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Weekly Privatization Report 3-27-2017

1) National: Following the dramatic defeat of the Trump/Ryan ACA repeal bill, attention has now turned to Trump’s plans to push through corporate tax cuts and a Wall Street-friendly $1 trillion public-private infrastructure scheme. The two issues are linked, since any massive infrastructure bill would depend on revenues, tax breaks, regulatory changes, and asset giveaways that would have to be approved by a politically fractured Congress.

But Wall Street is nervous, because Trump’s defeat in Congress means that he and Ryan will have to rely on Democratic support to get any tax cut or infrastructure plans (or budget, for that matter) passed. The privatization industry’s age-old dreams of universal tolling and a massive shift to private financing of public infrastructure will run straight into this political reality.

Democrats want any new infrastructure program to be funded with lots of new public money and not just be a huge boondoggle based on repatriated profits through corporate tax breaks and user fees channeled to Wall Street and beyond. On Friday, Treasury Secretary Mnuchin took a different view, saying “the package would probably include several hundred billion dollars in public money but that the rest would be financed by the private sector, with public support as incentives. Democrats are wary of that approach and prefer more direct government spending.”

Just before the ACA repeal vote, Reuters reported “investors are concerned … if this vote goes poorly, then what are the implications for tax reform and repatriation of offshore capital.” For Wall Street, the infrastructure is incidental, the real prize is capital repatriation and tax cuts.

2) National: Private infrastructure investors (including, e.g., pension funds), Wall Street banks, and the bond market are also concerned about another possible risk from Trump’s tax reform push: how it will affect ‘public-private partnership’ deals already under contract? Is it possible we could get a deal that would remove existing tax benefits and possibly force painful restructurings of these decades-long agreements? Or scuttle the math on deals currently in procurement? “Douglas Buchanan, co-head of Debevoise’s global infrastructure and project finance group, said another scenario to consider is the effect tax reforms can have on P3 deals already under contract. ‘This risk of future tax change is one of the risks that investors own and the procuring authorities don’t own, as a general rule,’ Buchanan said. ‘Are investors going to get the deal they bargained for under the law that was in effect at the time that they closed their deal, or is the reform going to apply across the board and everybody who is already in deals going to have to restructure and deal with it?’” [Sub required]

 

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3) National/International: Here’s the quote of the week: “What you need is a good crisis and then you can find some good assets.” (Dmitriy Antropov, a senior vice-president at Partners Group, the Switzerland-based global private equity firm, ca. $55 billion under management). At a conference on private investment in infrastructure. [Sub required]

4) National: Despite a declining number of inmates, the Justice Department says it still needs for-profit prisons. “The fact that they are simultaneously acknowledging that the federal prison population is falling and saying that they need private prisons to accommodate future needs seems to me can only be explained by a plan to radically increase the federal prison population,” says the ACLU’s David Fathi. “Otherwise, those two things are just irreconcilable.”

5) National: According to the most recent proxy statement of the GEO Group (the for-profit prison company), its top executives are cleaning up. Over the past three years they were paid a whopping $29,933,672. [GEO Group Proxy Statement, March 17, 2017, p. 32]

6) National: Jeff Bryant calls out the fake equivalency in Trump’s education budget between programs that directly aid poor kids, such as after-school programs, and charters and vouchers. Diane Ravitch points out that “much of the mainstream media has fallen for the Trump-DeVos bait-and-switch.” Bryant writes, “while the direct, negative impact of Trump’s proposed budget cuts seems swift and certain, there is potentially a more long-term danger in perpetuating the myth that the budget trade-off of direct aid versus choice is a valid point of policy debate. Telling the public that allocating education funding is a battle over whether to pay for direct programs for kids versus stoking the coffers of private schools and the charter school industry is not only disingenuous, it’s harmful to the most vulnerable students and families.”

7) National: Guess who is the top beneficial owner of shares in Waste Management Inc., the private trash collection company engaged in outsourcing public services all over the U.S.? According to its just-released proxy statement, that would be none other than Bill Gates, who reportedly owns 31,894,679 shares. At Friday’s close that would be worth $2,306,623,185. The proxy goes on to note that, additionally, “Mr. Gates and Melinda French Gates share voting and dispositive power over 18,633,672 shares of Common Stock beneficially owned by Bill & Melinda Gates Foundation Trust.” (p. 22). In second and third place are the Vanguard Group and BlackRock.

Last month the International Brotherhood of Teamsters, Local 891 (Jackson, Mississippi) filed charges at the NLRB against Waste Management for “Concerted Activities (Retaliation, Discharge, Discipline), Discipline, Discharge (Including Layoff and Refusal to Hire (not salting)).”

8) National: The Economist looks at the billion dollar prison labor industry. “‘The vast majority of prison labour is not even cloaked in the idea of rehabilitation,’ says Heather Thompson of the University of Michigan. Simple manufacturing jobs, like the ones done cheaply by most inmates, have already left the country. The study pushed by the Bureau of Prisons, showing drops in reoffending, was published in 1996. More recent comparison statistics often ignore bias in how those being studied are chosen. Rigorous academic work on the subject is almost non-existent.”

9) National: The Roosevelt Institute has launched the Re:Public Project. “Over the coming months and years, we are investing in youth driven campaigns to combat privatization in the educational system, economy, and the justice system. We are directing our resources to support the development and growth of local, meaningful projects in these areas. These local projects will be part of national narrative and movement to promote public power, driven by diverse, forward thinking, youth leadership.” See their brief, The Threat of Privatization for the Emerging Generation.

10) National/International: The Wall Street Journal questions Trump’s plan to privatize the International Space Station. “NASA does not want to continue indefinitely spending $2 billion to $3 billion a year on ISS operations. It would rather find a way to ‘commercialize’ the facility, so that private industry would pay for day-to-day expenses, while NASA contracts for specific services. Space policy expert Scott Pace of George Washington University has said this creates a danger of ‘magical thinking’: NASA may be deluding itself about the risks and benefits of commercialization. How much control over the space station, for example, would NASA be willing to surrender in exchange for a substantial private investment?” [Sub required]

11) Arizona: Mesa could be the first city in Arizona to privatize its jail operations. “Mesa is not the only city to gripe about the burgeoning expenses, but if the City Council decides to move forward with CoreCivic, it will be the first city with a privatized jail operation in the state. (…) The rate increase to cities comes as jail populations drop due to several factors, including new diversion opportunities that reduce the amount of time low-level offenders spend in jail, Maricopa County spokesman Fields Moseley said in a statement. But the hard costs of maintaining facilities remain, leading to rate increases, he said. Mesa Councilman Ryan Winkle questioned if that’s the only reason rates have increased. ‘Are we paying for inmates? Or are we paying for lawsuits?’ Winkle said, referring to multiple legal issues faced by MCSO in recent years.”

12) District of Columbia/Virginia/Maryland: Gov. Terry McAuliffe (D) of Virginia has hired former Obama transportation secretary Ray LaHood to conduct a study of the regional Metro service. “The LaHood panel will tackle the governance and funding difficulties that have hampered Metro for decades. It will consider past and present proposals to make the Metro board more efficient, adjust labor agreements to reduce costs, privatize some operations and to find one or more new, reliable sources of funding.” Metro General Manager Paul J. Wiedefeld’s “reference to Metro’s ‘unsustainable cost model’ may suggest he would favor privatizing some operations, or curbing pay and benefits, or both.”

13) Idaho: Inmates are suing the state over what they say are gross violations of a settlement plan that was supposed to end abusive practices at the Idaho State Correctional Institution south of Boise. The inmates allege “some prisoners were forced to undergo amputations after their blisters and bedsores went untreated and began to rot, and others with serious disabilities were left unbathed or without water for extended periods and given food only sporadically. (…) The prison’s death rates outpaced the national average as well as rates at other Idaho facilities, according to the documents. And despite hearing evidence to the contrary, prison officials failed to double-check the numbers when its health care contractor, Corizon, reported being 100 percent compliant with state health care requirements. (…) The inmates are asking the judge to hold the state in contempt of court and levy more than $24 million in fines against the Idaho Department of Correction. They say the state could cover some of the fines by recovering money paid under its contract with Corizon, but they also want the state to feel the budget hit so prison leaders will be motivated to make a fix.”

14) Illinois: Gov. Rauner (R) has launched his latest assault on union workers by announcing his intention to privatize the jobs of 124 corrections nurses throughout the state. “They find out suddenly that their employer is lying to them, telling them not to worry about it one day—and sending a layoff notice the next day,” said Alice Johnson, the executive director of the Illinois Nurses Association. “They’re feeling very disrespected and like they’re not valued right now.” Johnson “noted the notice came just days after the union filed an unfair labor practices complaint with state regulators, claiming the first-term Republican governor has reneged on his obligation to negotiate contract terms in good faith. She said members overwhelmingly rejected a tentative agreement last spring and Rauner is retaliating.” [@INAAction]

15) Illinois: In a row pitting firefighters against Northfield’s pro-privatization mayor, North Riverside Firefighters Local 2714 has declared “no confidence” in the city’s fire chief, who is aligned with the mayor. “Most notably, when asked by his own Firefighters, Chief Basek LIED to these Firefighters by stating he was ‘also surprised’ and wasn’t aware of the actions of Mayor Hermanek to attempt privatization of the Fire Department as outlined in his Dear Neighbor letter, sent to all residents. Court deposition transcripts would later reveal that not only was Chief Basek aware of the subject of contracting out Fire services to Paramedic Services of Illinois, but he was at the meeting when these discussions took place. His meeting happened 5 months prior to the first negotiation meeting between Local 2714 and Village of North Riverside.” A mayoral election will be held April 4.

16) Michigan: Central Michigan University custodians and maintenance staff express concern about privatization. “My membership is anxious to find out what the plan is, but we’re more anxious to understand why this happened and who is accountable,” says Karen Witer, president of AFSCME Local #1568 and a custodian at CMU. “AFSCME’s fear of staff cuts is compounded by its upcoming negotiation of a new service contract. The union also believes CMU’s history with privatization is a sign that its workforce could be outsourced as well. AFSCME and the university are expected to begin negotiations sometime after spring courses end in May. When AFSCME members seek higher wages for employees making $10.08 an hour, Witer said her group is commonly confronted with talk of privatization. The term ‘privatization’ means outsourcing work to a third-party company that provides services usually performed by its private workforce.”

17) Missouri: St. Louis is seeking federal approval to privatize Lambert International Airport. “Under the program, the airport owner or lease holder may be exempt from repayment of federal grants, return of property acquired with federal assistance, and the use of proceeds from the airport’s sale or lease to be used exclusively for airport purposes.” [Sub required]. Rhonda Hamm-Niebruegge, the director of the airport, has reservations about privatizing it. “The city draws about $6 million annually from the airport, and a public-private partnership could bring an ‘immediate’ infusion of more funds, according to the city. It also could allow more money to go toward other, nonairport projects—an idea panned by Hamm-Niebruegge, who testified to a U.S. Senate panel in Washington on Thursday about the country’s need for more investment in airports.”

18) Pennsylvania: Mifflin County School District has decided not to outsource its IT department. “IT Director Kevin Cunningham and several of his colleagues gave a PowerPoint presentation highlighting the advantages of keeping the department within the district. ‘We work as a team,’ Cunningham said. ‘The jobs cannot be done without each other.’ Cunningham noted the company proposing to do the service, Questeq, a Coraopolis firm that provides outsourced education technology management services to school districts, alluded to the fact that the in-house department doesn’t have the resources to reach out properly. ‘Not true,’ he stated. ‘We don’t need an outsource to get outside services. We have dozens of vendors right now. Our network uptime is 99.95 percent. All the computers and servers are communicating.’”

19) Rhode Island: A First Student school bus leaves children behind at Wakefield Hills Elementary in West Warwick, panicking parents. “‘I’m upset because I didn’t get a phone call that my daughter wasn’t on the bus,’ [parent Katie St. Jean] said. She said she didn’t get any satisfaction in the response when she went to the school, followed by the First Student bus office. ‘Someone needs to take responsibility,’ St. Jean said.”

20) Tennessee: A Durham School Services bus driver pleads not guilty to six counts of vehicular manslaughter in a crash last November that killed six children. But his record of complaints is secret because he’s employed by a private company. “In the days immediately after the crash, school officials repeatedly declined to comment on whether anyone had complained or how they responded. The correspondence about the driver was released after public records requests by The Associated Press and other media outlets. Hamilton County schools spokeswoman Amy Katcher noted that Walker was employed by outside contractor Durham School Services, so the district may not have access to all the complaints about him.”

21) Texas: Plans to privatize the foster care system have been put on hold “while the state investigates whether the bidding process was compromised by a purchasing director who is the wife of a high-ranking state official forced to resign in 2014. (…) The debacle surrounding the privatization contract involves Frianita Wilson, a purchasing director for Child Protective Services. Wilson is on administrative leave because officials say she was involved in the bid process for the redesign contract and that her husband—former Health and Human Services Inspector General Doug Wilson—now works for a nonprofit that could benefit from the redesign contract.”

22) International: In a body blow to the reputation of wastewater privatization, Thames Water has been hit with the largest fine in British history—£20.3 million—“after huge leaks of untreated sewage into the Thames and its tributaries and on to land, including the popular Thames path. The prolonged leaks led to serious impacts on residents, farmers, and wildlife, killing birds and fish.” In pronouncing sentence, Judge Francis Sheridan said “this is a shocking and disgraceful state of affairs. It should not be cheaper to offend than to take appropriate precautions.” But on the way to its fine, Thames Water “made an operating profit of £742m in 2015-16 and paid out £82m in dividends. It is owned by a consortium of institutional investors, including funds from China and Abu Dhabi, and was managed by Macquarie Capital Funds, which sold its final stake earlier in March to Kuwaiti and Canadian investors.”

The water privatization industry has been condemned by public interest groups for years. In 2012 the industry was denounced as “a cartel of tax-dodging pillagers, content to gear [leverage—ed.] public assets to the hilt in the interest of paying large dividends to investors.” [Infrastructure Investor, December 7, 2012; sub required]. An Guardian columnist called Thames Water “a private equity plaything that takes us for fools,” and said “Macquarie is the bank that makes Mitt Romney’s Bain Capital look saintly. Its every effort is organised to outflank regulators and tax authorities, and so make extra for itself—thus its nickname as the millionaire factory. But the game cannot start unless it owns a monopoly business, such as Thames Water, that reliably generates profits and cash. In a country such as Britain, whose politicians like to claim is ‘open for business’ and where tough questions about corporate behavior are rarely asked, it is an invitation to be looted, and so we have been. Responsible owners would steward their company with more care.”

23) International: Canada’s 2017 budget includes $26.2 billion for an infrastructure bank. “However, the big question about how much private-sector capital it plans to mobilize has yet to be answered. Canada has built a reputation among investors as being one of the most open countries to private investment in infrastructure, and the bank was proposed last year as way to invite more private capital to help meet funding news for critical projects.” [Sub required]

34) Think Tanks/Florida: Conservative groups have joined together to support legislation reforming Florida’s minimum mandatory sentencing law. “The letter does not mention the pending bills they support but, according to Greg Newburn, state policy director for Families Against Mandatory Minimums (FAMM,) the proposals that most align with their goals are HB 731 by Rep. Katie Edwards, D-Plantation, and Sen. Jeff Clemens, D-Lake Worth. The legislation would reduce mandatory minimum sentences for certain drug trafficking offenses.” Private, for-profit prison corporations have called rollbacks of such laws a threat to their business model.

Legislative Issues

1) National: Following the defeat of Trump/Ryancare, politics on Capitol Hill will likely get even more transactional, if that is possible, and will affect other privatization-related issues such as government contracting and outsourcing. The horse-trading has already begun. Last month, conservative Democrat Sen. Joe Donnelly (D-IN) “requested the president’s support for his End Outsourcing Act, which would give preferential treatment in awarding federal contracts to businesses that kept jobs in America. The words were scarcely out of Donnelly’s mouth before Trump said, ‘I’m 100 percent for that, and I’ll do everything I can to help get it passed.’”

2) National/District of Columbia: The Network for Public Education alerts us to the dangers of reauthorization of the SOAR Act, which is up for renewal this week. “Reauthorization would fund and expand, with your federal tax dollars, the District of Columbia’s private school voucher program. It is time to shut this voucher program down.”

3) Montana: Lawmakers have tabled a proposal to dismantle and privatize the state’s massive workers compensation system, saying it’s too complicated to take on in the waning days of the legislative session. “Small business owners, labor groups and some key, pro-business Republicans say that blowing up the State Fund could lead to skyrocketing rates for high-risk trades such as logging and trucking.”

4) Texas: Members of Texas AFT “are mobilizing, marching and fighting to stop SB 3, a massive voucher bill now before the state Legislature that could cost Texas public schools in excess of $2 billion.” Texas AFT President Louis Malfaro (also an AFT vice president) says “it is the private schools, not the schoolchildren of Texas, that stand to benefit from this demolition of neighborhood public schools. And it’s the private schools that get taxpayer money with no accountability for how it’s spent.”

5) Wisconsin: Republican lawmakers are trying again to get the CoreCivic-owned empty prison in Appleton reopened. “Civil rights groups strongly oppose reopening the Appleton facility, joined by corrections union members and a coalition of faith-based organizations that says the state shouldn’t do business with the prison’s owner, CoreCivic, or the for-profit prison industry as a whole. Many showed up at a House Public Safety Committee hearing Tuesday to speak out against the bill. Among them was Rick Neyssen, a local AFSCME representative and sergeant at Minnesota Correctional Facility-St. Cloud, who warned legislators to ‘beware of the bait and switch’—expressing suspicion that a lease this year could lead to a price hike or full-on CoreCivic takeover down the road.” Gov. Dayton has threatened to veto similar measures. The bill was included by the Minnesota House Public Safety and Security Policy and Finance Committee in a larger omnibus bill.

 

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