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This Week’s Outsourcing Scan 5-11-2015

Update: Upcoming Outsourcing Issues. May 11, 2015

1) National: The Center for Media and Democracy releases a reporters guide to the charter school industry, showing that $3.3 billion has been spent on charters by the federal government without a “comprehensive list of the charter schools that have received and spent these funds or even a full list of the private or quasi-public entities that have been approved by states to ‘authorize’ charters that receive federal funds. And despite drawing repeated criticism from the Office of the Inspector General for suspected waste and inadequate financial controls within the federal Charter Schools Program—designed to create, expand, and replicate charter schools—the U.S. Department of Education (ED) is poised to increase its funding by 48% in FY 2016.” This includes $255 million in credit enhancements for charter schools.

The guide concludes that “Congress has failed to require proper controls to allow taxpayers to find even most basic information about how charters are spending our money, which warrants a moratorium rather than increased charter funding.” [Reporters Guide on Charter Waste and Lack of Accountability]. See CMD’s Lisa Graves discuss the new report on Democracy Now!

2) National: Corinthian Colleges files for bankruptcy, and its Delaware Chapter 11 filing reveals an extensive apparent operation by the company to buy political influence by funneling money to lobbying, PR and right wing groups to head off tighter regulation of for-profit education companies. The filing puts a halt to pending litigation “including scores of lawsuits brought by state attorneys general and federal agencies alleging the company used illegal tactics in marketing itself to students and inflated of job placement rates—charges the company has consistently denied.” The Intercept’s Lee Fang reports that the filing shows Corinthian made payments to Karl Rove’s Crossroads GPS, APCO Worldwide, the U.S. Chamber of Commerce, ALEC, the American Enterprise Institute and others.

Payments were also made to Leon Panetta and Marc Morial. Glen Ford of Black Agenda Report reported in July 2014 that “The National Urban League got a $1 million check from now-doomed Corinthian Colleges after president Marc Morial wrote a favorable op-ed in the Washington Post. Morial then joined Corinthian’s board of directors, a sinecure that is worth between $60,000 and $90,000 a year in cash and deferred stock.”

3) National: Public Works Financing publishes its annual look at the water privatization industry. It estimates that the market was worth $2.1 billion in 2014, about the same as the previous year. Operations and maintenance fees were up 6%. Design-build-operate fees fell a significant 40%. Six contracts reverted to public control out of 98 up for renewal (27 were insourced in 2011). The biggest component of new business was United Water’s taking over of Nassau County’s water system for 20 years. Veolia had the largest revenue at $620 million. Severn Trent reports that “we are in discussions with potential teaming partners for the South Miami Heights [desalination] DBFOM.” American Water reported that “the Marcellus Shale region continues to provide good synergies with our existing operations.” [Public Works Financing, April 2015; sub required]

4) National: Barron‘s profiles a speculative investment manager interested in riskier high yield municipal securities. Steve Czepiel “spends his days thinking about the economics of toll roads, charter schools, hospitals, and other projects financed by municipal bonds. (…) One trend that Czepiel is keeping a close eye on is the intersection of private investors and public issuers in what’s known as a public-private partnership, or P3. The fund has invested in a number of these deals, including one that is building and repairing bridges in Pennsylvania, putting a light rail line from downtown Denver to its airport, and helping water-starved California desalinate seawater.” The bonds that helped finance the Carlsbad Desalination Project “are pumping out 4.5% tax-free income.”

5) National: Corrections Corporation of America releases its first quarter results and holds an earnings call. CCA’s net income rose to $57.3 million for the first quarter, compared to $51.7 million for the first quarter of last year. CCA is projecting slightly lower funds from operations in 2015 than analysts. CEO Damon Hininger reports that CCA has opened Phase 2 of its South Texas Family Residential Center, and is committed to “providing a safe residential setting for individuals entrusted in our care in a facility that is fully compliant with ICE family residential standards.” CCA expects to begin transferring ICE and USMS populations to its new Otay Mesa Facility beginning in the third quarter of 2015. It expects to complete construction of the Trousdale-Turner Correctional Center in Tennessee in the fourth quarter of this year and begin intake in first quarter 2016. Hininger says that key states CCA is focusing on for potential new business or higher fees include Arizona, Oklahoma, and Ohio. On CAR 16, he says that the federal Bureau of Prisons has advertised for 10,800 beds, and that although CCA has only 1,550 beds up for procurement in this rebid, it has beds in Oklahoma, Mississippi and Arizona “that we think could be very attractive to the BOP.” A lot of the analysts’ discussion focused on how California’s efforts to reduce its prison population would affect CCA’s bottom line. On sentencing, Hininger said “some states have done some adjustments and tweaks and have made some provision changes related to sentencing and sentencing guidelines, but nothing to the extent that we see in California.” [Sub required]

6) National: ACS Infrastructure Development is outcompeting its rivals in the “public private partnerships” industry. “As important, ACS didn’t compete for the Purple Line rail P3 in Maryland, the LaGuardia Central Terminal in New York, or the Marion County Justice Center in Indianapolis. All of those expensive P3 procurements have dragged on and drained the shortlisted teams who appear at this point to have bet wrong.” [Public Works Financing, April 2015; sub required]

7) National: Pressure mounts to speed up the process of infrastructure project approvals. Philip K. Howard of Common Good says “maybe if you’re expanding a highway from four lanes to eight lanes there’s some environmental impact that needs to be taken into account and it’s legitimate to figure that out. But if you’re rebuilding a bridge or only making minor changes in a right-of-way, the approval process should only be a matter of months, not years. Change number one is to identify projects that have insignificant impact and create a streamline mechanism for approving them so we don’t waste years and money doing it.” [Sub required]. Common Good, the Bipartisan Policy Center, the National Association of Manufacturers, and Covington & Burling will have a forum tomorrow in DC on Rethinking Infrastructure Approvals as part of Infrastructure Week.

8) National: The market for infrastructure asset sales may be heating up. “As one advisory source told us: ‘If your asset is big enough to warrant hiring an investment bank which will make the asset widely available, then the chances are a very strong bid will come in.’ That bid may be a so-called ‘left field’ bid, inspired by at least one party having a perceived special angle on the deal or being prepared to factor in aggressive growth assumptions. One transaction that caught the eye earlier this year was the $5.7 billion sale of a 66-year lease of the Indiana Toll Road to Australia’s IFM Investors.” [Sub required]

9) California: The water privatization industry and its private equity backers are waxing enthusiastic about a proposal to create Enhanced Infrastructure Financing Districts. “‘Private capital loves the idea,’ said Peter Luchetti, founder and managing partner of Table Rock Capital. ‘There are no limits–you can do anything you want with an EIFD.'”

10) Florida: Officials resist doing an environmental impact study of a proposed Miami-Miami Beach rail link because they don’t want “to think this thing to death,” as Miami Beach Mayor Phillip Levine put it.  “The lack of a study could also seriously limit the possibility of forming a public-private partnership that might also help pay for it. They’ll decide whether or not to do the study in 90 days.”

11) Florida: Rep. John Mica (R) kicks off speculation about the next phase of the I-4 Ultimate project. “Funding would have to be secured for the project, and Mica said it wouldn’t be difficult to get about half of the $2 billion estimated amount from the federal government and the other half through a public-private partnership—similar to how the I-4 Ultimate current project is being financed. FDOT and I-4 Mobility Partners inked a deal to jointly design, build, finance, operate and maintain the 21-mile stretch of the highway for the next 40 years. ‘Federal money will be coming, but if we plan to go after $1 billion in the next four or five years, we have to start now,’ Mica said. ‘There’s very significant competition down the pike with Miami, Tampa and Jacksonville.'”

12) Illinois: As Chicago continues to face dire financial problems, the private company that took over its parking meter system continues to rake in cash that could be going to the city. “While 2014 revenues from the meter system dipped by about $5 million from the year before, the settlement with the city helped CPM boost its net operating income to almost $45 million, the highest since it bought the meters. In short, the private company came away with more money than ever before. Plus, CPM’s income stream last year included $6.5 million in direct payments from the city as penalties for taking meters out of commission. That means taxpayers still have to compensate CPM every time the city needs to shut down a meter for street repairs, festivals, summits, traffic flow, or any other reason.”

13) Indiana: The Indianapolis Business Journal wins the prestigious First Amendment Award from the Indiana SPJ for its work on the Indianapolis Justice Center “public private partnership” controversy over project transparency, costs, and accountability. “That prize went to IBJ government reporter Kathleen McLaughlin for her dogged pursuit of documents the city had withheld related to its plan to build a $1.6 billion justice center.”

14) Maryland: Recently-appointed Transportation Secretary Peter Rahn, who is known for pushing road privatization schemes in other parts of the country, says the Purple Line could be built for 10% less than the state’s previous projection of $2.45 billion. Gov. Hogan (R) “questioned the cost of the Purple Line as a gubernatorial candidate and continued to do so after taking office in January. He asked Rahn to find potential savings ahead of a decision, which is expected in mid-May. (…) Hogan is skeptical of studies that predict the Purple Line would create tens of thousands of jobs.”

15) Massachusetts: Writing in the Boston Globe, state auditor Suzanne Bump offers a resounding endorsement of the state’s Pacheco Law, a tough measure to ensure that public services privatizations make sense and are efficient and aboveboard. The law is under attack by those seeking to outsource MBTA operations. “When a government operation is privatized, taxpayers are still on the hook. The private company gets paid for doing the work formerly done by state employees. In the interest of accountability, the Pacheco Law ensures that taxpayers and consumers of government services benefit from privatization. With this record and with what we have all learned this winter about other planning, contract, and operational management deficiencies at the MBTA, can we trust it to undertake privatization without the discipline and oversight required by the Pacheco Law? Not if we want better results.”

16) Michigan: Detroit charter school teachers vote to unionize and join a branch of AFT Michigan. “New Urban Learning currently manages the school, but informed teachers the company will walk away from the institution at the end of the year.”

17) New Jersey: Bloggers lambaste “willful” biased media coverage of school privatization in Newark. Jersey Jazzman calls out the “KIPP propaganda machine.” As does Bruce Baker.

18) New York: The indictment and arrest of New York State Senate Majority Leader Dean Skelos and his son, Adam Skelos, raises serious questions about contracting standards in Nassau County and elsewhere, and highlights the need for tough responsible contracting standards. “In the wake of reports last month that federal authorities were eyeing Skelos and his son, Acting Nassau District Attorney Madeline Singas announced her office would review the county’s contracting practices. On Monday, Nassau County District Attorney spokesman Shams Tarek said the office had no comment on the Skelos case. Still, Tarek said the office was taking a ‘broad look at county contracting practices’ and that the investigation was ‘very active and ongoing.'”

19) Ohio: The Department of Transportation has whittled down the number of major “public private partnership” projects it proposed with much fanfare in 2012 (saying at the time up to $10 billion would be committed), and is now focused on the $2.7 Brent Spence Bridge rehabilitation project. [Public Works Financing, April 2015; sub required]

20) Oklahoma: The Tulsa World editorial board comes out against talk of privatizing the county’s jail operations. “From the day the jail opened in 1999 until March 2005, it was operated under contract by the Corrections Corporation of America. Our memory of CCA operation of the jail is good, and it’s a bad memory. CCA cost too much and performed too poorly. It behaved like a private company, largely opaque to the public. Toward the end of the contract, the county was constantly trying to reshuffle its budget to make payments to CCA. Ultimately, the contract was rebid, and the winner was the sheriff’s office. Then we found out that the private contractor hadn’t been taking very good care of a very expensive public asset.”

21) Rhode Island: Lawmakers push back against proposed subsidies for a new Pawtucket Red Sox stadium, whether or not it is package as a “public private partnership.” Rep. David Bennett of Warwick said “‘I don’t see it happening unless they make something that’s good for the taxpayers of this state, give them a little security and make them feel a part of it instead of just saying, “We’re going to build this stadium and it’s going to cost you money.” That’s not going to float right now.'”

22) South Carolina: P.L. Thomas offers up a reading list on South Carolina for “Charter Scam Week.”

23) Virginia: Lawmakers say that proposals to put toll lanes inside the Beltway as part of a proposed I-66 upgrade “public private partnership” are “deeply troubling.” “The members of Congress have a number of ways to make their unhappiness known, as the proposed improvement project requires a federal environmental review and is likely to rely on federal funding and/or loan guarantees to move forward.” Pro-privatization activist Robert Poole of the Reason Foundation has expressed frustration that the project may proceed as a traditional procurement rather than a P3.

24) Upcoming Meeting: The American Legislative Exchange Council (ALEC) will be holding its Spring Task Force Summit this Friday in Savannah, Georgia. ALEC’s Education Task Force will introduce its new public sector chair, Sen. Howard Stephenson of Utah (the private sector chair is Jonathan Butcher of the Goldwater Institute), and discuss “recovery school districts,” “student testing,” and other issues. Its Justice Performance Project‘s meeting will include a presentation on “ALEC model policies that begin one-year sunset review period.” ALEC has also proposed model legislation on “public private partnerships.”

25) Upcoming Meeting: This afternoon the National Council for Public Private Partnerships will be co-sponsoring a meeting in DC to promote “public private partnerships.”

Legislative Issues:

1) National: Calvin College students travel to DC for a legislative advocacy day on mass incarceration. “Almost 900 people of faith from nearly every denomination and state came together to be steeped in a weekend of learning about the current unjust state of America’s criminal justice and immigrant detention systems. (…) Private prisons are highly influential government lobbyists; several campaigns, including Michigan Representative Dan Benishek and former presidential candidate Mitt Romney, have been partially financed by two of the leading private prison corporations, the GEO Group and Corrections Corporation of America.” Issues raised included immigration detention and lockup quotas.

2) California: The Senate Governance and Finance Committee approves a bill to extend the DBFOM contract for the controversial Long Beach Civic Center from 30 to 50 years. “Long Beach city management told the public and the Council that lease to the private developer/operator would run for roughly 30 years, then 30+ years, and most recently, 40 years. As noted in the Committee’s own legislative analysis, extending the financing period typically means making more payments and raising the ultimate cost to the buyer (in this case the taxpayer).”

3) California: Capital and Main‘s Danny Feingold reports on a promising new initiative to reform Proposition 13, the 1978 law passed by voters “that many critics believe imposed a fiscal stranglehold on the Golden State.” Many trace privatization initiatives to the measure. “Efforts to privatize public education trace their roots to movements to cut back on taxes, and their consequences vary from more emphasis on high-stakes testing to a less educated citizenry and less freedom for college teachers.”

4) Michigan: Senate Republicans will take up three bills that would repeal state prevailing wage laws on public projects this Wednesday. “It’s the latest assault on workers, following the contentious passage of right-to-work bills in 2012, said Sen. Steve Bieda, D-Warren. ‘I think we’ve made a really strong case of why we need prevailing wage. It’s about worker safety and quality of work,” he said. “You’ll be opening up projects to fly-by-night operations. I think it’s a shortsighted approach and an assault on working people.'” Gov. Snyder (R) and Democratic lawmakers oppose the repeal, and the Associated Builders and Contractors supports it. The bills would affect only about 5% of state projects, since the rest are subject to federal Davis-Bacon prevailing wages requirements.

5) Michigan: The House passes a bill that allows GEO Group to accept high security prisoners from other states at its Baldwin prison. HB 4467 now moves to the Senate. “Critics say it’s wrong to have private companies and guards securing dangerous inmates, and the move could be a “foot in the door” to further privatization of Michigan’s prison system, a path they say has so far been paved with failures. They also say GEO has a spotty record in other states and in Michigan, where its predecessor prior to a name change, the Wackenhut Corp., operated the youth prison near Baldwin.” GEO is in negotiations with two unnamed states and hopes to open the prison in mid-July.

6) Wisconsin: Prevailing wage repeal attempts look likely to die as a Senate committee fails to report them out and the assembly doesn’t have the votes to pass a repeal.