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VOL. 132 | NO. 80 | Friday, April 21, 2017

University of Memphis, UTHSC May Soon Face Outsourcing Decisions

By Sam Stockard

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Forty-one state lawmakers signed a letter requesting the state put a hold on its outsourcing plans until the General Assembly can scrutinize its effect on state workers and services.

The state is set to sign a contract April 28 with Chicago-based JLL for facilities management work that could be used by universities and departments statewide. Even local government jobs could be doled out to the contractor.

Signed by five members of the Shelby County legislative delegation, the bipartisan-backed letter to Terry Cowles, director of the Office of Customer Focused Government, notes that lawmakers share in the effort to provide state services at a low cost, but it states “we do have reservations about current outsourcing efforts.”

“Our reservations include the potential impact to state employees, the scope of ‘vested outsourcing’ to state services, and allowing enough time to address concerns from the General Assembly.

“We respectfully request that the outsourcing process wait until the General Assembly is able to study and understand the effect on our public services, economy and state workers,” he letter states.

State Sen. Steve Dickerson, who questioned the governor’s privatization initiative when officials presented a business justification plan, is among the lawmakers who spearheaded the message.

“The crux of the letter is if you looked at the entire topic of outsourcing, I think in theory it sounds like it might pay some dividends. But I think the General Assembly should have a little more say-so,” said Dickerson, a Nashville Republican. “And to my knowledge, theory and reality have not been proven to line up quite to the degree that I’d be satisfied, in that we hope to have better service, hope to have savings, but at this point I have not seen the proof to my satisfaction.”

United Campus Workers, the driving force behind opposition to outsourcing and a state plan to contract with multi-national firm JLL of Chicago, generated the letter and is asking legislators for signatures. Dickerson said he edited it to reflect the way he communicates.

“This is just sort of saying slow down, let’s take a look at it a little more thoughtfully,” Dickerson said.

An email by United Campus Workers says the letter calls for the Legislature to “halt” the outsourcing plan as an April 28 deadline approaches for the state to reach a contract agreement with JLL.

Democrats throughout the House and Senate oppose outsourcing and sponsored several measures to stop it. But so far this session, the General Assembly has taken no meaningful legislative steps to prohibit outsourcing, though some key lawmakers have said the Legislature needs to maintain some oversight.

This letter, though, contains the signatures of several conservative Republicans such as Rep. Micah Van Huss from East Tennessee and Rep. Jerry Sexton from Bean Station. Signing it from Shelby County were Democratic Sens. Lee Harris and Sara Kyle and Reps. Dwayne Thompson and Antonio Parkinson of Memphis and Republican Rep. Ron Lollar of Bartlett.

Harris, an outspoken critic of the governor’s outsourcing plan, has legislation on the verge of being approved to repeal a law that requires park operations such as marinas, campgrounds, inns and golf courses to maintain self-sufficiency.

Harris, who contends state parks are service-oriented and shouldn’t involve turning a profit, has pointed out all state legislators’ districts are affected by the governor’s outsourcing plan. “And if they don’t partner with us on this slate of bills … then they are complicit in what the governor’s doing. They have, in effect, endorsed his outsourcing plan.”

But legislation prohibiting the outsourcing of state park operations was deferred until 2018.

Another bill designed to create more oversight on outsourcing was deferred to summer study in a State Government Committee. It would require the commissioner of finance and administration to notify all legislators when recommending outsourcing of a state agency.

Other legislation requiring a report to the Fiscal Review Committee on all competitive contracts above $5 million didn’t fare well either and was taken off notice in the House.

Savings debate

In its winning bid, JLL projected a 12.15 percent cost savings at the University of Memphis and a 12.97 percent savings at the University of Tennessee Health Science Center in Memphis, both of which were toured by competing firms. University of Memphis President David Rudd was unavailable for comment on whether he would recommend contracting with JLL.

A business justification study completed in 2016 showed the state could save more than $35 million by outsourcing facilities management at the state’s universities. State officials say facilities management savings reached $12.9 million in 2016 and a total of $26 million since JLL took over 10 percent of the state’s office space.

Opponents say JLL won’t be able to save money unless it lays off employees or cuts pay and benefits. The contract says that won’t be allowed, and the state says JLL can save money by training employees to do work instead of subcontracting, and by buying in bulk. It also says it can cut its own subcontracting prices.

State entities such as universities are being given the option to participate in the contract. For instance, if they choose to use JLL for housecleaning or landscaping, they can ask for a quote on the price and then negotiate a contract with the company, and the contractor will be required to provide a savings, according to the Office of Customer Focused Government.

State Rep. Craig Fitzhugh, however, contends the state cannot point to a specific line item in the budget and show where the savings are made that it has shown in reports.

“I dare them to come up with something in the budget that shows the savings in this last contract. And you think it’s going to be any different with our state parks and our universities and colleges? No,” Fitzhugh said.

State Budget Director David Thurman said Fitzhugh is correct in that the JLL contract for facilities management is contained in the Facilities Revolving Fund (FRF) managed by the Department of General Services. Revenue for the fund comes from rent charged to agencies that occupy state-owned/managed facilities.

Anything the department can do to cut operating expenses, such as a facilities management contract, reduces expenses against rent revenue, Thurman said, explaining unspent rent money stays in the fund’s budget and can either increase its balance at the end of the year or be used to cover other costs.

“Unlike agencies funded with general fund taxes, unspent FRF revenue does not return to the general fund but remains in the FRF program, available for future FRF expenses,” Thurman said. “As a result, we don’t score reductions/savings in FRF like we do in the general fund.”

New information

Meanwhile, the United Campus Workers is raising new concerns about a mechanism called “onboarding” within the state’s request for proposals allowing the vendor, in this case JLL, to take over public services “beyond the scope of the initial contract” once it goes into effect. The term means K-12 schools, county and city governments and other public institutions would be able to use the services offered by JLL.

Department of General Services spokesman Dave Roberson says the contract slated to be signed with JLL is similar to any other statewide contract in that it’s available for local governments, higher education and certain non-profit agencies to use.

“Each of these entities could contract for (facilities management) services through a participating addendum,” Roberson said.

But any entity other than a state agency, University of Tennessee system member, Tennessee Board of Regents member or one of six universities operating under their own boards would have to go through an approval process outlined in the contract, according to Roberson.

Thomas Walker of the UCW, however, accused the governor of “slipping in as many loopholes as possible” to give JLL more authority over state and local government.

“The onboarding provision is another back door to rapidly expand privatization of our public services without any public accountability or oversight and shows just how radical Haslam’s plan is,” Walker said.

He contends the Office of Customer Focused Government and JLL can rewrite the contract at any point once it takes effect, which could affect protections for state employees who go to work for the vendor.

“This is what happens when you give companies a privileged seat at the table, shut out the General Assembly and Tennessee’s taxpayers and undermine all accountability and oversight,” he said.

In addition, the state employees group contends privatization could enable JLL to avoid paying state sales tax on purchases it makes for operations, in violation of state law.

UCW points out the contractor is being asked to make tax-free purchases through the state only “to the extent possible.” It also contends out-of-state purchases will be put on the state’s tax bill and that the contractors “could skirt” sales tax payments for operations by using bulk purchasing through the state.

In response, Roberson said whether JLL will be liable for paying state sales and use taxes will depend on “facts and circumstances” involving purchases.

“As with the current contract for the provision of facilities management services, JLL will be reimbursed in accordance with regulatory guidance as provided by the Tennessee Department of Revenue,” Roberson said.

“JLL will be responsible for paying sales tax charged for any products or services procured, regardless of the state. The contractor provides for JLL to be reimbursed for any contract-related sales tax they incur,” he said.

Sam Stockard is a Nashville-based reporter covering the Legislature for the Memphis Daily News. He can be reached at sstockard44@gmail.com.

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