Upcoming Outsourcing Issues
1) National: Donald Cohen of In the Public Interest publishes an in-depth history of privatization in TPM. “Today, privatization is weakening democratic public control over vital public goods, expanding corporate power and increasing economic and political inequality. Domestic and global corporations and Wall Street investors covet the $6 trillion in local, state and federal annual public spending on schools, prisons, water systems, transit systems, roads, bridges, and much more.
“A new pro-public movement, with this history in mind, is growing quickly. It has become clear that the 40-year conservative assault on government is enriching some and leaving more and more Americans behind. Groups across the country are organizing and starting to see success.”
2) National: The heavily-criticized national accrediting agency for for-profit colleges admits it needs a complete makeover. “In April, a dozen state attorneys general called on the Department of Education to rescind ACICS’ recognition. ‘Even in the crowded field of accrediting failures, ACICS deserves special opprobrium,’ the attorneys general wrote in a letter to U.S. Secretary of Education John King. [The week before last], California’s attorney general Kamala Harris joined the other attorneys general. In her own letter to the Department of Education, Harris noted the accreditor’s failure to penalize Corinthian Colleges, which kept its accreditation until the day it declared bankruptcy.”
3) National: Another federal “family detention” center may be coming to south Texas. The two existing centers have come under widespread criticism for violations, and one is the subject of a lawsuit attempting to ban the state of Texas from designating it as a childcare facility. The third facility would be a nursing home that would be turned into a detention center by Serco, the British security company.
The Guardian reports that “the billion-dollar company, implicated in numerous immigration detention centre scandals in the UK and Australia, has been lobbying the U.S. government for more than a year in an effort to win detention contracts, sparking sustained criticism from immigrant rights groups.” Serco’s Americas division “provides professional, technology and management services focused on defense, transport, and citizen services (principally process outsourcing for government agencies). The U.S. federal government, including the military, civilian agencies and the national intelligence community, are our largest customers.” [Serco 2015 Annual Report and Accounts, p. 46; Serco Investor Presentation]
4) National: This past Wednesday at the Waldorf Astoria in New York, Corrections Corporation of America’s CEO Damon Hininger and CFO Dave Garfinkle addressed the NAREIT Investor Forum, attended by over 250 real estate investment companies, banks, private equity funds and law firms. Hininger told investors that in addition to its current business (owned and operated prisons), CCA is focused on diversifying into “re-entry services” and “real estate-only solutions” to governments. “In the last couple of years, we’ve now gone to jurisdictions and actually expanded our playing field a little bit, where we can maybe get a few more partners interested in what we do, by just being their capital and real estate partner.”
In touting CCA as a REIT investment opportunity, Hininger says “when you think about all the asset classes in the United States, you really can’t argue there has been any assets that have had a need longer-term than prisons. Maybe hospitals is another asset class, that’s been around for centuries, but prisons, there’s always been a real strong need for prisons a long-term.” All this plus “low maintenance CapEx” when compared to hotels: “unlike a hotel that’s got to renovate and keep modern and make sure that it keeps all the amenities up to date, so they keep pricing power, we don’t have that issue with prisons.” He also touted its low debt (3.6 x EBIDTA) and steady high dividends.
Garfinkle tells the investors that CCA is aggressively looking to acquire more companies in the residential re-entry market (it acquired Correctional Alternatives in 2013, Avalon last October, and Correctional Management in Colorado this April), “a strong growth opportunity where you have bipartisan political support for investments.”
Asked about the presidential election, Hininger says he’s optimistic whether it’s Trump or Clinton: “We had a lot of growth under Clinton, we had a lot of growth under Bush, and we’ve had a lot of growth under President Obama. And so, with that, if we continue to do a good job on the quality, and with that, we can demonstrate savings both on capital voids, but also cost savings in our services, then I think we’ll be just fine.” [CQ-Roll Call transcript, June 8, 2016, sub required; CCA May 17 Investor Presentation].
5) National: The New York Times says the federal government should ban the practice of forcing students at for-profit colleges to forego their rights to bring class action suits. “The language may vary, but the restrictions have a specific purpose: to smother scandal and protect schools from financial liability when they are accused of using fraudulent or deceptive practices. To bring greater transparency to the for-profit sector, the Education Department needs to ban these restrictions in schools that receive federal aid.”
6) National: Should weather forecasting be public, private, or both? Mary Glackin, senior vice president for public-private partnerships at The Weather Company/IBM, says “I cringe when I hear, ‘why do we need the National Weather Service when we have TV forecasters or private companies?’ To me that question is like asking “why do we need potato farmers when we have fast-food fries and p
otato chips?’”
7) National: Last Wednesday, Public Justice, an organization that “pursues high impact lawsuits to combat social and economic injustice, protect the earth’s sustainability, and challenge predatory corporate conduct and government abuses,” named the Gwilliam Ivary law firm as a finalist for its Trial Lawyer of the Year Award. The firm was tenacious in its efforts protecting workers in the Andrews v. Lawrence Livermore National Security case. “The Andrews case sheds light on how the George W. Bush administration’s decision to privatize a national security laboratory had devastating impacts on workers and the nation’s safety, as decades of knowledge and experience left the lab as a result of the layoffs.” The award will be presented at the organization’s Annual Gala and Awards Dinner on July 24 in Los Angeles.
8) National: The battle over proposed federal political subdivision rules heats up. The IRS and Treasury Department have proposed rules to make political subdivisions more publically accountable and suited for a public purpose, rather than serving private interests. Government finance officers, the Securities Industry and Financial Markets Association and the National Association of Bond Lawyers are resisting the rule changes, saying they might disrupt the muni market.
“To be governmentally controlled, a political subdivision would have to be controlled by a state or local governmental unit or an electorate. Whether an entity serves a governmental purpose would be based on whether it carries out public purposes stated in its enabling legislation and provides no more than incidental private benefit. The new rules were proposed in response to concerns about who was controlling political subdivisions. (…) Some IRS audits found that developers or other private entities were wielding significant control over political subdivisions and this raised concerns among numerous federal officials.”
9) National: Derek Newton writes in The Atlantic on how private companies profit from non-profit schools. “The practice of aggressive recruiting of college students isn’t limited to for-profit colleges: Students who study online at many public and private non-profit schools are being recruited in similar ways and are handing over large percentages of their tuition—hundreds of millions of dollars total a year—to companies that profit based on the number of students who enroll. The result is a very lucrative but nearly invisible education market in which students pay, companies profit, costs escalate, and the prospect of scandal lingers.”
10) Arizona: The state attorney general says he doesn’t think state board of investment members face liability for implementing the charter school funding requirements of Prop 123, which permits increased payments for charters from the state land trust fund.
11) California: Los Angeles World Airports (LAWA) releases a Request for Qualifications to build the LAX Automated People Mover. The project will be a DBFOM ‘public private partnership.’ Replies are due August 11. [RFQ]
12) Illinois: Peter Hayes of BlackRock, the investment firm with $4.7 trillion of assets under management, wants to punish the state of Illinois for daring to go to capital markets to finance its infrastructure needs. Hayes, head of their $119 billion municipal bonds group, wants a boycott. The state is planning to raise $550 million this Thursday. Of Hayes’ demand that a bankrupt Detroit pay up, one writer said at the time “one might be, upon reading Mr. Hayes’ whine, shocked at the hubris of bondholder arguing his claim to a piece of Detroit’s financial pie morally trumps that of a resident in need of police assistance or a retired garbage man subsisting on a few hundred dollars a month in pension income.”
13) Indiana: The South Bend Tribune’s Virginia Black takes a close look at the state’s privatized prison healthcare system and finds anger and anguish. Corizon “has come under increasing scrutiny amid a spike in complaints, questions about oversight and allegations that profit often takes priority over critical health services for inmates.” The company “operates its own correctional pharmaceutical company and subcontracts with other companies for some services. But information about the company, and its work in Indiana, can be hard to find. Indiana’s current deal with Corizon includes requirements for regular reports to the DOC, including staffing shortages and reviews of inmate deaths. But those reports are not made public, with a DOC attorney citing the confidentiality of inmate medical information.”
Is the revolving door a problem? “The doctor, who asked that his name be withheld because of possible legal repercussions, now works in a private clinic in central Indiana. He said he considers [DOC chief medical officer Michael] Mitcheff an intelligent doctor, but he sensed Mitcheff was under pressure to save money—resulting in Mitcheff consistently overriding doctors’ suggestions for a certain medication or outside test.”
14) Kansas: Osawatomie State Hospital “will seek federal r
ecertification ‘shortly’ as a union representing state workers points to an improved relationship with the agency that oversees the facility.” Should the hospital receive certification from the Centers for Medicare and Medicaid Services, Kansas Department of Aging and Disability Services will proceed to issue Requests for Proposals to privatize the facilities. Actual privatization would require legislative approval. Rebecca Proctor, director of the Kansas Organization of State Employees (AFT, AFSCME, AFL-CIO), says “we are very, very encouraged at the steps Secretary Keck and his staff are taking to try to improve conditions for both patients and staff at both Larned and Osawatomie.”
15) Massachusetts: Today at noon, members of Boston Carmen’s Union Local 589 (ATU) will speak out against the Massachusetts Bay Transit Authority’s plans to completely privatize fare collection and automated fare collection services, and outsource stock room and cash counting operations. At MBTA headquarters. “The Carmen’s Union has a moral obligation to stand up and fight for these men and women whose jobs are on the line,” said Jim O’Brien, the head of the Carmen’s Union. “Our contracts were negotiated in good faith, and we’re going to defend the rights of workers who could lose their livelihoods.” Local 589 has also activated a contract grievance against MBTA’s decision to restrict vacation and paid leave.
16) New Jersey: As various interests circle Atlantic City’s water utility,. Mayor Donald Guardian opposes privatization, turning it into a ‘public private partnership,’ or offloading it onto the county. “‘I would like for the city to bring it in house and leverage it in a way that protects the rates of our residents and helps us pay down our debt,’ said Guardian. ‘It belongs to the people of Atlantic City and it should stay under our residents’ control.’” [Sub required]
17) New York: State comptroller Thomas DiNapoli issues an audit critical of the NY Racing Association’s financial condition and selected expenses, even as the NYRA seeks to privatize its operations. “In particular, NYRA’s CEO received a $250,000 bonus for 2014” despite the fact that a break-even budget was not executed.
18) New York: Citizen activists beat Nestlé again on the company’s efforts to vacuum up local water. Last Wednesday night, “the residents’ nearly yearlong fight culminated in victory when Nestlé withdrew a zoning permit application for the Chestnut Springs water extraction facility in Eldred.”
19) Ohio: Ohio State is considering privatizing the system that heats, cools, and powers more than 400 buildings on the school’s main campus in Columbus. “OSU would become the largest public institution in the country to privatize its utility system on such a wide scale if the plan is approved. The university is expected to invite six of 10 semi-finalist vendors to submit detailed bids in the fall.” On Friday, the Columbus Dispatch published a letter to the editor from Prof. Emeritus Bruce Weide setting out the broken promises of university trustees about Ohio State’s last big privatization—of its parking facilities.
“So, where has all that extra money actually been going?” asks Weide. “Sorry to report there isn’t any extra money. Claims of new academic-program spending from this source are a shell game. Each year since the deal, I have documented how OSU has actually lost millions of dollars compared with what it would have had if it had not privatized parking. In 2062, when the parking lease expires, OSU is likely to have a significant pile of extra money in its endowment fund. Meanwhile, however, the price for this pot of gold at the end of the rainbow includes an annual hemorrhage of about $6 million this year and more like $9 million next year.”
20) Ohio: Republican lawmakers silence the state’s prison watchdog. Joanna Saul, executive director of the Correctional Institution Inspection Committee, was forced to resign. “Mike Brickner of the American Civil Liberties Union of Ohio said, ‘The agency raised the red flag about what was going on in Ohio prisons.’ But Saul’s forced departure means that ‘lawmakers have basically sent the message: If you ask too many questions, if you advocate too forcefully for prisoners, your job could be on the line,’ Brickner said.”
21) Oregon: Coos Bay, which is under a DEQ order to upgrade its wastewater treatment system, hears a proposal to privatize it. “However, the proposal raised several questions from both the council and some in attendance. Coos Bay Mayor Crystal Shoji asked how D.B. Western could guarantee rates for 20 years when the company has no way of knowing what new state and federal regulations will be released. [Company representative] Boger said that’s a risk that private enterprises take. Asked by Shoji what means the city would have to hold D.B. Western accountable should it violate the agreement and raise rates, Boger said that would be a legal matter.”
22) Revolving Door News: Former education secretary Arne Duncan takes a position as a board member of Pluralsight, a Utah-based online education startup that offers training on technical and business skills.
Legislative Issues
1) National: The Senate Finance Committee advances the nomination of Charles Blahous to the full Senate. Blahous “was the executive director of former President George W. Bush’s commission that recommended the privatization of Social Security benefits. Outside of serving as a trustee, Blahous works at the Mercatus Institute, which is funded by prominent Republican donors Charles and David Koch, and he writes papers that are critical of Social Security, the Senate Democrats said.” Senators Schumer, Warren, and Whitehouse write that Blahous is “part of an army of aggressive conservative ideologues groomed for government service and bankrolled by the Koch brothers. Their purpose is clear—to tilt the game in Washington ever further in favor of corporate special interests. The Senate should reject them.”
2) National: On a full floor vote, Senators turn back an effort to privatize military commissaries. “After the committee’s effort last year to launch privatization, lawmakers included a provision in the defense policy bill requiring defense officials to conduct a study to determine the costs and benefits of privatization. The Government Accountability Office would evaluate the study. Because that process has not been completed, senators objected to a privatization pilot proposed by the committee again this year.”
3) California: Assemblywoman Susan Bonilla, D-Concord, introduces legislation to prohibit online charter schools from hiring for-profit firms to provide instructional services. “Assembly Bill 1084, authored by Assemblywoman Susan Bonilla, D-Concord, would prevent charter schools that do more than 80 percent of their teaching online from being operated by for-profit companies or hiring them to facilitate instruction. If passed and signed into law by Gov. Jerry Brown, the legislation would effectively put companies like K12 out of business in the Golden State.”
4) Delaware: A dispute has broken out over whether charter schools should be allowed to keep funding for school bus services that they don’t spend. “‘I don’t want groups spending money just because they have it,’ Rep. Williams said. ‘If we’re offering money for a particular service, I want them to get good service at the best price but I don’t want them spending money for the sake of spending it either. It’s not our pocketbook. It’s the people’s purse, and we should be conscious of how we’re spending the people’s money.’”
5) Michigan: State lawmakers finalize a controversial restructuring package for the Detroit Public Schools. “The legislation leaves out a proposed commission strongly advocated by Detroit Mayor Mike Duggan and Democrats to regulate traditional and charter school locations in the city. Instead, it calls for six-member advisory council that will be in charge of developing siting and transportation recommendations for the new community school district. The council will be comprised of three representatives from traditional public schools and three representatives from charter schools. (…) House Democratic Leader Tim Greimel, D-Auburn Hills [says] ‘House Republicans are forcing the closure of public schools while allowing failing charter schools to proliferate. Republicans are making it clear who they serve: charter school operators, not children.” Gov. Snyder says he intends to sign the bill. [Sub required]
6) Rhode Island: Lawmakers and public school officials take on Gov. Raimondo over the charter school funding formula in the budget. “School superintendents and others concerned about the growth of charters wanted deeper changes and found allies in the Democrat-controlled General Assembly. The formula revision crafted by lawmakers and unveiled [last] week would allow school districts to cut charter school payments by 7 percent and deduct certain expenses, including teacher pension costs.” The full budget will be voted on this Wednesday.
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