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This Week’s Outsourcing Scan 05-04-2015

Update: Upcoming Outsourcing Issues. May 4, 2015

1) National: In a major new report, the Alliance to Reclaim Our Schools and the Center for Popular Democracy detail charter school vulnerabilities to waste, fraud and abuse. “Financial fraud, waste, and mismanagement by charter schools cost taxpayers more than $200 million in just 15 states–a significant increase from the more than $100 million in charter school financial fraud exposed in a similar report released by CPD last year.” According to the report, “The number of instances of serious fraud uncovered by whistleblowers, reporters, and investigations suggests that the fraud problem extends well beyond the cases we know about. According to standard forensic auditing methodologies, the deficiencies in charter oversight throughout the country suggest that federal, state, and local governments stand to lose more than $1.4 billion in 2015. The vast majority of the fraud perpetrated by charter officials will go undetected because the federal government, the states, and local charter authorizers lack the oversight necessary to detect the fraud.”

2) National: The Network for Public Education holds its second annual conference, and looks toward building an even broader movement to promote quality public education and resist corporate education “reform.” The Washington Post‘s Valerie Strauss writes, “it is fair to say that the pushback on corporate reform by these activists is responsible for the current national debate on the value of high-stakes standardized tests and a move in states to reduce their number and influence.  It has also affected the discussions in Congress around the rewriting of No Child Left Behind, being led by [Lamar] Alexander, now a Republican senator from Tennessee, who chairs the Senate education committee.” [Full video here, starts at 15 minutes]

3) National: GEO Group holds its annual general meeting amidst protests and calls for an end to lockup quotas. “For the past few years, protesters have demonstrated in Boca for GEO Group’s shareholders meeting, but this effort comes at a time when the company is making record profits among heavy criticism for its treatment of prisoners, which include a large number of immigrants awaiting deportation proceedings.” A GEO executive denied the existence of a hunger strike at its Karnes, Texas facility, “but the women’s self-described Holy Week fast addressed conditions under GEO, including poor food for their children. Further, there were reports of threatened retaliation against the strike leaders by guards.”

4) National: According to industry experts, “significant political and psychological hurdles must be overcome before public-private partnerships become as common in funding U.S. infrastructure projects as they are in Europe and Asia. (…) Public and elected officials alike are wary of money from overseas, Christopher Leslie, president of the Australian-based Macquarie Infrastructure Partners Inc., said on a panel [at the Bloomberg conference]. ‘There’s a certain degree of xenophobia in the United States when it comes to foreign sources of investments in infrastructure,’ Leslie said. ‘Transportation infrastructure occupies a special place in peoples’ minds, and there’s heightened concerns when government officials and voters discuss foreign investments in things like roads and bridges.'” [Sub required]

5) National: Mariko Davidson recommends ways that states can participate in the open data movement. E.g., “states can support municipalities and towns by offering open data as a service. This can be an opportunity to provide support to municipalities and towns that might not have the resources to stand up their own open data site.”

6) National: The Washington Post‘s Michael Cohen looks at how lobbying and candidate spending by private prison corporations such as GEO Group and Corrections Corporation of America is driving up their profits and cutting against efforts to address mass incarceration. “Marco Rubio is one of the best examples of the private prison industry’s growing political influence, a connection that deserves far more attention now that he’s officially launched a presidential bid.”

7) National: CNN points out that although presidential hopeful Jeb Bush wants to privatize certain veterans’ health benefits, when he tried it in Florida it “went so poorly it was ended shortly after Bush left office. (…) Bush’s experience outsourcing veterans’ nursing homes in Florida was a case study in privatization’s pitfalls. By the time it was over, Florida officials determined the state could provide higher-quality care at a better price for taxpayers.”

8) National/California: California attorney general Kamala Harris denounces Corinthian’s decision to close its California campuses. “Corinthian continued to deceive its students to the end. Closure of these campuses should help students get out from under the mountains of debt Corinthian imposed upon them through its lies. (…) My office will work closely with our state and federal partners to ensure that students get the relief they deserve, providing them with a new path to achieve their educational goals and rebuild their lives.”

9) National: The water industry is escalating attacks against organizations resisting the privatization of water. “The National Association of Water Companies (NAWC) has launched a new campaign, truthfromthetap.com, to undermine advocates who want municipal water systems operated and owned by local, democratically elected councils–not by big companies accountable to shareholders.”

10) California: The resale of Sacramento public municipal water by a private, for profit company draws criticism. “Organizer Bob Saunders says it is “extremely egregious” for the company to bottle Sacramento’s water during a drought.” The Crunch Nestlé Alliance has protested the practice.

11) Florida: Hendry County food service workers feel blindsided by the school board’s 3-1 vote to outsource the service. “Speaker after speaker pleaded with the board not to privatize, voicing their concerns, including the feeling that they were not included in searching for a solution. One of their major concerns is the change in their retirement plan. (…) Hendry Educational Support Personnel Association (HESPA–FEA) President Debbie Steelman presented a petition with over 700 signatures against privatization and asked the board to ‘give it a lot of thought’ before voting.”

12) Hawaii: Lawmakers pass a bill to partially privatize Maui County hospitals. The bill now goes to Gov. David Ige for signature. “The final draft of the bill has the governor taking the lead in negotiations for the transfer of the hospital to a private nonprofit.” [Sub required]. Randy Perreira, executive director of the Hawaii Government Employees Association, said “we still don’t believe it is appropriate to be selling off public services.”

13) Illinois: Gov. Rauner wants to allow municipalities to declare bankruptcy as a way to get out of their contracts with unions. But “Rauner’s rhetorical fury has had limited impact. An Illinois House of Representatives committee has yet to vote on his municipal bankruptcy proposal.”

14) Illinois: Aramark is millions over budget in its custodial contract with the Chicago Public Schools.

15) Illinois: Chicago CFO Lois Scott resigns. Scott was a key proponent of private investment in Chicago’s public infrastructure in Mayor Rahm Emanuel’s administration. Before joining the Emanuel administration, Scott headed a firm known for its privatization work, Scott Balice Strategies. PFM Group bought the company in 2011.

16) Illinois: Teacher Brian D. Harris of the Chicago Alliance of Charter Teachers and Staff (Chicago ACTS) focuses in on two charter schools, Urban Prep and North Lawndale, that are resisting unionization “even though majorities of their staffs expressed support for a union.” Mayor Emanuel has supported the drive to organize charter school staff. “Urban Prep CEO Timothy King recently authorized his schools’ principals to hold captive-audience, anti-union meetings. The teachers said it seemed intended to make them feel like disloyal employees. Mr. King also sent a letter to parents that disparaged unions.”

17) Iowa: Gov. Branstad’s plan to privatize Medicaid delivery raises concerns, including over long term coverage. “Where a patient may go to air grievances is another common concern. Currently, Medicaid patients may use the state Ombudsman’s office to raise concerns over the quality of care. But Iowa Ombudsman Ruth Cooperrider said she is not certain her office will have that same authority over private businesses.”

18) Michigan: Resistance grows against Gov. Snyder’s plan to overhaul the Detroit public schools, which “leaves the door open for traditional public schools to potentially become charters.” About 250 teachers traveled to Lansing to protest Snyder’s plan, resulting in the closure of 18 schools. “Steve Conn, president of the Detroit Federation of Teachers, said the group was rallying against what he called the governor’s continued efforts to privatize DPS.”

19) Pennsylvania: Plans for the further development of the public Philadelphia Gas Works are on the agenda again, “and a public-private partnership could be part of the vision,” according to The Bond Buyer. Last year the city council rejected full privatization, citing financial and public policy risks. City CFO Folasade Olenipekun-Lewis “said no proposal for the PGW property is currently being pursued, but the council is open to considering a P3 plan in the future. (…) Olenipekun-Lewis emphasized that it is up to PGW and companies who want to partner with the utility on a P3 to present ideas to the city council before any proposal will be considered. She said with Nutter’s term expiring at the end of the year, the matter likely won’t come before the council until after the new mayor takes office.” [Sub required]

20) New York: CSEA workers at the privatized Otsego Manor approve a contract paying some workers higher wages. The company CEO “said he didn’t want to discuss the details, including changes in wages, but the contract was reopened because ‘we recognized the salary scale was too low to retain and attract qualified people.'”

21) North Carolina: Fitch Ratings rates the private activity bonds issued by North Carolina Department of Transportation on behalf of I-77 Mobility Partners LLC (the project company), and a subordinated $189 million federal TIFIA loan. The criteria it uses are instructive. It rated the PABs BBB-(EXP). Fitch issued a report on I-77 Mobility Partners and the managed lanes project, in which Cintra has a 90% equity stake. They like the tolling agreement: “The comprehensive agreement with North Carolina Department of Transport (NCDOT) provides relative toll setting freedom, allowing dynamic tolling unhindered by caps or floors after the first six months of operations.” [Sub required]

22) Texas: Investors would receive only 55 cents on the dollar for a failed private jail, the Burnet County Detention Center. “‘In light of the continuing cash flow deficiencies, the existing events of default are not likely to ever be cured and the project is unlikely to generate sufficient project revenues to repay the bonds in full,’ according to the county’s resolution to buy the jail. The loss of private operators has also occurred at for-profit detention centers in Maverick, LaSalle and Willacy counties over the past six months. Those counties were also forced to take over operations of the detention centers at the expense of local taxpayers. The private lockups were pitched as revenue generators and job providers that posed no risk to the county taxpayers.” [Sub required]

23) Virginia: Striking Stafford County custodial workers struggle to make ends meet as Blackstone, the parent company of their direct employer, GCA Services Group, sees its profits double.

24) Virginia: $293 million of revenue bonds are to be called in on the canceled Route 460 “public private partnership” toll road. The Route 460 Funding Corp. of Virginia “said that VDOT will determine the amount of the termination compensation that will be necessary to redeem the bonds, and that the bonds could be called for redemption as early as Aug. 1, according to the notice posted on the Municipal Securities Rulemaking Board’s EMMA filing system. Virginia Transportation Secretary Audrey Layne said in mid-April that the state would try to recoup the payments already made to US 460 Mobility Partners for the planned toll road in southeastern Virginia.” [Sub required]. The contract for the road was signed by the pro-road privatization former Gov. Bob McDonnell in October 2012. At the time, his transportation secretary, Sean Connaughton, said “long-term project benefits will far outweigh the investment to build the road.”

Abhay Aneja, Marian W. Moszoro, and Pablo T. Spiller have written an interesting research paper on the politics of choosing between revenue bonds and traditional general obligation bonds, suggesting that in politically contested jurisdictions, politicians are more likely to choose revenue bonds. “We empirically test for the importance of electoral considerations in public contracting, specifically in issuing city bonds.”

25) International: Ontario’s auditor general has found that outsourcing winter road maintenance has “put lives in jeopardy” because of poor oversight. “It’s taking twice as long to clear highways to bare pavement after storms than it did five years ago under a new system of  ‘performance-based’ contracts with specified service levels and no more on-the-road supervision by Ministry of Transportation staff. [Auditor General Bonnie] Lysyk said she was stunned to find the Liberal government kept awarding the contracts despite warnings from Ministry of Transportation engineers that many low bidders didn’t have enough equipment to do the job properly.”

26) International: The City of Winnipeg backs a $330 million investment in public pedestrian and cycling strategies, which are often resisted by private road infrastructure developers. “A key component in the development of the Pedestrian and Cycling Strategies planning has been public engagement. The city heard directly from thousands of Winnipeggers throughout the process through online and telephone surveys, public open houses, stakeholder meetings and a workshop, and through the project website.”  

27) Think Tanks: Brookings’ John Hudak and Grace Wallack look at the “return on investment” of inspectors general. “Offices of inspectors general (OIGs) are among the most underappreciated and overly criticized institutions in the U.S. government. OIGs serve important functions: improving the effectiveness of government agencies while detecting and deterring instances of waste, fraud, and abuse. Often, these actions return taxpayer money to the government in excess of what was spent on the enforcement actions-generating a positive return on investment (ROI).”

Legislative Issues:

1) National: Dozens of groups have submitted documents supporting the preservation of tax exempt municipal bonds to the Senate Finance Committee. “‘We believe that tax-exempt municipal bonds are the only proven way for states and municipalities to build and maintain our highways, bridges, schools, hospitals, and other important infrastructure in our communities across the country,’ wrote National Association of State Treasurers’ president David Lillard and senior vice president James McIntire.” [Sub required]. The documents have been posted on the committee’s website under its tax working groups.

2) Illinois: Gov. Rauner’s plan to privatize the state’s economic development agency raises concerns among critics who point to failures and conflicts of interest in other states. “Experts on corporate tax breaks say there’s little direct evidence that private development agencies are better than their public counterparts. And skeptics see a potential minefield of ethical challenges in letting a private corporation overseen by political appointees make decisions about which companies receive state subsidies. ‘I’m not sure that the best way you eliminate pin-stripe patronage is to hand the decisions over to the guys in pin stripes,’ said Ron Baiman, director of budget and policy analysis at the Center for Tax and Budget Accountability in Chicago. ‘I just think it’s a horrible idea.'” Rauner has bundled the plan into a piece of legislation that Democrats want.

3) Indiana: Republican lawmakers try to end prevailing wages on public projects, slash pay scales. “‘When you use the least-skilled, least-costly labor, what you wind up with is cost overruns, construction that doesn’t last as long and short-term costs that are not projected in the initial bid,’ said State Representative Scott Pelath, the Democrats’ leader in the House. ‘What we see here is a willingness to look only at one side of the ledger and a trend of ignoring what creates real prosperity.'”

4) Maryland: Lawmakers downsize Gov. Hogan’s charter school wish list. “The Democratic-controlled legislature had qualms about unleashing free-market charters. It substantially watered down Hogan’s bill. The pro-privatization Center for Education Reform was very upset. Even better, the legislature eliminated Hogan’s wish to authorize online charter schools in Maryland. This is a top priority for ALEC, as it allows for-profit corporations like K12 (which is active in ALEC) to make big money while producing poor results for students.”

5) New Hampshire: Citizens for Criminal Justice Reform calls for a big turnout in Concord tomorrow for citizens to testify against the budget bill provision to privatize the Sununu Center for delinquent children. “A broad coalition of prison reformers worked for three years to keep profit-making prisons from taking over adult corrections. The same threat is back. That successful alliance has to mobilize again in a hurry. This controversial proposal never went before a policy committee for vetting. The budget hearing is our only bite at the apple. (…) The budget would slash more than $2 million from the Corrections overtime fund that pays many prison guards to work several double shifts a week. The cut would create catastrophic staffing problems and dangerous cellblocks. Personnel shortages and employee burn out are real issues already. They will get far worse if this budget becomes law.”

6) Texas: State senators debate measures to contain tuition rises, including re-regulation.

7) Washington: A state senate panel has passed a bill that would limit the amount of money that the governor could add to collective bargaining agreements with public sector workers. “At [last] Wednesday’s hearing, representatives of the Washington State Labor Council, the Washington Public Employees Association and the Washington Federation of State Employees testified against Braun’s bill. “‘This is an unnecessary erosion of collective bargaining rights,’ contended Joe Kendo of the Washington State Labor Council.” The right wing Freedom Foundation, which is funded by the ALEC- and Donor’s Capital Fund-backed State Policy Network, supported the measure, which will likely be rejected by the Democratic-controlled House.

8) Wisconsin: Republican lawmakers don’t have the votes to repeal prevailing wage laws, but may have the votes to change them. Prevailing wage laws set rates for workers on public works projects, and right wing groups are trying to repeal them. “The changes could include raising the project price tag at which the prevailing wage laws kick in, requiring employers to pay a set wage to each of the different laborers on that job. That threshold is $100,000 for projects at the state level with multiple trades or professions involved, and $234,000 at the local level.”