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This Week’s Outsourcing Scan 7-18-2016

1) NationalThe New York Times publishes the second in a series of articles on the role of private equity and hedge funds in eroding the quality of public services, and exercising broad political influence on everything from legislative drafting to public infrastructure planning, municipal services, and shaping the role of government. The second piece examined the political clout of private equity firms in promoting legally-protected usury, profiting from municipal golf courses, and spinning the revolving door to promote and finance Florida’s proposed first all-private railroad.

The Times reports, “private equity firms often don’t directly engage with legislators and regulators—the companies they control do. As a result, the firms themselves have emerged as relatively anonymous conglomerates that exert power behind the scenes in their dealings with governments. And because private equity’s interests are so diverse, the industry interacts with governments not only through lobbying, but also as contractors and partners on public projects. Fortress, which manages more than $70 billion of investor money, encapsulates this new power dynamic. While little known outside Wall Street, Fortress covers a cross section of American life through companies it owns or manages.” Fortress is a publically-traded company. Have a look through its annual report.

The authors of the first piece, “When You Dial 911 and Wall Street Answers,” Danielle Ivory, Ben Protess, and Kitty Bennett of The New York Times won the July Sidney Award from the Sidney Hillman Foundation.

This stepped up in-depth coverage by the mainstream media of hedge fund and private equity’s depredations builds upon years of detailed, high quality, sustained research and advocacy by researchers such as Eileen Appelbaum, senior economist at the Center for Economic and Policy Research. Her latest book, Private Equity at Work: When Wall Street Manages Main Street, coauthored with Rosemary Batt (the Alice Cook Professor of Women and Work at Cornell), was published in March 2014.

2) National/District of ColumbiaJeremy Mohler of In the Public Interest puts a municipal contracting scandal into its wider context. “News broke last week that a private company transporting people with disabilities in Washington, D.C., billed the government for almost $200,000 dollars in services it never provided. (…) But MV Transportation’s issues are typical of a contractor cutting corners to increase profits. Is it a ‘billing error’ when some paratransit drivers in D.C., because they are paid so little by contractors, have to rely on public assistance to keep afloat? The money that MV Transportation took from the public—and the money spent investigating and cleaning up their ‘billing errors’—could’ve been invested in the city’s transit system, which like many across the country is struggling after years of underinvestment.”

See also In the Public Interest’s latest report, Cutting Corners, which details the negative impacts on the public of cost-cutting by contractors across a variety of public goods and services and at every level of American government.

3) National: As Donald Trump picks Indiana governor Mike Pence for his running mate, Diane Ravitch reminds us of his view of public education: “He doesn’t like it.” She then points us to another useful reminder on Pence’s record by The Washington Post’s Valerie Strauss. Melissa McEwan, the founder and editor-in-chief of Shakesville, a progressive feminist blog community, also looks at “how Pence does business.”

Last week, in a piece titled “Themes And Stocks To Watch If Donald Trump Is Elected,” Motif Investing wrote “Trump’s priority of cracking down on illegal immigration would hurt most businesses and taxpayers, but it could benefit government defense contractors as well as security firms and private prisons used to detain undocumented immigrants waiting to be processed and deported. Trump is supportive of private prisons and thinks they work better than publicly funded ones. Hillary Clinton disagrees. Last fall when she tweeted she wants to end private prisons to protect public safety, prison stocks took a quick hit with Corrections Corporation of America falling over six percent and the GEO Group dropping 4.2 percent.”

4) NationalThe U.S. Army Corps of Engineers is entering the ‘public private partnership’ market with a $2 billion flood diversion project. “The Water Resources Reform and Development Act of 2014 (PL 113-121) required the Army Engineers to create a pilot P3 program with up to 15 projects. (…) Private investors are necessary because Congress provides only $1.5 billion a year to fund $23 billion of Corps’ projects,” says Corps commander Lt. Gen. Thomas P. Bostick. [Sub required]

5) National/International: The World Bank has published a set of articles seeking to take on both critics and supporters of ‘public private partnerships,’ arguing that data can disprove many “myths” about PPPs, calling for more “post-transaction data” to promote transparency and support after deals get going, and advocating open data and increased disclosure. “Open data + increased disclosure = better PPPs.”

6) NationalThe SEC is toughening up regulation of the municipal securities market. “Since early 2013 alone, apart from the MCDC Initiative, there have been enforcement actions brought against 18 state or local governmental entities and against 16 issuer officials. In contrast, in the 14 years from the beginning of 1999 through 2012, the commission resolved disclosure actions against only 11 state or local entities and 10 officials. There is a definite change in tone.” Among the measures, SEC has “taken its first action, based upon information relating to a private conduit borrower, against a governmental issuer providing credit enhancement for the borrower’s payment obligations.” [Sub required]

7) National: Corrections Corporation of America announces that it will release its 2016 second quarter financial results after market close August 3, and will hold its earnings call the following morning at 11 a.m. eastern. Earlier this month, Zacks Investment Research downgraded the company from a “buy” to a “sell.” The $733 billion Real Estate Investment Trust (REIT) sector, of which CCA is a part, hit a 52-week high at the beginning of last week. [News Bites: Global Round Up – Sectors, July 11, 2016; sub required]

8) ArkansasThe state hires a new contractor to run the Arkansas Juvenile Assessment and Treatment Center in Alexander under a three-year contract. Nevada-based Rite of Passage will take over operations from G4S. “Marq Golden, assistant director of residential operations at DHS’ Youth Services Division, said Rite of Passage’s proposal scored “much stronger” for treatment services and an educational component than G4S’s proposal.”

9) California: Jockeying intensifies over a November ballot initiative to finance a new $1.8 billion San Diego Chargers stadium/convention center. “The Citizens’ Initiative, developed by Chargers chairman Dean Spanos, Chargers special counsel Mark Fabiani and a team of legal, financial and land-use advisors, requires the Chargers to contribute $650 million to the project and sign a 30-year lease with the city.” Opponents of the proposal, and specifically of using public bonds to finance it, are also making themselves heard. “I am opposed to the Chargers tax measure because it’s a bad deal for San Diego. It’s a billion-dollar-plus tax increase that ignores our most pressing needs, like repairing our streets, and threatens our tourism economy,” Councilmember Chris Cate says. “We want the Chargers to stay in San Diego but not at any cost. Their plan asks too much of taxpayers.” [Sub required]

10) FloridaMiami Beach begins negotiations with a French group to build a streetcar project through a 35-year ‘public private partnership.’ “While the public’s portion of the streetcar’s cost has not been determined, the city is reviewing multiple sources of funding such as its resort tax, parking revenues, and tax increment financing as well as contributions from the Miami Beach Redevelopment Agency, Miami-Dade County, and the state. Tramlink’s most recent proposal was not immediately available.”

11) IllinoisCritics blast Mayor Emanuel’s plans to privatize the Port of Chicago, saying the city should instead keep public control and invest in it. “Privatization is nothing but a lack of responsibility from elected officials who have been appointed to operate a port,” said Raymond Sierra, vice president of the executive council of the International Longshoremen’s Association. “Corporations, foreign entities come in and lease parcels for short and long terms, and they leave things a mess, in a deplorable state.”

12) Iowa: The Des Moines Register reports that Gov. Branstad’s privatization of Medicaid administration has become a “nightmare.” An editorial says “now perhaps it is becoming clear how the Medicaid belt will be tightened: by not paying health care providers for services. Three months after the governor’s pet privatization project was implemented, the billing problems are piling up.”

13) LouisianaA task force has begun work on plans to improve funding for state transportation improvements. “The 18-member Task Force on Transportation Infrastructure Investment will explore all possibilities, including public-private partnerships, greater use of tolling, and developing new revenue to support a revenue bond program. Raising the gas tax, which has remained unchanged for decades, and a mileage tax will also be considered.” The task force will meet monthly and report on January 1. [Sub required]

14) MichiganUnion members (UAW Local 2256) applaud Lansing Mayor Virg Bernero for bringing a privatized parts deal at the city garage and bringing it back into the public sector. “‘We are always looking for ways to deliver more value at lower cost to the city’s taxpayers and will continue to do so,’ Bernero said. ‘Some of our cost-saving initiatives have generated millions of dollars in savings for the city’s bottom line, but I’m not persuaded that the NAPA initiative will bring the same result, so we will now begin the transition back to city staffing and management of our parts operation.’”

15) New York: Brian Sonenstein of Shadowproof reports on the lawsuit filed by New York State Attorney General Eric Schneiderman to ban the for-profit medical provider Armor Correctional Health Medical Services of New York, which is under contract to provide medical services to inmates at the Nassau County Correctional Center. “In a 50 page complaint, the attorney general catalogs Armor’s inadequate medical services, which have contributed to numerous deaths and injuries since the company took over in 2011. In addition to money damages, his office calls for an independent monitor to oversee Armor’s compliance with its contract and to prohibit Armor from bidding on future contracts in New York.” [Complaint]

16) North CarolinaChris Fitzsimon of NC Policy Watch looks at a law recently passed by Republican lawmakers “to put five low-performing schools in something called an achievement school district (ASD) that may be run by an out of state for profit charter school company,” and discovers that two of its supporters know it hasn’t worked elsewhere but support it anyway. Fitzsimon says “both answers are reminders of what’s really behind ASDs and a host of other privatization schemes described as education ‘reforms’ by folks on the right. The driving force is not improving student achievement, it’s serving a far-right ideology that prescribes that private is always better than public, that the free market can solve every problem, and that public schools need to turn over millions of dollars to private education reform ‘entrepreneurs.’”

17) OhioThe Southern Ohio Correctional Facility has experienced five suicides by staff members in one year. Randall Hiles, president of Local 7330 of the Ohio Civil Service Employees Association (OCSEA), “said DRC needs to take a ‘good hard look’ at the situation. ‘If there had been this many inmates who had committed suicide in a year’s time at one institution, they would have spent countless dollars – hundreds of thousands if not millions of dollars – doing investigations to try to find out what the problems were,’ Hiles said. ‘I only wish the DRC cared as much about the officers and line staff as they do the inmates in these situations.’”

18) Oklahoma/NationalThe Republican Party platform has proposed the possible privatization of national parks and national forests. “The provision calls for an immediate full-scale disposal of ‘certain’ public lands, without defining which lands it would apply to, leaving national parks, wilderness areas, wildlife refuges, and national forests apparently up for grabs and vulnerable to development, privatization, or transfer to state ownership.”

In Oklahoma, the privatization of a state park has led to disaster
. “If you go look at it now, it’s just weeds and trees,” resident Sheldon Stauffer says of a now-closed golf course. “They just totally let it go to nothing.” NPR’s StateImpact reports “it was an experiment in privatization. Texoma State Park was prime real estate on this large, beautiful lake near the midpoint between Dallas and Oklahoma City. In exchange for a selling a big chunk of the park, with its outdated lodge and millions of dollars in maintenance backlogs, the state got nearly $15 million. Also, Pointe Vista promised to build a lakeside paradise of hotels, condos and restaurants. (…) But those grand ideas still haven’t been realized. Eventually, the state Commissioners of the Land office sued Pointe Vista to start doing what they promised, or return the land to the state.”

19) Pennsylvania: More on private money and public contracting. The Philadelphia Inquirer takes a deep look at “how Main Line political insiders made millions placing billions in public funds with outside firms,” focusing on “money finders” Richard Ireland and Brian McElwee. 

20) International: Britain’s 200,000-member Public and Commercial Services Union produces a useful 12-point checklist for union members on how to deal with “performance management” policies.

21) InternationalPrivate capital is stepping up its involvement in green infrastructure. Britain’s green bank, GIB, raised £818m for its offshore wind fund, allowing it to become the country’s largest renewables vehicle. “In three years, GIB has financed green projects worth over £10 billion as part of its mission ‘to accelerate the UK’s transition to a greener, stronger economy.’ The lender is in the midst of a privatization process that aims to give it a stable and long-term funding strategy, free from government aid constraints and potentially involving raising debt,” according to a report. [Sub required]

22) International: Mind the language gap. Keith Aitken of Britain’s Daily Express  shares the following: “Uh-oh. I distinctly heard a ScotRail spokesman use the word ‘passengers’ in a radio interview. This market-averse term has, of course, been strictly banned in favour of ‘customers’ ever since rail privatisation made everybody’s life better. Hope the poor fellow doesn’t get into trouble for his recidivist language.” [Daily Express 14 July 2016; sub required]

23) Revolving Door NewsBobby Jindal, the former Louisiana governor who pushed through the privatization of the state’s public hospitals, joins the board of directors of Cotton Holdings, Inc. “So, how is it that Cotton founder Pete Bell has ‘known and worked with Bobby over the past several years’? That’s what we at LouisianaVoice wanted to know and rule number one is to always follow the money. Rule two: see rule one. Well, it turns out that Cotton had a couple of pretty nice CONTRACTS with the State of Louisiana. Together, the two contracts totaled more than $2.2 million.”

24) Think Tanks: Samuel E. Abrams, director of the National Center for the Study of Privatization in Education at Teachers College, Columbia University, has written a new book, Education and the Commercial Mindset, that spells out why privatization is a bad idea for education. The Washington Post’s redoubtable Valerie Strauss has interviewed Abrams, who points to problems not just in for-profit outsourcing, but with non-profit school outsourcing as well. 

In addition to problems with a lack of transparency, Abrams says it generates atomization of school districts and “makes for navigational challenges for many parents.” In sum, he says, privatization “amounts to a flawed response to state failure, not a solution. The solution calls for investing the resources necessary to make all neighborhood schools solid in the way all neighborhood schools are solid in middle- and upper-class suburbs, with well-paid teachers, good working conditions and smaller classes. But we have to go further than that. We have to invest in quality preschool, with college-educated teachers, so children show up to school ready to learn.”

25) Think Tanks: Citizens Against Government Waste, co-founded by J. Peter Grace and funded by among others the Charles G. Koch Foundation and Donors Trust, proposes savage cuts in public spending. Included are a 50% cut in Medicare spending for “improper” payments, privatizing the US Postal Service, repeal of the David-Bacon Act, the ending of OSHA’s Harwood Training Grants to nonprofit organizations to provide safety training to workers, the elimination of federal subsidies to Amtrak, privatization of the Southeastern Power Administration and related power-generating assets, the ending of Essential Air Services subsidies to 153 rural communities in 35 states and Puerto Rico, elimination of the Legal Services Corporation, elimination of the National Endowment for the Humanities and the National Endowment for the Arts, and much else.

26) Think Tanks: In the midst of a national firestorm over race and the police, the right wing, Donors Trust-funded Mises Institute has the answer: privatize the police. “If those who use police services were expected to pay for the service”, they say, “we would quickly find a reduction in the habit of calling the police for services unrelated to crime.” Then for-profit companies could step into the market gap and solve the problem with, they assert, “less threat of deadly force.”

Legislative Issues

1) NationalSen. Ron Wyden (D-OR) introduces legislation to strip federal tax breaks from prison REITs such as Corrections Corporation of America and the GEO Group. “Ending taxpayer subsidies for private prisons is part of a larger necessary effort to end private prisons entirely, and to end the criminalization and hyper-incarceration of communities of color and immigrants in the US,” said Amanda Aguilar Shank, Senior Campaign Organizer with Enlace. “We are looking forward to Congress taking this issue up as one solution in the era of over-policing and over-incarceration of our communities, and we honor Senator Wyden for the positive step he has taken towards ending private prisons.”

2) National: The American Civil Liberties Union, Grassroots Leadership, and Justice Strategies will be holding two Capitol Hill briefings on the “mass prosecution and incarceration of immigrants for border-crossing.” Today (House) and tomorrow (Senate).

3) NationalThe NY Daily News writes that “as Rudy Giuliani rails against Black Lives Matter, his law firm reaps tens of thousands of dollars lobbying Congress for the biggest operator of private prisons in America. In January, the former law-and-order mayor left his longtime firm, Giuliani & Bracewell, and jumped to Greenberg Traurig, a major lobbyist law firm with dozens of deep pocket clients. One client is a subsidiary of the Corrections Corporation of America, a Nashville-based for-profit firm that runs or manages 77 prisons housing 88,500 inmates across the U.S. Giuliani’s law firm is currently fighting a law that would bar the government from hiring private contractors like CCA to run prisons.”

4) NationalThe privatization industry is pushing for a national high speed rail network financed by ‘public private partnerships.’ The Koch- and Donors Trust-funded Reason Foundation tells House committee members that “U.S. bullet train projects have stalled because the Federal Railroad Administration has been lax in providing guidance to potential HSR efforts and state transportation departments lack expertise in the field, Baruch Feigenbaum, assistant director for transportation policy at the Reason Foundation, told panel members. ‘The Obama administration and future administrations should more closely examine building high-speed rail through public private partnerships,’ Feigenbaum said.” [Sub required]

 

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