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This Week’s Outsourcing Scan 11-18-13

Update: Upcoming Outsourcing Issues. November 18, 2013

1) National: Maximus Inc., a major outsourcer of public services, sees its profits rise nearly 51% in its fiscal 4th quarter. “Revenue from its health services segment jumped 49 percent to $271 million due to new work that included contracts to support the Affordable Care Act, the federal law known as the overhaul that aims to eventually cover millions of uninsured people. The expansion of existing programs and an acquisition also helped results.” Signed contracts reached a record level in 2013, and its sales pipeline was $2.4 billion as of September 30. [Press release; earnings call transcript]

2) National: Accenture PLC files its annual 10-K report with the SEC for the fiscal year ended August 31. Cites numerous “risks inherent in the government contracting process.” These include the fact that government entities “often reserve the right to audit our contract costs and conduct inquiries and investigations of our business practices with respect to government contracts.” 39% of Accenture’s $28.6 billion of net revenues came from the United States.

3) National: FCC issues final rule to curb excessive charges at public and private jails for interstate phone calls by prisoners. “Industry groups are fighting an August decision by the Federal Communications Commission to set a cap on the rates charged for interstate calls made by prison inmates. Two companies, Global-Tel-Link and Securus, control about 80 percent of the nation’s prison phone-call market. The new rule says calls cannot exceed 12 cents per minute, or 14 cents per minute for collect calls.” The FCC has also asked for public input on how to reform prisoner calling services.

4) National: Concern grows about hedge funds moving into the public municipal bond market. Thus far this $3.7 trillion market has been dominated by long term investors. “Having hedge funds as investors though may come at a far greater price, as many seek to turn a profit at the soonest possible time, forcing the municipality to undertake more obligations that it may be able to handle.” Some hedge funds are speculating in distressed or underpriced debt.

5) National: Fairholme Capital Management LLC offers to buy parts of Fannie Mae and Freddie Mac, the public mortgage finance companies, for $52 billion. “The nearly $5 trillion in assets and liabilities currently managed by the companies would stay with the government. The new companies would lose existing federal perks, including their government charters, loan guarantees and tax exemptions.” Sens. Corker and Warner are trying to move legislation to wind down the agencies over five years and liquidate their assets. [Sub required] “Most observers consider the Fairholme Plan dead on arrival because it is too opportunistic a move from the private sector. However, hedge fund manager Bill Ackman has stepped up his purchases of GSE stock and Pershing Square Capital Management LP currently controls nearly 10% of Fannie and Freddie stock. This move could put more pressure on the GSE regulator and Treasury Department to negotiate or face a long legal fight.”

6) National: Congressional Budget Office report says that eliminating tax exemption on private activity bonds, which are frequently used in “public private partnership” deals, would increase federal revenues by $30.5 billion from 2014-2023. [CBO, “Options for

Reducing the Deficit,” pp. 135-136]

7) National: French-based food services outsourcing company Sodexo sees its profits drop by 26%.

8) National: Legal scholar Ellen Dannin looks at Massachusetts’ Pacheco-Menard Law, which “protects the state treasury and infrastructure—and the people of Massachusetts – from looting. But critics of the law treat the decision about whether public services or infrastructure should be private or public as if it were a choice of paper or plastic, or a team sport where you cheer on Team Privatization.” [Text of law]

9) National: Wells Fargo Securities report warns of risks in anticipated managed lanes revenues. “The managed lane concept may provide a more efficient means of adding new capacity while limiting capital costs,” the report said. “However, there are no free lunches, and this new capacity offers a unique risk profile compared with traditional toll facilities.” [Sub required]

10) Arizona: As the ACLU awaits a state supreme court ruling on its standing to sue the Department of Corrections over mistreatment of Arizona inmates by private healthcare provider Corizon, the American Friends Service Committee releases a report detailing continuing grossly inadequate care. “Correspondence from prisoners; analysis of medical records, autopsy reports, and investigations; and interviews with anonymous prison staff and outside experts indicate that, if anything, things have gotten worse.” AFSC says “the state is fighting tooth and nail,” and “the final resolution will likely take years.”

11) California: The Newport Beach City Council last week narrowly approved a trash outsourcing plan. The deal is for “a $19.8 million, seven-year contract with CR&R Waste and Recycling Services to replace city crews with workers from the Stanton-based trash hauler over the next 18 months.” The contractor “is required to offer jobs to qualified city trash workers.” [Sub required]

12) Colorado: Colorado State University proposes building two new parking garages. CSU is also “investigating whether it could or should sell portions of its parking facilities and concessions to a private contractor in return for a large up-front payment.” The university has said that “if privatization is proposed, a public process would occur and proposals would be open for discussion with the university community.”

13) District of Columbia: U.S. General Accountability Office report assails the local agency responsible for the DC school voucher system for being unable to ensure that taxpayer dollars are being spent legally. “Critics will properly say that public money shouldn’t be used for tuition at private schools where there is no public oversight. They see voucher programs—which have been introduced in recent years in a number of states with state funds for students from low- and middle-income families—as part of the corporate-influenced school reform movement that seeks to privatize public education rather than find real solutions to the complex problems that face many public school districts. They have the far better argument.” [GAO Report]

14) Florida: Palm Beach Post exposé on private prison companies continues, with a report on arm twisting, lobbying, and “indirect threats” to legislators asking basic questions and opposed to prison privatization. Gov. Scott’s chief of staff Steve MacNamara “says he ‘may’ have had discussions about prison privatization with his friend, GEO lobbyist Jim Eaton. But [then-Senator] Fasano believes he had a much more direct involvement. ‘There is no question he was the puppet master.’” [Sub required]

15) Georgia: DeKalb County school board rejects proposal to create a cluster of charter schools in the district. “Clearly, the deep doubts that some parents have about DeKalb can be justified. But can they be allayed by shucking the central office and putting seven schools and $40 million in budgets under the control of a private board that is not elected?”

16) Illinois/Indiana: Requests for Qualifications have been issued by both states for the $1 billion Illiana Corridor “public private partnership” (DBFOM). Illinois deadline is December 19; Indiana deadline is January 10. “The Chicago Metropolitan Agency for Planning (CMAP) gave half-hearted consent to the project last month. Agency approval was required for Illiana to receive federal funding.” [Sub required]Industry forum December 4.

17) Illinois: Chicago startup is developing technology to track public assets. “Cities are losing millions of dollars every year to illegal billboards, unpermitted construction, and inefficient maintenance of public assets. The problem is inherently about scale—how can a city with limited enforcement and maintenance staff track and monitor every billboard, every construction site, and every inch of public infrastructure? They simply can’t; it is cost prohibitive to track micro changes in the built environment.”

18) Louisiana: Gov. Jindal looks at privatizing some functions of the state Office of Motor Vehicles. “Legislators already are calling [Motor Vehicles Commissioner Stephen Campbell] to ask if it’ll cost drivers more, he said. ‘The answer is “yes.” But would you rather give us 600 employees back?’ Campbell said, referring to positions that have been eliminated previously.”

19) Louisiana: Privatization of the state’s charity hospital system will cause state pension payments to rise. “This is due to the retirement system’s outstanding $6.4 billion debt, called the unfunded accrued liability. While it stays the same, the number of people paying into the system dropped because of the hospital privatizations. This means the pension costs for each remaining state worker will be higher, and this will fall to agencies to pick up.”

20) Maryland: A Request for Qualifications has been issued for the $2 billion Purple Line light rail “public private partnership.” The RFQ contains a “labor peace agreement” requirement which “will contain a provision prohibiting the labor organization and its

members from engaging in any picketing, work stoppages, boycotts or other economic interference with the operations and maintenance of the Project.” The deadline for responses is December 10. BMO Capital Markets is advising the Maryland DOT and Maryland Transportation Administration. A shortlist of bidding teams to be sent a Request for Proposals, which is expected to be out in January. [Sub required; Purple Line Presentation]

21) Michigan: Detroit privatizes residential trash services to Rizzo Environmental Services and Advanced Disposal Services. Advanced Disposal Services is owned by the New York private equity firm Highstar Capital. Highstar Capital purchased Veolia ES last year, making Advanced Disposal Services the largest privately owned waste company in the U.S. [Sub required]

22) New Jersey: Runnells Hospital employees ask incisive questions about the proposed privatization of their facility. “The Request for Proposal for sale or lease of Runnells Hospital issued in September by the Union County Freeholders and Improvement Authority contained no guidelines, no protections and no benchmarks for maintaining quality of care and services, protecting the rights and working conditions of nurses and staff, or taxpayer accountability, or access to care for our residents,” says Ann Howarth, vice president of the Health Professionals and Allied Employees Local 5112. Responses to the RFP are due December 10.

23) New Jersey: “Public private partnership” project for downtown parking in Moorestown stalls. “Redoing our parking lot, it’s already our asset, our responsibility, that’s one thing,” Township Manager Scott Carew says. “Getting into a public-private partnership, in terms of maintenance of the other parking lots, is a completely different level of commitment and investment. So, not saying it shouldn’t be looked at, but if it is, I don’t think it should be looked at as one project. Perhaps two projects or phased in.” [Sub required]

24) New York: Parents file a lawsuit to block the state from turning over detailed student records to a private database run by inBloom, “a nonprofit funded by the Bill & Melinda Gates Foundation. (…) Local 372 of the American Federation of State, County and Municipal Employees, which represents New York City school employees, played a key role in supporting the case. Hearings will be held in Albany on December 6. [Class Size Matters has a newsletter that will follow the case]

25) New York: Aramark staffer pleads guilty to stealing more than $35,000 in lunch money from Mount Vernon school system.

26) Ohio: Plan to lease Cincinnati’s parking meters, lots and garages to the Port Authority is ended. The Port Authority had planned “planned to sign off operations to private companies from around the country.” The move to terminate the outsourcing “follows the Nov. 5 election of [Mayor-elect John] Cranley and a City Council supermajority opposed to the parking plan. ‘It is a tremendously positive announcement for the city and its citizens that the current parking deal is now dead,’ Councilman P.G. Sittenfeld said in a statement. ‘I was glad to help sound the alarm on this deal from the beginning, but this victory ultimately belongs to the public, who were instrumental in providing sustained public pressure. This has shown us that the public values its public assets and wants long-term solutions to our financial challenges, not short-term fixes.’”

27) Ohio: Crain’s Cleveland Business weighs in to support ProgressOhio’s standing to sue in its lawsuit against the privatized JobsOhio development agency. The Ohio Supreme Court heard oral arguments on the issue two weeks ago. “The decision of the Republican-dominated Supreme Court to take up the case is a victory in itself for the left-leaning ProgressOhio, which has won the support of the conservative 1851 Center for Constitutional Law in pursuing the matter. The reason the latter group is standing with the plaintiffs is its belief—which we share—that taxpayers should have broad access to the courts to enforce the Ohio Constitution’s structural restraints on government.”

28) Pennsylvania: Harrisburg Parking Authority approves leasing the city’s parking facilities for 40 years to a private, for-profit company. The lease itself will be voted on next week. Standard Parking is expected to get the deal. An Advisory Committee to Standard Parking on the lease is expected to be subject to Pennsylvania’s “right to know law,” but not necessarily to its Sunshine Act.

29) Pennsylvania: Auditor General issues report on mismanaged outsourcing of payroll services to private contractors. Leslie Haber, executive director of United Home Care Workers of Pennsylvania, says “the Corbett administration made a big mistake by outsourcing fiscal management services to PPL from a system of providers that was functioning effectively for years. Not only did thousands of home-care workers—who make an average of $10 an hour—not receive a paycheck for months at a time; those they care for endured the added stress of not knowing if their care would continue.” [Auditor’s report]

30) Tennessee: State auditor’s report criticizes state real estate outsourcing contract. “Among other things, auditors took aim at what they called the creation of an ‘organizational conflict of interest’ in the contract. That means Jones Lang LaSalle stands to profit from its very own recommendations to shutter and sell off state-owned buildings, then move operations to privately leased space because the company gets up to a 4 percent commission in cutting real estate deals.” [Tennessee Comptroller’s audit]

31) Virginia: Standing room only crowd implores Roanoke school board not to outsource bus services and to modify renovation plans for Glenvar High School. “In August, the board announced its was again exploring potentially outsourcing the system’s nutrition, transportation and nursing services. While no decision has been made, officials have put out a request for proposals and just the move to look at privatizing has already rankled some in the community, including those who fear losing their job.”

32) Wisconsin: Private and voucher-supported schools are taking a bigger chunk of Milwaukee’s school budget. “The percentage of children in schools outside the mainstream MPS system has, for the first time, crossed 40%. In other words, two out of every five Milwaukee children whose education is paid for by tax dollars are not being taught by MPS teachers. (…) There was a sharp increase in students in charter schools run by organizations independent of the MPS structure, not staffed by MPS principals and teachers, but authorized to operate by the Milwaukee School Board.”

33) Puerto Rico: Forbes contributor Jake Zamansky looks at how Wall Street has profited from Puerto Rico’s public debt misery. “The Street’s endless thirst for underwriting fees and brokerage commissions has brought the municipal bond market in Puerto Rico to the brink.” He reports that “due to the increasing deterioration of the municipal bond market in Puerto Rico, investors have been forced to liquidate due to margin calls and vulture hedge funds, according to reports from the Wall Street Journal and Bloombergthis week, are jumping in to take advantage.”

34) Virginia: Virginia and Metropolitan Washington Airports Authority police are to step up enforcement against drivers who track back to avoid tolls on the Dulles Toll Road. Tolls are scheduled to go up again in January.

35) International: The U.K.’s National Audit Office has issued a memorandum on the role of major contractors in the delivery of public services. Looks at competition, profit levels and performance. Four case studies, including G4S. Its purpose is “to stimulate a public debate on how to improve government contracting.” [Full report]

36) International: Toronto Mayor Rob Ford, who campaigned on privatizing the city’s garbage collection, is engulfed in scandal.

37) International: The World Bank is looking for a Public Private Partnerships director.

38) Revolving Door News: The New York Times looks at proposals to deal with the revolving door between government and the private sector. “Now, groups like Public Citizen and the Project on Government Oversight are thinking bigger, advocating novel, if long-shot, ideas to narrow the revolving door. Raise the annual salary of government officials to $400,000. Require agencies to post a webcast of their meetings with industry lobbyists. Lengthen the one-year cooling-off period during which some lawyers and lobbyists are barred from having official contact with their former government employers. And then there is Sheila C. Bair’s idea: a lifetime ban on former regulators’ working for institutions they once policed.”

39) Think Tanks: The Center for Effective Government has issued a report on how the American Legislative Exchange Council is moving its assault on the U.S. regulatory system into the states. “ALEC is pushing model state legislation that would make it harder for state public health, environmental, and labor agencies to issue new health and safety standards. In addition, ALEC has championed efforts to prohibit local governments from adopting standards stronger than those on the state or federal levels.” Warns states to “be on the lookout.”

40) Think Tanks: The pro-privatization Reason Foundation has launched a monthly Privatization & Government Reform Newsletter.

41) Think Tanks: Washington Policy Center steps up its aggressive promotion of privatization, publishinga new report on private online education and hosting Reason Foundation privatization proponent Leonard Gilroy to talk about privatizing state parks, parking facilities, public works departments and “contract cities.”

 

Legislative Issues:

1) National: House leadership announces its negotiators for an upcoming conference with Senate leaders on legislation authorizing $8.2 billion worth of funding for water infrastructure. The Senate has also announced its conferees.

2) National: Sens. Warner and Blunt are lead sponsors of legislation to create a financing authority for infrastructure. “Warner said that state and local governments could use the loans in conjunction with investments from the private sector and other sources of funds. He added that the legislation is continuing to gain bipartisan support, so this may be something that Congress can get done.” [BRIDGE Act summary]

3) Illinois: Union League Club and Better Government Association weigh in to demand that a proposed Privatization Transparency Ordinance be freed from being bottled up in the Chicago City Council’s Rules Committee. “Frankly, this ordinance helps the mayor do a better job for the City of Chicago,” Alderman Brendan Reilly says. “We need to have a more deliberative process and an open conversation and a very thorough review of the details, the impacts and consequences, that come with these deals.”

4) New York: Chautauqua County Executive Vincent Horrigan is confident the new county legislature will approve the privatization of the county nursing home in January. “I don’t see this as the negative that some people see with selling the home,” Horrigan says. [Sub required]

5) North Carolina: The Alcoholic Beverage Control Commission is tightening up enforcement of its rulesin order to curb bar-related violence and underage drinking. “Some recommended changes may go to the General Assembly next May. But the list is not likely to include a proposal to privatize sales. [Commission Chairman Jim Gardner], a Republican who generally believes that private enterprise can outdo government, nevertheless is hesitant to overhaul a system he says has worked well for North Carolina.”