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This Week’s Privatization Scan 10-21-13

Update: Upcoming Privatization Issues. October 21, 2013

1) National: Maria Katrien Heslin, the former deputy mayor of Bloomington, Indiana, writes inGoverning magazine about “turning public workers into advocates for government.” She asks, “what about a more thorough, strategic and systematic approach that not only would share important information with staff but would enrich their work and allow them to contribute more directly to the community’s vibrancy and livability?”

2) National: Jeb Bush’s Foundation for Excellence in Education holds its annual summit. Includes panel on the “Business Case for Common Core State Standards” (hears from Accenture, Microsoft, ExxonMobil, and the EMC Corporation; panel co-sponsored by the Business Roundtable). Chicago Mayor Rahm Emanuel gives lunch keynote speech.

3) National: The National Cooperative Highway Research Program (Transportation Research Board), issues a request for proposals for a project to develop a guidebook on managing risk for state departments of transportation. “U.S. transportation officials are managing a widening range of risks that stem from changing social, economic, political, and technical dynamics at local, state, national, and global levels. The current federal-aid highway legislation, Moving Ahead for Progress in the 21st Century (MAP-21), has highlighted the need for U.S. transportation agencies to understand and apply the principles of risk management throughout their organizations.” Proposals due November 25, 2013.

4) National: Mark Dow, author of American Gulag: Inside US Immigration Prisons, takes aim at what he calls “longstanding, unprofessional conduct“ at Immigration and Customs Enforcement’s Office of Public Affairs. ICE reportedly said it is in “ongoing negotiations” with Corrections Corporation of America, which owns and operates the Eloy (Arizona) detention center, over conditions at the facility. “So I asked the ICE Office of Public Affairs (OPA) whether the Arizona Republic had it right: was ICE negotiating with CCA? OPA’s Barbara Gonzales and her boss, director Brian Hale, refused to answer.”

5) National: Report warns that eliminating tax exemption for nonprofits “would result in losses in employment, gross domestic product and labor income.” Reform proposals would hit, among other things, private school facilities. [IHS Report]

6) National: Industry Funds Management beefs up its infrastructure debt investment capacity in North America. Appoints Rich Randall executive director for debt investments. Australia-based IFM recently pulled out of the bidding to privatize Midway Airport, leading Chicago Mayor Rahm Emanuel to cancel the deal for lack of competition.

7) National: The Economist and the Heritage Foundation publish recommendations on how to fund transportation.

8) California: U.S. Supreme Court refuses to hear California’s appeal of a federal court order that it must reduce overcrowding. “The federal order came with instructions that the state not sign any further contracts for private prison beds out of state. State officials have continued to negotiate out-of-state contracts to deal with prison overcrowding despite the order. A key part of Brown’s plan to deal with overcrowding focused on using out-of-state contracts for private prison beds.” [Sub required] Last Tuesday the state signed a $28 million agreement to send 2,000 prisoners to a Corrections Corporation of America facility in California City.

9) Idaho: Twin Falls Times-News editorial calls on the state to consider bidding on the Idaho Correctional Center. On Friday the director of the state corrections department announced there would only be private bids. “It’s true that the state can better control the prison’s operation from afar through tighter legal language. But [Corrections Corporation of America] is suspected of ignoring the terms of its deal and what’s to say it won’t happen again. [DOC director] Reinke knows this, which is evidenced by his past comments that the state should take direct control of the Idaho Correctional Center. There’s only one way the state takes real control and that’s by running it itself.”

10) Illinois: Legal troubles deepen for Chicago’s UNO charter school. “Rangel fired the high-level officials who had given multimillion dollar contracts to family members, and the grants were restored. But then the SEC came in and launched an investigation about whether UNO had violated federal laws as it raised millions of dollars from private lenders using state bonds. Now, Governor Quinn has frozen the remaining $15 million of UNO’s $98 million grant for new school construction.” 

11) Illinois: Southern Illinois president Glenn Poshard says he is worried that only the wealthy will be able to afford a college education. Funding for SIU has decreased $42 million since 2002. “‘We don’t want to privatize higher education,’ he said. ‘We want to make it remain open and public, as it always has been. That was the intent of higher education. It just seems like we’re taking that away. I worry about it.’”

12) Illinois/Indiana: The Metropolitan Planning Organization Policy Committee votes 11-8 to approve the controversial Illiana Toll Road “public private partnership.” The vote includes the project in the regional planning organization’s long range plan. “Approval of the project was not a sure bet as it has prominent opponents including Chicago Mayor Rahm Emanuel, Cook County Board President Toni Preckwinkle, and several Chicago planning agencies and environmental groups. (…) A recent CMAP report slammed the project’s value to the region and warned that Illinois could be on the hook for as much as $1 billion. The CMAP board rejected the project in a 10-4 vote last week but the Policy Committee had the final word Thursday.” Each state will manage the project using their respective P3 laws. [The Bond Buyer, October 21, 2013; Sub required] Whether the project will proceed depends on whether it can attract bids, which Toll Roads News has reported is uncertain.

13) Indiana: Indiana University drops plan to privatize its parking facilities. Says the expected bids would not be sufficient for it to give up control of the asset for 50 years. “Our decision is based in large part on the assumption that we will make improvements to our existing parking operations that will result in additional revenue to the university, and we will begin that work immediately,” says IU CFO MaryFrances McCourt. “Goldman Sachs was the university’s advisor on the deal. IU hired the firm last November along with Walker Parking Consultants to advise on operations and Greenhill & Co. as independent transaction advisor.” [The Bond Buyer, October 21, 2013; Sub required]

14) Indiana: The state has issued a request for information from potential bidders for its parking facilities. “‘The Hoosier State’ is considering enlarging one parking garage, and is open to finding a possible partner to manage, operate and maintain two more. In addition, Indiana is interested in redeveloping a state-owned parking lot.” Responses are due November 15. [Sub required]

15) Maryland: State Board of Public Works delays a vote until November 6 on whether the Purple Line light rail project should be a “public private partnership.” Questions have been raised about the wisdom of the project’s proposed private financing and private operations structure. “Sen. Richard S. Madaleno Jr. (D-Montgomery), a member of the Senate Budget and Taxation Committee, said he is not surprised that the state wants more time to develop a proposal that involves ‘huge risk.’”

16) Michigan: As controversy builds over privatization in financially troubled Detroit, Mayor Bing expresses growing frustration with high priced consultants surrounding emergency manager Kevyn Orr. 

17) Nevada: Four bidders will compete to get the $1.3-$1.5 billion project for financing, designing, building and maintaining Project Neon. Project Neon is a 3.7 mile road improvement going from the US 95/I-15 interchange in downtown Las Vegas to Sahara Avenue. Bidders are Cintra; Las Vegas Paving Corp. and Macquarie Capital Group; Kiewit Development and Meridiam Infrastructure; and ACS Infrastructure Development, Fengate Capital Management and Star America Fund GP. The next step “is seeking approval from the Legislative Interim Finance Committee for issuance of a $100 million bond to pay off property owners whose land is being acquired.”

18) New York: Serious lack of contract oversight at the outsourced CityTime payroll IT projectcosts taxpayers “tens of millions of dollars” in New York City. Company contracts manager testifies at trial that a city official colluded in blocking competitive sourcing for an SAIC subcontract. “The witness, James Shangle, was vice president for contracts at defense giant SAIC, the main company the city hired to create the payroll and timekeeping system. The company has already reached a deferred prosecution agreement with the feds and repaid a whopping $500 million to taxpayers.”

19) North Carolina: Forsyth county commissioners debate the future of CenterPoint, the managed care organization “that oversees mental health, substance abuse and developmental disability services in Davie, Forsyth, Rockingham and Stokes counties. Each of those counties must sign off on the state-required business plan. The item will now come up for a vote in Forsyth County on October 28.” Gov. McCrory is attempting to privatize the system.

20) Pennsylvania: West Shore school board votes to outsource buses and maintenance services to First Student and GCA. On the bus contract, school board member Brian Guistwhite said “this may make cents with a ‘c’ but not sense with an ‘s.’ If we get this wrong, we can’t go back.”

21) Pennsylvania: Privatization of the Philadelphia Gas Works would take it off the tax rolls, costing the city up to $18 million, according to a newly-released cost-benefit analysis. But city officials assert that if the proceeds of the sale were used to pay underfunded pension liabilities, the deal could generate more savings than the facility now produces in revenue. The first round of bids is due November 1. [Lazard Cost Benefit Analysis]

22) Pennsylvania: Montgomery County to privatize the Parkhouse nursing home complex, possibly by the end of the year. “Mid-Atlantic would keep all existing staff at Parkhouse and maintain the same high level of care residents and their families have come to expect. Adjustments to employee benefits, however, could come at some point, though it is unsure exactly what could change.”

23) Pennsylvania: The sudden closing of a taxpayer-supported cyber charter school in Philadelphia is raising questions about sustainability and the state vetting process. Parents have reportedly “barge[d] into the school to get answers.” Blogger reports: “What were the safety concerns? There was a rehab center for sex offenders a few doors down. What financial instability? The Executive Director is being accused of using the schools credit card for personal use. Why was the State trying to shut them down in their second year? Because it was approved as a cyber school and the majority of the instruction was supposed to be online. However, it appears they were more ‘brick’ than ‘click.’” [Video]

24) Texas: The closing down of Dawson State Jail, a privately-run facility in downtown Dallas, opens the way to riverfront beautification. “The city of Dallas and its partners are working to return the river to a more natural state with floodway improvements such as new pump stations, transportation connections, recreational amenities and promotion of outdoor activities.” [The Bond Buyer, October 21, 2013; Sub required]

25) Texas: IRS agent warns that jail bonds may be taxable. “Lots of Texas counties have entered into these sorts of entrepreneurial jail deals and many of them have gone bust because federal inmates they counted on to pay the bills never materialized. These stories, though, show these were ill-considered and likely illegal schemes from the get-go—even if they ‘worked’ and federal inmates were found to cover costs.”

26) Texas: Moody’s downgrades the SH 130 private toll road to junk status; raises question of possible default. The downgrade includes both the $686 million senior bank facility (led by Banco Santander) and the $493 million federal TIFIA loan. The concession is owned by Cintra and Zachry. Moody’s says the downgrade “reflects the increased prospects for a payment default owing to rapid deterioration in the Project’s liquidity in 2013 due to substantially weaker than forecasted traffic and revenue performance since the April 2013 downgrade to B1. The continued subpar performance has resulted in the near full use of the $35 million liquidity facility to fund the June 2013 debt service payment. Moody’s revised forecasts now indicate that nearly all of the $30 million of available contingent equity will be used to fund the December 2013 debt service payment and a part of the June 2014 debt service payment. Absent a marked increase in traffic and revenue over the next eight months or significant remediation support from the sponsors, Moody’s expects that the Project will have insufficient cash to meet is debt service payments due in June 2014.” [Sub required]

27) Texas: Fort Worth city council task force rejects privatizing the city’s water facilities. “Privatization would likely force water rates up, increase costs for the city and the Tarrant Regional Water District and would limit Council’s flexibility in directing economic development.” The task force was chaired by Freese and Nichols. The findings will be presented to the council tomorrow morning at its pre-council meeting.

28) Virginia: Suffolk School Board will investigate the possible outsourcing of its custodial and maintenance services. School board member Judith Brooks-Buck says “she is opposed to the School Board considering outsourcing because of a bad experience with independent contractors hired to perform custodial duties at Virginia State University, where she is a professor. She told fellow board members she often finds herself cleaning up after the private workers have already passed through her areas.”

29) Washington: The state DOT has issued a report on “Mega Project Assessment,” recommending a reorganization of the DOT, better risk assessment, and reforming of the contracting process for the largest state transportation projects. The report was co-authored by CH2M Hill and Tom Warne & Associates.

30) International: Probation officers in England and Wales vote overwhelmingly to strike because of government plans to outsource much of the service. The National Association of Probation Officers says “our members have sent a clear message to the government that they will not tolerate the shameless privatization of the probation service and the serious consequences this will have on communities, offenders, victims and staff.”

31) International: The British government has tightened up its oversight of private investment in public infrastructure and services by taking a seat on the board of the project company in any “public private partnership” as well as an equity stake. “Under PF2, the public sector will take on the role of a minority shareholder in the project. It will have a seat on the board of the project company and will be able to recover a share of the profits in the same way as private sector investors.” It is hoped this will produce more transparent “public private partnerships.” [U.K. government report: “A New Approach to Public Private Partnerships“]

32) International: Fiera Axium Infrastructure finalizes a C$174 million “public private partnership” deal to develop a 300-cell, 80-bed detention facility in Quebec. “Fiera Axium teamed with developer Pomerleau and Johnson Controls for the design, build, finance, operate, and maintain (DBFOM) concession. Fiera Axium Infrastructure Canada II is investing equity in the project.” [Sub required]

33) Think Tanks: Economic Policy Institute and the Broader, Bolder Approach to Education hosts a discussion of the state of U.S. education with Diane Ravitch and Randi Weingarten. [Full video]

34) Media: Euromoney Institutional Investor PLC acquires Infrastructure Journal, one of the leading outlets covering infrastructure “public private partnerships.”

Legislative Issues:

1) National: The House Rules Committee will meet tomorrow to discuss H.R. 3080, the Water Resources Reform and Development Act of 2013. The bill is awaiting floor time.

2) National: At a House Transportation Committee panel hearing on October 10, witnessesdebated how to deal with dwindling revenues from the federal gas tax. Last week, former transportation secretary Ray La Hood called on Congress to raise the gas tax. “Although he cautioned that raising the gas tax alone would not solve the funding problem because of increasing fuel-efficiency standards and diminishing vehicle miles traveled, the former secretary said Congress should hike the tax to replenish the highway trust fund. ‘The highway trust fund has been a good source of funding. It can’t be the only source of funding. I believe Congress ought to raise the gas tax ten cents a gallon and index it.’”

3) Virginia: State lawmakers may want to look at the power of the governor to remove members of the Port Authority board at will, says a legislative watchdog office. In July 2011, pro-privatization Governor Bob McDonnell removed all but one of the board’s 11 members shortly before attempting to push through the privatization of Virginia’s ports. Though the effort was defeated, the board purge and privatization effort unsettled customers of the ports. [JLARC draft report]