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Weekly Privatization Report 2-5-2018

1) National: In the Public Interest has published a guide to CoreCivic and GEO Group’s push for “public-private partnerships” in building prisons. The guide summarizes concerns about P3s in correctional facility construction. These concerns include that private prison construction deals embed private interests in the criminal justice system, perpetuating mass incarceration; P3s result in higher financing costs for the public; private prison corporations may not properly maintain the facility; P3s may decrease opportunities for public and stakeholder input; and private prison construction deals prop up companies with records of human rights abuses.

2) National/Maryland: Mary Grant of Food and Water Watch explains how Trump’s infrastructure plan would promote water privatization and drive up corporate profits. One of the most important carrots for Wall Street is that it would change defeasance rules. Grant says, for example, “Suez is actually seeking a lease concession deal for Baltimore’s system. This is where the city actually retains ownership and responsibility ultimately of the water system, and Suez and KKR would come in and finance all the improvements. One of the things these companies have been pushing for for a long time, for years, is to change the defeasance rules when they take over systems through leases, in particular. What Trump’s leaked infrastructure agenda includes is a change to those defeasance rules, allowing a company that leases infrastructure assets to keep low-cost public debt without having to defease it. There’s a lot of really sneaky provisions within his leaked plan that would greatly facilitate water privatization, not only in Baltimore but across the country.” [Video; 12 minutes].

What’s more, The Nation’s Michelle Chen says Trump’s infrastructure plan “could destroy our nation’s water systems.” Among other things, “the resources of a federal environmental stewardship program that was previously off-limits to corporations will also be handed over: The Clean Water State Revolving Fund (CWSRF) will be open for business for private firms to both manage and repair water infrastructure at taxpayer’s expense. In addition, a credit scheme under the Water Infrastructure Finance and Innovation Act would provide more opportunity to private investors, by eliminating existing requirements that WIFIA funds be used for ‘Community Water Systems.’”

3) National: Public interest groups are not the only ones displeased and alarmed by the effects of the Trump/GOP tax “reform” legislation. In his current issue, Public Works Financing editor Bill Reinhardt reports that the P3 industry has been “startled” to discover that they’re about to get hammered by the new tax bill. “The industry had been feeling good that they dodged a bullet by successfully lobbying against eliminating the use of Private Activity Bonds as senior debt on future P3s, and of course by their coming corporate rate reduction windfall. But “largely unnoticed by P3 developers, however, the tax bill also reduced the deductibility of net interest expense on debt from 100% to 30% of a company’s ‘adjusted taxable income’—EBITDA—starting January 1. Moreover, starting in 2022, the law further penalizes equity in the most highly leveraged project financings by keeping the 30% deductibility rate before interest and taxes, but after depreciation and amortization expenses, which results in a much smaller number against which interest can be deducted.” Not only that. “The change applies to Special Purpose Vehicles (SPVs) set up by the equity investors for all past and future P3 projects and across all types of infrastructure. ‘How come people didn’t wake up and have a heart attack?’” asks a banker. Not surprisingly, regular taxpayers may get it in the neck, since the changes fall most heavily on closed (already-concluded) “availability payment” P3s. [Public Works Financing, January 2018; sub required]. Will the public be asked to pick up the tab to keep the private side of P3s happy—for these decades-long deals?

4) National: Despite the hullaballoo surrounding Trump’s State of the Union speech, in which he was expected to lay out more details of his infrastructure plan, nothing has changed except that Trump set out an even more unrealistic target number for the plan, $1.7 trillion, whilepulling back on funding. Where all this money is supposed to come from, with state and local governments cash-strapped and debt laden, motorists hostile to toll gouging for private profit, and interest rates poised to increase, is the question of the day.

Rather than the ringing endorsement of “public private partnerships” the privatization industry and its flacks were hoping for, Trump left that last on the list for financing, and only “where appropriate.” Still, observers are wary that the bankers, builders, and former privatization lobbyists piloting the plan will take the opportunity to “force states and local governments to privatize or even sell off infrastructure.” So the waiting game continues, with Reuters saying the plan might be coming out in mid-February.

On Friday, Kelle Louaillier the president of Corporate Accountability, published a hard-hitting op-ed in the New York Times taking aim at the “faux populism” of Trump’s infrastructure plan. “Mr. Trump’s budget proposal and infrastructure ‘principles’ released last May, and an outline of the plan leaked last month, point to a pro-privatization approach that his pals in Davos would celebrate but would endanger basic services, enrich the private sector and force everyday people to foot the bill. The leaked plan would be a bonanza for giant corporations, prioritizing projects that raised revenue (toll roads, higher water rates) and giving very little weight to a project’s social benefit.” Louaillier says “cities could be forced to turn to so-called public-private partnerships—a less politically charged rebranding of privatization—that has often led to higher user fees.” Louaillier ties this in with the World Bank and IMF’s relentless promotion of ‘public private partnerships’ in Latin America and Asia, which has been praised by Treasury Secretary Steven Mnuchin, a former Goldman banker. “Lawmakers at every level must take a stand by refusing a privatization agenda,” she writes.

5) National: Education bloggers, via Popular Resistance, share a conversation with activist Jitu Brown about the #WeChoose National Coalition and its mission. “Brown shared the fact that in the Englewood area of Chicago all five high schools are going to be closed. The premise behind the school privatization movement is the removal of black and brown community members from urban spaces. Brown noted that this is directly related to housing, loss of access to food stores, and a policy of gentrifying urban spaces. The population of people of color has gone from 53% to 32% in Chicago, but this is not only true for Chicago, but it is also happening all over the country. Jitu noted, ‘Families of African descent have been purged.’”

6) National/International: A “gold-rush style” public land grab by private interests is sweeping the west, reports Jessica Corbett of Common Dreams and Reuters. “In spite of widespread opposition, the Trump administration’s Bureau of Land Management (BLM) plans to move forward with allowing stakeholders to claim plots of land on Friday, and has determined the process will be governed by the General Mining Law of 1872, which covers mining for metals such as copper, gold, silver, and uranium (but not coal and petroleum).”

A cautionary tale for the U.S. about public land privatization has come out of New Zealand, where a wave of privatization is hitting the high country. “The capital gain over a decade was roughly 37,000 per cent, none of which was realized by the taxpayer, and has ultimately put a prime piece of land into the private ownership of an America-based billionaire while the public is confined to a thin strip of land circling around it. And because capital gains from property are not generally taxed, the taxpayer sees very little of the money that accumulates like a snowball as the value of magnificent land rises and rises—land it once owned.”

7) National: A media firestorm erupted after Axios reported last week that a National Security Council staffer outlined the necessity of building a nationalized 5G network to guard against cyberthreats. The more serious implied threat agitating industry appeared to be to the huge revenue streams that private industry would be foregoing from the next generation of internet service if anything like public 5G came to pass. But serious concerns were also expressed by those who fear it could lead to greater surveillance and worry that “government control of key communications networks could threaten free speech.” The author of the memo, a Brigadier General, has reportedly been removed from the NSC and sent back to the military.

8) National: States reported spending more than $10 billion a year in federal and state funds on the assisted care industry, “even as it operates under a patchwork of vague standards and limited regulatory supervision by federal and state authorities.” Federal investigators have found “huge gaps in the regulation of assisted living facilities, a shortfall that they say has potentially jeopardized the care of hundreds of thousands of people served by the booming industry,” reports the New York Times’ Robert Pear. “The federal government lacks even basic information about the quality of assisted living services provided to low-income people on Medicaid, the Government Accountability Office, a nonpartisan investigative arm of Congress, says in a report.” Last week Donald Trump bragged about how many regulations he’s eliminated, though theChicago Tribune is nervous about the long term impact.

9) National: The UCLA Civil Rights Project has released a new report finding that charter schools are contributing to segregation. “Charlotte-Mecklenburg Schools were once the nation’s bellwether for successful desegregation. Today, the district exemplifies how charter schools can impede districts’ efforts to resist re-segregation,” said Roslyn Arlin Mickelson, UNC Charlotte’s Chancellor’s Professor and professor of Sociology, Public Policy and Women’s and Gender Studies at UNC Charlotte. “This research has important implications not only for schools and communities in the Charlotte Mecklenburg region, but for the national debate over the growth and role of charter schools in our nation’s education system.”

10) National: For a discussion of the destructive environmental effects of Trump’s infrastructure plan, gutting of permitting processes and the role of “public-private partnerships” in all this, listen to the interview with EarthJustice’s senior legislative counsel, Raul Garcia, on CounterSpin. On the idea of companies being able to pay for their own environmental reviews, Garcia says “this embeds just the biggest conflict of interest.” [Audio, at 2 minutes in].

11) National: The formulation of the Trump infrastructure plan is also under legal attack for violating the rules on government advisory boards.Sonali Kolhatkar of Rising Up with Sonali interviewed Charisma Troiano, press secretary for Democracy Forward, who laid out the case. Democracy Forward has filed suit to challenge the plan along with Food & Water Watch. In a report released last Tuesday, Democracy Forward says “the proposal, details of which have been slowly leaked to the press, follows months of closed-door meetings by President Trump’s ‘Infrastructure  Council,’ a group of well-connected individuals tasked by the President to design and direct federal infrastructure policy. Members of the Infrastructure Council are long-time friends and business associates of President Trump and his family, are unfettered by conflict-of- interest rules designed to prevent corruption, and stand to benefit from the President’s infrastructure policies.”

12) National: Anti-homeless architecture in public and private places is attracting more criticism. See Josh Cohen’s report on Seattle. “My experience with the folks that were camped out there was that they were not a nuisance to the community,” Seattle resident Jeff Few says. “People have this impression of who is living with housing insecurity. But there were a lot of women and children taking shelter under the viaduct, people with pets—precisely the kinds of people who couldn’t depend on shelter available in the city.”

13) National: Speaking from Davos the week before last, the CEO of AECOM, the American multinational engineering firm heavily involved in “public private partnerships” (including the Port of Miami Tunnel and Long Beach courthouse), reacted to Trump’s emerging infrastructure plan. Michael Burke said any successful plan must fix the highway trust fund and incentivize private investment and “state and local governments to raise their own moneys to be matched with federal monies.” [Video; about four minutes].

But AECOM just released a 68-page report, The Future of Infrastructure (PDF), admitting that P3s are unpopular (p.16): “European professionals, as a whole, demonstrate deep skepticism about adopting new funding solutions. Just 28 percent of the region’s respondents see the use of public-private partnerships (P3s) as an effective option for bridging the infrastructure funding gap, while only 31 percent see the advantages of enhanced toll gathering approaches.”

14) National: McKenzie Snow, the former policy director for education choice at Jeb Bush’s Foundation for Excellence in Education, has been hired as a special assistant and policy adviser in Betsy DeVos’ office.

15) National/International: As the Trump administration moves to ramp up the use of private, for-profit prisons, Norway’s all public system is getting dramatic results using a “restorative justice” model. “When criminals in Norway leave prison, they stay out. It has one of the lowest recidivism rates in the world at 20%. The US has one of the highest: 76.6% of prisoners are re-arrested within five years.”

16) Delaware: The state has enacted a law moving away from cash bail. “The new law in Delaware does not eliminate cash bail but encourages judges to first use other pretrial release conditions, such as an ankle monitor, mandatory check-ins with court officers and restrictions on travel, alcohol consumption and contact with victims. The law also instructs judges to use an evidence-based risk assessment tool that gauges how likely the defendant is to show up for trial or commit a crime.” See also “A Brief History of Cash Bail” by Caitlin Hill on the ACLU Ohio website.

17) Missouri: Opposition is growing to plans to privatize St. Louis Lambert International Airport. Last week more than half of the city’s Aldermencame out against the hiring of a firm, Grow Missouri Inc., tied to billionaire Republic donor and power broker Rex Sinquefield, to advise on the possible privatization and pay for the evaluation. In a letter to the Board of Estimate and Apportionment, the Board of Aldermen said “if we continue to move forward under our current course, it will be under a shroud of secrecy, a lack of transparency, glaring conflicts of interest, and widespread public mistrust.”

In the Public Interest’s executive director Donald Cohen says privatizing the airport would be “Crazy. Insane. Horrible.” Ray Hartmann, the  publisher of St. Louis Magazine, writes “Here’s the burning question of the day: Why does St. Louis need to privatize its airport to monetize that airport’s economic potential? I think the answer is that we don’t, whether King Rex and his beneficiaries like it or not.” In a letter to the editor of the St. Louis Post-Dispatch, Jim Velten says, “Finally, I know that any time Sinquefield is involved in a project like this, workers will lose their jobs, those who are retained will be paid less and lose all benefits, and the pride of the workers as well as efficiency of the operations will diminish. Mayor Krewson must commit to real transparency, as well as allow the citizens of our city to have a vote in this extremely important matter.”

18) Puerto Rico: The Center for Economic and Policy Research’s Lara Merling has a detailed critical analysis of Governor Ricardo Rosselló’s plan to privatize the public electricity company, PREPA. “Claims that privatization will create a quick fix to Puerto Rico’s economic and electrical woes are based on optimistic assumptions not backed by evidence. In fact, Puerto Rico’s own past experience is proof that privatization is no panacea for defective public utilities. Puerto Rico’s Aqueduct and Sewer Authority (PRASA) has twice privatized the management of water services, as detailed in a report by Puerto Rico’s Comptroller’s Office. Both attempts had disastrous results.”

The Sierra Club has also denounced Rosselló’s privatization plan and move to reduce the authority of the independent commission charged with PREPA’s oversight. “This comes after the Commission has spent the past three years working—with significant public engagement—to overhaul PREPA to be more transparent and organized. In 2016, the Commission ran the first public planning process for PREPA.” Myrna Conty, coordinator for the Coalition of Organizations Against Incineration, added, “It’s important for the communities to have a independent Energy Commission to fiscalize PREPA’s and Private Electricity Generators in decision making. Puerto Rico doesn’t need any more vultures like Energy Answers, who are taking advantage of Puerto Rico’s crisis after Hurricane Maria hit, trying to get their Waste to Energy Plant built in Arecibo. The Energy Commission in its Integrated Resource Plan does not include incineration of solid waste (WTE) projects. We also strongly oppose to the privatization of PREPA. We insist that Governor Ricardo Roselló puts Puerto Ricans’ health first as his priorities. A country cannot grow economically if it’s people are sick.”

19) International: After the messy collapse of construction and outsourcing firm Carillion and indications that Capita may be circling the drain, Phillip Inman writes that Britain’s PFI/PFI2 public infrastructure scheme may be on the way out. But will the scandals promote more transparency of where public money is going? Outsourcing companies are still hiding behind a screen of commercial privacy, and public project companies (PFI2) aren’t doing any better. “PF2 allows for annual ‘health checks,’ but most critics say that still allows contractors and civil servants to avoid scrutiny—even from the National Audit Office, which often must guess at the reason for missed targets. ‘The logic of following public money does offer the possibility of seeing the books,’ says Travers. ‘So far that has been a bridge the private sector is unwilling to cross.’” Time to have a big discussion of the public right to information on the ‘public-private partnerships’ it pays for.

20) InternationalThe New York Times takes a close look at the disastrous experience with outsourcing public services in Britain highlighted by the failure of Carillion. “Recently, outsourcing has come under fire, not only from the leader of the opposition Labour Party, Jeremy Corbyn, but from parts of the British government itself.” The National Audit Office found “with changing economics, schools could cost 40 percent more, and hospitals 70 percent more, when undertaken through private-finance initiatives rather than though the government.” Nick Hood, a social care expert and an adviser at Opus Restructuring, an insolvency specialist based in London, said of public services outsourcing, “the model is flawed, it’s broken, it’s got cracks from top to bottom.”

21) InternationalGuardian columnist Polly Toynbee details how privatization of the national postal service has contributed to air pollution in Britain by putting more unnecessary vans on the roads. “Why? Royal Mail visits every household once a day, these days delivering mostly junk mail at ever-rising stamp prices for lack of volume business. As predicted, private companies cherry-pick easy deliveries, leaving Royal Mail to take single letters to every remote farm. If Labour is going to renationalize it, the party should consider giving Royal Mail back its delivery monopoly, either by law or by incentive, with punitive levies on needless extra deliveries, making the last mile to front doors a presumed Royal Mail function for most parcels.”

Legislative Issues

1) Illinois: Normal official says Twin City residents wouldn’t save money by privatizing their trash collection. “‘It would certainly help our budget to go private, but it would put the burden right on the taxpayer,’ said Normal Mayor Chris Koos. ‘They would end up paying more for it … and they would likely have a lower level of service.’ For those reasons, along with concerns about possible future fee increases imposed by a private hauler and the quality of the service provided, [Bloomington] Mayor Tari Renner said he opposes privatizing or outsourcing the city’s solid waste service. ‘I’ve been in the minority before, but we won’t privatize with my signature on an ordinance,’ he said. ‘It will have to be over my veto.’”

2) Pennsylvania: Lawmakers across the country who may be considering incentivizing private water companies to privatize municipal water systems need to consider what’s happened in the year-and-a-half since Pennsylvania took the step. Kevin Dooley Kent and Brittany J. Gigliotti have an excellent write-up and analysis of what’s happened in the Legal Intelligencer. [“Municipal Water and Sewer Authorities: When Wall Street Comes Knocking”]. “Since Act 12’s enactment, Pennsylvania has seen an uptick in investor-owned utilities’ (IOUs) attempts to privatize municipal water authorities, and IOUs have publicized their plans to focus on ‘growth through acquisition.’ IOUs are seeking to convince municipalities—particularly cash-strapped municipalities—that liquidating the assets of their municipal water authorities provides money in the short-term that can be used in a municipality’s general fund or to pay down debt.” That’s where the complications, legal and otherwise, start.

 

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