Tuesday, February 23, 2010

A Privatization Scheme That Might Make Sense—Might

Posted By on 02.23.10 at 12:07 PM

The word is out that Mayor Daley is interested in privatizing McCormick Place.

"In the private sector, you manage it, get out of the business of McCormick Place, in the sense that it should be fully privatized. Then you can run the costs down. Each show runs their own costs," Daley told Channel 7.

After the parking meter mess, any major privatization effort is going to be a tough sell politically—and rightfully so. But this is one that could actually make sense.

The emphasis is on could.

Channel 7 reports that McCormick Place generates $12 billion annually for the city. But that's not the whole story. The convention center is just part of the publicly run apparatus known as the Metropolitan Pier and Exposition Authority, or McPier. The authority's struggles with retaining convention business have been widely reported in recent months, with most of the blame being placed on high fees and wages charged by unionized labor.

But as investigative reporter Jim Ylisela showed in a jaw-dropping piece in Crain's last November, McPier's troubles go far beyond that. The authority is losing lots of money because of a huge management payroll, patronage hiring, and enormous debt obligations.

In short, the people running the operation—picked by the mayor and the governor—have turned in a less-than-stellar performance.

In theory, a private firm driven more by profits than by politics would have the incentive to make the convention business more efficient. Attorney John Schmidt argued to me last fall that privatization should be on the table in cases where there are firms around with a good track record of doing the kind of work in question. "I once said to someone, what would Old Orchard be like if it were run by the village of Skokie?" Schmidt told me. "The answer is that I think it would be all right, but I don't think it would be the quality that it is. There are areas like that where you have people who have learned how to do it and do it well, and not to take advantage of that, if you can do it on financially attractive terms, seems to me to be a mistake."

Convention centers appear to fall in this category. But the devil is obviously in the details.

It is possible for publicly run convention facilities to make money that goes straight into the public coffers—the Los Angeles convention center is one example. In fact, its top officials are currently fighting a privatization push by Mayor Antonio Villaraigosa.

Plus, Chicago's parking meter deal shows that efficiency and the public good aren't necessarily by-products of privatization agreements.

More to the point: if Mayor Daley hasn't selected the right people to run McPier, then what makes us think he'll pick the right people to work out a fair deal for McCormick Place? There was no process in place to protect the public while insiders met behind closed doors to broker a sweetheart deal for the meters that made themselves millions of bucks. And now we're stuck with it for the next several generations.

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