Flanked by Vice President Mike Pence and House Speaker Paul Ryan (R-WI), President Donald Trump delivers his Joint Address to Congress at the U.S. Capitol Building in Washington, D.C., Tuesday February 28, 2017. (Official White House Photo by Shealah Craighead)
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Weekly Privatization Report 11-6-2017

1) National: The public financing world has been rocked by the release of the Ryan/Trump tax reform bill. How does it affect infrastructure and public services? The bill would harm public and private financing and funding mechanisms for both, harming traditional all-public procurements and “public-private partnerships.” The early commentary is downright gloomy, with many experts and market participants saying they were sandbagged after being led to believe that muni market would be protected. Although muni exemption was preserved, other changes could be devastating, they say. They are calling for the public finance community from Wall Street to Main Street toimmediately mount the legislative barricades.

One key takeaway is that the House bill, if passed, would seriously damage the municipal bond market, which undergirds both public works spending and smoothes out public services budgeting. “I said tax bill could blow up 20% to a third of the muni market,” the widely-followed Bloomberg muni expert Joe Mysak tweeted. “I think I am raising my estimate.”

Another takeaway is that the end of state and local tax deductions could harm local spending by building pressure to cut local tax rates—a rather obvious mechanism to trigger Grover Norquist’s strategy of ratcheting down taxes in order to “starve” government. The new proposed limits on the federal deductibility of state and local taxes would put pressure on state and local governments to slash taxes needed for public infrastructure and services.

“Many people might not realize that this would include bonds for airport projects, affordable and low-income housing, nonprofit hospitals and nonprofit colleges and universities,” said Sandy MacLennan, president of the National Association of Bond Lawyers and a lawyer at Squire Patton Boggs. “This proposal strikes a cruel blow to thousands of charities of all size from colleges to hospitals from walk in clinics to sheltered workshops and boys clubs,” said Chuck Samuels, a lawyer at Mintz Levin who is counsel to the National Association of Health & Higher Education Facilities Authorities. “It is unjustified, doesn’t raise much money and undermines infrastructure efforts. I hope it is quickly reversed.”

The desirability of municipal bonds as an investment would be diminished at a time when the Trump administration has been pushing to devolve infrastructure financing onto state and local governments. Ryan/Trump would terminate Private Activity Bonds (PAB) and advance refunding bonds after this year. The PAB and advance refunding proposals in the bill could significantly shrink the muni bond market. PABs make up 15% to 20% of the muni market, according to some estimates, and industry groups have come out swinging against the proposals. Loss of tax exempt PABs would mean issuers would have to go to the taxable bond market, driving up costs “in the neighborhood of 25% to 30%,” said Tim Fisher, legislative and federal affairs coordinator of the Council of Development Finance Agencies. Advance refundings vary widely depending on interest rates, but three years ago they represented half of all new muni issuances, professionals say.

The Senate will take up its own tax bill in the coming days, and public finance supporters are hoping they will cut out some of the Trump-Ryan items. Their bill may be released this Friday. But the pain may get even worse: “If the Senate Republicans want to include in their bill most of the concepts in the House GOP plan it may have to find even more revenue raisers to meet the so-called Byrd Rule and allow it to pass a tax bill under the reconciliation process with a simple majority vote. In that scenario, muni bonds could again be on the table as potential revenue raisers.”

2) National: The secretive process by which the Trump administration formulated its tax reform proposals is the subject of a lawsuit filed last week by the newly-formed Democracy Forward public interest legal group to force the administration to reveal details of closed-door “listening sessions” administration officials held with unknown parties while developing its proposals. Tim Fisher, legislative and federal affairs coordinator of the Council of Development Finance Agencies, said regarding the ending of PAB tax exemption in the House bill that “the fact they did not highlight this in advance gives me reason to think they planned to sneak this covertly through.”

3) National/New book: Lauren-Brooke Eisen, senior counsel in the Brennan Center’s Justice Program, has writtenInside Private Prisons: An American Dilemma in the Age of Mass Incarceration. “From divestment campaigns to boardrooms to private immigration-detention centers across the Southwest, Eisen examines private prisons through the eyes of inmates, their families, correctional staff, policymakers, activists, Immigration and Customs Enforcement employees, undocumented immigrants, and the executives of America’s largest private prison corporations.” Eisen offers some suggestions on “if private prisons are here to stay, how can we fix them?” At the top of the list is “performance-based contracting.” She discussed her new book on WNYC’s Brian Lehrer show. [Audio]

4) National/Puerto Rico: Just as the controversial contract between Whitefish Energy and the Puerto Rican power authority looks set to be cancelled, The Intercept reports that another $200 million contract “may ultimately be even more scandalous for what it says about the effort to rebuild the island in the aftermath of Hurricane Maria (…) ‘The Cobra contract is less flashy and less obviously crazy,’ Cathy Kunkel, an energy analyst at the Institute for Energy Economics and Financial Analysis, told The Intercept. ‘But together with [the Whitefish contract] shows the nexus of PREPA with oil and gas interests — the kind of companies that are go-to companies for PREPA.’”

5) National/Puerto Rico: Responsible contracting is a two-way street, requiring careful FEMA oversight and provider documentation. “Over the past decade, FEMA’s denials and reversals have caused uncertainty and anger in some communities, led to long rounds of appeals, strained local budgets, made it hard for some organizations to stay afloat, and occasionally delayed the rebuilding process. ‘My word of advice for everybody is document, document, document,’ warned a frustrated Mayor Orlando Lopez of Sweetwater, Fla. “Cross your t’s, dot your i’s and back up everything.’”

6) National: The new Draft DOT Strategic Plan for FY 2018-2022 is open for public comment through November 13, next Monday. The plan calls for encouraging “public private partnerships,” saying “public-private partnerships (P3) can allow public agencies to leverage private sector capital and expertise to deliver projects more quickly and efficiently by introducing greater market discipline to project delivery and management. The DOT programs will support the use of P3s to deliver infrastructure projects.” The document talks about safety and operational risks, but not about planning for the public risks that come with private financing, contract restrictions or compensation events.

7) National: As the “social impact bond” industry continues to spread, Betsy DeVos and Jennifer Bell-Ellwangerrelease a U.S. DOE report aimed at spreading the concept of “leveraging private investment” throughout the public school system. See In the Public Interest’s Guide to Evaluating Pay for Success Programs and Social Impact Bonds.

8) National: American Water Works, a leading water privatization company, has released it quarterly report containing an update on the lawsuits it is facing: “Following the Freedom Industries chemical spill, numerous lawsuits were filed against WVAWC and certain other Company affiliated entities (collectively, the ‘American Water Defendants’) with respect to this matter in the U.S. District Court for the Southern District of West Virginia or West Virginia Circuit Courts in Kanawha, Boone and Putnam counties, and to date, 74 cases remain pending. Four of the cases pending before the U.S. district court were consolidated for purposes of discovery, and an amended consolidated class action complaint for those cases (the ‘Federal action’) was filed in December 2014 by several plaintiffs. On January 28, 2016, all of the then-filed state court cases were referred to West Virginia’s Mass Litigation Panel for further proceedings, which have been stayed pending the negotiation by the parties and approval by the court in the Federal action of a global agreement to settle all of such cases, as described below. On July 7, 2016, the court in the Federal action scheduled trial to begin on October 25, 2016, but the court has granted several continuances of the trial, which is currently postponed indefinitely in light of the preliminarily approved global settlement agreement described below. The Mass Litigation Panel has also stayed its proceedings until January 23, 2018.”

9) National: GEO Group, the private, for-profit prison and detention company, has released its quarterly report, which among other things summarizes litigation it is facing (p. 26):

“On February 8, 2017, the Attorney General of the State of Mississippi filed a lawsuit in the Circuit Court for the First Judicial District of Hinds County, Mississippi against the Company, Cornell Companies, Inc., a subsidiary of the Company, Christopher B. Epps, the former Commissioner of the Mississippi Department of Corrections, and Cecil McCrory, a former consultant of the Company. The complaint alleges several statutory and common law claims, including violations of various public servant statutes, racketeering activity, antitrust law, civil conspiracy, unjust enrichment and fraud. (…) The Company has not recorded an accrual relating to this matter at this time, as a loss is not considered probable nor reasonably estimable at this preliminary stage of the lawsuit.”

“On October 22, 2014, nine current and former civil immigration detainees who were detained at the Aurora Immigration Detention Center filed a purported class action lawsuit against the Company in the United States District Court for the District of Colorado (the ‘Court’). The complaint alleged that the Company was in violation of the Colorado Minimum Wages of Workers Act and the Trafficking Victims Protection Act, and claimed that the Company was unjustly enriched as a result of the level of payment that the detainees received for work performed at the facility, even though the voluntary work program as well as the wage rates and standards associated with the program that are at issue in this case are authorized by the Federal government under guidelines approved by the United States Congress. (…) Fact discovery in the case has not yet begun. The plaintiffs seek actual damages, compensatory damages, exemplary damages, punitive damages, restitution, attorneys’ fees and costs, and such other relief as the Court may deem proper. The Company intends to take all necessary steps to vigorously defend itself and has consistently refuted the allegations and claims in the lawsuit. The Company has not recorded an accrual relating to this matter at this time, as a loss is not considered probable nor reasonably estimable at this stage of the lawsuit. If the Company had to change the level of compensation under the voluntary work program, or to substitute employee work for voluntary work, this could increase costs of operating these facilities.”

10) National: It has been a brutal week for media covering local and citywide issues. Gothamist and DNAinfo have been shuttered by billionaire Joe Ricketts shortly after a union organizing drive. Gothamist regularly provided excellent coverage of privatization issues in New York City. Also, the Houston Press, which covered privatization issues, has “effectively closed,” according to its managing editor, Zach Despart.

11) NationalThe New York Times reports that tech companies are buying closed-door access to local school officials. “Silicon Valley is going all out to own America’s school computer-and-software market, projected to reach $21 billion in sales by 2020. An industry has grown up around courting public-school decision makers, and tech companies are using a sophisticated playbook to reach them, The New York Times has found in a review of thousands of pages of Baltimore County school documents and in interviews with dozens of school officials, researchers, teachers, tech executives and parents.”

12) Arizona: Gov. Ducey (R) is seeking federal permission to privatize rest stops. But “any move will get opposition from the National Association of Truck Stop Owners, which takes the stance that commercial rest areas ‘jeopardize private businesses that for the last 50 years have operated under the current law’ and established locations at highway exits. ‘Due to their advantageous locations, state-owned commercial rest areas establish virtual monopolies on the sale of services to highway travelers,’ the organization’s position states. ‘Allowing states to set up shop along the interstates threatens more than 97,000 businesses nationwide and jeopardizes 2.2 million jobs.’”

13) California: JLC Infrastructure, a fund formed by Earvin “Magic” Johnson along with Loop Capital chief executive Jim Reynolds, has joined a team bidding on the “Automated People Mover,” a $2.25 billion “public private partnership” project to develop a light rail running through Los Angeles International Airport. [Sub required]

14) California: Donald Cohen of In the Public Interest and Kyra R. Greene of the San Diego-based Center on Policy Initiatives explain why California charter schools need to be more tightly regulated, and how this could be done. “A few simple changes could go a long way: [Charter Management Organizations] shouldn’t be allowed to use public funding to purchase or construct buildings that become private property. In districts that have enough schools for the projected student population, CMOs should be required to prove their new school provides unique or exemplary programs that the district is incapable of providing. Schools that continue to discriminate against students should lose all public funding and return any taxpayer money they have received. Finally, locally elected school boards should have the ability to hold charter schools in their communities accountable to students, parents and taxpayers. Under current law, neither local districts nor counties have final authority to determine whether or not a new charter school fits the needs of their community — the final decision comes from Sacramento.”

Cohen also writes on HuffPost: “A number of Los Angeles charter schools up for renewal this week are throwing a tantrum if they don’t get their way. Charter school operators have refused to comply with Los Angeles Unified School District’s (LAUSD) charter school policies and say they won’t include some district standard requirements they don’t like in their charter application. For example, they are refusing to comply with special education rules and the ability of the district to pursue investigations of fraud and other illegal practices.”

15) Florida: The chairperson of the state board of education wants to amend the Florida constitution to permit public funding of private schools. “That possibility did not go unnoticed by Floridians who have long fought to preserve and enhance funding for district schools. Many of them took to social media to criticize Johnson’s idea, which some called the “most damaging” amendment yet filed. At least one person suggested a partner amendment should seek to tax religious institutions. Many saw the recommendation as an expected next step in what they see as the privatization of Florida’s education system.”

16) MichiganThe Detroit Free Press reports that the state’s private, for-profit prison food service company “may now have a financial incentive to serve lousy food. That’s because Florida-based Trinity Services Group merged last summer with another big out-of-state company that sells packaged food to Michigan prisoners who can afford to stay away from the chow hall and buy food to eat in their cells.” Roland Zullo, an associate research scientist at U-M’s Economic Growth Institute, said “there’s almost no incentive to serve good food. If you deter people from the chow hall and have them buy food, that would, from Trinity’s perspective, be the most profitable.”

17) Montana: CoreCivic, the imprisonment-for-profit corporation, offers Montana $30 million in return for a 10-year contract to keep operating its Shelby prison. Bozeman attorney Larry Jent, a former state senator and Democratic nominee for state attorney general in 2016, called the offer “contractual blackmail: Unable to secure an extension on the merits, the owners dangle the bait in times of budget angst, akin to the solicitation by a payday lender to a cash-strapped consumer. A long-term, recurrent issue is the propriety and performance of the Crossroads Correctional facility, and of private prisons in general.”

18) Ohio: County services for the disabled are moving to private providers due to new federal rules. “Some 300 members of the county’s adult-services staff are to become ARC Industries employees in January 2019. Administrators also announced on Friday that the board is considering a plan that would move about 80 adult-transportation employees to ARC as well. ‘We want to do this without layoffs,’ [board superintendent Jed Morison] said, and without significant service changes.”

19) Pennsylvania: Pittsburgh citizens gave privatization crusader Steve Steckler an earful last week about plans to privatize the city’s water a sewer authority. Steckler is chairman of Infrastructure Management Group, which the city and PWSA hired to explore options. At a public meeting to discuss the future of the system, Valerie Allman said “most effective change comes from local government. That’s why it’s important to be involved at the local level. It’s our water; it should be our say.” IMG will release its recommendations this week.

20) Tennessee: In a major victory for public services workers, University of Tennessee campuses in Knoxville, Chattanooga and Martin are opting out of Gov. Bill Haslam’s attempt to privatize facilities management services. “UT-Knoxville Chancellor Beverly Davenport said in a release Tuesday that the decision is due to the university’s extensive financial analyses, the complexity of the work done on the research-intensive campus and its commitment to East Tennessee’s economy and its workforce. Davenport wrote that the university ranks among the lowest in the Southeastern Conference in administrative and maintenance costs per square foot, and five-year projections indicate $3.3 million more in savings.”

21) International: At Public Services International’s 30th World Congress, which just concluded in Geneva, there was a terrific panel on the state of public health services. Many issues were covered, including hospital and services privatization, the myths of private service efficiency, ‘public private partnerships,’ public education and feedback on privatization, gender equity in public health, and much more. [Watch video here]

22) Think Tanks: The Koch-backed Libre Initiative, targeted at drawing in Latino support for their school privatization efforts, has “created bitter divisions in the Latino community and led to accusations the Kochs are trying to undermine public education—and even in some cases, to subvert the Democratic process. ‘Don’t let so-called Hispanic organizations such as the Libre Initiative deceive you …’ Geoconda Arguello-Kline, secretary-treasurer of the Culinary Union, wrote last year in a guest column published in the Las Vegas Sun. ‘Libre is not looking out for Nevadans’ best interest; it is working to benefit its billionaire Koch funders.’”

Legislative Issues

1) National: The battle over VA privatization is coming to a head. Last week the American Federation of Government Employees and AFL-CIO vowed to fight the plan. “The AFL-CIO resolved to oppose the privatization of veterans’ health care services and to help AFGE restore due process rights for VA employees that have been weakened by Congress. “‘Ever since the waitlist scandal at the Phoenix VA, it’s been open season on VA employees,’ AFGE National President J. David Cox Sr. said in introducing the privatization resolution for adoption[at least week’s AFL-CIO convention]. ‘Very few people know that the scandal was brought to light by AFGE bargaining unit employees—whistleblowers—who knew that their bosses were manipulating the data in order to qualify for big bonuses,’ Cox said. ‘Yet that scandal has been used by politicians of both parties to justify not only privatization, but also the weakening of our civil service protections and collective bargaining rights.’”

The right-wing political network controlled by the Koch brothers is poised to unleash a massive campaign to privatize the Veterans Administration, the Wall Street Journal reports. “‘The Koch brothers can do whatever the hell they want,’ said Sen. Jon Tester (D., Mont.), the top-ranking Democrat on the Senate Committee on Veterans Affairs, who opposes steps he says would weaken the VA. ‘But if they want to privatize the VA, bring it on,’ he added as a vow to fight the effort. Concerned Veterans and the Koch network, including Freedom Partners and Americans for Prosperity, say they aren’t privatizing the VA but said opening up the ability to use more private-sector providers would provide care more quickly, efficiently, and let veterans choose where to get care. The Koch groups haven’t ruled out any tactic, including negative ads targeting lawmakers who oppose the private-sector expansion.” [Sub required]

2) National/California: At a hearing of the U.S. House Water Resources and Environment Subcommittee, David W. Pedersen, general manager for Las Virgenes Municipal Water District on behalf of the Association of California Water Agencies and the California Association of Sanitation Agencies, opposed the use of the State Revolving Fund to subsidize privatized water systems. “Public entities that rely on traditional public financing for water infrastructure cannot afford the diversion of limited resources to privatize systems that were constructed with public monies. Recent infrastructure proposals circulated by the Administration have focused on privatization and public private partnerships (P3s) as a means to spur investment. This approach could best be achieved by amending the tax code to allow for increased utilization of PABs, not through limiting the capacity of the SRF programs for essential public infrastructure by admittance of private entities.”

3) Iowa: Democratic lawmakers are to propose a public option for healthcare. “State Senator Matt McCoy, D-Des Moines, and State Representative John Forbes, D-Urbandale, said today they will propose a bill next session to make health care more accessible and affordable for Iowans. Called the Healthy Iowans for a Public Option (HIPO), the new plan would give the 72,000 Iowans on the individual market another health insurance option. ‘With thousands of Iowans facing a health care crisis next year, it’s time for the Legislature to work together and make sure that all Iowans have access to affordable health care. Our plan will give the 72,000 Iowans in the individual market another option while repealing the GOP’s disastrous Medicaid privatization,’ said Sen. McCoy.”

4) New York: Creative Resistance says charter school supporters are funding Republican-aligned Democrats. “A video released by The Creative Resistance targets the Independent Democratic Conference, a faction of Democrats aligned with Republicans instead of the other 23 Democrats in the Senate. (…) ‘IDC members also get tons of campaign money from real estate, charter school, and health care lobbyists, some of whom are Republicans with connections to Trump,’ the narrator says.” [Video]

 

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