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This Week’s Outsourcing Scan 5-23-2016

1) National: WAMU’s Kojo Nnamdi explores a controversial new plan by the National Park Service to change the way national parks and landmarks raise money. “From the National Mall to Bryce Canyon, tourists could see more corporate logos throughout their visit, and park supervisors will spend more time soliciting corporate gifts. Though officials say increased sponsorships will help allay a $12 billion funding shortfall, the changes have raised serious concerns about conflicts-of-interest and how we experience our national parks and landmarks.” Guests include Jeff Ruch, executive director of Public Employees for Environmental Responsibility.
 
2) NationalVeterans groups demand federal action on for-profit colleges. “Some of the nation’s largest veterans and military organizations sent letters last week to the Veterans Affairs Department asking it to crack down on colleges that prey on veterans by charging exorbitant fees for degrees that mostly fail to deliver promised skills and jobs. The letters were signed by top officials at the American Legion, the National Military Family Association, the Military Officers Association of America and nearly 20 other groups. They called on the department to improve its oversight of colleges that have engaged in deceptive recruiting and other illicit practices but that continue to receive millions in funding under the G.I. Bill.”
 
3) National: Attorney James J. Terry of the law firm Zetlin and De Chiara looks at the legal issues relating to prevailing wage requirements in ‘public private partnership’ contracts. “While developers would prefer the certainty of bright-line rules in this area, the courts have taken a case-by-case approach, focusing on the nature of the contractual relationships defining the project and the degree of public use of the construction. The fact that the real property at issue may be owned by a public entity or that the project may be significantly (or even wholly) financed by public funds does not automatically assign the project to the realm of public works subject to prevailing wage statutes. As with so many legal questions, the devil remains in the details. However, recent case law has illuminated this area, as this article will discuss, and has highlighted the recognition of entrepreneurial risk in the calculus.”
 
4) National: Despite a national divestment campaign, Bank of America has doubled down on its investment in Corrections Corporation of America. According to recent SEC filings, the bank “bought 1,030,631 shares in Corrections Corporation of America worth $33 million at the March 31 price of $32.05. It held 8,163,346 shares on Mar 31, 2016 worth $261.6 million. Its net increase in holdings over the last fifteen months was 8,057,470 shares. [“Reported buying by Bank of America Corp., quarter ended March 31, 2016,” News Bites ETFs-Mutual Funds, May 18, 2016; sub required]
 
5) National: The Chicago Tribune reports that long airport lines are causing pain, but privatization is not the answer. “‘There’s this weird belief that if a corporation does something, it’s good, but if the government does something it’s bad,’ said security expert Bruce Schneier, a fellow at Harvard University’s Berkman Center. ‘There’s a lot of things the TSA could do differently, but putting it in private hands will not solve any of the problems.’”
 
6) NationalThe Bond Buyer is bullish on “social impact bonds,” which are performance-based contracts between government and private entities to accomplish specific social objectives. The first results of a 2014 Chicago SIB deal on increasing school readiness—with Goldman Sachs Social Impact Fund and Northern Trust in senior roles and the J.B. and M.K. Pritzker Family Foundation as a subordinate lender—came in last week. “Based on those metrics, the initial outcomes [have] met the established criteria and investors are now assured a $500,000 ‘success payment,’ said panelist Deborah Kasemeyer, senior vice president at Northern Trust Co.” [Sub required]
 
In the Public Interest and a number of other public interest groups have published A Guide to Evaluating Pay for Success Programs and Social Impact Bonds.
 
7) National: Port authorities are worried that a new rule proposed by the Treasury Department and IRS “could hurt their standing as political subdivisions and their ability to issue bonds as well as complicate their governing structures.” The IRS and Treasury “have worried the current definition has resulted in a number of developer-controlled boards that issue tax-exempt bonds for their own private benefit.” [Sub required]
 
8) National: Journalist and activist Chris Hedges talks about how “corporations have reached their deadly tentacles into every facet of prison life,” citing GlobalTel Link, prison commissaries, prison payments systems, and Corrections Corporation of America. [Video: at 58:00]
 
9) National: The Department of Transportation’s Build America Transportation Investment Center (BATIC) and the federal TIFIA loan program will be holding a webinar tomorrowon “federal financing to capitalize state infrastructure banks.” Registration is open to the public.
 
10) National: The Financial Industry Regulatory Authority has filed a complaint against “Phoenix-based Lawson Financial Corp. and the firm’s president and chief executive officer, charging them with securities fraud in connection with the sale of millions of dollars of municipal revenue bonds to customers.” The Bond Buyer reports that “the allegations stem from four bond offerings where LFC served as the sole underwriter. Two offerings, which FINRA calls the Destiny Bonds and Hillcrest Bonds, funded a Mesa, Ariz. charter school while the other two, named the Cullman Bonds and Decatur Bonds, funded assisted living facilities in Cullman and Decatur, Ala.”
 
11) California: Alameda County shields the identities of members of a committee charged with selecting a jail health care contractor, raising questions about transparency and possible conflicts of interest. “Terry Francke, general counsel for the open government advocacy group Californians Aware, said such a policy jeopardizes the public’s ability to vet the bid process. ‘In order to have a trustworthy evaluation of what is, after all, a multimillion-dollar contract, it is important to know who the evaluators are so that any relationships between them and the companies could be fully exposed,’ Francke said.” Also protesting the lack of transparency is Corizon—which itself faced criticism last year for refusing “to hand over its report on the suicide of an inmate in a Des Moines jail to the Polk County sheriff.” In another case, in Florida, Corizon refused to release its litigation history, claiming it was a “trade secret.”
 
12) California: The Los Angeles County Metropolitan Transportation Authority’s board is expected to vote on a funding plan for 40-year capital expenditure plan in June. The proposed plan includes a 40-year half-cent sales tax and the extension of an existing half-cent sales tax. [Public Works Financing, April-May 2016; sub required].
 
13) California: San Bernardino will vote on a new charter, but one revised to make it maintain its police department instead of outsourcing it to SB county.
 
14) Georgia: A Chatham County jail inmate sues Corizon and the sheriff for “deliberate indifference” leading to blindness in one eye.
 
15) HawaiiHospital privatization is halted as United Public Workers contests the move in court. “The group argues the law allowing the hospitals to privatize violates the contracts clause of the U.S. constitution and interferes with collective bargaining agreements. U.S. District Judge Helen Gillmor had dismissed the complaint in February and denied an injunction. The union appealed her decision to the 9th Circuit Court of Appeals. On Tuesday, the court issued an injunction.”
 
16) HawaiiCivil Beat reports that “Hawaii keeps secret what happens in its private prison.” Even nine months after the death of a Hawaii inmate at Corrections Corporations of America’s Saguaro Correctional Center in Arizona, “it hasn’t released a single follow-up statement—or the results of its investigation into [Jonathan] Namauleg’s death. In many ways, the episode is a perfect illustration of the department’s attitude toward transparency: When it comes to troubling news out of Saguaro, it prefers to stay tight-lipped.”
 
17) Illinois: Plainfield School District 202 reaches agreement with the Plainfield Association of Support Staff that avoids outsourcing custodial staff, but does so “by reducing salaries and sick leave, and by cutting the number of employees who are currently available to serve the students and schools.” Some long-term employees will have their pay cut by 15-20% and other custodial salaries were frozen.
 
18) Illinois: AMP and Northleaf, the Australian and Canadian fund managers, buy out the Chicago garages system. “This is the third time the asset has changed ownership since Morgan Stanley Infrastructure, investing on behalf of its clients, paid the City of Chicago $563 million in 2006 to operate the parking system under a 99-year concession agreement. However, after seven years of lower-than-expected revenues and unable to repay its $403 million loan, Morgan Stanley transferred the concession rights to LMG2.” [Sub required]
 
19) Indiana: Another 8-month delay hits the I-69 ‘public private partnership’ upgrading project. The project is being developed by CCC, a subsidiary of P3 developer Isolux Corsan, which negotiated a 35-year DBFOM contract with the Indiana Finance Authority in 2014. Standard & Poor’s “predicts CCC will have to pay $22 million to the concession company in liquidated damages, taking up a large chunk of the contractor’s reserves and increasing concern about its ability to complete the project.” [Public Works Financing, April-May 2016; sub required]. The road privatization industry often asserts that P3s do a better job of coming in on time and under budget than traditional procurements.
 
20) New JerseyOcean County 911 operators are paid so poorly that many would qualify for public assistance, says John Gerow, president of Teamsters Local 97. Turnover is high. “Since taking office in 2014, Sheriff Michael G. Mastronardy has complained that employees throughout his department are underpaid relative to the county’s municipal law enforcement departments. He has blamed the county government’s unwillingness to offer competitive salaries and wages as a reason he cannot retain staff, after county taxpayers have invested tens of thousands of dollars training them to do their jobs.”
 
21) New JerseySalem County looks at outsourcing its 911 dispatch center and its jail nurses, impacting about 60 jobs. The county CFO says the move would save over $1.1 million. But “Michael A. Blaszczyk, president of Communications Workers of America Local 1085, said his union, which represents the 911 and jail medical workers, wants to see their jobs saved. ‘We are willing to talk about anything so we don’t have to watch any of our members be laid off,’ he said Wednesday. Blaszczyk said the union had met with county officials once and the brief negotiating session was ‘unproductive.’” Another meeting is set for today.
 
22) New Jersey: The issue of charter schools has moved to the center of the June 7 Democratic congressional primary contest between progressive hopeful Alex Law and incumbent Donald Norcross. Law is questioning the endorsement of Norcross by the New Jersey Education Association, the state’s teachers union. He is “running alongside freeholder candidate and longtime anti-charter advocate Moneke Ragsdale.”
 
23) New York/New Jersey: The Port Authority successfully secured $2.5 billion in a municipal bond offering for the $4 billion La Guardia airport Terminal B replacement, a DBFOM ‘public private partnership.’ The Financial Times reports that “the influx of foreign buyers into the U.S. municipal bond market as sovereign bond yields decline has suppressed borrowing costs for many cities, states and public agencies seeking to fund public works.” [Sub required]
 
24) Ohio: Walbridge is considering outsourcing its police department.
 
25) OregonActivists win an 8-year battle to block Nestlé Waters’ plan to bottle water in Cascade Locks, which some said would amount to “privatizing a public resource for corporate profits.” A referendum to ban large water bottling operations in Hood River County won with 68% on the vote. “The plan has faced opposition from the start, despite widespread support among the town’s leadership. Measure 14-55 was the latest wave of backlash in a years long battle. Julia DeGraw, an organizer for Food and Water Watch, a national group leading the Nestlé opposition in Oregon, called Tuesday’s victory ‘proof that voters are smart. When you talk to them about something as crucial as their water, which is necessary for an agricultural economy, right after they have a drought, there is not enough misinformation the opposition can throw at voters to make them buy it.’”
 
26) PennsylvaniaCharter schools sue over changes to the payments reconciliation process.
 
27) Pennsylvania: South Whitehall officials drop plans to outsource lawn mowing services after the union complains. “”Our understanding was there was going to be no objection, and then there came an objection,” township Manager Howard Kutzler said. As a result, public works crews will continue to mow the grass at township parks, detention basins and easements and at the Municipal Building on Walbert Avenue, at least through this year.”
 
28) Puerto Rico: A federal lawsuit has grown out of the Puerto Rico Highways and Transportation Authority’s (PRHTA) granting of a ‘public private partnership’ concession extension to Abertis, a private company (Abertis owns 51% and Goldman Sachs 49% of Autopistas, the concession company). AMBAC, the bond insurance company, is suing over its claims that the P3 has created a situation where the PRHTA could lose $115 million to the cash-strapped Puerto Rican central government, which has the ability to appropriate any of the authority’s revenue. AMBAC is suing to prevent such a transfer. [Public Works Financing, April-May 2016; sub required]
 
29) Tennessee: As the state’s massive outsourcing plan forges ahead, lawmakers point to the state’s poor record on contract management. But Democratic-sponsored legislation that “would have required Fiscal Review oversight of all contracts worth more than $5 million, enabling the committee, at its discretion, to communicate concerns with vendors’ contracts to the General Assembly” was killed in the final days of the last legislative session. “The purpose was to shine some light on some of these large contracts that the governor is entering into. He’s obviously got this outsourcing and privatization scheme he’s cooking up behind closed doors,” said Nashville Democrat Rep. John Ray Clemmons.
 
30) Virginia: Notwithstanding problems with library privatization elsewhere, Prince William County will consider outsourcing its libraries to private equity-controlled LS&S (formerly LSSI) at a June 21 meeting. This has local residents worried. Former county library system director Dick Murphy says “the process is, the way they’re going to save $3 million, they’re going to, all the staff is going to be let go and then they’re going to hire back what they can afford to hire back within the resources that they say they’re going to have.” As Donald Cohen of In the Public Interest points out in Capital and Main, “LS&S’s claim to do more with less while still making a profit really meant that corners would be cut. Some of the library’s part-time workers get minimum wage.”
 
31) InternationalAn outsourcing and shared services scheme ends up costing more than it saves for Britain’s central government administration. “Public and Commercial Services union general secretary Mark Serwotka said: “This is an all-too-familiar story of Tory ministers cutting and privatizing, only to find they have wasted money and damaged services. We opposed the privatisation of shared services because we did not believe it would deliver the savings that were promised and we have been proved right.’”
 
32) International: As the Newfoundland government works toward developing a policy on ‘public private partnerships,’ Canadian industry seems to be trying to show flexibility. St. John’s Board of Trade chairman Des Whelan “said the industry and governments have learned a few things after 20 years, making more favorable contracts for both sides. ‘There’s lots of expertise out there we can use and do this properly,’ he said.”
 
33) International: Nick Gier of the Idaho State Journal recounts the story of the spectacular failure of privatizing British Rail.
 
34) Think Tanks: This Thursday, the Center for American Progress will be holding a panel discussion on charter schools, which will be livestreamed. “What are the facts? Who is right? And most importantly, how can we leverage the lessons learned over the past 25 years to improve all public schools?”
 
35) Think TanksGood Jobs First’s subsidy tracker reaches two milestones. “Documenting that corporate welfare has become a commonplace and expensive practice, the first national database of taxpayer-funded subsidy awards to business today reached two significant milestones: The latest expansion of Good Jobs First’s  Subsidy Tracker brings the number of entries to 500,000 with a total value of more than $250 billion. The awards come from more than 740 federal, state and local programs. The free search engine was launched in 2010 and has been continuously expanded and improved since by Good Jobs First, the non-profit watchdog group known for its investigative reports and tools.”
 
36) Think Tanks: The Project on Government Oversight criticizes the Office of Information Policy for issuing a glowing review of the government’s FOIA responsiveness “despite growing dissatisfaction among requesters who use the Freedom of Information Act.”
 
37) Think Tanks: The Bipartisan Policy Center releases a new 112-page report promoting ‘public private partnerships.’ The BPC’s “executive council on infrastructure” includesSusan Story, CEO of American Water; Jack Ehnes, the CEO of CalSTRS; Jane Garvey, the chair of Meridiam (North America) Infrastructure Fund.
 
38) Revolving Door News: Government-side P3 gurus continue to slip through the revolving door. Russell Zapalac, ex-Gov. Rick Perry’s former chief planning and project officer at the Texas Department of Transportation, has resigned to become executive vice president at Halff Associates, a Texas-based engineering and architecture firm; and Dusty Holcombe, a 10-year deputy director of Virginia’s Office of Public Private Partnerships, has just joined RS&H in Richmond to become vice president in charge of transportation infrastructure. [Public Works Financing, April-May 2016; sub required]
 
Legislative Issues
 
1) National/Puerto Rico: Much-anticipated legislation is introduced in the House to permit Puerto Rico to restructure its public debt under the supervision of an oversight board. The bill contains provisions to permit the board to submit recommendations to the governor or legislature relating to “the privatization and commercialization of entities within the territorial government,” and may require any proposed project to “contribute to transitioning to privatized generation capacities in Puerto Rico.” [H.R. 5278, pp. 61, 120]
 
2) National: Sen. James Inhofe (R-OK) visits the military commissary at Altus Air Force Base and promises to resist privatization, even though a pilot privatization program is included in the new defense authorization bill, which was approved by the Senate Armed Services Committee.
 
3) Michigan: Allie Gross digs deep into how anti-union and pro-charter school money is sloshing through the legislature and damaging efforts to put Detroit public schools on a sound financial footing—thereby making charter schools look better. “All of these advocates represent the interest of charter schools, the competitors to the flailing public school district the House legislation is supposed to benefit. Digging into the legislation, we can see why charter advocates may support the Putting Students First proposal for Detroit Public Schools. While it creates many limitations for the traditional public school district—penalties for striking teachers, 401k plans instead of pensions, and a push for uncertified teachers—the legislation does very little when it comes to regulating the proliferation of charter schools in the city.”

 

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