When there is no money for fuel in the middle of winter, desperate residents have on occasion resorted to burning the furniture. That works as long as the furniture lasts. But come spring, there may be no place to sit or sleep, and no prospect of resorting to the same practice should a heating emergency arise the following winter.
Yet, this is more or less the equivalent of what many states and municipalities are doing in the face of our unprecedented financial crisis. They are selling prized assets to private companies in the hopes of plugging current budget holes. This move is predicated on two premises: First, the public will not accept new taxes or should not be taxed during a downturn to pay for maintaining government services. Second, most government officials believe that the downturn is temporary, and that their finances will return to health once a recovery begins.
If the second premise turns out not to be true, then the first one is merely locking state and municipal governments into a long-term liquidation of public assets. One asset sale will begat another and another because such sales appear painless in the short run.
When Chicago’s Mayor Richard Daley sold a 75-year concession for the city’s parking system to help balance the city’s budget, he hailed it as a creative measure designed to carry the city through a rough financial patch. He even promised that the concessionaire, a subsidiary of Morgan Stanley no less, would actually make improvements in the system. The plan has raised the ire of many city residents and visitors as the service and reliability of the system have tanked.
Perhaps most important, public assets serve needs that cannot always return a profit directly. A well-run parking system can focus on making it easy for people to do their daily chores and not feel that they are paying too much for the privilege. That’s critical for merchants who must rely on municipal parking to handle their customers. Parking enforcement can even be relaxed when special events or special circumstances such as construction warrant it.
But private concessionaires have no such interests. Their interest is in maximizing their investment within the rules. They will not concern themselves with the broader needs of a city or state. Such has been the case in Chicago where the private parking system company is attempting to maximize its take through strict enforcement and higher parking rates.
On the other hand, Chicago also privatized the Chicago Skyway, a toll road that is still by far the most direct route into Chicago from the east. For a one-shot cash infusion of $1.83 billion, the city sold a 99-year operating lease to a company owned by foreign corporations. In a post-peak oil world, Chicago may actually get the better of this deal. It is hard to imagine enormous volumes of car and truck traffic making their way over the skyway in the year 2104.
Without any apparent sense of irony, the state of Arizona announced that it wishes to sell its house and senate buildings to private interests and lease them back. The state is assuming financial circumstances will improve so that it can retake ownership sometime in the future.
Public assets are the capital stock of a municipality or state. And, that capital stock is used to provide the services that citizens want and need. If too much of it falls into private hands, we will find out the hard way that those private hands are only too willing to burn the furniture for short-term gain.
Not all privatization schemes are bad ideas. But ones entered into with the intention of bailing out the short-term problems of politicians needing a budget fix rather than serving the public better are bound to turn out badly.
