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Weekly Privatization Report 6-5-2017

1) National: Along with public interest groups, a bipartisan coalition of at least 180 mayors and ten governors, international leaders, economists, public pension funds, and numerous elected officials, private sector infrastructure investors are condemning President Trump’s decision to withdraw from the Paris Climate Accords. “Blue-chip names including Allianz, Goldman Sachs and JPMorgan also voiced their disapproval, and Ceres, a sustainability-focused nonprofit backed by more than 130 institutions including BlackRock, Washington State Investment Board and TIAA-CREF said the decision ‘goes against the interests of hundreds of investors.’ ‘Withdrawing the US from the Paris Climate agreement puts America last,’ argued Mindy Lubber, its chief executive and president.’” [Sub required]

Last month, 282 investors representing $17 trillion in assets wrote to governments of the G7 and G20 supporting the Paris Climate agreement
: “As long-term institutional investors, we believe that the mitigation of climate change is essential for the safeguarding of our investments. We have previously conveyed our strong support for the Paris Agreement [link] and we reiterate our call for governments to continue to support and fully implement the Agreement. We urge all nations to stand by their commitments to the Agreement and to put in place policy measures to achieve their nationally-determined contributions (NDCs) with the utmost urgency.”

2) National: Last week, James McIntire, who served as Washington State Treasurer from 2009 to 2017, wrote an important op-ed in The Hill calling on “public fiduciaries, both elected and appointed,” to play a pro-environmental role and “intervene with companies and investment managers in response to [environmental, social, and governance] issues and demand standardized sustainability information.” One issue that does not seem to have attracted much discussion recently is what the right policy should be for public pension funds and government investors regarding an infrastructure plan (Trump’s) that is heavy on building new roads and highways while slashing funds for more-environmentally beneficial mass transit systems.

3) National: The Trump administration is launching its infrastructure plan with a series of high-profile events this week, beginning at the White House today with a call for privatization of the nation’s air traffic control system. On Wednesday, President Trump goes to Cincinnati for an event that “will highlight the locks, dams and other elements of the inland waterways system crucial for moving agricultural products and other goods,” and promote commercial fees. On Thursday, Trump will host mayors and governors at the White House for an infrastructure “listening session.” On Friday Trump will visit the Department of Transportation’s offices “to discuss its efforts to streamline the regulatory approval and permitting process for road and rail projects,” according to former Goldman Sachs president and COO Gary Cohn, Trump’s point man on the initiative.

Although the outlines of Trump’s plan have yet to be spelled out, at the heart of the proposal is a dramatic cut in federal infrastructure funding, and for shifting the burden onto states, localities and the private sector.

However, on May 25 the board of the American Association of State Highway and Transportation Officials (AASHTO) agreed on a policy resolution reflecting concerns about what the Trump administration has in mind for the framework for this shift. On private financing, AASHTO declared that “while opportunities exist to expand private participation in the provision of infrastructure,” the administration and Congress must “recognize that most transportation projects do not generate a revenue stream and therefore requires federal support in the form of direct funding rather than financing incentives that encourage borrowing or utilizing private capital.” This point goes directly to the issue of whether the administration’s so-called “asset recycling” model is sustainable.

AASHTO insists that the focus of federal support should continue to be on transportation infrastructure needs, rather than on a turn toward support for energy transmission lines, rural broadband, and other non-transportation needs, as the administration has outlined. AASHTO is also concerned that the new framework might upend current transportation funding and project selection practices and safeguards, and advocates that “the existing federal program structure including highways, transit, and rail be utilized since it would enable investments to flow to every area of the country.”

AASHTO also called for continued federal support for last year’s FAST Act transportation package (which “has provided near-term funding stability and relief to states”) and that, “at a minimum, the infrastructure package addresses the funding shortfall in the Highway Trust Fund with a long-term and sustainable revenue solution.”

4) National: Private equity is gearing up for Trump’s private finance-heavy infrastructure initiative. The Australian funds manager AMP Capital announced on Thursday they’ve hired Brent Tasugi, a former senior vice-president at Oaktree Capital Management, to its New York-based infrastructure equity team. “Tasugi, who will serve as an investment director for AMP, spent nearly three years at Oaktree, joining the firm in August 2014. He was responsible for the origination and execution of North American transportation, logistics and public-private partnerships, working on projects including the Luis Muñoz Marín International Airport in Puerto Rico and Oaktree’s investment in Lonestar Airport Holdings.” [Sub required]. Any expansion of the ‘public-private partnership’ model in U.S. infrastructure in future years would witness the growth of a private speculative market in once fully-public U.S. assets.

Oaktree recently flipped its interest in the privatized Puerto Rican airport
, selling its 50% stake to Canada’s Public Sector Pension Investment Board and a Mexican airport operator, Group Aeroportuario del Sureste (ASUR), which already had a 50% stake in the airport. [Sub required]

5) National/International: China’s $810 billion sovereign wealth fund is also gearing up to invest in Trump’s infrastructure initiative. China Investment Corporation has officially launched its representative office in New York “to leverage the city’s strategic position as an international finance centre. The team will be responsible for conducting research on the North American economy, financial markets and policies, as well as strengthening cooperation with the fund’s business partners, CIC said in statement.” [Sub required]

6) National: Former House Democratic tax counsel John Buckley says that even if the tax exemption on municipal bonds survives in Congress, other changes could harm the market. “‘The corporate rate reduction will be destructive’ for the muni bond market, he said. ‘Right now 25% of tax-exempt bonds are held by banks, life insurance companies and property and casualty insurance companies,’ Buckley said. ‘Reducing the corporate rate from 35% to 20% or 15% is essentially going to take those investors out of the muni bond market unless there is an equally-sized increase in tax-exempt bond rates …. The spread between corporate and tax-exempt bond rates “could disappear,” Buckley told the lawyers.” He said “the repeal of deductibility of state and local taxes, which administration officials said they plan to propose, would also ‘have a dramatic impact on state and local financing.’” Buckley was speaking to the ABA’s tax exempt financing committee. [Sub required]

7) National/Texas: With state lawmakers having failed to pass legislation that would have allowed Texas to circumvent federal rules on immigrant family detention by declaring for-profit detention centers childcare facilities, the federal government remains silent even though a federal court ordered it last year to show cause why they should not be shut down. “The failure of the bill as good of news as that is doesn’t seem to have done these families any good,” said Cristina Parker, immigration programs coordinator for the Austin-based nonprofit Grassroots Leadership.

8) NationalThe Daily Beast reports that immigrant deaths in private prisons have dramatically increased. “The uptick in deaths have come after a spike in arrests of immigrants thanks to executive orders signed by President Trump. In the first 100 days of the Trump administration, ICE said it arrested more than 41,000 people—an increase of 37 percent over the same period last year.”

9) National: What’s in store for the municipal bond market under the Trump Administration? Gary Hall, Senior Managing Director and Head of Investment Banking at Siebert Cisneros Shank, talks with The Bond Buyer’s Chip Barnett about infrastructure financing and funding. [Audio

10) National: The National Business Aviation Association’s Ed Bolen speaks out against Trump’s plan to privatize the public air traffic control system, saying it would be “bad for business aviation.” His key question re: the private board that would take over ATC: “who’s going to run that monopoly, and in whose interest?” [Video]

11) National/California: In an effort to counter the possible privatization of federal land by the Trump administration and right wing lawmakers, the California Senate has passed three bills, the “Preserve California” package (SB 49, 50 and 51). SB 50 would “specify that these conveyances are void ab initio unless the commission is provided with the right of first refusal or the right to arrange the transfer to a 3rd party. The bill would require the commission to issue a certificate of compliance if the commission was provided with the right of first refusal or the right to arrange the transfer to a 3rd party. The bill would authorize the commission to waive the right of first refusal or the right to arrange the transfer to a 3rd party for conveyances the commission deems to be routine.”

Following pressure from sporting groups, Rep. Jason Chaffetz (R-Utah) withdrew his controversial bill to put federal land sales in the west on steroids. The bill drew widespread hostility, including by Kimberly Fanshier in “Why the Land Privatization Movement Is a Feminist Issue.”

12) National: Bishop Dwayne Royster, the political director of the PICO National Network and PICO Action Fund, and first national vice chair of the Working Families Party, spells out an infrastructure initiative focused on people’s needs, “by building out green jobs, by working in urban areas, making sure people of color are prioritized in the work around the infrastructure builds that need to happen, that we are building our education infrastructure across the country, building schools.”

13) Connecticut: The national debate over charter schools is to come to Danbury as a New York City charter network plans to file in July to enter the city. “‘I don’t begrudge them if they are using tax dollars, but if tax dollars for public schools are being diverted to them, then I do have a problem with that,’ [Danbury schools Superintendent Sal Pascarella] said. Democratic state Rep. David Arconti agreed. ‘I know people say that these are two different pools of money, but if state money is going to charter schools, less money is going to public schools,’ Arconti said. ‘Generally I have not been a big fan of these types of charter schools.’”

14) Georgia: Following immigrant deaths, justice groups are calling for the closure of two immigration detention centers run for profit by CoreCivic and LaSalle Corrections, and the publicly run Atlanta City Detention Center. “The deaths ‘are an unfortunate illustration of the poor medical treatment, misuse of isolation, deplorable health conditions and the unnecessary detention of persons looking for a place of refuge,’ said Adelina Nicholls, executive director of Georgia Latino Alliance for Human Rights, in an announcement. The coalition also is calling on ICE to end all contracts with the city of Atlanta and Stewart and Irwin counties”

15) Maryland/National: Attorney General Brian Frosh files an appeal against a federal judge’s order that the state must redo its ridership estimates for the $5.6 billion Purple Line light rail P3 project. “District Court Judge Richard J. Leon on Tuesday reiterated his order that the state update its estimates to consider the effects on the Purple Line of sagging ridership and safety issues that have plagued the Washington Metropolitan Area Transportation Authority’s Metrorail system.” Judge Leon said, “I find that defendants have failed to take the requisite hard look at the potential impact that WMATA’s ridership and safety issues could have on the Purple Line project and conclude … that [a supplemental environmental impact statement—SEIS] that addresses these issues is in fact required.” [Sub required]

16) Michigan: In a shock to students and staff, Southfield charter school closes. “‘We know it’s not going to be open on Monday,’ said Renee Jenkins, dean. ‘We’ve been getting the run around about our salaries, just a runaround about this whole ordeal.’ Teachers were seen packing their belongings. They say they will get paid Friday but the school is not able to pay them through August. Parents received word last week that money woes would force the school’s closure at the end of the academic year on June 30th. They got a rude awakening on May 31st.”

17) New Jersey: A Rutgers faculty member, Julia Sass Rubin, who was targeted by the charter school industry for publishing research “demonstrating that charter schools enrolled smaller numbers of students with disabilities, English language learners, and poor children as compared with the public schools in the same school district,” prevails. Martin Levine writes in the Nonprofit Quarterly [h/t Diane Ravitch] that more was at stake than Professor Rubin’s reputation. “This story came to a happy end. After the state board made no finding, the university found none of the allegations were supported by the evidence. Yet, this remains a cautionary tale. The ease with which political opponents can make the debate personal can have a very chilling effect.

18) New York: The wealth management industry may be looking to take management of New York City’s capital investment program away from the city, citing poor performance. “One option, according to [Howard Cure, director of municipal bond research for Evercore Wealth Management], is for the city to privatize some of its rental units to the private sector through a Department of Housing and Urban Development program, but it raises the question of whether the city would cede control.” [Sub required]

19) New York/National: As the Trump administration proposes slashing cuts to public transit’s operating and capital budgets, Natalia Tylim looks at the dangerous state of the New York MTA’s infrastructure and tells us how it got to this point beginning in the 1970s, and what is blocking a solution. “Improvements had to be made, but the money wouldn’t come from the city’s abundant upper class. Instead, these projects were paid for in two main ways: deficit spending and fare hikes. (…) One-third of people who ride the subway make less than $25,000 a year and two-thirds are people of color. These are the people making up the bank’s surplus fees. This is the biggest scandal of all, and it’s the essence of the neoliberal policies that have dominated politics for the last four decades: starve public services, blame workers for being greedy and wanting their wages to keep up with life, allow ceilings to fall on people’s heads, and then have those people foot the bill to repair the very vehicles which allow them to get to work so that profits can be made for the rich.”

20) International: A court case in Australia illustrates the inadequate treatment mentally ill prisoners receive. “When Mace arrived at Parklea on March 3, 2010 he told staff that he was taking medication for schizophrenia and depression. As the court noted, he “was not provided with any medication to address these conditions”. Prison authorities focused on providing him with methadone. He was seen the next day by staff from Justice Health, but again no medication for his mental illnesses was provided. No psychologist or counselor employed by GEO saw Mace. On March 7 he jumped off an upper landing at the prison. Despite numerous requests for medication for his schizophrenia and depression, these requests were denied or ignored.”

21) The Art of the Bond Deal: Dentons partner Jonathan Ballan discusses how three public municipal bond transactions were put together—LaGuardia Airport, Scranton Parking, and Glen Cove, N.Y. economic development. He also discusses infrastructure financing and his experience on the MTA board with The Bond Buyer’s Paul Burton. [Audio]

Legislative Issues

1) National: Co-ops and public utilities have come out in strong opposition to Trump’s plan, originally proposed by the right wing Heritage Foundation, to sell off federal power transmission infrastructure, and are calling on Congress to block it. “‘Selling the [power marketing administrations—PMAs] transmission assets would threaten the ability of the PMAs to provide reliable, cost-based power to the approximately 1,200 public power systems and rural electric cooperatives in 33 states and the millions of customers they serve,’ the American Public Power Association said. ‘The association urges Congress to reject this misguided proposal.’ The National Rural Electric Cooperative Association also opposed the idea, pointing out that appropriations for the federal power program are repaid with interest. ‘We think it’s a big mistake and we’ll be working with Congress to make sure they take a similar view,’ NRECA’s senior vice president of government relations, Kirk Johnson, told S&P Global Market Intelligence. Selling the PMA transmission assets would likely raise electric rates for rural electric consumers, he said, adding that he was unclear who would buy them. ‘We haven’t touched base with everybody [on Capitol Hill], but I have yet to hear any support’ for the idea, he said.” [SNL Power Policy Week, May 31, 2017; sub required]

2) California: As the Senate passes a bill to do a major overhaul of the bail system, industry interests are pushing back hard as the bill moves to the Assembly. “The votes come as the bail industry and some law enforcement groups make a huge push to kill the legislation through lobbying lawmakers and launching a public relations campaign. According to an analysis of state records by KQED, seven organizations—representing bail agents and the insurance companies that back bail agents—have spent nearly $170,000 lobbying state lawmakers between October and the end of March. The total amount spent on lobbying is likely much higher, since much of the push has occurred since April. Two other groups, including Tokio Marine, a huge, multinational insurance company, registered lobbyists in Sacramento for the first time ever in recent weeks.” [Audio report]

3) Louisiana: A state lawmaker has filed a resolution to ask the Department of Corrections to study privatizing five prisons, but it unclear if it has a chance to pass before the legislature adjourns this Thursday.

 

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