Update: Upcoming Outsourcing Issues. December 16, 2013


1) National/Texas: The New York Times reports on financial secrecy at public charter schools run by private companies such as K12 and Pearson. Bruce Baker, a Rutgers University professor who studies public school finance, says “the big issue is having some transparency. Then we can better evaluate the quality given the cost.” Baker said “such obstacles were common and would not change until legislators or local officials demanded detailed disclosure.”


2) National: The Guardian runs a series of investigative pieces on the American Legislative Exchange Council, an important force for driving a privatization agenda through state legislatures. Publishes State Policy Network proposal to the Searle Freedom Trust, including for a $40,000 project for the Pioneer Institute to target Massachusetts’ legal restrictions on privatization (pp. 3, 19); and $30,000 for a project by the Mississippi Center for Public Policy to advocate the privatization of the state’s department of transportation (pp. 4, 25). [NPR story on the Guardian ALEC reports;Lisa Graves of the Center for Media and Democracy on the Guardian reports andCMD’s recent research; Dana Milbank piece on ALEC.]


3) National: Maude Barlow and Wenonah Hauter warn of the dangerous return of water privatization. “Private water corporations and investment banks once again are stepping in to take advantage of this crisis through takeovers and buyouts of public water systems. The aggressive strategy of private water utility companies in the last 10 years raises fears that the public may be losing control of its most vital resource. These corporations work to undermine federal funding for public utilities, while seeking special tax benefits and government subsidies for themselves. They target local governments with offers of upfront cash in exchange for long-term control of water resources.”


4) National: American Water Works CEO Jeffrey Sterba to retire. “Under Sterba’s leadership, American Water’s labor relations have sharply deteriorated. In January 2012, the National Labor Relations Board (NLRB) issued a complaint accusing American Water of illegally cutting healthcare, retiree health, and disability benefits for 3,500 workers in fifteen states across the United States.” From 2008 to 2012, American Water’s key executives made $32,232,667. Sterba will be replaced by American Water CFO Susan Story. “Her base salary as CFO was $535,000, and she was given 37,500 restricted stock units as a signing bonus to make up for benefits forfeited upon leaving Southern, according to a regulatory filing.”


5) National: Certain types of public municipal debt are exempted from taxation in the final version of the Volcker rule banning federally-backed banks from engaging in proprietary trading. [Sub required]


6) National: Moody’s continues to be optimistic on U.S. state and local public finances. “The outlook for US states remains stable. Since we revised our outlook to stable from negative in August, economic recovery has continued, although at a somewhat slower pace. However, stock market gains and private sector expansion continue to support revenue growth, and reserves are on the rise. ‘The New Stable’ reigns for local governments as the era of constrained resources persists, but the worst is over. We have revised our outlook to stable from negative for the local government sector.”


7) National: Peter Stokes and Sean Gallagher, writing in Inside Higher Ed, say this may be the “Year of the Backlash” against massive open online courses, which some see as a threat to public education. “It seems like only last year (in fact it was) that some were crediting elite institutions with ‘legitimizing’ online learning through their experimentation with MOOCs. But what if instead of legitimizing online learning, MOOCs actually delegitimized it?”


8) National: For-profit colleges are up in arms over the Obama administrations proposals to rein in tuition. “For-profit schools have already voiced alarm about the emerging plan. The proposal would threaten revenues at major education companies such as DeVry Education Group Inc., Corinthian Colleges Inc., Education Management Corp., which runs the Art Institutes; and Apollo Education Group Inc., which owns the University of Phoenix. At most for-profit schools, so-called Title IV funds—generally Pell grants and federal student loans—are the biggest source of revenue. The funds are awarded to students who use them to cover tuitions at the schools.”


9) National: Macquarie Capital beefs up its energy infrastructure group in Austin.


10) Georgia: Atlanta Beltline authorities release a 148-page planning document for the project, which is expected to take 17 tears to complete, and will include both public funding (including $1.45 billion in tax increment funding) and an estimated $275 million in private funding. There is a shortfall of est. $891 million. [2030 Strategic Implementation Plan: Final Report]


11) Indiana: The Northwestern Indiana Regional Planning Commission approves the controversial Illiana Expressway “public private partnership” project. The proposal now goes to the federal government for approval, and the “quest for private investors with deep pockets” begins.


12) Indiana: A 40-year concession to private companies to run Gary/Chicago International Airport nears approval. The airport authority received a proposed agreement from its “public private partnership” committee for a $100 million deal that would include a $25 million investment in the first three years and “participation goals” for local businesses and disadvantaged/minority businesses. The proposed deal was reached with Aviation Facilities Company Inc./AvPORTS (AFCO), Guggenheim Securities and Loop Capital. If approved “in the coming weeks,” the contracts would go into effect in early 2014. “Despite its proximity to nearby Chicago, the airport has poor ridership, boasting just 10,500 passengers last year. Gary/Chicago also lost its lone carrier, Allegiant, in August, and is stigmatized by its association with Gary, a US Midwest city plagued by violent crime.” [Sub required]


13) Indiana: Blogger Steve Hinnefeld finds that Indiana public schools outperform charter schools and voucher schools. “School-choice advocates argue that children will get a better education if they can leave public schools for charter or private schools, especially in urban areas. The Indiana Growth Model tells a different story.”


14) Indiana: Municipal finance analyst Cate Long questions where the savings are on Indiana’s portion of the Ohio River Bridges project once public subsidies are taken into account. “I can appreciate The Bond Buyer’s respect for unusual financing structures, but it shouldn’t let novelty carry more weight than the economic value of a deal. After all, The Bond Buyer named the $1.44B financing for the Detroit retirement systems in 2005 the ‘Midwest Deal of the Year,’ and it was a finalist for ‘Deal of the Year.’ Some now believe that the Detroit variable-rate debt and interest-rate swap deal ultimately killed any hope that the city would regain any fiscal recovery.”


15) Iowa: Obama administration approves Gov. Branstad’s plan for expanding Medicaid under the Affordable Care Act. Branstad “won approval for a plan to essentially privatize the health care law’s Medicaid expansion. Iowans eligible for expanded Medicaid program will be covered by private insurance sold through the state’s exchange.”


16) Louisiana: Monroe will either privatize or close down its public transit system. The city council ended a 36 year relationship with its private operator, First Transit, last week. The mayor “is seeking an attorney general’s opinion on whether it is legal to continue paying a company that is no longer under contract.”


17) Maryland: Six private consortia have submitted qualification to bid on the $2.2 billion Purple Line light rail “public private partnership.” The six teams are M-PG Connect (Plenary Group and Bechtel Development), Maryland Purple Line Partners (Vinci Concession, Walsh Investors, InfraRed Capital Partners, Alstom and Keolis), Maryland Transit Connectors (John Laing Investments, Kiewit Development and Edgemoor Infrastructure & Real Estate), Purple Line Development Partners (CSCEC and United Labor Life Insurance), Purple Line Transit Partners (Meridiam Infrastructure, Fluor and Star America Fund) and Purple Plus Alliance (Macquarie Capital and Skanska Infrastructure Development). The statements of qualifications have not been publically released by the MTA or MDOT, and no details have appeared in the media. MDOT will select a shortlist of four bidders in January, and choose a proposal in late 2014 or early 2015. The state will pay a subsidy of $100 million-$200 million a year for 45 years to the concessionaire. [Sub required]


18) Massachusetts: State Treasurer Steven Grossman says budgetary transparency helps the state’s bond ratings. “Grossman, who took office in 2011, said he and assistant treasurer for debt management Colin MacNaught set out early to improve disclosure. ‘Colin said of all the things we needed to accomplish, we needed to make Massachusetts number one in disclosure. It was one of his top priorities. He cited other states and cities that failed to communicate effectively.’” The state also has an investor website with real time data. [Sub required]


19) Massachusetts: Department of Transportation Secretary and CEO Richard Daveyis named “person of the year” by the construction industry.


20) Michigan: Prison food service workers ask Gov. Snyder if Aramark contributed to his secretive NERD fund. “‘Taxpayers deserve openness and transparency from our Governor,’ said Amy Bradley, a state correctional food service worker. ‘We deserve to know whether or not Gov. Snyder’s decision to privatize prison food service was influenced by any contribution to his secretive fund. Closing the fund without disclosing the donors just raises more questions about conflicts of interest in administration’s decision-making process. It’s time for Gov. Snyder to clear the air and live up to his campaign transparency pledge.’”


21) Nebraska: Drawn out, and now halted, privatization process undermines Nebraska-Lincoln’s University Health Center’s mission. “Yes, they want to provide a service, but they also want to fulfill their own mission,” director James Guest says. “Our goal is a product and theirs would be a dollar.”


22) New Jersey: Public health advocates are concerned about the possible privatization of the psychiatric ward at the Camden County Health Service Center. “The center was sold to Ocean Healthcare for more than $37 million in May, but county officials had planned to lease back the psych ward. (…) But Mary Lynne Reynolds of the Mental Health Association in Southwestern New Jersey said she believes Ocean Healthcare intends to take over the ward. She said she’s worried the company will reject the uninsured patients in the roughly 150-bed ward.” Phil Lubitz of the New Jersey National Alliance on Mental Illness is concerned that “even with the best planning, there is a resulting increase in homelessness and also people with mental illness being diverted into our criminal justice system.”


23) New York: Sale of Herkimer County’s Country Manor adult care facility may fall through if CSEA and Advanced Healthcare Management don’t reach agreement. “The resolution to terminate the agreement will take effect at 5 p.m. Friday, Dec. 27, so ‘the purchaser and CSEA will have a final opportunity to attempt to come to an agreement that might allow the purchaser to move forward,’ according to the resolution.”


24) Ohio: Cincinnati Mayor John Cranley and labor leaders set conditions for accepting private donations for the city’s streetcar system. “Cranley said he wouldn’t support any plan that would have operating funds being taken from the city’s General Fund. The account is used to pay for the city’s daily operations, including salaries for municipal workers like police and firefighters.” Construction began in August, and Cranley campaigned on ending the project as too costly.


25) Oregon: State Land Board agrees to sell “scattered tracts of the Elliott State Forest, despite objections from conservation groups that they include nesting trees for a protected bird.” Gov. Kitzhaber said “that the sale would help establish a fair market value for the land, which would open up more options for divesting land in the future.”


26) Pennsylvania: Attorney General Kathleen Kane may run for the Senate against the incumbent, former Club for Growth president Pat Toomey. Earlier this year, Kane blocked the privatization of the Pennsylvania lottery’s management.


27) Pennsylvania: Auditor General urges governor and state legislature to act by the end of the year to stop spending on the lottery privatization initiative, which has cost taxpayers an estimated $4.6 million, “or more than 11 percent of the Lottery’s annual operating budget.” He says “the Lottery funds paid to DLA Piper are of concern since the firm claims to have experience in lottery privatization but was unable to develop a contract that could gain legal approval of the Pennsylvania attorney general. So far, all we know of DLA Piper’s work is that they failed to do what the administration is paying them more than $2 million to do. Taxpayers have a right to know the rationale behind hiring this firm and to see some results for these exorbitant costs. That has not happened.”


28) Pennsylvania: DOT invites prospective bidders on its bridge replacement project to submit their qualifications. The project is a “public private partnership” concession with public subsidies. Statements of Qualifications are due January 31, 2014. A list of the 998 bridges to be replaced has been released.


29) Pennsylvania: The sale of Harrisburg’s parking facilities to the Pennsylvania Economic Development Financing Authority, and its incinerator to the Lancaster County Solid Waste Management Authority, is scheduled for December 23. The asset sale is part of a plan to keep Harrisburg out of bankruptcy.


30) Virginia: The Office of Transportation Public Private Partnerships receives recommendations from 19 firms for ways to add additional capacity to the I-66 corridor. “The information will help Virginia further develop the I-66 project, McDonnell said, which may result in a formal procurement of a contract through the Public-Private Transportation Act.” A request for qualifications may go out in March 2014, with a shortlist due out in May. The request for proposals may be produced in early 2015, with a deal closing in midyear. [Sub required]


31) Virginia: At a standing room only school board meeting, Roanoke residents and bus drivers “pleaded with the board not to privatize busing, saying drivers wouldn’t stay on with a private company and the safety of children could be compromised. ‘I think we need to look at this thing very closely and the concern from the parents is the safety of the children,’ driver Sam Huntley said. ‘I notice if there’s a strange car or a strange person.’” The board will consider proposals it has received at meetings on February 17 and 18.


32) Washington: State judge strikes down part of the state’s charter school law. “While charters can be considered part of the public-school system because they have the same educational goals, standards and tests, the ruling says, they nevertheless are not ‘common schools.’ Rietschel wrote that ‘a charter school cannot be defined as a common school because it is not under the control of the voters of the school district.’”


33) Washington: Under federal pressure, Gov. Inslee moves to expand privatization of mental health treatment. “Under a proposal from Gov. Jay Inslee, insurance companies would be able to compete with county governments for regional mental health contracts.” Criminal justice “is a key question in any overhaul because of the problems caused by the relatively small fraction of people with mental illness who commit violence. If patients don’t receive treatment, they could end up dumped in the laps of counties that manage jails and courts. That’s part of why counties argue they should remain in charge of the system.”


34) Washington: Puyallup Police find that “post privatization, the number of people under 21 who are stealing [liquor] has doubled.”


35) Wisconsin: The Milwaukee County Employees’ Retirement System has added $25 million to its commitment to JP Morgan Infrastructure Investments Fund (JPM IIF). [Sub required]


36) International: Three year effort by the British government to privatize purchases of military equipment collapses. Bechtel may continue to pursue the contracts. “Bechtel had pursued the full-scale privatization contract through a consortium called Materiel Acquisition Partners, which also included PricewaterhouseCoopers LLP and PA Consulting Group.”


37) International: Mexican Senate passes bill to allow private investment in the public oil sector. “But the PRD has branded the plan as treason and as a sell out to US oil companies, calling the legislation a bid to privatize a symbol of national sovereignty. Demonstrators who had set up camp outside the Senate for days moved their protest to the chamber of deputies, holding signs reading ‘Black gold is not traded for knick knacks.’”


38) Revolving Door News: Ernst & Young adds two experts with public service backgrounds to its infrastructure advisory practice. Tom Rousakis, most recently co-head of Transportation and Project Finance in Public Sector and Infrastructure Banking at Goldman Sachs, “has advised or led financings for public agencies on large and complex transportation programs, as well as P3 projects in the marketplace, according to E&Y.” Jennifer Mayer “was an in-house senior technical advisor and innovative finance national expert for the Federal Highway Administration.” She is also the founding chair of the Transportation Research Board’s subcommittee on P3s. [Sub required]


39) Revolving Door News: John Porcari, deputy secretary at the U.S. Department of Transportation, is moving to Parsons Brinckerhoff, the infrastructure consulting and engineering firm. Porcari served two terms as secretary of the Maryland DOT.



Legislative Issues:


1) National: Writing in The Washington Post, Alexander Hertel-Fernandez ties ALEC’s influence to the shortage of resources for state legislators to develop their own legislation. “Lots of legislators fit this description: In 17 states, the average state legislator only spends the equivalent of half of a full-time job on legislative work, receives about $16,000 per year in compensation and is assisted by only one staffer. A similar finding emerges when you compare legislators, too: Less-experienced legislators were much more likely to rely on ALEC model bills compared to more experienced lawmakers.”


2) Pennsylvania: Opposition mounts to a Senate bill revising charter school funding. “This year, the Philadelphia School District alone will pay $708 million to charter schools. (…) But a growing band of public-education advocates is rallying against the bill. While supporting cuts for cyber schools, the opponents say other parts of the bill would speed an already rapid exodus of students from public schools to charters” [SB 1085]. Controversy continues over state payments to charter schools, and a jury will soon begin considering dozens of charges, including fraud and obstruction, against a Philadelphia charter school operator. Last Wednesday, the state released revised school performance data. “The lowest scorers, which ranged from 22 to 45 points, are from Wilkinsburg School District, Academy Charter School, Career Connections Charter High School, Pennsylvania Learners Online Regional Cyber Charter School and Pittsburgh Public Schools.”

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