Update: Upcoming Outsourcing Issues. July 7, 2014


1) National: Corinthian Colleges, a private for-profit educational corporation, goes bankrupt. “Corinthian, a publicly traded firm with 12,000 employees serving 72,000 students, negotiated a deal late Thursday with the U.S. Department of Education to sell off the bulk of its more than 100 campuses and wind down the rest. The company will receive an additional $35 million in federal funding to allow it to continue operations during the next six months.” Rupert Murdoch’s Wall Street Journal blames Obama. A little over a decade ago, Forbes listed Corinthian as  #2 on its 200 Best Small Companies list. [Chris Kirkham exposé on Corinthian; Peter Greene comment on the Federal bailout]


2) National: ITT Educational Services misses a deadline for filing financial documents to the U.S. Department of Education. “The for-profit chain’s scramble to comply with the feds drew comparisons to the struggling Corinthian Colleges.”


3) National: The Department of Homeland Security has given a new $190 million contract to the firm that vetted former NSA contractor Edward Snowden. “USIS was able to win the contract [from the U.S. Citizenship and Immigration Services] because regulations require agencies to follow strict procurement procedures unless a bidder has been suspended or barred by the government from contracts. Despite questions about its work on background checks, USIS was never blocked from federal work.” [Sub required]


4) National: Thinking Highways contributor Randy Salzman attempts to unravel some of the complexities of highway “public private partnerships,” focusing on his home state of Virginia. “Media coverage of P3s over the past decade, furthermore, has been overwhelmingly positive, consistently following the contractor line that private innovation is offsetting significant amounts of expense, improving projects and freeing public dollars for other activities. However, the Congressional Budget Office indicates P3s provide little, if any, financial benefit to taxpayers.”  [Thinking Highways North America Edition, June/July 2014, p. 18]


5) National: Michelle Rhee’s pro-privatization StudentsFirst organization releases its federal tax forms covering the period through July 2013. “Rhee, who earns nearly $350,000 a year, also spent heavily on political activism in the year covered by the tax forms. StudentsFirst gave $500,000 to a business-backed committee in Michigan that successfully worked to defeat a union effort to enshrine collective bargaining rights in the state constitution. It also spent $250,000 to support a charter-school campaign in Georgia.”


6) National: American Postal Workers Union President Mark Dimondstein discusses the privatization of USPS services to Staples, and the APWU and AFL-CIO boycott, in a video.


7) National: Governing magazine lists the “7 Deadly Sins of Public Finance.” Notes that “governments have been wooed by the prospect of privatizing assets as a way to get quick cash, a move that some have called the governmental version of an unwise payday loan.”


8) National: The Council of the Great Lakes Region “will lead a [Clinton Global Initiative] Commitment to Action to examine the ability of public-private partnerships (P3) at the state, provincial and municipal level to address infrastructure investment challenges with respect to modernizing public infrastructure in the Great Lakes region.”


9) National: The PFM Group, a leading advisory firm on privatization, has closed on a capital transaction in which its managing directors own all the equity of the corporation. PFM advised Gov. Corbett of Pennsylvania and Gov. McDonnell of Virginia on their unsuccessful efforts to privatize state liquor distribution.


10) National: In an interview, Ellen Dannin discusses the pitfalls of water privatization, the subject of her recent op-ed in Truthout.


11) California/National: The Los Angeles Unified School Board approves an agreement with SEIU Local 99 to raise its minimum wage for service workers to $15 an hour. Donald Cohen of In the Public Interest praises the board for “doing the right thing to create good jobs rather than outsourcing to drive wages down.”


12) District of Columbia: The long-discussed idea of an underground mall and parking lot at the National Mall may be revived as a “public private partnership” project.


13) Florida: State Medicaid recipients begin transitioning to private managed care programs. “Critics worry the state is abdicating care of its most vulnerable residents to for-profit companies with little oversight of how the money is being spent and say there’s little evidence the pilot program improved patient care or saved money.”


14) Idaho: As the state takes over the Idaho Correctional Center from Corrections Corporation of America after multiple scandals, the Post-Register allows itself a modest celebration. “CCA’s exit is the good news. The bad news is that despite this remarkable record of misdeeds, malfeasance and mismanagement, Idahoans still do business with this company. Because of overcrowding, more than 200 Gem State prisoners are serving time at a CCA prison in Colorado. It’s time to bring them home and put a stake through the heart of a private prison experiment that by any measurement failed miserably.”


15) Indiana: The Indiana Finance Authority is set to bring at least $250 million of state subsidy-backed private activity bonds to market this week. The PABs will finance the I-69 “public private partnership.” Last year’s publically-subsidized Ohio River Bridges P3 paved the way for the financing. S & P has rated the bonds BBB-minus, one notch above junk. “Rating analysts note a variety of risks attached to the project, ranging from long-term operating risks and construction cost overruns to the appropriation risk common to appropriation-backed bonds. Preliminary bond documents feature 19 pages of risk factors investors should consider.” [Sub required]


16) Kentucky: The $12 million contract to supply prison food is up for bid for the first time since a 2010 audit found significant problems with the state’s current contractor—Aramark. “Aramark’s contract expires at the end of this year, and Kentucky officials have already put out a request for proposals and hope to decide on a contractor by September.” South Dakota-based CBM Managed Services is also considering a bid.


17) Kentucky: The Board of Regents will reconvene this Thursday to decide whether to privatize Western Kentucky University’s health service. Last week board members requested more information and documents. “Just approving it in five minutes would have been the easy thing to do,” [Faculty Regent] Minter said. “We haven’t done the easy thing.” Nevertheless, “despite the decision to reschedule, Graves Gilbert Clinic in Bowling Green is expected to operate WKU Health Services beginning Aug. 1.”


18) Louisiana: Legislative auditors say the state’s Office of Risk Management has saved $1.4 million in the first year of private outsourcing. “As of May, the agency had reduced its staff by 52 people to 88 employees. According to the audit, once all the lines of insurance have been transferred to FARA, the staff will drop to 50 employees.”


19) Michigan: Maggots are found in food at both the Parnall Correctional Facility and the Charles Egeler Reception and Guidance Center in Jackson. “This is the latest in a string of reported issues with Aramark Correctional Services, the private vendor that the MDOC put on notice earlier this month due to unapproved menu changes and food shortages.” 150 inmates are showing sins of illness, “and officials couldn’t say whether bad food is the cause of the outbreak.” A partial quarantine has been ordered. Prison food services in Michigan were privatized by Gov. Snyder despite ample advance warnings about Aramark’s record. Democratic gubernatorial candidate Mark Schauer has called on Snyder to immediately terminate the contract, saying “Aramark’s employees have repeatedly violated the terms of their contract, and their drunken and drug-dealing activities at Michigan prisons pose a very serious risk to public safety.”


20) Missouri: A group opposed to the outsourcing of billing services for Kansas City’s ambulance system has launched a referendum drive to overturn the city council’s decision. The council authorized a five year contract with Advanced Data Processing Inc., a subsidiary of Intermedix Corp., a privately-held company. The opponents “cited several cities that had serious problems with Intermedix’s customer service and failure to meet collection projections.” A city council member “said he doesn’t buy the company’s claims. He also said he thinks the proposed contract is tilted against the city. ‘They promised us they’d collect about $2 million more a year. Put it in the contract,’ he said. ‘The contract lets them collect less than they’re collecting now with no penalty. What kind of deal is that?’” Opponents have until July 29 to gather 7,144 signatures of registered voters. [Video news report]. In 2012, ADP Inc. was involved in a scandal in Los Angeles over unauthorized access to patients’ private information.


21) New Mexico/Idaho: The Twin Falls Times-News (Idaho) looks for lessons from the “catastrophic” experience of New Mexico with outsourced billing for its behavioral health services to Optum, a subsidiary of United Behavioral Health. “What’s happening in Idaho reads like the script of an over-played musical. Optum, the company that’s widely credited for salvaging the faltering federal Obamacare website, is now the go-to vendor for states looking to fix broken healthcare exchanges. The company is making huge profits thanks to the Affordable Care Act. But Optum has already shown that it’s incapable of handling the day-to-day oversight of statewide billing. The secrecy surrounding the New Mexico fiasco shows one of the many problems with privatization efforts of public services. Transparency suffers at the hands of penny-pinching governance.”


22) New York: Costs to taxpayers to run the Valley View nursing home, which Republican lawmakers want to privatize, are down sharply, according to the latest audit.


23) New York/New Jersey: Panel appointed by Govs. Cuomo and Christie to make specific recommendations on reforming the Port Authority comes up short. “The resulting report is aggressively unspecific.” Says it has a “goal” to make reform proposals by January.


24) North Carolina: Concerns rise about the choice of Cintra to add toll lanes to I-77. Cintra has faced problems with its toll roads in Indiana, Texas and Virginia. State Sen. Jeff Tarte “asked N.C. Transportation Secretary Tony Tata to study the Cintra contract further over the next six months. The DOT doesn’t seem interested. Tata emailed Tarte on Tuesday that he sees ‘no foundation’ for delaying the contract. The DOT signed a preliminary contract with Cintra on Thursday. A final agreement could be signed at the end of this year.”

Joining the fight against the I-77 “public private partnership” is the right wing Watchdog Wire, which is sponsored by the Donors Trust-funded Franklin Center.


25) Pennsylvania: Pittsburgh Post-Gazette finds that state liquor store prices are competitive, countering pro-privatization advocates’ claims that privatization would lower prices. “LCB officials have long argued that its ability to buy in bulk allows it to get good deals that are passed along to customers. ‘Contrary to what many PA consumers believe, your state store prices are quite good on the majority of the items, particularly popular ones,’ Dominick Cerrone, owner of Good Mansion Wines in Wheeling, W.Va., said in an email. ‘We tell our customers from PA that regularly.’”


26) Texas: The New York Times reports on the political backlash in Texas against privatized toll roads and “public private partnerships.” The Times reports that “in the new platform, Republican delegates removed a provision backing ‘the legitimate construction of toll roads in Texas’ and replaced it with language opposing some aspects of toll projects in Texas, particularly the use of public money to subsidize private entities.” On the Democrats, “toll roads were also a topic at last week’s Democratic state convention in Dallas, where delegates amended the platform to call for legislation directing private firms operating toll roads to give more revenue to the state. The platform already included opposition to the use of public-private partnerships to develop toll roads.”


27) Texas: Abengoa has been selected by San Antonio to design, build, finance and operate infrastructure to deliver more water to the city. The “public private partnership” project has been “brought back from the brink of death“ since February after Abengoa’s first proposal was rejected.


28) Texas: Concerns mount that if a psychiatric hospital is privatized, its operations would disappear behind a wall of secrecy. “Paying an outsider to run Terrell State Hospital would make it much harder for the public to know what goes on there. Even when they take taxpayer money, the Texas Public Information Act doesn’t always apply to privately owned companies, which can withhold basic information that state hospitals are typically required to release. Many of the problems afflicting the hospital came to light because of newspaper reporting based on such public information requests.” Four corporations, including GeoCare, have expressed interest. [Sub required]


29) Texas: Protestors brought their anti-privatization message on schools to the US Conference of Mayors convention in Dallas on June 20. “‘Dallas Friends of Public Education is outraged that the trustees apparently placed their personal agendas ahead of the public interest by […] appointing friends, relatives, and cronies to the commission,’ said Michael MacNaughton.” MacNaughton is chairman of Dallas Friends of Public Education and an appointed member of the Dallas ISD Citizens Budget Review Commission.


30) Washington: The Washington State Department of Transportation publishes a useful piece on “Where do my toll dollars go?” Laura Johnson reports: “So what about the other 29 and 18 cents? Well, it’s split among a lot of different things. We have to pay our vendors that operate the toll collection equipment out on the highway and our customer service centers. There are credit card and bank fees associated with collecting the toll money, and costs to buy the passes we sell you. We also have folks at our Toll Division who make sure the tolling operations keep running smoothly—they get a couple pennies from each dollar.”


31) Wisconsin: Public school bus driver Steve Linehan is called a hero and named “bus driver of the year” for saving 40 students from a burning bus. “Linehan said it was the school district’s training—for bus drivers and students alike—that helped him get the kids safely off the burning bus. Emergency drills on the busses are conducted twice a year.”


32) International: The amount of money spent on government outsourcing in Britain has doubled since the Conservative-led coalition government took over. “The government is also pressing ahead with outsourcing of more complex work. The Ministry of Justice is in the process of transferring core probation services to the private sector for the first time, while a healthcare trust in Staffordshire is running a groundbreaking competition to outsource £1.8bn in frontline cancer services.” [Sub required]. The probation services have been accused ofoutsourcing jobs by randomly “picking names out of a hat.”


33) Revolving Door News: The Project on Government Oversight has a useful resource, the “SEC Revolving Door Database.”

Legislative Issues:

 1) National: Longtime progressive activist and veteran Buzz Stoughton opposes the privatization of the Veterans Administration through two bills passed by the House and Senate. “Via some poison pills in these bills, the VA may be forced to contract out 36 percent or more of all its care to the private sector while draining the VA of the money it needs to hire staff. Greater staffing shortages will lead to a downward spiral for quality care in the VA, resulting in more congressional cries for more privatization. The private care cost per vet may be 20 percent of 30 percent higher than the VA cost per vet due to higher paid private doctors and nurses, overhead for monstrous CEO pay, thousands of additional insurance clerks, Taj Mahal executive buildings, marketing, profits, etc.” [HR 3230]


2) National: Reps. Chris Van Hollen and Sander Levin introduce legislation to support infrastructure spending “by making it more difficult for US companies to move their tax home to a foreign jurisdiction. (…) The savings that would result by reducing the number of US corporations that move their tax base abroad, thus paying fewer taxes in the US, would be used to replenish the Highway Trust Fund, which is expected to run out of funds in the next few weeks. ‘It [the bill] would raise $19.5 billion in revenue over 10 years and keep the Trust Fund solvent as Congress works on a long-term funding solution,’ Congressman Van Hollen’s office said in a statement.” [Sub required; HR 4985]. The bill is now in the Ways and Means Committee.


3) National: An industry-led group calls for “a single unified PPP framework for all federal, state, and local [infrastructure] projects, following the example of West Coast Infrastructure Exchange.” Making the Grade “presents the consensus of experts from 45 U.S. infrastructure companies and their counterparts from local governments and financial, professional, and academic organizations.” [Report]


4) National: The National Conference of State Legislatures releases a legislative briefing on “public private partnerships.” Says that “opponents of P3s are wary of the increased involvement by the private sector. Their concerns include losing public control, flexibility and future revenues; private companies profiting at public expense; risking project bankruptcy; compromising accountability and transparency in the process; potentially harming the environment; conforming with prevailing wage requirements; involving foreign companies; adding controversial toll roads; and fairly negotiating contract terms such as liability, maintenance standards, safety enforcement and commercial development rights.”


5) National: Florida Republican lawmaker proposes reforms to the Federal TIFIA transportation loan program. Wants to create a revolving fund. [Draft bill]


6) Louisiana: The Lafayette Advertiser criticizes Gov. Jindal’s veto of a bill that would have cut expenditures for state consulting contracts by 10 percent and directed the savings to higher education. Both legislative bodies passed the bill unanimously.


7) Wisconsin: Madison Capital Times editor emeritus Dave Zweifel warns that private charter schools are a “threat to public education.” Zweifel says the Republican-dominated legislature “was on the cusp of passing the so-called ‘school accountability’ bill, which would have eased the expansion of private charters in the state, but it failed to pass thanks mainly to Republican state Sen. Dale Schultz’s opposition. Schultz is retiring, and conservative state legislators promise to bring the issue back next year.”

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