Update: Upcoming Outsourcing Issues. May 12, 2014


1) National: Nossaman, a leading law firm in privatization deals, is circulating draft model social infrastructure “public private partnership” legislation to the states. The legislation provides for “alternatives” to traditional public sponsorship; flexibility on a project’s duration; allowing private partners to participate “in the evaluation and negotiation of public-private agreements”; the bundling of multiple public facilities into one package for P3 deals; stronger eminent domain powers; and permits unsolicited proposals. [Model P3 legislation]


2) National: Carlos Garcia of Puente Arizona discusses how immigration detention “bed quotas” contribute to the record number of deportations.


3) National: State Tax Notes praises the work of Good Jobs First in a detailed profile. “Good Jobs First doesn’t just promote transparency with reports, however—it also offers tools. On February 24 the group launched Subsidy Tracker 2.0, an expansion of its online database of corporate subsidies.” [May 5 issue, sub required; see also David Brunori’s blog]


4) National: Corrections Corporation of America announced its quarterly earnings last week. CCA fell short of analysts’ expectations on revenue, and its revenue was down 3% compared to the same quarter last year. Net income was also down. CCA CEO Damon Hininger admits that “we’re sitting here today with occupancy in the mid-80s, which is similar to where we were about 10 years ago coming out of the last recession.” Questioned about Utah, Hininger says “nothing really notable to share today. The state is taking the steps to do an assessment on what would be the best course of action on their behalf to deal with their Draper facility. (…) So it could be probably third, fourth quarter until we get more clarity on kind of what the state does going forward and how we can provide a solution as they go through that process.” He expects a decision on the West Virginia procurement “in the coming weeks.” [Earnings call transcript].


5) National: “Public private partnership” advocates are increasingly concerned about how to manage the operations and maintenance components of some PPP projects.DBFOM road concession projects, while rare, do occur, e.g. in the I-4 Ultimate road rebuilding project. “You can’t hedge O&M risk,” says an industry expert. [Public Works Financing, April 2014; sub required]


6) National: This is Infrastructure Week, sponsored by the U.S. Council on Competitiveness, the U.S. Chamber of Commerce, the AFL-CIO, the Brookings Institution’s Metropolitan Policy Program, Building America’s Future, 1776, the Organization for International Investment, the Value of Water Coalition, and the National Association of Manufacturers. [Calendar]


7) National: The Southern Poverty Law Center has warned that extreme right groups are using the legitimate debate about Common Core standards to undermine public schools. “Also fueling this viewpoint are advocacy groups funded by David and Charles Koch billionaire industrialists who have funded many conservative causes and political candidates. The report quotes a story published last January by Politico that tells about a draft action plan by the Koch-affiliated FreedomWorks group aimed at undercutting public schools.” The SPLC report says that “this fight comes at a time when the public school system has already been weakened by deep funding cuts, vitriolic political attacks on teachers and their unions, and state efforts to privatize schools through vouchers, charter schools and other ‘school choice’ measures.”


8) National: States are saving money by abandoning no-bid bond sales, Bloomberg reports. “Wall Street banks are fighting for dwindling business. The municipal market shrank the past three years as officials hesitated to embark on projects even with yields close to generational lows.”


9) California: Los Angeles Metro cancels the ARTI “public private partnership” project, casting doubt on the viability of P3s in California. Caltrans “now requires that the public and private developers who want to build tolled express lanes on its road system must agree to pay for [operations and maintenance] not only on their new managed lanes but also on the state’s general purpose lanes in the same corridor.” California’s P3 enabling legislation, SB 4, expires in 2016. [Public Works Financing, April 2014; sub required]


10) California: An important court case will affect privatization of California’s coastline. Surfers are suing a billionaire over access to the sea. Venture capitalist Vinod Khosla “gated shut the beach’s only public access road, which runs through the private property.”


11) Colorado: As the new Denver Union Station Transit Center opens after years of renovation, Rapid Transit Denver holds a public panel discussion on “public private partnerships.”


12) Florida: Plans for a privately-owned toll road across southern Pasco County are on life support because public subsidies will not be available. “We created a climate in Florida that we’re open to these sort of proposals,” Florida Transportation Secretary Ananth Prasad said. “But hopefully we’ve been able to demonstrate to Pasco County that just because we’re open, we’re still going to be very good stewards of our taxpayers’ interests—that if it doesn’t make sense, we are capable of saying no.”


13) Florida: The FDOT has selected a  team to design, build, finance, operate and maintain the I-4 Ultimate “public private partnership” project. “Of the four finalists competing for the largest P3 contracts in the U.S., only  Skanska/Laing’s team and one other priced their annual availability payments [government subsidies] under the affordability cap set by FDOT.” The concession and subsidies are for 40 years. [Public Works Financing, April 2014; sub required]


14) Idaho/Connecticut/Vermont: Maximus is sued again by laid off workers at its Obamacare Idaho call center. In Connecticut, Maximus “is refusing to release invoices and contracts to show exactly how much they are paid by the state.” But when WNPR, the media outlet that has reported on the Connecticut case, asked Vermont for their contract with Maximus, the state released it immediately. [Maximus contract with Vermont]


15) Illinois/Indiana: The two states have signed an agreement on how they will cooperate in the joint development of the Illiana Corridor “public private partnership” road project. It covers financing, toll policy, operations and maintenance policy, environmental requirements and other issues. [Text of the agreement] The Chicago Tribune says that the agreement proves that the Chicago Metropolitan Agency for Planning was correct to oppose the deal on cost and other grounds. “The public shoulders the risk in this supposed public-private venture.”


16) Indiana: Complex negotiations are under way to restructure the Indiana Toll Road’s financing under Chapter 11 bankruptcy protection. The leading European banks are “not comfortable” with the restructuring, and the hedge funds that picked up some of the debt after the 2008 financial crisis “may be at odds” with “the original 46 syndicated lenders.” [Public Works Financing, April 2014; sub required] The ITR was once hailed as a model road privatization project.


17) Indiana: Proposals are due at the end of June for the $400 million Indianapolis Justice Center. The project is a publicly-subsidized DBFOM “public private partnership.” Three groups of companies have been shortlisted to bid. Officials hope to close the deal by the end of the year. The project will include “a new adult detention center, community corrections facility, courthouse, law office building, juvenile justice center, sheriff’s department and new parking facilities.” [Public Works Financing, April 2014; sub required]. Real estate brokers have said the project could harm downtown Indianapolis.


18) Louisiana: Gov. Jindal’s privatization plan for LSU’s Lafayette Hospital “was running $6 million over budget by April’s end,” the Times-Picayune reports. “The issue comes as federal officials rejected financing plans for six of the hospital privatization deals. The Jindal administration is trying to broker a compromise with the federal agency that oversees the Medicaid dollars that pay for much of the patient services.”


19) Massachusetts: Hanover residents pack a town board meeting to oppose privatization of the town’s trash transfer operation. “Then, a replacement article was suggested — one that would simply forbid town officials from leasing the transfer station. It passed unanimously.”


20) New Jersey: Paterson schools administrative shakeup prompts worries about privatization. Peter Tirri, president of the Paterson Education Association, says “if they keep changing the structure of things, that leads to instability, and instability leads to failure, and failure leads to the state wanting to sell off our schools.”


21) New York: A petition drive has started to oppose the privatization of Pine Haven Nursing Home and Rehabilitation Center in Philmont. And a Republican Supervisorhas written to all county supervisors opposing the plan. [savepinehaven.com]


22) Pennsylvania: Turmoil hits the privately-managed convention center in Philadelphia, as new work rules are adopted by the board.


23) Tennessee: Gov. Haslam (R) signs a controversial bill that allows for women to be criminally charged if they use drugs during pregnancy. “One organization with a definite interest in anything that includes possible jail time is Nashville-based Corrections Corporation of America, the country’s largest for-profit prison company. CCA does not make itself scarce in Tennessee politics. In 2013 alone, the corporation contributed nearly $60,000 to state politicians, including $10,700 to Gov. Bill Haslam.”Only 10 states provide pregnant women with priority access to state-funded drug treatment programs.


24) Tennessee:  Hedy Weinberg, executive director of American Civil Liberties Union-Tennessee writes “incarcerating people should be the government’s responsibility. The government has a vested interest in protecting public safety and reducing both the number of people behind bars and recidivism. [Corrections Corporation of America] has a vested interest in people racking up ‘frequent-flier’ miles in its facilities.”


25) Wisconsin/National: As the landmark Brown vs. Board of Education Supreme Court school desegregation ruling marks its 40th anniversary this week, University of Oregon professor Gordon Lafer takes a critical look at Rocketship, a chain of privately run charter schools. “The Metropolitan Milwaukee Association of Commerce is promoting Rocketship schools here, and MMAC President Tim Sheehy sits on the Rocketship board of directors. Rocketship relies on inexperienced teachers, almost one-third of whom quit last year. It saves money by having students as young as kindergarten spend one-quarter of their day in front of a computer screen with no licensed teacher present. It offers no library or librarians, no music classes, no guidance counselors and no foreign languages. In short, it’s a model that no suburban parents would accept for their own children—and indeed Rocketship is only being promoted as an option for children who live in poor cities. Hardly what the Supreme Court had in mind.” [Lafer report; Public TV interview; see also the Center for Popular Democracy & Integrity in Education report on charter schools]


26) Wisconsin: Wauwatosa School District Superintendent Phil Ertl is asking the school board to outsource the jobs of 40 custodial workers. Joe Mellon, a commenter on the story from New Jersey, writes “trust me coming from a school district that outsourced to ‘save money,’ well we didn’t, in fact we are now on our 2nd contractor in 4 years. Aramark, the first contractor bombed so much that they were calling local janitorial services to ask if they had any subs that wanted to work (I know I was one of the ones they called). Now our school district (Winslow Township in NJ) is looking for a new contractor. We were told how much money the district would save and we as residents would see our taxes lowered, well I am still waiting to see that. Also, I was a custodian at the district for 8 years and lost my job to people making $8.50 an hour, do you really think someone making $8.50 an hour is going to care if your kids classroom is clean…HA.”


27) International: Macquarie appoints a new CEO at its Mexican infrastructure fund. Macquarie’s Mexican unit “targets investments in a number of infrastructure sectors, including transportation, water, energy and utilities, communications and social infrastructure.” [Sub required]


28) Think Tanks: The National Employment Law Project releases a report on labor accountability standards in outsourced work by private companies. “Anecdotal evidence suggests that the ambiguous legal status of many workers in contracted jobs is one of the central factors driving lower wages and poor working conditions in our economy today.”


29) Think Tanks: The Tilberg Law and Economics Center has published a report on risk allocation and value for money (VfM) analyses in “public private partnerships.” The report “concludes that, from an academic perspective, the majority of PPPs do not create VfM (government reports usually reach the opposite conclusion).” The authors “provide evidence that government reports are biased in favor of PPPs and present possible explanations.”


30) Think Tanks: The Brookings Institution and KKR, the private equity firm, have published a white paper on infrastructure development. It proposes “customized solutions to distinctive challenges” in different sectors and particular projects; and “defining and designing infrastructure investments from the bottom up.” In an interview accompanying the release, Brookings’ Robert Puentes says “the challenge we’ve had on the national level is that we’ve talked about infrastructure in the abstract and it’s resulted in things like the National Infrastructure Bank, which is fine and we definitely think it has a role to play but it’s almost a cartoon-y approach to infrastructure. You have to get very specific on these sectors.” [Sub required]


31) Think Tanks: The Reason Foundation continues releasing parts of its 2014 Privatization Report, including its recent chapter on state privatization initiatives. Reason continues to defend private prison companies, arguing that widespread criticism that they are driving incarceration rates up should be balanced against these companies’ “evolution” toward providing more services in areas such as community corrections, home detention and day reporting centers.


32) Resources: PPP Canada has published three papers on “public private partnerships” covering cost estimates in schematic designs, municipal economies, and a “Procurement Options Analysis Guide.” See also “The Valuation of Public Projects: Risks, Cost of Financing and Cost of Capital” by the C.D. Howe Institute.



Legislative Issues:


1) National: The House passes legislation to encourage charter school growth by increasing federal funding. The Nation’s Zoë Carpenter reports that lawmakers “refused to allow debate on amendments from [Rep.] Grijalva regarding open board meetings, public audit requirements and conflict of interest guidelines—regulations that traditional public schools work under.”


2) National: House and Senate lawmakers announce agreement on the water resources bill, which will provide for some “public private partnerships.” Senate Environment and Public Works Committee chairwoman Barbara Boxer is expected to make her multiyear highway funding bill public today, with markup to follow later this week.


3) National: Eric Peterson of Hawkins Delafield and Steve Howard of Barclays analyze tax exempt financing for “public private partnership” projects in various sectors, and call for federal legislation to include social infrastructure projects in tax exemption rules. [Public Works Financing, April 2014; sub required]


4) Michigan: “Public Private Partnership” legislation fails to pass the state legislature. “The proposal sparked extended debate over toll roads—it would allow for ‘user fees’ on new highways or added lanes—and remains in committee.”


5) Wisconsin: Legislative oversight of the state’s troubled effort to overhaul its IT system has lagged. “Three years from completion, the project has spent $33 million so far. But lawmakers aren’t deeply engaged—the legislative committee charged with overseeing costly IT projects hasn’t bothered to meet in years, although a 2007 audit singled out the panel for the same poor oversight. In response to questions from theMilwaukee Journal Sentinel, the committee’s co-chairwoman said she would seek to hold oversight hearings on the project.”

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