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This Week’s Outsourcing Scan 06-30-14

Update: Upcoming Outsourcing Issues. June 30, 2014

1) National: In the Public Interest notes the remarkable shift in taxpayer and expert attitudes toward privatization over the past few years. This year, 19 states saw action to curb reckless outsourcing and promote responsible contracting reforms. “Even the Reason Foundation—a leading proponent of privatization for decades—recently admitted that it is not a panacea. (…) But 2014 was the year that taxpayers truly began reclaiming control of their public services. As the Atlantic reported, ‘[i]n states and cities across the country, lawmakers are expressing new skepticism about privatization, imposing new conditions on government contracting, and demanding more oversight.” [SHIFT: How Taxpayers Began Reclaiming Control of Their Public Services]

2) National: The New Yorker’s Sarah Stillman takes an in-depth look at the private, for profit “alternatives-to-incarceration” industry. In “Get Out of Jail, Inc.,” she reports that “some investors have begun to turn their attention to extra-carceral institutions, such as private halfway houses, electronic monitoring, ‘civil commitment’ centers for sex offenders, and for-profit residential treatment facilities.” She details disturbing stories about the industry, including profiteering from the indigent, subjecting them to an ever-increasing debt trap, sexual coercion and beatings, and jailing poor people when they cannot pay—despite a Supreme Court decision forbidding the practice. Stillman reports on the Geo Group, Corrections Corporation of America, Judicial Correction Services, Correctional Healthcare Companies (which bought out JCS), Florida Probation Service, Sentinel Offender Services, Community Education Centers, and Avalon Correctional Services. [Sub required; interview with Stillman on Doug Henwood’s Behind the News].

3) National: The Transportation Research Board has published a 300-page analysis of legal issues relating to transit public private partnerships. The document notes that transit PPPs can “pose significant legal and practical challenges,” including risk issues, tax and financing issues, federal and local legal issues, insurance issues, and labor issues. “This digest should be useful to transit lawyers, planners, and transit administrators as they assist with negotiating PPP agreements and arranging for implementation of PPP programs.”

4) National/International: Reuters calls Veolia’s consolidated accounts “an exercise in make believe”because the company stopped including its transportation subsidiary, Transdev, in them. “I remain negative on Veolia,” said Kepler Cheuvreux equity analyst Xavier Caroen.

5) National: Cintra, a major player in the road privatization industry, faces the possible bankruptcy of two of its major “public private partnerships,” the Indiana Toll Road and SH 130 in Texas. Taxpayers face risk in the event of a default. Federal: “On SH 130, Cintra snagged a $438 million TIFIA loan. So when the road goes belly-up, who’s going to pay that back?” asks Terri Hall. State: “Dave Dobbs from Texas Association for Public Transportation says, ‘There are things written into the contract which allow the toll road authority in certain eventualities to shift the cost of that road to TxDOT.’” 

Moody’s says Cintra is working on a restructuring with major banks on SH 130, but they do not expect a deal “until this fall, at the earliest.” But, says Moody’s, “the sponsors are finalizing an agreement with senior lenders to waive a portion of the June 2014 payment to allow the payment to be missed without triggering an event of default under the financing documents.” The June payment is due today. [Sub required]

6) National: The U.S. Supreme Court has agreed to review a DC Circuit decision that Amtrak is a private company and cannot therefore be delegated regulatory authority.

7) National: Getting private finance involved in Army Corps of Engineers projects would be difficult, Lt. Gen. Thomas Bostick says. “Some of its current operations have the potential to generate revenue for outside investors, but that’s not true across its entire portfolio of responsibilities.” The corps has a backlog of $60 billion in recapitalization projects but only gets about $2 billion a year from Congress.

8) National: Jared Bernstein, the former chief economist to Vice President Biden, says that when it comes to economic policy (such as the minimum wage and higher educational opportunity) there’s no way we should leave policymaking to businesses. “Simply put, for every Costco, there’s a Wal-Mart, which should be all you need to know to convince you that we cannot afford to privatize public policy. So yes, let a thousand policy flowers bloom in the states, cities and businesses across the land. But let’s not forget that they occupy just one corner of the garden.”

9) National: Blogger Jeff Bryant takes a look at widespread charter school corruption, focusing on Ohio, Pennsylvania and Florida. “Yet in the meantime, at the urging of charter school advocates and others promoting ‘school choice,’ lawmakers around the country are proposing and enacting new policies to feed more children into an increasingly corrupt charter chain pipeline.”

10) National: As the Centers for Disease Control issues a report on the dangers of excessive alcohol use, “the independent HHS Community Preventive Services Task Force recommends several evidence-based strategies to reduce excessive drinking. These include increasing alcohol taxes, regulating alcohol outlet density, and avoiding further privatization of alcohol retail sales.”

11) California: The debate on a replacement for Los Angeles’ obsolete main jail pits proponents of more jail space against proponents of alternative approaches that reduce recidivism. “Despite agreement a new men’s central jail is needed in the nation’s most populous county, only a narrow 3-2 majority of the county’s Board of Supervisors approved plans to move forward with a $1.7 billion replacement facility. Cost and philosophy were cited by the two supervisors lodging ‘no’ votes on the proposal for a modern replacement facility.” County supervisors will take up the issue again in August.

12) California: Highway 156 between the Monterey Peninsula and the Bay Area may become a privately-operated toll road. “Muck said a final agreement could be in place by early to mid 2016, ahead of the January 1, 2017 expiration of state legislation allowing such public-private partnerships.” The Caltrans board may consider deal arrangements in September.

13) Colorado: Former state lawmaker Claire Levy calls on the city of Boulder to treat the employees of contractors fairly. “I think we ought to be consistent,” said Levy. “If people are going to object to labor practices in the private sector that leave people without insurance and unable to support their families then we should not have those same practices for city contractors.”

14) Florida: Facing budget pressures, Gainesville considers outsourcing custodial and mowing services. But Jeremiah Tattersall of the North Central Florida Labor Council says “what we know from research is that privatizing government functions might save you some money in the short term but in the long term you have a derogation of services and it actually costs more money.” City Commission budget workshops run from July 9-23.

15) Illinois: North Riverside firefighters vow to fight privatization of their department in court. “Firefighters at a June 24 contract negotiation session proposed saving money by beginning to train its firefighters as paramedics and eliminating the need for North Riverside to pay a private company for paramedic services. The plan came with a proposal to hire three firefighter/paramedics to get the ball rolling.”

16) Indiana/Illinois: The long-eared bat and sheepnose mussel are delaying the Illiana Expressway highway “public private partnership.” CBS Chicago reports that  “Patricia Mussman, an Illiana opponent from West Creek Township, accused [James Earl, Indiana Department of Transportation project manager] of minimizing the draft opinion of the U.S. Fish and Wildlife Service and the two lawsuits filed by environmentalist groups.”

17) Kentucky: Frankfort state office building RFP issued for a design-build-finance-operate, build-to-suit contract with a private entity.

18) Kentucky: Western Kentucky University Board of Regents discusses possible terms for privatizing its health services. The decision to privatize came in March, and the university is now considering a proposal by Graves Gilbert Clinic. The target date is August 1.

19) Michigan: The state Department of Corrections has warned Aramark that it may terminate their $145 million prison food contract after continuing problems. “Six months ago Michigan prisons decided to privatize their meal provider and hired a Philadelphia company to handle the job of feeding prisoners. Many state employees lost their jobs in the move and now the Department of Corrections may be backtracking. (…) Most recently Aramark ran out of food at a number of prisons, prompting MDOC to fine them $98,000 and send the company a warning letter.”

20) Michigan: The Detroit Free Press offers specific recommendations on “How To Make Charter Schools More Transparent.”

21) Michigan: A Federal Sixth Circuit panel has approved the FHWA’s site selection for the Detroit International Crossing bridge “public private partnership.” The project has been involved in extensive litigation and political controversy for a decade. The owners of an existing private bridge have sought to block it.

22) Michigan: Detroit residents appeal to the United Nations as contractors fan out across the city and begin turning off water services. “The Detroit water authority carries an estimated $5 billion in debt and has been the subject of privatization talks. In a submission to the United Nations special rapporteur on the human right to safe drinking water and sanitation, activists say Detroit is trying to push through a private takeover of its water system at the expense of basic rights.” [Food and Water Watch report]

23) New Jersey/New York: A Port Authority commissioner appointed by Gov. Christie calls for all-electronic tolls on the New Jersey Turnpike and Garden State Parkway. Raymond Pocino’s call comes as the NJ Turnpike Authority (on which he also sits) plans to privatize toll collection on both roads. 

24) New York: Nassau County outsources the management of its sewer system to United Water. “The deal needs approval by the GOP-controlled county legislature and the Nassau Interim Finance Authority, a state monitoring board in control of the county’s finances. Most of the savings would come from transferring county workers to United’s payroll. Workers that the firm can’t absorb will be offered vacant positions elsewhere in county government, [County Executive] Mangano said.” CSEA is “not thrilled” about the outsourcing, but agreed to it because of a no-layoffs provision. “But Emily Wurth, director of the water program at Food and Water Watch, a Washington, D.C., nonprofit that seeks to ensure food and water safety, said sewer privatizations typically result in rate increases, service problems and workforce cuts.”

25) New York: The Civil Service Employees Association files a second suit to block the privatization of the Valley View nursing home in Orange County. The suit challenges the procedure used to sell the property, lack of the state health commissioner’s approval of the deal, and the assertion that the home is “not required for use by the County.”

26) New York/Indiana: The state Public Service Commission has rejected United Water’s proposal to increase its revenue in Rockland County by nearly 30%. “Along with disallowing much of the proposed rate increases, the PSC also directed the company to engage in a number of efforts designed to improve its operation to avoid or reduce the level of future rate increases while improving relations with local communities.” PSC chair Audrey Zibelman said “our decision today reflects the commission’s grave concerns over the trend of significant rate increases.” United Water recently agreed to pay $645,000 in civil penalties for discharging “water with pollutants such as E. coli that were higher than permitted levels into the Little Calumet River and the Grand Calumet River from 2006 to 2010.”

27) North Carolina: As Gov. McCrory signs into law a bill privatizing the state’s economic development program, the Winston-Salem Journal continues to call for greater transparency.

28) Pennsylvania: The Pittsburgh Post Gazette supports increasing the city’s parking fees, noting that “the new rates remain lower than the private-market competitors and what motorists would have faced if a failed effort to privatize the parking lots and garages had gone forward in 2011.”

29) Pennsylvania: Opponents of the sale of Warren Haven nursing home denounce the Freeholders’ vote to hire a company to market and sell the facility. “‘The Warren County Freeholders continue along their predetermined path to economic abandonment of the elder and handicapped of Warren County, and members of The Coalition to Save Warren Haven are ashamed and angry, along with countless others in attendance at last night’s meeting, as well as around the County,’ CJ Van Gieson stated in the release.”

30) Texas: Texas A&M closes a deal with Balfour Beatty on student housing. The deal went through “thanks to $104 million in tax-exempt bonds.” Ian Rylatt, CEO for Investments at Balfour Beatty, says “investment in student accommodation is expected to continue over the next few years on both sides of the Atlantic, with $1 billion of new projects coming to market in the USA and a pipeline of around £1 billion of new projects anticipated in the UK.” 

31) Virginia: State review finds multiple problems with former Gov. McDonnell’s “very aggressive orextremely aggressive” pursuit of the Interstate 460 “public private partnership” project. The confidential report, which was obtained by the Richmond Times-Dispatch, found that “the consortium that contracted with the state to design and build the road, US 460 Mobility Partners, withheld invoices from investigators that would verify it had made required bond and insurance payments, providing only the declaration pages of the bond and insurance policies.” It also “found the public-private process was not transparent in dealing with project risks, particularly in getting federal permits necessary to build the road through wetlands and environmentally sensitive areas or assessing the effect of changes in road design.” The inspector general and VDOT’s oversight division has “recommended that the state include a comprehensive ‘right to audit’ provision in future public-private agreements to ensure state review of invoices and access to records to evaluate project costs.”

32) Washington: As debate continues on the impact of liquor privatization, prices rise and the state reaps a temporary increase in revenues, but “that windfall is past its peak, as the figure for fiscal 2013 included a one-time $105 million fee paid by distributors.”

33) International: The Financial Times runs a forceful editorial calling for the outsourcing of government services to be reined in. “British governments of all political colors have been too promiscuous about transferring activities to the private sector. Not every public service lends itself to going private. The powers invested in the state for sensitive services such as prisons can never be adequately captured in a contract, and should not be supplied by private contractors. The government must control its temptation to outsource on all fronts. The rush to outsource the probation service is a case in point.” Last week the opposition Labour Party announced it would push a major campaign against big corporate outsourcers if it wins the election. [Sub required]]

Legislative Issues: 

1) National: The Obama administration pours cold water on proposals (from Sen. Rand Paul and Rep. John Delaney) to fund infrastructure by giving huge tax breaks to corporations that repatriate their profits.The Campaign for America’s Future says “in the meantime, we need to recognize that the repatriation-for-infrastructure idea is a zombie that won’t die easily. The statement from the White House Tuesday is one nail in the coffin. It appears we will need quite a few more.”

2) National: Two lawmakers, Rep. John Delaney and Rep. Todd Young., introduce legislation to promote “social impact bonds“ through “public private partnership” funding. [Sub required; HR 4885] Critics have said that social impact bonds are “about greed, not good.”

3) National: As Congress considers reforming the Veterans Administration, Veterans for Peace warns against efforts to privatize the system. “Congressional reform is necessary, the local veterans said, if it comes in the form of increased funding and more accountability for upper management. But some are worried that the VA scandal and its proposed solutions are a prelude to privatizing the entire system.”

4) Arkansas: Debate begins on the possible privatization of school employee health insurance. Max Brantley writes, “Great. I look forward to the magic math. A legislature that won’t spend a dime more on school employees thinks it can cure overpriced, high-deductible school insurance by letting private industry handle it? Does the legislature really think teachers can get better insurance for the same or less money AFTER the insurance industry takes out a profit margin of 15 percent or so?”

5) Pennsylvania: The Patriot-News reports that Gov. Corbett is abandoning his effort to privatize state-run liquor stores. Corbett had included supposed proceeds from the privatization in his budget, but is apparently caving in as the deadline for passage approaches. Legislative staffers say “reality apparently has set in for him.”

6) Pennsylvania: Bill promoting water and wastewater “public private partnerships” clears the State Government Committee and now moves to the full house. [HB 2239; sponsor memo on the bill]

7) Texas: Terri Hall reviews some legislative activity on transportation in Texas. “You would think P3s are the greatest thing since cars were invented.”