Government Reform

Privatizing the Way Out of Shortfalls

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In The New York Post, Leonard Gilroy, the director of government reform at Reason Foundation, the nonprofit that publishes reason online, tallies up savings from a recent string of privatizations done by Chicago (yeah, that Chicago):

Mayor Richard Daley has learned how effective partnering with the private sector can be:

* In 2005, he leased a 7.8-mile stretch of toll road for $1.8 billion. The private company operates and maintains the road, earning its money back through tolls. The city used the upfront cash to pay down debt and establish a $500 mil- lion rainy-day fund.

* Daley also didn't see why the city was in the parking-garage business. So he leased four downtown parking garages, bringing taxpayers $563 million.

* Most recently, he announced the lease of Chicago's Midway Airport to a private company for $2.5 billion.

All these moves have raised the city's credit rating, lowered its borrowing costs and shored up pension funds.

Addressing New York's massive deficit, Gilroy argues that

the Empire State has $70 billion in transportation projects waiting for funding. Two years ago, it identified several potential public-private partnership projects that would help eliminate the backlog—including expansion projects for the Staten Island Expressway, Van Wyck Expressway, I-84 and other major highways….

Any windfall needs to deliver lasting value for taxpayers. Leasing valuable assets and then diverting the cash to cover operating shortfalls in other parts of the budget may be a tempting Band-Aid but is terrible fiscal policy.

More here.

Not to drift into "disaster capitalism" or anything, but one possible upside of budget crunches can be that governments get out of businesses they don't need to be in in the first place.

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  1. Chicago’s Midway Airport? They changed the name from Municiple Airport without notifying me? I HATE Illinois Nazis!

    BTW, speaking of Illinois Nazis, is Mayor Daley getting fitted for a new armband for all of this National Socialism he is spreading through the Windy City?

  2. Oh noes! What if teh roads need to be bailed out? But what do I care. Libertarians don’t use roads, right?

  3. Anyone who thinks privatizations in Chicago don’t involve bribes, kickbacks, jobs for relatives, and/or political donations, etc., please contact me. I need your help getting $50 MILLION DOLLARS out of a Nigerian bank account. Your share will be 20%!

  4. one possible upside of budget crunches can be that governments get out of businesses they don’t need to be in in the first place.

    You mean like the War On some Drugs?

  5. As much as like to see government getting out of businesses unrelated to its core functions, creating public-private hybrids often creates a monster beast, neither fish nor fowl, that possess the worst qualities of each sector without any of their positives.

    The freemarket works because a complex set of feedback loops connect action and consequence. Government has no feedback so it uses strict but inefficient accounting and limitations of scope. Hybrid systems often sever the freemarket feedback while at the same time severing government accounting.

    For example, in the case of the leased road and parking garages. In the freemarket the physical structure of both would be part of the assets of the companies owning them and they would have a built in incentive to maintain them. You can try to protect the structures by putting maintenance clauses into the lease contract but then you end up with a system little better than one run directly by the state.

    In my opinion, most “privatization” are nothing but politicians trying to save money with the efficiency of the free market without allowing the freedom to fail that actually makes the market work.

  6. Mayor Richard Daley has learned how effective partnering with the private sector can be

    My sphincter tightens involuntarily when I read that.
    I must be a homophobe.

  7. Well, they should just have sold the parking lots and garages, instead of only leasing them. There is plenty of competition in parking. There is no need for government to join in. I’m not sure if Chicago is one of them, but cities also need to get away from the idea that parking should have a higher tax than other businesses.

  8. As usual, when Daley & Co. do the right thing, it’s for all the wrong reasons. Here Da Mayor opted for a quick payout now rather than the steady income streams that the Skyway, Midway, etc. provided. All this would be fine and dandy if that money were going to be spend wisely. But this is Chicago, so of course the money will manage to find its way into the hands of Daley’s cronies while my property and (nearly 11% sales) taxes will stay as is…

  9. I also am weary of public-private partnerships. I don’t see anything free market about that.

  10. Wait a minute. Chicago privatized a 7.8 mile stretch of toll road, and no one cries foul. Indiana leased their toll road to a private company, and the shit hit the fan. I don’t get it.

  11. Daley is as corrupt as his daddy. Ask people who live in the midwest what they really think of Illinois and you will hear all kinds of things, few positive

  12. Forget public-private “partnerships” and lease agreements. Unless the government outright sells something, it hasn’t been privatized.

  13. PapayaSF,

    What? How could there be any corruption in Chicago? It is a Democrat Utopia!

  14. pssst
    hey you,
    c’meer…
    You want to buy a national park?

  15. Barack Obama | October 21, 2008, 2:54pm | #

    Oops. Sorry. That wasn’t really Barack (damn “Remember Me” option!).

  16. It’s funny, but I thought the fact that Obama was a product of the Chicago Democratic Machine (aka the Illinois Nazis) would be a major black mark against him. Apparently, people think Chicago corruption is some quaint myth. Not that Obama himself is necessarily corrupt, but some Nazis were nice guys, too, I’m sure. I find this association far more damning than all the other ones that right-wingers harp about.

    I’m influenced by the three years I spent in Chicago, yes. Great pizza and blues, though.

  17. Daley also didn’t see why the city was in the parking-garage business. So he leased four downtown parking garages, bringing taxpayers $563 million.

    Chicago is still in the parking garage business, only now it leases the garages in a single long-term lease rather than leasing each space in short-term leases.

    I would expect that Mayor Daley found that the old business model did not present the desired opportunities for truly Chicago-esque scale corruption.

    This isn’t the Daley I thought I knew . . . oh, wait, yes it is!

  18. “Daley also didn’t see why the city was in the parking-garage business.”

    He’s never heard of the Mob?

  19. Not that Obama himself is necessarily corrupt

    He does seem remarkably ethically obtuse, though, as with both his real estate deal with Rezko and with the earmark to his wife’s employer (coincident with his wife getting a massive raise).

  20. RCD,

    He does seem remarkably ethically obtuse You left hanging around with domestic terrorists off of your list. But I think he would call them “freedom fighters”.

  21. R C Dean,

    My gut feeling is that he’s at least tainted by his associations, and I wouldn’t be surprised to learn of some real dirt. But I don’t claim that the evidence revealed so far is compelling. My problem is that any taint at all is problematic when it’s associated with a politician. I know we all agree that we can’t trust them, but I refuse to give a pass because the other guy is just as bad. Caesar’s wife and all that.

  22. Caesar’s wife and all that.

    Is he still posting here? Did not know his wife did too.

  23. Pro Lib – you hit the nail on the head there. I had a nightmare one drunken evening about the nation being run the way Chicago under Daley, Cook under Stroger, Illinois under Blago and I practically vomited.

    My only consolation is that wherever it is he works, Blago only lives a brief drunken stumble from me. I’m not sure what that means, but there must be a suitable speech act that I can perform to celebrate his tenure in office.

  24. She’d better not be posting here, because she must be above suspicion, and posting here is a suspicious activity.

  25. Well – suitable as in it won’t get me beaten and / or arrested.

  26. But I don’t claim that the evidence revealed so far is compelling.

    Well, I don’t think there’s much doubt that the sweetheart real estate deal with Rezko happened, and that it stinks to high heaven. I don’t see how it can’t be a violation of Illinois ethics laws, unless those laws are truly a joke.

    The earmark/raise for Michelle would be a textbook kickback in the field where I work (health care), which admittedly has very high standards.

    Regardless, I don’t see how either transaction passes anything remotely resembling an ethical smell test. I’m willing to believe that he just has a tin ear when it comes to unethical activity that he benefits from, rather than being someone who actively peddles his political power for cash, but even that is pretty damning.

  27. While not as damning (IMHO) as his many of his other stories about the criminal enterprise known as Chicago, Ben Joravsky at the Chicago Reader has a must-read article about Midway deal:

    http://www.chicagoreader.com/features/stories/theworks/081016/

  28. Privatization in Chicago means giving sweetheart deals to connected private entities with little transparency.

    And most of the money from the major privatizations have been spent already. The Skyway money was earmarked before the deal was done.

    Currently the city of Chicago is facing a 200 million dollar budget and they are scrambling to find ways to collect more in fess and taxes and whatnot.

  29. R C Dean,

    I mistyped. I personally am not aware of enough information to say j’accuse to Obama. That’s because I’ve already rejected him as a candidate and don’t pay much attention to him anymore. I don’t doubt that there’s some unpleasantness that will very likely come out. . .after the election, of course.

  30. Huh, a government owned road is a money pit, but a privately owned road is a money maker? Yeah, because the government knows they would get voted out of office for making you pay more. By selling it to a company the politicians can avoid the blame.

    I have no problem with the government handing the roads, if you don’t like what your getting you can make it a political issue. When a buisness owns the road, it’s pretty much a monopoly. If you are going from North Carolina to Southern Cal, I40 is the only real option.

    Companies can exercise tyranny over the citizenry via monopolies. If we can have competing interstates so you have a choice of which company gets your money, I’d be more interested.

  31. Wait a minute. Chicago privatized a 7.8 mile stretch of toll road, and no one cries foul. Indiana leased their toll road to a private company, and the shit hit the fan. I don’t get it.

    I can’t speak for Indiana, but the Skyway leasing was see as win-win. Chicago got a big bunch of money and the company that now manages the Skyway is limited in when and how much they can raise the tolls (IIRC).

    If you lived here and saw how the State, County, and City governments run things, you would be more than happy to see a private entity lease and manage things.

  32. My problem is that any taint at all is problematic when it’s associated with a politician.

    Taints are problematic? Where’s URKOBOLD when we need him?

  33. Barack,

    From a fascinating and somewhat depressing wikipedia article:

    The city of Chicago has the highest total sales tax of all major U.S. cities. It is also one of the most complex. 10.25% is levied on all non-perishable goods purchased, while 2% is levied on grocery items, drugs, and medical appliances… etc etc

    Good grief. Even my own NY doesn’t tax groceries or medicine.

  34. Even the Urkobold cannot deal with all taints, all the time. He has the Weibskobold to entertain him, after all.

  35. re: chicago, these are leases. not a real step forward. let’s not get too excited.

  36. make the van wyck a toll road? are they on crack? its the only way to jfk unless you are on the south shore of long island. And the staten island “expressway” is the only highway on the island. The alternative is local streets.

  37. So Daley leases the parking lots for billions and then ups the parking tax to 33% on all the people using the parking lots he is already being paid to lease. GENIUS!!!

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