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This Week’s Outsourcing Scan 11-12-13

Update: Upcoming Outsourcing Issues. November 11, 2013

1) National: In the Public Interest issues a new guide on the outsourcing of school services, with key questions to ask during meetings with school administrators, at school board hearings, and in meetings with allies. “An examination of private contractors’ track record shows that these companies often provide inferior service in the quest to maximize profits. Schools have experienced a number of problems after outsourcing school services including dirty classrooms, unreliable bus routes, improperly administered medicines, less nutritious meals, and unkempt grounds. Promised cost savings also often fail to materialize.”

2) National: American Water reports third quarter results. Operating revenues were down from the similar July to September 30 period a year ago ($829 million in 2013 vs. $832 million in 2012). CEO Jeff Sterba told the earnings call last week that “we’re awaiting final rate decisions in 3 pending cases that request the total of $97.4 million in annualized revenues.” He also reported on “what I think is really a historic initiative that launched in October. American Water and several other leading water industry organizations from both the public and private sector, as well as a couple of other companies, have come together under the name Value of Water Coalition. (…) The coalition’s education campaign is aimed at helping to increase the public’s understanding and awareness of water services.”

3) National: Corrections Corporation of America releases its third quarter results. Net income was up from $42.3 million in the third quarter of 2012 to $51.8 million in the third quarter of 2013. But revenue was down. CCA announced plans to proceed with construction of the Trousdale Correctional Center in Tennessee. It reports that “in October 2013, Trousdale County received notice from the Tennessee Department of Corrections of its intent to partner with the County to develop a new correctional facility to house State of Tennessee inmates. CCA is in discussions with Trousdale County officials regarding an agreement to provide and manage the correctional facility.” The company has also begun hiring staff for the Diamondback Correctional Facility in Oklahoma to reactivate the facility, though CCA does not “have a current customer contract and can provide no assurance that we will enter into a contract for the utilization of these beds.” CCA reiterated in its quarterly report that it considers “changes in the privatization of the corrections and detention industry and the public acceptance of our services,” and “the impact of any changes to immigration reform laws,” as risk factors to its business.

President and CEO Damon Hininger told last week’s earnings call that “we’re experiencing extremely limited public sector investment on new government-owned capacity to deal with growth and overcrowding. Which this lack of development is unprecedented in the last few decades within our industry.” But he expects that 11 of the states CCA is doing business in “are expecting a bed shortfall of nearly 12,000 beds over the next 5 years, which can create overcrowding situations for all of these states”; and that for California, “I think the round number is kind of 8,000 to 9,000.” Hininger also says “West Virginia is one of the states that we’ve been pursuing.” [Earnings call webcast]

4) National: The New York Times reports on racial disparities in charter schools. “At the 16 campuses that Great Hearts operates in the Phoenix area (where nearly 60 percent of public school students are Hispanic or black), 69 percent of the nearly 7,000 students are white. Only two of Great Hearts’ Arizona campuses participate in a federal program that offers free and reduced-price meals for low-income students. Of the almost 5,000 Basis students in Phoenix, Tucson and Scottsdale, roughly 12 percent are Hispanic and 2 percent are black. None of the eight campuses offer free and reduced-price meals, which is also the case at the San Antonio school.”

5) National: Beyond Bars, the ACLU and The Nation magazine are producing a video series exposing “the many powerful entities getting rich off mass incarceration.” Video on Corrections Corporation of America.

6) National: 3M vies for competitive advantage in the electronic monitoring technology business for convicted prisoners. “Corrections Corporations of America has a respectable monitoring segment in its own right, as does GEO Group, but they have stiff competition in 3M as one of the leaders in this young but ever-growing segment. Global economic setbacks in recent years have caused 3M to see low sales numbers. Nevertheless, the company garnered an operating income increase of four percent from its security segment in its latest fiscal year. Its 2012 operating cash flow was just over $5 billion with a yearly R & D budget of nearly $2 billion giving 3M the financial muscle to take over the security segment.”

7) National/International: Writing in the Columbia Journalism Review, Ryan Chittumtakes on one-sided and biased media coverage of privatization, citing a Wall Street Journal piece on the Australian “privatization spree.” Asks “where’s the context about the serious potential downsides of privatization or the quotes from union officials or other possible opponents? There is none.”

8) National: “Political risk,” in the form of shifting policy and rule changes, tops the list of worries in the privatization industry. Kaye Scholer attorney Joel Moser says “the greatest regulatory risk to the infrastructure market in the US is the lack of central planning. Infrastructure is best planned centrally by engineers but in the US planning is now done locally by politicians.” [Sub required]

9) National: 22 major “public private partnership” infrastructure projects are currently in the pipeline:

  • Massachusetts: Rt. 3 HOT Lanes
  • Michigan: New International Trade Crossing, Detroit-Windsor
  • Nevada: I-15 Project Neon
  • New Jersey: Newark Airport Terminal 3
  • New York: Goethals Bridge
  • New York: LaGuardia Terminal
  • Nevada: Boulder City Bypass
  • North Carolina: I-77 HOT lanes
  • Ohio/Kentucky: Brent Spence Bridge
  • Ohio: Portsmouth Bypass
  • Pennsylvania: Bridges repair project
  • Puerto Rico: Caguas light-rail
  • Texas: 183 managed lanes
  • Texas: SH 288, Houston
  • Texas: SH 99 Grand Parkway
  • Texas: Cotton Belt Rail Line
  • Virginia: I-66
  • Virginia: I-64 HOT Lanes
  • Virginia: I-73 improvements
  • Virginia: 495 extension
  • Virginia: Virginia Beach light rail
  • Washington, DC: Streetcars

[Public Works Financing, October 2013; sub required]

10) National: Social infrastructure “public private partnership” projects face headwindsin the U.S. The Long Beach Courthouse is the only social infrastructure P3 in the country so far. “While there’s a fattening pipeline and budding track record for transportation infrastructure P3s in the US, the prospect of a similar dawning of deals in social infrastructure is somewhere between slim and zero.” [Sub required]

11) California: City of Santa Paula begins a dispute resolution process against Santa

Paula Water, LLC, a joint venture of PERC Water Corporation and Alinda Capital Partners, “to determine its liability for the treatment and removal of chlorides at the Santa Paula Water Recycling Facility.” An arbitrator is being selected. Public Works Financing reports in its October issue that the city wants to buy the privately financed plant.

12) Colorado: The chair of Pinnacol, the state-chartered company that manages worker compensation policies, says its new CEO “has not been directed to restart the privatization process, even if officials say the subject is one that will need to be explored again.”

13) Connecticut: Bristol school cafeteria workers protest outside school board meeting against outsourcing their jobs to Whitson’s Culinary Group. The board rejected concessions agreed to by the employees, who are represented by AFSCME Local 2267. “The union has filed a complaint with the State Board of Labor Relations, and is in arbitration with the school board about whether privatizing the cafeterias would violate a labor agreement.” Last April, controversy flared up in Attleboro, Massachusetts when children went hungry in a Whitson’s-run public school cafeteriafor having as little as a five cent negative balance of their lunch cards. Whitson’s apologized.

14) Florida: The Palm Beach Post continues its series of exposés on the private prison industry. Runs an article by reporter Pat Beall on prison guards hired by Corrections Corporation of America, Geo Group, and MTC. “Bad guards happen, and they happen in public prisons, too. Even so, a Palm Beach Post investigation uncovered a disturbing series of criminal charges brought against private prison guards in Florida before, during or after their stints as corrections officers.” But thePost reports “while charges brought against public prison guards could be serious—one officer was charged with child abuse—most involved drugs or battery. By contrast, the charges levied against private prison guards tended to be more serious: armed robbery, burglary, grand theft, aggravated battery and welfare fraud. Nor is the problem confined to just one of Florida’s seven privately run prisons.” [Sub required]

15) Georgia: Atlanta Public Schools election may spur privatization. “Grant, Westmoreland, Collins, English, and Esteves—if Collins and Esteves are elected—would make for a powerful privatization voting bloc, that would have the potential to dramatically re-shape APS, making it a charter system; making charter clusters; or closing more traditional public schools while approving new charters.”

16) Illinois: Chicago religious leaders decry privatization of public sector jobs. “A particularly troubling aspect of the privatization trend is that many of the city employees who have been laid-off are African-American. For decades public-sector jobs have provided African-Americans with a path to the middle class. However, with the trend of privatizing public sector jobs being accelerated, that path is now blocked.”

17) Kentucky: Federal judge sets a June 18, 2014 trial date for a Corrections Corporation of America overtime lawsuit. “The case involves at least 25 people who worked at the Marion Adjustment Center in St. Mary’s. The group claims Nashville, Tenn.-based CCA forced them to work extra hours and denied them overtime. CCA has denied the allegations.” The state removed the last of its 800 inmates last year.

18) Maryland: Board of Public Works approves procuring the planned Purple Line light rail system as a full “public private partnership“ in which private, for profit companies would design, build, help finance, operate and maintain the system for 35 years. The Baltimore Sun reports that “Gov. Martin O’Malley noted that the Purple Line plan approved Wednesday calls for protections for labor, saying it would be contrary to Maryland’s values for the project to pay substandard wages. [Transportation Secretary] Smith said that while there will be no explicit requirement that the concessionaire use union labor, the state will give preference to bidders with a so-called ‘labor peace agreement’ in place. Smith said such an agreement would protect workers’ rights to vote on union representation. He noted that representatives of organized labor did not show up to oppose the plan.” The state will soon issue a Request for Qualifications from potential bidders, and the DOT is expected to issue a Request for Proposals next April and choose a winner in late 2014. The deal requires a $900 million federal TIFIA loan, which has not yet been granted. “A key question that will come before the Board of Public Works before it approves any final deal will be whether bond-rating agencies will count the state’s annual payments toward the private sector’s borrowing costs as government debt. That would limit funds for other state construction projects.”

19) New Jersey: Warren County residents turn out to oppose the privatization of the Warren Haven county nursing home. “Warren Haven residents, along with their caretakers and relatives who chose to speak at the forum, pleaded with the committee consider the ‘exceptional’ level of care residents receive by sharing endless uplifting stories. ‘No one wants to grow old and move into a nursing home, but the employees of Warren Haven have been like a family to us, especially those of us without families,’ said James Lubart, a resident of Warren Haven.”

20) New York: Bill de Blasio, the newly elected mayor of New York City, “intends to dial back or abandon“ many of the education policies of his predecessor. “‘If he does what he promised, he will be the most important national leader against the movement to close down and privatize public education,’ said Diane Ravitch, the education historian and blogger who opposes the kinds of changes Bloomberg championed.”Jennifer Jones Austin, the co-chair of De Blasio’s transition team, is a former Vice President of LearnNow/Edison Schools Inc.

21) New York: The Yonkers plan to use a “public private partnership” model to refurbish its schools has stalled. “The school district in 2012 had contracted law firm Freshfields Bruckhaus Deringer, Macquarie Group and URS Corporation to evaluate the project.” [Sub required]

22) North Carolina: Winston-Salem Journal editorial warns of “enormous conflict of interest possibilities” in Gov. McCrory’s effort to privatize the state economic development agency. “Transparency will be crucial. McCrory had better have his eyes wide open as he undertakes this new era of economic development. There are risks involved.”

23) Oregon: A state task force will consider reform options for the state’s liquor distribution system in the coming weeks. Some of the issues are discussed in anOregonian editorial. Suggests a “hybrid” system.

24) Pennsylvania: Harrisburg city council considers trash privatization. “Mayor Linda Thompson has a deal with Republic Waste Services, all ready to go. But Thursday night, city council said, “Hold on, there, Madam Mayor.” We have questions. Lots of questions. The council, led on this issue by Public Works Committee chair Sandra Reid, has good reason to balk. First and foremost is this, as Councilman Bruce Weber points out: ‘There was never any sort of public vetting of why we need to do it.’”

25) Pennsylvania: Pittsburgh Post-Gazette reports on state contracts with law firms, including over Gov. Corbett’s plan to privatize the state lottery, which has run up legal bills totaling $3.5 million. “In all, records show, the administration has spent at least $6.4 million since 2012 on outside law firms, either defending or pushing its agenda in those and three other controversial matters. And the total grows by the month.”

26) Texas: The LBJ Express managed lanes are to test traffic and revenue estimates when the first segments open in March. The private partners have taken traffic and revenue risk in the deal, so their returns could be short. “According to TXDOT’s recently published traffic counts, annual average daily traffic in the middle of the LBJ corridor was 189,000 in 2012. That is 22% less than TxDOT’s count in 2007, when AADT was 242,000.” Observers are also concerned about “rate shock” at the tolls. [Public Works Financing, October 2013; sub required]

27) Virginia: The Charlottesville Redevelopment and Housing Authority is considering restructuring public housing services. “Under this set-up, residents find housing on their own and use the assistance through RAD to pay for rent, rather than living in government-owned buildings.” The Charlottesville Public Housing Association of Residents says “one of our initial concerns is protecting affordable housing long-term. Our concern was that 15, 20, 30, 40 years down the road, these units would no longer be affordable housing—that they would convert to market rate or something like that.”

28) Upcoming Meeting: The Partnership for Working Families will conduct an intensive workshop track on transforming trash collection and recycling in cities at its February 4-6, 2014 Partnership Summit in LA. The Partnership recently hosted a webinar on “Transforming Trash for Jobs, Climate and Community Health.”

29) Revolving Door News: New documents uncovered by Nuclear Watch New Mexico reveal that former Rep. Heather Wilson (R-NM) spun through the revolving door in record time. The documents “reveal that Wilson left Congress on January 3, 2009, and began working for Sandia National Laboratories for $10,000 a month the very next day. Technically this is legal—the law states that Members of Congress may negotiate future employments once their successor has been elected. But just because these actions do not technically break the law doesn’t mean that they should be ethically acceptable.”

30) Revolving Door News: Corrections Corporation of America’s board of directorshas promoted Kimberly M. White to senior vice president of human resources from vice president of correctional programs. Prior to joining the company last year, White served 26 years at the Federal Bureau of Prisons.

31) International: There may be signs of renewed engagement between university researchers, governments, and agencies overseeing “public private partnerships.” Pierre Hamel of the University of Quebec “consults with municipalities several times a year.” Matti Siemiatycki, a university of Toronto geographer, raised questions about the unavailability of data to researchers, making claims of risk shifting to the private sector unverifiable. But the availability of research funding is uncertain. [Public Works Financing, October 2013; sub required]

32) International: The market for political risk insurance is surging globally as private investors in infrastructure face breaches of contract in “public private partnership” projects. [Sub required]

33) Research Paper on Infrastructure Investment Strategies for Pension Funds: Harvard University’s Larry Beeferman and Hastings Funds Management’s Allan Wain publish “Infrastructure: Deciding Matters,” their second paper on pension investment strategies. The authors “use as a reference an in-depth review of the decision-making process of one of the leading, if not the leading U.S. public sector pension fund on many matters, including infrastructure investment.” They build on the findings of their first paper, “Infrastructure: Defining Matters.”

34) Some Academic Papers on Various Aspects of Privatization:

 

Legislative Issues:

1) National: Contractors’ lobby resists bipartisan legislation to tighten up the process for suspending unethical contractors. The SUSPEND Act passed the House Oversight and Government Reform Committee on October 29. The bill “aims to boost the government’s suspension of unethical contractors by consolidating federal agencies’ suspension and debarment offices into a new government wide board.” [HR 3345]

2) National: As different House and Senate bills on funding water infrastructure may proceed to conference by the end of the year, the Soy Transportation Coalition, a supporter of both bills, is undertaking a study of “the tradeoffs inherent in P3s.” The coalition’s executive director says “it certainly is my conclusion that few have actually devoted quality thought to this issue.” [Public Works Financing, October 2013; sub required]. This Thursday, The Atlantic Council’s Energy-Water Nexus Initiative will hold a discussion on “Public-Private Partnerships: Financing Water And Wastewater Infrastructure.” Speakers from Veolia and M3 Capital Partners.

3) National: Nation Action calls on activists to pressure House Speaker John Boehner not to bring the SAFE ACT to the House floor. “This summer, the House Judiciary Committee passed the SAFE Act (HR 2278), a toxic measure that would transform millions of undocumented immigrants into criminals overnight. No longer a civil violation, not having papers would become a felony punishable by months or years in a US prison. Companies like CCA would reap huge profits off the changes—nearly half of all people in immigration detention are locked in private jails and prisons.” TheCenter for American Progress spells out “Who Would the SAFE ACT Endanger?”

4) National: Public-private project to build a high speed maglev train between DC and New York is proposed. But concerns are raised over whether it would threaten Amtrak’s ticket sales. “Threatening Amtrak’s ticket sales on the Northeast Corridor—by far its most profitable line—could lead the rest of its long-distance service to crumble unless Congress appropriates even more money for its operations. That will, no doubt, make Amtrak’s boosters, particularly in the Senate, nervous, and it will mobilize unions that represent the rail line’s employees.”

5) National: The Cato Institute, whose board includes right wing funders David Koch and Howard Rich, will hold a Capitol Hill briefing on “Mission Creep at the TSA and the Case for Privatization.” November 14.

6) California: Following union (UTLA) calls to scrap California’s “parent trigger” law, former Sen. Gloria Romero (D-LA) calls for reform of the law. Romero suggested that concerns over outside funding of “parent trigger” campaigns by organizations such as the Bill & Melinda Gates Foundation and Walton Family Foundation be addressed by tracking all money going to such campaigns.