Media Scans
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This Week’s Outsourcing Scan 10-12-2015

1. National: As noted in last week’s scan, AECOM has settled out of court on an Australian damages claim for its “disastrously wrong” traffic forecasting numbers. Erroneously inflated projections were used to support road project development during the boom years of the “public private partnerships” (P3s) industry before the 2008 financial crash. But it turns out the issue continues to bubble on in the form of AECOM traffic studies used by Macquarie to promote U.S. highway “public private partnerships.” Public Works Financing reports that these could include Foley Beach Express (in Alabama), the SR 125 South Bay Expressway (California), Indiana Toll Road, and Chicago Skyway. A case over traffic forecasts for Foley Beach is already in the courts (Syncora vs. Macquarie; fact finding to be completed April 19). “With legal details of the settlements permanently hidden, U.S. consultants say the door is wide open for lawyers to pursue class action suits elsewhere.” PWF lists eleven U.S. P3 projects with forecasting errors, six of them involving AECOM.

As part of the Obama administration’s effort to support private investment in public infrastructure, AECOM was hired last month by the Treasury Department to select and appraise the 50 most significant water and transportation projects looking for federal funding. [Public Works Financing, September 2015; sub required]

2. National: The Defense Department has suspended the for-profit University of Phoenix from participating in the federal tuition assistance program for members of the military. “The sanction appears to be related to allegations about the for-profit chain paying for preferential recruiting access to veterans and service members. The nonprofit Center for Investigative Reporting published an article in July asserting that Phoenix has paid the U.S. military $250,000 over the last three years to sponsor 89 recruiting events, including concerts, a chocolate festival and a fashion show. The center also reported that Phoenix produced a commemorative coin, which it distributed on military bases, that included the Defense Department’s seal. The Defense Department’s inquiry also cited investigations of Phoenix by the U.S. Federal Trade Commission and California’s attorney general. Those investigations, both of which revolve around student recruiting and marketing, are still ongoing.”

3. National: The Congressional Research Service has produced a study on how the government can hold contractors accountable for failing to perform or other misconduct. “Broadly speaking, the government can be seen as having two types of legal recourse available to it in such situations. The first type involves rights provided to the government as terms of its contracts, which the government may exercise without resort to judicial proceedings. The second type involves other actions, not necessarily provided for by contract. In some cases, the government may take these actions on its own behalf, without resort to judicial proceedings. In other cases, the government must seek sanctions or damages through the courts.”

4. National: The American Bar Association’s tax exempt financing committee has issued a recommendation that the IRS and Treasury Department should issue guidance on “public private partnerships.” The ABA committee recommends they “create a new safe harbor, which at a minimum would state that contracts wouldn’t give rise to private business use if they were the lesser of 30 years or 80% of the useful life of the facility, with a flexible compensation structure.” [Sub required]

5. National: Public Works Financing laments the declining number of “public private partnership” projects. “Where did P3 deal flow go?” They cite a falloff in federal TIFIA lending, falling state level bond issuance, a stagnant gas tax, growing anti-toll sentiment, and a slowdown of P3 legislation. Jody Hecht of JEH Advisory adds another reason: the possibility that rating agencies may decide to treat “availability payments” (project public subsidies) as state debt, thereby weighing on state credit ratings. E.g., S&P views milestone payments as debt. [Public Works Financing, September 2015; sub required]

6. Delaware: The Newark City Council is to debate outsourcing municipal trash collection to Republic Services today. The proposal “has sparked a grassroots movement in support of city garbage haulers and hiking taxes to keep them on the job. ‘They have to dig their hands into garbage. Not for fame or richness, but to secure their daily bread,’ said Newark resident Michael Ziadat, who opposes the plan.”

7. District of Columbia: Ambulance workers denounce the decision by Mayor Bowser and the City Council to privatize some of DC’s ambulance service. “‘The quick passage of this plan is dangerous to the emergency care provided by EMS to District residents and visitors,’ said AFGE Local 3721 President Aretha Lyles. ‘This band-aid approach to a systemic problem will only send us back where we started.’”

8. Florida: In the Public Interest’s Donald Cohen asks some hard questions and recommends some best practices as Miami faces a privatization marketing drive. “There’s no doubt that Miami needs to innovate to keep up with growth, eliminate poverty, and prepare for climate change. But progress can be made without handing over control to private corporations for decades. The surest way to do that is to use public, tax-exempt financing, which provides the most flexibility for agencies and is the lowest cost of capital. But if legislators feel the need to tap the private sector to finance projects more quickly, then the public deserves more for that higher cost.”

9. Georgia: State officials will decide this week whether to shut down or keep open the Macon Charter Academy. “In the event the school closes—triggering a possible influx of nearly 700 students back into the school system, [Bibb County school Superintendent Curtis Jones] said he is weighing Bibb’s options. ‘Worst-case scenario, the students are going to be in school somewhere,’ he said.”

10. Illinois: After Mayor Emanuel proposes privatizing Chicago’s 311 call service, politicians speculate that it might be a political ploy which he may abandon down the road. “The Emanuel administration has been known to throw things into a budget that they’re willing to negotiate away, so they can seem like they’re listening in the process,” Alderman Rick Munoz said.

11. Illinois: The former head of the nation’s third-largest school district was indicted on federal fraud charges last Thursday. The charges involve kickbacks to Barbara Byrd-Bennett from contractors. “Also indicted were Gary Solomon, 47, and Tom Vranas, 34. The men co-owned and operated the suburban Chicago SUPES Academy and Synesi Associates. SUPES Academy provided training and professional development for principals and other school administrators. Synesi offered educational consulting, performance analysis and turnaround programs.”

12. MarylandBids are due November 17 from the four shortlisted consortia on the $2 billion Purple Line DBFOM “public private partnership,” whose federal funding prospects are looking decidedly shaky.

13. Maryland: Gov. Hogan (R) issues an executive order creating a unit to evaluate state agencies. “The unit, which will be headed by Luis A. Luna, a former assistant administrator of the U.S. Environmental Protection Agency and former vice president of corporate communications for Perdue Farms, will create performance metrics, collect data and conduct analysis on agency performance.”

14. New York: Officials admit that most savings made from outsourcing Broome County food services to Aramark would come from slashing wages and benefits. “Democratic Legislator Kim Myers questioned whether the meal cost was an accurate indicator of quality, considering it includes paying for Aramark’s capital. ‘That sounds like we’re getting charged for a meal that’s really not of the quality of that price,’ she said.” More than a dozen Central Kitchen employees attended a budget hearing last week, “which—according to normal procedure—did not include public comment.”

15. OhioAs Education Secretary Arne Duncan heads toward the door under a torrent of criticismhard questions linger over Ohio’s successful application for federal support for its charter schools. “The state education department did not respond to a request made on Wednesday to explain what criteria that assessment is based on. The federal department of education said it was examining the claim, but also couldn’t immediately explain it. Experts from the Fordham Foundation and StudentsFirst Ohio said they were unfamiliar with any ‘federal definition’” of the term “high quality.”

The Columbus Dispatch has praised the legislature for passing a bill last week, SB-2, aiming to tighten up charter school oversight. “This law is a game-changer. It makes leaps toward ending mediocrity, blatant self-dealing by charter-school profiteers and mismanagement and secrecy by charter-school operators soaking up hundreds of millions of taxpayer dollars.”

16. Pennsylvania: The state department of transportation is accepting unsolicited proposals for “public private partnership” transportation projects through the end of this month. “Proposals can also include more efficient models to manage existing transportation-related services and programs.” [Sub required]

17. Texas: Public agencies have paid out millions to an engineering firm involved in several lawsuits because, the Dallas Morning News reports, “local government agencies may know little about the past problems of companies that help design and build roadways, bridges and tracks used by thousands of commuters every day.” The firm in question, URS, is a subsidiary of AECOM (see above). “Local governments should not only be asking questions about a potential vendor’s background but ‘actually do something with that information,’ said Shar Habibi, research and policy director of In the Public Interest, a Washington, D.C., advocacy group that calls for ‘responsible contracting.’ ‘The point … is to make sure taxpayer dollars are going to responsible companies,’ she said.”

18. TexasJail bonds are still being brought to market despite a series of defaults. “Cleveland City Manager Kelly McDonald said she was aware of the difficulties other cities and counties have faced on for-profit jail projects that went into default. While most cities and counties scrupulously avoid a tax pledge, some are forced to find a use for facilities abandoned by their for-profit operators. ‘We are going into this with our eyes wide open,’ McDonald told The Bond Buyer.” Nine of the 21 counties that created conduit issuers have defaulted over the past decade. One underwriter “said that more lenient sentencing guidelines and federal detention policies were key factors in [his] company’s decision” to pull back from the deals. [Sub required]

19. UtahGoldman Sachs and the Pritzker Foundation are getting paid for their investments in a “social impact bond” for a preschool program. “Goldman Sachs is paid first,” said Andrea Phillips, vice president of Goldman’s Urban Investment Group. “While the Utah program was the first to pay off, Phillips said her group is anticipating similar results in a Goldman Sachs-funded program in Chicago.” [Sub required]

20. Virginia: The state will evaluate the qualifications of six private groups before it decides whether to finance I-66 improvements through a “public private partnership.” “Financial risks and benefits would be transferred to the private sector with a P3 arrangement, [transportation secretary Aubrey] Layne said. A more conventional method of using toll revenue bonds would put the financial risk on the state, but would give it the possibility of gaining an estimated $500 million of toll revenues that would not be needed for debt service or operational expenses, he noted.” [Sub required]

21. Washington/National: Loretta Taylor, the dean of corrections education for Walla Walla Community College at two state prisons, spells out the case for expanding prisoner education. “Most students who enroll in our program begin to see themselves as college students, capable of something better for themselves and they realize a much different future involving work, education and caring for their families.”

22. International: Battered by an economic and financial downturn, Brazil is going on a road privatization binge. The government is planning to privatize 15 roads this year and next, and has loosened bidding rules. [Public Works Financing, September 2015; sub required]

23. Think TanksThe Carnegie Endowment holds a forum on infrastructure and job creation.

24. Upcoming Meeting: The National Conference of State Legislatures will be holding its NCSL Capitol Forum in Washington, DC, from December 8-11.

Legislative Issues:

1. National/International: International negotiations on the text of the Trans-Pacific Partnership (TPP) agreement were concluded last week, setting up a legislative, political, and public policy battle over whether the pact will be approved by Congress. The deal is expected to be voted on by Congress early next year, so the cajoling and arm twisting is beginning. Opponents of privatization and supporters of responsible contracting and public interest regulation are concerned about elements of the agreement, the text of which is still secret. The Communications Workers of America says that TPP will harm public sector workers and services and spur privatization. The National Conference of State Legislatures is on record opposing the privatized dispute resolution mechanism in the agreement, undercutting democratic decision-making. The White House is vigorously promoting the agreement, and will likely have to rely on Republican votes in Congress to pass it. [Interview with Public Citizen’s Global Trade Watch director Lori Wallach on TPP (at 33:00)]

2. National: Public interest groups are calling on Congress to reject the appointment of “a notorious privatization advocate” to the U.S. Postal Service board. James C. Miller III has been advocating USPS privatization for nearly 30 years, and is currently on the board of directors of the Koch brothers’ Americans for Prosperity.

3. National: Several media outlets have reported that a Black Lives Matter representative said presidential candidate Hillary Clinton told them she will get rid of private prisons if elected.

4. Maryland: Developers are looking to get state funding for a hotel and conference center in downtown Frederick when the legislature reconvenes in January. “But convincing Gov. Larry Hogan that the state should contribute to a public-private partnership may be an uphill battle. Hogan’s administration is focused on reducing the overall amount of state borrowing and is evaluating each local request carefully, said Eric Shirk, a spokesman for the state Department of Budget and Management.”

5. Massachusetts: A public hearing is scheduled for Tuesday on a number of controversial charter school bills before the legislature’s education committee. The hearing “comes days after Gov. Charlie Baker unveiled a bill that he said would let the state add up to a dozen new or expanded charter schools each year outside the existing cap on the schools in Massachusetts. Critics say Baker’s bill would end up creating a two-tier education system.” [List of bills]

6. Massachusetts: The Joint Committee on State Administration and Regulatory Oversight held a hearing last week on contracting practices. A number of bills are under consideration, including HB 2723, “An Act to Promote Responsible Contracting on State Construction Projects.” The anti-union Merit Construction Alliance testified against project labor agreements, and apprentice and contractor reporting mandates.

7. MichiganForced overtime is undermining the health of patients in state psychiatric hospital, nurses say. “State hospitals are ‘mandating their staff to death, truly to death,’ said Eliza Marroni, a 41-year-old Plymouth nurse who said she left her job at the state’s Hawthorn Center in August because of the stress.” Sen. Rebekah Warren plans to introduce legislation this month “establishing staff-to-patient ratios at both public and private facilities and prohibiting mandatory overtime except for emergencies.”

8. Michigan: Lawmakers pass a bill repealing a ban on for-profit nursing homes hiring doctors. Now on the governor’s desk. [SB 0065]

9. Minnesota: Discussion continues on whether the state should lease an Appleton facility owned by Corrections Corporation of America or expand its own prison capacity. “But [Sen. Lyle Koenen, DFL-Clara City] also pointed out that the Department of Corrections request for $141 million in bonding to build new cells remains on the table. As long as the request is there, it signals that the department and Gov. Mark Dayton want to pursue this option, he said.” However, Bluestem Prairie criticizes media coverage of the Appleton prison issue for ignoring criticism of private prisons, and suggests watching the video of the Prison Population Task Force discussion of the subject.

10. Tennessee: State officials continue pushing their plan to privatize state buildings. “But despite being asked repeatedly by reporters to point to Fiscal Year 2013 budget figures or other data supporting the assertion, [General Services Deputy Commissioner John Hull] did not. This week officials will make a presentation before the General Assembly’s Fiscal Review Committee, a watchdog oversight panel.