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This Week’s Outsourcing Scan 4-20-2015

Update: Upcoming Outsourcing Issues. April 20, 2015

1) National: As the Blackstone Group reports phenomenal first quarter profits, its custodial outsourcing subsidiary, GCA Services, attracts criticism for low wages and benefits, understaffing, violation of federal labor regulations, inadequate staff vetting and poor performance. Blackstone CEO Stephen Schwarzman will get a $206 million payout. Record dividends will be paid to shareholders as profits more than doubled to $629 million from $226 million. GCA also operates under the name ABS, Acme Building Maintenance, Dependable Building Maintenance, National Building Maintenance, SBM Maintenance, Southern Building Services, Sunstates and TGH. The National Employment Law Project reports that janitorial services is one of the six fastest growing occupations in the U.S., but that these occupations “pay a median wage of under $15 per hour–which is barely enough to make ends meet.”

2) National: The Century Foundation hosted a conference on “Solutions to the Infrastructure Crisis.” Panelists included In the Public Interest’s Donald Cohen,  Bloomberg muni market expert Joe Mysak, and the Bipartisan Policy Center’s Aaron Klein. Mysak and Klein had a spirited discussion of public vs. private financing and funding alternatives. University of Toronto Prof. Matti Siemiatycki contributed some cautionary points on “public private partnerships.” [Complete videos of all panels].

3) National/Tennessee: Battle lines are being drawn in the courts over a plan to expand Chattanooga’s fast 1 GBPS public internet system beyond its borders. The FCC has backed such efforts. Private industry is fighting the move, and the state government is suing the city to block it. Other cities, such as San Francisco, may be moving toward providing public municipal broadband as a way to help overcome the digital divide.

4) National: Venture capitalists hope to bring crowdfunding to “public private partnership” infrastructure projects. Muni bond analyst Kristi Culpepper calls the idea “insane.” Says “crowdfunding already exists in infrastructure–it’s called municipal bonds. Except with latter you have enforceable rights and remedies.”

5) National: The GAO’s annual report recommends steps to improve government efficiency, saying they “could lead to tens of billions of dollars of additional savings.” The report “identifies 66 new actions that executive branch agencies and Congress could take to improve the efficiency and effectiveness of government in 24 areas. GAO identifies 12 new areas in which there is evidence of fragmentation, overlap, or duplication.”

6) National: The Municipal Securities Rulemaking Board asks the SEC to limit muni bond adviser fees. “The advisory industry came under scrutiny after the 2008 credit crisis, when bond deals hit state and local governments with unexpected costs. Many of the approximately 740 firms registered with the MSRB have been unregulated at the federal level, the board said.”

7) National: The Federal Reserve may shift its previous position and allow banks to include municipal bonds in their holdings of high quality liquid assets. The holdings are designed as a buffer against a financial meltdown. “The change being crafted by the Fed has been sought by big banks such as Citigroup Inc. and Wells Fargo & Co., as well as state and local officials and top lawmakers in Congress including Sen. Charles Schumer (D., N.Y.). They warned that excluding all municipal-debt securities from the liquidity rules could eventually prompt banks to retreat from the $3.7 trillion market and force governments to scale back spending on roads, schools and other infrastructure projects financed with the bonds.” [Sub required]

8) National/Florida: Bloomberg looks at underregulation and a lack of oversight of conduit issuers of municipal bonds. “Called conduits, public agencies like Capital Trust operate in a little-regulated corner of the $3.6 trillion municipal market. They issue bonds for private companies and nonprofit organizations that would otherwise lack access to tax-exempt borrowing. Local taxpayers benefit from the fees without being on the hook to repay the bonds, which are often used for risky real-estate projects.”

9) National: Low interest rates open the field for community banks to get into municipal finance. Currently major Wall Street banks dominate the sector because most local government rely on municipal bonds to finance their operations. But bond issuance is expensive. “Banks are eager to take the new business, given the sterling performance of most municipal loans. Banks that have made a business providing deposit and treasury management services to municipalities have proven to be especially well-placed to reap a windfall, though plenty of others seem to be lining up to get in on the game.” [Sub required]

10) California: Saying it is “extremely dissatisfied with the work of Pearson” on its instructional technology initiative, the Los Angeles Unified School District has announced it is no longer purchasing iPads with Pearson software installed. The LAUSD has demanded a refund. “The iPad effort in L.A. Unified faltered from the start. Currently, the FBI is investigating the bidding process and the SEC has launched an informal inquiry into whether the district complied with legal guidelines in the use of bond funds for the devices and curriculum.” Apple’s contract with district is reportedly under investigation by the FBI “under accusations that former L.A. superintendent John Deasy may have modified the bidding process for the initiative to favor Apple and Pearson due to ties with executives at Pearson.”

11) Connecticut: The private operator of a homeless shelter is closing the facility rather than comply with a state mandate to admit active alcohol and drug abusers. “The state’s decision to halt alcohol and drug screening at shelters is in line with a successful U.S. Department of Housing and Urban Development policy called ‘Housing First,’ said Steve DiLella, the state housing department’s interim director of individual and family services. (…) ‘We’re trying to adjust the system to meet the needs of highly vulnerable individuals,’ he said. The state is not requiring shelters to admit anyone who is an obvious safety risk, DiLella said.”

12) District of Columbia: Kojo Nnamdi of WAMU interviews Scott Pearson, the head of the DC Public Charter School board. 44% of DC students are enrolled in charter schools.

13) Illinois/Indiana: Environmentalists urge the Federal Highway Administration to reverse its decision to approve the Illiana toll road project. “Their four reasons include substantial negative impacts on the Midewin National Tallgrass Prairie, exaggerated population forecasts, lack of viable financing, and Gov. Bruce Rauner’s suspension of the project—all of which were not realized when the Federal Highway Administration issued its record of decision in December.”

14) Illinois: National Mentor Holdings, a $1.2 billion company that specializes in foster care, leaves Illinois after a scathing government report. DCFS says it has a plan for accommodate the 485 children affected by the company’s leaving.

15) Illinois: The Chicago Infrastructure Trust seeks competing private bids for a solar energy project and new compressed natural gas (CNG) fueling stations. “The initial unsolicited proposal for a public-private partnership (PPP; P3) to develop CNG fuelling stations was received by the CIT in August last year. After the agency determined that the project would help the city meet several of its environmental sustainability goals, an open bidding proposal period was announced [last] Wednesday.” [Sub required]

16) Indiana: A legislative committee of the Indianapolis City-County Council dealt a possibly fatal blow to Mayor Ballard’s plan for a $1.6 billion justice complex, which would have been developed as a “public private partnership.” The move may kill off the project or force a reconsideration of its scale and procurement method, unless the project is revived by the bill being called up onto the floor of the full council at its meeting today and approved, which many consider unlikely. The Indianapolis Business Journal has called on the project’s opponents–and candidates in upcoming elections– to come up with an alternative to address “inefficient, unsafe jails and courtrooms.” Opponents have called for “a right sized jail that focuses on ending Indy’s over-reliance on incarceration.” The Indiana Lawyer reports that councilors have been “allegedly offered millions in projects for justice center votes.” The City-County Council meeting will be broadcast live at 7 pm eastern tonight. [Livestream link]

17) Louisiana: Sasha Lilley of Against the Grain interviews John Arena, author of Driven from New Orleans: How Nonprofits Betray Public Housing and Promote Privatization. Arena “contends that nonprofits were key in getting poor people to go along with public housing privatization in New Orleans, with terrible consequences.”

18) Maryland: Frederick County insources the collection of deer carcasses. “Returning these cleanup duties to the Division of Public Works and ending the private contract will save the county about $20,000 a year, Gardner said. And in her opinion, the example illustrates why relying on the private sector isn’t always the better, cheaper, faster option. Over the past few years, outsourcing has been the name of the game, as the then-county commissioners sought to save taxpayer dollars by downsizing the government workforce and then hiring private companies to do the job. But Gardner said it’s actually not saving money in some situations.”

19) South Carolina: Dorchester District Two votes to insource school bus services and terminate Durham School Services. “According to a review by DD2 Bus Transportation Liaison Fred Hoose, the district can operate the bus transportation system more efficiently themselves while saving money. Officials say the decision not to renew Durham’s contract will save the district approximately $200,000. That extra money is important, as the Board of Trustees approved the purchase of 15 additional school buses for next year during its March 16 board meeting.”

20) Texas: The Texas Tribune lifts the curtain on how some privatization deals are put together behind the scenes by private companies and some politicians. “So [GeoCare’s] lobbyist, Frank Santos, circled back and provided HHSC Executive Commissioner Kyle Janek with a blueprint for how the agency could successfully privatize other state hospitals—maybe Austin, Kerrville, San Antonio and Rusk—which would then allow Santos’ client to bid for the work. The blueprint included proposed timelines and lists of influential legislators whose favor might be curried to bring together such a public-private-partnership, also known as a “P3.” ‘I’ve attached a memo that describes 4 separate options available for a P3 initiative,’ Santos wrote to Janek in an Aug. 6, 2013 email. ‘He ranked them according to which hospital provides the best outcome for success.'”

21) Texas: KIPP Inc. becomes the first private charter school system to price a bond issue competitively, using the backing of the Texas Permanent School Fund. “Since the PSF backing became available under 2013 legislation, credit-worthy charter school operators have been able to refund previously issued bonds with the state guarantee, dramatically lowering their borrowing costs.” [Sub required]

22) Virginia: The state is terminating its contract with the team that was to build the US 460 “public private partnership,” and will try to recoup the $256 million it paid to the developers. A scaled back version may be pursued. “The company contends it has a right to the money it was paid, he said. A 60-day mediation period will follow.” The never-built road was pushed by former Governor Bob McDonnell (R) despite the concerns of regulators.

23) Virginia: Penalized motorists are filing a class action suit against Transurban, the operator of the 495 Express lanes “public private partnership,” claiming that the company “uses a predatory scheme because the Capital Beltway express lanes have not been as profitable as expected and some drivers are being hit with violations that never occurred.” The Washington Post reports that “Transurban has come under fire in recent months for its toll-collection practices. A Fairfax judge recently dismissed four cases against a Fredericksburg woman who claimed that the statute of limitations had expired before Transurban took her to court. Attorneys said the ruling could result in hundreds or thousands of other violators challenging their cases.”

24) International: The United Nations Economic Commission for Europe (UNECE) expects member states to begin adopting its standards for “public private partnerships” this year. ““It is clear there is a distinct lack of policies and standards that countries should be following for PPP development,” [Tony Bonnici, senior member of the PPP secretariat at UNECE] said. “By developing policies and rules to follow we believe countries will have the guide to help their PPP processes.” Bonnici also emphasized on corruption in the PPP market, saying it is imperative that this area is addressed early as it could ruin projects before they are even started.”

25) International: Julie King, who directs a company that works to “monetize social impact—particularly in the water, environmental, and education sectors,” proposes “Development Impact Bonds: A New Paradigm For Public-Private Partnerships?”

26) Think Tanks: The Pew Charitable Trusts hosts a discussion of “Navigating Transportation Funding” between federal, state and local officials. The event was addressed by Transportation Secretary Anthony Foxx (includes full video).

27) Think Tanks: The Eno Center for Transportation is to provide technical training on “public private partnerships” to selected public agencies.

28) Revolving Door News: Illinois Gov. Bruce Rauner appoints banking executive Rob Funderburg to lead the Illinois Finance Authority.

29) Revolving Door News: David D. Hart, a former chief financial officer for Denver Public Schools, is joining Public Financial Management as a director in Denver. PFM is a municipal advisory firm that boasts on its webpage “we have been at the forefront of public-private partnerships (P3s) since their introduction to the U.S. markets and we developed the first state infrastructure revolving funds for transportation projects.”

Legislative Issues:

1) National: Sens. Boxer and Inhofe say they’ve nearly finalized a six year transportation bill, but the issue of funding is still unresolved. “The Hill reports lawmakers are divided on whether to make that 5 percent tax on corporate profits overseas voluntary or mandatory. Paul and Boxer say the repatriation tax bill could bring $2 trillion in revenue.”

2) National: Reps. Randy Hultgren, R-Ill., Dutch Ruppersberger, D-Md., and 122 other lawmakers send a letter to House leaders urging them to preserve municipal bond tax exemptions. “Also [last] Wednesday, the Securities Industry and Financial Markets Association, the Council of Development Finance Agencies and the National Conference of State Legislatures sent Senate Finance Committee members letters about the muni exemption and other issues. The Finance Committee has five tax-reform working groups assigned to make recommendations by the end of May.” [Sub required]

3) National: Lawmakers pledge to take action to address low morale in the federal workforce. “Agency representatives made clear kinder words would not solve all of their problems. CSB’s Manuel Erlich and Archivist David Ferriero said they do not have enough employees to fulfill their agencies’ responsibilities. While the number of records in need of archiving has tripled in recent years, Ferriero said, staffing levels at NARA have been reduced.”

4) Florida: The creation last week of a joint legislative oversight board to investigate and monitor the Department of Corrections raises hopes that private prison operators, healthcare providers and vendors could face closer scrutiny. “But the legislative panel could also open the door to an evaluation of the recent shift in priorities that has led the state to open seven private prisons, contract out services for 21 inmate work camps, and shift mental healthcare and substance abuse treatment and inmate health care to private vendors.”

5) Iowa: Senate President Pam Jochum warns that citizens face a “disaster” if Gov. Branstad’s plan to privatize Medicaid operations is put into effect. “What I know is going to happen … is that if case management is privatized, these children are going to fall through the cracks. The way this Medicaid managed system of privatization is moving right now is that those case managers are going to disappear. … They have done that in Kansas, and it has been an absolute disaster for those with disabilities.” House Republicans have failed to approve a legislative oversight commission for the system.

6) Ohio: The Senate is considering a bipartisan charter school reform bill. The legislation “would require private management companies to disclose more openly how they spend tax funding while addressing low academic performance in online schools, ‘exorbitant’ lease deals, poor attendance and other issues.” Republican Peggy Lehner “expects to be [so] flooded in the coming week with interested people who have been hired by charter school companies and groups that she has jokingly called the reform bill the ‘full employment act’ for lobbyists. (…) Lehner’s bill would require any company receiving more than 20 percent of a charter school’s state aid to provide more detailed information to the state on how the money is spent, ‘including the nature and costs of the goods and services it provides.’ Akron-based White Hat Management has argued before the Ohio Supreme Court that how it spent public dollars is a private matter.”

7) Texas: A bill to eliminate red light cameras has passed the Senate Transportation Committee and now goes before the full Senate. The bill “has a grandfather clause, which would allow cities who are currently under contract with a company providing the traffic cameras to continue their contract until it expires.” [SB 714] Early last week, a judge refused to block a May 9 election in Arlington over the cameras. [Ruling]

8) Washington: Last week the House adopted an amendment bringing greater transparency to efforts to outsource state jobs. “The amendment sponsored by Rep. Sam Hunt of the 22nd Dist. helps corral the abuses on work orders and change orders by private contractors. The Hunt Amendment would post on the Department of Enterprise Services website any increase in the cost or scope of an existing outsourcing contract. The Hunt Amendment also calls for information on the DES website on any cost savings or efficiency information that agencies use to outsource state employees’ work under the competitive contracting statute.” It now goes back to the Senate for acceptance or rejection of the amendments. [Substitute Senate Bill 5081]