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This Week’s Outsourcing Scan 07-14-14

Update: Upcoming Outsourcing Issues. July 14, 2014

1) National: Leading Democrats announce the formation of a new group, Democrats for Public Education, to be led by Donna Brazile, former Michigan Governor Jennifer Granholm, and former Ohio Governor Ted Strickland. On Friday, AFT president Randi Weingarten said the group will launch “later this summer.” Diane Ravitch says “its name is a swipe at Democrats for Education Reform, which is dominated by hedge fund managers, and which funds candidates who support charter schools, Teach for America, and any other group that is antagonistic to public education.”

2) National: The newly elected president of the National Education Association, Lily Eskelsen Garcia, takes a strong stand against the privatization of education. “Eskelsen Garcia said in a statement released Monday that the NEA will continue to confront those ‘who want to dismantle and privatize public education while de-professionalizing our very noble teaching profession.’ Her statement continued: ‘We will not stand by and allow the corporate takeover of our public schools to continue.’”

3) National/Virginia: Public Works Financing says the uproar over provisions in “public private partnership” contracts in Virginia has national implications, and “could take the P3 option off the table.” Voter anger over tolls used to finance the Midtown Tunnel P3, and the suspension of the US 460 P3 by Gov. McAuliffe, have “poisoned the well” for P3s, says Republican Delegate Chris Jones. A key issue involves compensation for potentially competing new roads and bridges. This has led to talk of terminating the Elizabeth River Crossing concession, which would cost taxpayers millions. The issue may come to a head next year when Virginia House Speaker Bill Howell (R) retires. Howell shut down legislative moves to reform Virginia’s P3 law. The P3 law will come under review starting in January, and critics may push for a requirement for a 30-day delay to permit legislative review of projects. The P3 industry is pinning its hopes on Gov. McAuliffe vetoing reform legislation. [Public Works Financing, June 2014, sub required].

4) National: In an analysis of the Geo Group, Dane Bowler of 2nd Market Capital Advisory concludes that  “GEO is the strongest company in the sector, but that the sector itself has questionable fundamentals.” He sees “dangerous headwinds facing GEO,” including “the flat or even negative long-term growth of the overall prison industry” and a “complete lack of negotiation power.” Bowler says investors “would be wise to stay away from prison REITs unless the value becomes extremely compelling.” [Sub required]

5) National: Gretchen Morgenson, The New York Times business columnist, delves into the failure of the for-profit college company, Corinthian Colleges. Morgenson calls out state and federal regulators for being asleep at the switch “as dubious operators of for-profit colleges and trade schools have pocketed tuitions funded by taxpayer-backed loans.” The Education Department is not “doing much to ensure that students understand their rights in the complex Corinthian agreement,” says Robyn Smith, of counsel to the National Consumer Law Center. “For example, it is not funding a legal aid program to help students apply for loan discharges, a difficult and complicated process when a school like Corinthian closes.”

6) National: Several major National Park Service concession contracts are up for negotiation, with Xanterra Parks & Resorts, Delaware North Companies Parks & Resorts, and Aramark Parks and Destinations in the running. “Aramark does operate in Denali, Mesa Verde, Glacier Bay, and elsewhere in Olympic (Lake Crescent, Log Cabin Resort, Sol Duc Hot Springs), and at Glen Canyon National Recreation Area.”

7) National: Cintas, the laundry and services company that had $8.2 million in contracts with the federal government from 2012-2014, announces it will hold a webcast to discuss its 4th Quarter FY 2014 earnings tomorrow, July 15.

8) National: The Association for the Improvement of American Infrastructure, formed by the construction industry, appoints leading road privatization attorney Frank Rapoport as its key strategist.

9) National: Experts express doubt on the efficacy of “public private partnerships” for improving global health. “The reality is that quantifying the impact of PPPs on health is difficult. Many who have studied partnerships and aid effectiveness say that though the private sector can play an important role in development, to date, comprehensive and transparent metrics justifying increased investments in PPPs do not yet exist. ‘What’s new is the nomenclature and the romanticism of partnerships,’ said Marc Mitchell, a professor at Harvard School of Public Health who has studied health-related PPPs for over 20 years and participated in several through D-Tree International, a nonprofit he founded. ‘Rather than looking at what do we do to address real problems with real tools that are available, we make up this world: If only we let the private sector do things, the problems will take care of themselves.’”

10) National/North Carolina: As privatization threats loom over the U.S. Postal Service, FedEx’s investment of $41 million to build a plant in North Carolina where 89% of the workers will be part time gives “just a hint of what privatization of the USPS would mean.”

11) California: MonkeyParking, a company that auctions off public parking spaces in San Francisco, has temporarily suspended operations. “San Francisco City Attorney Dennis Herrera warned the company that its service was illegal in June in a letter sent to a number of similar services and Apple, which allowed MonkeyParking onto the App Store. Herrera also decried other services that take public utilities and privatize them.”

12) Colorado: The Department of Transportation is counting on $270 million of “innovation savings” (a 16.5% capital cost savings) from Macquarie on the controversial I-70 “public private partnership” project. The projected cost savings were a key part of the argument that the project should be procured as a P3. But officials are sounding a bit nervous: “We’re counting on Macquarie,” says Ben Stein of CDOT. “We’re didn’t hire them to be wrong.” Stein says CDOT may cancel the procurement if the savings don’t materialize. [Public Works Financing, June 2014, sub required].

13) Colorado: Correctional Health Partners has received over $29 million from the Department of Corrections so far this year.

14) Connecticut: Award-winning columnist Sarah Darer Littman delves into the scandals that have rocked Connecticut’s charter school sector in recent weeks. “You see charter schools want to have it both ways. They claim to be ‘public’ when it comes to taking taxpayer dollars, but ‘private’ when it comes to accountability.”

15) Florida: It turns out that the “private” All Aboard Florida passenger rail system from Orlando to Miami will have plenty of public subsidy money involved. The project “could benefit from billions in federal loans and the state already has set aside more than $220 million that will benefit the project, according to emails, text messages and internal project documents analyzed by the Scripps/Tribune Capital Bureau.” The state DOT director “said the [Gov. Scott] administration wasn’t aware of the project developer’s plans to directly ask the state for money.”

16) Florida: A federal judge has turned down the state’s request to dismiss a lawsuit over inadequate child healthcare provision by Medicaid. The state had argued that the imminent privatization of the program will address the issues. “Under privatization, the state pays insurance companies a set fee to provide care and the companies must follow standards. However, [Judge] Jordan said it will be some time before it’s clear whether insurers follow through. ‘It’s one thing to require standards in a contract. It’s quite another thing to see if they meet the standards and we aren’t going to know that for a very long time,’ said Jordan, who said he plans to issue a ruling in October.”

17) Illinois: Bolingbrook officials look into outsourcing the town’s 911 dispatch service. “AFSCME Council 31 launched an online petition to urge officials to keep dispatching services in-house. ‘The village’s police and fire calls are currently handled by 15 dedicated, in-house 911 dispatchers—members of the community who serve village residents and assist the police and fire departments in their duties,’ the union said on its website.”

18) Kentucky: Trustees approve the privatization of the Western Kentucky University’s health services.  

19) Maryland: Police and Fire unions oppose Baltimore Mayor Rawlings-Blake’s move to privatize part of the pensions of new employees. “Robert F. Cherry Jr., president of the city’s police union, said Baltimore’s pensions already pay less in benefits than those in surrounding jurisdictions. He noted police and firefighters aren’t eligible for Social Security benefits, and their pension system is in the black year-to-year. ‘For police and fire, the nature of the job contains a lot of risk,’ Cherry said. ‘This is going to significantly affect the police commissioner’s ability to recruit.’”

20) Massachusetts: The “public private partnership” industry is rushing to get approval of three P3 projects before Gov. Patrick’s term concludes at the end of the year. The projects are the twinning of the Sagamore Bridge over the Cape Cod Canal; an unsolicited proposal for a $400 million HOT lanes widening of Route 3 South; and the long-term lease of rest stops. The P3 commission will review consultants’ work at a July 25 meeting. [Public Works Financing, June 2014, sub required].

21) Michigan/Ohio: Controversy continues over maggots being found in multiple Aramark food service sites in correctional institutions, including at two sites in Michigan and four sites in Ohio. Aramark blames the anti-privatization movement for the uproar over filthy and unhealthy food conditions. AFSCME holds a news conference to demand that Gov. Snyder terminate the contract with Aramark. “‘Enough is enough,’ said Ed McNeil, a special assistant to president Al Garrett of AFSCME Council 25.” Ohio Civil Service Employees Association President Christopher Mabe says “When is enough, enough? It’s well past time to pull the plug on the Aramark contract.”

Aramark Correctional Services has been paid $19.3 million by the Michigan Department of Corrections so far this year. It has a contract with Ohio through June 2015. Aramark’s Ohio contract incorporates the Request for Proposals, which requires (p. 26) that “meals shall be prepared and served under strict sanitary conditions according to regulations set by the DRC and Ohio Department of Health. The Department is also regulated under the American Corrections Association standards including food service and sanitation standards as well as all state and federal regulations in regard to purchasing, preparing and serving food and maintaining all areas.” (Termination provisions on p. 49).

22) Michigan: A New York investment bank is to pocket $28 million in fees for working on Detroit bankruptcy restructuring. “Miller Buckfire has handled the high-stakes negotiations with major financial investors to restructure the $5.9 billion in secured water and sewer bonds the city accumulated over the last several decades.” This Friday, thousands of activists are expected to converge on downtown Detroit to protest “the privatization of the city’s assets and the disconnection of water to tens of thousands of low-income residents.”

23) Mississippi: Fight breaks out and injures nine inmates at the troubled, privately-run Walnut Grove prison. The prison is run by MTC. “Groups suing over prisoner treatment in Mississippi have criticized the state’s hands-off management of MTC, Mississippi’s main private prison contractor. Walnut Grove has a history of troubles. Most recently, a Dec. 31 fight between two gangs of prisoners injured 16 inmates. Six prison guards and one supervisor were fired or resigned after the December fight, court papers said. Another staff member was placed on administrative leave.”

24) New Mexico: NM League of Women Voters education committee co-chair Bonnie Burn focuses in on for-profit virtual charter schools in the state. “At present, available research is sparse and little is known about the effectiveness of full-time online education generally or about individual approaches specifically. Because these are privately operated businesses, the data is considered proprietary; therefore, it is hard to obtain. (…) The League continues to supports public education and to oppose for-profit virtual charter schools as a school choice option.” An in depth NM League of Women Voters report on virtual charter schools emphasizes the “aggressive” effort by Jeb Bush’s FEE and the American Legislative Exchange Council’s to push privatized education.

25) Pennsylvania/National: The U.S. DOT has given conditional approval for a Private Activity Bond allocation for Pennsylvania’s multiple bridges “public private partnership” project. The Federal Highway Administration “is doing everything they can to figure out how to make this work,” a PennDOT P3 official said. [Public Works Financing, June 2014, sub required].

26) Pennsylvania: PennDOT has received eight submissions from bidders on its Wireless Telecommunication Partnership Program. PennDOT would get a percentage of the revenue. A shortlist will be announced in September. [Sub required]

27) Pennsylvania/National: Temple University has completed its investigation into an ethics complaint over an industry-backed paper promoting prison privatization. “A university spokesman told The Temple News today that the university had finished reviewing the complaint and had individually informed the professors and [Alex] Friedmann of the result. Citing university policy not to comment on personnel matters, the spokesman would not say how the matter was addressed.”

28) Rhode Island: The state has intervened to investigate millions of dollars in cost overruns racked up by two non-profit networks providing services to children in state care. “The state Department of Children, Youth and Families notified its service providers that as of July 1 the networks would no longer be responsible for the agency’s residential and community-based programs, pending a renegotiation of their contracts.”

29) Tennessee: Corrections Corporation of America announced the finalization of an agreement with Trousdale County to finance, design, build and operate a 2,552-bed correctional facility. CCA also owns and operates the Whiteville Correctional Facility and the West Tennessee Detention Facility in Mason; and operates South Central Correctional Center, Metro-Davidson County Detention Facility, Hardeman County Correctional Facility and Silverdale Detention Facilities in Chattanooga.

30) Tennessee: A Davidson County judge has ruled that the director of schools lacks the authority to end a labor negotiations policy that involves school support staff. “At issue is [the school director’s] 2011 move to end the district’s labor negotiations policy with SEIU [Local 205], approved by the board in 2000, which allowed support staff such as custodians and groundskeepers to choose an exclusive representative—in this case, SEIU—and required the superintendent to meet and confer to develop a memorandum of understanding. It deepened an already bruised relationship between [Metro Nashville Public Schools] and SEIU that built after Register moved to privatize the district’s 650 custodians the year before. It also triggered a suit by SEIU.”

31) TexasThe southern half of the SH 130 “public private partnership” toll road is in “technical default,”according to Moody’s. Cintra holds the concession. “‘By executing a waiver agreement, we understand that the project is not in legal default,’ according to a Moody’s investor note.  ‘However, Moody’s view is that the failure to meet the full payment that was originally scheduled for June 30, 2014 constitutes a default under Moody’s definition.’” A full restructuring is possible later in the fall or next year.

32) Wisconsin: State lawmaker warns against wholesale privatization of services at University of Wisconsin campuses. “UW-Superior privatized its campus bookstore on July 1. It also sent ‘at-risk’ notices to 26 of its grounds and custodial crew members, which means they might get a two-week termination notice at any time. In mid-July, the campus will request proposals from private companies to take over those jobs.”

33) International: Guardian columnist Seamus Milne writes that “the tide is turning against the scam that is privatization.” Milne says “We were promised a shareholding democracy, competition, falling costs and better services. A generation on, most people’s experience has been the opposite. From energy to water, rail to public services, the reality has been private monopolies, perverse subsidies, exorbitant prices, woeful under-investment, profiteering and corporate capture.”

34) Revolving Door News: Geo Group, the private prison corporation, appoints Julie Myers Wood, former head of Immigration and Customs Enforcement (ICE) for the Department of Homeland Security, to its board of directors. Woods believes the Department of Homeland Security should be given more “flexibility” on immigration detention, and has come out against detention quotas.

35) Think Tanks: The Polaris Institute in conjunction with the Canadian Union of Public Employees is publishing a ten-part series of profiles of companies involved in privatization. Thus far profiles of Black & Veatch, Veolia,Bilfinger Berger, and SNC-Lavalin have been published.

Legislative Issues

1) National: As lawmakers struggle to pass a Veterans Administration reform bill by the August recess, the Congressional Budget Office has lowered its estimate of the cost of the bill from $50 billion to $30 billion. The $50 billion figure was partly based on projections from expanding private care options for veterans. “The new CBO estimate puts the cost at about $30 billion over the next three years, with costs dropping off dramatically after the private-care pilot program expires.”

2) National: As the August Congressional recess approaches, legislative wrangling over the replenishment of the Highway Trust Fund intensifies. Legislation to add several billion dollars to the trust fund is advancing, but final votes have not been scheduled. Governors meeting last week at the National Governors Association annual conference called for action. The Washington Post says “the straightforward policy, the one on which the Highway Trust Fund historically has been based, is to raise the gas tax to keep up with inflation and infrastructure needs. This model is fair and efficient, demanding that those who use the roads pay for them.” 

3) National: The House Transportation Committee held a policy roundtable on “Public Private Partnerships for America’s Waterways and Ports” last Thursday. [Video; Staff backgrounder]

4) Pennsylvania: Warren County freeholders are being petitioned by citizens to put the privatization of Warren Haven county-owned nursing home on the ballot. “‘If you’re supposed to listen to the public and you don’t, then what is democracy except a word?’ [Coalition to Save Warren Haven President Cheryl] Van Gieson said. ‘This public question is our only recourse right now, basically, and it’s still up to them to put it on the ballot. It’s mind-boggling.’”