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This Week’s Outsourcing Scan 09-02-14

Update: Upcoming Outsourcing Issues. September 2, 2014

1) National: As the nation celebrates Labor Day, discussion spreads about how public contracting can be improved. While praising President Obama’s recent executive order on contractor compliance with labor laws, some are urging him to go further. New York Times editorial board member Teresa Tritch makes the case that “federal contracting is not a contest to see who can pay the least, but a rational process both for ensuring good jobs at fair pay and for setting an example for the private sector.” Demos Senior Policy Analyst Amy Traub writes, “President Obama should go further, signing a Good Jobs executive order that would encourage contractors to improve workplace benefits and respect their employees’ rights to bargain collectively.”

2) National: Congressman Mark Pocan, D-Madison, takes up his role as Democrats for Public Education’s new co-chair.

3) National: Anthem, the for-profit chain of colleges and career institutes, files for bankruptcy. “The collapse of Anthem comes roughly four weeks after Corinthian Colleges and the Education Department announced a deal to sell or close Corinthian’s 107 campuses.”

4) National: The National Association of Bond lawyers has released a paper on conduit bond financings that use 501(c)3 tax exempt nonprofit organizations. 501(c)3’s are often involved in “public private partnership” deals.

5) Arizona: Council member calls for the privatization of the Pima Animal Care Center. “Councilman Gil Lusk asked the council to consider giving money instead to the Animal League of Green Valley, a no-kill shelter in Sahuarita. ‘It’s the right thing to do and our services have been very strong from the Animal League for years,’ Lusk said, ‘and they have not received that much help from us.’ (…) Councilman Bill Bracco said the town should privatize animal control services through the regular procurement process.”

6) California: City Attorney Dennis Herrera moves to block mobile app companies from essentially privatizing public parking spaces in San Francisco.

7) Florida: Toll agency bribery conviction and guilty plea raises questions about transparency in public-private infrastructure deals. “Batterson’s case, and three other related prosecutions, put a spotlight on authority business, including discussions about bonds, being done in a backroom fashion despite state laws demanding otherwise. Batterson will remain in jail until Oct. 17 when he will be sentenced on two felony bribery charges, largely related to conversations he had in bars with a number of people, including Mark Callahan, a manager with CH2M Hill.” [Sub required]

8) FloridaBank loans win out over private activity bonds in competition to finance the I-4 Ultimate “public private partnership” project. “Skanska and Laing, which are well known in the P3 sector, say the loan negotiated with six banks offers ‘a significantly lower interest rate’ of 4.04% compared to triple-B rated private activity bonds at 4.49%.” [Sub required]. Financial close is pending.

9) Florida: A strong showing of community support helps AFSCME Local 3294 turn back efforts to privatize South Miami residential garbage pickups. “They tried to force Waste-Pro on South Miami. At first, they didn’t want to listen to residents but when they saw our numbers, they went the other way,” a sanitation worker said. “There’s power in numbers.”

10) IdahoGov. Butch Otter faces a tough reelection challenge, in part due to the state’s failed experience with prison privatization. Otter once called himself a “champion of prison privatization.” Democratic challenger A.J. Balukoff’s campaign spokesperson “pointed to Otter’s failure to unite the party and his unsuccessful attempt to privatize a state prison as reasons why even the staunchest Republicans may be ready for a new leader. ‘Otter doesn’t always deliver,’ he said. ‘I think you’re going to see a surprising amount of people coming out of the woodwork this November.’”

11) Illinois: The Rockford Register Star outlines the battle over outsourcing public services. “‘There always seems to be pressure to privatize,” said Henry Bayer, the retired head of Council 31 of the American Federation of State, County and Municipal Employees. The union represents more state workers in Illinois than any other. ‘There’s businesses who want to make a profit,’ Bayer said. ‘They have lobbyists. They make campaign contributions. So there’s pressures to do that, although there’s not much evidence to suggest the state could really save any money when they privatize.’”

12) Kentucky: After a summer of review, Western Kentucky University privatizes its health services. “A subsidy of about $1.1 million used to operate WKU Health Services will now be applied to balance WKU’s operating budget for the 2014-2015 fiscal year, according to the contract between Graves-Gilbert Clinic and WKU. [Chris Thorn, CEO of Graves-Gilbert Clinic] said he anticipates it will cost less to run Graves-Gilbert Clinic at WKU than before it was privatized, but admitted he doesn’t know the actual cost. ‘We don’t know what the actual numbers will be,’ Thorn said.”

13) Louisiana: Gov. Jindal’s rushed and sloppily vetted privatization deals for LSU Hospitals have led to heated controversy and potential litigation. “Critics of the privatization deals, who note they were approved by LSU’s governing board with blank pages in contracts, say the disintegrating relationship between the university system and the foundation known as BRF was inevitable because the deal was sketchy from the start.” LSU has accused the company to which the hospitals were outsourced of using them as its “personal piggy bank.” In addition, “the state legislative auditor is raising serious questions about Jindal’s privatization of Medicaid services through the Bayou Health program.”

14) Maryland: A Federal lawsuit has been filed to block the light rail Purple Line “public private partnership.” The suit contends that “construction of the Purple Line between Bethesda and Silver Spring will degrade or destroy portions of the Rock Creek watershed that is home to two species of freshwater invertebrates found nowhere else in the U.S., said John Fitzgerald, a plaintiff in the suit.”

15) Maryland: Baltimore local governments kick in $280 million to support the proposed Red Line “public private partnership.“ The light rail project would be privately operated. The Maryland Transportation Authority “said a public-private partnership may help fund the line due to an increase in the cost to $2.9 billion from an earlier estimate of $2.65 billion. The private partner would be given the concession to operate and maintain the line in exchange for an as-yet unspecified investment.” Baltimore County Executive Kevin Kamenetz said in a letter “I continue to be disappointed that local governments are now expected to contribute to this project when that was never explained to us during any of the planning stages of the Red Line.”

16) MarylandFederal auditors sought documents relating to the troubled launch of the state’s online healthcare exchange portal. “The Office of Inspector General has moved this from an audit into a full-blown investigation,” Rep. Andy Harris (R-Md.) said in a statement. “Now we know that fraud may have occurred.” Noridian Healthcare Solutions was fired by the state after the disastrous launch.

17) Missouri: After elected leaders and organized labor successfully beat back efforts to outsource Kansas City’s ambulance billing system, the Mayor says a new plan has emerged. “An agreement was reached where Intermedix will provide consulting and software to the city’s employees in order to increase efficiency and collections in our medical billing processes. The city employees in that role will remain employees of the city.”

18) New York: As Massena celebrates Labor Day, the 400 employees at Massena Hospital continue to worry about the possible privatization of the municipal public hospital. Many  are members of the Civil Service Employees Association and New York State Nurses Association. Last week the hospital’s board hired Newpoint Health Care, “a consultant firm from Phoenix, Arizona on a five-month contract to explore the future of the hospital.”

19) Ohio: Attorney General’s race heats up over a transparency issue concerning a lawsuit over private charter school operator White Hat Management’s refusal to disclose how public money was spent. “At its most important moment, DeWine abandoned the case and Ohio taxpayers altogether, with no credible explanation for the about-face,’ Pepper said in a statement.” The Ohio Supreme Court is scheduled to hold a hearing on the case on September 23.

20) Ohio: DOT official says his department is looking at private “sponsorships” to help fund roadways, e.g. road signs or snowplows or ads on its website. “We’re looking at State Farm now, we could look at others in the future, we might not. But it certainly is worth exploring.”

21) PennsylvaniaAuditor General Eugene DePasquale, who vigorously opposed Gov. Corbett’s scheme to privatize the Pennsylvania lottery, points to the failure of Illinois’ experiment with privatization as evidence he was right. “I am always looking for ways to make government better, but the fact that the state-run Pennsylvania Lottery generated all-time record-high ticket sales last year, while Illinois’ private management firm failed for the third consecutive year to meet its goals clearly shows we are doing something right.”

23) Pennsylvania: As thousands of union members march through Pittsburgh on Labor Day, the Pittsburgh Post Gazette takes note of the continuing power of the labor movement. “[Gov.] Corbett has cited, and complained of, labor’s influence in the Legislature and on his agenda. His bid to privatize the state’s liquor sales has so far been mired in large part because of union resistance and labor’s influence with lawmakers of both parties. Unions, on the other hand, played a role in the enactment of another Corbett priority: the state transportation bill.”

24) Texas: The state will consider a number of options to build the proposed San Antonio-Fort Worth high-speed rail line. “There are no cost estimates yet for the proposed rail segment, he said, except that it will cost billions of dollars. The state may consider several options to help finance the project, [Peter LeCody, president of the Dallas-based Texas Rail Advocates group] said. ‘It could lead to a private enterprise, a public-private partnership, or an all-public venture,’ he said.” [Sub required]

25) Texas: Voters will decide on a ballot initiative in November that would take $1 billion from the state’s “rainy day fund” to support free-for-use public roads. The proposition would ban the funds from going to bicycle paths and “infrastructure for foreign-owned tolling companies.”

26) Texas: Blogger Tim Rogers looks at how “Managed Toll Lanes Are Taking Over North Texas.” Rogers targets comments made by a pro-tolling advocate in a Dallas Morning News story on the controversy over a “massive new toll lane network” in the region. “I get it. We’ve run out of money to build more roads. No one has the stomach to talk about raising taxes the traditional way. So the road builders say we need a per-use tax.”

27) UtahSweetheart deals with contractors to the Utah Transit Authority are blasted in a legislative audit. “The Utah Transit Authority ‘prepaid’ a developer $10 million to construct a parking garage—which it turns out he never built—just after he made a multimillion-dollar deal benefiting a UTA board member. The agency never got all the money back from that advance.” The UTA objected to the findings. [Audit]

28) VirginiaIn a major infrastructure public insourcing move, the state of Virginia is considering purchasing the former APM Terminals container shipping facility from its new owners, Alinda Capital. “McAuliffe and Layne have been openly critical of the port’s nearly $1.2 billion, 20-year lease agreement with APM Terminals. Both called out current and former port authority board members earlier this year for what they called an expensive and economically reckless deal that continues to drag down the Port of Virginia’s bottom line.”

29) West Virginia: The state will issue a Request for Qualifications for the first road “public private partnership” to be procured under recently passed legislation. [SB 190]. “The first project to be constructed as part of the new legislative rules is a 3.3 mile section of the Coalfields Expressway near Mullens in Wyoming County.” The DOT expects a bid to be awarded in December.

30) International: A subsidized loan from the European Investment Bank helps close the financing deal on a  €600 million German “public private partnership” road project. “The institution is providing a €90 million subordinated loan (representing about 20 percent of the volume of senior debt) to help bump up the instrument’s credit rating. The bond is rated AAA by Moody’s—a 1.5 notch uplift on its original rating.” [Sub required]

31) Revolving Door News: The Fort Wayne Journal Gazette reports that the revolving door between state positions and jobs with state contractors is “turning judiciously.” Indiana Inspector General David Thomas “said having waivers helps defend against a future attack like in Ohio, when the entire post-employment rule was struck down as unconstitutionally strict.”

32) Revolving Door News: Risk.net takes a detailed look at the revolving door spinning government financial regulators into the financial industry. “Some see the tide that carries senior regulators to well-paid posts in banks, consultants and law firms as a dangerous one, making public servants wary of upsetting potential future employers, or furnishing firms with the ammunition they need to deflect or dodge new rules.”

33) Think Tanks: Conservative populist anti-privatization activist Terri Hall strikes back at the Reason Foundation’s “unhinged” attack on critics of “public private partnerships.” Hall writes, “Bob Poole is losing influence and that’s what he can’t handle. Just because I’m a housewife, doesn’t mean my arguments are wrong. Anyone willing to dig into P3s comes to the same conclusion: they’re toll-tax, crony capitalist boondoggles that socialize the losses and privatize the profits, impede our freedom to travel and imperil the financial survival of the middle class. There are too many of these deals going south now to have his libertarian theories remain persuasive against a real-world backdrop. The public backlash is only going to get louder.”

Legislative Issues:

1) National: An Airport Public-Private Partnership Act has been introduced in the Senate and referred to the Commerce, Science, and Transportation Committee. The bill eliminates restrictions on the number of airports in the pilot program on airport privatization. [SB 2750]

2) NationalDebate over the possible privatization of air traffic control heats up. “Advocates of full privatization or a hybrid public-private corporation believe a new structure would bring more reliable funding than the current mix of unstable congressional appropriations and a hodgepodge of taxes that go into a fund that supports air navigation as well as airport infrastructure and other functions. Critics say such a move would incur costly new fees on airlines and private pilots alike.” The National Air Traffic Controllers Association convention will be held in Minneapolis from September 30-October 3.

3) North Carolina: As the legislature resumes debate on Medicaid reform, a joint legislative Evaluation oversight committee may meet this week to consider the creation of an oversight department. “Medicaid reform, particularly the proposal to privatize much of the program, proved a major sticking point of budget negotiations between the House and Senate during the recent short session.” The joint legislative oversight committee for Health and Human Services is scheduled to hold its first meeting on September 9.

4) Texas: A growing backlash against using tolled lanes to fund road infrastructure may force the legislature to turn back to appropriations. “‘Much of Collin County is surrounded by toll roads, rendering us a gated community,’ said state Rep. Jeff Leach, R-Plano. (…) ‘I think we’re going to have the votes.’” The legislative session begins in January.