Tag Archives: privatization

Other cities learned from Chicago’s privatization of parking meters

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Failures in one city can help other cities learn what not to do:

Chicago Mayor Rahm Emanuel aggressively pushed to privatize 311 in 2015, telling journalists it would save the city “about a million dollars a year” to run the system using contractors. Hiring an outside operator would save the city from shouldering the cost of sorely needed improvements to a 20-year-old system, he suggested.

City officials weren’t thrilled at the idea. A famously unpleasant privatization effort was still in people’s minds. About 10 years ago, Chicago made an 80-year deal to pass control over its parking meters to a private firm in exchange for a $1.2 billion lump sum. The firm promptly made more than half that lump sum in revenue for itself—and still has 70 years of returns. (I wrote about this in WIRED last year.)

But that parking meter deal has been remarkably generative: It has dampened enthusiasm for privatization in cities around the country. Left to its own rational profit-making devices, a private company will systematically squeeze services to the bare minimum and avoid additional investments. That’s fine for margins, but not always great for the public.

And so when Emanuel proposed privatizing 311, scores of Chicago aldermen felt emboldened to fight.

At least other cities and Chicago now think twice before privatizing certain services. This could also lead to at least a few interesting interesting research questions:

  1. Part of the pitch for privatization was increased efficiency. Would more reluctance for such deals hold back cities in certain ways?
  2. How have private companies shifted their efforts now that cities may be wiser about making such deals? I assume this means that profit margins on such deals are smaller…

Is Starbucks really a “third place”?

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Starbucks CEO Howard Schultz likes to claim his stores operate as “third places,” a term coined by sociologist Ray Oldenburg. But, do they really fill this role?

Now that so many street corners seem to have a Starbucks, has the international chain truly become that “place on the corner” where people connect? In fact, Oldenburg dismisses the Starbucks coffee shop as an “imitation”, debilitated by the company’s pursuit of that other quintessentially American obsession, security, and the sterile, predictable environment it produces. “With its overriding concern for safety,” Oldenburg told Bryant Simon, author of Everything But the Coffee: Learning about America from Starbucks, “it can’t achieve the kind of connections I had in mind.”

Walk into a Starbucks today, and you may not notice much connection going on: some customers come in chatty groups, but many others arrive in search of nothing more than a place to open their laptops and get some work done; in effect, using Starbucks not as a third but a second place — their workplace. Most simply grab their coffee and go, never pausing to avail themselves of the chairs and couches provided, while others prefer to keep human interaction to an absolute minimum by using the drive-through window, a resoundingly un-urban feature Starbucks introduced in 1994.

Starbucks’ ongoing retooling and experimentation suggests that Schultz, for all he talks about his company’s resurrection of the “third place”, has yet to hear a sufficient amount of political banter and schoolchildren’s chatter in his stores. Starbucks’ enormous scale and need to service the American demand for frictionless convenience contradicts its mission to replicate the appeal of continental coffee-house culture: how much of a neighbourhood-rooted venue for chance encounter can you provide when you have to run thousands and thousands of them, making sure they all do more-or-less the same thing?

Maybe you could make a case either way. In favor, coffee shops serve as third places in numerous cultures and their presence almost everywhere means Americans have a common place outside their private homes and workplaces to get together. Yet, Starbucks present a common “McDonaldized” experience (it may be coffee but it is still fast food and often dependent on a car-driven society) that is primarily controlled by corporate interests. Perhaps only in a society that is so privatized (emphasis on single-family homes, cars, moving away from urban problems, individualism, etc.) could a chain coffee store even make the case that it is about community.

Cities rethink privatization efforts

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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.

Chicago suburb of Long Grove wants to privatize almost half of its public roads

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Maintaining roads is expensive and the Chicago suburb of Long Grove has a potential solution: privatize a lot of its public roads.

Facing an annual funding gap of more than $1 million, Long Grove trustees have twice in recent months affirmed a plan that could privatize nearly half of the village’s public roads — transferring the cost of upkeep and plowing to the residents in the process…

Experts in public planning and municipal finance agree that Long Grove has hit upon an unusual potential solution to a commonplace problem. They say other communities also struggling to make ends meet could follow suit as aging roads deteriorate and revenue streams dry up. Yet such plans could eat away at the public’s trust in local leadership even as they mitigate public deficits, warned Joseph Schwieterman, a DePaul University transportation professor.

“It’s going to create resentment that city hall has broken its contract to fix the roads, and that could lead to turmoil that tears at the social capital of a community,” he said.

What has surprised some in and around well-to-do Long Grove is that the community — with its spacious home lots, ample green space and refined, rural character — finds itself in the situation at all. Recent census figures count it among the wealthiest villages in the Chicago area based on median income. Yet having more affluent residents doesn’t necessarily equate to a strong tax base, especially in towns that have little or no industry…

Local leaders first realized in the 1970s that to pay for maintaining roads without a property tax, something had to give, said Long Grove Village Manager David Lothspeich. After that, the board allowed public streets in new subdivisions only if they were main roads, and eventually entire subdivisions sprang up without a single public road, he said.

It sounds like a set of trade-offs: the community has a particular image and character involving big lots, nice homes, and no property taxes but to help maintain that character means limited commercial development. However, having less commercial or industrial development means fewer sources of property and sales taxes that can be used to maintain the community’s infrastructure. The money has to come from somewhere…

However the money is raised in the future for roads, it will be interesting to see how this affects the community’s character and image. Will people move away? Will it be as attractive?

Another suburb dealing with a similar issue is Winfield. The village has had difficulty paying for road maintenance and the debate in recent years has been whether to allow commercial development along the Roosevelt Road corridor that passes through the southern part of the community but it currently limited to larger lots.

More privatization of public roads

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Eric Jaffe takes a look at a recent trend: the privatization of public roads throughout the United States.

Public-private partnerships for infrastructure (often called PPPs or P3s) have been on the rise in recent years, and many experts believe the trend has yet to peak. If the activity of the past several weeks is any indication, they may be right. A billion-dollar PPP for the East End Crossing, in Indiana, was announced in late March. News of a $1.5 billion PPP overhaul of the Goethals Bridge, in New York City, came in April. The Pennsylvania D.O.T. placed an open call to private firms for PPP projects just last week.

PPPs provide a valuable public service while shifting the financial risk to private wallets. Advocates also mention efficiency: private developers, driven by an urgent push for profits, can keep costs lowers and complete work faster than the public sector. Supporters believe that in exchange for this revenue share they provide the public with the broader economic advantages of improved metro area mobility. Besides, states just don’t have the money right now to do these projects on their own…

The first “major” public-private road partnership of this new era was the E-470 tollway in Denver in 1989, says William Reinhardt, editor of Public Works Finance. That $323 million project, organized by a highway authority distinct from the state DOT, didn’t rely on public funding. In doing so it sent the country down a new road for new roads.

Since then the growth of private partnerships has been steady if not overwhelming. Twenty-four states plus Washington, D.C., have engaged in 96 public-private road partnerships worth about $54.3 billion. In 2011, PPPs accounted for roughly 11 percent of capital investment in highways, according to Reinhardt, and that’s with about 20 state legislatures yet to permit these types of deals. In a brief history of PPPs for a road builders association in 2011 [PDF], Reinhardt concluded that PPPs “will likely be the primary model for building new highway capacity in heavily congested urban areas in the decades ahead” — particularly for mega projects valued in the billions…

Still, as an urban scholar, Sclar is more frustrated that public-private partnerships tend to interfere with comprehensive approaches to city planning. He uses the example of State Highway 130 near Austin, Texas, a public-private toll road that made traffic worse because truckers chose to take the free I-35 through the city rather than pay the toll. The point is that seeing roads as individual profitable projects distracts from their role as part of the greater public network — capable of influencing everything from transport equity to urban density to environmental sustainability.

As I read through this overview, I’m struck by one thing: the biggest issue seems to be the lack of money available to governments to build roads. If they had such money, they likely wouldn’t choose privatization. But, in an era of growing infrastructure costs, privatization offers some up-front cash and moves the costs off the books for a while. This seems to be a matter of convenience rather than the preferred option for most governments.

Additionally, I don’t see much here about whether this helps or harms drivers. Again, governments are worried about their bottom lines and these certainly impact constituents and taxpayers. Roads aren’t really free. But, private firms want to make more money than perhaps governments might try to generate through roads. Do consumers come out ahead financially or in their experiences on these private roads?