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This Week’s Outsourcing Scan 1-11-2016

1. National: ‘Pay for Success’ (PFS) contracts, in which private investors profit from social service and other programs, continue to stir controversy. They were included in the recently-passed Every Student Succeeds Act, which pitted opponents and supporters of PFS against one another. “The inclusion of the provision was opposed by the Council of Parent Attorneys and Advocates, Inc., which advocates for students with disabilities and their families. The organization said policymakers should be wary of using the sort of metrics for success that were relied on in Utah.” Legislation to permit PFS contracts has also been introduced in Florida

Perfect timing. In the Public Interest recently published a guide to help to help advocates identify the critical issues surrounding PFS contracts and their impact on vulnerable individuals and the public.

2. National: A new report is warning of risks created by multiple charter school authorizers. Preston Green of the University of Connecticut says, “If we’re going to have multiple authorizers, we have to impose standards to ensure that they do a good job, because without those standards there is really no incentive for them to ensure that these schools are operating in an acceptable manner. I should also mention putting sanctions in place to prevent the really squirrely practice of ‘authorizer hopping,’ where schools are closed by one authorizer and then find another authorizer, which has happened quite a bit in places where oversight has been really weak, like Ohio. Further, authorizers should guard against predatory chartering practices, including fining students for discipline violations.”

3. National: As the movement to force universities to divest from for-profit prison companies grows and marks victories (Columbia, the University of California), In the Public Interest’s Donald Cohen points out that “the private corrections industry, which makes more profit when more people are in the system, is an obstacle to the changes many of us want to see. The industry doesn’t want change. An executive with GEO Group, the second largest private prison operator in the U.S., recently boasted that the country would continue to ‘attract’ crime. He shared the ‘good news’ to investors: ‘The reality is, we are a very affluent country, we have loose borders, and we have a bad education system.’”

4. NationalThe Walton Foundation rolls out a $1 billion program to increase the number of privately-managed, publically-funded charter schools. “If experience is any guide, almost all of these will be non-union,” says education historian and anti-privatization activist Diane Ravitch. “Imagine that! The Walton Family Foundation, which was created by the billions earned by Walmart, is anti-union.(…) The Walton family represents the face of rapacious avarice in modern America. Having made their billions, they now use them to destroy the one basic democratic institution on which generations of Americans have relied for the education of their children: The American public schools.”

5. National: Temple University’s William Cabin reviews the literature on how privatization affects home health care. “One study found statistically significant differences between proprietary and non-profit HHAs: Proprietary agencies have lower overall quality, higher profitability, higher costs per patient, and more visits per patient, with therapy visits accounting for a larger share of the total. However, the second study found that the explanatory value of ownership is limited, with the number of HHAs in the state and therapy visits as a percentage of total visits having a significant influence on cost and quality when combined with ownership compared with ownership alone.”

6. NationalFCW reports on “Why agencies don’t know what they spend on IT.” As OMB, GAO, and the agencies struggle to understand costs, “on the industry side, executives from Apptio, Cask, Cisco, Deloitte, Capgemini Government Solutions, First American, HP, Information Services Group, Tanium and a number of other IT firms are taking part. (…) The group will meet again this month and aims to have the government IT taxonomy ready by March.”

7. California: After a “difficult conversation” and three revisions, a resolution aimed at curtailing charter schools comes before the Los Angeles Unified School District (LAUSD) board for a vote tomorrow. “General in scope, the resolution is an obvious response to the Broad Foundation-inspired plan, Great Public Schools Now, that is proposing a dramatic increase in the number of LA Unified charters over the next eight years. Schmerelson and other board members have characterized the plan as dangerous to the district’s traditional schools.” However, “state law creates the rules for charters, and it only provides for denials in the cases of questionable finances or managerial weakness.” The meeting will be livestreamed, and starts at 1 pm.

8. Florida/National: The U.S. transportation department grants All Aboard Florida, a private, for-profit rail service company, an additional one year extension to sell tax exempt ‘private activity bonds’ through a conduit issuer. Two lawsuits challenging the PABs are still pending. Brown University economist John Friedman has concluded that the lost tax revenue from the PABs “could equal more than $50 million in ancillary taxpayer support” for the private company’s venture.

9. Illinois/National: The trial of the alleged mastermind of an illegal Chicago kickback scheme involving Redflex, the Australia-based red light camera company, is scheduled to start today. “The feds say he created a lavish lifestyle for himself by helping Redflex cheat its way into $131 million in city contracts. O’Malley has pleaded guilty along with former Redflex CEO Karen Finley for their roles in the scheme, and both are expected to testify.”

10. Illinois: Disastrous public financing and privatization decisions made under former Mayor Daley, author of the widely-criticized privatization of Chicago’s parking meters, continue to suck money out of the cash-strapped city and pile on debt

“The Orange Line agreement was set to last until 2031, records show, but it had provisions to protect the buyers in the event the city might not be able to make lease payments. Those protections included costly penalties to the city should its credit rating plummet below investment grade. That’s what happened last May, when Moody’s Investors Service downgraded the city’s credit rating to junk bond status. That led to the city negotiating to end the deal altogether. 

“It’s not the only Daley deal the city moved to end early using proceeds from the July bond sale. City Hall also used $2.4 million to buy back the city’s 911 computer and radio system from investors. Bond proceeds also were used to pay $35 million in debt from Daley’s acquisition of the Michael Reese hospital site, which he hoped to use to house athletes for the 2016 Olympics; $62 million to settle a dispute with investors in four downtown parking garages the city privatized in 2006; $18.5 million to settle a dispute involving the parking-meter privatization deal of 2009; and $195 million to terminate interest-rate swap agreements on earlier borrowing.”

11. Iowa: The Des Moines Register reports that “two of the corporations Iowa has picked to manage its Medicaid program face new accusations of trying to pad their profits by systematically denying payments to medical providers serving poor and disabled people in Kansas. Similar allegations of denied payments and unjust delays hounded both companies for years in other states. The companies—UnitedHealthcare and Amerigroup—have each paid tens of thousands of dollars to settle similar problems in other states.”

12. Louisiana: Newly elected Gov. John Bel Edwards’s transition team for transportation releases its report. Proper funding of the transportation system is said to be key [Report]. But the report lists ‘public private partnerships’ as a revenue source, apparently confusing financing with funding—a common mistake.

13. Massachusetts: The Chelmsford School Board has chucked out its custodial contracting company—Aramark—and rehired some, and maybe eventually all, of its own staffers. “Under the hybrid proposal, School Department employees would handle supervisory custodial duties and work performed during the day, while contractors would clean the schools after hours. All custodians were in-house employees until 2011, when the School Department signed a contract with Aramark to provide all custodial services.” Since Aramark was hired, “four of its employees have been arrested for allegedly stealing from schools, staff and students, and one of the company’s contractors was also arrested on drug charges. In addition, many have expressed dissatisfaction with the level of cleanliness in the schools since Aramark took over.”

14. MassachusettsThe “grossly overpriced” MBTA Boston Green Line extension comes under scrutiny. The project is $1 billion over budget. “Critics have said the guaranteed maximum price contract allowed the primary contractor, White-Skanska-Kiewit, too much leeway with the project budget. (…) State officials are considering downsizing the project or even canceling it in the wake of the MBTA’s termination of all lead contractors,” according to the Construction Dive website.

15. Michigan: The Department of Corrections is setting up a 30-person watchdog group to monitor outsourcing contracts for food, medical treatment, and other services. “Roland Zullo, an associate research scientist who studies privatization at U-M’s Institute for Research on Labor, Employment and the Economy, said the cost of monitoring a privatized state service can vary significantly, depending on the nature of the service. When a municipality contracts out for garbage collection, the change is largely self-monitoring, because if the garbage doesn’t get collected, officials will quickly hear about it from homeowners, Zullo said. But with other types of services, such as those involving child protection or inmates, where those being served lack a strong voice, ‘that natural monitoring function by the public doesn’t exist,’ there is greater potential for abuse and undetected contract violations, Zullo said.”

16. Michigan/International: The Canadian government is told that the cost of the Gordie Howe bridge, a ‘public private partnership,’ will go up by $2 billion as a result of the weakening Canadian dollar. “The government expects to collect about $4 billion in tolls over 30 years—more than enough, Trudeau was told, to cover the $2-billion cost increase that consultants from Deloitte calculated in October. Otherwise, the documents said, the costs could only be recovered ‘before the end of the useful life of the bridge,’ adding in brackets, ‘100 years.’” Windsor West MP Brian Masse  says “they want to do a public-private partnership. The Conservatives set the system up for that, the Liberals are supporting that. And that’s one of the most expensive design-build projects you get because you have to build a profit model into it.” Masse says “Canadian taxpayers have assumed all the risk and expense with the project.” The announcement of three preferred bidders on the project is expected soon, but they will need another year to prepare their bids.

17. New Jersey: A revised deal with Northstar could cut the state’s lottery revenue by $1 billion over 15 years. “The deal, unveiled by Gov. Chris Christie’s administration on New Year’s Eve, also lowers the amount the company must generate to avoid penalties. The revenue targets that Northstar New Jersey has to meet have been lowered by about $76 million per year over the contract, which was struck in 2013. The total revenue projection was decreased from nearly $16 billion to about $15 billion.” Lottery revenue goes toward “higher education as well as the state Department of Human Services, military and veterans affairs, and a school nutrition program.”

18. New York: Gov. Cuomo’s sketches out a $3 billion redevelopment of New York City’s dilapidated and inefficient Penn Station. “Under what Cuomo called a public-private partnership—and what looms as more of a real-estate development play than a pure P3 given retail as the revenue engine—private investment would fund nearly all the cost in exchange for an interest in the long-term revenue stream generated by the retail and commercial rents.” [Sub required]

19. North Carolina: After Republican state leaders try to suppress a report indicating that charter schools lack diversity and are more segregated than public schools, Diane Ravitch surfaces it. “Sorry, Governor McCrory and Lt. Governor Forest: You can’t suppress the work of distinguished academics. They don’t work for you. They have tenure.”

20. Oklahoma: Profiting off increased female incarceration? Oklahoma, which recently expanded the number of prison beds it contracts with Corrections Corporation of America (CCA) and the GEO Group, leads the nation in female incarceration. “Oklahoma’s lockup rate for women—143 per capita in 2014—was more than twice the national rate and the highest it’s been since the Bureau of Justice Statistics began tracking numbers in 1978. Oklahoma Watch calculations indicate the rate likely increased in 2015, with total women in corrections facilities reaching 3,002. Oklahoma also had the highest rate nationally of prisoners housed in in-state private prison facilities, including halfway houses, according to Bureau of Justice Statistics data for 2014. By last month, the number had increased by about 9 percent, to 8,044.”

21. Oklahoma/Revolving Door News: The corrections department has hired Joe Allbaugh, the former Bush-appointed head of FEMA, as interim director. “‘Joe Allbaugh is a proven leader whose expertise in both the public and private sectors will serve him well in his new role,’ said board chairman Kevin Gross in a news release.”

22. Tennessee: Hamilton County Commission (Chattanooga) votes to pay Public Financial Management up to $460,000 to study whether to privatize the downtown jail. A $250,000 incentive for PFM is built into the agreement if the project goes to completion. “Commission Finance Chairman Tim Boyd, who cast the only no vote, said he did not understand how a private firm could build the jail expansion for less than the county.”

23. InternationalA major new scandal has erupted in Britain over the private security company G4S, which runs asylum detention centers and was at the center of a contracting debacle over Olympic security in 2012. “The [Labour] shadow home secretary, Andy Burnham, has called for G4S to be stripped of its contract to run children’s prisons after seven members of staff were suspended following abuse claims at a youth offenders institution. Burnham has also called for a wide-ranging review of all the company’s contracts within the criminal justice system to be led by the home secretary and justice secretary.” Some hedge funds are now short selling G4S, whose shares have lost 17% over the past year. “G4S and its rival outsourcer Serco were temporarily barred from bidding for public sector contracts after they were accused of charging the government for tagging suspects who were in fact already in prison or dead.”

24. InternationalPrivate contractors in Europe are stepping into the refugee business. “A gold rush has commenced, and it’s also a bit of a circus.” For-profit companies now provide food and housing for 90% of Norway’s refugees. Bloomberg says “Meet the Two Brothers Making Millions Off the Refugee Crisis in Scandinavia.” They report “the Adolfsens’ Oslo-based company, Hero Norway, is the leader of a burgeoning Scandinavian industry that charges the Norwegian and Swedish governments a fixed fee—$31 to $75 per person per night in Norway—to house and feed refugees.”

25. Think Tanks: On March 25 the Joseph S. Murphy Institute at CUNY will be holding a conference on “Public Sector Unions on the Line: Right-Wing Attacks And Labor Movement Responses.” Speakers include Harold Meyerson, Jesse Sharkey, Stephen Lerner, and Adolph Reed. Frances Fox Piven and Ruth Milkman will moderate panels.

Legislative Issues

1. National: Although major tax reform legislation will likely be postponed until after the November elections, the Performance-based Building Coalition, led by AECOM Capital’s Samara Barend, continues to push for tax breaks for private, for-profit entities that invest in social infrastructure. The industry-backed amendment would authorize the treasury department to issue $5 billion of tax exempt private activity bonds. “The social infrastructure P3 market needs a boost.” [Public Works Financing, December 2015; sub required]. The PBBC spent $70,000 lobbying Congress on “\’public private partnerships’ from March through September 2015, according to its filings.

2. Iowa: As the legislature comes back into session, the Senate may again push for oversight of Gov. Branstad’s plan to privatize Medicaid. Views differ on whether a separate committee should be empanelled or the issue should be handled by regular committees.

3. Virginia: GOP lawmakers are plotting revenge on Gov. McAuliffe for his well founded criticism of the disastrous record on ‘public private partnerships’ of the former Republican administration. “Going back to the legislature this year for more I-66 subsidy would open a window for that, observers say,” according to Public Works Financing. [Public Works Financing, December 2015; sub required].

4. Washington: Another bill has been introduced to try to save charter schools in the state, whose existing funding system was declared unconstitutional. The new bill would “direct charter-school funding to come from the state’s Opportunity Pathways Account, which uses state lottery money for early childhood education, higher-education grants, scholarships and other programs aimed at innovation.” The first bill would place charters under tighter control by local school boards.

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