Update: Upcoming Outsourcing Issues. October 28, 2013


1) National: Good Jobs First releases a report on the failures of privatized state economic development agencies. “Three years ago, newly elected governors in several states, most notably Wisconsin and Ohio, decided that the best way to create jobs was to transfer economic development business-recruitment functions to ‘public-private partnerships.’ These experiments in privatization have, by and large, become costly failures. Privatized development corporations have issued grossly exaggerated job creation claims. They have created ‘pay to play’ appearances of insider dealing and conflicts of interest. They have paid executives larger salaries than governors. They have resisted basic oversight.”


2) National: The troubled rollout of the Affordable Care Act website and signup system shines a light on the IT contractor at the center of the project, CGI Federal (a unit of the Montreal-based CGI Group Inc.). “CGI Federal’s winning bid stretches back to 2007, when it was one of 16 companies to get certified on a $4 billion ‘indefinite delivery, indefinite quantity’ contract for upgrading Medicare and Medicaid’s systems. Government-Wide Acquisition Contracts—GWACs, as they’re affectionately known—allow agencies to issue task orders to pre-vetted companies without going through the full procurement process, but also tend to lock out companies that didn’t get on the bandwagon originally.” CGI also contracts at the state and local level. The Washington Post notes that “the relationship between contractor and subcontractor is very close. At the Assisted Housing Services Corporation of Ohio, California Affordable Housing Initiatives, and North Tampa Housing Development Corporation, many staff actually list themselves on LinkedIn as CGI employees.”


3) National: The Wall Street Journal takes a detailed look at the profit-driven pressures to cut corners at USIS, the contractor hired to do national security vetting. “The background-check system is so beset with problems that it is time to take another look at its privatization, says Sen. Tom Carper (D., Del.), head of the Senate Homeland Security Committee, which plans hearings on the system. ‘What about that change still makes sense?’ he asks.” [Sub required]


4) National: Following an eight month investigation, The Palm Beach Post begins releasing a series of reports by investigative reporter Pat Beall for the next five Sundays on private prisons. First up, a look at the Geo Group and its CEO, George Zoley. “But GEO’s offer this year of $6 million for naming rights to the university’s stadium provoked unexpected student protests. Reports of human rights violations at GEO prisons and detention centers triggered them. Civil rights activists, the ACLU and national press quickly picked up on the controversy. The university’s mascot is an owl, and a new national punchline was born: Owlcatraz. GEO withdrew its offer.” [Sub required]


The Post also looks at costs, and reports that the “state’s math is misleading.” Says the state’s “calculations distort the bottom line, The Palm Beach Post found. Strip away the contrived formula, and politicians’ promises of 7 percent savings vanish: A Postanalysis of three years of prison costs shows that three of six adult private prisons saved no money at all. Another fell short of 7 percent. State law ensures private prisons will be paid as if they’re 90 percent full, even if they’re not. Contracts steer the cheapest prisoners to the private companies, leaving the state holding the tab for the sickest, the seriously mentally ill and the most violent. And a watchdog panel designed to make sure taxpayers get the best possible deal hasn’t met since 2005. ‘The savings are a fiction,’ said Jim McDonough, a Jeb Bush-era director of Florida’s Department of Corrections.” [Sub required]


In another piece on bed occupancy guarantees, The Post reports that Charles Thomas, a former University of Florida professor specializing in prison issues, says “some feared the Department of Corrections would undermine private prisons.” Judith Greene of Justice Strategies responds that “the notion that any prison, public or private, is guaranteed to be 90 percent filled whether crime is going up or down is absurd.”


On transparency, the Post reported on its difficulties getting the story. “When private companies are put in charge, even though public dollars remain at risk, the cauldron tightens.”


In future issues, coming next Sunday: reports on prison violence and CCA’s Idaho “Gladiator School.”


Coming November 10: “Who’s Watching the Guards.”


Coming November 17: “Big Politics, Big Power,” on the reach of the private prison industry.


Coming November 24: Some solutions; a look at sentencing reform.


5) National/Florida: Geo Group, the private prison company, is expected to report its third quarter earnings on November 4. The company has announced over the past two weeks that it has received contracts to operate three prisons in Florida (Graceville Correctional Facility, Moore Haven Correctional Facility, and Bay Correctional Facility). Corrections Corporation of America is expected to report its third quarter earnings on November 7.


6) National: As the Trans Pacific Partnership treaty, currently being negotiated in secret, moves toward congressional fast track approval, 14 public interest groups weigh in to warn of its potential impact on state and local health, labor and other regulations. The TPP would potentially preempt many local protections, and it is unclear how it might affect “public private partnerships” in road and other projects, since many of these deals have foreign trade components. The anti-regulation American Legislative Exchange Council’s board of directors recently approved a resolution supporting ratification. [Info from Citizens Trade Campaign; State Department background briefing on TPP]


7) National: American Water Works Company, the largest publicly traded U.S. water and wastewater utility company, will hold its third quarter earnings call on November 6.


8) National: Private reinsurers look to take on more risk in the national flood insurance system. FEMA has been tasked with exploring the possibility of a greater role. “The [Reinsurance Association of America’s] Mr. Nutter said the Biggert-Waters Flood Insurance Reform Act of 2012 required FEMA to contract with an outside party to evaluate the interest of the reinsurance market to assume flood risk, to prepare a flood insurance model, and to evaluate privatization options more broadly than the reinsurance markets. The law also called for a separate study on affordability.” The study has been bid out but no winner has been announced.


9) National: Army looks to expand privatization. Will consider issuing dining cards. “Herman Bulls, the international director and chairman of the public institution division at international real estate firm Jones Lang LaSalle, said privatized services could include base operations support, information technology, security, finance and accounting, recreation, medical and library services. He said the Army needs to work out a business case that saves money while attracting private investment before it can begin privatizing more services.”


10) National: Paul Buchheit spells out “6 reasons privatization often ends in disaster.” Includes executive compensation, selective client services by private companies, commodification of human needs, and flawed incentives.


11) California/National: Pressure grows to end Veolia Transdev’s operation of Sonoma County’s bus fleet. The contract ends in mid-2014. “The Sonoma Alliance for a Fair Ride has led the anti-Veolia crusade on local soil. Lois Perlman, a member of the alliance, says she wants to see a U.S.-based firm operate the buses, both to keep profits within the country as well as to make a clear political statement that human rights violations, among other alleged offenses, will not be tolerated by local government. But the matter is not one of choice, according to Bryan Albee, transit systems manager for Sonoma County Transit. He says once a call is made for bidders on a new 10-year contract, ‘all qualified proposers will be given equal consideration’ and that it’s illegal for a federally funded service like Sonoma County Transit to show preference for one bidder based on anything but the applicant’s capacity to carry out the job.”


12) California: Long Beach moves to tender in its civic center redevelopment “public private partnership.” Seven potential bidders responded to the April RFQ, and the city will now prepare a request for proposals.


13) Colorado: National attention focuses on the November 5 elections for the school board in Douglas County. “The Colorado chapter of Americans for Prosperity is running television ads to support candidates who will continue the district’s current path. AFP is an advocacy group founded by billionaire David Koch that has Tea Party ties. Koch and his brother Charles, co-owners of Koch Industries, have been major contributors to the organization.” On the other side, “[Diane] Ravitch, who has endorsed Hodges and Scholting in the race through her national advocacy group, the Network for Public Education, recently blogged against keeping the status quo at the Douglas County district. ‘Unless the public selects a new school board, Douglas County might become the first district to privatize public education,’ Ravitch wrote.”


14) Florida: Miami-Dade School Board votes down a transportation outsourcing studyamid protests. “Most board members voiced hesitation about investigating privatization in other districts, and conducting a valuation of the district’s 1,300-bus fleet.” Sherman Henry, president of AFSCME Local 1184, which represents the district’s transportation workers, said “the notion that it’s a study in a simple form isn’t true. They create a study, and the next thing you know they’re implementing it.”


15) Illinois: Two Chicago community groups issue a report critiquing Mayor Emanuel’s charter school expansion scheme. “As Chicago Public Schools (CPS) has been dramatically expanding its investment in charter schools, it has made drastic budget cuts to neighborhood schools, as will be shown in this report. CPS has rationalized its charter expansion strategies in different ways over the years. The latest rationale for opening new charter schools is to provide overcrowding relief. As this report reveals, this rationale is deeply flawed, and has major ramifications for Chicago students and taxpayers.” [Big Dollars, Little Sense: The Real Facts Behind Mayor Emanuel’s Charter Expansion Plan to Relieve Overcrowding]


16) Indiana: The Gary/Chicago International Airport Authority has announced that it will negotiate with one team of bidders for the privatization of the airport’s operations. The team includes Guggenheim Securities and Loop Capital. “The committee expects to negotiate over the next few weeks and make a final recommendation to the full airport board next month.” [The Bond Buyer, October 28, 2013; sub required]


17) Indiana: The Indiana Finance Authority has sent a request for proposals for its planned I-69 Section 5 “public private partnership” (DBFOM). Four teams are biddingfor the $500 million road project, including Macquarie, Isolux, Plenary Group, and Meridiam Infrastructure. Responses are due January 23, 2014. [Sub required]


18) Indiana: The state legislature’s Pension Management Oversight Commissionrecommends stopping efforts to outsource management of the state’s annuity system.Lawmakers said “INPRS annuity administration produces better returns for participants, even if interest is reduced to market rates, because it offers lower fees compared to private management and is not seeking to earn a profit.” The pension board is seeking clarification and will consider the issue again in December.


19) Indiana: Transparency issue surrounds a secret decision to strip authority from a public official. “State Superintendent of Instruction Glenda Ritz is suing because the state board of education, appointed by Governors Mitch Daniels and Mike Pence, took a vote to strip her of any role on reviewing the A-F grading system when she was not present. She is the chair of the board, by law. The decision was made in secret, without an open meeting.” Lesley Weidenbener, the editor of TheStatehouseFile.com,writes “if a judge decides what the board did is legal, it could set a dangerous precedent for other public groups and may call for legislators to rethink the Open Door Law.”


20) Louisiana: As details begin to leak out about Gov. Jindal’s privatization of LSU hospitals, criticism mounts of alleged insider dealing, conflicts of interest, political influence, and disputed cost savings. The state treasurer, John N. Kennedy, analyzes the “Financial Risk of Charity Hospital ‘Privatization.’” Kennedy writes, “the reason advanced by the Jindal Administration for privatizing Louisiana’s charity hospitals is that a private hospital like Lafayette General or Ochsner, for example, can manage a hospital more efficiently, and therefore cheaper, than the state. That’s why I was taken aback when the chairman of the private entity taking over the Shreveport state hospital testified before the Joint Legislative Committee on the Budget that the private contractor’s costs to run the Shreveport facility will be the same as the state’s.” Kennedy says the privatization deal may lead to a budget crisis.


21) Michigan: Former employees of the now-privatized Grand Rapids Home for Veterans send a letter to Gov. Snyder asking him if the company that bought the home, J2S Group Healthforce, “has ever contributed to the Governor’s secretive NERD Fund. The letter was also submitted to the NERD Fund’s Chairman, Charlie Secchia, of Grand Rapids.”


22) Michigan: Detroit emergency manager Kevyn Orr hires Stacy Fox, the founder of the Roxbury Group real estate company, as his deputy. Fox’s colleague at Roxbury, David Di Rita, touts his experience “in numerous complex development projects, utilizing public-private partnerships.” Detroit’s chief procurement officer, Andre DuPerry, recently resigned, which Deadline Detroit’s Darrell Dawsey writes is “cause for worry.” DuPerry pointed to Orr’s “inconsistency and lack of compliance with the competitive bid and contract approval processes.”


23) Missouri: St. Louis Post-Dispatch editorial raises questions about a proposed new municipal water contract with Veolia. “At first glance, the controversy over a $250,000 consulting contract for Veolia Water North America to review procedures at the St. Louis city water division looks like a typical City Hall kerfuffle. Oh, but it is so much more.” St. Louis resident Ivan Martin writes in a letter to the editor, “St. Louis was recently ranked as the city with the 9th-best drinking water in the country. Let’s not celebrate by inviting this transnational corporation to profit from our city’s achievement. Comptroller Darlene Green needs to heed public opinion and refuse to sign this contract.”


24) Missouri: First Student bus drivers in Sedalia vote to join Teamsters Local 833 in Jefferson City. “The victory is the latest in an effort to organize private school bus and transit workers across the country. Drive Up Standards is a national campaign to improve safety, service and work standards in the private school bus and transit industry.”


25) Nevada: Balfour Beatty Campus Solutions concludes a “public private partnership” deal to design, build and finance a University of Nevada graduate and family student housing project. The company “will finance and own the complex through a 42-year ground lease from the university.”


26) New York/New Jersey: Kiewit and Macquarie chosen to build the replacement of the Goethals Bridge. “Officials from both states have considered public-private partnerships to build infrastructure, but the Goethals is by far the largest such project undertaken in the region, Port Authority officials said. (…) In announcing the deal, Port Authority Chairman David Samson said he hoped the authority would continue to use similar private financing deals for future projects. Backers of the bridge project said they hoped legislatures in New York and New Jersey would pass laws allowing similar deals in their states.” [Sub required]


27) North Carolina: Wilmington Star-News praises the New Hanover County Commission for having “come to their senses” and introduced competitive bidding for the operation of the county’s trash services. “Waste Industries, one of the largest trash haulers serving county residents and businesses, can deliver what it has advertised. But by permitting one company to circumvent the process, the board would have run the risk of cementing a 20-year relationship without allowing the public sufficient time to comment and without seeing what competitors have to offer.”


28) North Carolina: Wilmington resident Ed Tilley praises teachers for standing up against the privatization of education. “I lived through the privatization of mental health in this state which in my view has been 10 years plus of one disastrous change after another. I am not yet convinced that anyone has benefited from this especially as prisons have become the treatment facilities for many people. I think we in mental health remained silent out of fear.”


29) Oregon: A hiring scandal at the Bonneville Power Administration, which was formed in the 1930s to provide cheap electricity to poor rural areas, raises concern that the public may lose control of the system. “Critics have long blasted the agency for providing cheap power to only one region, and it has faced regular attempts to shift control to Washington, D.C., including proposals to meld the agency into a national power grid, privatize it, auction off the system and sell energy at market rates.” Sen Ron Wyden has vowed to “to do everything he can to fight a takeover of BPA—and said he had won enough reassurances from federal officials.”


30) Puerto Rico: The Public Private Partnerships Authority has started the process of developing the $400 million Caguas-San Juan Commuter Rail Project as a “public private partnership.” “We are moving one step forward with the Caguas-San Juan Commuter Rail Project. Now we will start the evaluation and selection process of the private group that will develop the train,” P3 Authority Executive Director Grace Santana said in September.


31) Washington: Seattle acquires private parking lot, and may develop a public parking facility to replace it.


32) International: The OECD has released a report finding that large pension fund investments in infrastructure increased from 2010 to 2012, but only slightly. “The average allocation to alternatives increased from 14.4% to 15.6% of the total portfolio between 2010 and 2012.” Canada’s OMERS and Australia’s AustralianSuper had the highest allocations in unlisted infrastructure.


33) Revolving Door News: Watchdog group unveils the Pentagon’s “revolving door” database. Citizens for Responsibility and Ethics in Washington obtained the database through a FOIA request. “The database ‘is just a snapshot of the Pentagon’s revolving door,’ CREW wrote in a blog, ‘but it suggests private contractors continue to see senior DOD officials as particularly valuable during this time of tight budgets and defense reductions. People have to be allowed to make a living and use their expertise, but the public needs to know former defense officials aren’t using insider knowledge to benefit private contractors who charge American taxpayers billions of dollars.’” CREW says“it’s difficult to track people moving through the revolving door. DOD should routinely release the information, instead of fighting in court to keep it secret.”


34) Think Tanks: Robert Poole of the Reason Foundation and Joshua Schank of the Eno Center for Transportation debate transportation “national vision” and funding at the annual AASHTO conference. Schank “explored the positives of both the Highway Trust Fund and general funds toward transportation.” Eno will publish a paper setting out these ideas early next year.



Legislative Issues:


1) National: House passes Water Resources Reform and Development Act. Will now move to a House-Senate conference to reconcile with a bill the Senate passed in May.


2) California: Anti-outsourcing bill becomes state law. SEIU Local 1000 President Yvonne R. Walker says “we have shown over and over that using state employees is a more effective and efficient use of those dollars. Using private contractors typically does not save the state money. Now that AB 906 is law, the state will do a serious cost benefit analysis on the billions spent on private contractors.”


3) Illinois: With Chicago’s Privatization Transparency and Accountability Ordinance (PTAO) still stuck in committee, Ben Joravsky suggests a legislative maneuver that may free the measure up for a full vote in the council.

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