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This Week’s Outsourcing Scan 08-25-14

Update: Upcoming Outsourcing Issues. August 25, 2014

1) National/Nevada: In a surprising turnabout, Nevada DOT officials reject using a “public private partnership“ to procure Project Neon, a $700 million capital project to widen and improve I-15. Gov. Sandoval favored the P3, and last year this was considered a likely option by the DOT. “But since the public-private partnership was approved in June 2013, changes to the project’s scope and uncertainty in the financial markets made it a less attractive option. (…) Department of Transportation documents show the projected cost of Project Neon under the public-private partnership has increased from $602 million to $740 million over the last year. The biggest drivers of the price jump are higher interest rates, an expanded project scope and increased maintenance costs.”

Other reasons for the rejection of the P3 model included “federal funding uncertainty caused by [the] federal highway bill debate,” and, unusually, the fact that P3 bidders were “concerned about appropriation risk.” [Sub required]. Appropriation risk is the risk that governments or legislatures facing tough budget choices won’t pay up on long term obligations such as subsidies (e.g., “availability payments”).

2) National: Corrections Corporation of America pays $8 million in back wages and benefits to current and former employees at its California City prison. The U.S. Labor Department “said that over a period of years employees were paid 30 to 40 percent less than they were supposed to be paid.” CCA will seek a retroactive cost increase to cover the payments.

3) NationalMother Jones’ Shane Bauer is thrown out of an American Correctional Association meetingafter he live tweets “revealing tidbits from workshops and notes on a visit to a local jail.” Bauer asks “what are we to infer when an institution whose purpose is to make sure our prisons are up to par doesn’t allow the public to see what it’s doing?”

4) National: The Food Safety and Inspection Service (FSIS) publishes a Final Rule in the Federal Register on poultry inspection, effective October 20, 2014. The FSIS writes, “comments from consumer advocacy organizations, labor unions, FSIS inspectors, public health organizations, animal welfare advocacy organizations, members of academia, human and worker rights advocacy organizations, and some private citizens objected to the [New Poultry Inspection System] for various reasons. Many of these comments objected to the NPIS because the commenters view the NPIS as a system that ‘privatizes’ inspection by replacing USDA online inspectors in part with establishment employees. The petitions submitted in response to the proposed rule express these same views.” It responds, “The NPIS will not privatize poultry inspection; this system makes Federal inspection of poultry more effective and carcass inspection by FSIS inspectors more efficient.”

Katherine Paul, a spokeswoman for the Organic Consumers Association, says “this is just another gift to Big Ag and a classic case of the fox guarding the henhouse. It’s the job of the USDA to provide sufficient oversight to protect consumers.” Reps. Rosa DeLauro (D-CT) and Louise Slaughter, (D-NY) “also continued to come down hard on the rule after the final version came out, arguing that the FSIS did not properly engage with stakeholders to address the impact of the new system, according to a joint statement.”

5) National: The investment market for infrastructure continues to face challenges despite a slight uptick in investor interest. Preqin reports that “high levels of competition brought about by a crowded fundraising market and institutional concerns over performance and fund manager experience, will continue to mean managers have to work hard to communicate to investors how they intend to find value in the current market and demonstrate that they have a strong pipeline of potential transactions.” [Infrastructure Spotlight, August 2014, sub required]

6) National: AASHTO releases a comprehensive report on new revenue initiatives for funding transportation infrastructure. [State Transportation Funding Proposals Since The Start of 2013]

7) National: Privatization becomes an issue in November elections in FloridaIowaMontana, andPennsylvania.

8) National: Ruth Conniff of In These Times looks into “the con artistry of charter schools.” She asks, “What’s going on here? Charter schools are such a racket, across the nation they are attracting special attention from the FBI, which is working with the Department of Education’s inspector general to look into allegations of charter-school fraud.” She notes that there are now more than 6,000 charter schools, and over 4,000 traditional public schools have closed since 2008.

9) National: Unions continue to protest U.S. Postal Service efforts to privatize services to Staples. “People need to realize how serious this threat is, not just to the postal service but to living wage jobs for all workers and to the sanctity of the U.S. mail,” Lynn APWU President Lou Pento said. Staples, which is under pressure from Wall Street to slash costs and close stores, reported declining profits and sales this week. [Sub required]

10) National: The TSA’s scanners “failed to detect a number of potential weapons,” a new report says. “The TSA ended its contract with the company that produced them, Rapiscan, in 2013 after the developers failed to meet a congressionally mandated deadline to produce scanners that did not reveal images of the passengers.”

11) CaliforniaCH2M Hill staff will be presenting a workshop on “public private partnerships” at the League of California Cities annual conference, September 3-5 at the Los Angeles Convention Center. “Five key steps to implement public-private partnerships will be shared.” Also speaking will be Paul Arevalo, City Manager, West Hollywood.

12) California: Caltrans, in a bid to demonstrate transparency and accountability, releases a second performance report.

13) ColoradoCritics target a federal-private land swap. “The deal would privatize three parcels of federal land totaling 1,268 acres on the north flank of Mount Sopris, in Pitkin County, putting them in the hands of the Wexners, the billionaire owners of the retail conglomerate Limited Brands.” A 16-page protest has been filed against the deal by Colorado Wild Public Lands.

14) District of Columbia Metro Region/National: The Washington Metropolitan Area Transit Authority has agreed to pay more than $4.2 million to the federal government to settle a whistleblower claim by a former employee that it let out an IT contract without any competition. “‘The American people have a right to know that their government is following rules and regulations in spending the taxpayers’ money,’ said U.S. Attorney Machen. ‘Our office has targeted government contractors who fail to meet their obligations, and this settlement shows that we expect agencies that receive federal funding to honor the integrity of the contracting process as well.’”

15) Florida: Two West Palm Beach city commissioners push for privatization of the county’s largest sewage treatment plant just as it embarks on a bond issue to help finance improvements. “[Commissioner] Mitchell received a cold reception Wednesday when she brought her concerns to the technical board that oversees the plant. After she left, the board’s chairman—Lou Aurigemma, director of the Riviera Beach utility—told the board: ‘I see politics starting to creep in. We’ll take it for what it’s worth and we’ll move forward.’”

16) FloridaTwo members of Congress push for the GAO to review All Aboard Florida’s viability. The company has asked for a $1.6 billion federally subsidized loan to back its effort to bring passenger service back onto Florida’s east coast line. “In his letter, [Rep. Bill] Posey said he is concerned taxpayers could be on the hook if All Aboard Florida’s rail service fails. He asked the federal Government Accountability Office to review the project’s cost to taxpayers, the risk of default and the interest rate that would be assessed to the loan.”

17) FloridaOsceola County is to privatize its tourism promotion efforts. “Experience Kissimmee, which formed in 1978 as the Kissimmee-St. Cloud Convention & Visitors Bureau, will cease operating as a department of Osceola County government when the new fiscal year begins Oct. 1.”

18) Indiana/IllinoisIndiana’s privatized lottery system comes up $1.6 million short of its revenue goal. “It was the first year Indiana partnered with a private company, GTECH, on sales, marketing and distribution. It’s an approach neighboring Illinois took when it signed a 10-year agreement with Northstar Lottery Group in 2010, which was canceled last week due to consistently underperforming revenue figures.” A spokesperson for the Indiana governor declined to say whether GTECH would be fired.

19) IndianaFlanner House Elementary Charter School will close next month, and may be investigated by the Marion County prosecutor. Brandon Brown, Mayor Greg Ballard’s director of charter schools, said “when you look at the academic dishonesty that you saw at this school, this is unprecedented in the state of Indiana. It was systemic across the school. It was classrooms across the school. This was not just one classroom or one teacher. This was a two-year cheating scandal that we took 10 months to investigate, and the results were sobering.” The alleged scandal could be the worst in the nation. Prof. Brad Thiessen said “Atlanta was bigger, but they were being more sneaky.”

20) LouisianaA major dispute has broken out over the privatization of LSU hospitals in Shreveport and Monroe. The foundation now running the hospitals “said it paid the university system nearly $7 million Fridayfor back-owed debts tied to privatization, less than one-third of the amount demanded by LSU in a collection letter this week.” [LSU collection letter]

21) LouisianaFederal regulators are looking into the state’s deal with LCMC Health to lease and operate University Medical Center. “In particular, the Centers for Medicare and Medicaid Services, or CMS, is inquiring about a lease addendum that compensates LCMC even if the hospital does not meet ‘minimum financial performance.’ (…) [The CMS letter] provides new insight into his agency’s concerns with the lease deal, one of six that the state has confected to privatize its hospitals. Those deals relied on amendments to the state’s Medicaid plan, but the amendments were submitted last summer—after the leases were inked.” The CMS has concluded that the advance lease payments, which would be funded at least partly by the federal government, exceed market value.

22) Michigan: The Detroit Water and Sewerage Department has hired Veolia Water to review its finances and recommend “cost savings.” Although DWSD director Sue McCormick acknowledged that Veolia has responded to a Request for Information from Emergency Manager Kevyn Orr on privatization, she devoted “an entire section of the memo to dispel any connection between the company’s hiring with the city’s bankruptcy case. However, Orr spokesman Bill Nowling acknowledged that Veolia’s work is tied to the bankruptcy case as “part of the ongoing negotiations about a (regional) authority.”

The city is expected to refinance $1.5 billion of its sewer and water bonds as early as tomorrow. However, “bond documents for the new debt being issued in the refinancing stipulate that investors in the new bonds will agree to any new ownership as part of their investment.” [Sub required] This could affect the prospects for conversion of DWSD to a public regional authority or its privatization.

23) Michigan: In a boost to transparency, Detroit has given the public the ability to track tender offers on its sewer and water bonds in real time on a website. “It’s the first time the technology has been used in the muni market, according to Bob Apfel, chairman of Bondholder Communications Group LLC, the firm that owns the technology. ‘In the past, the data has been available to the dealer or the issuer, but it’s never been available to the public,’ said [BCG’s] Apfel,” [Sub required].

24) New York: Orange County executive Steve Neuhaus projects a $60 million budget deficit, prompting skepticism “among Democrats and others who fought to keep the Valley View Center for Nursing Care and Rehabilitation in county hands, and who now wondered if the alleged deficit was hype to continue that battle.”

25) TexasThe Dallas Morning News takes a detailed look at how the state is continuing to try and privatize foster care despite serious problems with managing contractors. “Southern Methodist University political scientist Cal Jillson, who has studied state privatization efforts, says the foster care experiment fits a larger pattern of moving too quickly, lowballing costs and not riding herd on vendors. Such projects stumble ‘almost every time, when the profit motivation leads to too few people delivering the service for it to be credibly done,’ especially in sensitive social services programs such as child protection, he said.”

26) TexasIn These Times’ George Joseph looks into the crucial battle to keep Dallas public schools public, and the corporate players trying to turn it private. “NYU education historian and research professor Diane Ravitch tells In These Times that home rule in Dallas could ‘eliminate democracy so that those in power can privatize schools and turn them over to their allies: others who believe in [the] free market.’ A complete charter school takeover of the district, as in New Orleans, could mean hundreds of millions in revenue for Dallas’ education non-profits, including Uplift and other Chamber members.”

27) Wisconsin: Milwaukee Zoo officials make a stealth move to outsource food service, catering and retail operations. RFPs were sent out July 18, on-site visits were scheduled for July 30-31, and bids were due August 15. “The five-year contract would begin Jan. 1, 2015, if the county decides to move forward with privatizing these operations, which generated $5.8 million in revenue in 2013. But you’d have to be an insider to know about this fast-tracked privatization plan. The matter never came before the Milwaukee County Board of Supervisors, nor was it included in last year’s budget.”

28) Revolving Door News: Michigan has hired Wayne Workman as acting executive director of its housing authority. “Workman was the state’s long-time financial advisor when he was with Robert W. Baird & Co. The state hired him as deputy treasurer last July.” [Sub required]

29) Upcoming Meeting: The annual meeting of the right-wing State Policy Network will be held in Denver from September 23-26. The theme of the meeting is “Dare to Disrupt.” Among the numerous workshops and panels is a session on how to use the “School Choice Fiscal Note Calculator,” an online legislative analysts’ tool for “estimating the fiscal effects of proposed school choice legislation.” Its purpose is “to generate rough estimates of school choice fiscal effects without requiring detailed data entry or in-depth knowledge of the underlying economic principles.”

30) Upcoming Meeting: The 6th North American Strategic Infrastructure Leadership Forum, an investors’ conference, will take place in Washington, DC, from October 28-30. Sponsors include Aon, Assured Guaranty and Booz Allen Hamilton.

31) Think Tanks/Research: Some recent articles that address privatization issues: Kate Bayliss, “The Financialization of Water,” Review of Radical Political Economics, 2014, Vol. 46(3); N. Ferreira da Cruz and R. Marques, “Rocky Road of Urban Transportation Contracts,” Journal of Management in Engineering, September 2014; Fabrice Hamelin and Vincent Spenlehauer, “Managing to Reinvent Strong Publicness in a Privatized World,” Public Organization Review, September 2014.

32) Think Tanks: The pro-privatization Center for Education Reform is launching a “grassroots” advisory network, which includes a number of CEOs and COOs of charter school chains, and Will Cain of CNN’s The Blaze.

Legislative Issues:

1) NationalSenators predict Congress will find new ways to pay for transportation infrastructure. “‘Coming up between now and May, you’ll see a new funding mechanism that is going to change how we are funding our roads and highways,’ [Sen. James] Inhofe said. “This is not an announcement on my part, because I still maintain opposition to any new tax increases, however it’s more of a user fee than a tax increase.’ The Highway Trust Fund is insolvent, [Sen. John] Boozman pointed out, because cars get better gas mileage, and ‘people just aren’t driving as much as they used to.’ (…) ‘We’re going to have to figure out how we can get a revenue stream to support that, and there’ll be a lot of controversy about that,’ Boozman said.”

2) Pennsylvania: Republican lawmaker calls a lobbying firm led by GOP ex-staffers “the biggest cancer in this building.” Patriot-News political reporter John L. Micek writes that “from liquor privatization to key legislative races, there are few matters in state politics that haven’t felt the influence of” Long-Nyquist Associates.