonds, among other bond market segments, this year.  [Sub required] PABs are often used in “public private partnership” projects.

11) National: Amtrak issues press release calling for a new framework for transportation investment. Says “we all need to recognize the Highway Trust Fund is based on an outmoded vision for mobility in the United States and is financially unviable. If Congress simply structures a new surface transportation bill around the existing framework of the Highway Trust Fund, we will all lose because nothing worthwhile will change in our national transportation policy.”

12) National: A GAO report finds that the Federal Highway Administration “neither collects information on which local agencies are administering federal-aid projects nor the capabilities of those agencies—information that would allow FHWA to identify the extent and magnitude of its risks and more effectively target its oversight of the states.”

13) National: The Transportation Department’s Inspector General has found that DOT’s efforts to reduce spending on management support contracts have been delayed. “DOT’s spending on management support services contracts, which totals over $1 billion annually, increased from fiscal years 2010 through 2012, and over half of DOT’s management support services contract obligations involve high-risk contract types, such as time-and-materials and cost-reimbursement contracts.” [OIG report]

14) National: “The Haggler,” the New York Times’ consumer affairs columnist, refutes prison telephone contractor Global Tel Link’s argument for why it charges exorbitant phone rates to prisoners and their families. “See if you can guess which company has the contract to run the phone systems in all New York State prisons? Global Tel Link. Which suggests that the company can make a reasonable profit even when it charges a fraction of the sums it charges in other states.”

15) Connecticut: As local officials consider privatizing the Water Pollution Control Authority in Stratford, a citizen writes in to say that the authority should be permitted to submit a bid too. “Before deciding to privatize consider this approach in reducing cost. Issue a Request for Proposal (RFP) inviting all bidders including the current Stratford WPCA. Set the WPCA up as a separate unit. Remove all expenses that are not theirs. This will enable them to have total control of all of their real expenses and revenue. Let’s acknowledge the years of water treatment experience within our current department by allowing them the opportunity to bid on this RFP. I’m inclined to predict that they will deliver the lowest cost, winning bid.  Let’s give them a chance and safeguard town resources.”

16) Florida: Gov. Rick Scott retreats from his push to privatize prisons as he faces a tough election campaign in which he trails in the polls. But last week he called for outsourcing custodial services in state buildings in his budget speech. Scott opponent Charlie Crist is a veteran tough on crime politician who long supported prison privatization in return for industry support. Sen. Nan Rich, who is also running, has been a tough and effective opponent of prison privatization.

17) Indiana/Kentucky: A London-based infrastructure fund has bought a one third interest in the Indiana portion of the Ohio River Bridges Project. The deal marks the first “public private partnership” asset to be acquired by Bilfinger Berger Global Infrastructure in the U.S. [Sub required] Indiana is using a “public private partnership” for its share of the project, and Kentucky is using a traditional, toll-financed public model. The two states recently reported to the Federal Highway Administration that they had lowered the project’s cost to $2.3 billion from $2.6 billion “due to earlier-than-expected completion as well as the difference between pre-bid estimates and actual bid prices.” [Sub required]

18) Louisiana: The new manager of the privatized LSU’s Shreveport and Monroe hospitals turns around and asks the state “to pay for more than $120 million in hospital improvements and expansions.” LSU’s Bogalusa Medical Center will convert to private operation on March 17.

19) Maine: Falmouth residents criticize plans to outsource the town’s assessing services. “Resident Willy Audet questioned the utility of outsourcing a ‘cheap department’ that’s responsible for billions of dollars in property values. He offered a dire prediction. ‘You’re going to be known as the council that handed over $2.3 billion [in property assessments] to an experiment,’ he said.”

20) Maryland: Two members of Congress have asked state transportation officials to “reevaluate” a preferred bidder for the Purple Line. “The company in question, Keolis, is a member of one of four consortiums recently chosen by Maryland transportation officials to bid on a public-private partnership to design, build, operate, maintain and help finance a 16-mile Purple Line between Montgomery and Prince George’s counties. Société Nationale des Chemins de Fer Français (SNCF), which owns 70 percent of Keolis, was paid to transport 76,000 prisoners to Nazi death camps in World War II, according to historians.”

21) Massachusetts: Responding to a Boston Globe op-ed by Charles Derber and June Sekera in which the latter argue that we face “a deficit of public goods,” Robert Foley writes that “civic life depends on things the market can’t or won’t provide, things tangible and intangible that the market doesn’t value and that are quite literally priceless.”

22) New York: New York City Mayor Bill De Blasio may cut the rent subsidy to charter schools. The money would be reprogrammed to prekindergarten space.

23) New York/New Jersey: Gov. Cuomo is to create a committee to oversee projects at Kennedy and LaGuardia airports. Cuomo recently announced he was taking over oversight from the Port Authority of NY/NJ, which owns the airports. “The Port Authority will still have control over the total capital budgets for the two airports. The official said Cuomo is trying to reproduce the success he had with the Tappan Zee Bridge over the Hudson River. For 10 years efforts to start a new bridge to replace the old one had no real progress. Less than two years after his inauguration Cuomo had chosen a bid for constructing the new bridge.” The Port Authority is seeking $2.5 billion in private funds for LaGuardia’s new terminal. [Sub required]

24) New York/New Jersey: The Port Authority is considering the sale of the Millennium on-dock rail terminal in Elizabeth. “New Jersey Gov. Chris Christie signed legislation passed [last] month to repeal a cargo facility charge enacted to pay for ExpressRail and other port infrastructure. The New Jersey legislation won’t become effective unless New York passes a similar bill.”

25) North Carolina: The partial privatization of the commerce development is proceeding under a legal cloud. “Some state legislators, including Sen. Brent Jackson (R-Sampson County), have questioned the formation of the nonprofit because the bill—House Bill 127—that would have formalized it was not signed into law. The partnership’s interim CEO Richard Lindenmuth, a Raleigh businessman who started the job earlier this month, told lawmakers Tuesday that he is following the bill as a ‘template.’”

26) Oregon: Parkrose school board move toward outsourcing the jobs of bus drivers. “It is not something that the community is behind,” a board member said. “I don’t believe it’s a good idea for Parkrose.” The school board will vote on a bid February 24.

27) Pennsylvania: Statements of Qualifications by potential bidders for the multiple bridges replacement project are due this Friday. An announcement of shortlisted proposers by PennDOT is expected on March 3. The envisioned project, for possibly up to 500 bridges, is a DBFOM model, a “public private partnership” agreement under Pennsylvania’s P3 law, with anticipated state subsidies to the private contractor to cover a period of from 25-35 years. Outstanding questions include whether or not the financing costs of the project will be lower than if it was procured publically; whether and how a comparison was/will be made between public and private options; how the project, which has a private maintenance component, will affect the jobs of Pennsylvania highway maintenance personnel, and what cost and performance standards will be used for the operations component (will “savings” be generated primarily by slashing the wages of maintenance personnel?); how the project will affect Pennsylvania’s capital structure and obligations; whether the project, whose subsidies require periodic legislative approval, may draw future funding away from other Pennsylvania transportation needs; and whether/how many public hearings will be held, since NEPA transparency regulations may be skirted by gaining exemption from NEPA for “a substantial number” of the bridges (p. 10 of updated RFQ). [Project documents]

28) Puerto Rico: The Public Private Partnership Authority approves a tender for construction and maintenance of the El Pino elementary and middle school in Villalba (p. 15).

29) Think Tanks: The National Council for Public Private Partnerships has turned itself over to a management company, LRG public affairs. Plans include the launching of a new publication, P3 Digest.

30) International: As the Canadian Union of Public Employees (CUPE) celebrates its 50th anniversary, its quarterly publication, Counterpoint, reports on Manitoba’s new “public private partnership” accountability legislation. CUPE says the new Public-Private Partnerships Transparency and Accountability Act is “a first” for Canada. “Legislation and regulations will require the proposed P3 to be subject to public sector comparators (meaning that the P3 must prove that it will be better value for the taxpayer), hold public consultations, and will be held to account every step of the way through strict reporting requirements.” Similar legislation is being considered for Saskatchewan. [Manitoba’s P3 Act]

31) International: Services privatization expert Dexter Whitfield finds that outsourcing public services in Britain increased 35% in just two years, despite the fact that contracts have a very high 22% failure rate. Data is drawn from the ESSU’s PPP Database for 2012-2013. “Returning the management and control of schools, hospitals, council housing, public transport, roads, water and energy to the public sector is vitally important. There is evidence of re-municipalisation in energy and local government (Germany), water services (France and Germany) and local government in Finland.”

32) Resource: “Private Interest in Public Finance: Social Impact Bonds,” Journal of Economic Policy Reform (2013), by Mildred E. Warner of Cornell University.

33) Upcoming Meeting: AASHTO will hold its Washington briefing February 25-28, 2014. [Agenda]

 

Legislative Issues:

1) National: In the Public Interest lauds groundbreaking bills to curb the outsourcing of public services. “Adding momentum to a national trend of reigning in reckless outsourcing of public services to for-profit corporations and other private entities, legislators in Nebraska, Vermont and West Virginia recently introduced transparency and accountability legislation aimed at protecting taxpayers and putting them back in charge of their public services.” [Nebraska LB 1006, LB 371; West Virginia HB 4323; Vermont S 240, H 623]

2) National: Special panel on “public private partnerships“ created in the House Transportation Committee. Includes six Republicans and five Democrats. “Additional information about the panel’s schedule and activities will be announced at a later date.”

3) National: AASHTO issues update on recent state transportation revenue initiatives.

4) Florida: Gov. Scott’s budget includes the largest bond authorization in years, $2.7 billion. “The most debt would be $2.4 billion for the Florida Department of Transportation’s massive Interstate 4 expansion and renovation project being accomplished with a public-private partnership.” [Sub required]

5) Georgia: The Senate is considering a bill on “public private partnership” standards. “Senate Bill 255 would enact the Partnership for Public Facilities and Infrastructure Act, and set minimum standards for using public-private partnerships at the state and local levels to provide for public infrastructure and government facilities. SB 255 would also create a Partnership for Public Facilities and Infrastructure Act Guidelines Committee. The committee would prepare model guidelines for public entities to use” [Sub required; SB 255]. The bill provides for legislative intent.

6) Idaho: Senate moves to end the private operation of the Idaho Correctional Center.Approves a $1.9 million supplemental budget request for the Department of Correction. The House must approve the request.

7) Oregon: Sentencing reforms are expected to save about $19 million in the 2013-15 budget cycle. “‘The big picture for the Department of Corrections is that it can be very serious, because we’re talking about possibly having to reopen institutions, and that’s very costly,’ said Sen. Jackie Winters, R-Salem, co-chair of the public safety budget subcommittee. ‘We’re hoping we don’t have to reopen a facility.’”

8) Virginia: The budget bill directs the Department of Corrections to issue a request for proposals for the operation of the Lawrenceville Correctional Center beginning in March 2015, when the current contract is subject to renewal. The prison is currently operated by the Geo Group.  “By October 15, 2014, the department shall provide the Department of Planning and Budget with the details of the proposal to which it has tentatively decided to award the contract, along with a detailed budget for the operation of the prison if it were to be done by the Department of Corrections.  The Department of Planning and Budget shall conduct a cost-benefit analysis of the merits of continuing to use a private contractor to operate the prison rather than the Department of Corrections operating it with its own employees.  The Department of Planning and Budget shall make a recommendation to the Governor for inclusion in the budget bill to be presented to the 2015 General Assembly.” [Budget bill, p. 3]