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Weekly Privatization Report 4-3-2017

1) National/Think Tanks: What a coincidence of timing. The Reason Foundation, which has received funding from the GEO Group and Corrections Corporation of America, has just cooked up a 55-page report attacking the DOJ Office of Inspector General’s criticism of for-profit contract prisons. The author? One Austill Stuart, a former intern of Attorney General Jeff Sessions, who is leading a battle right now to expand the use of private prisons and detention centers by the federal government. Stuart praises his former boss, while neglecting to mention his internship, a detail he also left out of an OC Register op-ed he wrote.

2) National: As we head into the thick of the budget seasons at federal, state and local levels, it’s good to remember that budget transparency isn’t new. See the marvelous slideshow from Barrett and Greene, based on research by Thomas Greitens, the Director of the Master of Public Administration Program at Central Michigan University.

3) National: While defending PBS from extreme right wing efforts to defund it, Diane Ravitch denounces the public network for planning to show a four-episode propaganda series promoting school privatization. “It must be public television’s effort to curry favor with the Trump administration, as it reflects the extremist agenda of Betsy DeVos, who is intent on creating a free market in publicly-funded schooling. Since Trump’s budget has proposed to eliminate funding for public television, this series may be a demonstration that even PBS will give a showcase to libertarians who want to destroy public institutions. (…) It is ironic and sad that public television would lend credibility to an attack on public education. Encouraging the forces intent on destroying everything ‘public’ will not save public television.”

4) National: Massive proposed budget cuts by Trump and the Republican congress could drive more privatization at the municipal level. “‘The biggest issue for New York City is the housing program,’ said Howard Cure, director of municipal bond research for Evercore Wealth Management. One creative option, according to Cure, is to convert some properties to the federal Rental Assistance Demonstration, or RAD, program, which the Department of Housing and Urban Development operates. It allows public housing agencies to fully own their public housing units and to renovate or redevelop the housing using private financing sources. The renovated or new housing receives rental support for the residents through a project-based Section 8 subsidy.”

5) National: Trump’s plan to put his son-in-law, who has no government experience, in charge of reorganizing the enormous federal government, has many concerned. Jeremy Mohler of In the Public Interest writes, “the move harkens back to Ronald Reagan’s 1987 commission on privatization, which recommended privatizing prisons, the Postal Service, and many other government functions.” Ron Klain writes that it’s a bait-and-switch: “there is reason to suspect that the Office of American Innovation is just a front for an effort to peel away environmental, health, safety and consumer-protection rules in the name of making government more efficient.” Elizabeth Spiers, who worked for Kushner, says “he’s the wrong man for the job,” citing his real estate mentality and business innovation blind spots. Marilyn Park, legislative representative on VA issues for the American Federation of Government Employees, said “I’m very concerned that this ‘reimagining’ effort is another name for dismantling VA.”

6) National: CoreCivic, formerly known as Corrections Corporation of America, will be holding its annual general meeting on May 11 at its headquarters in Nashville. In its recently-released proxy statement (p. 42), the company reported that over the last three years its top five executives were paid $25,706,057. The company’s largest institutional shareholder is the Vanguard Group, which held 18,520,109 shares at the end of last month, worth $581,901,824.78 at Friday’s closing price of $31.42. CoreCivic’s price has tumbled 8.5% in the last month after a run-up following Trump’s electoral victory. [News Bites US-NYSE, March 31, 2017]

7) National: Trump’s public infrastructure plan, which will rely heavily on private finance, will include more than transportation. “His infrastructure initiative—which will be announced later this year—will include a strategic, targeted program of investment valued at $1 trillion over 10 years,” Transportation Secretary Elaine Chao said last week. “The proposal will cover more than transportation infrastructure—it will include energy, water and potentially broadband and veterans hospitals, as well.” [Sub required]

8) NationalThe Hill speculates that the extreme right Freedom Caucus might come behind a major infrastructure plan if it includes a massive increase in user fees they don’t have to stand up and vote for and a huge tax write-off for multinationals that have untaxed profits overseas. But “any transportation investment bill, however, can’t add to the deficit in order to garner the support of fiscal conservatives. It will also have to place a heavy emphasis on leveraging private-sector dollars for public-private partnerships—the preferred funding tool among Republicans, but one that could trip up support among Democrats if there is no direct federal spending along with it.” Others are concerned that Trump might cannibalize public services to pay for his plan, which would be a “disaster for cities.”

9) National: Writing in the Georgia Tech newspaper, Brighton Kamen lays out some of the negative cost incentives of private, for-profit prisons. “While violent offenders should be kept separate as a matter of public safety, the most cost-effective solution to the U.S.’s high incarceration rate would be to lower the recidivism rate and to discourage practices that incentivize filling prison cells. This includes profiting from them. For-profit prisons monetize a social ill, offering a short-term solution that will eventually and generally unavoidably become a long-term problem. While states may initially save money by making the decision to contract out their corrections facilities, the loss will inevitably return in the form of more inmates to pay for, inadequate programs, and released convicts with fewer economic opportunities who have a higher likelihood of re-offending. (…) They say crime does not pay, but with the upward trend of for-profit prisons, crime absolutely does—as long as you are the jailor.”

10) NationalFederal employees are suspicious of Trump’s new government efficiency initiative. “They said they worry this initiative will lean exclusively on the corporate world for ideas rather than inviting experts inside government to share theirs. And these employees suggested that the real aim was to farm out work to private companies, costing taxpayers the same—or even more—than keeping it in-house.” Marilyn Park, legislative representative on Veterans Affairs issues for the American Federation of Government Employees, said “I’m very concerned that this ‘reimagining’ effort is another name for dismantling VA.’”

11) National/International: As Trump tries to gut efforts to control climate changeNaomi Klein and Jeremy Scahill discuss the implications for privatized disaster management. The executive order will lead to expanded private coal mining on public land. “Though framed as a jobs program, lifting the moratorium is another giveaway to the industry. It was put in place because reports have indicated the current leasing program allows coal-mining companies to pay less than market prices to access and sell a public resource.”

12) National/Arizona/Pennsylvania: More than two years since the Arizona Department of Corrections agreed to reform its prison healthcare system, it is still not in compliance with court orders that affect the more than 34,000 people held in its prisons. “‘I’m reminded of the saying, garbage in, garbage out,’ the ACLU’s David Fathi said. ‘If the monitoring isn’t being done properly and consistently and rigorously then the results are meaningless.’ DOC contracts with a private health-care provider called Corizon Health. Spokesperson Martha Harbin said that claims of Corizon and DOC putting off diagnoses and delaying access to treatment are unfounded, ‘To the contrary, what makes good medical sense and good business sense is excellent and proactive preventive care.’” On Friday, Mumia Abu Jamal, who has suffered from untreated Hepatitis C while in prison, commented on “The Illusion of Correctional Medicine.”

13) California: As the Raiders move to Las Vegas, Oakland taxpayers are left holding $95 million in debt for the Coliseum. “The question is, can a deal be crafted that works economically—and, at the same time, be sold to a skeptical voting public that is still paying $20 million a year in tax money from the last stadium deal that brought the Raiders back to Oakland from Los Angeles. Due to the sensitive nature of the current talks, Oakland Mayor Libby Schaaf is keeping mum.”

14) District of Columbia/Maryland/Virginia: Amalgamated Transit Union Local 689 issues a report with recommendations on how to finance and maintain the DC Metro system, which is currently facing a crisis. “Giving up on Metro, or privatizing it as some have suggested, is not the answer. This will only lead to even worse service quality and encourage our remaining customers to permanently abandon the system. Blaming the workers, or claiming that they make too much money, is also ridiculous. This system, which weaves its way through some of the nation’s most wealthy communities, is not being brought down by $52,000 janitors or bus operators who work long and hard in grueling conditions to earn a living wage. Search higher up the food chain at WMATA’s current or former non-union employees to determine the reasons for the agency’s fall from grace. But don’t stop there. Look at current and previous elected officials at all levels of state, local, and federal government that have ignored every red flag and starved Washington Metropolitan Transit Authority (WMATA) of adequate funding for decades.” [WMATA: Fund It, Fix It, Make It Fair]

15) Florida: The proposed All Aboard Florida private railway’s “murky future” is raising questions about its feasibility. The company “plans to finance its initial route from Miami to West Palm Beach with $600 million of tax-exempt private activity bonds granted by the U.S. Department of Transportation. (…) Complicating matters further, the bond sale is on hold pending a final federal court ruling on suits challenging the PABs.” Last week the company’s owner, the private equity Fortress Investment Group, announced it has reached agreement with Grupo Mexico, which operates more than 6,200 miles of railroads in Mexico. [Sub required]

16) Georgia/South Carolina: Concerns are growing that the bankruptcy of Westinghouse may leave taxpayers and power ratepayers on the hook over nuclear power plants that were sold as futuristic ‘public private partnerships’ when they were first proposed. “Georgia Power Co. and South Carolina Electric & Gas Co., along with public power agencies involved in the respective projects, agreed to advance funds, subject to court approval, to pay certain bills that will keep construction going through April 28, according to filings with the Securities and Exchange Commission. The Municipal Electric Authority of Georgia and the South Carolina Public Service Authority’s Santee Cooper—the largest public power agencies involved in the projects—are also named in separate interim assessment agreements. The two public agencies both have issued billions of dollars of municipal bonds to finance their ownership stakes in the nuclear plants.” [Sub required]

17) Illinois: The Chicago streetlight system overhaul, brashly touted by Mayor Emanuel as the first step in a wide-ranging plan to have the Department of Transportation and Chicago Infrastructure Trust develop a comprehensive ‘public private partnership’ program for public infrastructure—will proceed without using private finance and will be all-public instead. “Investors were interested, but the city determined that private financing structures didn’t provide most value for taxpayers.” [Sub required]. The lack of such a careful review process led to the disastrous Chicago parking meter privatization deal and other privatization fiascoes in the city.

18) Kentucky: Writing in Jurist, Erika Wilson of University of North Carolina School of Law discusses the potential perils of the state’s new charter school law. As Kentucky embarks on its charter school odyssey, she marks out three warnings worth heeding—the perils of limited regulation and schools, unsavory competition for students, and racial and socioeconomic equity issues. “Ultimately, the success (or failure) of HB520 will depend upon the Kentucky Board of Education.”

19) New York: In a major step toward prison and sentencing reform in New York City, the Independent Commission on New York City Criminal Justice and Incarceration Reform issues its long-awaited, 146-page report, A More Just New York City, recommending, among other things, closure of the notorious Riker’s Island. Mayor De Blasio jumps on the bandwagon.

The Commission “evaluated the potential cost savings associated with a new, more humane correctional system. We assumed new facilities designed for direct supervision would require lower staffing ratios.” The report also says (p. 111) “A redevelopment project of the scale and complexity described above will require coordination among numerous City, State, Federal, and private sector entities, and would be preceded by a lengthy period of site planning, public engagement, environmental review, and land use and other approvals. Important considerations for the next stage of planning include, but are not limited to: 1) identifying a lead entity or entities to manage the Island’s transformation through planning, environmental and public review and approvals, and development; 2) creating a detailed plan that phases the depopulation and demolition of the jail facilities, the preparation and remediation of the Island, and the development of new uses, while minimizing and mitigating the impacts of overwater construction and any traffic or noise impacts related to the potential expansion of LaGuardia Airport; and 3) developing a funding and partnership strategy to make the greatest use of private investment and value capture.”

But even if New York City does away with Riker’s Island and moves toward a more dispersed, humane and effective system, New York State still has a long way to go on sentencing reform.

20) Revolving Door News: Scott Gottlieb, Trump’s nominee to head the Food and Drug Administration, will have to recuse himself from making decisions on at least 20 companies.

21) Revolving Door News: The former counsel to the director of the Securities and Exchange Commission’s Office of Municipal Securities, Edward Fierro, is hired by Houston-based bond counsel firm Bracewell to join its public finance practice. “Fierro’s involvement with issues such as the Municipalities Continuing Disclosure Cooperation Initiative (MCDC) will be a strong asset for Bracewell clients, [Bracewell’s Washington-based partner Paul Maco] said.” [Sub required]

22) Revolving Door News/TennesseeCoreCivic hires Andrew Jones as assistant warden at its Trousdale Turner Correctional Center. “His professional background includes 10 years with the Tennessee Department of Corrections, over 10 years of service with Bureau of Prisons, Immigration and Customs Enforcement and the United States Marshalls Service, two years with the Vermont Department of Corrections, over a year spent with the California Department of Corrections, one year with the Wisconsin Department of Corrections, and time spent with the Hawaii Department of Corrections and Jackson-Madison County Jail.”

23) Think Tanks: The Koch-funded, pro-privatization Reason Foundation is salivating over Trump’s executive order on government reorganization. “With regard to evaluating whether private entities might be able to take on certain commercial functions the government is currently performing, the Federal Activities Inventory Reform (FAIR) Act of 1998 already requires agency heads to label their respective agency’s functions as ‘governmental’ or ‘commercial,’ but the executive order implicitly gives Mulvaney the ability to either validate those designations—or override them and make alternative ones—for the purposes of developing OMB’s plan. In theory, this allows for a more robust consideration of what potential competitive sourcing opportunities may exist.”

24) Think Tanks: The Canadian American Business Council held a forum on Trump and infrastructure last week. The consensus was that a deal may come together sooner than many think, but “it’s certainly not going to be their trillion dollar bill.” Axios reported last week that Trump may try to do tax reform and infrastructure at the same timeThe Hill speculates that “pairing the issues could get more Democrats on board with tax reform, while also convincing conservatives to swallow massive transportation spending.”

25) International: Despite widespread criticism of the ‘public-private partnership’ model, the World Bank says it is determined to push ahead. Laurence Carter, senior director of the World Bank Group’s PPP unit, tells Infrastructure Investor that “‘we’ve started to set a corporate mobilization target, where we give credit to staff for the amount of private sector funding they bring in. It’s a matter of changing incentives.’ He detailed what he calls the World Bank’s ‘cascade approach,’ where the institution first evaluates whether a project can be financed by the private sector on its own, then assesses if improving regulation or else can help attract private funding, before looking at whether credit enhancement platforms can do the trick. Only once this process is complete does it start looking at sourcing public funding.” [Sub required]

This is exactly backward from standard best practice, which holds that public sector comparators and value for money analyses should be made before more expensive private financing is considered, and that a proper civil service infrastructure must be in place to make sound public financing decisions and to evaluate and rigorously oversee any PPP proposals and projects from the outset. The question of how public multilateral development and financial institutions should relate to ‘public private partnerships’ will be coming to a head this month when non-governmental and civil society organizations confront the World Bank about its leading role in supporting PPPs at the World Bank/IMF’s April 21-23 Spring meetings.

Legislative Issues

1) National: The bond market is pondering the credit implications of Trump/Sessions’ threat to defund sanctuary cities. Could the blockage of federal funds seriously damage the municipal bond market, which supports public works? Although AllianceBernstein municipal credit analyst John Ceffalio concludes that “the credit risk to jurisdictions known as sanctuary cities is not very significant” right now, his conclusion rests on what he sees as Trump’s inability to get legislation through congress cutting off legally-required payments. Stay tuned.

2) Illinois: A managed lanes ‘public private partnership’ project, the state’s first PPP, has been caught up in the toxic relationship between Gov. Rauner (R) and House Democrats, and on issues of transparency and accountability. House Speaker Michael Madigan (D-Chicago) “said his caucus was willing to work with Rauner on the proposal and others like the sale of the state’s downtown Chicago headquarters but needed more information because he’s worried over the involvement of private investors in a project that could benefit Rauner’s ‘wealthy friends.’ ‘Despite multiple requests for information over several months, IDOT hasn’t prepared a plan that would lay out the costs, results, and anticipated tolls,’ Madigan said in a statement. ‘IDOT hasn’t provided any evidence demonstrating that this project will save taxpayer dollars or result in better maintained roads. We continue to await this information.’” Officials are also considering a PPP for a $2.7 billion freeway expansion in Chicago. [Sub required]

3) IllinoisLegislation to prevent further privatization of health care jobs at Illinois prisons won quick Senate approval last week. “The bill now moves to the House. A similar bill passed the General Assembly last year, but was vetoed by Republican Gov. Bruce Rauner. The bill died when the House failed to override the veto.” [SB 19]

4) MarylandDemocrats in the state’s congressional delegation want President Trump to take personal charge of reviving a stalled $2 billion proposal to swap the FBI’s downtown DC site for a new PPP facility in Maryland. “The General Service Administration said earlier this month that it would not proceed with the scheduled selection of a preferred partner from a short list of applicants until Congress appropriates the remaining $1.4 billion needed to accomplish the project. The partnership announcement had been set for March 10, but GSA said it would not move forward until the money is available.” [Sub required]

5) Missouri: Apprehension is being expressed at school board meetings across the state over the proposed charter school expansion bill, House Bill 634. The Missouri League of Women Voters is vigorously opposing the bill. “This is a concern and something that we are going to need to watch closely and get aggressive on,” says Ozark Superintendent Dr. Kevin Patterson. “If the bill passes, any student from Christian County schools could attend the charter school tuition free. The student’s original school district would be required to pay the tuition to the charter school. Patterson said that Rep. Lynn Morris, District 140, went against his party in order to fight for public school districts on this bill. ‘I can’t say enough about how awesome Lynn has been working with us to fight this,’ Patterson said.

 

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