privatization – Chicago Newstips by Community Media Workshop http://www.newstips.org Chicago Community Stories Mon, 08 Jan 2018 18:45:05 +0000 en-US hourly 1 https://wordpress.org/?v=4.4.14 Medicaid privatization deal called expensive, inefficient http://www.newstips.org/2013/07/medicaid-privatization-deal-called-expensive-inefficient/ http://www.newstips.org/2013/07/medicaid-privatization-deal-called-expensive-inefficient/#comments Thu, 25 Jul 2013 21:12:39 +0000 http://www.newstips.org/?p=7574 The debate over privatization is currently playing out in a dispute over a contract with a private firm to “scrub” the state’s Medicaid rolls.

In fact, contrary to the privatizers’ claims, it looks like the deal is a huge waste of money.

Last month an arbitrator ordered a $76 million, two-year contract with Maximus Inc. cancelled by the end of the year, finding that it violated subcontracting provisions in state welfare workers’ union contract.  Maximus uses data-mining technology to identify ineligible Medicaid recipients.

Last week, the Alliance for Community Services called on the state to immediately cancel the contract, arguing it has resulted in unjustified disqualification of Medicaid recipients.

The editorial board of the Chicago Tribune, meanwhile, has called on Governor Quinn to appeal the arbitratrator’s ruling — or for the General Assembly to enact a legislative fix — saying the privatization deal is the best way to cut Medicaid costs.

But is it?

***

In a June 20 ruling, arbitrator Edwin A. Benn found that the Maximus deal violated provisions in the state’s contract with AFSCME restricting the contracting out of bargaining unit work unless there’s a clear advantage in terms of economy and efficiency.  The state hadn’t demonstrated that, he said.

The state had argued it was required by recent Medicaid reform legislation, called the SMART Act, to contract out Medicaid redeterminations to a private firm; Benn writes that the act allows, but does not require, contracting out.  And though that particular question would have to be settled in court, he says, under AFCME’s contract the state can’t override contractual provisions by passing new laws.

In a June 28 editorial, the Tribune argues that “it would be a huge mistake to dump this contract and try to start over with state employees,” saying “state officials argue that the fastest and most effective way to do this work is through Maximus.”

But in arbitration hearings, state officials didn’t argue that.  They argued that their hands were bound by the SMART Act.

Benn quotes the deputy director for planning of the Department of Healthc and Family Services testifying:

“What I would have preferred is that they held off and let us implement the IES [the Integrated Eligibility System, a new computer system to do just what Maximus is doing, scheduled to roll out over the next few months], which is the long-term solution, rather than having to do [the Maximus] redetermination project on top of this, which has really complicated getting the IES in place.”

Just a week before an earlier Trib editorial with glowing claims for Maximus’s accomplishments, the planning director was testifying that without “a huge increment in productivity” on Maximus’s part, “we’ll have a serious problem.”

***

Benn also notes the state failed to refute the union’s contention moving the work Maximus is doing in-house would save $18 million a year.

Over the two years of the $76 million contract, that’s a savings of $36 million — nearly 50 percent.

You’d think the deficit hawks at the Tribune — arguing that Maximus is needed because “Illinois doesn’t have money to waste” — would take this into account.  They don’t even mention it.

The state has had to hire 200 additional caseworkers to review Maximus’s recommendations for terminating Medicaid clients, according to Anne Irving of AFSCME Council 31.

That’s because federal regulations require decisions about eligibility be made by civil service-protected employees.  (Maximus’s error rate — along with the seriousness of denying someone health care — seems to validate the wisdom of that rule.)

With an additional 100 caseworkers on top of the 200 already on this task, the state could do the whole job itself, AFSCME demonstrated during arbitration.

Maximus has brought less value to the table than state officials might have expected from its sales pitch, Irving said.  The company touted its sophisticated computer algorithms that would mine data to identify ineligible Medicaid beneficiaries.

It turned out that nearly all the data the Maximus used was already available to the state.  In some cases, Irving said, when the company requested birth certificates or citizenship papers, clients turned to their caseworkers, who had the documents on file.

Then, of course, every recommendation from Maximus to cancel, reduce, or maintain Medicaid benefits had to be reviewed by state workers.  That means the redetermination assessment had to be done not once but twice.  In “a substantial number of cases,” Maximus’s recommendations were found to be in error, Irving said.

***

According to year-to-date numbers reported by the state through mid-June, Maximus recommendations were rejected in 25 percent of cases where they found recipients ineligible; in cases where they recommended changes in benefit levels, fully 50 percent were found to be in error.

(The Tribune was wrong when it wrote in June that Illinois has removed 60,000 people from its Medicaid rolls this year.  That was the number of terminations Maximus had recommended; the number of terminations finalized is significantly lower.)

Many of Maximus’s errors resulted when the company requested irrelevant or unavailable information and then cancelled benefits when it wasn’t provided, Irving said.  In a good number of cases, Maximus recommended cancelling children’s medical cards when their grandparents or other caregivers didn’t provide their own income data — though that’s entirely irrelevant to the children’s eligibility.

Sometimes Maximus recommended cancelling cases because it hadn’t received information that turned out to be in state files, she said.

Many errors reflected the complexity of the state’s human services system — and the importance of professionally-trained caseworkers making judgments with serious impact on people’s lives, said Diane Stokes, a caseworker who is president of AFSCME Local 2858.

Job postings for Maximus workers for the project required a high school diploma, according to documents provided during arbitration  The company’s call center reps on the project earn $12.25 an hour.

According to Fran Tobin of ACS, Maximus is recommending cancellation of benefits when they encounter disconnected phone numbers.  “Having a working telephone is not a requirement for Medicaid eligibility,” he said.

“There are all kinds of reasons we’re seeing for Maximus to recommend cancellations that aren’t legitimate, that don’t demonstrate ineligibility,” he said. “They’re just looking for technicalities to kick people off.”

The Tribune notes with a tone of shock — as evidence of Medicaid “waste” — that 75 percent of terminations recommended by Maximus occurred when “the recipients just did not respond” to requests for information.

Many of those cases are people who may have moved, lost phone service, or live in circumstances where mail delivery is problematic.  Many of them will reapply as soon as they need to see a doctor or end up in a hospital.

Tobin argues people’s health coverage should not be placed at the mercy of a company whose profits depend on slashing the caseload.

***

The Tribune is convinced that “hundreds of millions of dollars” in Medicaid “waste, fraud, and abuse” is at stake if the state doesn’t stick with Maximus.  It’s not clear that’s actually the case.

The great bulk of Medicaid expenditures go to a fairly small number of people with very serious health problems, Irving points out.  They’re probably least likely to get a job or move out of state.

They could have their phone cut off — but if their benefits are cut off on that basis, they’ll be sure to reapply very quickly.

And, of course, people who move out of state aren’t very likely to be using their Illinois medical card.

The state has estimated that “scrubbing” the Medicaid rolls will save $350 million in the first year.  But “no one has ever been able to say where that number comes from or what it’s based on,” Irving said.

***

The Trib has repeatedly marvelled at the state’s inability to police its Medicaid rolls.  In March the editorial board asked, “If Illinois officials knew, or suspected, that thousands of people were improperly receiving Medicaid coverage, why didn’t they act years ago to save hundreds of millions of taxpayer dollars??”

In an editorial just this week — warning of the costs of expanding Medicaid under Obamacare — it charges that “Illinois has never made much of an effort to check if people getting benefits continued to qualify for them.”

That’s not exactly true.

“Maximus isn’t doing anything we weren’t doing for decades,” says Steve Edwards, a retired caseworker who’s active with ACS.

“The caseworkers’ month revolved around the cutoff date,” said Edwards. “We’d put a notice in the mail, and if they didn’t respond the case was cancelled.”

It wasn’t the best system, he says.  It created a lot of “churn” — people being tossed off the rolls, sometimes due to something as simple as misdelivered mail, and forced to reapply when they needed care. (There’s likely to be a good bit of churn in the numbers highlighted by the Tribune.)

Churn creates inconvenience and anxiety for clients, and it creates administrative inefficiencies when caseworkers have to help people reapply.

In any case, for many years annual redeterminations of eligibility proceeded apace.  But then the state started cutting caseworkers, even as demand for public benefits grew dramatically, with Medicaid expansion early in the last decade, and then the Great Recession.

Caseloads grew to three or four times the size of previous decades, said Stokes.  “When I started I had a caseload of 450,” she says.  “Now it’s 1,700.”

So the backlog in redeterminations of Medicaid eligibility was due to extreme staff shortages.

“The problem was created by the state when it failed to have enough workers,” said Edwards.  “They created this crisis, and now they say there’s no way out except to pay a private company $75 million.”

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Stroger staff oppose pediatric cuts http://www.newstips.org/2013/04/stroger-staff-oppose-pediatric-cuts/ http://www.newstips.org/2013/04/stroger-staff-oppose-pediatric-cuts/#comments Thu, 25 Apr 2013 23:06:06 +0000 http://www.newstips.org/?p=7157 County Hospital staff say administration proposals to limit pediatric admissions are “unnecessary and shortsighted” — and come at a cost of millions of dollars in revenues, potentially threatening the long-term viability of of the county’s entire health system.

Staff from Stroger Hospitals Neonatal Intensive Care Unit will speak at the Cook County Health and Hospital System board meeting Friday morning (April 26, 8 a.m., 1900 W. Polk) and will be available for the media shortly after the public comment portion of the meeting ends at 8:15.

They say that earlier this month, administrators told senior staff that patients should be turned away after 17 beds are full — the number was raised to 24 after an impromptu meeting with county health system chief Ram Raju last week, I’m told — due to “patient safety” concerns.

The unit has 54 beds and an average daily census of 29, and the safety issue is unfounded, staff say. Patient outcomes meet all standards, and the unit’s 1-to-3 or less nurse-to-patient ratio is in line with other hospitals — and much better than staffing levels in Stroger’s adult medicine and surgery wards, which far exceed staffing norms, according to a release from NICU advocates.

And in a health system desperate for revenue to fund care for the uninsured, the unit — all of whose patients are covered by Medicaid — generates betweeen $10 million and $14 million a year.

Advocates say they worry that the administration is “manufacturing a financial crisis” that could threaten the entire system county health system, which could provide a pretext for selling off the system.

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Will Emanuel back privatization transparency measure? http://www.newstips.org/2013/04/will-emanuel-back-privatization-transparency-measure/ Tue, 09 Apr 2013 23:09:05 +0000 http://www.newstips.org/?p=7103 Community and public interest groups are calling on Mayor Emanuel to support a privatization transparency ordinance that is expected to be considered by the City Council Rules Committee on Wednesday.

The Privatization Transparency and Accountability Ordinance, submitted last November by Alderman Roderick Sawyer (7th) and sponsored by 32 aldermen, would require a cost-effectiveness study and public hearings when the city seeks to contract out services and operations.

Along with a cost-effectiveness study prior to the award of any contract, Sawyer’s ordinance would require a study of possible alternatives in collaboration with unions representing city workers whose jobs could be threatened.  City workers would also be qualified to bid on contracts through their unions.

Noting concerns over unemployment, wage levels and workforce diversity, the ordinance would require that at least half of contract work be performed by city residents, and that contractors pay wages and benefits comparable to what city workers get for the same work.  It would mandate City Council hearings and approval of contracts over $250,000.

“I have a concern about touting a monetary savings if we haven’t thought about the people that will lose a job, the families that could lose a home and the local businesses that could lose a loyal customer,” Sawyer said when he introduced the ordinance.

“If we gut the foundation of our most stable communities by moving jobs to companies that do not have a residency requirement, does the money saved on the budget make up for the money lost in property tax and sales tax revenue? Is there consideration of possible collateral costs of neighborhood destabilization and loss of property values?”

In a letter to Emanuel, the groups backing Sawyer’s ordinance note the $200-million lawsuit against the city based on a non-compete clause in the parking meter privatization deal signed by Mayor Daley in 2008.  Daley now works for the law firm that negotiated the deal.

The process of privatization “must take place in the open from beginning to end,” the groups write.  “The public should be aware of every step that is taken in pursuing a privatization proposal — from the initial hiring of a consultant to the selection of a winning bidder.”

“Given Mayor Emanuel’s repeated statements that he is committed to transparency and accountability in City government and privatization deals, we think this should be an easy commitment for him to make,” said Hailey Golds of Illinois PIRG, one of the groups backing the ordinance.

Other groups signing the letter include the Chatham Business Council, Horner Park Advisory Council, West Loop Community Organization, Rogers Park Community Organization, Wicker Park Committee, and Wrightwood Neighbors Association.

 

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More questions: charters, partners, and planning http://www.newstips.org/2012/12/more-questions-charters-partners-and-planning/ http://www.newstips.org/2012/12/more-questions-charters-partners-and-planning/#comments Wed, 19 Dec 2012 15:35:27 +0000 http://www.newstips.org/?p=6842 (This is the second of two posts – part one looks at questions for the Commission on School Utilization including enrollment numbers and savings from closing schools.)

 

Mayor Emanuel, CPS chief Barbara Byrd-Bennett and utilization commission chair Frank Clark have taken the position that “right-sizing” the district has nothing to do with the district’s expansion of charter schools.

One has to do with declining enrollment and snowballing deficits, the other with choice and quality, according to this view.

The argument would work better if CPS’s enrollment and utilization numbers held up; if school closings actually saved significant amounts of money; and if charters consistently offered quality rather than undermining most parents’ first choice – a quality neighborhood school.

Even then, though, it’s hard to separate the proliferation of charters from enrollment declines at neighborhood schools.

[Based on revelations in Tuesday’s Tribune, the separation of school closings and charter expansions is purely strategic; when officials say they are unrelated, they are lying.]

 

A hundred new schools

In the past decade, as CPS lost 30,000 students, it’s opened more than 100 new schools with space for nearly 50,000 additional students, according to a new report from CTU.

While CPS closed scores of schools during that period, the number of schools in the district went from 580 to over 680.

“To the extent excess capacity exists, the main driver is the district’s aggressive charter proliferation campaign,” according to the report.  “The current ‘utilization crisis’ has been manufactured largely to justify the replacement of neighborhood schools by privatized charters.”

Throughout Renaissance 2010, “there was no facilities plan” and facilities decisions were “ad hoc and haphazard,” according to CTU’s report.  Adding to the confusion was the practice of approving charter schools without specifying their location, and some charters’ practice of repeatedly relocating their schools.

“CPS has opened charters haphazardly, without considering how they affect nearby schools,” according to a Sun Times editorial.

As Catalyst points out, new charter schools have been concentrated in the community areas with the largest number of schools listed as “underutilized” by CPS.  North Lawndale, with the most schools now rated as underutilized, has gotten more charter schools than any other community.

In general, those schools aren’t outperforming neighborhood schools, according to Valerie Leonard of the Lawndale Alliance.

 

A new round of failure

While school closings and new charter schools have been concentrated in low-income African American communities, these students are actually better served by neighborhood schools, according to CTU, citing reading score gains 10 percent higher in traditional schools than in charters in such areas.

Meanwhile students in closing schools have suffered mobility-related academic setbacks, faced transportation and security issues, and landed in worse-performing schools – while achievement rates in receiving schools have been adversely impacted.

It looks like the very students whom CPS has failed for a generation – whose schools have been systematically neglected and underresourced – are once again being failed.

“CPS has to look at the damage they’ve caused to children and communities and be honest about it.” said Rod Wilson, education organizer for KOCO, whose members recently sat in at Emanuel’s office demanding a moratorium on school closings.  “First they have to correct what they’ve already done, then they can start correcting the rest.”

“A school is a community institution, it’s not just a unit of production where you can close one and open another,” said Wilson.  “They’re just providing children to charter schools that are creaming and pushing children out.”

Meanwhile, as the utilization commission was holding community hearings on school closings, CPS was approving four more charters – on top of nine approved earlier this year.

At a recent commission hearing, many speakers – including the education chair of the local NAACP — noted that school closings have been concentrated in the black community.  Many spoke of “our schools” to distinguish them from charters, asking why “our schools” are being targeted.

Now it turns out, according to CTU, that the utilization commission is sharing office space with three pro-charter advocacy groups including New Schools Chicago.  (In the members’ biographies on the commission’s website, chairman Clark is identified as a founder of the Rowe-Clark Math and Science Academy but – perhaps in order to build “trust” – the fact that it’s a charter school and part of the Noble Street network is omitted.)

 

Room for partners

At the commission hearing last Monday at St. Sabina’s, 19th ward Ald. Matt O’Shea testified against closing Esmond School, noting that its 40 percent utilization rate would go up if its1972 addition were closed.  The 40-year-old addition is in disrepair, O’Shea said, while the original 1891 building is “in pretty good shape.”

How many of the 140 schools listed as eligible for closure due to underenrollment, O’Shea asked, have annexes that could be closed?  Before the commission starts recommending wholesale school closures, it should look at closing secondary buildings, he said.

Austin schools activist Dwayne Truss of Progressive Action Coalition for Education makes the same point.  “A lot of schools out here have one or two additional buildlings,” he said.

Indeed, hundreds of CPS schools have had annexes added in recent years. Many of these buildings would be perfect to house a range of the administration’s initiatives, such as early education and community college programming.

Extra space in schools could be productively used to support the newly-announced reinvigoration of the district’s highly successful Child-Parent Centers, or to replicate successful programs like school-based health clinics or community schools, which bring in community partners to offer after-school enrichment for children and ESL, GED, and computer classes for adults.

“Across the country, school districts are increasing utilization of their buildings by extending access to non-school users,” according to a report on joint use by the 21st Century School Fund.  Public agencies and nonprofit partners are offering program that extend schools’ curricular goals, address social, emotional, and health barriers to success in school, and help families provide more educational support at home.

In a school district struggling to meet parents’ demands for arts programming with a longer day, or to provide enough social workers and other support staff to deal with problems like truancy, extra space could make possible partnerships with the city’s many arts and social service agencies.

Indeed, it’s in the low-income communities with some of the higher rates of underutilization that these needs are greatest.

There are many challenges to managing such partnerships, according to the report, but some districts are succeeding at it.  Among the possible benefits:  “When school buildings are underutilized, a paying joint-use arrangement with either public or prviate partners can make continued operation of the school building fiscally possible.”

 

No plan

The large number of annexes in school buildings also demonstrates the need for long-range planning, said CTU researcher Sarah Hainds. In some cases, because it takes years to for approval and construction of such projects, additional buildings intended to ease overcrowding opened after school enrollments started going down, she said.

That’s because school facilities decisions in Chicago are made ad hoc and in response to political pressure, not based on any kind of plan, she said.

Earlier this year CPS officials said they hoped for early release of a ten-year facilities master plan, whichwas due in January under 2011 school facilities reform legislation.  But when Byrd-Bennett came in, she said the district needed more time, and a bill extending the deadline for announcing school actions also extended the deadline for the ten-year plan.

A master plan “would give us an opportunity to look at population projections, housing development, long-term factors” that will impact enrollment down the road, said Cecile Carroll of Blocks Together, chair of the master plan subcommittee of the Chicago Educational Facilities Task Force.  “But these are things CPS doesn’t want us talking about before they close schools,” she said.

Instead, CPS wants to shut 100 schools based solely on this year’s census and enrollment figures.

“I can’t believe they want to close all these schools without any kind of plan,” said Hainds.

Carroll suspects that doing ten-year projections would show that large-scale school closings are ill-advised.  And she worries that CPS sees the ten-year plan as merely a means to “right-size” the district without “a forward-looking strategy for sustaining and improving neighborhood schools.”

CPS wanted to put the draft plan’s deadline back to October, but the final bill gives them until May 1.  That means – if CPS meets its legal obligation — some kind of long-term plan will be on the table after school actions are announced but before the board can vote on them.

Carroll said there’s little transparency around the planning process, indeed little indication that it is underway.  For one thing, outreach to principals and LSCs – whose input with educational visions and long-term facility assessments for their schools is required by the facilities law – hasn’t taken place.

 

Time to wait?

Grassroots activists maintain the CPS should put school actions on hold until it’s developed a long-range facilities plan.  CTU has called for a year-long moratorium; KOCO has called for two years.

The Sun Times has called for waiting a year to “right-size” the district, based largely on eminently practical considerations: “There is no way CPS can humanely right-size its district, closing dozens of schools in just a few months….

“Even under the best circumstances, CPS rarely pulls off a complex task well.  We’re talking about relocating thousands of children and teachers, finding new schools for them, ensuring their safety and well-being.  The odds of that happening successfully in a matter of months are extremely low.”

In addition, the district is required to hold three hearings for each school action it proposes – that would be 300 hearings for 100 closings in little over a month — and school board members are expected to consider that testimony.  And the deadline for schools that require applications – a major reason the legislature pushed the deadline for school action announcements to December last year – has come and gone.

Will the commission consider the option, widely backed among informed observers, of waiting for a long-range plan before implementing whole-sale school closures?  Or are they just expected to collect community input, ignore it, and deliver a list of schools to axe?  Is this an “independent commission,” or is this a done deal?

There’s a larger picture:  school closings are happening in urban school districts across the country.  According to Diane Ravitch, districts like New York’s are “repeating the pattern that was established in Chicago.”

The idea of closing schools to improve education was also embodied in the Bush administration’s No Child Left Behind law, which mandated sanctions for low test scores.

The original rationale for closing schools came from the business world:  the way to improve education, it was argued, is to subject eductors to rewards and punishment based on standardized tests.  That logic hasn’t been validated by Chicago’s experience.

And while this year there’s a brand new rationale, presented with all the theatrics of an imminent crisis, the policy is the same.

Behind school closings, Ravitch writes, is “the dynamic of privatization: as public schools close, privately-managed charters open, accelerating the destruction of neighborhoods and public education.”

At WBEZ, Becky Vevea points out that if the district closes 100 neighborhood schools and opens 60 charters, the proportion of privately-operated charters in the system will double — to more than a quarter of CPS schools – dramatically reshaping the district.

Is this a decision the public gets to weigh in on?

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Chicago infrastructure trust – and water privatization? http://www.newstips.org/2012/08/chicago-infrastructure-trust-and-water-privatization/ http://www.newstips.org/2012/08/chicago-infrastructure-trust-and-water-privatization/#comments Mon, 27 Aug 2012 20:59:56 +0000 http://www.newstips.org/?p=6578 A new report on private equity takeovers of public infrastructure focused on privatization of water services highlights Chicago’s infrastructure trust and warns of higher costs, degraded service, and diminished accountability.

“The infrastructure trust makes us more vulnerable to a public-private partnership” either to finance water system repairs and upgrades or for an operation-and-maintenance contract, said Emily Carroll of Food and Water Watch, which released the report.  “Taxpayers should be wary of getting a raw deal,” she said.

Mayor Emanuel has said he opposes the sale of Chicago’s water system, but the infrastructure trust is set up specifically to foster public-private partnerships, which Food and Water Watch considers a form of privatization, Carroll said.  In so-called P3s, public control over infrastructure is lost and ratepayers are on the hook for private financing costs, she said.

She points to the experience of Atlanta, which canceled a contract with a private corporation for water system operation in 2002 after huge problems with repairs, including emergency responses, and inflated charges for work done.  When only half the promised savings were realized and revenues fell short, the city requested the company’s billing records and was refused, according to FWW.

Water rates

And while Emanuel recently raised water rates to pay for repairs and upgrades, he could later come back and say more money is needed – and the higher rates would make the system more attractive to private investors, Carroll said.

In investment industry surveys, water systems are rated among the most desirable kinds of infrastructure, according to the report.  One of the Chicago trust’s participants, Macquairie Infrastructure and Real Assets, spent $578 million to purchase a private water company in 2007 – the largest private equity water service deal listed by FWW.

The report cites a trade publication describing Chicago’s $1 billion infrastructure trust as “an industry-backed deal to establish PPPs as a politically and financially viable business.”

Currently “private equity vehicles are armed with over $100 billion” seeking highly profitable investments in public infrastructure around the world, in an attempt “to exploit the lagging recovery of the public sector,” according to the report.

About Chicago it says:  “The city’s primary motivation appeared to be the desire to take debt off city books to give the illusion of reducing its liabilities.  ‘We have a tool here that takes some of the pressure off taxpayers,’ Emanuel claimed.  ‘Use somebody else’s money for a change, rather than theirs.’

“In the real world, however, banks do not provide free lunches.  Chicago will have to repay the private capital investment with interest through user fees.

“The city’s chief financial officer admitted that private investment could be more expensive than traditional government borrowing.  Nevertheless, the City Council signed off on Emanuel’s plan.”

Higher costs

In fact, private equity financing is “much more expensive than government borrowing,” according to FWW.  “Private equity players have targeted annual returns of at least 12-15 percent.”

While the financial industry encourages governments “to use privatization as a ‘mega-credit card’ to finance infrastructure projects,” FWW cites a report by the Association of Chartered Certified Accountants: “Just as with a credit card, the interest rates have been relatively high, and at some point the debts have to be paid off.”

In the UK, a parliamentary commission found that private investors in infrastructure projects were making “excessively high returns” and concluded the private finance model was “inappropriate” for public works projects, according to the report.

While surveying water privatization issues around the country, the report raises more general concerns about private equity financing that could be relevant to Chicago’s experiment:

— Private equity investments in public infrastructure tend to be highly leveraged, adding risk and long-term borrowing costs, and private equity players “usually flip assets within a decade” to cash in on deals.

— Financial consultants for cities come from investment firms and have potential conflicts of interest.  The general use of “success-based” fees based on a percentage of the transaction deal gives consultants “a strong financial incentive to recommend the biggest deal possible,” even if it is “a terrible deal for the community.”

— Often public-private deals allow investors to renegotiate terms after a bid is chosen, so they will initially low-ball estimates.  Costs and profits can later be boosted with pessimistic financial projections and other devices.

— Private investors tend to overbuild or “gold plate” infrastructure projects in order to increase profits.

FWW was particularly concerned with the fact that Chicago’s infrastructure trust is set up as a nonprofit rather than a public entity, legally exempting it from open meetings and freedom of information requirements, Carroll said.

 

Related:

Chicago water for sale?

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Mental health closures causing hospitalizations http://www.newstips.org/2012/04/mental-health-closures-causing-hospitalizations/ Sun, 29 Apr 2012 21:00:22 +0000 http://www.newstips.org/?p=6086 With four more mental health centers slated for closing Monday, clinic users and supporters will seek a “pardon” from President Obama tomorrow – and highlight psychiatric hospitalizations that have resulted from the closure of two clinics earlier this month.

The Mental Health Movement will march on Obama’s campaign headquarters, 130 E. Randolph, at 11 a.m., Monday, April 30, to ask for “presidential pardon” for the condemned clinics – and for the clinic users they say will die as a result of the closures.

At 5:15 p.m. on Monday, therapists from the city clinics joined by health advocate Quentin Young will hold a press conference outside the mayor’s office in City Hall to discuss the impact of the closures.

One immediate outcome has been a surge of psychiatric hospitalizations for clients of two clinics closed earlier this month.  MHM knows of 18 such hospitalizations, said organizer Matt Ginsburg-Jaeckle.

One client – who was hospitalized after attempting suicide when she lost her long-time therapist – has been released and is telling her story for a video that MHM will be releasing, Ginsburg-Jaeckle said.

The cost of such hospitalizations (averaging $13,000 each) will eat up any taxpayers savings from clinic closings, according to an MHM report issued earlier this year.

Other issues highlighted in the report include the firing of all bilingual therapists at a time when immigrant communities increasingly need mental health services; the closure of four clinics in South Side communities that have a critical shortage of mental health services; and the diminished capacity of nonprofit providers that are supposed to take up the slack.

MHM members and supporters have been occupying the lot across from the Woodlawn Mental Health Center, 63rd and Woodlawn, since 23 were arrested at a sit-in at the clinic on April 12.  The Woodlawn center is slated for closure Monday.

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Infrastructure trust and Red Line extension http://www.newstips.org/2012/04/infrastructure-trust-and-red-line-extension/ http://www.newstips.org/2012/04/infrastructure-trust-and-red-line-extension/#comments Wed, 18 Apr 2012 23:56:37 +0000 http://www.newstips.org/?p=6066 Mayor Emanuel’s proposed infrastructure trust will be discussed at a community meeting on the Red Line extension in Roseland on Thursday.

Representatives of Grassroots Collaborative, the NAACP, AFSCME and other groups have been invited for a panel on “threats and opportunities” related to the infrastructure fund at the quarterly meeting of the Red Line Oversight Committee of the Developing Communities Project, said organizer John Paul Jones.

The meeting takes place at 11 a.m. on Thursday, April 19 at Lilydale First Baptist Church, 649 W. 113th Street.

DCP has been pushing since 2003 to extend rapid transit service to the city’s last unserved area.  After being on hold for decades, the project was approved by the CTA in 2009.

The project — which would extend the Red Line from 95th to 130th Street and add four new stations — is proceeding steadily, Jones said, with an environmental impact study and public outreach now underway.  Consultants conducting the environmental study are expected to report tomorrow.

Earlier this year the CTA hired Goldman Sachs, Loop Capital, and Estrada Hinojosa to serve as financial advisers for the modernization and extension of the Red Line.  Jones said it’s possible the infrastructure trust, if passed, could also come into play.

DCP executive director Gwen Rice said the group wants to weigh the benefits of public-private financing and make sure the community is at the table when decisions are made.  One of the group’s priorities is making sure that work on the extension goes to local residents, she said.

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When the infrastructure trust was first announced on February 29, the city’s chief financial officer Lois Scott created a small stir by saying private financing for the Red Line extension could be paid for with distance-based fares.

In her new blog for the Center for Neighborhood Technology, CTA vice chair Jackie Grimshaw rejects the idea.

“I don’t think distance-based fares are the right way to help pay for transit improvements,” Grimshaw writes. “It strikes me as unfair to make the poorest residents pay more to travel than wealthier people who live closer to downtown.

“We should not punish those who have been forced farther out of the city’s central core by rising real estate prices with increased transportation costs, especially when they have been denied the good transit access that many of us have enjoyed for so long.”

In other posts, Grimshaw recalls that Mayor Emanuel promised to make the Red Line extension “his top priority” during last year’s campaign.  She calls the extension “a ticket out of poverty for many on the Far South Side” who have “very low access to jobs.”

She discusses the ambitious expansion of mass transit now underway in Los Angeles, cited by Emanuel as an inspiration.  The huge project is financed by federal loans and long-term bonds paid for by a small sales tax increase.

Chicago has the nation’s highest sales tax, but broadening its base to include services could raise significant revenue while allowing a reduction in the rate, Grimshaw points out.

(In 2010 the Center for Tax and Budget Accountability evaluated proposals to expand the state’s sales tax base and found they could raise $500 million to $2 billion a year.)

That could allow the state to “create a dedicated revenue stream to invest in capital projects that would fill existing transit gaps,” Grimshaw writes.

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Questions remain on infrastructure trust http://www.newstips.org/2012/04/questions-remain-on-infrastructure-trust/ http://www.newstips.org/2012/04/questions-remain-on-infrastructure-trust/#comments Sun, 15 Apr 2012 21:53:07 +0000 http://www.newstips.org/?p=6062 Illinois PIRG is calling on aldermen not to approve Mayor Emanuel’s infrastructure investment trust without more public safeguards, and the Grassroots Collaborative is urging a “no” vote on the proposal.

Leaders of community groups and union members in Grassroots Collaborative will hold a press conference Monday, April 16 at 9:30 a.m. on the 2nd floor of City Hall to call on aldermen to vote against the ordinance establishing the trust.

The council’s finance committee holds at hearing on the ordinance at 10 a.m. Monday.

Emanuel’s new tweaks to the ordinance go just partway to addressing the groups’ concerns.  “He’s dealing with the easy stuff,” said Celeste Meiffren of Illinois PIRG.

PIRG has called for far more stringent conflict-of-interest protections than Emanuel has offered: “Members of the board of directors should be free from conflicts of interest and instead should represent Chicagoans as primary stakeholders,” Meiffren writes in a blog post.

She calls for requiring board members to divest from any holdings in companies doing business with the city and in banks investing in the trust, and to agree not to work for them for a period after serving on the board.

As it stands the board looks to be comprised of CEOs and CFOs who will be “controlling taxpayer assets” and “accountable to nobody,” Meiffren said.

She doesn’t think putting an alderman on the board “solves the problem.”  She’d like to see watchdog groups represented on a board structured so that business leaders had a purely advisory role.

More bad backroom deals

Beyond that are larger concerns about the purpose of the trust.  “The ordinance is so vague that worst-case scenarios are really possible,” said Meiffren.

PIRG says the trust should be specifically committed to getting the best deal for the city and taxpayers rather than investors; and each deal should be subject to an independent evaluation to make sure that happens.

“There’s nothing in the ordinance that would prevent another bad backroom deal from happening,” Meiffren said.  “We have a history of bad deals, so we need to go above and beyond to ensure that taxpayers aren’t ripped off again.”

She cites the one project Emanuel has specified for the trust: a $225 million effort to retrofit city buildings for energy efficiency.  “Why can’t we do that with municipal bonds, which will get us a much better interest rate?” she asks.

“Instead of just going to private investors every time, we need a mechanism for determining what the best deal is – that evaluates every deal against other options,” she said.  “Nothing here does that.”

While the city does have a large debt load, its bond rating remains strong, and it continues to issue bonds:  last October Chicago issued over $400 million in general obligation bonds and $330 million in sales tax revenue bonds.

Who will pay?

Grassroots Collaborative is concerned that low- and middle-income communities will be shortchanged by the trust, said Eric Tellez.

“We’ve seen the TIF program focus resources downtown,” he said.  “With (infrastructure trust) investors’ goal to make money,” they could also concentrate on downtown and wealthy areas, he said.

And user fees to pay back private investors could hurt moderate-income residents.  “It injects a profit-making factor into public assets,” Tellez said.

“It could open the gate to [creating] revenue-generating streams for public services,” he said. “Will we have to pay to go to the park?  Will higher fares prevent people from getting to work?”

Such concerns are fed because “we haven’t been given any details,” he said.  “The actual proposal doesn’t have a lot of clarity.”

The trust could also “create a union-busting environment” if there’s pressure to cut labor costs in order to pay back investors, he said.

The Illinois Coalition to Protect the Public Commons has also come out against the deal. “It is too big, too vague, too secretive and too unaccountable,” said Lora Chamberlain of Illinois Citizens for Public Banking, a coalition member.

“We don’t put money into a farebox to make some guy rich,” said Charles Paidock of Citizens Taking Action, a group of public transit-dependent residents.

As the Emanuel administration stretches for the most creative and innovative solutions to the city’s financial situation, it’s worth noting that these often entail higher risk.  One innovative approach in recent years was the variable-rate bond issued by many municipal entities.  The costs of these deals have been much higher than anticipated.

Chamberlain cautions that the trust should offer investors revenue sharing rather than dedicated revenue streams, an approach that has gotten some European countries into deep trouble.

Her group offers a much more conservative approach: a public infrastructure bank.  It would leverage a portion of the city’s TIF surplus to fund infrastructure projects, but the rate of return would be kept relatively low and the city would retain control over public assets.

Their model is the Bank of North Dakota, the nation’s only state-owned bank, created during a populist upsurge in 1919.  BND holds the state’s deposits, lends to small banks in the state, and sends half its profits back to state coffers. It’s part of the reason North Dakota has no deficit.

On the other hand, there’s lots of money out there looking for public investments right now – especially as big financial firms back off trading under pressure from new regulations.

They’re looking for the safety of public investments and hoping for something approaching the high profit rates they got used to during the boom, said Tellez.  “They want to have their cake and eat it too,” he said.

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