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Weekly Privatization Report 10-2-2017

1) National/International: It has been a challenging week for the privatization industry both here and on the other side of the pond. Last week the British Labour Party announced (at 25:00) that if elected it will bring PFI projects—a form of so-called Public Private Partnership (P3) that involves private finance in government services and infrastructure—back in house. Then President Trump completely upended the P3 industry, their publicists and Transportation Secretary Elaine Chao, by rejecting the idea that P3s will form the core of his infrastructure program. Speaking of P3, Trump “dismissed it categorically and said it doesn’t work.”

Forbes
magazine’s infrastructure expert, Joel Moser, had a different take than the shocked silence from the privatization industry. “President Trump’s decision to jettison his tax credit/private investment based infrastructure plan is sound and its stated rational is based upon a well-informed analysis. Simply stated, the plan wasn’t going to work and the President said just that. (…) The issue is not how the capital is raised but how it’s repaid. So while choosing a financing mode for a bridge may be a more impactful decision than picking a paint color, it doesn’t get the bridge built free of cost. The real question is the funding method, whether the money raised will be repaid with taxes or tolls, so by the general public or the using public. Once you have a viable funding plan, you can choose the most efficient financing mechanism.”

So the involvement of private finance in infrastructure will not be going away anytime soon, and the right questions still need to be asked. See In the Public Interest’s “Guide to Understanding And Evaluating Infrastructure Public-Private Partnerships.”

2) National: Meanwhile, Secretary Chao has become the focus of stories that raise conflict of interest questions, with, e.g., APM reporting that “Chao, a leader in the Trump administration’s effort to inject $1 trillion into America’s crumbling infrastructure, chose to hold on to more than $300,000 of deferred stock awards in a transportation construction company after resigning from its board when she was confirmed to the Cabinet position. Shares in the company—Vulcan Materials—climbed to a 10-year high in the days following Trump’s election and have hovered there since…”

3) National: As Puerto Rico endures a massive human crisis in the wake of Hurricanes Irma and Maria, bondholders of its bankrupt electric utility have sought to lock in their diminishing returns in exchange for even more debt. Bloomberg’s Lisa Abramowicz trashed the “offer,” saying that with all the misery, “this is not the time to talk about the island’s unpayable $74 billion of debt.” The island’s leaders have rejected the offer, and accused hedge funds of trying to profit from human suffering. Banks and private equity have been looking to privatize PREPA for years, and now see an opportunity. Their “upside” would not, of course, be PREPA’s destroyed assets, but the opportunity to secure revenue streams out into the future once the system is rebuilt.

Then there is the question of more privatization triggers in the relief package. Julio Ricardo Varela asks, “Would a relief package include more opportunities to privatize the island’s utilities and infrastructure, resulting in an island where profit is valued over the well-being of its residents?”

And will privatization take place under the gun? One muni advisor is advocating scrapping the unelected PROMESA oversight board (which is charged with privatizing public services and assets) and the “militarization of the island to provide short to medium security.” Craig Fugate, who ran FEMA under Obama, is warning that “too many people seem to think the military’s the solution to every problem. You’re writing everybody’s disaster novel of militarization and authoritarian regimes.”

4) National: The U.S. Supreme Court has agreed to hear the Janus case, which AFSCME, AFT, NEA, and SEIU call “a blatantly political and well-funded plot to use the highest court in the land to further rig the economic rules against everyday working people.” ThinkProgress has warned that the case “will devastate public sector unions,” which are on the front lines of battles to defend public services and secure responsible contracting.

5) National: President Trump and Education Secretary Betsy DeVos will be pumping $253 million into charter schools, which are mostly publically funded but privately operated. “The money will be used in various ways, including for state-level grant competitions to replicate and expand charter schools and provide aid for planning, program design and launching of the schools. It also provides funding to charter management organizations on a competitive basis to enable them to replicate or expand high-quality charter schools.”

Criticism of the charter school funding and DeVos’ privatization crusade was sharp
. But it will also be interesting to see how well they account for this money, considering the scandal that erupted over previous federal charter school funding. [DOE Inspector General’s report].

6) National/Indiana: Education Secretary Betsy DeVos is awarding Indiana $59 million to expand charter schools. Meanwhile, an Indiana online charter school is closing “after months of scrutiny from the state, dropping enrollment, and poor academic performance.”

7) National: Failing charter schools have found a way to survive—fully privatize themselves. “The district terminated the academy’s charter contract. Surprisingly, Orange Park didn’t shut down—and even found a way to stay on the public dime.” How? By using vouchers.

8) National: Quote of the week: “Scott VanderWerp, who runs the public finance group at Oak Ridge Financial, told the Times how profitable the educational sector could be doing transactions that had little to do with educating children: Just buy some buildings ‘for a couple hundred thousand bucks, lease them to the school for a couple of years, and then sell them to the school for a few million.’ Money meant to teach children is quietly converted into corporate earnings.”

9) National: GEO Group is hiring a psychologist for its immigration detention facility at Karnes City, Texas, to evaluate for “mental, emotional and behavioral disorders,” and instruct staff “in suicide identification and subsequent prevention techniques.”

10) National: As Elon Musk of SpaceX and Lockheed Martin announce bold plans for Mars travel, it is worthwhile listening to Neil de Grasse Tyson’s reality check on space privatization.

11) National: Looks as if Peter Navarro, the ardent economic nationalist and Bannon holdover who co-authored a white paper for Trump that put private finance at the center of his infrastructure plan, has been sidelined. So has the P3 plan, if we can believe Trump.

12) National: The Federal Election Commission has yet to take action on a complaint that the GEO Group, a federal prison and immigration detention contractor barred from making campaign contributions, contributed $225,000 to the Trump-affiliated super PAC Rebuilding America Now.

13) National: The IRS has published new proposed rules on public notice and approval requirements for tax exempt private activity bonds. “The proposed rules maintain the core statutory standard which requires reasonable public notice and an opportunity for a public hearing for a governmental unit’s public approval of an issue of tax-exempt private activity bonds. But they reduce the burden of having to describe the projects to be financed with PABs in detail and also take into account the fact that mortgage revenue bonds and student loan bonds are not project-based and are instead portfolio loan financings or non-project based.” [Sub required]. Comments due by December 27, 2017.

14) National: Paul Buchheit, writing on nationofchange.org, says “privatization cuts us in two: we’ve become a nation of profit-makers versus the struggling middle/lower classes. This is true for health care, education, housing, and the environment.”

15) California: Are the winds of privatization soon coming to Salinas? As the privatization industry saying goes, “desperation is our best customer.”

16) California/National: CBS affiliate KPIX gets a tour of the Adelanto immigration detention facility. Trump’s policies, it reports, have “put a chilling effect on parole and bonds,” stretching out detention lengths. “For the GEO Group, longer stays mean more money, because ICE pays an average of $125 a day per detainee. Plus, detainees do most of the work, for a dollar a day.”

17) Florida: Big court battles are looming over Florida’s new charter school law. The Palm Beach County School Board has filed suit over a key provision in HB 7069, a section “that requires school districts to share a cut of their local tax dollars, which are earmarked for public school construction and maintenance, with charter schools.” There’s more to come. “Another, potentially more far-reaching lawsuit with the backing of at least 14 other school districts—including Pinellas County—is still expected in the weeks ahead.”

18) Georgia/National: President Trump offers an additional $3.7 billion in taxpayer guarantees to the financially troubled Vogtle nuclear electric generating plant, a ‘public private partnership.’ Toshiba Corporation’s subsidiary, Westinghouse Electric, went bankrupt earlier this year while building the plant.

19) Louisiana: Jefferson County is stripping inmates of their right to in-person visits from their families, and is substituting an expensive video linkup run by controversial for-profit Securus. All this in the middle of an inmate suicide spike. Monique Judge of The Root says, “So. Cash bond system. Check. Costly collect calls. Check. Now charging for inmate visitations. This is turning into some sort of government fundraiser, isn’t it?” But it’s a money spinner for the contractors too, which is why “at least one company has written bans of in-person visits into its contracts with facilities, which, of course, has the effect of driving more business to video visitation.” [See Grassroots Leadership’s video, “(In)Securus Technology: An Assault on Prisoner Rights”].

20) Maryland: Opposition to Gov. Hogan’s $9 billion ‘public private partnership’ program is growing. Marc Elrich, an At-Large member of the Montgomery County Council and candidate for Montgomery County Executive next year, has weighed in: “A public private partnership, or P3, may be the most expensive way to fund a project and that is going to reverberate in tolls. Essentially, people with money to spend get a better highway experience and those without the means, remain in a poor experience. (…) This is a huge public expenditure with no accompanying analysis of what the State won’t be able to fund as a result—I’m worried about education, transit funding, and other critical infrastructure.”

21) Massachusetts: As complaints of dirty facilities mount, the State Department of Labor Relations informs Leominster custodians union president Scott Lanciani that the school district may have broken the law in its outsourcing of their jobs. “They believe there’s enough evidence presented that the school department may have broken a law because they did not give us a chance for impact bargaining,” Lanciani said Wednesday, adding that his union is expecting a hearing for pretrial to take place some time between January and March.”

22) Minnesota: Residents of Glendale Towers in Minneapolis are resisting the privatization of their public housing, seeing it as a tool of gentrification. “Defend Glendale insists [it] will mean ‘gentrification and displacement of people of color from Minneapolis’ through re-appropriating public land and housing to private interests.” Video: from public hearing. The community speaks out.

23) Missouri: Applications are due October 20 for advisers to seek out private bidders on the proposed privatization of St. Louis Lambert International Airport. The process could take up to a year, but is speeding along without public input and battle lines are already drawn. “Sinquefield’s nonprofit, Grow Missouri Inc., funded the application process as well as a marketing effort called FLY 314, and will be reimbursed if the city makes a privatization deal. Among those participating in the negotiations so far are familiar faces in St. Louis politics. At least two international firms have hired Missouri-based lobbyists to steer them through the process. More are likely to emerge.”

24) New York: Last week a public forum was held to discuss the possible privatization of Westchester Airport. The deal is on hold until after the elections. Watch the video: Part 1; Part 2. For updates see the Purchase Environment Protective Association, which is celebrating its centenary.

25) Ohio: An inmate is suing CoreCivic, the prison warden and other staff members alleging that he was severely beaten by a guard at Lake Erie Correctional Institution, which was privatized in 2012. “Lawrence pulled Davis away from the wall and shoved him up against it. He threw Davis down and smashed his head into the ground until Davis was unconscious, according to the lawsuit. Typinski did not intervene but instead opened a door ‘so that the surveillance camera cannot capture any more of Lawrence’s violent attack on Davis,’ the lawsuit says.”

26) Ohio: State education officials say that ECOT, the largest charter school in Ohio, may owe an additional $20 million to the state over and above the $60 million it is already paying back for overcharging. “Two other large online charter schools run by for-profit companies will also owe money back to the state. The Ohio Virtual Academy run by the publicly-traded K12 Inc., will be paying back $1.6 million of the $60 million in state tax dollars it claimed last year.”

27) Texas/National: Gus Bova of the Texas Observer looks at profiteering from immigrant detainees who are released under ankle-monitoring supervision. “Critics have long accused Libre of profiteering from desperate immigrants, but a class action lawsuit filed in February on behalf of three Libre clients goes further. It calls the company’s basic premise—that it’s charging immigrants for GPS monitoring—a ‘sham.’

‘[Immigrants] are not in actuality paying $420 a month for rental of an ankle bracelet,’ the suit states. ‘Rather, they are paying (excessively) for [Libre] to indemnify their immigration bail bond.’ In other words, the suit alleges Libre isn’t actually interested in monitoring immigrants; rather, it uses the devices as a pretext to levy exorbitant fees.” Libre has vigorously defended its business.

28) Texas: A Houston charter school, Zoe, has abruptly closed just two weeks into the school year, leaving students and parents in shock. “Parents said they were not aware of any financial problems with the campus and most were shocked by the news. Eugene-Onyejiaka’s son Joel had attended Zoe Learning Academy from pre-K to third grade, but left briefly to attend another charter school, C.O.R.E. Academy. She learned that school was closing just a few weeks ago and hurriedly put Joel in back at Zoe.”

29) Texas: The Texas Permanent School Fund has reportedly increased its stake in the GEO Group by over 50%.

30) International: Ken Loach produced a film about Britain’s public services for the British Labour Party conference. Practitioners, professionals, and users talk about their experiences and privatization.

31) International: A municipal recycling contractor in North York, Canada, is ordered to pay $1.33M in fines and back wages. “‘We’re glad to see the Fair Wages Office investigated and temp agency workers hopefully will be able to recoup their lost wages,’ said Mary Gellatly of Parkdale Community Legal Services. ‘But we have concerns about Canada Fibers’ use of temp agency workers when it was in a long-term contract with the city to do Toronto’s curbside recycling.’ After speaking out to the Star, Reyes lost his temp job at Canada Fibers — but was subsequently offered a permanent job by a reader.”

32) International: Alleged overpayment and lax contract oversight leads to cost overruns on public infrastructure in British Columbia, Canada. “Speaking to Metro just prior to the May election, now-Premier John Horgan said the situation raises bigger questions about B.C. contracting out taxpayer oversight on public-private partnerships (P3) and private-sector design-build projects like Port Mann. Metro requested comment from KPMG, but did not receive a response by press time.”

33) Think Tanks: The pro-privatization, Koch-funded Reason Foundation is stunned by President Trump’s blunt rejection of infrastructure ‘public-private partnerships.’ Trump said the P3 model “doesn’t work.” Their hope? Drive a wedge into opposition to privatization by using union pension funds as an ally.

34) Revolving Door News: The Trump administration nominates Robert H. McMahon, a former Director of C-17 Field Operations for the Boeing Company, to be an Assistant Secretary of Defense, Logistics and Materiel Readiness. DLA Acquisition does a lot of contracting.

Legislative Issues

1) National: President Trump has released the bare outlines of his long-awaited “tax reform” plan. Despite the buzz early in his administration that the plan would do a lot of heavy financial lifting for Trump’s $1 trillion infrastructure plan (details of which are still unavailable), the word “infrastructure” appears nowhere in the White House’s sparse nine page “framework.” The good news appears to be that the tax exemption for municipal bonds, which supports public works investment, will stay; the bad news is that the federal deduction for state and local taxes may go away, putting more pressure on state and local revenues—and therefore on infrastructure investment. Bloomberg says “a trillion-dollar deduction could get axed to fund trump tax plan,” under which “taxpayers in the top 1% with annual incomes above $730,000 would receive about 50% of the total tax benefit.”

2) National: Privatization advocates in Congress, on K Street, and at the Koch-funded think tanks lost another one last week as lawmakers approved a funding extension for FAA without privatizing air traffic control. “‘While I’m glad the House has accepted the Senate changes to the FAA extension and the FAA will not shut down, we should not be in this situation,’ Rep. Peter DeFazio (Ore.), the ranking Democrat on the House Transportation Committee, said. He said such extensions have been necessary ‘only because Republicans have wasted years on their crusade to privatize our nation’s air traffic control system and hand over billions of dollars in public assets to a private corporation run by the major airlines.’ DeFazio added: ‘Republicans and Democrats agree on most of the 21st Century AIRR Act. We all want a long-term bill that improves safety, enhances the air travel experience, encourages innovation and emerging technologies, provides for stable aviation program funding, and makes needed and targeted reforms to critical FAA programs.’”

3) National: The Veterans Administration is already running out of money to support its private health care program. “In its statement to The Associated Press, VA said it could not say for certain when Choice funds would be depleted, but acknowledged that it could be as early as December or as late as March. Earlier this year, the VA began limiting referrals to outside doctors as money began to run low and veterans reported delays in care. The VA proposal for a long-term fix is expected to be released in the coming weeks.” The shortfall is playing into the debate over privatizing the VA. “Signaling a possible fight ahead, some Democratic lawmakers on Wednesday suggested the coming weeks would offer an important sign of the administration’s commitment to veterans.”

4) Kansas: As the state moves toward a decision next month on whether to hire CoreCivic, GEO Group, or Lansing Correctional Partners to build a new prison, lawmakers debate whether double-bunking is leading to prison riots. “Lawmakers in both parties have noted the problems came after populations rose in those two prisons, with more inmates housed two-to-a-cell.”

 

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