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This Week’s Outsourcing Scan 11-25-13

Update: Upcoming Outsourcing Issues. November 25, 2013

1) National: As Thanksgiving approaches, public interest groups highlight risks of outsourced food safety inspection to consumers and food workers. US PIRG has issued a report on food safety scares in 2013, and says that the 2011 Food Safety Modernization Act “is not being implemented effectively or in a timely manner.” The Southern Poverty Law Center has published a slide presentation detailing threats to food worker safety from line speed-ups and outsourcing. “The USDA is currently preparing to finalize a new regulation that will increase line speeds in poultry plants. The rule also would remove government inspectors from the processing lines, allowing companies to hire their own inspectors.” [SPLC report, “Unsafe at These Speeds: Alabama’s Poultry Industry and its Disposable Workers”]

2) National/International: The Southern Investigative Reporting Foundation takes a close look at Brookfield Asset Management, the Canadian asset management company with assets under management of over $180 billion. BAM “is a ‘significant’ investor“ in Brookfield Infrastructure Fund II, which recently raised $7 billion for private investment in infrastructure. The fund has “a focus on transportation, renewable power, utilities and energy assets in North and South America, Europe and Australasia. Investors include the $11.2 billion Maine Public Employees Retirement System, Augusta, and the $17.3 billion New Mexico State Investment Council, Santa Fe.”

3) National: Federal Reserve Bank of New York issues report and holds press briefing on public vs. private higher education. Finds that “between 2000 and 2011, for-profit enrollment in less-than-two-year institutions more than doubled, with 52 percent of this growth taking place in the three years after the onset of the Recession”; “Tuition and student loans are much higher at for-profits than publics”; and “graduates of for-profits are more likely to earn less, default more, and experience unemployment more than their counterparts at public and non-profit institutions.” [Presentation (slides 14-47)]

4) National: The Washington Post profiles Deltek, the little known software services company at the heart of federal government contracting. “Last year, Deltek, by then majority-owned by a private equity firm, sold for $1.1 billion. It has become essential to the functioning of the federal government, but few outside the Beltway have ever heard of it.”

5) National: The New York Times investigates contractor performance and government oversight issues in the breakdown of the Affordable Healthcare Act website rollout. “One computer expert with intimate knowledge of the project said, ‘Literally everyone involved was at fault.’”

6) National/International: Private fundraising for global infrastructure has reached pre-financial crisis levels, jumping to $35 billion year to date 2013, compared to $28 billion in 2012. But concerns are increasing about high costs and the role of private equity in private infrastructure investment. “We want investors with the wherewithal to stay with the asset for a long time, and manage the asset at a low cost and good efficiency,” says a Canada Pension Plan Investment Board official. [Sub required]

7) National: Private investors are building up shares in Fannie Mae and Freddie Mac, the housing finance companies that were taken over by the federal government during the financial crash. “Any move to restructure and privatize Fannie and Freddie would need the government’s approval. What policymakers want to avoid is a return to the old structure, one in which the desire for private profit exposed the public to unreasonable risks.” The White House opposes privatizing the companies.

8) National: Drop in traffic since the onset of the recession hits investors in private roads, according to the Wall Street Journal. “But the financial crisis and recession defied assumptions. U.S. driving peaked at 3 trillion miles in 2007, then started on its largest decline since World War II, federal data show. The housing bust crimped development plans along new roads, helping render traffic forecasts inaccurate.” Recent deals have instead been based on continual public subsidies to private builders and operators. Tollroads News comments on the report that “we’re trying to work out which projects would constitute the ‘some’ that the WSJ says are  on ‘firm financial ground.’”

9) National: Journalist and communications strategist Zaid Jilani looks at Deloitte’s recruiting policies at graduate schools of public administration. “Deloitte’s heavy presence and early recruiting at the Maxwell School is ironic. After all, my school began not as a recruitment center for for-profit corporations like Deloitte but as a ‘school of American citizenship,’ as its founder George Holmes Maxwell described it, with a primary goal of training Americans to work in government.”

10) National: GAO report criticizes Department of Homeland Security and Immigration and Customs Enforcement (ICE) for maintaining inadequate monitoring systems on sexual abuse and assault allegations in the immigration detention system. Recommendations cover public and private facilities.

11) National: Rail magazine publishes a feature story on private railways. But Next Citycautions that “while a few promising railways make the list, reading between the lines illustrates the pitfalls of trying to make a buck off a traditionally money-losing industry.”

12) National: Online private education company Coursera raises an additional $20 million in capital, “bringing its mammoth series B round to $63 million.” The additional funding “was raised from three partner universities that offer courses on Coursera (these institutions have not been announced), GSV Capital and Learn Capital.”

13) California: Publically-funded and Caltrans-managed $417 million tunnel bore

project opens ahead of schedule and under budget.

14) California: Widespread opposition mounts against building “Lexus lanes” on the 405 Freeway from Long Beach to Costa Mesa. “The political shift over toll lanes has several causes. Some of Orange County’s toll roads have struggled to attract drivers and each of the major corridors has been forced to refinance its debt to avoid possible default. There has also been the sticker shock: Riding the 91 Express Lanes can cost nearly $10 each way at the most congested hours, an investment even for Lexus drivers. If the 405 toll lanes are built, the priciest one-way toll would cost $9.91.”

15) California: Western Growers Association-controlled company to profit handsomely from the Affordable Care Act, despite WGA’s fierce opposition to the program. “Beyond its opposition to Obamacare, their contract is significant for another important political reason: loyal Calbuzzers will recall that the influential lobbying group has used its political and financial clout – sometimes secretly, surreptitiously and sneakily—to fight against candidates who are the kinds of progressives who firmly support the legislation.”

16) Georgia: The est. $845 million Northwest Corridor toll road “public private partnership” project (design, build, and finance) is awarded a $275 million federal TIFIA loan. The State Road and Tollway Authority will operate and manage the project. [Sub required]

17) Illinois: Mayor of Quincy proposes outsourcing garbage and recycling collection to a private, for profit company. “The average cost would increase to $13.20 per month under one proposal and to $15.78 per month under a second, with that fee tacked on to customers’ water bills, regardless of how much trash is collected at each home.”

18) Indiana: State court of appeals to hear oral arguments today in an appeal against a lower court’s order that taxpayers must pay IBM $52 million “over a failed welfare privatization project.” [ITPI media resources on the case]

19) Kentucky: Kentucky Transportation Cabinet conducts public survey to get input on planning future transportation needs. “The survey found that maintenance of bridges topped the list of important transportation issues for respondents, with ‘improving safety along roadways in Kentucky’ a close second. When asked how strongly respondents would support various transportation funding options, respondents seemed most supportive of government bonds/borrowing (averaging an approval of 3 out of a possible 4), tolls (about 2.75 out of 4), and an increased sales tax for transportation projects (scoring about 2.25 out of 4).” [Survey results]

20) Maryland: Coalition formed to try and block the privatization of the Montevue assisted-living facility in Frederick County. “Tea party-inspired county commissioners have voted to sell Montevue and an associated nursing home to a for-profit company. The new owner wouldn’t have to accept any more older residents who can’t afford assisted living and don’t have any place else to go.” A critic says “the county was selling too cheaply to the new owner, Aurora Health Management. The sale price is $30 million, compared with the $38 million that the county paid to build the new facility. ‘It’s a very lucrative contract for Aurora. It’s not a good contract for the county.’” [Save Montevue website]

21) Michigan: Demos issues a report looking at the Detroit bankruptcy issue, and concludes that “Detroit is bankrupt not because of its outstanding debt, but because it is no longer bringing in enough revenue to cover its immediate expenses.” Senior Fellow Wallace C. Turbeville, a former Goldman Sachs investment banker, recommends that “privatization or other monetization of the Water and Sewerage Department should be dropped. The city is only a part of this system. Moreover, the asserted benefits of such a plan are not likely to be realized.”

22) Michigan: Eclectablog reports that charter schools “are strangling public schools” in Michigan. Diane Ravitch quotes Garrison Keillor: “‘When you wage war on the public schools, you’re attacking the mortar that holds the community together. You’re not a conservative, you’re a vandal.’ The vandals are inside the gates in Michigan, ransacking public education across the state.” Last week Moody’s issued a report saying it had downgraded 53 public school districts in Michigan.

23) New Jersey: State officials plan to privatize EZ Pass and cash toll collections in the state in 2016. “The return of privatization comes as the authority is back at the negotiating table with the union representing toll collectors, seeking more contract concessions.” Franceline Ehret, outgoing president of Local 194 of the International Federation of Professional and Technical Engineers, “said the authority given several deadlines this year for the union to reach a new contract, which they met, only to be presented with requests for more contract givebacks under the threat of privatization. ‘It’s very extreme, it guts the entire contract,’ she said, of the changing demands. ‘There isn’t any serious intent to negotiate. The intent is to privatize.’” The New Jersey Turnpike Authority will issue a Request for Proposals. The current contract with Xerox for the EZ Pass operations ends July 31, 2016.

24) New York: Officials assure employees and supporters that no decision on the possible privatization of Massena Memorial Hospital will “be made in the immediate future,” and will take “longer than two months.” Wayne Lincoln, a hospital employee and Civil Service Employees Association member said that “hospital employees pointed to several ideas they have presented, all of which they say have been shot down or ignored. ‘The unions have offered $100,000 in insurance savings. That has been ignored,’ Mr. Lincoln said, adding he’s also suggested the hospital do something to streamline its registration process. ‘They won’t change it,’ he said. ‘If you’ve ever been through that process, it’s really frustrating.’”

25) New York: The $1.5 billion Goethals Bridge replacement project reaches financial close. It is a 40-year design, build, finance, operate and maintain concession with government subsidies. Macquarie and Kiewit, the concessionaires, are investing $113 million in equity. [Sub required]

25) North Carolina: The state DOT is looking for a consulting company to manage its statewide transportation assets. Responses are due December 17. [RFP]

26) Ohio: State audit finds problems at JobsOhio, the privatized economic development agency. JobsOhio “failed to document thousands of dollars in expenses and neglected for months to have executives and board members sign conflict of interest policies.” [Audit]

27) Oregon: Liquor store owners and craft distilleries are worried about proposals to allow grocery stores to sell hard liquor. “Grocery stores have been clamoring to sell liquor and have said they’re looking at pursuing a ballot measure that would privatize the liquor control system.”

28) Pennsylvania: Philadelphia narrows the list of potential private bidders for the Philadelphia Gas Works, but does not say who they are. “It appears, however, that Nutter will have to expend a lot of political capital in convincing a wary council and a skeptical city controller of the benefits of the deal. For more than a year, council has stalled on bring Bill No. 120118 to the floor. That bill simply calls for the Committee on Transportation and Public Utilities to hold hearings to examine the feasibility of transferring ownership or operations of Philadelphia Gas Works to a private entity, but the bill and overall maneuvers to sell PGW has drawn unparalleled scorn from a bevy of interested stakeholders, many of whom testify against the sale during council’s weekly public meetings.” Final bids are due in January, and the sale terms will be finalized in February.

29) Rhode Island: Cranston school committee is considering privatizing its bus system. Local 1322 of the Laborers’ International Union of North America has countered with a “Go Local, Stay Local” campaign. The only bidder to respond to a request for proposals was First Student. “So far, the union appears to be winning. Joseph Balducci, School Department chief financial officer, confirmed figures Monday underlying his preliminary analysis of the cost of keeping the busing in-house compared with a contract with First Student. Over five years the First Student proposal would cost about $1.8 million more.”

30) Texas: The concession company (owner by Ferrovial and Zachry) running the tolled sections of SH 130, which is facing possible default, has hired restructuring attorneys with Gibson, Dunn & Crutcher. “Moody’s expects the company will use much of its cash to service a December debt payment and may not have enough cash to meet a June 2014 debt payment, the report said. A default could cause the Texas Department of Transportation to end the concession agreement, according to the Moody’s report.”

31) Washington: Washington State Transportation Commission survey finds that 60% of respondents say they would be willing to be taxed more to support a transportation system that meets public needs.

32) West Virginia: Kanawha County public library system director Alan Engelbert rejects the idea of privatizing the system. Karen Goff, library development director with the West Virginia Library Commission, says “my concept of a private library is that it wouldn’t have that compelling need to provide all sides of the opinion, which is an underlying ethic of public libraries.” Former librarian Yvonne Farley says, “privatization is such a bad idea that I almost don’t know where to begin. Ask yourself if a private library will make decisions in the public interest or for profit. Where will they cut corners? Will they hire qualified staff? How will charging for services affect the poor, senior citizens, the unemployed and others with limited incomes? Libraries should be accountable to the public and work in the best interest of the community—not for increased profits for its operating company.”

33) Revolving Door News: Bill Thompson, former comptroller of New York City and unsuccessful mayoral candidate, is rehired by Siebert Brandford Shank, a municipal investment bank and financial advisor. “Thompson previously served at Siebert from 2010 until 2013, when he began his run for mayor.” [Sub required]

34) Revolving Door News: Seth Andrew, the founder of Democracy Prep charter schools, has become a senior adviser to Education Secretary Arne Duncan and the Education Department.

35) Think Tanks: Cato Institute publishes a paper advocating the privatization of the Transportation Security Agency (TSA). Author and commentator Tim Shorrock tweets that “privatizing TSA is a libertarian capitalist fantasy. The only people pushing it are a handful of contractors, right-wing Republicans & Cato.”

36) Research Report: PricewaterhouseCoopers analyzes private investment prospects in global airports. The main privatization activity is expected in Europe and the emerging markets.

37) Transportation Meeting Report-back: Road privatization critic and Tea Party activistTerri Hall reports on the road transportation summit held last week in Washington, DC. Among other things, Hall points out that “the National Environmental Policy Act (NEPA) is one of the only laws that requires public input at every stage of the decision-making and is the law that triggers the public hearing process.”

 

Legislative Issues:

1) National: Congress passes legislation improving the safety and quality of the nation’s drug supply. A new tracking system for prescription drugs will be introduced and compounded drugs will be more closely monitored. “The Drug Quality and Security Act establishes a new category of FDA-regulated compounders, called ‘outsourcing facilities,’ that will undergo regular inspections, meet more rigorous quality standards, and track and report adverse events.”

2) National: Senator Mike Lee (R–UT) and Representative Tom Graves (R–GA) introduce companion legislation to slash the national gas tax, cut back funding for the federal highway program, devolve responsibility for national highway programs to the states, and open the door for more deals with private, for-profit infrastructure and finance companies. Targets rail, streetcars and buses for cutbacks. [S.1702 and H.R. 3486The Campaign for America’s Futuresays the bill “would cut the gasoline tax by 80 percent” and “mean that states would be largely left to their own devices, with only a tiny block grant from Washington.”

3) National: A House-Senate conference committee met last Wednesday on the water resources bill. [Video]

4) North Carolina: Legislative report conflicts with state auditor’s report on Medicaid administrative costs. The legislative report found that “administrative costs in the state Medicaid program are relatively low compared to other states.” The News & Observer says that “Gov. Pat McCrory has used the audit to push the narrative that Medicaid is ‘broken’ and needs reform.”

5) Pennsylvania: Legislature passes $2.4 billion transportation bill. “Other initiatives that failed earlier on the year but could be up for discussion by year’s end include privatization of the liquor stores and lottery systems, and overhauling the state employees’ pension system, which has an estimated $45 billion shortfall.” [The Bond Buyer, November 25, 2013; Sub required]