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Weekly Privatization Report 5-8-2017

1) National: Donald Cohen of In the Public Interest warns that a major piece of America’s public works financing method —the municipal bond system—is in jeopardy because of a possible attempt to eliminate the tax exemption on income earned from them. “What makes municipal bonds so special is their tax-exempt status—the federal government doesn’t tax earnings made by investors that hold them. This allows local governments to pay a lower interest rate compared to private financing. (…) But there are powerful forces that would like to see the exemption axed. Private equity investors and multinational financial firms are increasingly trying to convince local governments to take their money to build infrastructure. (…) Democracy is the only way we’ll truly fix the country’s crumbling infrastructure. Rebuilding our roads, bridges, and water pipes will help ensure communities are healthy, safe, and prosperous. Doing it the public way gives us a chance to address widening economic and racial inequality. Tax-exempt municipal bonds are essential to this investment. They’re as American as apple pie—we have the largest municipal bond market in the world. If Trump really wants to make America great, he shouldn’t touch the exemption.”

2) National: The outlines of what the infrastructure privatization industry and the financial firms that back it might want to put in place to succeed or downsize the current federal and muni bond infrastructure funding and financing systems are becoming clearer. They have produced a detailed wish list of key components they hope Congress and the Trump administration will adopt for the much-touted $1 trillion infrastructure financing plan. The blueprint, published in the current issue of Public Works Financing (PWF), was put together by an informal industry group called the Performance Infrastructure Review Committee (PIRC), composed of executives and operatives of infrastructure finance firms and their go-to political, academic, and industry advisory colleagues.

PIRC is chaired by Daniel V. Flanagan Jr., and Dan Carol, the founding chair of the West Coast Infrastructure Exchange and an infrastructure advisor to Gov. Jerry Brown. Flanagan’s role reflects his decades of activism to promote private investment, especially by pension funds, in U.S. infrastructure. He chaired the Congressionally-created Commission to Promote Investment in America’s Infrastructure in the early 1990s (the TIFIA program was one of his brainchildren).

PIRC’s recommendations, in short: Five infrastructure investment “policy tools”

1) A “Critical Asset Procurement Reform Program for Federal Assets” (as DBF)
2) Authorizing Infrastructure Credit Bonds for Public Infrastructure [zero interest?]
3) Providing Performance Incentive Innovation Grants
4) Standardizing tax code provisions for Private Activity Bonds (PABs).
5) Strengthening the platform for Federal Credit Assistance.

Importantly, they have also snuck in a proposal to carve out financing nodes for different parts of the interstate highway system, and (shades of the late 1990s and early 2000s?) bring securitization into the mix. They recommend “that Congress authorize states to form interstate/multistate compacts to help develop major projects and potentially even pool and securitize revenue streams, where appropriate.”

As a sop, or a recognition of political reality, they seem to have given up on the privatizers’ long-desired goal of universal tolling of the interstates and road use charging. [Public Works Financing, April 2017; sub required]

3) National: The GEO Group reports that its quarterly profits have jumped 27% year-over-year since Donald Trump took office and implemented an immigration crackdown. Quarterly revenue rose 8% compared to last year, and the company expects its fiscal year 2017 revenue to be about $2.28 billion. Since the election, GEO’s share price has risen almost 70%. Construction revenue was $57 million compared to $41 million in the first quarter of 2016.

In a conference call last week, GEO Group chairman and CEO George Zoley said the result were driven by “higher occupancy rates across our diversified real estate portfolio, particularly throughout a number of our federal facilities” and that its GEO Care reentry services division’s growth was “driven primarily by the continued utilization of its [Intensive Supervision Appearance Program (ISAP)] program with ICE.” GEO says it currently has about 7,000 more beds available.

Asked where they see the new ICE business coming from, GEO Group’s senior vice president of Business Development David Venturella pointed to the Trump administration’s shift from a focus on the border to a focus on the interior. “So we’ll start to see the benefits of that through increased apprehensions and increase the tension in the interior part of the United States, not necessarily along the southern border.”

GEO Senior Vice President David Donahue noted optimistically (for their bottom line) that “the new administration has implemented a number of new policy directives, including ending the previous policy of catch and release and eliminating the many restrictions imposed on ICE officers to carry out the law as it relates to interior immigration enforcement. These changes may lead to an increase in apprehensions and detentions in the future.” On the Bureau of Prisons, he said a decision is near on CAR 16 (3,600 beds), and he expects a “CAR 19 solicitation to be issued on or about May 24, with a closing date of July 24, 2017.”

At the state level, Donahue focused on possible new deals with Alabama, Oklahoma, Michigan, Kentucky, Kansas, and Wisconsin, “which have discussed the potential use of public/private partnerships to deal with the overcrowding conditions as well as to replace older and more costly facilities.” Hamilton County, Tennessee is considering an 1,800-bed ‘public private partnership’ jail procurement.

On reentry, SVP and GEO Care President Ann Schlarb said they “are pursuing a number of new opportunities for residential reentry centers at the state and federal level and for new day reporting centers primarily at the state and local level. We estimate these new opportunities total approximately $76 million in potential annualized revenues.” GEO’s supervision and electronic monitoring operations are “currently pursuing new business opportunities in a number of jurisdictions totaling approximately $23 million in annualized revenue potential.”

4) National: CoreCivic also reported its quarterly financial results last week, and held its investor call, which was colored by barely concealed exuberance over the detention and incarceration policies of the Trump administration. They are also keenly following the personnel the administration will be appointing. “Like most of you we have closely followed the developments with the transition of the new administration at the federal level which will continue over the next few months as numerous leadership appointments remain unconfirmed,” CoreCivic CEO Damon Hininger said on the call.

Striking a real estate-focused tone, Hininger said the company is “busy marketing our unique and cost effective real estate solutions in perusing opportunities with all levels of government. Year-to-date we have been actively engaged with opportunities representing well over billion dollars and new real estate development projects.” Their financial guidance for the rest of the year “does not include any additional new contracts or accretive acquisitions of which however, we see the potential for multiple throughout the year.”

At the state level, Hininger emphasized spare bed capacity in Ohio (Northeast Ohio correctional center), and talked about operations deal potential in Oklahoma and Kentucky. But real estate seems to be a key focal point going forward, with ‘public private partnerships’ their preferred marketing brand. “Additionally, we continue to see meaningful progress promoting new real estate solutions offered by CoreCivic properties with more states considering a privately financed solution to address their aging prison infrastructure. In the last few months five states have publicly disclosed that they are considering their public private partnership approach to replace outdated prison capacity that would result in the long term lease of the new real estate solutions from the private sectors. Alabama, Kansas, Vermont, Wisconsin, and Wyoming have acknowledged their interest and evaluated such a solution.” Hininger offered four reasons why government should pursue these.

At the federal level, Hininger noted that the recently passed CR budget has slightly more money than the FY2016 enacted levels, but seemed to want to dampen down overenthusiastic expectations by his investors, mentioning declining border apprehensions in February and March: “There are multiple factors that could lead ICE for additional capacity. However, the current trends and data reported by ICE appear to suggest additional needs may not be required immediately.” He spoke instead of the “medium and long term,” pointing like GEO’s Donahue to the end of “catch and release” and the shift of enforcement to the interior.

Asked about their Minnesota (Appleton) facility, Hininger said they were still keen on pursuing a deal with the state, but also said they were looking into the possibility of doing a deal with ICE for immigration detainees. On possible new construction, he said they would “aggressively” pursue any solid deals that might come up at the state level, but if, for instance, ICE was interested, that would be “a little longer conversation because again we would want to have a pretty good view of kind of long term demand for ICE if we had to deploy capital.” The most likely deals right now seem to be where CoreCivic would do the construction and the state would operate the facilities. “We provide the real estate, they do the operation.

5) National: A potential landmark decision has been handed down by the recently-appointed Chief District Judge of the Southern District of Texas, Lee H. Rosenthal, who ruled that cash-for-bail requirements violate the rights of poor people. The decision is of crucial importance not only for human rights reasons, but also because a multibillion dollar industry has grown up around the practice. In her 193-page ruling, Judge Rosenthal wrote, “the evidence shows that secured financial conditions of release are not more effective at meeting the County’s interests than unsecured or nonfinancial conditions of release in misdemeanor cases. Instead, secured money bail operates to detain the impoverished while releasing those able to pay. This liberty deprivation based on wealth violates the Equal Protection Clause” (p. 172). The New York Times applauded the decision, writing, “as cash bail has fueled a politically influential, multibillion-dollar industry, courts are relying on it more, and people who can’t afford it are getting locked up at ever greater rates.”

In June 2015, the Times reported on the national scope of the problem, quoting Paul DeWolfe, Maryland’s state public defender, as saying “it sets up a system where first there’s the punishment, and then there’s the opportunity to go to court for trial.” Judge Rosenthal did not reach the question of the immorality of the cash-for-bail system, confining herself to strictly legal issues.

In a noteworthy aspect of the ruling, the judge rejected (p. 151) Harris County’s argument that if it had to release arrestees before trial this “would require GPS monitoring—the most restrictive form of supervision—and that over 10,000 arrestees—18.4 percent of all arrestees—would require alcohol-intake ignition locks, even though only about 6,000 arrestees—15 percent—are charged with misdemeanor driving-while-intoxicated offenses each year.” With private, for-profit prison companies relying on GPS and substance monitoring contracts to pad their bottom lines (see above), they will no doubt be keeping an eye on this case if it moves forward to the appellate level.

Long delays in judicial processes, which add to the pretrial detention problems, are being fed by a critical national problem of widespread inadequate compensation of court employees, which has led to staff shortages. See also the discussion of how citizen activists in Baltimore waged a successful campaign on bail reform, led by Adam Jackson, CEO of Leaders of a Beautiful Struggle, a grassroots group working to improve the lives of African Americans in his home city of Baltimore [at 6:00].

6) National: Mia Steinle of the Project on Government Oversight (POGO) warns that the imminent shuttering of ICE’s Office of Detention Policy and Planning, “which, among other things, created guidelines to help prevent sexual assault of detainees,” will help the private, for-profit operators of ICE’s detention centers to keep information hidden from the public. “Allegations of abuse may grow given that the Trump Administration is moving to reduce oversight of these private facilities. The New York Times reported that, according to unnamed DHS officials, new contracts with private detention centers will not require that the centers provide translation services or prompt medical care to detainees. Additionally, ICE’s Office of Detention Policy and Planning, which, among other things, created guidelines to help prevent sexual assault of detainees, is being shuttered. Mary Small, policy director of the nonprofit Detention Watch Network told the Project on Government Oversight that while the Office of Detention Policy and Planning wasn’t perfect, its loss is a “huge blow for transparency and accountability of the private detention center complex.”

7) National: Is Maximus—the for-profit, privatizing company that provides business process services to government health and human services agencies—looking to make a killing if healthcare is devolved to the statesOn Thursday, Rich Montoni, its CEO, told analysts, “whether or not our U.S. healthcare program, the Affordable Care Act, measure is pushed down to the state, whether they become more state-based and states move forward with rate waivers is a very important aspect of the healthcare program here in the United States, upon which we are basically sitting here, bated breath and preparing ourselves. Our teams are working with our clients and our prospects to be prepared to move forward as soon as that decision is made.”

8) National: The Trump administration is trying to bring back two private collection agencies collecting on defaulted student loans that were fired by the Obama administration. “Enterprise Recovery Systems and Pioneer Credit Recovery were among five companies whose contracts the government cancelled in 2015 after an audit showed them giving inaccurate information to people trying to get their student loans out of default. The companies said the evaluation was arbitrary and flawed for drawing conclusions based on excerpts from a handful of calls, and four of them took legal action against the department.” Persis Yu, a staff attorney at the National Consumer Law Center, said “the decision by the Department of Education to reinstate the contracts of the companies it previously fired is a slap in the face to student loan borrowers.”

9) National: Newly released figures from the Milwaukee Journal-Sentinel indicate that the Charter School Growth Fund received $12 million from the right wing Bradley Foundation from 2011-2015.

10) National: University of Connecticut professor Preston Green III shines a light on the financial risks posed by related-party transactions in the charter school industry, and calls for regulation. “This aversion to regulation at the federal level could cost taxpayers millions of dollars and could result in the closing or disruption of schools – potentially damaging the education of students they serve. Since charter schools are growing fastest in low-income and minority communities, these children stand to be hurt the most.”

11) District of Columbia: Jeremy Mohler of In the Public Interest and Monica Hopkins-Maxwell of the ACLU of the District of Columbia turn the spotlight on possible plans as early as this spring to develop a new jail without adequately consulting the public and key stakeholders. “There’s no question the District needs to replace or renovate its current facilities to protect prisoners and staff. (…) But the District’s sudden and aggressive timeline raises a major red flag. Word of a new jail thus far has been reserved to business press read by developers and architectural firms, who have a limited perspective on what a jail means to a city. Returning citizens — the very people who have suffered through conditions at the existing jails — appear to have not been consulted. Making decisions about where the jail will be, its capacity and what will happen inside of it, without public and stakeholder input, is a shaky and potentially disastrous foundation for a project of this size. D.C. leaders appear to be missing the forest for the trees. By focusing on lining up private sector involvement rather than cultivating public discussion and input, they are treating a new jail as mere infrastructure rather than a key and influential piece of the District’s criminal justice system.”

12) Nebraska: The decision to privatize child welfare services in 2009 is still creating major problems. Child welfare services in Omaha are facing a crisis after the state had to withdraw a bid to one organization and reject all other bids. “The Omaha area is the last one to continue with a private lead contractor for child welfare. That concept failed in the rest of the state and HHS took over case management in all other areas. A consultant that evaluated privatization in 2014 concluded the reform effort was not ‘experiencing any measurable benefits.’” The department is scrambling to avoid a gap in services for vulnerable children and families come July.

13) North Carolina/National: Do states really know what they’re getting into with ‘public private partnerships’? Are they giving up too much control under their new, pro-P3 legislation, especially if P3s become a cornerstone of the Trump infrastructure plan? The recent record of the I-77 P3 project north of Charlotte suggests there may be trouble ahead. “Commuters and political observers are saying the state ceded too much control to Cintra, the unit of Spanish infrastructure firm Ferrovial SA that signed the $650 million contract in 2014. They would have liked work to be done a mile or two at a time rather than nearly all at once, creating a 26-mile work zone. They also say the state highway department would have responded better to complaints, like those on Easter weekend, when drivers said they were dodging roadway debris. The controversy comes as the project’s public-private funding model gains momentum, with more than 30 states allowing such partnerships for major road jobs.” Watch this space.

14) New York/National: About 500 protestors confronted JP Morgan Chase for being complicit with Trump’s immigration detention crackdown. Chase was targeted because it “funds some of the largest companies dedicated to building and managing private detention centers: GEO Group and CoreCivic. The campaign includes actions against nine companies, including Wells Fargo and Goldman Sachs, which also invest in private detention centers for immigrants,” Notimex reports. JP Morgan Chase and Wells Fargo “were targeted because of their dealings with private companies that have built or manage some immigrant detention centers for the government, according to Jose Lopez, Make the Road New York’s co-director of organizing. ‘The messaging for today was to stop financing immigrant detention facilities,’ Lopez said.” In the Public Interest has published an in-depth report on how the big banks support the private prison and detention industry.

15) Pennsylvania: The results are coming in, and it looks like Pittsburgh made the right decision by not privatizing its parking spaces a few years agoPost-Gazette columnist Brian O’Neill reports that “city finances are looking better these days, logging a $37 million surplus last year, not least because of all the parking revenue. (…) After reading city Controller Michael Lamb’s report on Pittsburgh’s fiscal health, I called him and former Councilman Patrick Dowd. They were the key figures in blocking the mayor’s parking punt in 2010.” Says O’Neill, “I hate paying to park, but I’d hate it more if my money was leaving town.”

16) Pennsylvania: The Pittsburgh Water and Sewer Authority, which is beset by multiple problems including lead contamination, has hired DC-based Infrastructure Management Group for $550,000 to study the strengthening of the authority and make recommendations. Councilwoman Theresa Kail-Smith dissented last Wednesday about the IMG contract, voicing concerns in part about the expense. “The city of Pittsburgh has a lot of good universities and a lot of good people who can give us advice on PWSA without having to pay $500,000-plus,” she said. “I’m also concerned about what the cost of implementation (of IMG’s suggestions) would be.” In a letter to the editor of the Pittsburgh Post-Gazette, the co-chair of the Sierra Club’s Pennsylvania Chapter, Claudia Kirkpatrick, took exception to the paper’s claim that it’s not terribly important who owns the system—a fairly obvious trial balloon on privatization. “The PWSA got into the situation that it’s in, and that we are all suffering from, due to this kind of thinking,” Kirkpatrick wrote. “We allowed Veolia, a private company with a profit motive, to take over management of the PWSA. It cut staff, changed to a cheaper corrosion control chemical and did nothing to improve the functioning of the authority or the water quality.”

17) Wyoming: The state is expected to signs a new deal with CoreCivic “in the coming weeks” to take up to 750 male inmates. “A task force of lawmakers and Wyoming leaders studied the penitentiary last year and recommended repairing the 15-year-old building, which is home to about 650 inmates,” but the state legislature didn’t act on the recommendation. Sabrina King, policy director of the Wyoming chapter of the American Civil Liberties Union, “noted the state has had a troubling past with its inmates in Corrections Corporation of America facilities. (…) ‘There really needs to be a public process and a discussion about this,’ King said. ‘And part of this discussion is really figuring out what’s going on with the prison in Rawlins. But let’s not use a private prison as a default. It’s such a terrible backup plan.’”

18) International: Ottawa Airport president Mark Laroche says privatization would be a bad idea, pointing to the troubling experience in Australia. “‘In Australia they’ve said it’s damaging their economy as costs rose and service levels fell. We have no reason to believe it would be different here.’ The Australian government’s Airport Monitoring Report 2015-16 noted: ‘Higher aeronautical charges have been used to both cover increasing costs per passenger and to grow profit margins.’”

19) Think Tanks: Project South publishes an in-depth study of two privately-run, for-profit immigration detention centers in Georgia, one run by CoreCivic, the other by LaSalle Corrections. The report recommends shutting down the Stewart and Irwin detention centers; that ICE needs to implement policies that will hold contract facilities accountable for not complying with ICE standards; ICE should terminate contracts with facilities that do not meet its standards; and, ICE should use the Alternative to Detention Program for immigrants who are eligible. It also makes a slew of other recommendation on due process, living conditions, medical care, and detention center staff.

Legislative Issues

1) National: A House Republican chairman has “told a dozen government agencies to exclude communications with his committee from requests made by news organizations, advocacy groups and others through the Freedom of Information Act.”

2) Alabama: A charter school bill that the Alabama Education Association worried would have made it easier for charter schools to be created without the approval of local school systems has gone down to defeat on a bipartisan vote. “‘The issue is definitely local control,’ [Amy Marlowe, a spokeswoman for the AEA] said. The state charter school commission — an appointed body — can overturn the decision of local school boards. ‘We can learn from the mistakes of others (nationally) and we know that if you do not have local buy-in, a charter school will not succeed,’ Marlowe said.”

3) North Carolina: The Charlotte Observer reports that state lawmakers are considering a bill that would turn charter schools into company towns for the well-employed. “Corporations would be able to reserve spaces in schools for their employees’ children, and two towns would be able to set up charter schools for their residents. Under current law, charters are open to any student in the state, although schools can give preference to siblings and school employees’ children. ‘This is loosening the restrictions on how charters operate and what they’re allowed to do,’ Rep. Graig Meyer, an Orange County Democrat, said of the collection of bills the House Education Committee approved Monday in divided votes.” There is a long history of private schools being used as a shield against racial desegregation in the south, including in South Carolina.

 

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