Update: Upcoming Outsourcing Issues. January 21, 2014


1) National: Public Financial Management (PFM), a leading advisory company on “public private partnerships,” runs into criticism over its status as a non-dealer financial advisor. FirstSouthwest  has complained that PFM “is affiliated with broker-dealers and is failing to disclose this in response to issuers’ requests for proposals for [financial advisors]. Philadelphia-based PFM denies any impropriety in correspondence with issuers and statements made to them. (…) One of the investors in PFM Group, the parent company of PFM, is ICV Fund II, which received investments from Citibank, JP Morgan Chase, and Bank of America, among others.” PFM has called the allegations “misleading and false.”


2) National: Federal contracting with private companies drops sharply. “In the fiscal year that ended Sept. 30, the total fell by $58 billion, or roughly 11 percent. It was the steepest decline—in percentage and nominal terms—in at least a decade. (…) Few expect contract work to rise broadly in 2014 and many expect the decline to continue, given the politics of the budget.”


3) National/International: The Economist looks at global trends in privatization, including in the U.S. “State-owned assets are now ‘the forgotten side of the balance-sheet’ in many advanced economies, says Dag Detter, managing partner of Whetstone Solutions, an adviser to governments on asset restructuring.”


4) National: The private waste industry continues to consolidate. “Waste Industries currently employs 2,000 workers, and CEO Ven Poole tells us that the company has been growing 6 to 9 percent a year, crediting that growth to a combination of direct sales, new commercial and residential customers, and new contracts with municipalities that have chosen to privatize solid waste and recycling efforts. But that’s not the only impetus behind that growth. ‘We also acquire between 18 and 24 smaller companies per year, typically when the owners are ready to retire,’ he adds.”


5) National: Education Management Corporation, an operator of private post-secondary schools, is expected to report its quarterly earnings on January 27. Last month the company settled a civil claims suit brought by the Colorado secretary of state against its Argosy unit. Argosy was accused of “deceiving, misleading and financially injuring students seeking doctorate of education in counseling psychology degrees (EdD-CP) in violation of the Colorado Consumer Protection Act.”


6) National: Controversy builds over U.S. Postal Service pilot program to sell services through Staples stores. The American Postal Workers Union has hand-delivered letters to Bay Area Staples managers. “At each location the group hand-delivered a letter to the store manager expressing the union’s disapproval of the company’s privatized postal staffing arrangement. ‘Only U.S. Postal Service postal employees are fully accountable to the public, and sworn to uphold the sanctity of the mail.’”


7) National: Corrections Corporation of America is expected to report its quarterly earnings on February 10. Geo Group reports February 17. Maximus reports February 3.


8) National/Revolving Door News: McKenna Long & Aldridge adds prominent infrastructure attorney Richard Ornitz to its corporate practice, which includes a “public private partnership” group. “Former Vermont Governor Howard Dean is a member of the McKenna infrastructure and PPP group, according to the firm. In 2011, MLA added Federal Highway Administration (FWHA) chief counsel Marcus Lemon to the team.” [Sub required]


9) Arizona: Phoenix plans to open 35 charter schools in a poor area of the city. “It is an ambitious proposition for a state charter movement that so far has little to crow about. In Arizona, one of the first states to authorize charter schools, in 1995, the standardized test scores of charter school students are lower than for those in public schools.”


10) California: Gov. Brown reportedly plans to sharply increase spending on private prisons. “His plan sets aside nearly $500 million to pay for and administer prison contracts to take nearly 17,700 inmates, increases of $100 million and 4,700 prisoners over the current year. A little more than half of those prisons are out of state. The rest are community correctional centers, which could be run by local governments or private prison operators.” Projections show that the state would still be 3,000 inmates over what a federal judge has mandated.


11) California: Newport Beach may outsource lifeguard services at the busy Corona del Mar State Beach. “But the Lifeguard Management Assn., which represents Newport Beach’s full-time lifeguards, contends the city stands to save only about $30,000 a year even if operations at the state beach are cut to the bone. ‘It is going to be a different level of service,’ predicted lifeguard Capt. Boyd Mickley, the association’s president.” Controversy erupted in 2012 over a private lifeguard who was fired for saving a drowning swimmer in Florida.


12) California: June school board vote may shift the balance on “education reform” in Los Angeles. “‘In general, African American voters are suspicious of this whole education reform movement,’ said political consultant Eric Hacopian. ‘They think of it as some Trojan horse for rich white people who want to privatize schools.’ (…) Union opponents also are expected to step in. They’ve included philanthropist Eli Broad and former Mayor Richard Riordan. In the last election cycle, they were joined by wealthy out-of-town contributors, such as former New York City Mayor Michael Bloomberg.”


13) Florida: Miami Beach cancels “public private partnership” to renovate its convention center. “Miami Beach has gone through at least two rounds of soliciting design ideas for the center, only to scrap them. Before getting the death knell by the City Commission, the most recent round had survived the arrest of the city employee tasked with handling it and the ouster of the Beach’s top administrator. But it didn’t survive the latest round of elections, when a mostly new commission that supported a smaller plan was swept into office.”


14) Georgia: University of Georgia seeks to privatize student housing; demands tax exemption to do it. The system “is pushing for an extension to private companies of the property tax exemption that currently exists for the properties on the campuses of the state’s public institutions. Extending that exemption—which is part of the overall plan to privatize student housing—would require a statewide referendum. Legislation is expected to be filed on Tuesday to begin the process of getting the exemption issue on the November ballot.” (Sub required)


15) Illinois: Sharply scaled back initial investment by the Chicago Infrastructure Trustnears closure. “Though modest in size, the city did accomplish its goal of borrowing for energy efficiency projects with a tax-exempt financing that keeps the loan off its balance and credit sheet and does not put taxpayers on the hook for repayment.” [Sub required]


16) Illinois: Long Grove, a Chicago suburb, may privatize its roads. “It’s going to create resentment that city hall has broken its contract to fix the roads, and that could lead to turmoil that tears at the social capital of a community,” warns Joseph Schwieterman, a DePaul University transportation professor.


17) Indiana: A new nonprofit organization to promote public education in Indiana has been formed. Gives “7 reasons why public dollars should stay with public school students and should not be diverted to help private schools.” The Indiana Coalition for Public Education “is a new bipartisan, nonprofit organization. Its mission is to focus public tax dollars on the K-12 education of public school students by opposing legislation in the Indiana General Assembly that would fund private school vouchers, expand private school tax credits, privatize charter schools by allowing private colleges and agencies to be authorizers, put for-profit managers in place to take a profit from operating public schools and privatize public schools through any other means.” [ICPE website]


18) Louisiana: The Times-Picayune takes a favorable look at the work of Legislative Auditor Daryl Purpera and his staff, and asks why Gov. Jindal has now brought in a private firm, Alvarez & Marsal, to give him ideas on cost-cutting. While noting that Purpera’s office “has blown holes in the Jindal narrative of his cost-conscious, results-oriented management,” the newspaper says “the resulting bad press, perhaps, has something to do with the administration now bringing in its own efficiency experts to help it find ways, if not to do its job better, at least to do it for less, which makes for just as good a headline.”


19) Louisiana: Negotiations drag on over whether the federal government will finance Louisiana’s hospital privatization plan, which has already been implemented. “Lawmakers have said they’re nervous about starting deals that involve hundreds of millions of dollars in federal Medicaid cash, without first getting an endorsement of the financing plans, particularly in a state that has had to repay improperly spent Medicaid money in past years.”


20) Michigan: The Lansing school board will vote this Thursday on whether to outsource the district’s school bus services to Dean Transportation. Bus drivers represented by AFSCME Council 25 protested outside a council meeting last week. “‘How are they going to pay more, replace all these buses, make a profit and still come in cheaper, it just doesn’t add up,’ said Dan Hamilton of AFSCME Council 25.”


21) Nevada: Officials approve the $1 billion Project Neon road improvement “public private partnership.” “The private partner would front all of the construction costs through a private financing method that NDOT would repay over a 35-year period, said Scott Magruder, an NDOT spokesman. Financing it this way enable the department to stretch out payments over a longer time period, because the state doesn’t bond for maturities over 20 years.” [Sub required]


22) New York: As Mayor de Blasio takes office, a moment of truth looms over the future of charter schools and public education. “State funding for the schools exploded from $32 million, for the 17 charters that existed when [former Mayor] Bloomberg took office in 2002, to $659 million, for the 125 charters in existence as of 2010-11, the most recent year for which funding data are available.”


23) New York/New Jersey: The troubled Port Authority of New York and New Jersey, which has been caught up in the “bridgegate“ scandal, sees the departure of more key staff. David Tweedy, the Port Authority’s chief of capital planning, left in December for the “public private partnership” practice of the Canadian Imperial Bank of Commerce. [Sub required]


24) North Carolina: The state cancels its contract with CGI, the company that was recently terminated by the federal government for its poor work on the rollout of the Affordable Care Act website. CGI has had problems in a number of states. “State officials have agreed to pull the plug after spending $85 million on a tax computer system project that was supposed to handle the processing of tax forms and other tax information for years ahead.”


25) Pennsylvania: Auditor General to take a close look at the Department of Education. “The big thing we’re looking to find out is why there are so many gaps in accountability with public schools, with charter schools and cyber charters,” Eugene DePasquale says.


26) Pennsylvania: As lawmakers discuss the possible privatization of state liquor stores, the Liquor Control Board appoints a new acting executive director, John E. Metzger. The LCB “been imploring the legislature to allow it more flexibility in pricing and hiring; let it open more stores on Sundays as well as keep them open later; and allow Pennsylvanians to have wine shipped directly to their homes. There has been no legislative movement on any of those initiatives on the LCB’s wish list.”


27) Pennsylvania: The Philadelphia City Council issues a request for proposals for a consultant to look at alternative uses for the Philadelphia Gas Works, which Mayor Nutter is trying to privatize. “Council’s quest for independent advice appears to be setting the stage for a contentious sale process, which will require Council approval.” The deadline for responses is January 29.


28) Texas: Lakeway officials insource building inspection. “From the city’s perspective, when you have in-house inspectors, you have much better quality control and flexibility, but when you outsource city services, you get involved in a lot of contract management, and if things aren’t clearly spelled out in the contract, it makes it difficult to get involved.”


29) Virginia: The state is to spend an additional $82.5 million to reduce tolls on the Midtown and Downtown tunnels “public private partnership” project in Hampton Roads. “Elizabeth River Crossings Opco LLC, a partnership of Skanska Infrastructure Development and Macquarie Group, has a 56-year contract with the state to finance, design, build, maintain and operate the project.” While pleased with Gov. McAuliffe’s action, Mayor Portsmouth Mayor Kenneth I. Wright says he is “extremely disgusted” with the tolls.


30) International: Opposition Labour Party says the British Royal Mail was “sold on the cheap” when it was privatized for £3.3bn. “Major banks including Citibank and JPMorgan, alongside analysts Panmure Gordon, valued Royal Mail significantly above the price at which it was sold, suggesting valuations as high as £4.5 and £10bn.” The Royal Mail announced price hikes last week, “months after being sold on the cheap by the Government.”


31) International: A high speed rail line between the U.S. and Mexico may be in the works. The line, between San Antonio and Monterrey, would require deregulation in Mexico. “Ongoing reforms in Mexico will open what had been a monopolized rail industry to private investment.” Officials on the U.S. side have requested funding for a study. “Once we have route selection, then this will be available for us to participate in discussions to bring in the private sector,” the Texas transportation commissioner said.


32) International: Global infrastructure major dealmaking was down nearly 40% year-on-year in fourth quarter 2013 (p. 35), according to Allen & Overy. Says “the infrastructure sector faces one, now familiar, problem—too much capital chasing too few assets.”



Legislative Issues:


1) National: The House Transportation and Infrastructure Committee has created a panel to promote “public private partnerships.” The Bond Buyer comments, “what a difference several years another chairman can make. Former committee chair Rep. Jim Oberstar, D-Minn. had been very suspicious of P3 projects. He and Rep. Peter DeFazio, D-Ore., had urged state officials and legislators not to enter into P3 agreements that were not in their best interest. At one point, Oberstar wanted Congress to approve legislation that would subject all P3 agreements to scrutiny by federal officials.” [Sub required]


2) National: Rep. John Mica (R-FL) says “he plans legislation ‘one way or the other’ to privatize all federal [airport] screeners within two years. He would leave TSA in charge of gathering intelligence, setting standards and running audits.”


3) Georgia: Legislation is expected to be introduced today to extend tax exemption to private companies to operate University of Georgia system student housing (see above).


4) Georgia: Child advocates say Gov. Deal’s move to privatize state foster care is too hasty. “A bill could be introduced this session that would call for changes as early as 2015, said sources familiar with the legislation.” The state “has already implemented a series of reform measures, and some advocates say they want to see what’s working before taking a new direction.”


5) Idaho: Legislative budget writers approve $1.9 million to train correctional officers and other staff to run the Idaho Correctional Center, which will revert to state control later this year. “The Joint Finance-Appropriations Committee still must approve the new operating budget for the prison—expected to be about $25 million—but the money for the new hires had to be approved right away to give the state time to hire and train the guards.” The Twin Falls Times-News reports that “in all, the state expects to employ 356 workers at the prison.”


6) Indiana: A bill to block the privatization of the supplemental annuity payment to government workers and teachers goes to the House Ways and Means Committee. [HB 1075]


7) New Jersey: A bill has been introduced to allow for the establishment of countywide purchasing system for certain school district services in certain counties, offer employment protections for food or custodial services employees, and regulate subcontracting by districts and public higher education institutions. [S 679]


8) New York: A bill was reintroduced on January 8 to require all public authorities owning, leasing, and controlling critical infrastructure to study the potential consequences of privatization. It has been referred to the Standing Committee on Corporations, Authorities and Commissions. [A 5588]


9) Oregon: Democratic lawmakers focus on making state contractors accountable. “Democrats intend to introduce a bill requiring third party oversight on contracts with the state whose value is more than $1 million. (…) [House Majority Leader] Hoyle said the state should ensure future contracts with third-party vendors are not just worded correctly but are also in the best interest of the state.”


10) Oregon: With a possible November referendum on liquor privatization in the cards, the state legislature is considering a compromise bill, but some lawmakers are concerned about its potential impact. “With large grocers selling, the number of liquor outlets would top 600, [the head of the state liquor board] said. The state now has 248 state-licensed stores, which employ about 1,000 people.”


11) Texas: Gov. Haslam is to bring back the school voucher bill. “‘My major problem with vouchers is financial,’ said House Minority Leader Craig Fitzhugh, D-Ripley. ‘When you take away from already a very limited pool of funds and, just frankly, give it to a private school, it certainly hurts the public schools.’”


12) Tennessee: Bill introduced to authorize the commissioner of safety “to commission private armed guards as state facility protection officers for state buildings in Davidson County.” [HB 1496]


13) Virginia: Lawmaker moves to protect the Port of Virginia board of directors from political interference. “Former Gov. Bob McDonnell’s efforts to privatize operations at the Port of Virginia failed last year, after the port authority’s board of directors voted to stick with longtime, quasi-public operator Virginia International Terminals Inc. But lawmakers approved a raft of measures to prevent a similar effort from being made again. This year, they’ll consider another change, one designed to prevent a repeat of the 2011 decision by McDonnell to abruptly dispense with 10 of the port authority board’s 11 members.”


14) Washington: Gov. Inslee proposes legislation to privatize mental healthcare in the state. “What the proposal does not do is give private insurance companies a chance to compete with counties for the care. Inslee had proposed opening up bidding to the private sector in response to a federal mandate to rebid mental-health services. And his budget, in fact, assumes that will happen. But that’s not part of the bill.”

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