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This Week’s Outsourcing Scan 12-22-14

Update: Upcoming Outsourcing Issues. December 22, 2014

1) National: In the Public Interest releases a new report on how lax oversight of government contracting leads to wasted public tax dollars, fraud and abuse, poor quality of service and underperformance by contractors, and risks to vulnerable residents and to public health and safety.

ITPI recommends: incorporating oversight costs into any decision on whether to outsource; including performance standards and penalties in all RFPs and contracts; establishing formal contract monitoring and oversight rules; providing adequate resources, including staff, training, and funding, to oversee every contract; and not outsourcing contract oversight.

2) National: The Obama administration releases a proposed college rating plan focused on earnings and employment. The Education Department is seeking comments on its proposals by mid-February and “will release actual ratings ahead of the 2015-2016 academic year.” For profit colleges, which receive 86% of their funding from the government, have been criticized for falling short on earnings and employment standards, and may resist the new rules.

3) National: Cintas, the uniforms and paper shredding government contractor, sees its stock price rise to their highest levels ever. The company’s operating profit increased 20.7% in its second quarter 2015 report. In its annual report, CINTAS said “at May 31, 2014, Cintas employed approximately 33,000 employees, of which approximately 200 were represented by labor unions,” and cited union organizing as a risk factor.

4) National: In a letter to President Obama, Rep. Maxine Waters expresses concern over the privatization of public housing through the Federal Rental Assistance Demonstration program. “The top ranking Democrat on the [Financial Services] Committee has openly spoken out in recent months against the interests of the multi-billion dollar affordable housing industry and their lobbyists efforts to have Congress privatize our nation’s public housing stock through the RAD program.”

5) National: Zaid Jilani reviews Jeb Bush’s “far right” record, including his efforts to privatize education and public services. “While gutting the ability of the state to respond to its people, he passed gigantic tax cuts for the wealthy, some $19 billion total over his time in office, ‘much of it benefiting businesses and investors’ rather than families.”

6) Connecticut: Waterbury is accepting bids to outsource its emergency dispatching center. However, “there are mixed reviews about the concept. (…) Lt. Nick Lukiwsky, president of the Brass Chapter of the Connecticut Alliance of City Police, sees it differently and the police union isn’t thrilled about the idea. ‘I know it’s not going to be as safe as we are now,’ Lukiwsky said. He’s concerned that taking officers who know the neighborhoods in Waterbury out of the 911 dispatch process could be bad for public safety. ‘There’s just something missing in the experience and the street knowledge that someone has and the benefits that provides for the officer and for the citizens also,’ Lukiwsky said.”

7) Connecticut: A new project aims to radically expand the number of broadband “public private partnerships” for Connecticut municipalities. However, some towns (in North Carolina and Tennessee) are calling on the FCC to preempt state laws that restrict their ability to create broadband networks. “The proponents of laws restricting state broadband projects claim their purpose is to protect taxpayers from boondoggles. Critics, however, point to evidence that such laws are passed at the behest of giants like AT&T, and serve to entrench corporate monopolies.”

8) District of Columbia: Inmate advocates and privatized prison healthcare critics successfully turn back a contract between DC and Corizon that looked like it was going to sail through. After legislative pressure and a campaign to highlight Corizon’s practices, outgoing Mayor Vincent Gray pulls the deal. “Critics say the company’s track record, as documented in litigation and news reports, make it a poor choice for the city’s roughly 2,000 inmates—particularly because it would displace Unity Health Care, the local nonprofit group that has run a highly regarded program aimed at coordinating health care for inmates after they leave the jail.” Incoming Mayor Muriel Bowser could resubmit the contract or start a new procurement. In the meantime, Unity will continue to provide healthcare. Unless the City Council approves the Corizon contract by January 22, the deal will be dead.

9) Minnesota: Minneapolis Park Board agrees to an “ugly” deal over parkland adjacent to the future Vikings stadium. “Under the agreement the board would own the park for $1 after the city acquires the property from Ryan by the summer of 2016. It would then immediately lease it to the city, which would be responsible for millions of dollars in operating, maintenance and enhancement costs.”

10) Mississippi: Anna Wolfe of the Jackson Free Press looks at “school choice” in Mississippiand its roots in racial and economic inequality. “Mississippi currently has school choice—for the economically advantaged, that is. Take the city of Jackson—where 97.2 percent of public-school students are African American, and 1.5 percent are white.”

11) Missouri: The state transportation commission is considering options for widening and improving I-70, including using a “public private partnership.” But, as yet, “there just isn’t any consensus on how to pay for it.” The commission will produce a report and submit it to Gov. Nixon by December 31. “Missouri has considered the public-private partnership (PPP; P3) model for the expansion of I-70 in the past. In January 2012, MoDOT released a white paper which put forward a number of arguments as to why rebuilding the highway in partnership with the private sector made sense.” Missouri has P3 legislation in place. [Sub required; 2012 proposal]

12) Missouri: Moody’s warns that Ferguson could face a downgrade, changing the town’s outlook from stable to negative. “The city’s debt portfolio includes two series of appropriation-backed capital improvement bonds not rated by Moody’s from issues in 2005 and 2006. The city has a swap on the floating rate bonds that were privately placed with Bank of America, also the swap counterparty. The swap agreement can be terminated upon a default by the city under the contract including failure to pay, bankruptcy, and illegality.” [Sub required]

13) New Jersey: Princeton schools cafeteria workers open negotiations with Nutri-Serve after staging a one day strike to protest their treatment by the outsourcing company. “The company has said that cuts are necessary because of rising costs. It has eliminated paid holidays, paid sick days, paid time off for jury duty, and has cut planned wage increases in half. Employees found out about the changes when they didn’t get paid for the Labor Day holiday. It became clear that their existing 2013-16 contract would not be honored by the new employer.” During the stoppage the contractor brought in replacement workers. The workers are represented by 32BJ SEIU.

14) New Jersey: Union County finalizes the sale of Runnells Hospital to Center Management Group of Flushing, N.Y. “Officials said 209 workers, or slightly more than half of the 391 employees who worked at the hospital for the county, have either been rehired by Center Management, or have been transferred to other county jobs.”

15) Ohio/Think Tanks: Bellwether Education Partners, “a nonprofit dedicated

to helping education organizations,” releases a report criticizing the state’s poor record on regulating charter schools and calling for revised legislation. The study was funded by pro-privatization foundations such as “the Walton Family Foundation, The Eli and Edythe Broad Foundation, and our sister organization, the Thomas B. Fordham Foundation.” The report recommends clear definition of governing relationships; purging conflicts of interest; and strengthening charter schools’ ability to compete with public schools.

16) Pennsylvania: AFSCME challenges Lancaster School District’s move to outsource custodial jobs to GCA by January 1, and files a related grievance under its current contract. Michael Fox, Director of AFSCME District Council 89, “said the union believes the outsourcing agreement violates the support staff employment agreement. It requires the district to show that outsourcing would save money and that the contracted company would provide the same level of service.”

17) Pennsylvania: In the aftermath of Mayor Nutter’s failed attempt to sell the Philadelphia Gas Works, discussion begins on what an alternative “public private partnership” plan might look like. “The discussion about where PGW goes from here may be largely academic. Mark Alan Hughes, director of the University of Pennsylvania’s Kleinman Center for Energy Policy, said the mayor and Council were so divided it was unlikely any substantial legislation would be accomplished during Nutter’s last year in office. ‘This takes the whole government,’ said Hughes, Nutter’s former sustainability director. ‘And we’re not going to have a whole government until 2016.’”

18) Pennsylvania: The private equity firm KKR and United Water are teaming up on a 50-year concession to manage, operate and invest in Middletown’s water and wastewater system. The contract takes effect January 1. KKR is also involved in the partial privatization of Bayonne, NJ’s water system. [Sub required]

19) Puerto Rico: Debt investors discuss Puerto Rico’s finances and debt restructuring, including the possibility of privatizing some of the commonwealth’s public corporations. “The idea of privatizing some of Puerto Rico’s troubled corporations has been floated as one solution, but Arturo Porzecanski, a professor at American University, is skeptical. Investors felt safer with Puerto Rican debt because of its status as a U.S. territory, and ‘for a long time [Puerto Rico] didn’t have to make the tough decisions on this myriad of money-losing companies from 20 to 30 years ago [that haven’t modernized]. You can’t just privatize the problems away,’ he said. Porzecanski wishes Puerto Rico’s government would invite the International Monetary Foundation or the World Bank to provide it with advice on budgetary, tax reform and privatization issues.” [The Deal, December 12, sub required]

20) Rhode Island: The Providence School Department is seeking bids for private bus monitors. Ron Coia, the head of Laborers’ International Union Local 1033, says he opposes the move. “The School Department’s contract with busing company First Student expires June 30. The 30-page request for proposals looks at the cost associated with contractor-employed bus monitors but ‘does not guarantee that the city will hire private monitors.’”

21) Texas: Community Education Centers gets a reprieve from having to close the IAH Secure Adult Detention Facility, which it operates for a conduit company whose jail bonds are under tax scrutiny. CEC was going to close the Livingston facility on February 1 due to questions over $49 million of revenue bonds, which are being overseen by a trustee. “Conduit issuer IAH Public Facilities Corp. is in negotiations with the IRS over whether the unrated bonds issued in 2004 and 2006 qualify as tax-exempt debt. A number of rulings in the past year have gone against privately operated jails in Texas. (…) The disclosure about the IAH facility comes on the heels of another event notice about a similar lockup in LaSalle County whose bonds were underwritten by the same finance team. U.S. Bank National Association recently posted a notice that the LaSalle County facility will close for an indefinite period of time, interrupting project revenues.” [Sub required]

22) Utah: The Iron County Commission has voted to outsource its ambulance service. “Three options for the ambulance service are being considered: Privatize the ambulance service by selling it to an outside party, giving the sheriff’s office one more year to repair the financial issues of more than 10 years that has created a $2.1 million debt, and sell the licenses while leasing the same equipment to a private company for one year.”

23) Virginia: Fluor and Transurban will begin collecting proceeds from tolls on the recently opened I-95 high occupancy toll lanes on December 29. “Funding for the $950 million project that was financed and built under Virginia’s Public-Private Transportation Act included: $280 million of private equity from Transurban and its partners in 95 Express Lanes LLC; $252.6 million of proceeds from tax-exempt private activity bonds; an $83 million state transportation grant; and $25 million of early development costs by Virginia Department of Transportation. The project sponsors also received a $300 million direct loan under the federal Transportation Infrastructure Finance Innovation Act.” The concession lasts until 2087.

24) West Virginia: The Kanawha County commission is trying to find a way to save public recycling. In 2012 the recycling center was privatized in a deal “criticized at the time by the county commission.” They may now try to reclaim some of the equipment.

25) International: A privatization scramble may be looming over Cuba. Russian Latin America expert Nikolai Kalashnikov says American companies feel “they could miss the boat of the privatization of Cuban property.”

26) Revolving Door News: A lobbyist for Academi, the military contractor formerly known as Blackwater, is appointed staff director of the House Intelligence Committee. Jeff Shockey “also represents a number of other companies with business before defense agencies: General Dynamics, Koch Industries, Northrop Grumman, United Launch Alliance, Innovative Defense Technologies and Boeing.”

27) Think Tanks: Brookings releases a report making nine recommendations for public officials considering “public private partnerships,” including more robust public engagement and transparency. Among Brookings’ recommendations: “Find the right revenue stream. PPPs are not free money; they require localities to find durable and resilient revenue sources that will pay for the investment over the long-term.” More questionably, the report calls for P3 enabling legislation to include the ability to override local laws on “fraud statutes, collective bargaining agreements, and environmental review processes.”

28) Think Tanks: Privatization advocate Stephen Goldsmith, the former Mayor of Indianapolis, proposes a five-part test for “public private partnerships.” He pushes for “a belief in private-sector value creation” but fails to mention taxpayer protections, public control issues, or transparency.

Legislative Issues:

1) National: Politico reports that “more than 80 percent of insiders think that lawmakers will try to roll back gainful employment regulations in the new year.”

2) Alabama: Left in Alabama looks at private prison profiteering, bed guarantees, and sweetheart contracts in the state. “At 192% occupancy, Alabama’s prisons are so overcrowded that some fear a federal takeover. It’s likely that some sort of prison reform (or maybe just a building spree) will be a major topic of the 2015 legislative session. And when the private prison lobbyists start waving donation checks and ALEC-inspired bills at legislators, there’s a good chance some form of privatization will be under discussion.”

3) Iowa: The upcoming legislative session is expected to focus heavily on transportation funding.

4) Illinois: Pressed by Better Government Association CEO Andy Shaw on why he hasn’t supported an already-introduced tough ordinance on responsible privatization, Chicago Mayor Rahm Emanuel says he’s about to release an ordinance of his own.

5) New Jersey: Charles Wowkanech, president of the New Jersey State AFL-CIO, blasts Gov Christie for pursuing opaque and politically-driven privatization deals while vetoing corrective legislation. On Thursday, the state Senate failed to override Christie’s veto.

6) New Jersey: The Democratically-controlled state Senate passes a bill fast-tracking water privatization in the state. The bill now goes to Gov. Christie’s desk. An observer comments “this Legislature is a tremendous disappointment. When a business group, such as NJBIA, lines up on the same side of an issue as both environmental groups and a labor union, that should tell you that this must really be a lousy piece of legislation.” Another calls the bill “a wonderful recipe for public corruption.”

7) Virginia: The state legislature will consider Gov. McAuliffe’s new “public private partnership” reform legislation in its next session. The legislation is designed to avoid the consequences of poorly designed, opaque and overly expensive P3 deals by amending the state’s current P3 law. The Virginian Pilot has endorsed the measure. Meanwhile, the P3 issue is roiling the Republican party, as Susan Stimpson, a primary challenger to House Speaker Bill Howell, says “it is time to take a closer look at these public private ‘deals’ that the General Assembly is negotiating.”