Privatization: Part III
Private roads paved with public gold
In 1995, The California Private Transportation Company
(CPTC) was awarded a 35-year concession to construct and operate the first
private toll road in the U.S. The company promised less congestion and savings.
But the traffic just got worse and state and local officials decided to build
more non-toll lanes. CPTC, a private company, filed a lawsuit to block —
competition.
Officials had missed a non-compete clause in the
contract. In the end, the local transportation authority had to purchase the
private toll lanes for $208 million, before they could build the additional
lanes needed.
In 2008, Chicago sold its parking meters to a private
company for 75 years, taking in a one-time payment of $1.5 billion. In 2011 the
company took in more than $80 million, and is seeking another $27 million for
free parking for the disabled and other revenue lost during street repairs. For
one of the 75 years.
In what a Chicago newspaper described as “an annual
ritual that has become as predictable if not as joyous as a New Year’s Eve
countdown,” parking rates in Chicago are going up again, to $6.50 per hour in
the downtown, the highest in North America.
Deals like these are increasingly common in the United
States, sold by the same crowd that the conned cities and school districts
coast to coast into disastrous interest rate swaps, rigged the municipal bond
market, fixed international interest rates and set up the foreclosure
catastrophe.
The main selling points of the “privatizers” are
almost always the same: the private sector can do everything better than the
public sector, and offers lower municipal operating costs that keep taxes down.
The claims don’t hold up.
Costs may be kept down, but usually by eliminating
jobs. It is a patently absurd claim that more unemployment is any city or
state’s best interest.
As for lower taxes, what is the difference between the
taxes the people to operate meters or collect tolls, and a parking charge of
$6.50 an hour? Either way, the people pay.
But privatization is all the rage, foisted on cash
strapped municipalities as a solution to declining tax revenues and rising debt
service, by investors who “want to help.”
Oh, please.
Privatization is about making money for those with
money, at the expense of people who haven’t got any and the public balance
sheet.
Writing about infrastructure projects in Dollars & Sense, Darwin Bondgraham
explains.
“It
[privatization] is propelled by an infrastructure-industrial complex composed
of global construction corporations, investment banks, private-equity firms,
and elite law firms organized as vertically integrated consortiums. Allied
through their own trade associations, they are actively pressing for new laws
to expand the types of public infrastructure from which they can extract
profits.”
And the bigger the deal, the bigger the take. Another
Wall Street Special. Bondgraham explains.
“The main source of project financing, however, comes
from investment banks that lend to the consortium partners. Proponents claim
that this private financing source is a solution to the budgetary constraints
of governments. But the sources of revenues available to pay for the cost of a
project — whether it uses the traditional financing approach or a
public-private partnership — are the same: specifically, tolls paid by users or
taxes collected.”
In the end, the people pay for the infrastructure
their families, communities and economies require. The point of privatization
is not to meet public needs, but to divert the potential revenue from the 99
percent to the 1 percent.
As has been well demonstrated, private financing is
almost always more expensive than financing projects through a public
authority, so the sellers advertise reduced risk to the municipalities. But,
what is the actual track record?
In 2010, the private South Bay Expressway in
California, owned by an Australian investment bank, went belly-up. A bankruptcy
judge forced U.S. taxpayers who had subsidized the project with federal loans
to take a 42 percent loss.
The Camino Colombia Toll Road in Texas also went
bankrupt, on account of lower-than-expected traffic. Camino Colombia was
auctioned off purchased for $12 million by the lead creditor, John Hancock Life
Insurance; which promptly resold it to the Texas Department of Transportation
for $20 million.
Undaunted, the privatizers are pushing a new scheme. A
small army of lobbyists are lobbying state legislatures to re-write state laws,
and shift to what is called an
“availability payment” model.
Availability payments are like lease payments. For
example, the state pays the private developer of a highway to maintain the
road, but instead of the private owner collecting tolls from users, the state
pays the private developer directly from the state’s general fund, collected
through a gasoline or other tax.
These “availability payments” shield the developers
against risk, because their income is not dependent on actual traffic volumes.
Their income is guaranteed by the government — the taxpayers.
And of course, there are gimmicks. The privatizing
lobby got Congress to exempt from federal taxes the “private activity bonds”
(PABs) used to finance these deals. This allows the private borrower to obtain
cash at less cost. Another tax cut for the 1 percent.
Out-gunned or just plain gullible public officials
must be held accountable to the public interest, and examine the claims of the
privatizers against the track record, weigh the long-term costs of
unemployment, lost assets and lost revenue and stop paving private streets with
the public gold.
Mike Krauss is a former officer of Pennsylvania county and state
government and chairman of the Pennsylvania Project.
www.papublicbankproject.org Email: mike@mikekrausscomments.com
Editor’s note: Part 3 of four on privatization: Wednesday, Social
Security.
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