Potholes in the road to privatization


“There’s a reason that there’s been so much enthusiasm in the finance community for privatization deals. You are dealing with a less savvy partner … The bigger sucker is always the government.”

David Johnson, a partner in a law firm that advises struggling municipalities.

The current uproar over the Colorado Department of Transportation’s U.S. 36 deal reflects a growing national unease about the mad rush to privatize.

In New Jersey, legislation to guarantee public services won’t be privatized unless there are actual savings for taxpayers has passed both chambers of the legislature. In Texas, tea party activists have joined progressives in fighting against a private prison in Montgomery County, and Kentucky has decided to reject any private prisons. In Fresno, Calif., voters spurned a proposal backed by the city’s popular mayor to privatize trash collection services. Minneapolis is shifting nearly 180 privately owned bus shelters to public ownership after many complaints about the lack of maintenance and upkeep.

Many studies show that privatization tends to cost more and provide lower quality services than the government. For example, David Morris of the Institute for Self-Reliance notes: “Every year, the Minnesota Department of Transportation’s (MnDOT) eight regional districts solicit bids from private contractors as well as MnDOT’s own striping division to paint lane stripes on every highway in Minnesota. Without fail, MnDOT’s public striping crew beats the private competitors by a large margin.”

These days, privatization frequently goes by the name of “Public-Private Partnerships” (or P3s). In this set-up, a private investor or consortium of companies pays a governmental entity to build or operate an asset in exchange for the right to collect user fees and other revenue streams. In a notorious case in 2009, Chicago leased its 3,600 parking meters for 75 years to a Morgan Stanley consortium. Within weeks, meter rates quadrupled in many parts of the city. Later, the city’s inspector general concluded that the lease contract lacked “meaningful public review” and neglected the city’s long-term interests to solve a short-term budget crisis. Specifically, the IG found that “the City was paid, conservatively, $974 million less for this 75-year lease than the City would have received from 75 years of parking-meter revenue …” Chicago got $1.2 billion in the deal but city drivers will pay the privateers at least $11.6 billion to park at meters over the life of the contract.

“A P3 is attractive to lawmakers because it provides quick upfront cash,” says Ken Beitel, a major critic of the U.S. 36 privatization. “But it’s like a high interest credit card loan. The state of Colorado has to pay high interest and profits to foreign toll road firms and Wall Street bankers for the next 50 years.”

Beitel is an analyst at the Drive Sunshine Institute, which he characterizes as a “pro-business, nonprofit, clean-energy research organization.” He says the institute is conducting research on public finance options for U.S. 36. They are considering ballot initiatives to fund the highways from new marijuana tax revenue, a 1-2 percent flat tax on all income (including capital gains) over $500,000 and a small increase in the fuel tax as well as the tax on oil and natural gas production.

That’s a good beginning. We need to deal with basics. A public service and a business are inherently different creatures. A business is an amoral and undemocratic entity legally obligated to make a profit for its shareholders above all. A public service exists to serve social needs, and if it fails to deliver, we can hold those responsible to account at the ballot box.

There is an alternative to privatization — those “big government” public works projects of the 1930s that involved the construction of 1 million miles of roads and 200,000 public facilities, including schools, playgrounds, courthouses, parks, swimming pools, bridges and airports. Malarial swamps were drained and rats were exterminated in slums.

People created works of art, gave concerts, and taught illiterate adults to read and write. People working in these government jobs built the Golden Gate Bridge, the Lincoln Tunnel and the Hoover Dam.

Today we have millions of people out of work. Our public infrastructure is falling apart. Let’s dream big and re-build America. But the process must be democratic and transparent.

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This opinion column does not necessarily reflect the views of Boulder Weekly.


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