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This Week’s Outsourcing Scan 8-8-2016

1) National: Declining prisoner numbers, policy reforms, and judicial action are hitting the for-profit prison industry’s bottom line. Last week, Corrections Corporation of America reported a 7% drop in profitscompared to the same quarter last year, and disclosed that the federal government is asking for contract modifications for its South Texas Family Residential Center. The Obama administration is under pressure by a federal court to comply with existing law on the treatment of immigrant children.

This prompted a steep drop in CCA’s share price at the end of the week, which is down over 16% over the past year. The federal Bureau of Prisons has also told CCA that it will not renew its contract for the 1,129-bed Cibola County Correctional Center, which expires September 30

CCA says its second quarter results were partly due to a decline of its California inmate population, which may drop further if the Prop 57 sentencing reform initiative passes this November. CEO Damon Hininger said that Prop 57 “will give significant leeway to CDCR Secretary and parole board in how each implements the measures so it’s hard to be precise on actual impact.” Last week the California Legislative Analyst’s Office released a report saying Prop 57 could result in tens of millions of dollars in savings, “primarily due to reductions in the prison population,” and would save counties “a few million dollars annually.” 

The longer term trends also look bleak for the industry. Hininger reported that “federal inmate populations have declined by nearly 25,000 in the last three years resulting in reduced overcrowding in [Bureau of Prisons] operated facilities. Today the BOP is operating at approximately 117% of their rate of capacity, down from roughly 140% three years ago.”

Wells Fargo analyst Robert LaQuaglia said the ICE contract modification is likely to “weigh heavily on shares” of CCA. “He expects the stock to underperform the peer group following the company’s Q2 results given the contract’s large EBITDA contribution and the ‘uncertainty around the magnitude of any changes.’”

2) National/International: The GEO Group reports an uptick in its profits compared to the second quarter of last year, and an increase in its overall revenue largely due to $71 million in construction revenues associated with its Ravenhall Prison Facility in Australia. The company says it is interested in pursuing possible ICE facilities in New Jersey and the Chicago area, and says “there are several states, including Arizona, Ohio, Michigan, and others, which are considering public-private partnerships for the housing of inmates, as well as the development and operation of new and replacement correctional facilities.”

On GEO Care, they say its BI subsidiary “continues to grow its supervision electronic monitoring services at the local state and federal level,” and “is currently bidding on new business opportunities in the District of Columbia, as well as a number of other jurisdictions.” On intensive supervision of migrants, GEO Care says it is “on track to average ICE’s objective of 53,000 participants,” and is moving ahead with “a new family case management program under partnership with the U.S. Department of Homeland Security” GEO Care is currently monitoring or supervising about 142,000 people.

3) National/Nebraska: A proposal to privatize veterans healthcare is receiving a nationwide backlash, including in Nebraska. “According to AFGE Grand Island President Gloria Kortum, the committee that came up with this plan did so without the input of veteran groups like the American Legion. Kortum said this proposal isn’t in the veteran’s best interests. She said they would go from receiving the best healthcare to one provided by the lowest bidder. ‘We can take care of the veteran from the beginning to the end, when they present to us. When they went to service, they were promised that we would take care of them and that it would be done at a VA,’ said Kortum. Kortum went on to say that this proposal only benefits the private healthcare sector.” [Video]

4) NationalBluefield Research, a Boston-based water industry research firm, says the U.S. water sector is ripe for privatization. “‘Many of the hurdles to private participation, including public pushback, asset bankability and debt financing, remain,” [Bluefield vice president Keith Hays] said. ‘However, the broader, national focus on infrastructure upgrades is opening the door to more private participation.’ Private investment represents only 15 percent of the 49,000 water systems in the country, according to the report,” which costs $3,500. [Sub required]

5) NationalThe New York Times’ Eduardo Porter looks at the current state of the debate on the role of government. “In recent decades, the nation’s difficult racial divide has played a crucial role in checking the growth of public services,” he writes, “but for all the racial subtext to the election this year, times seem to be changing in unexpected ways.” He sees the ground shifting for Republicans and Democrats, with Trump supporters more open to government help for American families, and Democratic opinion moving in directions more favorable to government action to aid poor people and less inclined to view government as inherently wasteful. “A sense of opportunity is in the air.”

6) NationalThe New York Times looks at the growing commitment to activism in AFSCME spurred on by President Lee Saunders. “At a time when AFSCME and other public sector unions have come under relentless pressure from conservative activists and politicians, (…) Mr. Saunders is emerging as an increasingly important Washington power broker.” 

AFSCME and SEIU have moved toward a closer partnership. They say “the responsibilities and challenges confronting our two unions, including the ongoing challenge of national right-to-work in the public sector and the continuing decline in private sector unionism, demand bold actions. It is becoming increasingly difficult for union members to live on islands of quality health benefits, defined benefit pensions and strong contracts in a sea of low-wage, low benefit non-union jobs. We must raise the labor standards in the economy at-large in order to ensure that all workers have a fair shot at getting ahead.” [Resolution]

7) National/International: In the midst of the hype for the Brazil Olympics, Chicago CTA bus driver and elected executive board member of Amalgamated Transit Union Local 241, Erek Slater, represented his union at the July 1-3, 2016 Transport Workers International Meeting Against Privatization in São Paulo, Brazil. Meeting resolutions can be found here. “Here is class struggle union journalism: meeting strike leaders from Africa and Europe, comparing Chicago transit working conditions with Brazilian transit workers as they arrive for work at bus terminals, and visiting the vice president of a 38,000-strong metal workers union.” [Video, 30 minutes]

8) NationalJPMorgan Chase has settled a class action lawsuit brought by people released from federal prison, who were charged high and unusual fees on a debit card they were forced to use. “Local jails, where inmate turnover is high, and therefore present a major business opportunity, are also beginning to see an uptick in the use of debit cards.”

9) Arizona/NationalFlagstaff charter schools remain overwhelmingly white. “According to enrollment data from the Arizona Department of Education collected in 2014, with the exception of the PEAK School, white-only students make up 70 percent or more of the enrollment at all local charter schools. Flagstaff Unified School District has just two schools with a white population above that mark, and nine are 50 percent or lower.”

Late last month, the NAACP convention passed a resolution calling for a national moratorium on the expansion of privately managed charters, noting that “charter schools have contributed to the increased segregation rather than diverse integration of our public school system,” and that “charter schools with privately appointed boards do not represent the public but make decisions about how public funds are spent.”

10) California: The West Contra Costa School District holds a debate on the proposed sale of the Adams Middle School site to Ron Beller’s Caliber charter school for $60,000. “The United Teachers of Richmond UTR have come out in opposition to the sale and passed a resolution calling for an education campaign against charters and privatization.” [Full one-hour video]

11) Florida: A new bipartisan political action committee has been formed to back candidates fighting privatization. Future Generations “takes aim at groups that have worked to ‘privatize public schools, hospitals, and other public services’ and pledges to back candidates who support ‘public education, public hospitals, equal rights, environmental protection, smart growth, governmental accountability, citizen engagement, and health care access for all.’”

12) GeorgiaThe Augusta Chronicle takes on Sentinel Offender Services, the private probation company, which “continues to pay out big chunks of money for its misdeeds here and across Georgia.” The Chronicle says “no one from the company, that we know of, has been jailed for a day, much less two weeks, for subjecting Georgians to unlawful arrest and wrongful imprisonment. Before you write it off as criminals getting their just due, remember: Sentinel handled only such things as misdemeanor and traffic offenses, not felonies. Thankfully, it no longer even does that; Richmond County transitioned to its own county-run probation department this month. (…) This newspaper believes that many functions of government could be privatized—and streamlined and made more efficient. It was an awful mistake to privatize probation services, at least in this instance. It’s clear the public good was secondary to the profit motive.”

13) Idaho: The Idaho Association for Pupil Transportation recognizes two public school bus employees for their hard work and outstanding dedication to the community. “The association recognized Pam Rogers as its 2016 Special Needs Driver of the Year and MaryAnn Kraemer as its 2016 Special Needs Aide of the Year, according to the newspaper. Both work for Lake Pend Orielle School District No. 84, and are active in the district’s transportation association, which raises money to fund scholarships for school district graduates. (…) Rogers has developed a personal relationship with every family on her route, a ‘way of communicating and interacting with the students that other special-needs drivers strive for’ and that other special-needs drivers at the district all thought that the recognition for Rogers is ‘long overdue.’”

14) Maryland: A federal judge has ruled that state and federal transportation agencies must revise their ridership projections for the planned $5.6 billion Purple Line ‘public private partnership.’ With the cash-strapped Washington Metro system facing a major crisis involving weeks-long shutdowns for repairs and continuing safety issues, issues that were not factored into the planning for the Purple Line, critics say that existing plans, on which revenue projections rest, are inaccurate and overly optimistic.

The Bond Buyer warns this ruling could kill the project, and the state says it will appeal the decision. “‘Defendants wholly failed to evaluate the significance of the documented safety issues and decline in WMATA ridership, skirting the issue entirely on the basis that the Purple Line is not part of WMATA,’ [Judge] Leon said. ‘Nor can I turn a blind eye to the recent extraordinary events involving seemingly endless Metrorail breakdowns and safety issues.’” Opponents of the project asked for a six-month delay in June to evaluate the ridership impact of Metrorail’s problems. [The Bond Buyer, August 5, 2016]

15) Maryland: Teachers and their supporters are saying that Gov. Hogan is behaving like Donald Trump and Chris Christie by smearing them as thugs for criticizing his decision not to spend funds appropriated by lawmakers to fund teacher pensions. “For the second year in a row, Gov. Hogan is withholding school funding despite budget surpluses. Last year, he withheld $68 million; this year, it’s another $25 million that could have been spent addressing overcrowded schools, lowering class sizes, and providing students and educators the support they need to be successful,” wrote Jeremy Walker.

Maryland State Education Association President Betty Weller has denounced the budget decision, saying Gov. Hogan “is more concerned with scoring partisan points than addressing overcrowded schools, lowering class sizes, and providing students and educators the support they need to be successful.”

16) MassachusettsCorporate-backed interests are flooding the airwaves with millions of dollars worth of pro-Charter school ads during the Olympics. The ads are aimed at a November ballot measure asking voters to lift the cap on charters. “A handful of New York-based advocacy organizations have bankrolled the media blitz, including Ed Reform Now Advocacy and Families for Excellent Schools. The Lynnfield-based Strong Economy for Growth, which was founded in 2013, also supported the TV spot. Stephen Crawford, spokesman for the Save Our Public Schools opposition campaign, slammed the charter school ad. ‘To suggest that charters somehow create more funding for public schools, which educate 96% of our children, is laughable,’ Crawford said.”

17) Massachusetts: Wall Street is loving Gov. Baker’s crusade to “reform” the MBTA, including the privatizations. But the next big thing they’re licking their lips about is the possible transfer of oversight of the $1.5 billion MBTA Retirement Fund to the state’s Pension Reserves Investment Management (PRIM) board. The idea is being pushed by the right wing Donors Capital Fund-supported Pioneer Institute. [The Bond Buyer, August 8, 2016].

PRIM’s board includes a gubernatorial appointee, Peter Monaco of Raptor Group Holdings, who is a former partner and managing director at Tudor Investment Corporation, founded by billionaire hedge fund charter school funder and advocate Paul Tudor Jones.

The Retirement Fund has issued a direct riposte to the Pioneer Fund’s report, saying its findings of a shortfall in projected returns are “impossible to corroborate because the methodologies used to produce the results were not included in the report,” and providing its own figures to show it is on track, pointing out that its returns are in fact close to PRIM’s.

18) New Mexico: In a blow to public accountability and transparency, the New Mexico Department of Corrections is refusing to release the results of an in-depth investigation it conducted into Corizon. The department claims the report is protected under attorney-client privilege. “Important questions to be asked include whether the report was prepared or was ordered by an attorney,” said Susan Boe, executive director of the New Mexico Foundation for Open Government. “Was it shown to non-attorneys? Was the report itself done by an attorney?” The Santa Fe New Mexican reports “Boe said that if the information is shown to a third party who is not part of the attorney-client privilege, then the argument can be made that the attorney-client privilege was waived.”

19) North Carolina: In a “major change in state policy,” the board of education has sharply slowed the number of charter school applications it is approving. “The school board approved just eight out of the 28 groups that submitted bids to open a school. The board broke with past practice by denying five applications out of the 13 that were cleared by an advisory board.”

20) Washington/Tennessee: Stand for Children, the pro-charter school organization that poured big money into trying to defeat Washington Supreme Court Justice Barbara Madsen at the polls, gets a drubbing at the polls as primary voters give Madsen a 35% margin over their candidate. The two will face off again in November. In Tennessee, a citizen’s group is asking for an investigation into Stand for Children and pro-charter candidates. “The petition asks for both the Tennessee Registry of Election Finance and Davidson County District Attorney General Glenn Funk to look into whether there was coordination, which would violate Tennessee election law.” Stand for Children reportedly spent over $700,000 last month on elections in Tennessee, but got trounced in Nashville: “All four candidates it backed in the Metro school board election and a handful of state GOP primary candidates lost their races.”

21) InternationalCanadian postal workers rally across the country to demand that the federal government get involved in tough contract negotiations. The Canadian Union of Postal Workers is fighting for pensions, pay equity and sustainable public services. “It is time for our actions to intensify. Canada Post management must get the message that we are, and have always been, ready to sit down and hammer out the terms and conditions for our new collective agreements and we expect the same from them.”

22) International: As businesses in Britain and elsewhere increasingly move toward insourcing IT services to gain more control and reduce costs, will the public sector follow? “Insourcing is sometimes intended to enable businesses to regain or improve their control over critical functions and processes. (…) Insourcing is also perceived to bring benefits by way of increased flexibility. Outsourcing agreements do accommodate change on an ongoing basis, however they typically prescribe a structured change process which requires direct engagement with the outsourced provider, and a cost impact for the customer depending on the nature of the change. Whereas change which is primarily an internal business function activity is perceived to allow a greater degree of control in determining the nature of the change, and potentially limiting the cost impact.” Cloud services are also making insourcing decisions more efficient and practical.

Legislative Issues

1) National: Last Thursday, the president of the Utility Workers Union of America, D. Michael Langford, teamed up with American Water president and CEO Susan N. Story on an op-ed promoting water ‘public private partnerships,’ and pushing Senate legislation that would allow more private financing of water projects. Congress is considering the reauthorization of the Water Resources Development Act. Bloomberg BNA reports that the water infrastructure bill may advance next month. Congress returns September 6.

2) Kansas: Lawmakers pepper Maximus Inc., a contractor with the troubled KanCare system, “with questions and complaints during an hour-long tour of the state’s Medicaid clearinghouse in south Topeka. (…) ‘We’re talking about life and death issues here,’ said Sen. Michael O’Donnell, R-Wichita. Hawkins told Maximus executives that some of his constituents have been forced to send the same documents several times after Maximus lost them. ‘Where the heck are these documents going?’ he asked. ‘I want to know what’s happening, why that’s happening.’ (…) On several occasions, lawmakers told stories of their constituents waiting six months or longer for applications to be processed. Hawkins talked about the constituent who died before an application was processed.”

 

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