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This Week’s Outsourcing Scan 7-6-2015

Update: Upcoming Outsourcing Issues. July 6, 2015

1) National: Proposals are due to the Treasury Department by the middle of this month for a six month study to define the 50 most economically beneficial infrastructure projects in the U.S., whether “public private partnerships” or not. “In addition to detailed economic and social benefits, the analysis of each project is to include an assessment of impediments to commencement, including funding and permitting.” [Public Works Financing, June 2015, sub required]

2) National: Sen. Elizabeth Warren grills the head of the ACICS, a private 501(c)3, for its inadequate vetting of the bankrupt Corinthian Colleges. “Warren questions Albert C. Gray, the president of the Accrediting Council for Independent Colleges and Schools, on his judgment in allowing a for-profit college system to be accredited in spite of multiple allegations that it had committed fraud.”

3) National: The Congressional Research Service issues a report looking at options for reducing incarceration in the U.S.

4) Alabama: Public education advocate Larry Lee denounces the Alabama Accountability Act for diverting funds from the state’s public schools to private schools. “Bottom line, in 2014 we took $4 million away from the Education Trust Fund and gave it to private schools to pay tuition and fees for students who attended that school for at least one year prior to getting a scholarship.”

5) CaliforniaRocketship charter schools are being criticized for being too rigid. Kyle Spencer of The Hechinger Report takes a close look at the chain. “For some former teachers and parents, the Rocketship computer lab tells a different story—of a charter network too reliant on ‘screen time,’ too light on free play and too obsessed with test scores.”

6) California: The California High-Speed Rail Authority has sent out a request for expressions of interest (RFEI) for ideas on how to build the proposed $68.5 billion system more efficiently and with less risk to taxpayers. Responses are due September 14. Robert Cruickshank, a longtime critic of P3 approaches, comments that “the key is that whatever the private sector’s role is, it has to be subordinate to the effective operation of the system, including maximizing ridership so that the system can play as large a role as possible in meeting the state’s transportation and carbon reduction needs. A private operator, for example, would be strongly tempted to maximize revenue from fares even if this has the effect of reducing ridership or making the trains unaffordable to working-class Californians.”

7) California: Standard & Poor’s upgrades the state’s GO credit rating from A+ to AA-, giving it its highest rating since 2000. This may allow the state treasurer to go to the market at lower borrowing costs, including for public infrastructure.

8) Colorado: After the state supreme court rules against Douglas County’s school voucher plans, officials say they may appeal to the U.S. Supreme Court. “It’s not enough that the virtual charter school had no buildings, employed no teachers and had no curriculum. Its students never attended a day of class. The school’s existence was to collect money for private schools. Sixteen of the 23 private schools under the program’s 2011 pilot phase were religious in character, and 93 percent of the 271 scholarship recipients in 2011 enrolled in a religious school.”

9) District of Columbia: Robert Thomson, the Washington Post‘s “Dr. Gridlock,” says to proponents of a privatized Metro system, “be careful what you wish for.” He writes, “advocates of privatization would find even less to like about customer service if transit operations were in private hands. Big urban transit systems and the profit motive aren’t a good fit for each other. Big transit systems don’t make profits. Fares can’t be pushed high enough.”

10) FloridaTougher standards take effect as charter schools are required to reveal their corporate connections. “The goal is to prevent those who have operated schools experiencing serious problems from opening more. ‘I think it will slow down the people who are opening schools for the wrong reasons and not making it,’ Hillsborough County charter schools director Jenna Hodgens said. ‘It’s going to be more difficult for bad operators or board members to continue opening schools.’”

11) Georgia: As state officials try to learn lessons from New Orleans on charter schools policy, they get mixed messages. “Detractors still insist that academic gains in New Orleans are illusory, or unimpressive, or bought at too high a price. And the price, by any measure, has been high.”

12) Hawaii: The state charter school commission recommends delaying any new charter school authorizations until the 2016-2017 school year. [Sub required]

13) Illinois: As Chicago Mayor Emanuel announces 1,400 school layoffs, maintenance cutbacks and reduced transportation services, the Chicago Teachers Union releases a report “that highlighted CPS’ false claims about central office cuts, the misplaced priorities of the administration, reckless outsourcing approved by the Board, dangerous indebtedness to banks, and ways by which CPS should prioritize their budget to meet the needs of students.” CTU says “CPS is #BrokeOnPurpose.”

14) Illinois: Municipal finance analyst Kristi Culpepper asks, “Hey, Chicago reporters. The $750 million worth of buildings that Rahm wants to pledge on pension loan—are those *school* buildings?”

15) MarylandThe Montgomery County Council has voted to privatize most of the economic development agency. “Some council members had concerns about transparency under the nonprofit corporation. The concerns led to the approval of amendments, sponsored by council member Tom Hucker (D-Silver Spring), to tighten disclosure requirements and establish performance metrics.”

16) Massachusetts/National: Anatoly Darov, an attorney with Boston-based Burns & Levison, pushes for “public private partnerships” in water infrastructure. “What are the considerations for municipal stakeholders in public-private partnerships? There are policy concerns stemming from the impacts of P3s on labor and the public’s hesitancy to privatize aspects of infrastructure that have traditionally been owned and operated by public entities. These complex issues require strong leadership to overcome.” The U.S. National Intelligence Council has warned that water privatization could exacerbate resource distribution and equity problems. “Instead of privatizing water supplies, the report suggests that properly run government water utilities can both produce enough revenue to finance infrastructure, and can adequately provide for low-income as well as high-income communities.”

17) MichiganSchool privatizers descend on Detroit. “As city and state leaders seek to figure out how best to salvage Detroit Public Schools and improve performance across a complex network of school choices, top school reformers from around the country want a piece of the action, too. Last week, Michael Petrilli, CEO of the D.C.-based Fordham Institute, and Eric Chan, a partner at the Charter School Growth Fund, were a few of the latest to drop in on Detroit. (…) [But] top management companies have shied away from Detroit because of the unstable environment that currently exists. With a dozen different authorizers opening and closing schools in Detroit, Chan says this creates unpredictable enrollment and limits the expansion potential for highest-rated operators. That could change, however.”

18) NevadaThe Progressive lists the reasons Nevada’s decision to go with a statewide charter system is flawed. “The end game in Nevada is pretty simple, pretty clear, and pretty close: the voucher program marks the end of any semblance of commitment to public education and the beginning of a completely privatized system of schools for Nevada. It will not be good for Nevada, it will not be good for students, it will not be good for Nevada’s taxpayers, and it will not fulfill any of its promises. It will make a few edupreneurs wealthy. For everyone else, the benefits of the voucher system will remain a mirage.”

19) New JerseyVeteran Republican operative Bill Nowling, who was Detroit Emergency Manager Kevyn Orr’s spokesperson, has landed on his feet in Atlantic City, which is under similar pressure to undergo privatizations and cutbacks. “On Tuesday, Nowling was in New Jersey raking in $375 an hour as the spokesman for Atlantic City’s new emergency manager, Kevin Lavin. Nowling, who began that job about two weeks ago, also serves as the spokesman for metro Detroit’s new regional water authority, an initiative that he and Orr pushed last year. Nowling’s contract with Atlantic City is capped at $17,500 through July 31, but he’s trying to hammer out a longer term deal. (…) Before Nowling landed the job in Atlantic City, Orr made $70,000 as a three-month advisor to an emergency management team appointed by New Jersey Gov. Chris Christie.”

20) MichiganDTE Energy, the private energy company that supplies Detroit’s public electricity needs, attracts criticism for its privatized security schemes. “What Happens When Oligarchs and Vigilantes Take Over Public Safety in a Big City.” DTE “has recently launched a pro-bono security program in the increasingly white area.”

21) New YorkCommunity activists force Niagara Bottling to abandon its plans to draw off water from the City of Kingston’s public reservoir and get public subsidies while doing it. “In recent months, the Niagara proposal has been turned down for millions of dollars in New York state economic development aid and has been passed over for inclusion in the state’s Start-Up NY program, which affords tax breaks to participating companies and their employees. Opponents, particularly a group called KingstonCitizens.org, said the city couldn’t afford to give up the amount of water Niagara wanted and that a public commodity shouldn’t be sold to a company seeking to profit from it.”

22) New York: New York City officials say a Social Impact Bond that failed in its objectives was a success because “the city paid nothing for it.” Goldman Sachs and Bloomberg Philanthropies explain “What We Learned From the Nation’s First Social Impact Bond.”

23) New YorkResidents gain court backing in their fight against New York City’s efforts to use public parkland (Flushing Meadows Park) to redevelop Willets Point, an industrial area east of the Mets’ Citi Field.

24) Oklahoma: Community Care College, a for-profit college in Tulsa, switches to non-profit status. “The so-called gainful employment regulations, which … apply primarily to for-profits, took effect the day Community Care College made the switch.”

25) Puerto Rico: With the Commonwealth facing a major debt crisis, Standard & Poor’s revises its outlook from stable to negative on debt for the authority owning PR 22, the highly touted “public private partnership” toll road, in which Goldman Sachs invested. “The project faces refinancing risk in September 2018, when its term loan comes due.”

26) Virginia: As the “public private partnerships” industry recovers from its shock at the state’s increased risk-shifting toward the private sector on any P3 deal for the I-66 managed lanes project, Skanska, Fluor and ACS remain in the running. But “they will have to make a strong case quickly. A P3 Advisory Committee is scheduled to make its determination on the project delivery approach and [Request for Qualifications] in July.” The state “claims its 100% tax-exempt debt public option for I-66 requires only about half as much upfront subsidy from VDOT as the private option.” [Public Works Financing, June 2015, sub required]

27) International: Ontario Auditor General Bonnie Lysyk discusses “public private partnerships” with Canadian municipal leaders. Regarding Value for Money assessment models, Lysyk said “we’re saying show us the evidence. The way the model in Ontario is working right now, it’s a theoretical model derived based on judgement. There isn’t a way to substantiate how risk is valued in this model. In all cases this model shows P3 is the way to go. So it’s a biased model.” Infrastructure Ontario is reviewing its Value for Money methodology.

28) InternationalChina’s toll roads suffered losses of more than $25 billion last year, according to government figures. “Yet drivers frequently complain about expensive fees—an inter-city journey can cost more than $100 dollars in toll fees alone, for example…”

29) International: The Greater Moncton Wastewater Commission drops plans to consider using a “public private partnership” model to upgrade its facilities. “While P3 can certainly be a viable option for a number of projects, we determined that it just wasn’t right for us at this time. This decision was made after completing a thorough due diligence process.”

30) Revolving Door News/Texas: A new conflict of interest law is allegedly causing a staff exodus from the Department of Transportation. The law holds that employees who play a role in managing a procurement by the state may not accept a job from any of the principals or subcontractors. [Public Works Financing, June 2015, sub required]

31) Think Tanks/New York: The Rudin Center at NYU publishes a study promoting design-build procurement options for public infrastructure. The study was sponsored by RBC Capital Markets and the Association for a Better New York. “In March 2015, lawmakers approved the extension of the five agencies’ Design-Build authority through March 2017, but did not expand it to include other State agencies or any local governments.” Right of Way acquisitions in design-build procurements are a hot topic in the U.S. legal community.

32) Upcoming Conference: ARTBA’s annual industry-sponsored Public Private Partnerships in Transportation Conference, July 15-17, Washington, DC. Includes a “Congressional staff panel” and a panel on “The View from the State Legislatures.”

Legislative Issues:

1) NationalMayors call on Congress to pass long term, transit-friendly transportation legislation. “GROW AMERICA would increase transit funding by 76 percent. It provides more funding to high-performing Metropolitan Planning Organizations (MPOs) and puts in place a transparent and clear permitting process to speed up project delivery. It establishes an $18 billion national freight rail program, doubles the TIGER Grant program, makes Private Activity Bonds (PABs) more available, and strengthens the TIFIA loan program.” The Senate Environment and Public Works Committee has cut the TIFIA program, a favorite of P3 advocates, from $1 billion to $675 million in proposed legislation.

2) California: Assemblyman Henry Perea (D-Fresno) introduces Assembly Bill AB1 X-2 to be heard in the extraordinary session on infrastructure. “AB1X-2 would remove the sunset date and allow Public Private Partnerships (P3s) to continue to be an option for transportation infrastructure beyond January 1, 2017.” The bill previously died in regular session. Public Works Financing thinks “chances of passage are better than in previous attempts because a broad coalition has been organized to support the bill against attacks from P3’s nemesis, the Professional Engineers in California Government (PECG). The pro-P3 coalition now includes all of the urban Regional Transportation Agencies (RTA) that would procure and fund P3 managed lanes projects and other types of congestion relief projects.” [Public Works Financing, June 2015, sub required]

3) New Jersey: Lawmakers pass “public private partnership” enabling legislation, which Gov. Christie is expected to sign. The bill, which supports highway and building P3s, had the support of both the Associated General Contractors and of Senate President Stephen Sweeney, who heads an Ironworkers local in Philadelphia. Lobbyist Bill Caruso believes the bill “will put New Jersey at the forefront of P3s.” [Public Works Financing, June 2015, sub required; SB 2489]

4) OhioA major charter school reform bill has stalled for lack of Senate support, despite widespread criticism of Ohio’s weak accountability system for charter schools. Lawmakers will not return to session until September. “Sen. Peggy Lehner, R-Kettering, who has been the Senate’s point person on crafting charter-school reforms, said (…) that one issue was not on the list—a behind-the-scenes push by the statewide online school Electronic Classroom of Tomorrow (ECOT) to change the accountability system for charter schools from the current value-added model to a California-based system. (…) Sources say ECOT lobbyists have been very active behind the scenes on House Bill 2. That includes the Batchelder Group, which also represents White Hat Management, a major for-profit charter-school operator run by David Brennan, another major GOP contributor.” The Columbus Dispatch denounces lawmakers for their inaction.

5) Pennsylvania: Budget negotiations resume today between Gov. Wolf and Republican lawmakers, with his veto of liquor store privatization front and center. Wolf says “this legislation falls short of a responsible means to reform our state liquor system and to maximize revenues to benefit our citizen. It makes bad business sense for the Commonwealth and consumers to sell off an asset, especially before maximizing its value.”

6) West VirginiaWriting in the Charleston Gazette, Kenny Perdue, president of the West Virginia AFL-CIO, denounces the state legislature for following the American Legislative Exchange Council’s playbook on public sector wages. “Next year the legislative leadership will again push an ALEC agenda that favors corporate executives’ interests over the values of working West Virginians, a plan that includes privatization. We’ve faced privatization of prisons and heard the horror stories from other states where prison operations are controlled by for-profit corporations. Already rumblings have begun about privatizing the Division of Highways and the Department of Health and Human Resources.”

7) WisconsinAs the budget moves to the legislature this week, lawmakers will be considering a number of education issues. The version approved by the Joint Finance Committee last week included flat funding for public schools, expanded private voucher schools attendance, continued teacher licensing, conversion of some Milwaukee schools to charter or private voucher schools, reduced transportation spending, huge slashing on the University of Wisconsin’s funding, and elimination of 60 guard tower positions in the state’s prisons.