Update: Upcoming Outsourcing Issues. May 27, 2014


1) National: Conservatives, including John Boehner, push for the privatization of the Veterans Administration in the wake of the scandal at the agency over treatment delays and a cover-up.The Wall Street Journal runs an editorial saying “the best solution is to privatize the system. At the very least veterans ought to receive vouchers that allow them to seek subsidized care from private providers that removes the VA as the choke point.” Others disagree, pointing to the VA’s record and to a RAND Corporation study that found “VA patients received consistently better care across the board, including screening, diagnosis, treatment, and access to follow-up.”


Joe Davis, national spokesman for Veterans of Foreign Wars, says “we’re against privatizing the VA system. To privatize the VA puts us on a waiting list with everyone else out in the United States.” This weekend the Obama administration said it would allow more veterans to get access to care through private health facilities to ease the backlog at the VA.


2) National: The issue of subcontractor risk is now being “fiercely debated” in the U.S. “public private partnership” market. “Up to now, the fledgling US market has been all about a handful of mega-projects overseen by blue-chip developers such as Kiewit and Skanska. But with deal flow now creeping into the mid-market space, smaller contractors are beginning to get a look in for the first time. This brings with it new challenges around projects being delivered on time and on budget—and who carries the can (and how) when that fails to happen.” [Sub required]


3) National: The New York Times reports on the widespread use of jailed migrants as a pool of cheap labor, including by private prison corporations. “Two private prison companies, the Corrections Corporation of America and the GEO Group, control most of the immigrant detention market.” The Times reports that last year, “at least 60,000 immigrants worked in the federal government’s nationwide patchwork of detention centers—more than worked for any other single employer in the country.”


4) National: Postmaster General Patrick Donahoe wants to expand public postal services to all 1,500 Staples stores in the United States. “The postal workers union views the deal as an attempt by management to escalate closings of post offices and privatize operations through a national retailer.” The move has spurred nationwide protests, which have attracted the attention of Wall Street analysts. A Morningstar analyst “said that if the pressure on Staples continues to mount, the company will probably pull out of the deal to avoid becoming embroiled in a controversy. ‘It’s hard to tell if these protests will gain traction, [Liang] Feng said. ‘If there really is national outrage, Staples will go and tell the Post Office that this isn’t what they had in mind.’”


5) National: Zachary Gappa of the John Jay Institute Center for a Just Society looks at the issue of reducing prison populations. “One particularly troubling trend is [Correction Corporation of America’s] attempts to swing deals in which their takeover of a prison from a state is contingent on that state promising to keep the prison at over 90% of capacity. There are all manner of terrible incentives at work when you involve market interests in the doling out of just punishments. Establishing justice (which includes executing sentences) is one of the most fundamental roles of government—it should not abdicate this role to a private company.”


6) National: The Project on Government Oversight urges the Defense Department’s Inspector General office to broaden its interpretation of the contractor whistleblower protection act. “Your office’s narrow interpretation of the law is not consistent with the intent of Congress. This is exactly the type of situation Congress wanted to avoid when it improved the statute in 2008 and 2013, expanding the appropriate officials inside DOD and company management to ensure that reports to such individuals would be protected.”


7) National: Diane Ravitch challenges the prevailing narrative about Common Core and the right wing, recently taken up by the Southern Poverty Law Center. The view is that “on one side are the extremist members of the Tea Party, fearful of a federal takeover. On the other side are ‘moderate’ Republicans like Jeb Bush, eager to make American students globally competitive.” Ravitch points out that Bush “is no moderate. He is an avid proponent of vouchers, charters, tax credits for private schools, and virtual charters. He is as eager to destroy public education as any member of the Tea Party.”


8) Illinois: The Chicago Public Schools is to expand its “options” program for at-risk kids. “CPS CEO Barbara Byrd-Bennett said she will ask the Board of Education to approve the plan at Wednesday’s meeting of seven new campuses, including three to the for-profit Magic Johnson Bridgescape and two to non-profit Pathways in Education in Illinois—and of letting more students into four existing campuses.” Chicago Teachers Union president Karen Lewis said these types of programs were “the intended purpose of charter schools before they got hijacked by the voucher movement.”


9) Massachusetts: Malden Mayor Gary Christenson wants to downsize and outsource custodial jobs. “Those services are currently provided by union custodians in most of the schools, but the city is looking at options to privatize those positions. The district currently has privatized custodians at Malden High School and Salemwood. Christenson said the plan was to extend privatization throughout the district through attrition, but added the city’s budget situation impacted implementation of that plan, saying the idea is to steer available resources toward the classrooms. Superintendent David DeRuosi said negotiations with the union are ‘at an impasse.’”


10) Massachusetts: Worcester Telegram & Gazette columnist Clive McFarlane looks at the financial stress that charter schools put on public school systems. “This continues to be the case, despite the state adopting a provision that reimburses the sending districts over a period of years for students who leave their system to attend charter schools. The state, however, is finding it increasingly difficult to maintain its reimbursement commitment. Two years in a row now it has had to provide additional reimbursement funding in supplementary budgets adopted well after school districts had worked out their budgets for the coming year.”


11) Michigan: Ann Arbor school budget proposes outsourcing 114 custodial jobs. “It’s not the only employee group the district could be seeking to privatize by the end of this year. Thirteen maintenance, carpentry and mechanical employees could also see their jobs put out to bid.” AFSCME has a right to respond with a bid to the RFP under Michigan law.


12) Michigan: Corporate finance consultant Clinton Andrews warns that if Detroit’s water system is privatized, residents will lose the legal and other protections that the current regulatory scheme provides. “When this happens, if Michigan has no law in place to regulate the new water producer, the public will be unprotected. And if after the sale, the state decides to pass new laws to regulate the water monopoly, it is almost certain that the corporations will use every lawful means available to protect their investment. Expensive and avoidable litigation could tie-up any new law in court for years if not for decades, while the public pays high prices for water.”


13) New Jersey: Trenton seeks to outsource public pool operations to a private, for profit company. “Mayor George Muschal said it was not his idea to privatize the pools, and he wants the lifeguards and personnel who worked in the pools last year to keep their jobs this summer. ‘I’ve got a problem with it,’ Muschal said. ‘Our individuals should have these jobs.’” Bids are due May 29.


14) New York: The Brooklyn Daily reports that a state assemblyman is trying to privatize part of Brighton Beach. “Sources say that Assemblyman Steve Cymbrowitz (D–Brighton Beach) is trying to broker a deal that would permit the swank, beachfront Oceana Condominiums to take over a section of the public shore—which they say explains the pol’s opposition to the high-rise public toilets the city is building in front of the complex.” The move sparked a public uproar in March.


15) New York: The New York Times criticizes Sen. Schumer’s idea to outsource collection of unpaid back taxes. “The last time the government tried to privatize collections, from 2006 to 2009, a handful of firms pocketed $16.5 million. But there was no increase in federal revenue—in fact, after accounting for administrative costs at the Internal Revenue Service, there was a net loss for the government of $4.5 million. A pilot privatization program in 1996-97 also lost money.”


16) Pennsylvania: A rejected bidder in the privatization of the Philadelphia Gas Works “is positioning itself to move into the breach if Mayor Nutter’s embattled plan to sell the utility collapses.” City officials say Liberty Energy Trust “is quietly promoting alternatives to Nutter’s plan to sell PGW to UIL Holdings Corp. of New Haven, Conn., for $1.86 billion. One alternative is to lease the utility’s liquefied natural gas (LNG) plant in Port Richmond, which would give its operator a key component in developing Philadelphia as a Marcellus Shale natural gas energy hub.” A consultant is currently evaluating the privatization proposal for the city council.


17) Pennsylvania: The state transportation department has issued a Request for Qualificationsfor a private contractor to supports its Wireless Telecommunications Partnership Program. Responsibilities will include “marketing Commonwealth properties as potential wireless antenna sites” and “negotiating and administering lease agreements.” Statements are due June 27.


18) Pennsylvania: The number of unprofitable public liquor stores in the state has plunged. “Lawmakers who want to privatize part or all of the system watch the LCB’s operations closely. The agency controls the wholesale and retail sale of wine and spirits at more than 600 stores across Pennsylvania.”


19) Texas: As the state launches a guarantee program for some charter school bonds, Standard & Poor’s warns of increased risk to some prior charter school investors. “The risk comes from a provision in state law that allows the Texas Education Commissioner to reduce state funds for a charter school that draws on state-provided reserves for its debt service.” [Sub required]


20) Virginia: Governor orders more transparency and tighter risk assessment for P3 projects. The Commonwealth Transportation Board calls for “an extensive and exhaustive review of the processes, policies, manual, and guidelines used by the OTP3 in soliciting, developing, negotiating, and implementing public private transportation projects in order to increase transparency, the competitive process, public involvement, as well as more direct involvement by the Board in the development, negotiation, and implementation of public private transportation projects.” Gov. McAuliffe says “I have asked Secretary Layne to work with the CTB to evaluate the state’s approach to public-private partnerships to ensure that we are giving Virginians the maximum return on their investment in those projects. P3’s are a great tool for accomplishing projects that would not otherwise get done, but only when they are negotiated to put Virginians’ best interests first.”


21) Revolving Door News: Former transportation secretary Ray LaHood has joined the French infrastructure fund manager Meridiam Infrastructure. LaHood “will be working closely” with Meridiam North America chair Jane Garvey, who is a former deputy administrator of the Federal Highway Administration and administrator of the FAA. [Sub required]


22) Think Tanks: Randi Weingarten of the American Federation of Teachers and Lisa Graves of the Center for Media and Democracy look into the school privatization industry, focusing on LifeSkills Academy and K12 Inc. “Take Ron Packard, K12’s former CEO. In 2012, he earned a base salary of $625,000, a ‘performance’ bonus of $584,375, a stock award worth $1.25 million, and stock options worth $1.5 million. But there’s more. The company matched 25 percent of his salary for his retirement fund. Now that’s a luxurious pension. And who funds this kind of deal? Taxpayers.”


23) New Report: GAO issues report on agencies that have taken steps to improve suspension and debarment programs for government contractors. “The number of suspension and debarment actions government-wide has more than doubled from 1,836 in fiscal year 2009 to 4,812 in fiscal year 2013. The number of suspension and debarment actions for the six agencies increased from 19 in fiscal year 2009 to 271 in fiscal year 2013.”



Legislative Issues:


1) National: Congress passes Water Infrastructure Finance Act, which President Obama is expected to sign. David LaFrance, CEO of the American Water Works Association, says “the imminent creation of the Water Infrastructure Finance and Innovation Authority is a significant breakthrough in confronting the U.S. water infrastructure challenge.” WIFIA is a federal-private financing program.


Food & Water Watch’s Executive Director Wenonah Hauter has denounced the bill as “a wolf in sheep’s clothing. WIFIA will give low-interest loans primarily to private water corporations, compete with the State Revolving Funds (SRFs) for federal resources and place inappropriate pressure on local governments to privatize their drinking water and wastewater systems. Cities and towns will not be able to use tax-exempt bonds to cover the portion of an infrastructure project that WIFIA doesn’t fund. This effectively makes WIFIA useless for most municipalities.”


2) National: Industry officials tell a House panel on “public private partnerships” that clear federal guidelines are needed for aviation public-private partnerships and privatization efforts to avoid local conflicts. “Congress should take the lead in developing P3 and privatization formulas that make sure that local taxpayers are not solely on the hook for billions of dollars in airport infrastructure spending,” said Andrew “Gil” Morgan, chief operating officer of Propeller Airports. [Sub required]


3) New Jersey: The State Senate Transportation Committee approves legislation to set up a transportation infrastructure bank. “But one of its strongest supporters said it may still be amended before it’s posted for a vote by the full Senate. ‘We’re working on some technical changes with (the DOT),’ said Evan Piscitelli, government affairs director for the Utility and Transportation Contractors Association of New Jersey. ‘The large picture of what the bill is trying to do won’t change, but we’re working to make sure that, line by line, everything is to the department’s and administration’s liking.’” The Senate budget committee will take up the bill June 5.


4) New Jersey: Charter school supporter introduces revised bill that would give local school boards more say in charter school approvals. “Right now, the public’s voice is silent,” Assemblyman Troy Singleton said. “Why don’t we say that it represent 30 percent (of the decision)? I saw this as a middle ground.” The bill is now with the Assembly education committee.


5) North Carolina/Oregon: As Oregon moves toward a ballot initiative on liquor privatization in November, North Carolina local distillers come out against privatization. “HB 842, a bill to allow distillers to sell bottles of their own products to customers that come to their locations for tours, has been pushed by the N.C. Distillers Guild. But I was surprised to learn that Oregon’s new potential avenue for liquor sales was not favored here.”


6) Oklahoma: Lawmakers privatize the state employee retirement plan to a 401(k) “despite concerns of opponents that it could force state workers to retire into poverty.” ““They’re going to line up for welfare,” Rep. James Lockhart said. “He said 42 percent of state workers already qualify for some form of state public assistance due to low salaries.”

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