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This Week’s Outsourcing Scan 02-24-14

Update: Upcoming Outsourcing Issues. February 24, 2014

1) National: Maximus, the major government contractor, reports its financial results for the quarter ended December 31, 2013. Revenue grew 42% to $406.6 million, driven mainly by health services. The company’s “signed contract awards totaled $347 million and the sales pipeline remained strong at $2.4 billion.” Its federal contract awards,according to USASpending, were $283,819,368 for 2013 and YTD 2014. Maximus’ president and CEO, Richard Montoni, will participate in a “Fireside Chat” at the Citi Global Healthcare Conference tomorrow.

In its new report, “Exposed: America’s Highest Paid Government Workers,” the Center for Media and Democracy calls Montoni “America’s highest paid ‘caseworker.’” CMD reports that “as CEO of Maximus, a firm that handles government services for poor and vulnerable residents, Montoni made more than $16 million off of taxpayers between 2008 and 2012. In 2013, Maximus landed in hot water for improper billing in Wisconsin. In 2007, Maximus paid $30 million to settle a U.S. Department of Justice criminal investigation into fraudulent billing.”

2) National: Waste Management shares take a huge hit on their report of significant asset impairment charges in the fourth quarter of 2013, and “higher accruals from incentive compensation. (…) Waste Management reported a loss of $605 million, or $1.29 a share, from earnings of $224 million, or 48 cents, a year earlier.” [Sub required; earnings call transcript]. The Center for Media and Democracy has reportedthat “WM’s key executives made a total of $70,304,024 from 2008 to 2012.”

3) National: Geo Group reports its fourth quarter and full year 2013 results. Declares quarterly cash dividend of $0.57. Its fourth quarter net income decreased to $27.61 million from $81.61 million the previous year. According to an analysis by Prison Legal News, as reported in the Broward New Times, “a nice chunk” of this revenue comes from prisoners’ phone overcharges. GEO says on its earnings call that “the Bureau of Prisons has issued a solicitation with two requirements. Each requirement is to house approximately 1,565 to 2,000 low-security adult males. One facility must be located in one of the following states: Ohio, Michigan, Pennsylvania, New Jersey or New York. The other proposed facility may be located anywhere in the Continental United States. This procurement will include the rebid of our company-owned facility in Pennsylvania, which contract expires in April 2016, and the rebid of another BOP privately operated facility in Ohio, which contract expires in May 2015. Proposals for this procurement were submitted in August of last year, with awards expected mid-2014. Additionally, ICE has issued request for information for three company-owned and operated detention facilities ranging from 800 to 2,000 beds in Chicago, Atlanta and Houston. Turning to our state market segment. As states across the country continue to face budgetary pressures, their ability to achieve cost savings becomes even more important priority, which leads to increased interest in privatization projects.” [Earnings call transcript]

4) National: Corrections Corporation of America declares $0.51 dividend, shoring up its stock price. CCA recently missed analysts’ earnings per share estimates, had to pay $1 million to Idaho for understaffing, and is facing a criminal investigation in Idaho over falsification of records on its staffing practices. CCA was also ordered to pay $349,019 in “extraordinary fees to the [ACLU] attorneys representing a group of inmates who filed suit against the private prison company.”

5) National: USASpending.gov reports that the Federal Bureau of Prisons spent $77,568,893 on contracts signed in 2013. Of that, $68,733,125 went to Corrections Corporation of America.

6) National: Aramark Holdings, the food and uniform services company that has extensive government contracting business, reports its first financial results since becoming a public company in December. “Net income was $111.86 million in the quarter, up 59 percent from $70.56 million in 2012. Analysts also focused on how much operating profit Aramark made in the quarter for every dollar of revenue. For the company’s North American food and support services business, by far its largest unit, that ratio was 7.5 percent in the most recent quarter, up from 7 percent the year before.” Company executives received $4.3 million in bonuses. Aramark had contracts worth $30,241,074 with the federal government in 2013 and YTD 2014.

7) National: Citizens for Responsibility and Ethics in Washington releases a report on the lack of transparency of private prison companies at both the federal and state levels. CREW recommends tougher Congressional oversight; passage of the federal Private Prison Information Act and similar state legislation; investigations by the GAO, inspectors general, administrative conference, and National Academy of Public Administration; and research by public interest organizations.

8) National: Dean Paton reviews the recent history of school privatization. The Reagan administration’s A Nation at Risk “became a timely cudgel for the larger privatization movement.”

9) National: Eleanor Bader looks at how a lack of transparency in privatization deals harms the public interest. “‘There is not any quantitative data on the amount of money that is currently going to private contracts at the state or local level,” says Shar Habibi of In the Public Interest. “We know anecdotally that this is going on in every state and at every level of government—private firms are running health and human services, prisons and core public services like roads, bridges, highways and parking meters—but we have no big-picture data.’”

10) National: Education “reformers” turn to crowdsourcing to fund their efforts.

11) National: Diane Ravitch flags “a network of privatizing institutions.” She writes, “every time I think I have encountered every organization associated with corporate reform, I find I am wrong. Here is one I did not know about.”

12) Colorado: As the transportation commission approves a “public private partnership” redevelopment project for U.S. 36 in the face of intense opposition, the Drive Sunshine Institute says it may sue to block the deal. Writing in the Boulder Daily Camera, John Roberts resurfaces questions about the financial condition of the concessionaire, the Plenary Group, originally raised in the Sydney Morning Herald. Roberts says, “that’s a key point since Q&A in CDOT’s Louisville meeting revealed that taxpayers will have to eat Plenary’s debt if it goes bankrupt or can’t perform as contracted. No surprise—The Herald notes that the Australian Tax Office is chasing Plenary for ‘refusing to pay $2.35 million in overdue BAS payments.’” Other road privatizations are in the pipeline, such as for I-70, on which the state is being advised by Macquarie, one of the leading road privatization companies. I-70 bidding will begin “in the next couple of months” and may eventually include a $5.5 billion high speed rail project. The CDOT has issued draft reports saying the project is technically but not financially feasible. Colorado’s fuel tax has not been raised since 1991.

13) Georgia: The Summerville News criticizes the town’s long-winded officials for making citizens wait for hours before being able to speak at public meetings.

14) Indiana: The finance authority has selected Isolux as the preferred bidder for the I-69 “public private partnership,” which will be publically subsidized.

15) Maryland: Court administrators challenge a ruling that poor defendants have a constitutional right to counsel at their first bail hearing. “The high court ruling represented a victory for bail reform advocates, but the state argued in the filing that it could wind up leaving defendants in jail longer because they would have to wait for a hearing at which a lawyer could be present.” ALEC and the American Bail Coalition have been pushing for a privatized bail system.

16) Michigan: Detroit Emergency Manager Kevyn Orr looks to privatize the city’s parking garages and meters, according to documents included in the city’s bankruptcy filing. Orr’s spokesman says “we’re cognizant of what happened in Chicago. That didn’t go very well. We don’t want to retrace those steps.” The city is also consideringselling or leasing Coleman A. Young International Airport. There has also been discussion of selling Detroit’s half of the Detroit Windsor Tunnel (see Cate Long’s discussion of the dubious benefits of bridge P3s). American Federation of State, County and Municipal Employees Council president Lee Saunders says “the plan of adjustment is not a solution—it’s an abomination.” AFSCME 25 President Al Garrett, who represents the city’s largest employee union, “promised to fight Orr’s restructuring plan,” which includes drastic pension cuts while paying secured bondholders 100%. An appeal of Detroit’s bankruptcy eligibility is pending before the federal Sixth Circuit.

17) Michigan: The Hillsdale City Council creates a list of 24 road funding options. One “solution,” is to “privatize city run projects.”

18) Michigan: Traverse City commissioners reject outsourcing of the annual leaf pickup to a for-profit company. Commissioner Jim Carruthers “said privatization can work in some cases but the biggest problem is loss of control over how services are performed. He cited sidewalk snow removal and how city staff responded when commissioners expressed concern. ‘We speak up and vroom, things are getting done,’ Carruthers said.”

19) New Jersey: Veronique “Ronnie” Hakim, who as head of the New Jersey Turnpike Authority has pushed for the privatization of toll collectors’ jobs on the Jersey turnpike and Garden State Parkway, is headed to NJ Transit as executive director.

20) New York: In her state of the county address, Broome County Executive Debbie Preston says “our goal is not to privatize the nursing home, but we must explore alternatives to the way we are doing business.” Democratic Minority Leader Dan Reynolds replies that “the county executive came right out and said her goal is not to privatize Willow Point, so we’ll keep her to that promise. I think that’s important that we continue to run that as a public facility.”

21) New York/New Jersey: Port Authority chairman David Samson comes under fire for conflict of interest in a PANYNJ lease deal.  While chairman, Samson “voted to give another client—NJ Transit—a $1-per-year lease on a valuable park-and-ride lot in North Bergen, records show. At the time of the Feb. 9, 2012, vote, Samson’s firm, Wolff & Samson, was getting up to $1.5 million to advise NJ Transit on how to maximize profits from dozens of its commuter lots, including the one in North Bergen, according to public documents.”

22) North Carolina: As the State Education Assistance Authority prepares to begin awarding public school vouchers that can be used at private schools on March 1, Elizabeth HaddixMark Dorosin writes that “because the voucher program was included in the budget, it was hidden from the public scrutiny it would have received had it been a stand-alone bill. Its proponents were never forced to explain the fact that, in states with similar programs, student achievement at the private schools is no better, and often worse, than in the public schools.”

23) Pennsylvania: Small bridge contractor questions the logic of the PennDOT multiple bridges “public private partnership” project, which is bundling hundreds of bridges together for repair or replacement. “‘I don’t think I understand,’ said a spokesman with George S. Hann & Son Inc., a small bridge contractor in Fort Littleton. ‘I don’t see where it’s a benefit. Taxpayers are still paying for it one way or the other. Is it cutting red tape? It’s like they’re adding more employees to do what those PennDOT employees should be doing. It’s definitely going to hurt the smaller contractors. I would think it would hurt the medium-sized contractors.’”

24) Texas: The Republican candidate for the Liberty County Commission wants to kick the private operator, Community Education Centers, out of the county jail. “If elected, Wilson wishes to bring the Liberty County Jail back under county control and stop the ‘waste of millions of dollars’ associated with privatization.”

25) Washington/Oregon: A study finds that liquor privatization in Washington “has had a bad effect on young people, from looser attitudes about drinking to more alcohol-related emergency room visits.” [Presentation]

26) Wisconsin: As controversy mounts over Gov. Scott Walker’s alleged uses of county employees in his 2010 campaign for governor, emails surface that have Walker urging county administrators to take to the internet during the campaign and defend his plan to privatize the airport.

27) Transparency Tools/Texas: TexasTransparency.org reports that the state paid $291,675,320.46 to Management & Training Corporation from 2008-2014, and $96,437,230.94 to the Geo Group from 2008-2013. Both are private prison companies. Paid over $4.8 million to Corrections Corporation of America in 2013 and 2014. Also, Texas paid $8,562,183.71 to Aramark Correctional Services from 2008-2014. Aramark Correctional Services has faced multiple complaints of bad and inadequate foodacross the country.

28) Think Tanks: Today the Philadelphia-based Committee of Seventy will host author David Eichenthal, a director at municipal finance advisory firm Public Financial Management, to discuss his new book The Art of the Watchdog.

29) Revolving Door News: Former Michigan state treasurer Andy Dillon assists Conway Mackenzie, “a Birmingham turnaround firm that won a $19-million contract as a key consultant to Emergency Manager Kevyn Orr in Detroit’s bankruptcy case. Dillon is a project adviser for the suburban firm.”

30) New Book on the Consulting Industry: The Lords of Strategy, by Walter Kiechel III. Diane Ravitch comments.

31) Meetings: The AASHTO Washington briefing is this week (Wednesday to Friday).

 

Legislative Issues:

1) National: Transportation Secretary Foxx says the Federal Highway Trust Fund may be bouncing checks before the expiration of the current transportation bill on September 30 of this year. A new bill may be taken up as early as April.

2) National: Congressional Research Service issues report on the corporate income tax system; includes information on revenue losses from municipal bond tax exemption (p. 5).

3) Georgia: As legislation to privatize parts of the state child welfare service advances in the state senate, the Atlanta Journal-Constitution hosts a discussion. Donald Cohen, executive director of In the Public Interest, supports proposals to “rein in predatory contracting of government services in Georgia.” [HB 932; HB 936; and HB 941]. David Adkins, the executive director of the Council of State Governments, issues a warning: “Anyone who tries to sell privatization on budget savings alone isn’t doing the public any favors. While many privatization initiatives have achieved savings, those who care about providing government services aligned with advancing the common good will craft contracts that clearly define the tasks, balance risks, set objectives and provide appropriate reward for success.”

4) Illinois: Quincy alderman are divided on a proposal to outsource garbage collection. “The debate over garbage and recycling collection began in earnest last fall when Mayor Kyle Moore announced the administration wanted to privatize those services, charging each of the nearly 15,000 households the same monthly fee. When that plan met with stiff public opposition and gained no traction on the council, Moore countered with a proposal that would triple the cost of trash stickers to $1.50 each, with a 3 percent annual increase. Private haulers would still be allowed to operate in the city, despite an ordinance that prohibits it, but they would be charged a 5 percent franchise fee.” The council meets again today.

5) Kentucky: Bill introduced to promote “public private partnerships.” Brent Spence Bridge Project hangs in the balance. Northern Kentucky Chamber of Commerce President Brent Cooper “said that business leaders started to get worried in recent months, as talk about whether a bridge replacement is even needed gained traction, pushed by critics and opponents of tolls.” Municipal finance analyst Cate Long has questioned the wisdom of using a P3 to build the bridge.

6) Maryland: After a bill is introduced in the General Assembly that would block Keolis from being granted a contract to develop the Purple Line “public private partnership” because of its parent company’s role in the Holocaust, negotiations are opened on a possible compensation settlement.

7) Pennsylvania: Privatization of state liquor stores seems to be receding, but is still in the air. Talk shifts toward how to make the state system run better. “Lawmakers who favor keeping the state in the liquor business will likely see dollar signs, but don’t expect privatization hawks to support anything that would let the LCB get any more entrenched.”

8) South Carolina: House panel votes to sell some state roads to local governments. “However, local government representatives have expressed concern about whether those governments will have enough money to maintain roads that would fall under their ownership.”