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This Week’s Outsourcing Scan 3-9-2015

Update: Upcoming Outsourcing Issues. March 9, 2015

1) National: After a recent government crackdown on for-profit colleges that hobbled students with debt and useless credentials, some owners are turning them into non-profits, and are turning a tidy profit as a result. But scrutiny of the for-profits continues: “The states have opened another line of attack, with at least 24 attorneys general investigating whether for-profit colleges under their jurisdiction have engaged in false advertising, illegal recruiting practices or predatory loan schemes.”

2) National: Market analyst Brad Thomas says he would not invest in Geo Group or Corrections Corporation of America, citing overvalued stock prices and other risk factors such as the possibility of sentencing reduction. “I can’t justify the risks of investing in a Prison REIT at this time. While most REITs I cover make investments driven by high-quality real estate and attractive yields, GEO (and CXW) generates profit from contracts, and there is relatively little internal growth. Due to regulatory reform risk, I question the sustainability of external growth. In other words, why would I want to invest in a business model that has declining revenue sources, where inmates’ sentences are being reduced (from, say, 10 years to 5 years)? While GEO is diversifying into nonresidential sectors (i.e. electronic monitoring, day reporting, etc.), the core business is still exposed to regulatory risks.” [Sub required]

3) National: Republican presidential hopeful Jeb Bush doubles down on charter schools and high stakes testing. In the Public Interest has exposed Bush emails that show corporations using Bush’s Foundation for Excellence in Education “to help state officials pass laws and regulations that make it easier to expand charter schools, require students to take online education courses, and do other things that could result in business and profits for them.”

4) National: Transportation Secretary Foxx announces a new federal one year pilot program that will allow some cities to make contractors hire local workers for transportation projects. “The move, hailed by many mayors as a way to help create jobs, would also allow the localities to require the construction companies to hire veterans or low-income workers. Federal law currently requires that bids be awarded to the lowest bidder, in most cases.”

5) National: Writing in The New Republic and The Atlantic respectively, Elizabeth Stoker Bruenig and Molly Ball raise questions about growing right wing-liberal cooperation on criminal justice reform. Stoker Bruenig  says “the politics of cost-cutting harms the very people that prison reform should aim to help. It isn’t that prison sentences shouldn’t be reduced, or that mass incarceration shouldn’t come to an end, or that the conditions of prisoners shouldn’t be vastly improved. But poor and mentally ill people who wind up in prison will still be poor and mentally ill even if the prison system is reformed. So the focus shouldn’t be on slashing spending, but improving the lives of people before, during, and after prison.” Ball notes that “critics such as Robert Greenwald, director of the documentary Koch Brothers Exposed, suspect that the push to roll back the criminal code is really just the brothers’ deregulatory agenda by another name.”

6) National: Montclair State education professor Alfred Chris Torres asks what distinguishes a good charter school from a bad one. “It makes sense to create more good schools for these communities with an understanding of the limitations of successful charter models. Chief among these is a reliance on a limited supply of teachers who are willing and able to meet the intense demands of the work. This should teach us all a lesson about the current limits of school reform as our primary strategy to fight poverty and inequality.”

7) National: Former congressional budget committee staffer Mike Lofgren looks at rent seeking by federal contractors in the “war on terrorism,” as detailed in James Risen’s new book, Pay Any Price: Greed, Power, and Endless War. “It is hardly surprising that the hundreds of billions of dollars funding the war on terrorism will tempt the acquisitive instincts of contractors and their agency counterparts. But it is up to senior officials in the executive branch to exercise oversight and discipline over the process. Oversight is also a key constitutional function of Congress. Risen documents that such oversight is still almost totally lacking.”

8) California: Kern County library system supporters are concerned about privatization talk. “‘It has come to my attention that there is a forthcoming proposal to place the Kern County library system under private nonprofit management,’ Ann Wiederrecht wrote in an email to supervisors. ‘Such an idea is outrageous. The Kern County Library is truly a public service open to people of all ages and backgrounds.’ ‘In order for a for-profit group to make a profit, it will be necessary to cut services even more than they have been and/or in some way start charging for services,’ wrote Bakersfield College luminary Jerry Ludeke in another email. ‘Free public libraries are an American treasure and a ‘hand-up’ for many in the culture.'” There will be a public forum this month, and the County Administrative Office “plans to bring the idea to the Board of Supervisors for discussion by the end of March.” The county has been negotiating with SEIU on the issue. This past October, the county hired a library director from a district whose libraries are run by LSSI, a for profit company which has expressed an interest in Kern’s system.

9) California: After a decade-long process, Sonoma County outsources the operation of its landfill to Republic Services in a 25-year deal.

10) Colorado: As the jockeying begins over the shape, cost, and procurement method of the I-70 East “public private partnership” road deal, a government insider reportedly says Gov. Hickenlooper “absolutely gets it and wants it [DBFOM] delivery.” An industry forum will be held this Wednesday and Thursday. [Public Works Financing, February 2015]

11) District of Columbia: District auditor finds that a major nonprofit contractor overcharged for aid to the homeless. “The report also found that imprecision in the way the city accounted for programmatic and administrative expenses made it difficult to assess how efficient the programs were. After combing through the subcontractors’ spending reports, the auditors found non-programmatic costs and overhead ranged from as low as zero percent of expenses to 100 percent.” [Audit report]

12) Florida: Volusia County is dissatisfied with the service it is receiving from Aramark after outsourcing its custodial functions to the company. “Several of our schools have faced continued deficiencies in the levels of service required by the contract, and this is unacceptable. However, the district has taken action under the contract to hold Aramark accountable by using a third party to provide additional cleaning services at Aramark‘s expense. If Aramark cannot improve its services, the district will change to another provider.”

13) Georgia: County may be forced to privatize landfill. “Newton County’s Board of Commissioners is under pressure to accept a settlement to privatize operation of the public landfill or face a lawsuit that could cost the county tens of millions.

14) Illinois: AFSCME files suit against East Moline over the city’s move to privatize garbage services. Last week the city approved a contract with Republic Services. AFSCME “filed a complaint with the Illinois Labor Relations Board alleging the city bargained in bad faith because the parties had not reached an impasse before aldermen chose to privatize the service.”

15) Illinois: Voters will decide on a controversial proposal to privatize O’Fallon’s water and wastewater system. Two nonbinding ballot issues will be voted on April 7. “‘The city says it stands to make $50 million in a lump fund by leasing the systems,’ said Zelms, with the anti-privatization group O’Fallon Citizens for Action. ‘But somehow, whoever gets the lease will have to make that lump sum up. And we believe they’ll make it up by charging us more for our water.'” Illinois American, United Water and Veolia Water North America are vying for the 40 year deal.

16) Indiana: Lake County council members are to vote tomorrow on whether they will team up with La Porte county to make a bid on the Indiana Toll Road. The two would issue tax exempt revenue bonds through the Indiana Finance Authority to finance the deal, and create a nonprofit (NITRA). La Porte has already approved the idea. Chicago Tribune columnist David Rutter advises against the deal. [NITRA documents]

17) Louisiana: Gov. Jindal has proposed using “public private partnerships” to fill a budget gap. The P3s would be used “to obtain upfront payments by privatizing some services such as the state’s water chiller system.” [Sub required]. Many experts have cautioned against using P3s as short-term budget gimmicks.

18) New York: Niskayuna school district to end outsourcing of bus drivers’ jobs to First Student. “We either faced the choice of rebidding or deciding to go ahead,” Interim Superintendent John Yagielski said. “We decided to just sever the relationship [with First Student]. (…) We think we can do a better job just bringing the drivers back.”

19) New York: Facing budget pressures, county lawmakers across the state are facing pressure to privatize nursing homes. “Columbia County could be next. On Feb. 24, the county board held a public hearing to discuss selling Pine Haven Nursing Home.” Albany County and Maplewood Manor have already been privatized. “For the county, it meant a 200-plus person reduction on the payroll, but the employees–represented by CSEA–voted twice against the sale. The deal was finalized on Feb. 1, with all 240 employees receiving termination notices from the county.” [Sub required]

20) Maryland: As the Purple Line “public private partnership” procurement has been put on hold by the new Republican governor because of its cost, the privatization industry has come up with a way to save money: do away with the independent consultants who are advising the government on the project, and instead rely only on “equity and lender advisors.” The state department of transportation will be issuing addenda to the Request for Proposals issued last July. [Public Works Financing, February 2015]

21) Missouri: Ferguson’s mayor bragged to the Donors Capital Fund-funded Show Me Institute about privatized law enforcement services months before the town exploded over the police killing of unarmed teenager Michael Brown. Moreover, “Ferguson’s privatized red-light and speeding cameras, which were challenged and criticized by Ferguson residents, were installed under dubious legal and constitutional means, as even Mayor Knowles acknowledges in his interview.”

22) Ohio: The same banking and industry group that privatized Ohio State University’s parking facilities has been chosen by the university administration to advise it on letting out a 50-year private concession for the university’s energy systems. The team is composed of Barclays Capital, Burns & McDonnell, Jones Day and Ice Miller. Since there was intense opposition to the parking deal, the administration has already “begun to work with faculty and students to gain support.” [Public Works Financing, February 2015]

23) Texas: City of Alvarado approves a contract with ICE for a processing facility.  “Construction will be funded by the sale of bonds by Prairieland, with repayment through revenue generated by the facility.” (…) The facility will be designed, built and managed by Emerald Correctional Management of Lafayette, Louisiana.” Emerald Companies is the fourth largest private prison corporation in the U.S., behind Geo Group, CCA, and MTC. La Salle County, in Texas, recently had to take over a bond-financed jail after Emerald pulled the prisoners out, and the county and its conduit issuer have defaulted on the bonds. “[County Judge Joel Rodriguez], who now heads the board that issued the original debt for the jail, was an opponent of issuing the bonds in 2002 when he was county treasurer. Rodriguez’s opposition prompted lawsuits from promoters of the bonds, including Emerald, underwriters Municipal Capital Markets Group Inc., Herbert J. Sims & Co., and the architectural firm Corplan Inc. One lawsuit, filed in the LaSalle County seat of Cotulla in 2003 claimed the plaintiffs had suffered ‘inestimable damages to their reputations’ from publicity generated by Rodriguez.”

24) Texas: A team led by ACS beats out Cintra for the $1 billion DBFOM “public private partnership” project to build toll lanes on State Highway 288 in Harris County. For the first time, an Israeli contractor, Shikun & Binui, is part of a U.S. P3 deal. Kellogg Brown & Root Services “will be responsible for the project’s design.” [Public Works Financing, February 2015].  Norway’s government pension fund divested from Shikun & Binui because of its involvement in building West Bank settlements.

25) Virginia: A Request for Qualifications is expected to be issued shortly for VDOT’s $2 billion I-66 Hot Lanes “demand-risk” project. “The project may be the last big P3 transportation in Virginia for many years, partly because the entire backlog of transportation projects at the state and regional level must be reprioritized under a new screening process.” [Public Works Financing, February 2015]

26) International: Canada’s Partnerships BC, the flagship agency designed to spur “public private partnerships,” is being scaled back by the British Columbia government. “Last October B.C.’s AG reported the government was paying nearly twice as much to fund P3 projects as it was to fund publicly managed projects.” A study of P3 practice in British Columbia also found problems with “bundling” a number of projects together (as is being done in the new Pennsylvania bridges P3), and recommended that “government strongly restrict the use of bundling and provide clear guidance on what is considered acceptable bundling.” Public Works Financing (February 2015) reports that bundling has now been ended, and BC Partnerships will lose about one third of its staff by the end of this month. In a December 2014 study, Ontario’s auditor general found that “that cost estimates were being manipulated to justify the use of P3 privatization schemes,” and that in some “value for money” assessments, “some costs were counted twice to make public delivery appear more expensive than it really was.”

27) Revolving Door News: Former Energy Department Deputy Secretary Daniel Poneman will head Centrus Energy Corp., formerly known as U.S. Enrichment Corp. (USEC). “Federal watchdogs last year accused DOE of breaking the law to support USEC, accusations the agency denied. The Government Accountability Office found the agency had violated laws on fair pricing and national security when it arranged four uranium transfers in 2012 and 2013 to bolster USEC. The agency lacked authority to transfer ‘tails,’ or leftover depleted uranium, to a third party for re-enrichment under restrictions imposed by the USEC Privatization Act, GAO found.”

28) Information resource: Employee reviews of Corrections Corporation of America, Geo Group, and Management and Training.

Legislative Issues:

1) National: The House has adopted a four year funding bill for Amtrak that encourages public-private development partnerships around downtown train stations. “The passenger rail operator would be required to report within a year of the bill’s passage on ways to enhance development around Amtrak stations, including options for capturing development-related revenue streams. Amtrak would then have to issue requests for proposals from private partners on station development projects within the next six months.” [Sub required]

2) National: Lobbyists doubt that Congress will be able to pass a long-term transportation funding bill until 2017. On tax reform, The Bond Buyer says “the muni market needs to come together to convince congressional staff and their lawmakers that munis do not just benefit the wealthy, but rather provide lower borrowing costs for state and local governments and are key to financing critically important infrastructure.” [Sub required]

3) National: Senate filings record that Pearson Education spent $5.2 million on Federal lobbying from 2010-2014.

4) National: Panelists express concern about Rep. John Delaney’s proposals for a corporate tax holiday to fund infrastructure, and the functioning of his proposed infrastructure bank. “An infrastructure bank could have ‘winners and losers’ and be subject to political interference, a couple of the panelists said. (…) Delaney said that his bank would be an independent entity and the bonds used to capitalize it would not be backed by the full faith and credit of the federal government. Cochran said there is at least the ‘moral hazard’ that the federal government would come to the rescue if the fund’s losses exceed the amount of the initial $50 billion capitalization.” [Sub required]

5) Nevada: A bill ending prevailing wage rates for new school buildings or repairs has passed the state assembly. “Assemblywoman Marilyn Kirkpatrick, D-North Las Vegas, argued unsuccessfully that ‘middle-class workers will take it on the chin…This is about lowering wages.’ (…) Opponents says the bill would result in workers being hired at $10 to $15 an hour and substandard work on projects.”

6) Tennessee: A bill has been introduced to block Corrections Corporation of America from being sued in any county in the state except where the private prison is operated. But prison privatization critic Alex Friedmann “says that judges and even juries in small towns that rely on jobs at those private prisons are likely to be biased in favor of Nashville-based CCA.”