Update: Upcoming Outsourcing Issues. June 9, 2014


1) National: In the Public Interest releases a report on how outsourcing public services contributes to inequality. “A growing body of evidence and industry wage data suggest an alarming trend: outsourcing public services sets off a downward spiral in which reduced worker wages and benefits can hurt the local economy and overall stability of middle and working class communities.” Salon interviews ITPI research and policy director Shar Habibi on the findings of the report. ITPI executive director Donald Cohen summarizes the report in an op-ed in The Hill. [Race to the Bottom]


2) National: Lazard Freres says that privatizing the Tennessee Valley Authority would be a bad idea, rejecting an Obama administration proposal. But the administration continues to defend the idea. “The Office of Management and Budget is continuing a strategic review of TVA, which benefits by implied but not direct federal backing of its bonds.” [Lazard report; supplement]


3) National/Texas: Public Works Financing  dissects the “new model for P3 lite” that was used to procure the $850 million SH 183 managed lanes project in Texas. “The hybrid gap-finance/DBOM approach used by TxDOT replaces the concessionaire’s equity buffer with short term bank or balance sheet financing arranged by design-build contractors, who also take major maintenance and handback risk for 25 years.” Public subsidy and pass-through shadow toll approaches were rejected. [Public Works Financing, May 2014; sub required]


4) National: On Federal News Radio, American Postal Workers Union President Mark Dimondstein discusses the Stop Staples campaign and what privatizing the Post Office means to employees in both the public and private sector. [Audio]


5) National: The Washington Post picks ups Alan Singer’s report on “Why Hedge Funds Love Charter Schools.” Singer points to a significant Federal tax benefit under the Community Renewal Tax Relief Act, which allows investors to double their money in seven years; and tax benefits and subsidies to the real estate industry. “The [Miami] Herald called south Florida charter schools a ‘$400-million-a-year powerhouse backed by real-estate developers and promoted by politicians, but with little oversight.’”


6) National: Transurban, the Australia-based road privatization company, is hiring a Director of Project Development to work out of its Alexandria office. [Detailed job description]


7) National: Republic Services Sr. VP of Finance sizes up the solid waste privatization market for investors at a Deutsche Bank conference: “Public-private partnerships would be the business opportunities that we see in privatization. It’s kind of a slow and steady process, kind of goes in spurts, a little bit hard to model but it’s something that we do have a dedicated sales team in place now to focus on these opportunities. Some of the more notable transactions we’ve had in recent history were privatizing both Flint, Michigan and Toledo, Ohio.” [Sub required] Republic Services’ June 2014 investor presentationreported that the company made $37 million in revenue from privatization from 2011-2013 (Slide 13).


8) National: Daniel Ross looks at the privatization of probation collections in the South. “Over a period of seven years, Elvis Mann, from Childersburg, Alabama, had been diligently paying off nearly $9,000 in fines and accumulated fees stemming from two traffic violations. Mann, whose monthly income consists of $800 in disability benefits, still had $2,400 left to pay, but decided to stop making the payments through sheer disillusionment. Summoned to court by [Judicial Correction Services], the judge ordered that he pay $500 before the end of the day to avoid prison. After going around to churches and friends with cap in hand, Mann’s wife only just managed to scrape the money together.”


9) National: The Federal Highway Administration and Federal Transit Administration are seeking public comment on “proposed revisions to the regulations that govern the development of state transportation plans and programs, metropolitan transportation plans, and the congestion management process.” Comments are due September 2. [Notice of Proposed Rulemaking; submit a comment]


10) National: Goldman Sachs posts a short video on water “public private partnerships“ from a conference it held in February. “Topics ranged from securitization and yield vehicles to green bonds and innovative public-private-partnerships, among others.”


11) California: Cathrina Barros, president of Professional Engineers in California Government, writes that outsourcing is delaying road improvements in the state. “Caltrans outsources nearly 1,000 jobs per year at an annual waste of more than $100 million. This money could be used to fund construction, create jobs, reduce traffic congestion and improve air quality. Local agencies also outsource most of their highway engineering work using no-bid contracts. While seeking additional funding to improve our streets and highways, the governor and Legislature would be well advised to stop wasting public dollars by awarding contracts to private firms at twice the cost of having the work performed by public servants.”


12) Colorado: Industry’s power and influence was key to killing a “public private partnership” transparency bill last week, according to Public Works Financing. The Associated General Contractors, American Road and Transportation Builders Association, and Association for the Improvement of American Infrastructure “variously contributed to the statewide campaign to get Gov. Hickenlooper to veto SB 14-197, the Transportation Enterprise Transparency Act.” [Public Works Financing, May 2014; sub required]


The Drive Sunshine Institute says that Gov. Hickenlooper’s veto “has triggered a legal challenge to the privatization of US 36 and other Colorado highways.” The institute has launched a lawsuit and seeks an injunction “against C-DOT, the toll road developer Plenary Group of Australia and Goldman Sachs who is now selling bonds on Wall Street in violation of Federal Security laws. The US 36 bonds were not authorized by valid government process and are not tax exempt.”


13) Connecticut: New Milford may privatize its recycling center. The mayor is forming a committee to look into the matter, and bids would be issued. “Bethel considered privatization in 2008-09. Bids were received from two contractors, but the town decided not to move forward. ‘It would vastly increase the truck traffic in town,’ Bethel First Selectman Matt Knickerbocker said.”


14) Florida: Suwannee County is to outsource primary care to Palms Medical Group beginning July 1. “The Medicaid funding that we receive has dropped for several years. (…) Wainwright asked Blackmon if Palms Medical Group could come in, offer primary care services and be successful, why couldn’t the county do the same? ‘They are a qualified federal health center and they receive special funding from the federal government to provide (primary care) services to the uninsured and under insured population,’ Blackmon said. ‘We receive very little funding to do that … we’re not a federal qualified health center.’”


15) Illinois: Wealthy school “reform” activists take aim at two statehouse races.


16) Louisiana: The Advocate reports that “about a third of the savings identified by a private analyst looking for ways to cut down costs in state government are tied to changes to health insurance used by about 230,000 state workers, retirees and their families.” Retired State Employees Association Executive Director Frank Jobert says he is exploring legal options. “‘They are changing the rules in the middle of the game,’ said Jobert. ‘I’m asking myself now if they can in fact change the rules and benefits in the middle of the plan year … even the rate increase.’”


17) Massachusetts: The newly elected head of the 110,00 member Massachusetts Teachers Associationtakes a tough stand on defending public education. “She says teacher assessments and testing are part of the ‘general assault on public education by people who are looking to privatize it, to profit off the public dollar, and to bust our unions.’” [Audio of Barbara Madeloni’s speech to the MTA’s annual meeting]


18) Minnesota: As the new Vikings stadium begins to take shape, a new public park that was to be part of the project is still to get off the ground. “Former Minneapolis Mayor R.T. Rybak, a major architect in the deal wrote an editorial in the Star Tribune saying after he left office ‘they negotiated another agreement that shocked me.’ Rybak continued saying the agreement ‘essentially gives them the right to privatize the space for much of each autumn.’”


19) Mississippi: Raising further troubling questions about prison privatization, a New York Timesinvestigation exposes “squalor and unconcern” in the privately-run East Mississippi Correctional Facility. The facility is now being run by Management and Training Corporation, which took over for the Geo Group after a similar scandal at the facility. “Photographs taken during the tour and obtained by The New York Times showed charred door frames, broken light fixtures and toilets, exposed electrical wires, and what advocates said were infected wounds on prisoners’ arms and legs, offering an unusual window into a prison at the center of a legal controversy.”


20) New Jersey: A state report advocates deep changes in the bail bond industry. “SCI investigators reported that the industry also includes agents with extensive criminal records. In addition, the report said, runners were used to create business inside jails, giving some criminals a cut of the proceeds for referrals, ‘a practice that, strikingly, is not a crime here as in other states.’”


21) Oregon: Liquor distribution privatization supporters abandon their efforts to get a measure put on the ballot. Petition committees spent about $2.5 million on the failed effort. “An opposition group had recently released a study that showed privatization polling poorly.”


22) Oregon: BNSF and Union Pacific have demanded that Oregon officials sign confidentiality agreements about where crude oil is being transported in the state. This despite the fact that the companies are under federal order to give the state the information. “In Washington, state officials have refused to sign those agreements, saying they would violate the state’s public records law. Oregon is still deciding what to do. ‘We want to provide as much information as we can,’ said Sue Otjen, Oregon’s State Emergency Response Commission coordinator. ‘We need to know to what extent we can disclose it.’”


23) Pennsylvania: After a bitter battle, parents at Luis Muñoz Marín Elementary have voted to keep their school a part of the Philadelphia public school system, “rejecting a charter organization’s takeover proposal. (…) In a separate vote, 11 members of the school’s advisory council wanted to remain with the district. None voted for ASPIRA.”


24) Pennsylvania: Gov. Corbett’s tab for using outside private counsel tops $100 million over three years. “With Corbett’s failed attempt to privatize the state lottery—for which the state paid DLA Piper in Philadelphia $2.1 million—and a separate gay marriage case, the state has spent $4.5 million on outside counsel for losing causes.” Legal initiatives in some states have included prohibiting contingency fees, more transparency on attorney contracting, and requiring bids for contracts over $1 million.


25) Pennsylvania: The Philadelphia Inquirer profiles the CEO of UIL Holdings, which has bid to take over the public Philadelphia Gas Works. “According to its first-quarter earnings report, UIL has already spent $6.9 million for advisers and financing fees for the acquisition.” James Torgerson, the paper writes, “is not letting on” if the deal “is in peril.” The City Council “has declined to consider Mayor Nutter’s proposal until a consultant weighs in, creating apprehension that UIL might nix the deal if no action is taken before a July 15 deadline.”


Keith Holmes, president of the Gas Workers Union Local 686, has written a letter denouncing the deal. Holmes writes that “UIL’s public promises stand in stark contrast to the things they say in private, when the public’s not paying attention.” He points to job security, pension protection, fat fees for “the Wall Street brokers who put the deal together,” UIL’s credit rating, and possible rate increases tied to UIL’s tax liabilities. “UIL made similar promises on rates when it bought Connecticut Natural Gas, in 2010, yet the Connecticut Office of Consumer Counsel, in arguing against UIL’s proposed rate hike following the purchase, called UIL’s rate requests ‘overstated and excessive.’”


26) Rhode Island: The severely underfunded Department of Children, Youth and Families is placing children in group care at nearly twice the national average rate. There is “a more than $5-million shortfall from the two nonprofit agencies which DCYF contracted with to run programs for children in state care.”


27) Rhode Island: Providence considers privatizing its zoo. “While the city will spend about $2.7 million on zoo operations this year, the administration of Mayor Angel Taveras wants to phase out that support, arguing that others should pay a larger share of the tourist attraction’s operating costs.”


28) Utah/National: Sen. Howard Stephenson tells an ALEC education subcommittee “we need to stomp out local control.”


29) West Virginia: Concern mounts that the state may privatize its two public psychiatric hospitals in response to a lawsuit over the work environment. “House Majority Whip Peggy Donaldson Smith, D-Lewis, said she is particularly worried that the hospitals could be privatized or might hire more short-term, temporary contract workers. ‘A private owner could move Sharpe Hospital away from us,’ said Lewis, who represents the Weston area. ‘It would be a devastating thing for our community. It would be devastating for the people who work here.’” A court hearing is scheduled for Wednesday.


30) International: British developer Balfour Beatty sells its interest in two social sector “public private partnerships” for a profit of £51 million. “PPP disposals were generating higher gains than expected—a trend that has clearly continued in the face of a wilting primary UK PPP market and strong competition for secondary assets.” [Sub required]


31) Revolving Door News: Former transportation secretary Ray LaHood scores another position, as Caterpillar’s representative on policy matters.


32) Upcoming Meeting: 26th annual ARTBA “Public Private Partnerships in Transportation Conference.” July 16-18 in Washington, DC. Sponsored by the major corporations in the road privatization industry. Includes a session on “new developments in P3 research” presented by George Mason University’s Transportation P3 Policy Center. [Conference Agenda]



Legislative Issues:


1) National: The Senate Appropriations Committee has approved funding for the Transportation Department. Report language was included at Sen. Durbin’s request “to discourage the Department of Transportation from allowing cities and states to avoid repaying previously received federal funds when privatizing their airports. The report language also requires Government Accountability Office to study the airport privatization program and evaluate whether or not the public interest is protected in these privatization deals.” The Senate Finance Committee hopes to move a transportation funding bill out of committee by July 4.


2) National: Congress passes the Water Resources Reform and Development Act, which among other things requires the Secretary of the Army to provide the House and Senate with Value for Money assessments of all water resource P3 projects. To win approval, the study must show that a P3 approach protects the public interest and provides ‘better public and financial benefits than a similar transaction using public funding or financing.’” The bill is on the president’s desk awaiting signing. [Public Works Financing, May 2014; sub required; HR 3080]


3) North Carolina: Bills to privatize state economic development efforts move ahead after changes that critics warn will weaken public safeguards. “Critics of the partnership say the revised bills soften standards for what they call ‘pay to play incentive granting.’ An example would be a company making a donation to the partnership and then being allowed to apply for incentives with the N.C. Commerce Department. Allen Freyer, a public policy analyst with N.C. Budget & Tax Center, said it is ‘a step backward’ for the partnership staff and its board to not be subject to the State Ethics Act. Instead, the bills allow the partnership to set its own code of ethics and standards for conflict of interest.” [HB 1031;SB 743] The House bill is on the calendar for June 10.


4) Ohio: State Senate approves a bill to permit electronic tolling to pay for the $2.5 billion replacement of the Brent Spence Bridge, a “public private partnership.” The House has already passed the bill, which is now on Gov. Kasich’s desk.


5) Oklahoma: Gov. Fallin signs a bill repealing Oklahoma Common Core standards. “The state will now return to a pre-2010 set of standards for schoolchildren while the state develops a new set of benchmarks.”


6) Pennsylvania: The right wing Commonwealth Foundation thinks that pension reform legislation could be used to build a coalition to back liquor store privatization, which has been repeatedly defeated in the legislature. [Sub required] But the Keystone Research Center has called the new pension plan “a step backwards.”

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