Update: Upcoming Outsourcing Issues. September 15, 2014


1) National: The Federal Highway Administration has published its responses to public comments received on its Model Contract Guide for toll-based “public private partnerships,” a draft of which was published in February. The comments and responses highlight some of the key issues. Comments were received from the Texas Department of Transportation, Ernst & Young Infrastructure Advisors, Professional Engineers in California Government, the Drive Sunshine Institute, Associated General Contractors, the Commonwealth of Virginia, ARTBA, and 25 comments from private citizens.


2) National: GEO Group’s subsidiary, B.I. Incorporated, is awarded a five year, $47 million contract by U.S. Immigration and Customs Enforcement (ICE) for case management and supervision services under the Intensive Supervision and Appearance Program. “Minors also have to attend biweekly check-ins at the offices of B.I. Incorporated.”


3) NationalInvesting Daily breaks down Maximus’ revenue sources. Half of its revenue is tied to administering programs for state governments, and another quarter of its revenue comes from foreign clients. Its fiscal third quarter revenue increased by 25% year over year. “Much of that was tied to new contract wins related to the Affordable Care Act. It also launched a new for the US Department of Education, administering collection efforts for nearly 5 million student loan borrowers who are in default.”


4) National: CalSTRS, the California teachers retirement fund, is planning to pull together a consortium of pension funds to invest in North American infrastructure. “According to Infrastructure Investor Research & Analytics, 0.55 percent of CalSTRS’ portfolio is currently invested in infrastructure, while the pension fund’s target allocation for the asset class is one percent.” [Sub required] CalSTRS announced the move at last week’s White House Infrastructure Investment Summit. [ITPI’s Infrastructure Justice guide]


5) National: HBO comedian John Oliver takes aim (video, at 14 minutes) at the trade association of for-profit colleges, Association of Private Sector Colleges and Universities (APSCU), which weakened proposed rules governing job success ratios at private schools. Last year, APSCU and the U.S. Chamber of Commerce reportedly sought to stack the rulemaking panel on “gainful employment” with executives from for-profit colleges. New rules are due in November.


6) National: Moody’s Investor Service says that “the U.S. has the potential to become the largest P3 market in the world, given the sheer size of its infrastructure.” The market for “public private partnerships” has been slowing in Europe, which is beset by austerity measures, and in the Asia-Pacific region, where “emerging regulatory frameworks may be subject to an elevated risk of political interference, and strong legislative frameworks to enforce P3 contracts are lacking in some countries.” Moody’s notes that “new, evolving P3s that incorporate elements of both the availability payment and demand-risk models, [may be] a growing trend as the P3 model is applied to new asset classes and in new jurisdiction.” The report also says that “the momentum of states authorizing the use of the P3 model has notably increased over the past five years: 33 states and Puerto Rico have P3 authorizing legislation for transportation projects, and 39 states have some form of P3 authorizing legislation, either for transportation or social infrastructure P3 projects.” Previous forecasts of a surge in U.S. P3s have proven overly optimistic.


7) National: The Federal Highway Administration is seeking public comment on its proposal to establish a new information center to collect financial and project plans from major projects across the country. Such information is often difficult to find and compare. Comments due November 3.


8) ArizonaThe ACLU has released several reports on inadequate healthcare in Arizona prisons. “‘There were multiple cases in which the lapses were so shocking and dangerous that I felt ethically obligated as a medical professional to bring them to the immediate attention of the ADC and Corizon staff,’ Dr. Cohen said (11/8/13 report, page 4). Corizon is the company contracted by the state to provide healthcare to prisoners.”


9) CaliforniaWaste Management tries to short circuit the political process in Oakland by backing a referendum that would overturn the city’s awarding of a contract to one of its competitors. Oakland awarded the contract to California Waste Solutions, which will charge less. “Officials are accusing Waste Management of dirty tricks as they attempt to gather signatures.” Waste Management’s political consultant on the issue is Larry Tramutola.


10) Florida: As pro- and anti-charter school forces weigh in with campaign financing, the governor’s race between Rick Scott and Charlie Crist is becoming an electoral test on the issue.


11) Florida: Santa Rosa County school bus drivers picket Durham Bus Services to protest the company’s refusal to negotiate a contract. “These workers want a contract and to be represented by the teamsters 911 union but that’s not all. ‘Durham workers want respect.’ Lavon Lindsey with teamsters 911 union says ‘Fix the air conditioning. The public should know that your students are being packed onto these buses.’ ‘Every time I come home they’ve talked about how they’re sweating because of no air-conditioning, they talked about just the buses and how it’s constantly breaking down,’ said Sonya Strickland a mother of 3.”


12) FloridaMental health advocates sue the Department of Corrections. Disability Rights Florida’s Peter Sleasman says “the treatment staff employed by the private providers—it was Corizon for awhile, and now it’s Wexford—they were well aware of the abuse going on, and that other higher up supervisory correctional officers were aware of the abuse was going on, and none of them took steps to report or stop it, and those are some of the things that we’re looking to have addressed.”


13) Illinois: The private outsourcing of custodial services has left the Chicago schools “filthy with rodents, roaches, [and] garbage.” The Washington Post reports that Catalyst Chicago says “ever since the school district awarded $340 million in two custodial management contracts in February to private concerns, their schools have been filthy.” The contracts were awarded to Aramark ($260 million) and Sodexmagic ($80 million). “They don’t have enough custodians as it is and now this private company wants to lay off nearly 500 more in order to decrease their payroll and increase their profit margins at the expense of our schools and our students,” says Troy LaRaviere, chairman of the activist principal group AAPPLE.


14) Illinois: North Riverside mayor declares an impasse with Firefighters Union Local 2714, files suit to terminate the contractand privatize the department to Paramedic Services of Illinois.


15) IowaAngry parents in Ames confront Durham School Services executives about problems with the school district’s outsourced bus service. “Parent Pamela Hefler also expressed her concerns. “There was one day that the driver was asking kids where the stops were and my fifth grade daughter who should not be responsible for this came home stressed out, crying because she says there are probably kindergarteners who don’t even know where their stops are. They’ve never ridden the bus before. She’s right.” Durham’s damage control efforts fell short. “The superintendent says the district plans to re-bid the contract in the spring.”


16) Maryland: UNITE HERE and the NAACP allege widespread racial discrimination in service jobs at the state-owned BWI Marshall Airport in Baltimore. The contractor involved is AirMall USA. The Baltimore Sun reports “the study specifically calls out AirMall USA for allowing racial disparities to exist, even though AirMall subcontracts BWI’s concessions to independent businesses that make their own hiring decisions.” [Report]


17) MarylandCost estimates for the Purple Line and Red Line “public private partnerships” continue to balloon upward, as the FTA reports a second Purple Line revision upward. In 2008, The Washington Post reported that “the maximum estimated cost of a Purple Line is $1.8 billion.” The new estimate is $2.43 billion. Purple Line advocate Ralph Bennett says “I do wish they’d let us know, but we don’t really know what it’s going to cost until a private partner is chosen.” Others are concerned. “We’ve been pretty nervous about the fact that the numbers keep going up,” said Joan Fidler, president of the Montgomery County Taxpayers League. The additional money will come from the state’s transportation trust fund, which could erode political support for the projects. Private bids are due January 9.


18) Michigan: The Department of Corrections has cancelled a $98,000 fine imposed on Aramark in March for contract violations. “‘That’s outrageous,’ said Nick Ciaramitaro, legislative director for the American Federation of State, County and Municipal Employees’ Council 25, which represented about 370 state employees who were displaced by the Aramark contract. ‘Things only got worse after the first fine.’” Progress Michigan says that emails show Gov. Snyder’s administration was “pulling strings in the early stages of Aramark’s public blunders.”


19) Michigan:  The Detroit water system has reached a deal with three surrounding counties to form a new authority to take it over and “issue up to $800 million of bonds to repair broken pipes.” Privatization may still be on the table: “The new Great Lakes Water Authority will be run by a six-member board made up of two Detroit mayoral appointees, one appointee from each county, and one appointee of the governor. Major decisions on issues like contracts or future privatization will require five out of six votes.” The county boards and the city council or Emergency Manager Kevyn Orr need to sign off on the deal by October 10.Critics charge that the deal “creates the political and legal foundation for the largest privatization of a municipally owned water department in the United States.”


20) Michigan: The Detroit City Council has unanimously rejected Emergency Manager Kevyn Orr’s plan to sell land to the state for the development of a new bridge—the New International Trade Crossing, which is a “public private partnership.” But Orr is likely to override the council’s decision. The council is concerned about a low sale price and weak community protection for the Delray neighborhood. “Councilwoman Mary Sheffield said in a statement that the $1.4-million valuation was ‘comical at its best and borderline insulting.’” The council has a week to come up with an alternative plan.


21) Michigan: The right wing Mackinac Center issues a report on “right to work implementation problems” in Michigan schools. Mackinac has been involved for decades in pushing to undermine collective bargaining.


22) New York: After an inmate died “after being denied adequate food, water and desperately needed medical care,” a lawsuit has been filed against the NYC Department of Corrections and Corizon Healthcare “The incidents involving Mr. Ballard are part of a pattern of incidents of similar inhumane and illegal treatment of mentally ill inmates by Rikers Island correction officers and medical and mental health providers,” the complaint says, “and it is neither the first nor the last such incident that resulted in death.” A new report by Bronx Defenders also details “horrific conditions” endured by inmates in solitary confinement at the facility.


23) New York: The plan to privatize Orange County’s Valley View nursing home has been revived. The effort “could culminate in a vote by the full Legislature within three weeks.”


24) Puerto Rico: Doral Financial Corporation, which “provided financing for the privatization of the first government housing project in Puerto Rico,” receives backing from the Koch network’s American Future Fund in a tax dispute with the commonwealth’s government.


25) Puerto Rico: As institutional investors back off from buying the financially troubled commonwealth’s debt, hedge funds move in and increase their political clout. “The electrical authority recently agreed with BlueMountain and other creditors to come up with a voluntary restructuring by next March. That most likely sets up a showdown between the island’s powerful public worker unions, representing the electrical workers, and the hedge funds and banks over which group should take the biggest cuts.”


26) South Carolina: Dorchester District two runs into problems with understaffing of its outsourced school bus service, which is run by Durham School Services. “In January 2013 Summerville school bus workers voted to authorize a strike at Durham. Townsend said the strike was related to pay and working conditions, and it was a statewide strike against Durham.”


27) Think Tanks: Eileen Appelbaum of the Center for Economic and Policy Research and Rosemary Batt of Cornell Universitydiscuss their new bookPrivate Equity at Work

When Wall Street Manages Main Street. Private equity is increasingly investing in infrastructure, including “public private partnerships.”


28) Document: The program from the recent annual meeting of the National Conference for Public Private Partnerships.



Legislative Issues:


1) National: The National Conference of State Legislatures reports that few “public private partnership” laws were enacted in 2014. “Though 23 states considered 99 bills to enact public-private partnerships (P3s or PPPs) or tweak existing P3 statutes during the 2104 legislative sessions, few of them passed. (…) One exception was SB 255 in Indiana, expanding the state’s P3 authority. However, a heavily debated bill in Colorado (SB 197) to require legislative approval for P3s contracts that exceed 35 years was vetoed by the governor and a comprehensive framework for P3s in Kentucky (HB 407) also was vetoed because of a dispute over the appropriate use of tolling. A comprehensive bill in Georgia (SB 255) passed the Senate but not the House.” The NCSL’s James Reed has suggested a number of key principles for evaluating P3s, including “consider the public interest for all stakeholders. Legislators should consider how to protect the public interest throughout the PPP process.”


2) NationalThe Congressional Budget Office estimates that the Smarter Sentencing Act “would reduce the cost of incarcerating offenders and would lead to a reduction in DOJ spending of $4 billion over the 2015-2024 period (…) [and] would result in about 250,000 prisoners being released from federal prisons earlier than they would under current law over the 2015-2024 period. CBO expects that many of those individuals also would receive certain federal benefits sooner than they otherwise would be eligible to receive them.” [S. 1410]


Corrections Corporation of America has cited such legislation as a risk factor to its business: “For instance, any changes with respect to drugs and controlled substances or illegal immigration could affect the number of persons arrested, convicted, and sentenced, thereby potentially reducing demand for correctional facilities to house them.”


In spite of this risk warning, CCA CEO Damon Hininger told The Wall Street Journal that, under pressure from the government over prisoner recidivism rates, “he plans to expand the company’s prison rehabilitation programs, drug counseling and its prisoner re-entry work in cities around the country. It’s a significant shift for CCA, which has built a profitable business from incarcerating people.” Hedy Weinberg of the ACLU of Tennessee expresses doubts: “It must be a challenge for CCA to implement programs that could reduce recidivism when that runs counter to the private prison model itself.”


3) Alabama: Columnist Wesley Vaughn proposes that the legislature take up the use of social impact bonds to address prisoner recidivism at its next session.


4) Illinois: A legislative battle over school vouchers may be shaping up. Kevin Chavous of the American Federation for Childrensays “we have a couple of African-American legislators in the Senate who are ready to jump out in front.” Chavous “says that one of the most important things he does is enlist ‘messengers.’” In a letter to the editor of the Wall Street Journal, State Reps. Jeanne Ives, Tom Morrison, and Joe Sosnowski write “as members of the Illinois General Assembly, we sincerely hope he is right. Furthermore, we stand ready to take up the cause for school reform in the Illinois House.” [Sub required]

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