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What Privatizing Means

March 27, 2009

Privatization Fail

Privatization Fail

Chicagoans are rebelling against the incredibly high parking meter increases since the city leased the parking operations to Morgan Stanley.  People are painting over the meter windows, ripping them out of the cement and removing the stickers that are legally required on each meter  in order for Chicago Parking Meters, LLC (a/k/a Morgan Stanley) to charge 28 quarters for an hour of parking.     Here, some people are bent out of shape over a $.50/hour increase; I can only imagine the “tea party” the suburban shoppers in the Third Ward would throw if we did what Chicago is doing.

What Chicago’s parking snafu shows is that not all privatization is going to lower our costs, as some privatization supporters proclaim in their quest to remove as many services from the government payroll as possible.  When an entity is in place to serve the community good, it puts people ahead of profits.  Some of our most essential public services are doing this every day.  For example, the Public Service Commission allows for a benchmark rate of return of around 7.4% for municipal water utilities after recovering costs.   In MMSD’s case,  it’s rate of return in 2008 was less than 1%.   If we lease the water system to a private entity, do you believe they’d tolerate a 1% rate of return?  Not likely.  We’d see our water rates rise astronomically.   In the case of our airport, privatization would bring about higher fares and increased prices for food and — gasp! — parking.

If we don’t sell off our profitable government assets, we’re going to need to raise taxes or fees in order to come close to sustaining our current levels of service.  Is privatization the proper way to balance our budget or is it a regressive policy that will hurt the most vulnerable taxpayers?  I believe that raising water rates would be horribly regressive,  hitting poor homeowners and renters the hardest at a time when many are struggling.  Further, it goes against our self-described image as a water mecca.  At a time when we’re attempting to promote our water resources, privatization of “our greatest asset” would strike a really odd note.

Before we self-sort on this issue based on political ideology, we need to realize that there is a downside to privatization.  As the study on water privatization moves forward we need verification that what we’re potentially being sold is legit.  If not, we’re going to have more dire problems than a few busted parking meters.

  1. Eric permalink
    March 27, 2009 8:31 pm

    I agree with you Rob.

    And that doesn’t mention that the private water company will be signing a 10-30 year contract on water. This term is lengthy, but limited. And once the city signs, the company has little interest in maintaining the system so that it functions a single day longer than the term of the contract.

    Meaning: you give the company your water infrastructure and they quickly increase profits from 1% to 7.4% (without the need to provide a any improvement in service or quality), while also taxing us by failing to invest in the system itself. At the end, the citizens will have both (1) paid more for water and (2) a large outstanding repair and revitalization bill to bring the system up-to-date.

    Further, this ignores the unpredictable impact of introducing another giant multinational corporation, and its lobbying abilities, into our municipal government eco-system. The winning bidder will have already wooed our public officials when winning the contract. And in my cynicism, I am sure that with a little economic arm-twisting, the company can convince those same officials to raise that “measly” 7.4% profit cap.

  2. March 28, 2009 11:03 pm

    To be clear the Comptroller doesn’t want to privatize the Water Works, he just doesn’t see any other method short of vastly cutting services and significantly raising taxes, to balance next year’s budget. He really appeared bothered to even be suggesting the idea but next year’s budget is a mess.

  3. March 29, 2009 2:43 am

    Thanks, Dave. I wasn’t aware of just how bad he felt about it. I can sympathize with how he feels about having to sell off a major piece of our infrastructure in order to balance our budget. I’m glad they’re being pragmatic by attempting to accurately price the system, unlike the airport plan which doesn’t have any information to support its selling price.

  4. JCG permalink
    April 1, 2009 9:19 pm

    Couldn’t agree more re: privatization. More than just the cost issues you mentioned, there’s also the broader implications. The entire purpose for the existence of government is to manage certain things that are deemed to be for the common good. Thus, a government’ bottom line is “what is in the best interest of the people this service provides for”. Now of course it doesn’t always work out that way, but the beauty is that we can a) directly lobby them and b) hold them accountable at the ballot box.

    When you put such services in the hands of the private sector, the governing bottom line is “will this produce a profit for the shareholders”. Sometimes that motivation aligns with the common good, but often times it doesn’t – either way they are legally required to be motivated by shareholders’ returns. I don’t want some actuary in a cubicle in a high rise in Dallas making decisions about whether or not to guard against a newly discovered water-borne illness coming down the line based on a cost/benefit analysis weighing between the cost of wrongful death lawsuits vs the cost of overhauling the treatment system. And what’s worse is that they could have you arrested for trespassing on their private property for trying to lobby them and they are certainly not directly accountable to us should they screw up.

    I appreciate that this is apparently not the desired result – merely being tossed around as a possibility. But sorry, if it means raising taxes or cutting spending elsewhere, then those hard decisions need to be made. Otherwise, what’s the point of having government that’s supposed to protect the common good?

  5. April 1, 2009 11:18 pm

    Thank you, JCG. You totally nailed it!

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