Cities rethink privatization efforts

Leading with the example of Chicago’s 75 year parking meter lease, here is a look at how some communities are rethinking privatization of local services and amenities:

In states and cities across the country, lawmakers are expressing new skepticism about privatization, imposing new conditions on government contracting, and demanding more oversight. Laws to rein in contractors have been introduced in 18 states this year, and three—Maryland, Oregon, and Nebraska—have passed legislation, according to In the Public Interest, a group that advocates what it calls “responsible contracting.”

“We’re not against contracting, but it needs to be done right,” said the group’s executive director, a former AFL-CIO official named Donald Cohen. “It needs to be accountable, transparent, and held to high standards for quality of work and quality of service.” Cohen’s organization, a national clearinghouse exclusively devoted to privatization issues, is the first advocacy group of its kind…

Donahue, who has studied the issue since 1988, sees privatization as inherently neither good nor bad. Academic studies paint a mixed picture, he said. The private sector can deliver efficiencies when the task being sought is well defined, easy to measure, and subject to competition—mowing public parks, perhaps, or collecting trash.

But when the goals are fuzzier or competition is lacking, the picture gets cloudier. Is the purpose of municipal parking meters to maximize revenue, or is it to provide a low-cost amenity to citizens and the businesses they patronize? How do you value the various objectives of a prison system—justice, rehabilitation, social order—when the financial incentive is to lock more people up? In many cases, Donahue said, privatization and contracting save governments money not through increased efficiency but by undercutting public-sector wages and pensions or, as in the case of the parking meters, by effectively robbing the future to pay for the needs of the present. (By mid-2011, the city had spent all but $125 million of the $1.2 billion parking-meter payment.)

Three things seem fairly clear (to me):

1. One big mistake is privatization contracts that are way too long. Seventy-five years is a long time deal, particularly given how conditions can change. If the deal goes sour quickly or the public turns on it, this is a long time to wait for the contract to expire.

2. Not having enough time to read through contracts and then debate the particulars is a problem. Deals shouldn’t be entered into quickly, particularly when the public interest is at stake.

3. A lot of the public discussion of privatization seems more ideological rather than looking at research (some referenced in this article). Government vs. the private sector is a pretty large debate to have and there may be areas where each could perform better or might better protect the interests of residents.

Even if skepticism about privatization is increasing, this issue will continue to be important as numerous cities and communities seek to squeeze out more revenue from stagnant or limited resources.

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