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This Week’s Outsourcing Scan 04-14-14

Update: Upcoming Outsourcing Issues. April 14, 2014

1) National: In the Public Interest releases a backgrounder brief on the costs of private prisons, the dangerously flawed tactics used to make private prisons appear cost effective, and methods employed by the private prison industry to ensure profits at taxpayer expense. “Research and the recent experiences of states show that the promised cost savings often fail to materialize for government agencies that contract with for-profit prison companies. Furthermore, proponents of prison privatization may employ questionable methodology when calculating costs of private facilities. This includes finding ways to hide the costs of private prisons, ensuring that increased costs are not apparent until after the initial contract is signed, and using inflated public prison costs during comparisons.” The Palm Beach Post’s Pat Beall, author of a detailed series of articles on the failings of Florida’s private prison system, points to ITPI’s white paper challenging alleged cost savings by privatized prisons in Florida and four other states.

2) National: The two top private prison companies, GEO Group and Corrections Corporation of America, submit their 2014 proxy filings to the SEC. GEO Group chair and CEO George Zoley made $4.6 million in 2013. GEO’s top five executives made $31,949,829 from 2011-2013 (p. 32 sum total). CCA President and CEO Damon Hininger’s total compensation increased to $3,282,460 in 2013 from $2,772,435 in 2012. CCA’s top five executives made $23,375,093 in compensation from 2011-2013 (p. 44 sum total). GEO Group will holds its annual general meeting on May 2 in Boca Raton; CCA on May 15 in Nashville.

3) National: The American Legislative Exchange Council is advertising for a replacement for its executive director, Ron Scheberle, who is stepping down this summer. ALEC is looking for a “fearless leader” who is “not afraid of controversy … even when that means coming under attack.” ALEC, which has pushed model legislation that would privatize key government services and assets, describes itself as “a nonpartisan public-private partnership of America’s state legislators, members of the private sector and general public who commonly share the belief of limited government, free markets, and federalism.” ALEC will be holding its annual Spring Task Force Summit in Kansas City on May 1-2.

4) National: Confrontation ends between a private rancher grazing cattle on public land and the federal government, which was demanding back payment. Two of the local affiliates of the Koch-backed Americans for Prosperity backed the rancher. “Cliven Bundy, a cattle rancher in Nevada, has refused to remove his animals from public property in violation of a federal court order.”

5) National: Most Private Activity Bonds go to nonprofits. “Total private-activity bond issuance for the five years from 2007 through 2011 was $273.35 billion, with bonds for hospitals, colleges and other nonprofits that meet certain criteria making up more than half of that amount, a tax committee staffer told Rep. Sandy Levin, D-Mich. (…) 61.5% of the total dollar volume of PABs for the five-year period were qualified 501(c)(3) bonds used for hospital or non-hospital projects. “ [Sub required]. Frequently nonprofits serve as virtual pass-throughs in “public private partnership” deals.

6) California: Partial privatization of San Francisco public housing moves forward. “However, the deal to privatize Berkeley’s 75 public housing town homes just became a whole lot more complicated as of March 17, 2014, when Preet Bharara, the United States Attorney for the Southern District of New York filed a civil rights lawsuit in federal court against the Related Companies, Inc., (owned by billionaires Jorge M. Perez and Stephen M. Ross), for being engaged in a pattern and practice of developing rental apartments that are inaccessible to persons with disabilities in New York City, and elsewhere.”

7) California: San Mateo County is to issue $210 million in bonds to finance a new public jail. “The Maple Street Correctional Center will replace the current aging women’s jail, reduce overcrowding in the men’s facility, and provide additional capacity to house inmates under Assembly Bill 109, he said. Gov. Jerry Brown signed AB 109 in 2011, after the U.S. Supreme Court ordered the state to reduce the population in the state prison system to 127.5% of design capacity, in part by moving some inmates to county jails.” [The Bond Buyer, April 14, 2014; sub required]

8) District of Columbia: The District’s new chief financial officer, Jeffrey DeWitt,intends to develop a strategic plan to be released in June. The plan will include ideas on improving transparency. “He said he wants the strategic plan to address, ‘how do we best meet those needs over the long-term or over the next decade and beyond by looking at … what’s the role of municipal bonds, what’s the role of pay-as-you-go, what’s the role of public-private partnerships.’” [Sub required]

9) Georgia: Albany Herald columnist Dick Yarbrough calls for the public to think carefully before privatizing child services. “Let’s be very careful that there is not some special interest group pushing this effort that is more interested in promoting a particular political philosophy—privatizing government services—than in looking out for the ultimate welfare of our children. The way proponents tried to rush the legislation through the last session makes me wonder.” Gov. Deal announced last Thursday that he will move forward with a pilot foster care privatization program.

10) Indiana: Mayor of Hobart reportedly writes to the GEO Group asking them to stay out of town. “The Boca Raton, Fla., builder of for-profit prisons and immigrant detention centers owns the former St. Sava Serbian Orthodox Church property on 49th Avenue. It has not formally requested the rezoning needed to build such a center, but a report issued by the company stated it intended to build a detention center there.”

11) Indiana: The state achieved commercial close for the I-69 Section 5 “public private partnership.” Financial close is expected in late June.

12) Kansas: An Iola Register editorial makes a connection between the legislature’s budget vote to end teacher tenure and freedom to teach evolution. “Eric Magette teaches biology at Eudora High School. What if a board of education is strongly opposed in the instruction of evolution, he asked in an interview with The Topeka Capital-Journal. Could his job be in jeopardy? Without him having due process, absolutely.”

13) Kentucky: Gov. Beshear vetoes “public private partnership” bill. “‘I am vetoing this bill because it encumbers an otherwise well intentioned policy measure with unnecessary elements relating to a single, near term project, which should not be enshrined into permanent law,’ Beshear wrote. ‘It further expressly prohibits the use of tolls to fund a project to construct a replacement for the Brent Spence Bridge. It is imprudent to eliminate any potential means of financing construction of such a vital piece of infrastructure that serves not only the Commonwealth and the State of Ohio, but also the eastern United States.’”

14) Louisiana: A federal judge has ordered the state to provide information to the federal government on its voucher program that provides public funding for students to attend private schools.

15) Maryland: The University of Maryland Eastern Shore votes to outsource food services to a private, for profit company on July 1. “AFSCME leaders issued a statement lambasting Bell’s decision, calling the outsourcing ‘a corporate handout’ to a private firm that would ‘drive workers well below the federal poverty line’ as the state moves to raise the minimum wage.” The name of the recommended vendor has been withheld by officials.

16) Michigan: Detroit’s “failure to provide details of its proposal to privatize the Detroit Water and Sewerage Department“ sparks “major complaints” from creditors. “‘The essential problem with the disclosure statement for DWS bondholders is this: the city is not at a point in its negotiations with the counties—not to mention potential third-party buyers—to allow it to craft a disclosure statement that allows bondholders to understand what they are being asked to accept for their claims,’ the attorneys representing an ad hoc bondholder committee wrote in their objection. The attorneys represent Nuveen Asset Management, BlackRock Asset Management Inc., Fidelity Management & Research Company, and Franklin Advisors Inc., all holders of the debt.” A hearing before the federal judge overseeing the bankruptcy process is set for this Thursday. [Sub required]

17) Michigan: Prof. Thomas Doran of Lawrence Technological University, who has 35 years of experience on water-related projects, raises questions about plans to privatize Detroit’s water system. “Here’s the rub. Competitive bidding—a good thing in itself—fosters a “do only what is specified” approach, all too often meaning that things are fixed when they break. For a newer system, this isn’t too bad. But for old infrastructure, like much of DWSD, it means the bus gets older and older, and repairs get costlier and costlier. Thus, the product—in this case, pure drinking water and purified wastewater— deteriorates.”

18) New York: Orange County legislature votes to privatize its Valley View Nursing Home. Puts the sale in the hands of an appointed board. “Litigation could slow or halt the privatization dash. [Republican Newburgh legislator Mike] Anagnostakis argued that transferring Valley View through a resolution violates a requirement in the county charter that departments be eliminated only through a local law, which would open the door for a referendum. County officials tried working around that by defining a new role for Valley View’s administrator in their resolution, and insisting his department would still exist. Anagnostakis points out that a judge rejected similar reasoning last year after lawmakers sued Neuhaus’ predecessor, Ed Diana, over Valley View. And Michael Sussman, a civil-rights attorney and activist who successfully sued the Legislature over its botched redistricting last year, threatened more legal action during a fiery speech on Wednesday. ‘I promise you’ll be in court by the end of this week if 11 of you support this,’ he said.”

19) New York: Debate continues over whether to outsource Massena Hospital’s operations to a private, for profit company. “Despite public opinion, the Massena town board has the final say. In the words of councilman Albert Nicola, the board is nowhere near making a decision.”

20) Oklahoma: Tulsa World editorial says the Department of Corrections must “closely monitor” the Avalon halfway house, which was allowed to again accept inmates by the new DOC director, Robert Patton, “a supporter of private prisons in Arizona, where he previously worked in corrections.”

21) Pennsylvania: The state DOT has issued a Request for Information for a “public private partnership” in vehicle services. Responses are due May 2. DOT is looking for “information and ideas for co-locating a full service Commercial Driver/Vehicle Services Center (CDVSC) and a new Capital Area Transit (CAT) Administration, Operation, and Maintenance facility with commercial business operations in the Greater Harrisburg area.” The DOT P3 office also announced last week that it is accepting unsolicited P3 proposals until the end of this month. Meanwhile, PennDOT is pushing ahead with its plans for an accelerated bridges P3, and expects to release final project details to the four selected teams this summer.

22) Texas: The Texas Transportation Commission has selected Joe Weber, a former general and Texas A&M official who is close to Gov. Perry, to be executive director of the Texas Department of Transportation. 170 applications had been received. “When asked about how Weber’s background made him qualified to run the agency, [Commission Chairman] Houghton said, ‘You don’t become a three-star general just because.’”

23) Virginia: Gov. McAuliffe is unhappy with the red ink flowing from the Virginia Port Authority, and is reportedly displeased with the 20 year contract VPA has with the private company APM terminals. “Bringing the private APM Terminals within the port’s control was a decision made in 2010 by the administration of former Democratic Gov. Tim Kaine. Under the deal, the VPA pays APM $40 million per year, although the amount can rise depending on cargo volumes.” A McAuliffe spokesperson said the deal “was poorly negotiated on the state’s behalf.” [Sub required]

24) Moving On: Former Federal Highway Administration chief counsel Fred Wagner returns to Beveridge & Diamond, a law firm he originally joined in 1991. The firm has “represented private developers, municipalities, states and government authorities.” The firm has also managed “the hostile acquisition of a private water supply company by a municipality.”

Legislative Issues:

1) National: Dr. Matti Siemiatycki, a noted Canadian expert on “public private partnerships,” testifies before the House Transportation Committee’s Panel on Public Private Partnerships. Siemiatycki tells the panel that “in Canadian PPPs, government retains a significant role in identifying project priorities, developing performance specifications for projects that meet the public interest, and typically owning the underlying asset throughout the operating concession period.” He also points out that “despite the identified strengths with Canadian PPPs, there remain some outstanding questions regarding their overall merits. First relates to the question of whether PPPs actually deliver value for money as compared to traditional project delivery and government financing. (…) Second, PPPs can be accompanied by a loss of public policy flexibility, even when the public sector partner retains demand and revenue risk. (…) Third, there have been questions about whether PPPs are being presented as the ‘only game in town’ for governments of all level seeking to realize their infrastructure projects.”

2) Georgia: Gov. Deal is poised to sign a bill greatly expanding the state’s dealings with the private probation industry. “Current law in Georgia stops short of giving private companies the full powers of state felony probation systems. However, this bill would change that, granting judges the ability to “toll,” or extend, private probation sentences beyond their original date, effectively removing any limit to the amount of time a person can be on probation.” Although the state claims it is reducing the number of incarcerated people because of the cost, “funneling increasing numbers into punitive house arrest situations under the supervision of privatized middlemen who extract their profit directly from those on probation is a solution state authorities think they can live with.” [HB 837]

3) Indiana: Indianapolis teachers are concerned about legislation that would allow “the district to contract with charter companies or independent management teams to set the curriculum and hire teachers at some schools graded D or F.” The Indianapolis Education Association wants “teachers to remain IEA members if they work in these new schools contracted by IPS. There are also concerns, [IEA president Rhondalyn Cornett] said, that teachers who may take part in this new breed of IPS school could not contribute to their Teachers Retirement Fund because their employer could be a private company.”

4) Louisiana: The state senate has passed a bill to close the LSU Hospital in Pineville and shift its operations to two private hospitals. “Sen. Karen Carter Peterson, D-New Orleans, said the financing arrangements for most hospital privatization contracts haven’t received approval from federal Medicaid officials. She said adding another one to the list could worsen budget problems if approval doesn’t come. ‘You want to tell people you’re doing right by their tax dollars. Well, today you’re not,’ she told senators.”

Last Monday, the federal government formally notified Louisiana that it will not pay over $300 million to the new, privatized system until it finishes conducting a review, and may not pay then. “CMS has also questioned details about the LSU leases for six public hospital facilities to the private entities, as well as advance lease payments made by some of the private operators.”

5) Maine: Gov. LePage vetoes legislation that would have expanded the Medicaid rolls by 70,000 and privatized the program through managed care. “Lawmakers’ ability to override LePage’s veto is uncertain.”

6) New York: The Civil Service Employees Association is supporting legislation to increase transparency, make the results of local industrial development agencies publically available, and develop new accountability standards for the contracting of state services to private companies. “Those will be our primary concern because of the intense activities to try to privatize so much of public service without ensuring the public is being well-served by those actions,” CSEA spokesperson Stephen Madarasz told The Buffalo News.

7) New York: Squire Sanders lawyers Gregory Daniels and Roddy Devlin complain that the state’s recently passed budget failed to reauthorize design-build projects or  authorize the use of “public private partnerships.” “Cuomo’s proposal for a P3, using a design, build, finance, operate and maintain—DBFOM — structure, with respect to a new $600 million public-health laboratory on the Harriman State Office Campus also failed to make it into the final budget legislation.” The measure failed even though Gov. Cuomo inserted a “project labor agreement” clause into his proposal. Daniels and Devlin hope the measures can still be passed before the legislature adjourns in June. [Sub required]. Squire Sanders has a significant practice in the global P3 “market.”

8) North Carolina: Gov. McCrory is feeling the heat on his efforts to outsource some of the operations of the Commerce Department. “The new private side of the Commerce Department is still in the formation stages as it awaits legislation to create the organization.”

9) Pennsylvania: The right wing National Taxpayers Union is denouncing legislation to reform Pennsylvania’s liquor distribution system, which Gov. Corbett has repeatedly failed to privatize. “If passed in its current form, the compromise legislation would unleash a flood of new state spending, pad the rolls of government employee unions, and empower the corruption-tainted Pennsylvania Liquor Control Board (PLCB).”

10) Texas: The House Economic and Small Business Committee holds a hearing on Texas’ “public private partnership” law. Several industry-affiliated witnesses suggest changes, including the creation of a “center of excellence.” The purpose of the hearing was to “review the statutes and state agency rules pertaining to public-private partnerships to ensure a fair, competitive, and transparent process that benefits all parties engaging in the partnership.  Review how other states and countries utilize public-private partnerships and make recommendations on how to improve the process in Texas, specifically looking at whether there needs to be a single state entity responsible for administering the public private partnership program.” Witnesses included George Tapas of URS corporation, who expressed concern about the image that “public private partnerships” have among the public. “We’ve changed the name of our group to alternative finance and procurement,” Tapas told the committee, “because of the negative connotation that’s sometimes attached to P3.” (at 31:18) Tommy Cowan of the Texas Society of Architects proposes model legislation (at 1:01). [Witness list; video of hearing]