Media Scans
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This Week’s Outsourcing Scan 08-11-14

Update: Upcoming Outsourcing Issues. August 11, 2014

1) National: Len Boselovic of the Pittsburgh Post-Gazette begins a four part series examining “public private partnerships.” The series will continue over the next three days. “While greater private sector involvement offers the promise of delivering more efficient infrastructure sooner and at a more affordable price, critics say the widespread use of federally-backed loans makes the relationship less private than advertised and puts taxpayers at risk. Nevertheless, Pennsylvania and other states increasingly are turning to P3s as a way to supplement limited public funding and deliver more thoughtfully designed roads, bridges and other infrastructure.”

2) NationalAmericans oppose using toll-fed “public private partnerships” to build transportation infrastructure by a 2 to 1 margin. But they also oppose raising taxes to pay for it. They also strongly oppose a vehicle mileage fee. “Congress is actually reflecting what people want,” says Joshua Schank of the Eno Center for Transportation. “People want to have a federal (transportation) program and they don’t want to pay for it.”

3) NationalNew York Times business columnist Gretchen Morgenson looks at “A Corporate Tax Break That’s Closer to Home”—real estate investment trusts (REITs). Both the Geo Group and Corrections Corporation of America have turned themselves into REITs. Lee Sheppard, a contributing editor of Tax Notes, says “the I.R.S. should not be expanding the range of eligible assets to include operating assets. Congress would not be happy if household-name phone companies became REITs.”

4) National: The Reason Foundation’s pro-privatization transportation advocate Robert Poole launches a front page attack in Public Works Financing on conservative populist opposition to “public private partnerships” and toll road privatization. He singles out Terri Hall of TURF. Poole admits that “Terri Hall’s grass-roots activism has consequences far beyond Texas.” [Public Works Financing, July-August 2014; sub required]

5) National: Embattled Chicago-based charter school company Concept Schools hires a PR consultant, Mark Weaver of Communications Counsel Inc. Weaver once “helped with a political action committee backing Supreme Court justices who would hear charter school cases. The PAC was headed by charter-school operator David Brennan of White Hat Management.”

6) National: Corrections Corporation of America reports its second quarter 2014 earnings. Net income for the quarter was $55.7 million, up from $20.4 million for the same quarter last year. “Total revenue for the second quarter of 2014 totaled $410.7 million compared to $425.0 million in the second quarter of 2013. The decline in revenue was primarily attributable to contract losses that resulted in a reduction of revenue of $23.2 million.” President and CEO Damon Hininger says “as reported broadly in the media, ICE, or Immigration Customs Enforcement, is dealing with a significant challenge in the housing of families in the Southwest. We understand this challenge and we’re working hard to meet their needs by proposing several solutions that may play a part in addressing the issue.” [Earnings call transcript]. CNBC stock analyst Jim Cramer says re CCA, “I think this business is too hard to analyze. There are better places in the market to make money.” In other news, shock and concern greets the news that CCA may be getting into the animal shelter business.

7) NationalGeo Group reports its second quarter 2014 earnings. Quarterly total revenues were $412.8 million, up from $381.7 million last year, beating analysts’ expectations. The company also declared that it would pay a dividend of $0.57 on August 29. Geo also said it expects to have revenue of $1.636 billion in full year 2014. [Earnings call transcript]. The news led CRT Capital to raise its price target on Geo shares from $41 to $43. It is currently around $37, well above its 200-day moving average. CEO George Zoley tells analysts “we are nearing completion on a $20 million ICE transfer facility in Alexandria, Louisiana that will add 400 beds under our existing contract with ICE for the company-owned LaSalle Detention Facility. Additionally, we’ve been working with ICE to repurpose our 600-bed company-owned Karnes Civil Detention Center in Texas to house families, as a result of the ongoing crisis along the southern border.”

8) National: An important election relating to education “reform” will take place tomorrow in Los Angeles. In Nashville, the school board vote last Thursday reflected deep and growing public division over the issue, and Mary Pierce, who had been endorsed by Michelle Rhee’s StudentsFirst, won.

9) National/New Mexico: American Institutes for Research is suing in state court in New Mexico to try and overturn the “granting of a potentially enormous award for common-core testing work to Pearson.” [AIR complaint]

10) National: DHS and OPM, two of the largest U.S. government clients of USIS, the private contractor at the center of the Edward Snowden leaks, suspend much of their work with the company because of a cyberattack. [Sub required]

11) National: The Project on Government Oversight (POGO) looks at how corporations are increasingly forcing employees to sign non-disclosure agreements, and how this affects SEC oversight and the ability of whistleblowers to call attention to wrongdoing.

12) National: AECOM-URS merger creates headaches for the road privatization industry. “It could take six months or more to sort out the inevitable conflicts of interest on project pursuits and the competing business relationships.” The “public private partnership” market “will have to adjust to the confusion.” [Public Works Financing, July-August 2014; sub required]

13) National/New York: Alyssa Hadley Dunn fact checks Campbell Brown, who recently formed a corporate education reform group, on education policy. “Let’s look at what she said versus what research actually shows.” Hadley Dunn was interviewed on Counterspin, which points out that “like other such reformers, Brown has no background in education, and often gets her facts wrong.”

14) Arizona: The Department of Transportation has abandoned the idea of developing the South Mountain beltway in Phoenix as a “public private partnership.” It will instead be developed as a design-build-maintain project.

15) California: LA Metro has spent $28 million on “public private partnership” consultants since 2009, half to screen P3 candidates, half to bundle six ARTI projects into a subsidized procurement. [Public Works Financing, July-August 2014; sub required]

16) California: The LA Metro Planning and Programming Committee has called attention to the problem of “split incentives” between different public bodies on “public private partnership” projects. Says that “clarity on the roles of each of the public sector parties is very important from the outset and prior to the commencement of the procurement process.” [Report on P3 status and recommendations]

17) Colorado: Opposition grows to Denver’s I-70 East “public private partnership” toll lanes. It is being spearheaded by “the same group of U.S. 36 HOT lane opponents who nearly won passage of a deal killer bill for future P3s,” writes the pro-privatization Public Works Financing [July-August 2014; sub required]. The bill was SB 14-197, the Transportation Enterprise Transparency Act. Earlier this year,The Drive Sunshine Institute, which took the lead in opposing the U.S. 36 P3 project, released a white paper, “P3 vs. P4: Why Adding the ‘People’ to Private-Public-Partnerships Makes Fiscal Sense for Government Organizations.”

18) Florida: The director of Miami Airport has advised Mayor Carlos Gimenez to kill a $500 million hotel complex “public private partnership.” Airport City’s demise “had been foretold last month when developer Odebrecht USA warned it might sue the county if Miami-Dade rejected the project. [Emilio] González, who took over the aviation department last year, had asked his staff to reconsider whether the public-private partnership on valuable property just east of MIA still made business sense. (…) No, it didn’t, aviation administrators concluded— even after Gilberto Neves, Odebrecht’s chief executive, said the company might go to court to seek damages and reimbursement of the more than $11 million it had spent on the project.”

19) Florida: As two Republican candidates jockey for a position on the Ocala County Commission, Glen Fiorello points to his record of achievement, including “dealing with a financial debacle called Urban Waste, when the county got snookered in an attempt to privatize the landfill.”

20) Indiana: The State Supreme Court will decide a dispute between the state and IBM over a botched effort to privatize social services. “IBM and Indiana entered into a 10-year, $1.37 billion contract in 2006, which was hailed at the time as the solution for fixing one of the nation’s most-troubled welfare systems. The state, though, canceled the contract three years later after a flood of complaints about the system from clients, their advocates and federal officials.” The two sides then sued each other for damages.

21) Michigan: Unelected Detroit Emergency Manager Kevyn Orr overrides the elected City Council to push privatization of the city’s parking department. Orr will issue a  request for proposals for the parking system. “A union official blasted Orr for betraying reassurances that the emergency manager’s law would not be invoked to seek bids to privatize the parking system.” Joseph Valenti, vice president of Teamsters Local 214, says “they’re liars. That’s for sure.” Orr reportedly has an agreement with AFSCME Council 25 President Al Garrett “that says Orr must get the council’s permission to privatize the parking department.” Orr’s spokesperson says the council will get to voteon any outsourcing contract.

22) Michigan: Gov. Rick Snyder (R) announced on Friday that Aramark will be fined an additional $200,000 for food service violations in Michigan prisons, but said the company’s contract will not be terminated. “Mel Grieshaber, executive director of the Michigan Corrections Organization union representing correctional officers, who had called on Snyder to cancel the contract, said the fine is ‘a slap on the wrist.’ ‘It’s nothing—it’s peanuts,’ said Grieshaber, who questioned what errors by the state Snyder was referencing. Aramark says it feels it got ‘complete vindication’ on the illness and maggots issues.” Aramark will be posting its financial results today, and analysts expect it will have revenue of $101.72 million for the quarter.

23) New York: This evening in Albany, teachers will shred standardized tests prepared by Pearson to protest the corporation’s drive to “privatize—and profit from—public education.” The action “is part of NYSUT’s three-day endorsement conference, where local union presidents will decide what state and federal candidates to endorse.”

24) New York: United Water’s privatization deal for wastewater with Nassau County “works around many legal constraints on P3s in New York.” The contract terms include $10 million in “employee cost savings” and measures to “optimize staffing.” A “personal services contract drafted for the county by Pannone Lopes Devereaux & West LLC accomplishes the county’s goal without overstepping low bid laws, says partner Teno West.” The county’s financial advisor was Public Financial Management (PFM). [Public Works Financing, July-August 2014; sub required]. Food & Water Watch has said that “privatizing this essential asset will not solve anyone’s financial troubles, except perhaps, United Water’s.”

25) New YorkEight bids have been received to buy Valley View Nursing Home in Orange County. “The Orange Valley View Development Corp., which has been blocked from selling the 360-bed facility by a court ruling, distributed the bid summary this week as Republicans prepare to renew efforts to privatize Valley View.” The bids indicated that the county seriously underestimated the value of the public asset.

26) Texas: A $1 billion transportation bond proposition will be on the November ballot in Austin. The City Council voted unanimously to approve the bond proposition. Often the reluctance of elected officials to risk public ire by raising funds for needed transportation can tempt them to turn to the “pixie dust” of “public private partnerships.”

27) Vermont: The state’s choice of a new contractor, Optum, to fix its healthcare website comes under criticism. “It’s far too early to celebrate the Shumlin administration’s belated firing of CGI, the contractor responsible for flubbing Vermont’s dysfunctional health care exchange,” Randy Brock, a former state auditor and the 2012 GOP nominee for governor, wrote. “That’s because CGI’s designated successor, hired under yet another no-bid contract, is a company whose dubious origins raise even greater concerns.” The state says the new contract was bid on by both Optum and Deloitte.

28) International: Faulty toll road traffic projections may lead to increasing litigation. “Two considerations spring to mind in response to the growing number of cases in Australia. One is whether there will be a ripple effect. In the US, where the inclination to litigate is arguably stronger than anywhere else, there have been rumblings that investors exposed to similarly wayward toll road traffic projections may use Australia as their inspiration to take matters further.” [Sub required]

29) International: The government of Victoria in Australia has selected the Geo Group as the preferred bidder on its A$670 million ($630 million) Ravenhall prison “public private partnership.”

30) Revolving Door News (CCA edition): According to Corrections Corporation of America’s most recent publicity magazine, Inside CCA, several staff members promoted or hired have government backgrounds: Martin Frink, recently named warden at North Fork Correctional Facility in Norman, Oklahoma, was chief of security at the Texas Department of Criminal Justice; Dr. Laura Bedard, now warden at Eden Detention Center in Texas, is a former commissioner with the Florida Department of Law Enforcement, Criminal Justice and Training Commission, and was also commissioner for the Florida Corrections Privatization Commission; Scott Alan Whitson, now CCA’s managing director for facility management, was a regional facilities administration for the US BOP; and Lisa Hollingsworth, recently promoted to head of PREA programs, was with US BOP for nearly 30 years. Many others are listed.

Legislative Issues:

1) National: Board chair Anthony Coscia says he thinks Amtrak’s strong performance can persuade Congressional critics that the rail system doesn’t need to be privatized. “The best way for us to convince those in Congress who have some skepticism about Amtrak is to do our job well.”

2) National: Aura Bogado asks “Did the Private Prison Lobby Kill Immigration Reform?” Interviews Peter Cervantes-Gautschi, the executive director of Enlace.

3) California: Battle lines are being drawn over SB 983, which if passed would govern the development of high occupancy toll lanes on state roads. Professional Engineers in California Government is vigilant on P3 financing rules, and the road privatization industry may be looking for ways to allow compensation for privately-financed roads from “competing roads,” i.e. public roads. Public Works Financingreports that “pro P3 forces are gaining strength, however. An alliance of contractors, engineers, and P3 developers pulled together to thwart a deal-killer bill in Colorado three months ago. A similar, multipronged effort is being considered for California.” [Public Works Financing, July-August 2014; sub required]

4) Virginia: The Virginia Department of Transportation “needs support in the legislature to survive an attack on its P3 enabling law in the next session, which starts in January.” [Public Works Financing, July-August 2014; sub required]