Update: Upcoming Outsourcing Issues. June 23, 2014


1) National: Jumping on the Veterans Administration scandal, the pro-privatization Nossaman law firm plugs the San Francisco Veterans Administration Medical Center as a possible “public private partnership” candidate. Cites a Bay Area Economic Institute study from March. “Based on current delays in federal appropriations, the much-needed expansion project faces an estimated wait time of 10 to 15 years if delivered through conventional federal procurement methods. In contrast, the Economic Institute’s study finds that there is an immediate opportunity for the VA to pilot a P3 to design, build, finance, operate, and maintain the expansion project.”


2) National: The ACLU releases the results of its study of “immigrants trapped in our shadow private prison system.” The report reveals that “more than 25,000 low-security non-U.S. citizens languish at thirteen private prisons like Willacy under Criminal Alien Requirement (CAR) contracts. For years, these for-profit prisons have been able to operate in the shadows, effectively free from public scrutiny. That ends now.”


3) National/International: The leaked draft of a global trade agreement, the Trade in Services Agreement (TISA) Financial Services Annex, contains language that would “promote privatization of public services in countries across the globe.” Public Services International (PSI), a global trade union federation, “has reported that TISA threatens to allow multinational corporations to permanently privatize vital public services such as healthcare and transportation in countries across the world.” [PSI Special Report on TISA]


4) National: The Nixon Peabody law firm has beefed up its “public private partnerships” practice by naming Vincent Casey a new partner. “Some recent engagements include Penn Bridges, SH 183, I-4 Ultimate Project, Presidio Parkway, Denver North, Route 460, Midtown Tunnel, Denver FasTracks, Long Beach Courthouse, Missouri Bridges and SH 130 Toll Road .” Casey “has worked with virtually all of the key players in the P3 area, including sponsors, lenders, underwriters and TIFIA.”


5) National: GAO issues new report on “Additional Actions Needed to Improve Reporting on and Planning for the Use of Contract Personnel” in the intelligence community.


6) National: Education blogger Gary Rubinstein looks at the Vergara decision on teacher tenure in California, and the Gates Foundation’s statement “that test scores from Common Core aligned tests should not factor into teacher evaluations for the next two years.”


7) National: For-profit Corinthian Colleges Inc., which operates more than 100 campuses, warns it may have to shut down. “Corinthian has been under heightened scrutiny from the Department of Education since January, when the agency requested extensive documentation on student job placement rates and attendance records.”


8) National: Eric Strong calls on incoming HUD Secretary Julian Castro to “clean up contracting.” Strong is the CEO of Navigate Affordable Housing Partners, which provides administrative services to HUD in support of the Section 8 program in Alabama, Virginia, Mississippi and Connecticut.


9) California: Private foster care troubles in Los Angeles lead to closer scrutiny. “In Los Angeles County, the 46 foster family charities typically undergo financial audits once a decade. Of more than $11 million in inappropriate expenditures identified by auditors at foster care charities from 2000 to 2010, only about one-tenth has been recovered, county records show. And no effort has been made to get back millions more potentially owed the state, according to other county records and interviews.”


10) Florida: Gov. Scott approves the sale of four vacant prisons: Glades Correctional Institution, the Hillsborough County Correctional Institution, Hendry County Correctional Institution and Broward County Correctional Institution. “The sale of the four prisons will raise $21.9 million, which the state intends to use to purchase land for conservation and environmental preservation.”


11) Illinois: North Riverside may look to privatize some of its public services, including the fire department. The village is facing a pension funding crisis. Its finance committee will meet June 30.


12) Illinois: There was lots of hand-wringing over “public distrust and confusion over public-private partnerships“ at an industry conference organized by Lazard and the Chicago Metropolitan Planning Council at the beginning of the month. “Public private partnerships” are “in desperate need” of a communication effort, said Lois Scott, Chicago’s CFO [Sub required]. Scott formerly worked at Scott Balice Strategies, a privatization consulting firm that was bought out by PFM Group.


13) Indiana: Fitch assigns BBB rating to I-69 Section 5 project Private Activity Bonds. The project is a publically-subsidized “public private partnership.” Cites experienced contractor, sound revenue structure, that “handback risk” is “well mitigated,” and that “bondholders should be fully compensated in all instances that the project is terminated for reasons beyond the project company’s control.” [Fitch report; sub required]


14) Louisiana: J. Celeste Lay, a Tulane University professor, writes that the Charter school experiment in New Orleans is a failure. “It doesn’t matter that with all this choice, most kids in New Orleans have no greater educational opportunities than before. The focus on choice as opposed to results also obscures the fact that certain groups have profited substantially in the post-Katrina system.”


15) Louisiana/National: Former state senator James David Cain writes about how public employees’ group benefits were “raided after privatization.” Cain says “this Jindal administration should be held accountable as to where the $500 million trust fund went. Workers worked so hard to build this up, and it’s nearly gone after two years with higher rates and less benefits to the 250,000 families insured. This is a shame, and someone needs to be held accountable.”


16) Michigan/National: A mediation session will take place in New York tomorrow to try to resolve a dispute between Detroit and its holdout water and sewer revenue bondholders. “Detroit Emergency manager Kevyn Orr wants to repay in full the principal on the bonds, but refinance the debt to achieve savings in part by stripping out protections, reducing interest rates and subordinate debt service to other payments. Orr wants to privatize the massive Detroit Water and Sewerage Department by spinning it off into a regional authority or leasing it to a private entity.” [Sub required]


17) New York: Debate increases over the possible privatization of Southbridge Towers, “one of the last vestiges of affordable housing in Lower Manhattan.” Shareholders will vote in a referendum. “Ultimately chipping away significant confidence is that the sponsors, for whatever reason, recently attempted to ban the use of the Southbridge community room to certain groups, including the SBT Cooperators for Mitchell-Lama, for free, open, independent shareholder forums on the subject, necessitating the state Division of Housing and Community Renewal to contravene the ban almost immediately.”


18) New York: Orange County Executive Steve Neuhaus wants to lay off almost a quarter of the county’s budgeted positions. “Another major revelation that emerged from Thursday’s discussion was that the county plans to proceed with preparations to sell the Valley View Center for Nursing Care and Rehabilitation, despite a court ruling this week that invalidated the Legislature’s transfer of the facility to an independent board that was created to choose a buyer.” A re-vote is required to privatize Valley View.


19) New York: Rockland County officials want to privatize the Summit Park nursing home.


20) Oregon: Opponents of a “public private partnership” project to subsidize a hotel at the Oregon Convention Center threaten a “poison pill” tax to kill the proposal. “Political consultant Michele Rossolo, who is working with a coalition of competing hoteliers opposed to the project, told the council her group would introduce an initiative to levy a tax of about $5 million against all subsidized hotel projects if their efforts to put this project to a public vote failed.”


21) Pennsylvania: The City Council has successfully rebuffed pressure from Mayor Nutter to approve the privatization of the Philadelphia Gas Works before it had properly vetted the deal. As Nutter pushed lawmakers to introduce legislation to privatize the public utility, the council objected to his “bullying” behavior. The council has hired its own consultant to vet the proposed deal. “Council members have resisted the administration’s calls to introduce the legislation until Concentric Energy Advisors, a Massachusetts consultant it retained to evaluate the sale, can finish its work.” Council President Clarke says “this being the most significant municipal transaction probably in the history of the City of Philadelphia, it’s more important for us to get an accurate assessment of the proposal to make an intelligent and informed decision.”


22) Pennsylvania: Mercer County considers privatizing its jail, which opened in November 2005 at a cost of $21 million. A county commissioner “stressed that while they have no hard numbers, he ran a quick cost projection and found that the county could cut labor costs by half–which would save millions–if a private company took over the operations. One private company, Community Education Centers, toured the jail and made a presentation to the prison board [last] week on what they could offer.” Jail warden Erna Craig says, “when you tend to pay people $10 to $12 an hour, that’s what happens. I have great concerns for the rapid turnover they (CEC) described that they have with their company.” The decision could be made by the end of the year.


23) Tennessee: Wilson County firefighters are opposing a plan to privatize ambulance services. “Lieutenant James Copas, Vice President of the Wilson County Professional Firefighters Association, opposes privatization. He agrees the Mt. Juliet Fire Department needs to get bigger, but not by privatizing the ambulance service. Copas said, ‘We think it’s a mistake. We think it’s going to be a problem. Private companies are closing down across the country on a daily basis.’ He points to the trouble in Humphreys County earlier this year as prime example. In February Eagle Medical Service abruptly closed leaving the county without ambulance service.”


24) Texas/National: Inmates file a federal lawsuit over “dangerous living conditions” at several prisons. “The group claims at least 12 prisoners have died in the past three years from these high temperatures. (…) The complaint says, ‘the correctional officer’s union had made numerous public requests for the prison housing areas to be air conditioned.’ Clark said the department doesn’t have the money to make changes, conceding ‘a detailed cost analysis has not been done.’”


25) Utah: The Air Force signs a 50-year agreement with City Light & Power Inc. of Long Beach, California, to take over all electrical utility work at Hill Air Force Base outside Ogden. “In January, the Air Force signed a $288 million contract with American Water Operations and Maintenance Inc., in Voorhees, New Jersey, to privatize the water distribution system and wastewater collection system at Hill.”


26) Virginia: Using the state’s Freedom of Information Act, The Virginian-Pilot has surfaced a propaganda campaign run by former transportation secretary Sean Connaughton to promote the US 460 “public private partnership.” The paper reports that “disclosure of such an underhanded effort helps explain Connaughton’s role in advocating for public-private deals that were uniformly terrible for the public.” An inquiry has been opened by the state Inspector General.


27) Virginia: The Transportation Board has approved a six year, $13.1 billion transportation funding program. “Among the projects that will receive funding through the program include those procured as public-private partnerships (PPP; P3). They are the Corridor Q Poplar Creek, CFX Crane’s Nest Design, Dulles Rail, and Interstate 66 (I-66), said Tamara Rollison, spokesperson for the Virginia Department of Transportation (VDOT). The last project, I-66, is in the process of being evaluated as a possible P3.” [Sub required]


28) International: New documentary film from South Korea looks at the dark side of privatization. “Black Deal” simply provides a detailed look—grounded in meticulous and in-depth reporting—of the situation in seven countries (including Chile, Argentina, the UK, France, Japan, and Germany) that privatized their public sectors earlier than South Korea and are now dealing with the consequences. (…) The film presents all sides of the issue, including the perspectives of the victims of privatization, the apathetic public, workers at public companies, and the CEOs of private corporations.”


29) International: IFM, an important private investor in “public private partnerships,” presented a new “inverted bidding” P3 model to the Group of 20’s business group when it met recently in Singapore. The model involves bidding out different parts of a P3—owner-operator, construction, operation and maintenance, and debt—under separate contracts rather than a master agreement. [Sub required]


30) Revolving Door News: Former NSA director Keith Alexander offers his services as a consultant to private corporations for as much as $1 million a month.


31) Think Tanks: A new paper advocating the privatization of public transportation infrastructure, authored by the Searle Freedom Trust Senior Fellow at the Brookings Institution, is released by the Koch-funded Mercatus Center. [Report]


32) Think Tanks: The right wing Friedman Foundation issues a paper calling for limited public regulation of private schools. “Legislatively mandated costs to private schools could potentially put these schools out of business, a factor which legislators and regulators have an ethical obligation to consider carefully. Finally, they should ensure that all schools, regardless of type or sector, can be reimbursed for substantial costs associated with regulations.”


33) Upcoming Meeting: The National Conference of State Legislators is holding its Legislative Summit in Minneapolis, August 19-22.


34) Upcoming Meeting: The National Association of Counties is meeting in New Orleans from July 11-14.



Legislative Issues:


1) National: Critics and supporters of the new water infrastructure financing legislation (WRRDA) look to upcoming budget legislation and EPA implementation regulations to fix what they see as problems with the act’s barring the use of tax exempt financing to tap into its funding by municipalities. “‘Who is really going to benefit [from WIFIA] are the private water companies and private financiers of water projects,’ one environmentalist says. The municipal bond cap makes WIFIA ‘worthless to municipalities that are not going to privatize,’ the source adds.” Water Regulation Alert reports that “drinking water groups will talk to Hill staff ‘in coming weeks’ on how to address the issue.” [Sub required]


2) National: Special congressional panel on “public private partnerships” holds an off-campus hearing on Wall Street. They hear a somewhat skeptical view on P3s from Jamison Feheley, managing director and head of public finance investment banking at JPMorgan. “‘I have an agnostic view,’ he told the P3 panel. ‘There is a time and place for traditional debt financing and a time and place for innovative participation by private sector financing.’ The U.S. municipal debt financing system is envied by foreign investors and governments, Feheley said. ‘Everyone wants to know how they can replicate the American tax-exempt debt market,’ he said. ‘It is unique, it is efficient, and it is capable of attracting large sums of money.’” Thomas Osborne of IFM tells them that the lack of a large central government willing to take risk in P3 deals means the market is smaller than in Europe. [Sub required]


3) New Jersey: State lawmakers approve legislation to rein in irresponsible privatization of government services. “Under the bill, a cost analysis demonstrating actual savings to taxpayers must be performed and a mechanism would have to be established to provide oversight and public disclosure to ensure that the purported “savings” are not achieved by increased charges on the public, reduced services or decreased workforce standards.” The bill now goes to Gov. Christie.


4) North Carolina: Senate unanimously passes House bill privatizing job recruitment efforts, and send the bill to Gov. McCrory for signature. Allen Freyerof the N.C. Budget & Tax Center dismissed some public safeguards in the bill as cosmetic, saying “just because the new partnership won’t officially make incentive recommendations doesn’t mean pay-to-play won’t happen. It is absolutely certain that Commerce officials be in the room when the business recruiters from the partnership are wining and dining prospective businesses. This opens the door to preferential treatment and consideration of those businesses that gave donations to the new partnership.”


5) Pennsylvania: As the June 30 budget deadline looms, intense jockeying is underway over a possible deal. “Amid the deal-making, the Philadelphia delegation will likely be pressured to give up their resistance to privatizing state liquor stores.” But one Democratic lawmaker says the public stores should be modernized and that “Pennsylvania should avoid the tempting one-time revenue that would come from selling off the stores, he said, and bank instead on the $125 million in state revenue he said the stores rake in annually.”


6) Rhode Island: A battle over “social impact bonds” is shaping up in the legislature as a Senate panel approves a measure that would pave the way for $25 million in SIBs. “Supporters hope the bonds can provide a way of financing social programs for the homeless and incarcerated that the state otherwise could not afford. Opponents worry that it is a risky, untested funding model that could be used as a back-door approach to privatizing social programs.” Jim Cenerini, of AFSCME Council 94 says “we just see this could be a back-door way to privatize the delivery of social services programs … and to most likely reward wealthy investors while you’re at it.” There is currently no companion legislation in the House.


7) Resource: Stateline’s 2014 Legislative Review.

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