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This Week’s Outsourcing Scan 8-24-2015

Update: Upcoming Outsourcing Issues. August 24, 2015

1) National: Late Friday a Federal judge ordered the Obama administration to change its immigration detention practices in two months to ensure the rapid release of children and their parents. “Judge Gee also prohibited the administration from holding children in secure facilities that are not licensed to care for minors”—facilities run by private prison contractors. But the Obama administration appears to be digging in, arguing “that the fine print of her order gave them leeway to continue holding mothers and children at the three detention centers,” and is considering an appeal. Judge Gee’s order opened with a quote from Mahatma Gandhi: “An error does not become truth by reason of multiplied propagation, nor does truth become error because nobody sees it.” [Federal ruling on immigration detention]

2) National: Municipal bond tax exemption has saved state and local government borrowers more than $700 billion in debt service payments from 200-2014, according to new research by the International City/County Management Association and the Government Finance Officers Association. “The paper discussed two main alternatives to financing infrastructure through tax-exempt bonds — pay-as-you-go financing and public private partnerships. ‘At the moment, there’s no robust alternative to tax-exempt financing,’ Marlowe said in an interview with The Bond Buyer. (…) P3s provide state and local governments with access to new sources of capital and give governments the chance to improve their infrastructure capacity through a private partner. However, P3s carry a variety of risks, and it’s unclear if they can work well to finance non-revenue generating infrastructure and smaller projects, according to the paper.” [Justin Marlowe, “Municipal Bonds and Infrastructure Development—Past, Present, and Future”]

3) National: Preqin reports that private investors are concerned about the high and rising price of infrastructure assets in North America and other developed markets. “The appetite for the favorable characteristics of brownfield sites [i.e., high steady income streams—ed.] among investors has driven prices for these assets up at a faster rate than infrastructure at both the greenfield and secondary stages. What worries investors is that capital committed now may not deliver the strong, stable returns to which they have become accustomed, although only time will tell whether today’s asset prices will have an adverse effect on the overall performance of unlisted infrastructure funds currently investing capital.” [Preqin, Infrastructure Spotlight, August 2015; sub required]

4) National: With states being “desperate for revenues,” private road builders and operators are hoping for the expansion of a pilot program to toll the interstates. The provision is in the Senate transportation bill, which faces an uncertain future. “The Interstate System Reconstruction and Rehabilitation Pilot Program, which was first approved in 1998, would still be limited to three states. Those slots are occupied by Virginia, Missouri, and North Carolina. None of the states have actually moved ahead on interstate tolling mostly due to internal political differences, [IBTTA’s Neil Gray] said, so the new bill extends it for another 10 years but sets a time limit for the participants.” The Senate bill also removes the ban on using tax exempt bonds for WIFIA-backed water projects. [Sub required].

5) National: The bond market is concerned about presidential candidate Hillary Clinton’s proposal to reduce student debt, which may be funded by slashing tax exemption on municipal bonds. “Campaign staff would not comment beyond the fact sheets. The president has proposed capping the value of many tax expenditures, including the exclusion for muni interest, at 28%. Many muni groups have criticized the White House’s 28% cap proposal, and over 100 House members signed a letter this year expressing concerns with it. Bill Daly, director of governmental affairs for the National Association of Bond Lawyers, said that while it’s unclear if Clinton’s plan would limit the value of the muni exemption for high earners, if it does, it’s ‘distressing.’”

6) Arizona: The state department of transportation is considering using a “public private partnership” for easing traffic congestion on the I-17 corridor north of Phoenix. “Before moving forward with a P3 procurement, AzDOT will conduct feasibility studies utilizing CDM Smith, a contracted third-party consulting firm that will work with [AzDOT P3 director Gail] Lewis to establish whether there is a need for the project, how much it should cost to complete, what the approximate scope of the project would be, and whether there is public support to continue ahead. The agency would also need to complete a Value for Money (VfM) assessment, technical studies, and traffic studies. According to the Prescott Courier, Lewis estimated that the initial component of a P3 proposal will be available for public scrutiny by December.” [Sub required]

7) California: The Bakersfield City Council is reviewing its contracting policy following “concern from its chairman the city may not always get its money’s worth,” and council discussions on RFPs and bidding. “Asked how he feels about council members reviewing lower-priced contracts, [security contractor Kevin] Ormonde said he thinks that’s a good idea. ‘As a taxpaying citizen, I certainly have no problem with that. Just because I hold the contract for the one service — I think they should all be checked,’ Ormonde said.”

8) District of Columbia: Some charter schools get millions in donations while others get almost nothing, according to The Washington Post. “Just three public charter schools — KIPP DC, Maya Angelou and E.L. Haynes—reported nearly half of all fundraising dollars that went to the city’s charter schools over the three-year period, according to the D.C. Public Charter Board’s most recent financial audit. In total, those three schools combined averaged $14.5 million in donations each year from 2012 to 2014; the average annual donations for all 60 charter schools over that time frame was $29 million.”

9) Florida: The Tampa Bay Times praises Hillsborough County commissioners for rejecting the outsourcing of the probation system to a for-profit company. “In choosing a public agency to oversee the county’s probation operation, commissioners bucked a bias toward privatization. Like Sentinel, the Sheriff’s Office expects to run a profitable service, which will offset approximately $1.8 million in annual expenses. But it does not intend to do so at the peril of the poor, setting them up for re-criminalization by charging them exorbitant fees that they cannot pay.”

10) Florida: North Miami Beach votes to privatize its sanitation department to Waste Management. Councilwoman Phyllis Smith says she will watch the company closely. “It’s always the little people. They never cut from the top,” said Janice Coakley, president of AFSCME local 3293 chapter, which protested the move several weeks ago.

11) Georgia: Public school parent Dan DeLamater of Athens, a conservative Republican, denounces Gov. Nathan Deal’s proposal for a statewide “opportunity school district.” Diane Ravitch reports that “DeLamater came to see that ALEC was behind the state takeover plan.”

12) Illinois/Indiana: The Illiana Expressway “public private partnership,” which has been considered almost dead due to an Illinois funding shortfall and a federal court ruling that environmental regulations were not satisfied, may still be alive. The Illinois and Indiana DOTs and the Federal Highway administration are appealing the environmental decision. “On June 16, Judge Alonso ruled that FHWA’s approval of the Tier 1 final Environmental Impact Study and Record of Decision for the project was ‘arbitrary and capricious’ and in violation of the National Environmental Policy Act (NEPA).” [Sub required]. The Environmental Law & Policy Center says it is disappointed by the decision to appeal. “The proposed new Illiana Tollway is a fiscal boondoggle, is contrary to sound regional transportation policy, and would degrade the very special Midewin National Tallgrass Prairie.”

13) Louisiana: Prof. Andrea Gabor of CUNY’s Baruch College analyzes the state of New Orleans schools a decade after Hurricane Katrina and the massive expansion of the charter school industry in the city. “For outsiders, the biggest lesson of New Orleans is this: It is wiser to invest in improving existing education systems than to start from scratch. Privatization may improve outcomes for some students, but it has hurt the most disadvantaged pupils.”

14) Maryland: Montgomery and Prince George’s counties are ponying up an additional $60 million to help fund the Purple Line “public private partnership” light rail line. “The projected cost of the Purple Line, which had been estimated at $2.448 billion before the revisions ordered by Hogan, has been lowered to $2.16 billion by the Maryland Department of Transportation. The final costs will be determined when construction bids come in next year from the four international investor groups selected by the state in early 2014. The state had expected the private partner to contribute at least $675 million to the project’s funding, but [MD transportation secretary] Rahn said private investors now will be asked for more.” Bids are due November 17, 2015. [Sub required]

15) Massachusetts: Streetsblog’s Angie Schmitt looks at “the Politically-Driven, Koch-Backed Campaign to Undermine Boston Transit.” She writes, “transit advocates view the sustained effort to discredit the agency as an attempt to undermine public support for expanding the rail and bus network in the growing Boston region.”

16) Massachusetts: The suspension of the Pacheco law, which provided for due diligence on state privatization deals, will soon get some concrete meaning. Last week MassDOT proposed giving 32 express, late-night and underutilized bus routes to a private carrier. “The concept will go before the new MBTA Fiscal Management and Control Board next week, where undoubtedly union leaders will continue to decry the effort, as they did this week. Boston Carmen’s Union Local 569 President James O’Brien blasted Baker and his team for going back on their word to not ‘privatize the T’ and lay off workers, but it’s hard to understand what they thought was going to happen when Baker asked to suspend the Pacheco Law.”

17) Michigan: The state department of transportation has selected a private consortium led by Star America Infrastructure Partners to design, build, finance, operate and maintain the 15,000 light freeway lighting system in the Detroit Metro area. It is a 15-year deal. “‘Taxpayers will save as the annual cost of the services under this contract is expected to be lower than what MDOT would have to pay for upgrades,’ the state agency said but did not disclose project costs nor the amount of savings state taxpayers could expect. MDOT did not respond to a request for comment.” [Sub required]

18) Michigan: Progress Michigan releases a report saying that Gov. Snyder and the state corrections department were “just as complicit in the problems that plagued the scandal-ridden Aramark [food quality, sanitation, prisoner safety and facility security, and administration] contract as the company itself.” Lonnie Scott, executive director of Progress Michigan, said “this lack of oversight on this contract should call into question all private contracts that the Snyder administration is responsible for providing oversight.”

19) Minnesota: Swift County hires a public relations firm to promote the reopening of Correction Corporation of America’s private prison in Appleton. Minnesota crime is at a 50-year low.

20) New Jersey: New Brunswick council member loses her cool over criticism of the city’s privatized water system by Food & Water Watch’s Rita Yelda. “‘People could get nauseous. People could get sick. That’s people’s health,’ Yelda said in response to Garlatti’s unexpected attack. ‘How abrasive to not care about the residents of New Brunswick that you are said to represent.’ Yelda had already gotten Council President Kevin Egan to declare that ‘eliminating American Water’ was the Council’s goal, when Garlatti jumped into the conversation.”

21) New York: George Marlin, a former member of the Nassau Interim Finance Authority Board, says the Veolia bus privatization deal with Nassau County needs scrutiny. “I do hope that the D.A. is investigating the Veolia bus public-private partnership deal. (…) Nassau has had to allocate more money to Veolia and the county comptroller has reported a significant decline in fixed route service levels and certain critical performance measures that were not maintained. On this contract and others, the D.A. should follow the political contribution trail and the roles lobbyists/consultants played in the process.”

22) Pennsylvania: SEPTA manager Joseph M. Casey is retiring after 34 years with the public transit agency. Board members will discuss a replacement at their September 17 meeting. According to the Philadelphia Inquirer, “the leading candidate to replace Casey, an accountant, is deputy general manager Jeffrey D. Knueppel, a professional engineer in charge of rebuilding much of SEPTA’s infrastructure.” Although some transit oganizations have outsourced elevator and escalator repairs to private contractors, SEPTA and some other public agencies “have brought the work in-house, with their own dedicated mechanics, trained by the organizations.”

23) Puerto Rico: As hedge fund debt speculators ramp up pressure to close schools in the midst of a financial crisis, “right on cue, Senate President Eduardo Bhatia is proposing corporate education reform methods to justify these draconian measures. This includes privatizing the school system, tying teacher evaluations to standardized test scores and increasing test-based accountability.”

24) Tennessee: The Johnson County Commission rejects prison privatization. “In honor of the passage of the resolution against privatization, the body designated the third Thursday of each August as a day to recognize the staff of the Northeast Correctional Complex. (…) The resolution cited three ways the prison has contributed to the community: providing good jobs to local people; community service projects the prison has supported with its labor crews; and the assistance provided by the prison after a tornado on April 27, 2011.”

25) Tennessee: The Knoxville News-Sentinel blows the whistle on Gov. Haslam’s drive to privatize public assets. “Looking for ways to save taxpayer money is laudable, though outsourcing might not be appropriate in all circumstances. Launching the effort under the radar, however, raises questions about the process. If the state is to make sweeping changes in how it manages its property, changes that could affect thousands of employees and its 6.5 million citizens, transparency is a must. (…) Governments can improve by adopting many business practices, but a government is not a business. Tennessee’s government exists to serve its citizens, not to increase shareholder value. The case for widespread privatization must be made in the open.”

26) Tennessee: The Times Free Press warns that Hamilton County’s moves to privatize all of its jails to Corrections Corporation need to be slowed down and properly vetted. “Wouldn’t CCA be looking to pass on the cost of such a facility? So where is that savings, exactly? (…) This proposal is a long way from prime time.”

27) Texas: John MacCormack of the San Antonio Express-News looks at the prison bust spreading across rural Texas. “The bust is evident on a rural tour of the state, where more than a dozen once-profitable facilities have failed. At least seven of them, which together borrowed nearly $200 million, are in arrears on bond payments, figures from Municipal Market Analytics, a bond-research firm, show. ‘Twenty years ago, everyone was bringing prisoners and everyone was making money. Then the state and federal governments figured out it cost too much to hold these guys, so they started looking at other means,’ Maverick County Sheriff Tom Schmerber said during a recent visit to the detention center there.”

28) International: Despite recent unsuccessful “public private partnership” initiatives, Honduras tries again, with a tender for the finance, construction, expansion and renovation of roughly 85 kilometers of Highway CA-5 South. “The most recent transportation P3 attempt in Honduras fell by the wayside when none of the four pre-qualified firms submitted bids for the contract to rehabilitate Highway CA-4 in June. The country’s P3 agency has also struggled to attract bidders for the redevelopment of the Palmerola Airport, having launched multiple tenders for that project in recent years.” [Sub required]

29) Revolving Door News: Michael Cheroutes, the director of Colorado’s controversial High Performance Transportation Enterprise, is transitioning to a part time role at HPTE on October 1 to head up a nonprofit that will promote “public private partnerships,” the Colorado Center for Infrastructure Investment. Cheroutes was heavily criticized for his role in the U.S. 36 privatization. He came to HPTE in 2010 from Hogan Lovells. At Hogan, “Cheroutes represented major international investment banking institutions and development companies in their public project finance. He practiced in the firm’s Warsaw office for five years and later worked in its London and Moscow offices, participating in project financings, Eurobond issues, and debt restructurings throughout central and eastern Europe, including Russia. His work includes projects for international financial institutions in Macedonia.” [Sub required]

30) Think Tanks: CUPE and the Polaris Institute publish another paper in their series of corporate profiles on the “public private partnerships” industry, on CH2M Hill. “Given the success of  efforts to oppose water and wastewater P3s in municipalities like Abbotsford, Whistler and Metro Vancouver, B.C., public opposition is a key concern for the P3 industry in Canada.”

31) For Serious Muni Students: David Kotok and his colleagues at Cumberland Advisors have just written a new door-stopper of a book on the ins and outs of municipal bonds, Adventures in Muniland: A Guide to Municipal Bond Investing in the Post-Crisis Era.

Legislative Issues:

1) California: Gov. Brown signs legislation permitting the Long Beach Civic Center project to proceed as a “public private partnership.” SB 562 “combines existing state and case law applicable to lease-leaseback public-private partnerships and Design-Bid-Finance-Operate-Maintain (DBFOM) public-private partnerships. In doing so, SB 562 codifies a hybrid DB-FOM/lease-leaseback public-private partnership model, pecific to the Long Beach Civic Center Project, according to city officials.”

2) New Jersey: The Bergen Record denounces the privatized lottery system pushed through by Gov. Christie, and calls for legislative action. “[Record reporter Dustin] Racioppi reported in June that the lottery was unlikely to meet Northstar’s budget projects for the second year. This lottery revenue is important because state law requires that at least 30 percent of gross ticket sales go toward the public schools and state programs. If the revenue doesn’t come in like it did before, then the state budget will suffer. There are certain penalties written into the contract based on performances, but they haven’t been acted on yet. It’s hard to fathom why the contract was signed for 15 years. That’s a long time. While we may be talking about the lottery, state officials can’t just sit back and hope their numbers come up. The Legislature needs to be more proactive in making sure this contract pays off.”

3) New York/New Jersey: Sen. Charles Schumer (D-NY) comes out in favor of a “public private partnership” to address the financing crisis over the need for new cross-Hudson tunnels for Amtrak. “We should create a Gateway Development Corporation in which all the players—from New York and New Jersey and from Amtrak and the federal government—can get together, plan and design this must-build project and pull down every available source of public and private funding to make it possible.” [Sub required]