This Week’s Outsourcing Scan 1-4-2016

1) National: Writing in Forbes, leading aviation consultant Michael Boyd denounces “the sudden din from the aviation cognoscenti and aviation groupies” to privatize the national air traffic control system. “To be clear, we need to upgrade the air traffic control system, and the airline industry has known this and wrestled with it for decades. If we are going to have a change, it needs to be based on clear goals, not just reliance on the assumption that anything private is better than government. We are a long way from that. As of today there are a lot of impassioned articles calling for ‘transformation’ of the air traffic control system, but no definition of exactly what that buzz-term means.”

2) National: The new subprime? Infrastructure Investor warns of a possible bubble in private infrastructure financing. “Some investors have begun to note similarities between some of the highly leveraged deals of today’s infrastructure investment space and those transactions that are credited with sparking the financial crisis. Australian pension fund investment manager IFM Investors, for example, agreed to pay a multiple of roughly 32 times EBITDA and attracted more than 70 limited partners to participate in the Indiana Toll Road transaction. A mid-30s multiple didn’t stop a trio of Canadian pensioners (OMERS, OTPP, and CDPQ) from sweeping up Chicago Skyway either (though IFM shied away from that deal).” [Sub required]

3) National: After another “disappointing” year for “public private partnership” deals, industry players continue to hope for more activity. “One interesting thing about the US market is that, although current deal flow is weak, it is a key focus of most of the major global P3 players, many of whom are expanding their US operations and personnel,” said Roddy Devlin, a partner at Squire Patton Boggs. [Sub required]

4) National: As education secretary Arne Duncan leaves office, Jesse Hagopian of The Progressive looks at some of the issues facing his successor, John King, particularly the widespread resistance to high stakes testing. “One of Duncan’s primary objectives has been the privatization of education through the dramatic expansion of charter schools. But as the Washington Post reported, an audit by the Department of Education’s own inspector general found ‘that the agency has done a poor job of overseeing federal dollars sent to charter schools.’ This lack of oversight laid the foundation for a recent report from the Center for Popular Democracy and the Alliance to Reclaim Our Schools (AROS), which found some $200 million in ‘alleged and confirmed financial fraud, waste, abuse, and mismanagement’ committed by charter schools around the country.”

5) National: Last Wednesday, the U.S. Office of Special Counsel withdrew a proposed rule that would have allowed employees of federal contractors, subcontractors, and grantees to file whistleblower disclosures with OSC. [Bloomberg BNA, December 30, 2015; sub required]

6) National: Edtech startup companies raised a record $1.85 billion in 2015, largely from hedge funds. But education blogger Alan Singer asks what if the “tech school miracle is really only a miracle for the companies selling their products to schools?

7) National: John W. Smith tackles advocates of privatizing the U.S. Postal Service. “Has anyone ever tried to figure out how much a private company would charge to deliver the mail? UPS won’t deliver packages to those rural addresses now, so what makes these folks think that a private post office would do it? Who delivers those packages now? The U.S. Postal Service does it now and they even deliver those packages during the Christmas season that UPS won’t. Have you ever looked at your package from UPS and noticed a USPS label on it? That simply means they pay the Postal Service to deliver those packages because they can’t afford to do it.”

8) National: The Department of Defense is going to have to cut civilian personnel and contractor spending by over $4 billion to match payroll cuts since 2012. “The Department of Defense has been following a congressional directive to reduce spending on civilian and contract employees, the department told the Government Accountability Office. However, GAO investigators say they can’t find the data to back this up.”

9) Georgia/National: Using Georgia as an example, Sheryl J. Croft, Mari Ann Roberts, and Vera L. Stenhouse say public education is at a turning point. “Corporately privatized winds of change have gathered their forces in ways that are deeply disturbing and unprecedented. Yet, there is still time to deflect total destruction. To do so, however, those who are authentic stakeholders must answer enduring questions about education and education reform: What kind of education do we want and need? For whom, for what aims, and at whose expense? Whether the edifice of public education is completely destroyed, rebuilt in the image of corporations in the United States, or saved will be determined by how hard we fight to salvage what is left.”

10) Georgia: Bond financing may be part of a public-private deal to redevelop Turner field so it can be used by Georgia State University’s football team. “A main goal of the project is to transform the area with ‘meaningful redevelopment’ and create employment opportunities, [AFCRA executive director Keisha Lance Bottoms] said. The proposals submitted by the bidders have not been released to the public, nor have the names of bidders other than the GSU-Carter team.” [Sub required]

11) Illinois: Students denounce Aramark’s Chicago Public Schools lunch program contract, and “hope to achieve fresher food, healthier food, a larger portion, food that we can actually eat.” For their efforts they were attacked by the right wing Breitbart website. The website of The School Lunch Project says “before privatization of lunch, our school cafeteria served the community at large and turned a profit for the school. We learned that Aramark is a company with a laundry list of corruption and scandals a mile long. They may not know how to keep us happy, but they certainly keep their investors happy.”

12) Iowa/National: WellCare, the private healthcare company that was removed by state officials from Iowa’s proposed Medicaid privatization scheme, is planning to contest the decision. “The Tampa, Fla.-based company, which so far has hired 180 people, contracted with more than 14,600 providers and invested millions of dollars in startup costs—according to court filings—must sit tight until a Polk County district judge decides its fate. Crystal Warwell Walker, a WellCare spokeswoman, said in an email that the company is actively working to schedule a hearing and anticipates that it will take place in early January.” The federal Centers for Medicare and Medicaid Services delayed implementation of the plan until March 1, and last week a Polk County district judge denied a request by the Iowa Hospital Association for a temporary injunction against the program.

Meanwhile the Des Moines Register says “there are few words to better describe the health care ‘reform’ [Gov.] Branstad is attempting to foist upon Iowa” than “Unaffordable. Unsustainable. Uncertainty.” It says Branstad’s “plan to privatize management of our $4.2 billion Medicaid program is turning out to be a bigger train wreck than anyone could have imagined. And it hasn’t even been implemented.”

13) Kansas/National: The Kansas Bioscience Authority, a major initiative to invest public money in private bioscience companies launched with much fanfare several years ago, is being privatized. “The authority came under increased scrutiny and criticism after the election of Gov. Sam Brownback and rising control by conservatives in the Legislature.”

14) Kansas: The University of Kansas, a public institution, is using an out-of-state conduit issuer for bonds to finance a ‘public private partnership’ deal, because using its normal issuer, the Kansas Development Finance Authority, would subject the deal to legislative approval. “Moody’s Investors Service placed a negative outlook on its Aa2 rating ahead of the deal.” JP Morgan leads the underwriting syndicate.

But taxpayers may be on the hook. “Kansas lawmakers questioned whether the state could be left holding the bag if the P3 project failed to meet financial expectations. ‘At the end of the day, the whole state would probably get a black eye if there was a default, so I’m sure the state would have to come in and back all this up,’ said Rep. Marvin Kleeb, R-Overland Park.” [Sub required]

15) Maryland: The privatization of Montgomery County’s economic development efforts is proceeding. “Patrick Lacefield, Montgomery County’s director of public information, said the county has appointed 10 of the 11 members to the new Montgomery County Economic Development Corp. board and that the nonprofit has been incorporated. The initial timeline for the transition, which was released in May, called for the nonprofit to be incorporated and a board to be appointed by January 2016. The next major step for the fledgling corporation is to hire a CEO, and a search to find the organization’s first leader is underway. The hand-off of development responsibilities to the organization will most likely come in June, Lacefield said.” [Sub required]

16) Nebraska/Think Tanks: The right wing Platte Institute issues a report claiming that partially privatized power generation in Nebraska would be cheaper. The institute, a strong opponent of clean energy, has been funded by the Koch-backed State Policy Network, the Donors Capital Fund, Roe Foundation, and Jaqueline Hume Foundation. The institute “has hosted writers from the ALEC-connected Franklin Center for Government and Public Integrity, which screens potential reporters on their ‘free market’ views as part of the job application process.”

17) New Jersey: Ulterior motives in American Water’s move into Camden? Utilities analyst Ryan M. Connors says that American Water’s deal with Camden to take over operation of its water and sewer systems and move its headquarters there may morph into a full privatization scheme. “Can American Water make money in Camden? Connors notes the city has a history of ‘extreme leakage rates’ (half the water is wasted or stolen)—and needs ‘massive capital improvements.’ Even under happier fiscal and pipe conditions, private-operator deals yield only ‘infamously skinny’ profit margins, Connors notes. Does American Water really expect to make money pumping poor poop, at lower fees than the previous company charged? The analyst suspects there’s a deeper story: ‘The ultimate endgame could be maneuvering for an outright privatization if capital spending needs continue to mount.’”

18) New Jersey: State officials want to partially privatize commercial vehicle emissions tests and eliminate emissions tests for older cars—among the dirtiest on the road. “All cars that fail their first inspection will have to go to a private facility for re-inspection, as will all commercial vehicles.” The state has a failed history of vehicle inspection privatization efforts. “New Jersey still has a massive smog pollution problem, which is directly linked to our cars and trucks,” said Doug O’Malley, director of the group Environment New Jersey. “It is ludicrous to propose that we’re going to stop testing the oldest cars on the roads.”

19) Oklahoma/Arizona/Revolving Door News: The Daily Oklahoman raises questions about Robert Patton taking a job at the GEO Group shortly after discussing expanding the company’s contracts with Oklahoma. “And now after serving in this important role, one that benefited Geo Group, [Rep. Mark McCullough, author of a 2009 law to bar state employees from taking jobs for one year with companies involved in prison privatization] says Patton’s new employment with the company should be viewed with high skepticism. The original conflict-of-interest law was passed, without a penalty provision, in 1999 in light of several DOC officials leaving the agency to work for private prisons. McCullough said his bill was intended to beef up the original law and serve as a deterrent to job-shopping.” The Oklahoman asks, “did he violate the law, and if so, did he do it willfully?”

20) Tennessee: The League of Women Voters has called for a halt to Gov. Haslam’s plan to privatize public services, assets, and functions until more transparency can be introduced to the process. “‘When governmental entities consider the transfer of governmental services, assets and/or functions to the private sector, the community impact and goals of such transfers must be identified and considered,’ League President Marian Ott wrote in a letter to Haslam. ‘Further, the LWV believes that accountability and preservation of the common good must be ensured.’ The state also needs to first establish ‘compelling evidence of need,’ the nonpartisan good-government group said.”

21) Texas: The San Antonio Express-News criticizes Gov. Abbott’s choice of a new education commissioner, warning that it may undermine public education. “The latest gubernatorial appointment, coupled with the naming of Donna Bahorich, who homeschooled her children, as chair of the 15-member Texas State Board of Education, is troubling. Do these two appointments to the state’s highest education posts mean Texas will be moving more aggressively toward school choice, a focus on charter school expansion and support for vouchers? We hope not.”

22) Upcoming meeting: The Probation and Pretrial Services Office and the Procurement Management Division of the Administrative Office of the U.S. Courts will be holding an industry day for potential contractors on January 13 in DC to discuss requirements for development of a curriculum to help offenders put their lives back on track and lower recidivism rates.

Legislative Issues

1) National: The ‘public private partnerships’ industry is sizing up the gains and losses in the new FAST Act federal transportation law. The main issue is that the federal TIFIA loan program has been cut by 70%, which will make less financing available to put P3 deals together. “P3 projects probably won’t feel the pinch from the reduction in TIFIA funding during the first two years or so of FAST, said Doug Koelemay, director of Virginia’s Office of Public-Private Partnerships, but it could slow down the sector in the later years. (…) The funding crunch will come in 2019 and 2020, and that could hamper development of new P3s and a slowdown in some that are now in the planning stages, Koelemay said.” [Bond Buyer slideshow]

2) National: The House and Senate launch the second session of the 114th Congress today. Congressional Republicans are expected to attempt to move legislation repealing Obamacare, cutting off federal funds for Planned Parenthood, auditing the Federal Reserve, raising further barriers to class action litigation, and requiring federal agencies to rescind existing regulations to offset the cost of new rules. [Bloomberg Government, December 28, 2015; sub required]

3) National: Efforts may be made in 2016 to find new revenue sources for public transportation infrastructure. “Gas taxes and other transportation-related revenues will only be providing half of the dollars necessary to support investment levels [by 2020],” says Peter Nonis, senior manager for federal relations at the American Society of Civil Engineers.

4) National: Public finance officials and the infrastructure industry are breathing a sigh of relief as it looks like no legislation will be passed ending tax exemption for muni bonds. “I don’t think we’re going to see anything in the form of comprehensive tax reform until after the elections,” says Jessica Giroux, general counsel and managing director of federal regulatory policy for Bond Dealers of America.

5) Florida: South Florida Sun-Sentinel columnist and former Republican legislator Paula Dockery calls on lawmakers to “fully fund our state parks, including operations, maintenance and capital projects. Stop the foolishness of forcing incompatible uses and privatization in the parks such as golf courses, cattle grazing, timber harvesting and hunting. Parks are not intended to be profit centers for the politically well connected.” The legislative session begins January 12.

6) Iowa: As lawmakers return on January 11 to begin putting together a budget, eyes will be on the purported savings that will come from Gov. Branstad’s attempt to privatize Medicaid, which the federal government has delayed. Some are expecting $47 million that can be used to pay for other needs, but doubts remain. “Right now, the biggest thing we’re dealing with is the Medicaid transition. That’s going to be a big part of the next session,” says Rep. Abby Finkenauer, D-Dubuque.

7) Maine: Democratic state lawmakers are demanding answers about why the transportation department is privatizing operations and maintenance of the Casco Bay Bridge. “‘This is a really unprecedented at least in my memory, where a department has this type of a huge policy shift and the oversight committee, the committee of substance, was not involved,’ [Senator Bill Diamond, a Windham Democrat] said. ‘And I think it sets a very uneasy precedent.’” Maine State Employees Association Executive Director Rodney Hiltz says “union members and people who work for unions are taxpayers and members of our community and what we care about is our community and our public safety and this is a public safety issue.”

8) Pennsylvania: The state’s longest budget impasse since 1971 continues as Gov. Tom Wolf line item vetoes the Republican budget proposal while releasing short term emergency funding for schools and human services. “Sticking points in the budget stalemate have included severance taxes, pension shortfalls, education spending, sales taxes, personal income taxes, property taxes and privatization of state-run liquor stores. Wolf has repeatedly called on the Legislature to pass a budget that is balanced and does not rely on ‘smoke and mirrors.’” [Bloomberg BNA December 30, 2015; sub required]

9) Tennessee: State legislators are likely to take up the issue of privatizing state office buildings once again. State Rep. John Ray Clemmons, D-Nashville, and Sen. Lee Harris, D-Memphis, have “requested an audit of an expiring contract with JLL (Jones Lang LaSalle commercial real estate services) to determine cost savings and quality of services for management and maintenance of state buildings. ‘Privatization does nothing but eliminate accountability and quality of services and spend taxpayers’ dollars to increase profits for private companies, Clemmons said.”

10) Vermont: Lawmakers will try to fix the state’s antiquated and troubled liquor distribution system rather than privatize it. “I don’t think any privatization scheme would increase profit,” said Tom Stevens, D-Washington/Chittenden, who served on a study commission on the system.

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