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Homeland Security chief Janet Napolitano’s appointment as the University of California’s 22nd president is part of a long tradition of militarizing the university from the top down.

napoDepartment of Homeland Security secretary Janet Napolitano’s nomination to be the 22nd president of the University of California announced days ago has already provoked skepticism and opposition from numerous faculty and students. Christopher Newfield, a professor of English at UCSB, wrote on his widely read blog that Napolitano is “unqualified to be a university president,” due to her lack of academic background and knowledge of how universities operate. “She has no political network in California,” added Newfield, “no local knowledge of the players, no constituency in the state, no national or state-based academic network, no direct understanding of the state’s history or current society.”

The UC’s graduate student union which represents thousands of student employees across the ten campuses, from Berkeley to San Diego, stated in a press release that they are “shocked and troubled,” by Napolitano’s nomination. “We fear that this decision will further expand the privatization, mismanagement, and militarized repression of free speech that characterized Mark Yudof’s presidency and will threaten the quality and accessibility of education.”

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UC president Robert Dynes center front with Los Alamos weapons lab executives. In center background is Robert Foley, UC vice president for Laboratory Management. The poster hanging in the background celebrates Los Alamos Lab’s trident nuclear missile program.

Yudof of course was UC’s cigar chomping, bald, and gruff president recruited from the University of Texas in 2008 to replace Robert C. Dynes and whip the school’s administration into shape. Dynes was a physicist who presided over various scandals including one that has been emblematic of the decline of universities across the U.S. over the past two decades: bloated and growing executive compensation packages even while colleges trim their budgets, lay off faculty, and hike tuition. UC’s executives were lambasted in the press for their six-figure salaries and cronyism until the Regents, that lofty board of millionaires, mostly friends and donors to the Governor of California given ultimate power of the nation’s largest university, told Dynes it was time to retire back to his laboratory at San Diego.

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Mark Yudof while president of the University of Texas signing a joint management agreement with Lockheed Martin executive C. Paul Robinson to co-manage Sandia National Laboratories, a nuclear weapons facility in Albuquerque. Sandia Labs also does perhaps a billion dollars of contract research for the CIA, NSA and other spy agencies.

Napolitano is a departure from Yudof and Dynes in that she doesn’t appear to have been selected purely for her unique qualifications to handle the crisis de jour for the University. Yudof cleaned up Dynes’ mess.

Dynes was recruited by several of the Regents in order to assemble Los Alamos National Security, LLC, a private corporation in which the university is a partner with Bechtel. LANS, as it’s called, was a creature of necessity; in the early 2000s another set of scandals —spying, theft, and various deadly accidents— threatened one of the UC’s most prized possessions, it’s sole, lucrative, and much coveted contract to manage the nation’s largest nuclear weapons laboratory in the high desert of the Land of Enchantment, New Mexico. Dynes arrived largely to assemble the UC’s joint bid for the contract with Bechtel and a few other large military-industrial corporations. He was successful in keeping UC wed to the nuclear lab. (Yudof actually led a counter-bid through the University of Texas and Lockheed Martin to wrest LANL’s contract from UC, but failed.)

Prior to Dynes was Richard Atkinson, an academic’s academic, a former head of the National Science Foundation, and Chancellor of UC San Deigo. Many UC faculty today look back on Atkinson as the ideal type, his reign the good old days, the high water mark for UC, untainted by worldly corruption and materialism, a set of little cities upon golden California hills where patient scientists and scholars could plod away at their research unhurried and secure in tenure and prestige.

But the UC has always been run by cops, spies, and weaponeers. The second board of Regents included Irving Scott, owner of a proto-Northrop Grumman, building warships for the U.S. military. Scott’s company, the Union Iron Works, built the USS Oregon battleship which was deployed in the 1890s to the Philippines where it shelled the Filipinos into submission – for their own childish good said UC’s leaders.

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San Francisco’s Union Iron Works, a forge for battleships and weapons. The arms factory was owned by one of the UC’s first regents. Dozens of military-industrial executives have held seats on the Board of Regents providing an organic link between the Pentagon’s industrial contractors and the university.

UC’s tenth president was selected partly based on his anthropological work in service of the growing U.S. imperium in Asia. David Prescott Barrows led the Bureau of Non-Christian Tribes, “re-educating” the Filipinos, indoctrinating them into American culture, and the English language used by their new rulers. Barrows was molding colonial subjects. He once wrote as if he were molding play dough: “the physique of the Filipino is also being modified for the better. The race is physically small, but agile, athletic and comely.” Barrows concluded in a patriarchal tone, “in the face of these benefits the Filipinos are not unappreciative.”

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UC insider John McCone (right) led the CIA for four years, 1961-1965, and was also a Deputy Secretary of Defense, Under-Secretary of the Air Force, and member of the Atomic Energy Commission.

By the time Clark Kerr took the reigns of UC in the 1960s, UC had become the uncontested heavy weight champion of the military-industrial-academic complex. Yale could certainly boast deeper ties and more recruits sent yearly to the CIA, but UC Berkeley had John McCone, industrialist, weapons manufacturer, and chairman of the Atomic Energy Commission, and for his crowning achievement in the halls of the national security state, director of the CIA from 1961 to 1965. Yale sent the future spies; Berkeley’s patron McCone ran the circus. Today there is a building named after McCone on Berkeley’s campus, but history is alive too. If one looks deeper into UC’s federal labs, and into its administration and faculty, one will find live lines to Langley.

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The UC Regents visit a thermo-nuclear weapons testing facility at the Los Alamos Laboratory in the 1960s.

McCone was just one among many of UC’s ultra-powerful spooks and Pentagon dons who sloshed money and personnel and gadgetry between Washington and California. After Clark Kerr’s ouster by right-wing, red hunting Regents and the nation’s paranoid FBI director, Charles Hitch took over the nation’s biggest and still fast growing university. Hitch was an economist brought to UC Berkeley to teach business, but his scholarly expertise lay in the economics of military budgeting. Among his greatest hits: The Economics of Defense in the Nuclear Age; Decision-Making for Defense; The Defense Sector and the American Economy, and; Defense Economic Issues, all very dry tomes patiently and authoritatively discussing the most scientifically effective ways to spend billions of tax dollars on nuclear-tipped intercontinental missiles. Professor Hitch was appointed assistant secretary of defense by Kennedy just prior to his taking the post of UC president. It was a natural progression.

HitchCharles-1965Skeptics of Napolitano’s nomination to be UC president point out that running a big federal bureaucracy doesn’t make for skills transferable to UC, but in Hitch’s case that was in fact part of the reason the Regents selected him. Hitch was a budget man for the Cold War defense contractors and Uncle Sam. He was also chairman of the Budget Review Board and the Capital Outlay Review Board for UC while on faculty. So what better man to run the entire integrated show, not just lecturing and writing about how to budget the military-industrial-academic complex, but in fact drafting the operative budgets for the Pentagon and later the UC?

Napolitano does differ from the previous 21 white men who presided over the University of California in being a woman. She’s not different at all with respect to her career and connections to the national security state. Plenty of UC’s leaders, from Chancellors to the Regents to the President have been insiders in the Pentagon, the nuclear weapons complex, and other branches of the warfare state. However, DHS chief Napolitano is unlike the previous UC presidents in that she an academic outsider, and that is the singular and new difference she signals, a full departure from a presidency that once required the credentials of scholarship and pedagogy, even while it was scholarship and teaching in service of war and empire.

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In February of this year the main airport of Puerto Rico was privatized under a deal that allows a New York private equity group to take control the facility for 40 years. The firm is called Highstar Capital, and their link to Oakland is through the city’s port. In 2009 the Port of Oakland awarded Highstar a lucrative concession to take over the Outer Harbor Terminal for 50 years. Concessions are a form of privatization in which the underlying ownership of a public asset remains legally with a public authority, municipality, or the state, but control over the asset’s revenues, capital investments, and operations is effectively handed over to a private company.

A map of Ports America's terminal leases and concessions. The company, owned by Highstar Capital, is the largest operator of port infrastructure in the U.S.

A map of Ports America’s terminal leases and concessions. The company, owned by Highstar Capital, is the largest operator of port infrastructure in the U.S.

Highstar runs the Oakland port berths through Ports America, a terminal operator the firm purchased in 2007. The Oakland deal gives Highstar a monopoly over a major terminal at the Port in exchange for lease payments made to the Port of Oakland.

Highstar also controls a marine terminal in the Port of Baltimore under a virtually identical 50-year privatization deal. Ports America is the largest terminal operator in the United States, leasing more waterfront facilities than any other company under more traditional lease agreements that usually only extend three to seven years. In California alone, Ports America operates facilities at the ports of Concord, Long Beach, Los Angeles, Port Hueneme, Sacramento, San Deigo, and Stockton, in addition to its privatized Oakland property.

The Concord operation focuses on shipping military goods and ammunition overseas. Several of Ports America’s other operations handle similar military cargoes. The company’s major port operations pass through millions of containers every year with products bound for U.S. and overseas markets.

This is partly why Highstar, through Ports America, controls such a vast swath of the U.S. maritime acreage. Back in 2006 P&O Ports, an independent company, operated most of these marine terminals, but P&O was bought that year by Dubai Ports World, an aggressively expanding terminal operator based in the United Arab Emirates. Various members of the U.S. Congress objected to a company from a Arab nation taking over a good chunk of the U.S. port infrastructure. Behind the scenes Highstar, which was then still a subsidiary of the AIG insurance company, maneuvered to purchase P&O Ports from Dubai Ports World.

Highstar is among a growing number of infrastructure privatization funds focusing on U.S. public assets. These companies utilize their access to cheap debt, their considerable equity (much of it sourced from wealthy individuals and institutional investors like pensions), and their political connections, to take control of highways, bridges, ports, railroads, and other goods.

Highstar is also one of the biggest owners of oil and gas pipelines in North America. And in addition to its ownership stake in Puerto Rico’s Luis Muñoz Marin Airport, Highstar also owns the London City Airport in the U.K.

Wayne Berman, lobbyist, Highstar "adviser," current Blackstone government relations director.

Wayne Berman, lobbyist, Highstar “adviser,” current Blackstone government relations director.

Integral to Highstar’s business strategy is the cultivation of friends in high places, and influence in the halls of government. The company’s executives have never been shy about showering money on political campaigns, and buying the most connected lobbyists to push their interests. Highstar executives have spent over $900,000 to fund the campaigns of federal candidates and the Republican Party since 1990, with most of this spending concentrated in the mid to latter 2000s.

Highstar has spent $3.8 million over the past decade lobbying Congress. Most of this money was used to obtain the services of Wayne Berman, a Republican Party fundraiser who has been on the inside of numerous GOP presidential administrations.

Berman is a super-lobbyist who raises millions of dollars for conservative candidates. Individually Berman has contributed over $800,000 to federal elections campaigns since 1990. Berman is directly employed by Highstar as a “senior advisor.” Currently he is the in-house lobbyist for another private equity group Blackstone, but he remains in the employ of Highstar also.

[See the upcoming December issue of California Northern magazine for a lengthy feature on the politics of privatization in Calfornia. Also check out the upcoming  December issue of Dollars & Sense for a feature on the political-economy of P3 privatization in the USA.]

California’s Legislative Analyst cast doubt on the state’s latest experiment in privatizing highways in a November 8 report, saying essentially that California has few safeguards in place to prevent wasteful contracts from being signed for so-called “public-private partnerships.” The report also says that the state’s first two big projects under the new privatization program, a road in San Francisco, and a courthouse in Long Beach, may have devoured $300 million more than if they had proceeded as public investments.

California’s public-private partnership (P3) program for highway privatization began in 2009 when outgoing governor Arnold Schwarzenegger signed SB 4. SB 4 allows private companies to finance, build, operate, and maintain public roads under multi-decade concession contracts. Governor Jerry Brown has taken a wait-and-see approach to the program by allowing the first big transportation project to move ahead – San Francisco’s Presidio Parkway.

A rendition of Presidio Parkway. The project replaces the elevated Doyle Drive, built in the 1930s with New Deal federal funding, with several tunnels and viaducts through the Presidio approaching the Golden Gate Bridge.

In 2011 California’s Department of Transportation (Caltrans) and the San Francisco County Transportation Authority signed an agreement with Golden Link Partners (a consortium that includes the French investment bank Meridiam Infrastructure, the German construction company Hochtief, and AECOM, an American engineering firm) to finance, construct, maintain, and operate the replacement span for Doyle Drive, the elevated approach to the Golden Gate Bridge. Under the terms of the contract, Golden Link Partners were to match private capital with public funds to build the road. It’s slated to be finished in 2015. The partners have a 30-year concession which promises them over a billion in revenues through availability payments if they meet certain performance goals along the way.

Privatization of Presidio Parkway, as the road is now called, was opposed by the Professional Engineers in California Government (PECG), a union of state engineers. PECG claimed it would cost taxpayers more, and expose the public to greater risks associated with private control over infrastructure investment. The union sued to stop the project, contending that SB 4 didn’t in fact authorize the use of availability payments to repay private investors in highway projects. A state judge briefly halted the project, but in early 2011 lifted a temporary restraining order and allowed the privatization scheme to move ahead.

According to Mac Taylor, the state’s Legislative Analyst, the selection of Presidio Parkway for privatization was a mistake, one that is likely costing taxpayers upwards of $140 million more than if it had moved forward as a public project put out to multiple competing bids, and financed with state transportation bonds instead of private debt and equity.

“[W]hen Caltrans used a P3 procurement for the Presidio Parkway, the department lacked a transparent framework for selecting the project,” explains the report. “[T]he selection process for the project did not include such recommended criteria as the ability to transfer risk to the private sector and whether the state would benefit from using non-state financing.”

The LAO’s conclusions are somewhat damning because risk transfer, and potential savings accrued from obtaining financing in private capital markets are the two key advantages that that P3 privatization supposedly offers for especially complex infrastructure projects. The report concludes that, “if Caltrans utilized such criteria in its selection process, the Presidio Parkway project would have been found to be inappropriate for P3 procurement.”

Value for Money (VFM): proponents of P3s claim that by transferring financing, construction, and other responsibilities to the private sector, the state also transfers over risks that threaten to make public procurement more costly. The concept of value for risk is central to the economic theory underlying P3 procurement because private financing is in fact more expensive than public financing, as the figure above illustrates. (Source: “Visualizing Trends in Transportation Infrastructure Public Private Partnerships,” Matti Siemiatycki, assistant professor of geography and planning at the University of Toronto.)

The LAO went one step further than simply commenting on Caltrans’ selection criteria by running their own analysis of Presidio Parkway, using what they judged to be more reasonable assumptions about the project’s costs and potential risks. According to LAO’s analysis, taxpayers have lost about $140 million by handing Presidio Parkway over to Golden Link Partners.

Dale Bonner, former Governor Schwarzenegger’s transportation secretary who shepherded the Presidio Parkway toward privatization, said the project was a good fit for P3 because it reduced eight different contracts into one. He also pointed toward the project’s advanced stage of development once it was converted into a P3. “One of the very important things you need to have before you start a public-private partnership is to have a project that has gotten through the environmental clearance process and has been approved, so you can actually go out for procurement,” said Bonner. “When we started looking for projects that fit this criteria many were far away. Presidio was a good project because of it’s high need and the fact that it was well along.”

Jose Luis Moscovich, director of San Francisco’s County Transportation Agency, also supported privatization of Presidio Parkway, stating at the time that it would actually provide cost savings of approximately $150 million compared to procurement under the traditional design-bid-build process.

The Legislative Analyst Office stated in their report, however, that the selection factors used by Bonner and Moscovich’s staff at the time “do not constitute a robust set of screening criteria,” to determine a project’s suitability for privatization. Furthermore, the LAO report explains that Presidio Parkway’s advanced stage made any transfer of risk to the private investors a moot point.

“[T]he Presidio Parkway project was too far along to transfer many of the project’s risks to a private partner. This is because the Presidio Parkway’s first phase of construction was already underway using a design-bid-build procurement when the second phase of the project was selected for P3 procurement.” According to the LAO, this caused the state to retain “significant risk,” even while paying more under the terms of privatization.

More generally the LAO report says California lacks a transparent and objective process to judge any and all potential P3 projects. This exposes the public to numerous potential harms, some of which the LAO lists: increased financing costs, greater possibility for unforeseen challenges, limited government flexibility, new risks from a complex procurement process, and fewer bidders which drives up prices.

The LAO also attempted to evaluate the only two P3 highway projects ever completed in California, the SR 91 Express Lanes in Orange County, and the South Bay Expressway in San Diego, but according to the report, “Caltrans was unable to provide us with the necessary data to evaluate whether the P3 projects completed by the state —SR 91 and SR 125— resulted in greater price and schedule certainty than if the projects were procured under a more traditional approach.”

Both of these highway projects were in fact plagued with problems.

While the SR 91 was profitable for its investors —Level 3 Communications, Granite Construction, Inc., and Cofiroute SA— these corporations actually sued California to prevent freeway improvements along nearby public routes because it would potentially chip into their profits from the toll road. They prevailed in this obstructive effort because their contract did in fact prohibit competition. This led to a costly solution; a regional transportation agency was forced to purchase the express lanes in 2003.

In San Diego the South Bay Expressway actually went bankrupt when traffic projections failed to pan out. The private investors for that project, a group of banks and the Australian equity fund Macquarie Capital, recouped some losses by convincing a bankruptcy judge to write down debt on federally subsidized loans that floated the project. Like the SR 91 Express Lanes, the South Bay Expressway was purchased by a regional transportation agency in 2011 for $345 million, yet another loss to the public.

The Long Beach Courthouse.

The other P3 project addressed in the Legislative Analyst’s report is the Long Beach Courthouse, procured under a $492 million, 35-year lease-back agreement. As with Presidio Parkway, Meridiam Infrastructure is also the lead investor in the Long Beach Courthouse, with debt financing coming from six global investment banks. According to the LAO, similar biases and assumptions that created a favorable analysis for Presidio Parkway also over-stated the financial advantage of privatization the Long Beach Courthouse. By assuming an unjustified tax adjustment, overstating cost overruns, over-stating the potential leasing of additional space, and by assuming unrealistic project delays under public procurement, project managers may have cost the public $160 million when they handed control to the private investors.

Private investors have big plans for highways in California. SB 4 authorizes an unlimited number of P3 transportation projects. Big multi-national investment banks and construction companies have busied themselves since 2009 in scoping out potential privatization opportunities, and in retaining lobbyists and law firms to support their efforts. According to Caltrans officials the next projects likely to be privatized will be four major highway modifications in the Los Angeles Metro region.