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This Week’s Outsourcing Scan 12-23-13

Update: Upcoming Outsourcing Issues. December 23, 2013

1) NationalSupport increases for an executive order to raise contractor employees’ wages. “An executive order hiking pay for federal contractors’ employees could help 2 million low-wage workers,” Joan Walsh writes in Salon. [Demos report]

2) National/Oregon: Seven people are arrested at a Salem, Oregon, mail processing center to protest its impending closure. American Postal Workers Union president Mark Dimondstein tells Ed Schultz of MSNBC, “I think the people in this country are ready to fight to defend their service. First and foremost, it’s their service. It belongs to them, it belongs to the people of this country, and it serves every community, every neighborhood, every city, every state, no matter your background, no matter your income. And I don’t think people are going to stand for letting it be privatized. You’re absolutely right about that point. I think the post office takes in about $65 billion a year and the privatizers would like to hand on that. Wall Street would like their fingers in that pie.”

3) National: As Aramark launches a public share offering, private equity cashes in. “Private equity owners bought the firm for $8.3 billion, which includes debt, back in 2007. The consortium financed the purchase with $1.7 billion in cash, and the remainder in debt. At last week’s offer price, they stand receive $4.6 billion on their equity investment, incredible returns over this time period.”

4) National: Former CH2M Hill paralegal “says she was fired after she accused the company of purposely withholding documents from prosecutors investigating timecard fraud” at the Hanford nuclear reservation. Files lawsuit. CH2M Hill “said the lawsuit is without merit, incoherent and lacks facts to support any of its claims. The company agreed in March 2013 to pay $18.5 million to settle civil and criminal allegations of defrauding taxpayers through widespread timecard fraud at the Hanford nuclear reservation.” CH2M Hill plays a leading role in outsourcing cities and the privatization of government services.

5) NationalFitch Ratings pans Transurban’s American private road assets. “The US portfolio, owned through Transurban’s 75% interest in the DRIVe joint venture with CP2, has been less successful to date. In 2012 Transurban wrote off its AUD138m investment in the Pocahontas 895 toll road in Virginia, and is now preparing to hand the asset over to the banks. Traffic on the 495 Express Lanes near Washington DC, which opened in November 2012, is much lower than expected. The third project is the 95 Express Lanes, which is currently under construction. The DRIVe portfolio currently makes up less than 1% of Transurban’s proportional EBITDA.” [Sub required]

6) National: Deloitte infrastructure expert Jason Clatworthy says there will be an exit of “first generation” investment funds from infrastructure in 2014, and an increase in new international entrants. “Building on the interest in the infrastructure market from Japanese investors in recent years, Chinese investors are now joining and Korean investors are likely to follow suit. It will not be long before we see new Asian direct investors as active and sophisticated in this market as the Canadian, British and Australian funds.” [Sub required]

7) National: IBM received a patent on December 10 for “a method, system and program product” for “determining funding options for an outsourcing project.” The product covers both companies and government units.

8) National: New GAO report raises questions about the preparedness of contract guards in the Federal Protective Service. “For example, according to officials at five guard companies, their contract guards have not received training on how to respond during incidents involving an active shooter. Without ensuring that all guards receive training on how to respond to incidents at federal facilities involving an active-shooter, FPS has limited assurance that its guards are prepared for this threat. Similarly, an official from one of FPS’s contract guard companies stated that 133 (about 38 percent) of its approximately 350 guards have never received screener training.”

9) National: Self-described “right-wing Christian constitutionalist” Luke Hamilton says “it’s time to privatize Christmas.”

10) Alabama: Alabama State investigates allegations it wasted more than $1 million on a botched state contract to prepare the state’s Medicaid system for the introduction of the Affordable Care Act. “According to a preliminary report by Birmingham-based Forensic Strategic Solutions, which Gov. Robert Bentley’s office hired to investigate claims of wrongdoing at ASU, the university was contracted by the state Medicaid agency to help it prepare for the implementation of Obamacare. However, at some point during the work, the university switched from having one of its professors managing the project and opted to delegate the task to LORAC Inc., a private firm. “

11) California: Peter Brownell, research director at San Diego’s Center on Policy Initiatives, calls for the scrapping of the city’s managed competition system. “The concept of managed competition—bringing in private companies to bid against city workers for their jobs—hasn’t worked, as all sides now apparently realize. There are better ways to identify efficiencies and enhance city services—ways that focus on input from the people providing services and the people living in San Diego who rely on those services.”

12) Colorado: The new CEO of Pinnacol Assurance, the state-chartered workers’ compensation insurer, leaves the door open a crack to future privatization. “Right now our focus is on doing what we’re doing and doing it well. But we are cognizant that having a wider base of risk could be more helpful. No business wants to be vulnerable with the only thing they do. But that is a risk assessment we have to do with our shareholders.” [Sub required]

13) ConnecticutJP Morgan Chase mails flawed debit cards to tax refund and unemployment compensation beneficiaries. “This latest error heightens my concern about the company,” [State Treasurer Denise] Nappier said in a statement. “I continue to be greatly disappointed with its performance and its obvious lack of attention to detail. The company has to get ahead of these problems before they snowball out of control.”

14) Delaware: Secretary of Education Mark Murphy joins Jeb Bush’s pro-privatization Chiefs for Change organization.

15) Florida: Despite criticism from the Palm Beach Post that the deal smacked of cronyism, the Palm Beach city commission votes to outsource the management of the West Palm Beach Community Redevelopment Agency. “Those are West Palm Beach’s most important properties. Why would Mayor Muoio give up any control over that land to an outsider? That is just one more unanswered question about an idea that makes no sense.”

16) Indiana: Christel House Academy, the charter school at the center of a scandal over former state education commissioner Tony Bennett’s alleged changing of its assessment grade, has “dropped from the A that he manufactured, to an F.” Bennett’s successor, Glenda Ritz, has worked out a new set of operating rules for the state board of education.

17) IowaThe Iowa State Penitentiary, which is soon closing, may be turned into a public attraction. “‘There’s quite a lot of interesting activity going on with historic prisons,’ said Tracy Huling, a fellow at the Open Society Foundation who is studying how communities are turning closed prisons into museums, apartments, hotels, art studios and film locations. ‘Done well, they can serve as an economic driver.’”

18) Kentucky/Indiana: Kentucky achieves low financing costs—4.4%—for its half of the Ohio River Bridges Project. “While Indiana is using a public-private partnership to build its project, Kentucky is using traditional toll-bond financing.” [Sub required]

19) Maryland: Attorney General Douglas F. Gansler (D), a candidate in the Democratic primary for governor, criticizes the state’s decision to outsource its health exchange to a North Dakota company.

20) Michigan: As Detroit proceeds through its bankruptcy process, the city council approves key elements of a $650 million hockey arena and entertainment district deal that will use public bond proceeds to benefit the Detroit Red Wings hockey team.

21) Michigan: Controversy continues over the proposed sale of artworks in the public Detroit Institute of Arts. Writing in the New York TimesRoberta Smith says “the low point of the year was without doubt the sight of the struggling city Detroit devouring its own soul by contemplating the sale of works from the renowned collection of the Detroit Institute of Arts in the face of bankruptcy. A nadir in this potentially tragic farce was this memorable argument in a suit brought by the city’s creditors: ‘It needs to be a construct that addresses the fact that the D.I.A., or art, is not an essential asset.’” Mark Stryker of The Detroit Free Press says, “there is a great outpouring of support for the museum. But at the same time, there are folks, particularly city pensioners, who represent maybe 20,000 or so of the 700,000 people in the city. And those pensions for those retirees and municipal fire and police are at risk. And people think that, if it comes to art or pensions, you should go with pensions.” Christie’s auction house has proposed a number of possible arrangements to address the issues.

22) New Jersey: Toll collectors urge the Turnpike Authority not to outsource their jobs at its monthly meeting. The authority has issued a request for proposals, responses to which are due February 4, 2014. The RFP says, “any proposal received from a proposer under this RFP constitutes a public document that will be made available to the public upon request pursuant to New Jersey’s Open Public Records Act, N.J.S.A. 47: 1A-1 et seq. A proposer may request the Authority’s General Counsel to deem certain sections of its proposal containing personal, financial or proprietary information non-disclosable, which determination shall be in accordance with such Act.”

23) New YorkLockport Common Council goes back on its promise not to lay off workers in exchange for a 2011 agreement with AFSCME on privatization. Alderman Patrick W. Schrader says “we made a promise and we signed a contract to the union that we wouldn’t lay anybody off. So now we’re lying to the union.” The Mayor warns the council, “I can tell you, there will be consequences down the road.”

24) New York: MTA hires Public Financial Management Inc. and Mohanty Gargiulo LLC for financial advisory and swap advisory services, after an RFP process. “PFM proposed a sliding scale per bond fee of 35 cents per $1,000 of bonds issued for the first $1.5 billion of bonds in a year, reducing to 25 cents above and subject to a cap of $700,000 annually. Mohanty Gargiulo proposed a flat annual fee of $175,000 for all services.” PFM recently released a report on public pensions, in which they “suggested states and municipalities consider asset sales akin to the 50-year lease by Allentown, Pa., of its water and sewer system to the Lehigh County Authority public works agency.” PFM chairman John White says “I’m sort of a fan of asset sales as a means of extracting equity.” [Sub required; PFM report]

25) New York: City Comptroller John Liu says the audit bureau saved nearly $1 billion for New York taxpayers. “We revealed City Hall’s reliance on expensive outside consultants and its failure to monitor their work, helped expose the CityTime fraud, and forced the Economic Development Corporation to return $120 million it owed to taxpayers.” [Report]

26) OregonBig retail stores will push to privatize liquor sales through a ballot initiative next November. “The Oregon state legislature has been working on a measure likely to head to the floor when they reconvene in February that would maintain the state monopoly while allowing grocery stores to stock liquor. Retailers, however, aren’t completely sold on that approach. The initiative looks similar to measures Costco and other mega-retailers backed in Washington in 2010 and 2011.” The head of the Oregon Liquor Control Commission has warned that “they’re doing something that fundamentally would create some revenue instability for the state and put some good people out of business.” Oregon is also facing a “right to work” ballot initiative next year.

27) Pennsylvania: Public Utility Commission votes to grant Pennsylvania American Water, a subsidiary of American Water, a 5.6% base rate increase on January 1. The rate increase will see urban customers subsidize rural customers. PAW “originally requested $58.6 million in rate increases, or 10.1 percent of total revenue. In the ensuing settlement the company got half that. In exchange, the company agreed to keep base rates unchanged through 2016. The company made other concessions, including increasing the customer charge discount for low-income customers from 65 percent to 80 percent.” American Water Works “expects its 2014 earnings in the range of $2.35-$2.45 per share, up 8.3% to 10.4% year over year from 2013 earnings estimates.”

28) Texas: IRS audits $49 million of revenue bonds issued by a “nonprofit corporation and instrumentality of” Polk county for an adult detention facility. “The county had an operation and management agreement with Civigenics-Texas, Inc., now Community Education Centers, a private for-profit prison company based in New Jersey. (…) The detention center, rated as the top Immigration and Customs Enforcement facility in the Nation, houses inmates from ICE and the U.S. Marshals Service, as well as the Polk County Sheriff’s office.” [Sub required]

29) InternationalRailroad union in South Korea stages the longest strike in its history against moves to privatize the Korea Railroad Corporation. “‘The forces in the previous administration who were pushing for privatization are currently the main bureaucrats in the Ministry of Land, Infrastructure, and Transport,’ said a representative for the Korean Railway Workers’ Union on condition of anonymity. ‘The articles of the Suseo KTX Line can be changed at any time to allow the private sector to purchase shares in the company.’”

30) Revolving Door News: Ted Mitchell, CEO of NewSchools Venture Fund, is nominated by President Obama to become the Under Secretary of the Department of Education. Writing in The Nation, Lee Fang reports that “some view Mitchell’s nomination as a move towards greater privatization. In the coming months, the Department of Education will release ‘gainful employment’ rules to rein in for-profit colleges, an experiment in proprietary education that many see as an unmitigated disaster.” Mitchell is also “an adviser to Salmon River Capital, a venture capital firm that specializes in education companies.”

31) Journal Articles: Patrick DeCorla-Souza, Jennifer Mayer, Aaron Jette, and Jeffrey Buxbaum, “Key Considerations for States Seeking to Implement Public-Private Partnerships for New Highway Capacity“; and Patrick DeCorla-Souza, Douglass Lee, Darren Timothy, and Jennifer Mayer, “Comparing Public-Private Partnerships with Conventional Procurement Incorporating Considerations from Benefit–Cost Analysis,” Transportation Research Record: Journal of the Transportation Research Board, November 2013. [$25 each]

32) Upcoming Meeting: The Transportation Research Board will hold its annual meeting from January 12-16, 2014 in Washington, DC.

33) Upcoming Meeting: The Public-Private Partnership Alliance will hold a conference on P3s in Dallas from February 24-25, 2014. Participants include Dale Bonner, chairman of Plenary Group USA; includes a panel on “EB-5 Financing and P3: Leveraging International Migration to Create Capital,” and a panel on “Advancing Public Building P3 Projects“ with Samara Barend of AECOM. “Deal Day” presenters include The Port of San Diego. The brochure says “Deal Day” presenters will “unveil insightful information about unreleased development projects and procurement opportunities.”

 

 

Legislative Issues:

1) National: The Water Resources bill will be pushed into the New Year.

2) Alaska: State Senator introduces bill to protect litigants who sue the state for public interest reasons and lose. “Former Alaska first lady Bella Hammond and constitutional delegate Vic Fischer were among the plaintiffs challenging permits for the proposed Pebble Mine but on the losing side. The state and Pebble are now seeking fees.”

3) California: Senate leader Darrell Steinberg (D-Sacramento) will seek to add grant funding to state budget so counties can provide mental health services to mentally ill people who run afoul of the law. “Brown had agreed to special legislation that sets aside a portion of the state’s savings for use in mental health and other programs aimed at reducing crime if the court’s limit on the prison population is postponed. Without a delay, the governor intends to use that funding to send state prisoners to private facilities out of state.”

4) KentuckyDrug traffickers could get longer sentences under legislation proposed by Sen. Katie Stine (R-Southgate). Democratic Attorney General Jack Conway and House Judiciary Chairman John Tilley (D-Hopkinsville) support the bill, which also provides funding for better health treatment for heroin addicts.

5) Michigan: The House recesses for three weeks without voting on a controversial measure backed by Gov. Snyder to let the state’s Educational Achievement Authority take over the 5% lowest performing schools in the state. Schools across the state are facing a funding deficit. “Falling enrollment, rising retirement costs and charter school competition all contribute to the problem.” [Sub required]

6) Pennsylvania: As the budget secretary reports that the state is facing a possible $1.2 billion shortfall, “some legislators say they have heard rumblings of reviving the stalled effort to privatize the state’s liquor stores as a way to generate revenue.”