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This Week’s Outsourcing Scan 03-17-14

Update: Upcoming Outsourcing Issues. March 17, 2014

1) National: This week is National Sunshine Week, an annual collaborative effort bydozens of media and public interest organizations to promote open government and public access to public information. In the Public Interest’s executive director Donald Cohen emphasizes the critical loss of transparency, and therefore public control, in many contracting and outsourcing arrangements. “It’s very simple—the right to know the details about the deals we do with contractors is fundamental to holding contractors accountable. Unfortunately, when we outsource public services we lose basic public information.” Many events are scheduled this week to highlight transparency issues at the local, state and federal levels. Legislation has been introduced to improve the federal government’s processing of requests under the Freedom of Information Act.

2) National: Hannah Rappleye and Lisa Riordan Seville report in The Nation on the for-profit probation industry. “The Constitution ostensibly protects people from falling into this kind of debt-and-punishment trap. In the 1983 case Bearden v. Georgia, the Supreme Court ruled that to jail a probationer for failure to pay a fine without inquiring first into that person’s ability to pay violates the equal protection clause of the Fourteenth Amendment. But if neither the company nor the court seeks to determine indigence—and that is common—then protections for the poor never kick in. (…) A prison healthcare corporation called Correctional Healthcare Companies bought JCS, allowing its new parent company to expand into the supervision and enforcement industry. And six months after Judge Harrington’s ruling, GTCR, a Chicago-based private equity firm, bought Correctional Healthcare Companies, including its wholly owned subsidiary JCS. It was a sign that the finance world believed criminal justice would remain good business.”

GTCR is also involved in prison healthcare. In December 2012, GTCR took over Correctional Healthcare Companies (CHC), which had previously purchased Health Professionals Ltd. (HPL). [See Brian Dolinar, “How Privatization Destroyed an Illinois Jail’s Award-winning Suicide Prevention Program,” Prison Legal News]. GTCR is also on the American Federation of Teachers’ list of asset managers that it says have ties to groups that attack workers’ defined benefit plans.

3) National: A new report details the effects of outsourcing on democracy, wages and benefits, and quality of services. Findings include that outsourcing to private corporations undermines principles fundamental to our democratic system; contracting can involve substantially lower wages and benefits for local workers providing services, siphoning dollars away from local economies; that profit imperatives of corporations do not necessarily lead to efficiency and quality; and that cost savings vary and often diminish over time. [Daphne T. Greenwood, “The Decision to Contract Out: Understanding the Full Economic and Social Impacts“]

4) National: The New York Times reports on the privatization of American science. “American science, long a source of national power and pride, is increasingly becoming a private enterprise. In Washington, budget cuts have left the nation’s research complex reeling. Labs are closing. Scientists are being laid off. Projects are being put on the shelf, especially in the risky, freewheeling realm of basic research. Yet from Silicon Valley to Wall Street, science philanthropy is hot, as many of the richest Americans seek to reinvent themselves as patrons of social progress through science research.” [Sub required]. There has been a vigorous debate on the commercialization of science in recent years.

5) National: A private contractor was allowed to review classified cables before they were made available to Congressional staff investigating CIA detention and interrogation programs. “The Senate’s investigation into the C.I.A. program took four years to complete and cost more than $40 million, in part because the C.I.A. insisted that committee staff members be allowed to review classified cables only at a secure facility in Northern Virginia. And only after a group of outside contractors had reviewed the documents first.”

6) National: Ellen Dannin analyzes the Circular A-76 process governing federal contracting. “It may seem reasonable to mimic free-market competition by requiring that government goods and services be provided by the lowest-cost bidder. It is certainly reasonable that, as paragraph 5.a. says, ‘all costs must be considered.’ However, the obligation to ensure that all costs are included has most often been ignored.”

7) National: The federal government is reportedly about to extend anti-sexual assault protections to the immigration detention system. However, “questions remain about when, exactly, the new rule will be implemented outside of the federal system, including in the many county and private prisons that house a significant proportion of the massive U.S. immigration detention system population.”

8) National: Moody’s finds that default rates for infrastructure projects have risen over the past year. “The study underlined the factors of risk involved in project finance, with borrowers in the sector generally made up of highly leveraged, thinly-capitalized special purpose vehicles with reduced financial flexibility.” [Sub required; Moody’s report]

9) National: Moody’s warns that the credit ratings of 155 local power companies would be negatively affected if parts of the Tennessee Valley Authority are privatized. “The Tennessee Valley Public Power Association, a nonprofit umbrella organization mainly serving the 155 local companies, has opposed spinning off TVA since it was first proposed by the administration in fiscal 2014, said association spokesman Phillip Burgess. ‘We see TVA as a model of self-sufficiency,’ he said. ‘We see it as an engine for economic growth, and we also believe the nonprofit model that has been in place more than 80 years serves the valley and its residents very well.’” TVA has not received any federal funding since 1959. [The Bond Buyer, March 17, 2014; Sub required]

10) California: Orange County tollroads chief resigns after “board members learned he was signing contracts without full board approval.” The Transportation Corridor Agencies are reviewing their contracting policies. [Sub required]

11) California: Berkeley’s public town homes have been privatized. “Out-of-state billionaires Jorge M. Perez and Stephen M. Ross of The Related Companies took control of Berkeley’s 75 public housing units on February 14, in a complicated deal that edged out local nonprofit housing developers. Many of Berkeley’s low-income families have become displaced as a direct result of the sell out of Berkeley’s 75 public housing units that originally were supposed to remain as public housing units into perpetuity, when they were built with taxpayer funding.”

12) Florida: Contract work raises transparency issues. The state wasted millions on a flawed fingerprint identification system that doesn’t work. “A former engineer for Motorola, the company that built the system, has come forward and claimed the company delivered a product riddled with problems. His claims are documented ininternal Motorola reports that he said were never shared with the [Florida Department of Law Enforcement].”

13) Georgia: Documents show the Augusta bus system is costing more as a privatized rather than city-operated system. “‘We can’t afford to expand with it outsourced, because it costs too much money. So, what we need to do is bring it back in-house,’ says Commissioner Bill Lockett. And, figures from the Augusta Finance Department seem to indicate that. (…) ‘Is it more expensive to have the private contractor in there?’ we asked. ‘Most certainly, it is more expensive plus it limits what you can do,’ says Lockett.”

14) Illinois: The state finance authority has approved an intergovernmental agreement with the Illinois DOT to advance the Illiana Expressway. “It paves the way for the agency to work on selecting a rating agency to provide a preliminary rating opinion on a possible financing for the proposed Illiana toll road. The IFA would serve as the financing arm for an Illiana related borrowing. Illinois has said it would not pursue the project if it does not have sufficient investor interest in what would mark its first public-private partnership project. Illinois and Indiana are pursuing separate public-private partners to finance the $1.3 billion project.” [Sub required]

Last Friday, the Chicago Tribune again weighed in to denounce the project on environmental and financial grounds. “Here’s why this is all so alarming: In this supposedly public-private venture, the public shoulders the risk. If the Illiana doesn’t generate enough in tolls to pay for itself, taxpayers have to make up the difference. If the truckers now clogging I-80 aren’t willing to detour 10 miles south and pay 53 cents a mile, the states’ private partners get paid anyway. Next on the endangered list: your wallet.”

15) Indiana: Hammond’s Board of Public Works and Safety will re-bid the privatization of the city’s recycling department. “The first bids were higher than the board anticipated.”

16) Massachusetts: Prof. Joseph Giglio writes about the issue of the relatively low compensation paid to managers of public services, but uses this as an excuse for outsourcing. “Government agencies are at a serious disadvantage when it comes to attracting good managers. The salaries of elected officials tend to impose an artificial ceiling on how much public agency managers can be paid. This ceiling usually ignores the realities of the marketplace, but elected officials are reluctant to advocating higher salaries for themselves because they believe it looks bad to voters. Since managers rarely earn more than their elected bosses, comparatively low pay means too many government agencies lack the management talent they need to deliver services efficiently.”

17) New York/National: New York City Mayor de Blasio’s policies to address the role of charter schools provoke heated discussion. The issue was debated last week onWNYC’s The Brian Lehrer Show and on Democracy Now. New York Times columnist Michael Powell weighs in on the substantial funding behind charter schools in the city.

18) New York/Maine: Mayor DeBlasio appoints former Corrections Corporation of America official Joseph Ponte to head New York City’s jails. Ponte leaves his position as head of Maine’s corrections commissioner. “Jim Mackie, staff representative for American Federation of State, County and Municipal Employees Council 93, welcomed the news of Ponte’s departure. ‘Certainly we’ve had our issues with the commissioner of corrections,’ he said. ‘The more surprising part of this is he’s up there (in Augusta) advocating for a $175 million prison and the whole time he’s off applying for a job in another state.’ The union opposes a plan to build a new prison in Windham that would be more efficient to operate in part because it would require shutting down two smaller facilities elsewhere in the state, he said.”

19) New York: New report says New York City must spend at least $47 billion to repair and replace its crumbling infrastructure. “The report recommended refocusing capital spending on state-of-good-repair needs, a departure from the 12 years of Mayor Michael Bloomberg, who focused capital spending on new projects. Other proposed measures included the creation of an infrastructure bank and the politically volatile congestion pricing, including tolls over East River bridges. It also called for [both] design-build contracts and public-private partnerships, citing the ‘positive impact’ of this [D-B] approach on the cost of replacing the Tappan Zee Bridge.” The report was co-funded by RBC Capital Markets. [Report]

20) Ohio: Diane Ravitch shares a reader’s comments on the lack of accountability in Ohio’s charter schools. “And what happens when the State Comptroller is legally barred from auditing charter schools, as in New York, because charter schools are not ‘a unit of government.’ That means they get public money but they are not public schools and may not be audited by public authorities.”

21) Texas: Report finds wide disparity between funding road repairs versus expanding new roads. “The report from anti-sprawl advocacy group Smart Growth America says the Texas Department of Transportation spent 62 percent of its capital expenditures expanding major roads between 2004 and 2008. That equals about $4.1 billion a year. During the same time, 11 percent went to repairing and maintaining existing roads. That’s about $692 million a year. By 2008, only 34 percent of the state’s roads were in good condition, the study found.” [Smart Growth America report]

22) Texas: Democrats for Education Reform launches a branch in Texas.

23) International: A parliamentary committee in Britain found that controls on government outsourcing are ineffective and need to be tightened up, according to theFinancial Times. “Civil servants failed to spot problems on a series of botched outsourcing contracts, meaning scandals involving suppliers G4S, Atos, Capita and Serco only surfaced because of whistleblowers, a parliamentary committee has found.”

24) International: Australia’s Productivity Commission finds that taxpayers could save around A$1 billion a year if the government tightened up financing, funding and procurement practices for infrastructure. Cites “mixed outcomes from public private partnerships,” pointing to “hidden contingent liabilities” for governments, and “higher transactions costs and contracting difficulties.” The commission calls for “a comprehensive overhaul of processes in the assessment and development of public infrastructure projects,” due to “numerous examples of poor value for money arising from inadequate project selection.” It also says, “without reform, more spending will simply increase the cost to users, taxpayers, the community generally, and the provision of wasteful infrastructure.” [Report]

25) International: Bilfinger Berger Global Infrastructure completes acquisition of Australia’s Northern Territories Secure Facility, a prison “public private partnership.” It is a 1,000 bed correctional facility nearing construction completion, and the concession will run until 2044.

 

Legislative Issues:

1) National: Bills curbing reckless outsourcing advance in statehouses. “Lawmakers in Iowa, Maryland, Oregon and Washington advanced legislation to rein in reckless outsourcing of public services to for-profit corporations and private entities. Meanwhile, Minnesota is the latest state to introduce legislation that would keep taxpayers in control of their services by increasing transparency and accountability, bringing the total number of states to 16.  And locally, Douglass County, Kan., passed some of the toughest taxpayer protections against predatory outsourcing in the nation.” [Iowa, SF 2235; Maryland, SB 669; Oregon, HB 4122; Washington, HB 2743; Minnesota, HF 2459]

2) National: Legislation is introduced in Congress to exempt water and wastewater Private Activity Bonds from state volume caps. “Exempting the bonds from the state volume limit would allow local and state governments to leverage up to $50 billion of private investments for water projects, Duncan, co-chair of the House Clean Water Caucus, and Pascrell said.” [The Bond Buyer, March 17, 2014; Sub required; H.R. 4237]

3) Georgia: Gov. Deal establishes a council to study Georgia’s child welfare system, postponing a possible privatization. “The move comes after an effort by Lt. Gov. Casey Cagle and the state Senate to privatize parts of the Division of Family and Children Services. (…) Opponents of the bill say it focuses on an aspect of the agency that is not broken and should instead work on to improve its process of investigating alleged abuse.” Council members will be announced over coming weeks. After they produce a report, “the debate could resume next year.”

4) Hawaii: Lawmakers propose charging a fee to private insurers who are not part of Hawaii’s health exchange. “The new insurance fee is part of a flurry of House proposals that were rolled into one overarching bill (HB 2529) now being considered by the Senate. The bill also would create a legislative oversight committee to review the exchange’s financial and operational plans. ‘We want oversight . . . so we know exactly every penny they want and what they want to spend it on,’ said [Rep. Angus] McKelvey, a Democrat.”

5) Indiana: Under pressure from Gov. Pence, the legislature passes a pilot school vouchers bill, “but lawmakers required Pence to find up to $10 million the existing state budget to fund the project and to require matching funds from the private sector to support the programs.”

6) Maine: A legislative plan to privatize Medicaid passes the Senate, but without enough votes to override an expected veto by Gov. LePage. LePage opposes any form of Medicaid expansion.

7) Minnesota: Gov. Dayton fails to back a $100 million state investment to improve rural broadband, despite the fact that a task force he appointed recommended it in January. “There’s bipartisan support for broadband. State Rep. Joe Hoppe, R-Chaska, said he usually favors private sector solutions, but in this case, he sees a role for government. ‘I think people want this to be more of a private deal than a public, but there’s a realization that there might have to be a little bit of helping,’ Hoppe said. ‘One hundred million might be a little aggressive right now. But it’s something we need to pay attention to.’”

8) New York: Orange County Executive Steven Neuhaus asks the county legislature to schedule a public hearing to discuss outsourcing the operation of the public Valley View nursing home. This Wednesday the Rules Committee will discuss setting up a local development corporation to pave the way for outsourcing. The Health Committee will meet tomorrow, and its chair, Michael Anagnostakis, says he is “shocked to learn of these developments.”

9) Oklahoma: A Medicaid privatization plan has passed the state Senate. Critics from both parties have expressed concern. “‘If you create a middleman, all you’re going to do is divert money away,’ said Sen. Ron Sharp, R-Seminole. ‘We don’t need a pilot program, because this pilot already crashed and burned back in the 1990s.’” The bill now heads to the House.

10) Pennsylvania: Legislation could lead to the privatization if the state’s large universities. “‘So many middle class and working families are struggling to make ends meet and pay college tuition bills. This legislation would make it that much more difficult for these hard-working Pennsylvania families,’ said Dave Fillman, Executive Director of the American Federation of State, County, and Municipal Employees (AFSCME) Council 13 and Chair of the Clear Coalition.”

11) Vermont: State Senate votes to put a two year moratorium on privatizing public schools. “In the meantime, the bill calls for a study of the constitutional and legal consequences of such switches, with a report due from the Secretary of Education next January.”