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This Week’s Outsourcing Scan 10-06-14

Update: Upcoming Outsourcing Issues. October 6, 2014

1) National: Jeff Bryant, writing in Salon, discusses a spate of negative reports on charter schools, and says it’s time for political leaders to face up to the problem instead of “spouting unfounded platitudes.” He says “of course, now that the truth about charter schools is starting to leak out of the corners of the ‘black box’ the industry uses to protect itself, the charter school PR machine is doing everything it can to cover up reality.”

2) National/FloridaFederal indictment issued against for-profit school chain FastTrain. “FastTrain’s specialty, prosecutors say, was defrauding the government—while coaching students to lie on federal financial aid forms. The company’s CEO, along with three other college employees, are charged with one count of conspiracy and multiple counts of theft of government money.”

3) National: In a New York Times op-ed, author Ann Hagedorn writes on the federal government’s “perilous dependence on contractors,” and about the layers of subcontractors below that. She says “we live in an era in which our government has become dependent on contractors for our defense and security. But the speed of that industry’s development and our consumption of its services far surpass the agencies’ ability to hold contractors accountable for the vetting and training of their employees.”

4) National: The GAO issues a report on Bureau of Prisons costs, and finds insufficient contract monitoring. The reports says that from 2009-2013, BOP spent over $2.8 billion on “privately operated secure contract facilities.” (p. 65, line 2 totaled across).

5) NationalGoldman Sachs is reportedly setting up a new infrastructure fund, which would invest in “a variety of infrastructure assets, such as airports, power grids and toll roads.” To do so it would have to stay within the bounds of the Volcker Rule, which inhibits banks from owning more than 3% of an infrastructure fund. “Signs that Goldman is going to make most of its infrastructure investments with other peoples’ money, while making riskier private equity investments with its own money, underscore how the Volcker rule may have unintended consequences.” Meanwhile, the finance industry is agitating for President Obama to make an exception from the Volcker Rule for banks investing in infrastructure. [See, e.g., White and Case’s Patrikis and Neaher, “Let Banking Entities Participate in Re-building America,” The Deal, September 25, 2014 (Sub required)]

6) National/WashingtonThe New York Times Motoko Rich looks at the impact that federal policy on “failing schools” has had on Washington State. “The peculiar disconnect, in which schools that were recently praised are now being censured for low performance, has demoralized teachers. ‘These are the teachers who stayed and dug in and had the grit and commitment to change this school,’ said Jessica Calabrese, the principal of Lakeridge.”

7) NationalSchoolMint raises $2.2 million from NewSchools Venture Fund, Runa Capital and Crosslink Capital. The company “offers a browser-based and mobile platform that helps schools and parents manage students’ applications and enrollment process in K-12 schools.”

8) National: Phil Mattera of Good Jobs First looks at “another healthcare website contractor mess.” Mattera points out that “the real lesson of the websites, along with that of the U.S. healthcare as a whole, is that the dependence on for-profit corporations—whether they be pharmaceutical manufacturers, managed care providers or information technology consultants—is always going to generate bloated costs and plenty of inefficiency.”

9) National: The Infrastructure Finance Working Group is to make recommendations to President Obama by November 14. “It shall also be the policy of the Federal Government for all agencies to facilitate, as appropriate, greater public and private partnership and collaboration, including with international investors and companies, to develop, improve, and maintain infrastructure across the country where and when economically and environmentally beneficial and in the public interest.”

10) NationalPublic Works Financing lines up four privatization industry partisans to defend the Reason Foundation’s Robert Poole, who’s still smarting from growing  criticism of his pro-privatization views from across the political spectrum. Poole himself then hyperventilates against critics of poorly designed “public private partnerships,” including legal analyst Ellen Dannin, Tom Jackson ofEquipment World, and Randy Salzman of Thinking Highways. [Public Works Financing, September 2014, sub required]

11) California: The University of California, Merced, has rejected all six responses to a request for qualifications from firms interested in bidding on a campus expansion project. A project source said there were “across the board problems with teams following rules.” A revised RFQ has been issued. [Public Works Financing, September 2014, sub required]

12) CaliforniaLongtime San Diego privatization proponent Carl DeMaio is in a tight congressional race with Democratic incumbent Scott Peters, “one of the few Democrats serving in Congress to get the endorsement of the U.S. Chamber of Commerce.” Each party is expected to spend $1 million on advertising in the run-up to election day.

13) Colorado: Jefferson County school district, which was roiled in April by a controversy over charter school funding, is in the headlines again over student protests against a conservative effort to revise the Advanced Placement U.S. history curriculum. On Fridaythe school board reversed itself and backed away from “a proposal to teach students the “benefits of the free enterprise system, respect for authority and respect for individual rights,” while avoiding lessons that condoned “civil disorder, social strife or disregard of the law.” But the board did vote 3-to-2 to reorganize its curriculum-review committee to include students, teachers and board-appointed community members. (…) But the compromise allayed few critics.” Prof. Peter Dreier writes that “the students’ protest pitted them against the school board’s conservative majority that has received support from Americans for Prosperity-Colorado, a group affiliated with the Koch family foundations.” [Full video: students and parents confront the school board; JeffCo School Board Watchtimeline]

14) FloridaVolusia County terminates its prison healthcare relationship with Corizon. “Corizon, one of two companies that swept into Florida prisons as part of Gov. Rick Scott’s move to privatize correctional health care, has come under increasing scrutiny recently, including last week from the head of Florida’s prison system. Department of Corrections secretary Michael Crews complained to Corizon in a letter last Friday that Florida’s ‘critical expectations including complete and full staffing, responding to DOC concerns and reducing the number of grievances are often not being met.’ The state is auditing its 75 facilities where Corizon is running medical services and has threatened to withhold payment in places that fail to meet standards.”

15) Illinois: East Moline will decide today whether to outsource its garbage collection to Republic Services. “The fees for residents would stay at the current rate for the first year: $7.15 per month, according to a report provided to the aldermen. After that, the bill would increase, going to $7.43 per month in the second year, and rising to $8.33 per month by the final year of the contract.”

16) Indiana: Despite reassurances from some politicians and analysts, concerns persist about risks to the public from the bankruptcy of the Indiana Toll Road “public private partnership.” One issue is that in the original agreement, toll increase restraints expire in 2017. “So whoever operates the road then will be able to raise tolls ‘substantially,’ WSBT-TV reported. That probably explains why some payday lenders—excuse me, I mean hedge funds—are buying debt from the consortium and lurking about to see who gets the keys to the Indiana Toll Road cash register. Should the consortium collapse—or whatever dying consortiums do—it isn’t entirely clear who takes over. Some say the state, some say the circling credit buzzards. My money’s on the buzzards, and if that’s the case, say some financial experts, lawsuits will be launched. Aggressive new owners will want to renegotiate the original agreement with the state to allow them—the buzzards—even fewer restraints,” writes John Bendel on Landline’s blog.

17) Indiana: Potential investors are circling around the rights to operate the Indiana Toll Road for the remaining 67 years of its lease. The bankrupt road’s creditors and equity investors have agreed to sell the rights. Potential investors reportedly include Abertis, Cintra, and a Canadian pension fund. “If no sale is completed, then a restructuring of the debt, held mainly by hedge funds, will be implemented.” [Public Works Financing, September 2014, sub required]

18) IndianaU.S. Bankruptcy Court judge approves a deal between the state and the private operator over the restructuring of the bankrupt Indiana Toll Road. “The bulk of the action is expected to play out after the bankruptcy. ITR Concession hopes to sell its right to operate the road in a process that will stretch well into next year, while it’s due in court later this month to seek approval of its Chapter 11 exit plan. The deal ensures the state of Indiana has a say in the road’s future.” The state has the right to approve or deny any new operator. The judge will hear the exit plan on October 28. [Sub required]

19) Indiana/Illinois: In the wake of the bankruptcy filing by the Indiana Toll Road’s operating company, concerns grow about the viability of the proposed Illiana Expressway project, which is also a “public private partnership.” Officials are complaining about a lack of transparency on the Illiana deal. The ITR bankruptcy “calls into question the validity of the project, [State Rep. Rick Niemeyer] said. Unlike the contract for the Indiana Toll Road, which protected the state from any financial responsibility in the event of a failure, the Illiana Toll Road does not have that same agreement.” A key meeting of the Chicago Metropolitan Area Planning Commission will take placethis Wednesday. Commissioners “may be having a change of heart on the viability of the project,” according to the Indiana Post-Tribune.

20) Indiana/Kentucky: The proposed toll services contract for the Ohio River Bridges “public private partnership” project is being protested. “TransCore’s letter urges the IFA and bi-state board to reject Kapsch TrafficCom IVHS Inc.’s proposal based on what it calls organizational conflicts of interest—ones Kapsch did not disclose as required—between potential contractors and a company hired last year to advise the bi-state board overseeing the $2.3 billion project.” On Friday, in a note saying that it didn’t expect the bankruptcy of the Indiana Toll Road to affect that state’s credit rating, Moody’s also noted that on the Indiana section of the Ohio River Bridges project “it’s the state, not the investors, that is ‘exposed to revenue risk should collected toll revenues be less than the forecast annual availability payments.’” [Sub required] Indiana opted for a P3 model for its portion of the project, while Kentucky is using a traditional public procurement model.

21) LouisianaLSU board signs off on deals governing the privatization of its hospitals. This despite “reservations voiced by some about a new provision that allows the contracts to be canceled with a 60-day notice. ‘That gives us only two months to find a new partner. It’s almost impossible, I think, to find a new partner in two months unless you have done a lot of staff work on a contingency plan,’ said Jim McCrery, a board member from Shreveport.” Louisiana Department of Health and Hospitals Secretary Kathy Kliebert called the new route “a model of trusting each other.”

22) Massachusetts: MassDOT will hold an industry forum Oct. 15-16 on two potential “public private partnership” projects—Route 3 South managed lanes and a third crossing of the Cape Cod canal. RFPs must receive approval of a Public-Private Oversight Commission.

23) New YorkErie County’s comptroller plans to outsource some of its internal audit functions, setting up a battle with the Civil Service Employees Association. “In a letter to the Legislature this week, Interim Labor Relations Director Mary Thomas Scott expressed concern over Comptroller Stefan I. Mychajliw’s proposal. Without the consent of the Civil Service Employees Association, Scott said, the plan would violate the state’s Public Employee’s Fair Employment Act and could prompt the union to file an improper labor charge. ‘Replacing the bargaining unit positions with an outsourced provider is ill-advised and not in the county’s best interest,’ Scott advised lawmakers in her letter.”

24) Ohio: Transportation officials are reviewing the winning bid received for the $429 million Portsmouth bypass project, the first road “public private partnership” in the state’s history. Differences between the bid prices submitted by competing consortia were extremely tight, reportedly owing to an intensely and increasingly competitive market for availability payment (subsidized) “public private partnerships.” [Public Works Financing, September 2014, sub required]

25) Pennsylvania: The Philadelphia Regional Port Authority issues a Request for Expressions of Interest (REI) for development of its Southport Terminal Complex. “The REI invites respondents to submit development concepts for one, two or all of the three sites, as the PRPA seeks interested parties to explore entering into one or more public-private partnerships (PPPs, P3) for the design, build, finance, operation and maintenance of the three available sites.” [Sub required]. Expressions of interest are due November 14, 2014. [PRPA REI]

26) Pennsylvania: The state auditor general is initiating another audit of the education department “to review oversight of contractors and consultants, including a former adviser to Gov. Corbett who allegedly was a ‘ghost’ employee.”

27) Pennsylvania: PennDOT will be issuing a Request for Qualifications for the development of compressed natural gas fuelling stations. “Pennsylvania will seek a private partner to design, build, finance, operate and maintain compressed natural gas (CNG) fuelling stations at up to 37 transit facilities throughout the state following approval by its Public-Private Partnership (PPP; P3) board.” [Sub required]

28) Pennsylvania: Bids were received last Monday on the Pennsylvania Rapid Bridge Replacement Project, which Public Works Financing calls “one of the most sought-after P3 projects in the U.S.” Bid results will be announced at the end of the month. [Public Works Financing, September 2014, sub required]

29) Pennsylvania/Think Tanks: The Center for Popular Democracy, Integrity in Education, and Action United issue a report on fraud and financial mismanagement in Pennsylvania’s charter schools. Calls for more rigorous anti-fraud auditing practices, adequate staffing of oversight agencies, and reviews by the state attorney general’s office, among other steps.

30) Virginia: Three teams are forming to bid on the $3 billion I-66 toll concession DBFOM “public private partnership.” The teams are Fluor-Granite-Lane Construction, Archer-Western-Skanska, and Cintra. Current projections show a shortfall of $100 million on Virginia’s gas tax revenues, raising questions about the ability of the state to pay the state’s large $750 million subsidy for the project. [Public Works Financing, September 2014, sub required]

31) Upcoming Meeting: The National Association of Water Companies will hold its annual meeting this week in Fort Lauderdale. Among the panels: “Public-Private Partnerships and Private Investment in Public Infrastructure: Lots of Talk—What Leads to Action?”

Legislative Issues:

1) MichiganLawmaker makes a renewed effort to impose speed cameras. Automated ticketing is not legal in the state, but “that could change under legislation introduced last month in the state Senate that would create the ideal environment for private companies such as Xerox, American Traffic Solutions (ATS) and Redflex Traffic Systems of Australia to take over traffic enforcement for cash-strapped municipalities and operate without any risk of being challenged.” [SB 1063]

2) New Jersey: A bill that would enable the state education chief to “revoke the ability of for-profit colleges to award degrees if they fail to achieve minimum graduation rates” has passed the education committee and gone onto the full chamber.

3) New York: Albany Mayor Kathy Sheehan presents a budget to the Common Council that would privatize parking enforcement, raise $2 million from red light cameras, and outsource the jobs of the city’s roughly 60 crossing guards to a for-profit company. “Taxes on commercial property would decline by about 3.6 percent.”