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This Week’s Outsourcing Scan 9-14-2015

1. National: As the fall race for government contracts kicks off, Bloomberg Government reports that the federal government spends more on knowledge-based services each year than on any other category of contracts. “Growth areas include financial management, auditing, debt collection and data collection.” Acquisitions strategies are “in major flux,” with “task orders on multiple-award contracts rising.” The Defense Department led the FY2014 ordering, with 51.5% of the $67 billion in orders, followed by HHS in a distant second at 8.7%, and the Education Department in fifth place at 3.7%. [Sub required]. Last month contractors wrote a letter to the Obama administration complaining about increased contracting requirements, including for compliance.

2. National: In a new report, Standard & Poor’s says that the changing political climate in the U.S. is slowing down the use of “public private partnerships.” “‘Only a handful of states have used P3s in a significant way, with lawmakers in many states becoming wary of entering into such long-term contractual arrangements to finance, build, operate, and maintain infrastructure assets,’ said S&P credit analyst Trevor J D’Olier-Lees. (…) Local officials often opt for conventional public financing of transportation infrastructure projects instead of a P3 because of the low borrowing costs provided by municipal bonds, the analyst said.” [Sub required]

3. National: A Treasury Department official tells bond lawyers that the government intends to release new guidance on “public private partnerships.” “In the allocation and accounting rules project, Treasury and the IRS hope to make good on a years-old promise to consider more flexible rules for public-private partnerships, [tax legislative counsel John Cross] said. The agencies are considering and expanding a simplified version of the ‘undivided portion’ concept that was in allocation and accounting rules proposed in 2006. Under this concept, if an issuer finances a mixed public and private use project partially with tax-exempt bonds and partially with equity, the equity would be allocated to the private use, he said.” A final rule on public approval of private activity bonds is also on the way. [Sub required]

4. National: Two structured finance specialists say the “public private partnerships” industry should embrace risk transfer instead of shying away from it. “The P3 transaction framework is also capable of doing something that is not really related to direct project cost—the transfer of specific risks (especially funding risk) from the public sector to private investors. In the current economic environment, where the ‘new normal’ is at best characterized by stomach-churning uncertainty, risk transfer may be the real killer app of infrastructure P3s.” [Sub required; Julie Kim and John Ryan, “Public Sector Deficit Risk and Infrastructure P3s: A Value for Funding Approach to Evaluation.”]

5. National/InternationalSkanska names a new chief for its North American “public private partnerships” projects. Johan Henriksson will take on Skanska Infrastructure Development’s chief executive role in January 2016. Skanska “Skanska is a member of the consortium that won a contract to develop the New York City-based LaGuardia Airport central terminal building revitalization project in May, and has also worked on projects including the I-4 Ultimate Project in Orlando, Florida, and the Elizabeth River Tunnels project in Virginia.” [Sub required]

6. National: Passenger rail, roads, and water/wastewater will attract the most infrastructure project dollars in coming years, according to a new report. “The days of transit systems being content to soak up leftover transportation funding are waning.” [Sub required]

7. ArizonaFive private prison companies are interested in operating the Kingman prison after MTC was fired by the governor. “Corrections Corporation of America, The GEO Group Inc., and Emerald Companies already operate facilities in Arizona. Community Education Centers and LaSalle Corrections see this contract as a way to expand into the state. LaSalle Managing Director Billy McConnell said his company can turn the prison around.”

8. Arkansas: The state board of education endorses the recommendations of “ForwARd Arkansas, the collaboration between the Walton Family Foundation and the Winthrop Rockefeller Foundation to develop an overarching plan for public education in Arkansas.” But the Arkansas Times’ Benjamin Hardy wonders why the concept of charter schools was left out of the plan despite the Walton Foundation’s aggressive promotion of them across the nation. “The fact that this is a partnership with Winthrop Rockefeller meant compromise from the beginning for WFF.”

9. California: Jennifer Muir, the general manager Orange County Employees Association, looks at the many downsides of outsourcing. “Across the country, governments of all sizes are rethinking the outsourcing of services as they discover its many unwelcome consequences, including lack of transparency, cost overruns, lack of competition for contracted services, and glaring weaknesses in accountability and oversight. (…) Services provided by public entities should be judged by what is best for the health, well-being, civil liberty and security of the public. Inserting a profit motive is an open invitation to graft and corruption and, more often than not, results in services that cost more and serve the public less.”

10. CaliforniaThe Los Angeles Times endorses Eli Broad’s plan to move half of the city’s schools into private charter operations. Diane Ravitch remarks, “So, let’s see. Neither the city not the state has the staff to oversee charters. The editorial board has heard rumors that charters exclude children with high needs and low scores. Well, let’s just [go] right ahead, demolish public education, and see what happens next.”

11. California: USC janitors rally for higher pay and healthcare from Aramark. “Though the janitors’ negotiations are strictly with Aramark, the group hopes that the University can assist them in negotiating a better contract.”

12. CaliforniaWall Street Journal editorial writer Allysia Finley writes up a hostile, anti-union profile of “parent trigger” activist Alfonso Flores. Finley is a former editorial writer for the Stanford Review, which was founded by right wing hedge fund manager Peter Thiel, an investor in Mark Zuckerberg’s AltSchool.

13. District of Columbia: A federal judge has ruled that the DC Corrections Department must pay monetary damages to a deaf inmate “because officials failed to assess what accommodations he would need when he arrived at their facility.” The judge said “officials at the D.C. Correctional Treatment Facility ‘effectively sat on their hands’ when it came to [William Pierce].” The facility is operated by Corrections Corporation of America.

14. Illinois/IndianaDeclining corporate jet travel is hitting the bottom lines of smaller airports. “Gary/Chicago’s traffic and Waukegan’s numbers are down from their tops by roughly a third. (…) Last year, the agency that oversees Gary/Chicago voted to privatize development of the facility.”

15. IowaState officials seek federal approval to privatize Medicaid operations. Sisters of St. Francis in Clinton are urging people to write to Gov. Branstad and President Obama to voice their concerns. “Gov. Branstad’s decision begs many questions that have yet to be answered: Will private plans guarantee the same benefits that Medicaid does? How will Iowa pay for the private insurance, which looks as though it will eventually cost more than the public program?”

16. IowaDes Moines airport execs consider privatizing a proposed new terminal. “Pitchmen from the consulting firm LPMG Corporate Finance visited the Des Moines Airport Authority Board on Tuesday to explain options for forming a public-private partnership.” KPMG asserts that it would save 20% on construction costs. But Kevin Foley, executive director of the airport, “is skeptical of privatizing the operation of the terminal—‘We already run a pretty lean operation’—and said he would recommend against privatizing the construction or operation of facilities outside the terminal such as parking garages, which generate a profit for the airport, and runway systems, which are largely funded by federal dollars. ‘I would struggle to surrender any part of the airfield,’ he said.”

17. New YorkBroome County looks to outsource the more than one million meals it prepares for seniors, jail inmates, and the Willow Point nursing home. “Responses to the RFP were due Aug. 19. Broome has declined a request to provide details of the bidders who responded. The initial contract would run at least five years and could be extended under the same terms up to 15 years.” A deal would require approval by the County Legislature, which will be in session in October.

18. New York: Six term Albany County legislator Mary Lou Connolly loses in the Democratic primary. “Connolly was backed by McCoy and targeted in large part because she supported McCoy’s bid to privatize the Albany County Nursing Home.”

19. Michigan: The state auditor has released a performance audit of selected community health-related contracts and grants. The auditor finds that “MDHHS should improve its controls over the administration of contracts and grants,” and “MDHHS did not always complete the required written post-project evaluation of contractor and grantee performance.” [Report]

20. OhioDemocrats call for an independent investigation of the “Chartergate” scandal.

21. Oklahoma: Four inmates are dead and five are injured during a disturbance at the Corrections Corporation of America-operated Cimarron Correctional Facility on Saturday. Tulsa World reported on chronic staff shortages at public and private prisons in the state following a disturbance at Cimarron in June, and two others in 2013.

22. Oregon: Writing in The Oregonian, David Sarasohn reports on how the virtual charter school Oregon Connections Academy “uses [a] smaller district for bigger money. (…) The size, and presumably the capacities, of sponsoring districts doesn’t seem to be a general concern; both Beckstead and Tempel cited a trend of online schools switching to smaller sponsoring districts.”

23. PennsylvaniaSource4Teachers, the private firm paid $34 million to find substitute teachers for Philadelphia, has filled only 11% of the jobs. “That left 477 city classrooms without teachers.” On the district’s watch, “about 60 percent of substitute jobs were filled. (…) If the Cherry Hill-based company does not fill 90 percent of substitute vacancies by January, it will be subject to financial penalties, according to its contract.”

24. Pennsylvania: Jeff Bryant of the Campaign for America’s Future and Education Opportunity Network website writes on “How the GOP and Education Privatizers Are Using Charters to Bleed Pennsylvania Schools Dry.” Bryant says “charter schools add to the financial burden placed on resource-starved schools like those in Chester Upland. According to a local news outlet, teachers in Chester Upland ‘say the district’s ongoing financial problems are because of the state’s funding formula, specifically what the school district is required to pay to charter schools. The school district receives about $16,000 for children with learning disabilities from the state, but it is required to give the charter schools $40,000 for each student listed with a learning disability.’ ‘It’s absolutely an unsustainable expense,’ [Wythe Keever, spokesman for the Pennsylvania State Education Association] explains.”

25. PennsylvaniaScranton is to sell its public parking garages to a nonprofit backed by Citigroup “under a public-private partnership lease agreement designed to eliminate most related city-guaranteed debt, end receivership of the local parking authority and improve the unrated city’s reputation in the capital markets.” [Sub required]

26. PennsylvaniaPalmyra decides against privatizing trash collection. “The majority was concerned with laying off three borough employees, [borough manager Roger Powl] said. That’s even though the private hauler interested in providing service said he would offer the borough workers employment, Powl said.”

27. Wisconsin: La Crosse school district parents face widespread “delays, missed pick-ups and long bus rides” due to First Student’s performance. “La Crosse Superintendent Randy Nelson said the district has seen some improvements as a result, but those improvements haven’t been consistent. Things are still chaotic, he said, with new issues cropping up and some the district thought had been resolved reoccurring.” The district “is taking note of the issues for future contract discussions with First Student.”

28. Wyoming: The Jackson Hole Parks and Rec board turns thumbs down on allowing a private company to build a climbing gym on public land. But “the master plan is scheduled to come before elected officials again in a joint town and county meeting in November, and there is a possibility the expansion may be paid for through a special purpose excise tax initiative.”

29. International: British anti-austerity and anti-privatization MP Jeremy Corbyn is elected leader of the Labour Party, and promises to try and nationalize the railroads, slash public subsidies to energy companies, and possibly reverse the privatization of the post office. “But first Mr. Corbyn must identify where this privatization is taking place. The stock market listing of Royal Mail has been the most obvious example, but it has also served to distract critics from the more subtle private sector intrusions that are taking place across Whitehall.”

30. Think Tanks: The Project on Government Oversight (POGO) hosts a Twitterchat on contracting oversight and transparency with the participation of In the Public Interest, the Professional Services Council (PSC), and other organizations.

Legislative Issues

1. National: New York Rep. Sean Patrick Maloney (D-NY 18) introduces a “public private partnerships” bill. Maloney is on the P3 panel of the House Transportation and Infrastructure Committee. The bill would create a Transportation Procurement Office to define what it considers to be best practices for P3 projects. [HR 3465, referred to the Transportation Committee, no cosponsors]

2. National: Rep. Bill Shuster (R-Pa.), the chairman of the House Transportation and Infrastructure Committee, plans to intensify his push to privatize air traffic control in the U.S., and points to a report he commissioned from the DOT Inspector General. “Shuster has signaled that he will include the privatization push in an upcoming funding bill for the FAA, whose federal funding is currently scheduled to expire on Sept. 30.” Bloomberg’s Justin Bachman looks at some of the issues in the debate.

3. California: Capital and Main’s Danny Feingold reports that the ball is now in Gov. Brown’s court over the University of California’s “use of thousands of contract workers who earn low wages with few, if any, benefits.” The fate of “Senate Bill 376, sponsored by state Senator Ricardo Lara (D-Bell Gardens), likely will rest with Pat Brown’s son, current California Governor Jerry Brown, who has yet to indicate whether he would sign or veto the legislation.”

4. California: Legislative gridlock on transportation funding has stalled a bill to give Los Angeles County more flexibility to adopt “public private partnerships.” Fred Kessler, a partner with Nossaman, a law firm that promotes P3s, says “the leaders are not ready to push the other pieces without solving the funding piece.” [Sub required]

5. Massachusetts: State Senator Marc Pacheco, author of the now-suspended law providing for due diligence on state privatization deals, battles back against Gov. Baker’s MBTA privatization efforts. “Pacheco claims that some of the biggest opponents of the law are rich, right-wing financiers like the Koch brothers, and anti-labor ‘front organizations’ that they fund around the country. Pacheco, who has been defending his namesake law in the press and on social media throughout the summer, said the Baker administration is using the MBTA’s service suspensions during last winter’s epic snowstorms as an excuse to privatize public transportation. Pacheco said the private company Keolis, recently fined $7.53 million for providing subpar Massachusetts commuter rail services, shows that contracting out more public services is not the answer, and that the administration is being unfair.”

6. North Carolina: Elisha Freeman of the Children & Family Resource Center looks back at a fateful decision to privatize mental health care 14 years ago, and urges lawmakers to step in. “Changes to how mental health services are delivered were implemented in 2001 (what we refer to as mental health care reform) with the establishment of local management entities. The intent was to privatize mental health service because the government was running everything. On the surface, that sounded great, but private providers could not financially stay afloat. Unfortunately, lack of clear guidelines and reduced reimbursement rates led to frustration among providers, and many experienced mental health professionals left the field.”

7. Tennessee: Republican State Representative Martin Daniel has “stopped short of supporting [Gov.] Haslam’s idea to privatize maintenance of state-owned buildings. The University of Tennessee is a major employer in Knoxville. ‘Many of those employees are longtime employees,’ Daniel said. ‘And they’re devoted. I would have to be convinced to go the privatization route.’”

8. Washington: As the fallout continues to spread from the state supreme court’s decision to declare charter schools unconstitutional, different sides weigh in on what’s next. The Yakima Herald-Republic calls for a legislative “fix.” But others disagree. “’I think the biggest mistake would be trying to enact a legislative fix for something that requires a constitutional amendment, and have it overturned again,’ [House Majority Leader Pat Sullivan, D-Covington] said. ‘That just doesn’t make sense.’”