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Privatize Public Transit? 

Chicago's tried it before. Here's how that went.

In December 1898, some Chicagoans began wearing twine—twisted into the shape of a hangman's noose—in their buttonholes. It was their way of sending a message to the City Council about an upcoming vote. "I will not be surprised to see some hanging done in the streets of Chicago," said Mayor Carter H. Harrison II, sizing up the city's mood.

For years, citizens had been complaining about shoddy service on Chicago's privately owned streetcars. They'd fumed at corrupt businessmen who got rich by cramming passengers onto those streetcars. Now aldermen were talking about giving even more power to the street railways—Chicago's "traction companies," in the idiom of the day. If this vote went through, those companies would control the streetcars for another 50 years.

"The city seethed with excitement," Lloyd Wendt and Herman Kogan wrote in their 1943 book, Lords of the Levee. "Aldermen received letters threatening the kidnapping of their children and wives and the dynamiting of their homes."

This was an early round of a debate that Chicago has never settled for good: When does it make sense for City Hall to let a private company handle a public service, and when should the city do the job itself? Today the argument's focused on the parking meters Mayor Daley leased to a private company. But at the turn of the last century the issue was public transportation that private capital built, owned, and wanted to keep.

Between 1855 and 1861 city and state legislators passed laws allowing three companies to build and operate horse-drawn streetcars. The Chicago City Railway Company ran them on the south side and the North Chicago City Railway Company and the Chicago West Division Railway Company took the areas their names suggest. Each company got a 25-year monopoly on the business in the neighborhoods it was allotted.

"Chicago never built a street railway by itself, but it chartered almost anybody who came along," says David Young, the author of four books on local transportation history, including 1998's Chicago Transit: An Illustrated History. "If a bunch of guys came along and said, 'Hey, we want to build a street railway,' the city would grant them a franchise."

In his 1858 inaugural address, Mayor John Haines talked about the ways Chicago would benefit from street railways. "They are emphatically the poor men's railroads, and on this account, if no other, should be fostered and protected by the municipal authorities of all large cities," he said. But Haines never went so far as to suggest a public traction system—even though traction ordinances from the 1850s gave Chicago an option to buy the companies after their franchises expired. In newspaper articles and City Council documents of the 1850s, the idea barely comes up.

Why not? For one thing, Chicago lacked the home-rule powers to run its own lines. State laws spelled out exactly what the city was empowered to do, and running a traction system wasn't on the list—though of course, Chicago could have asked the state legislature to change the law. State laws also limited the city's debt, making it difficult to borrow money for big projects.

Young also says Chicago officials were probably sobered by the state's recent experience. The Internal Improvements Act of 1837 directed Illinois to spend $10 million building railways. Strongly supported by state legislators including Abraham Lincoln and Stephen A. Douglas, and by a public enthusiasm one observer called "almost insane," the construction project quickly went over budget and fell into disarray. Illinois didn't have the money, the materials, or the expertise the job demanded. "The result of the whole project was a mammoth debt for the state," Paul Simon, the future senator, wrote in a 1965 study of Lincoln as a legislator. "The state was dotted with bridges from nowhere to nowhere, with partially dug canals, with roads with no meaningful beginning or ending."

Chastened by the experience, Young says, Illinois started "chartering private railroad companies to build at their expense hither and yon across the state."

click to enlarge Trolleys on Randolph Street circa 1900
  • Trolleys on Randolph Street circa 1900
  • Time Life Pictures/Mansell/Getty Images

Chicago's first railroad line opened in 1848. The Galena and Chicago Union Railroad was financed by William Butler Ogden, the richest man in town. Ogden had been the city's first mayor, in 1837-'38, and biographer Jack Harpster (The Railroad Tycoon Who Built Chicago) tells us he stayed active in local politics after that while making a fortune in real estate and railroads. He was what historians call a "booster," someone who promotes his own interests as he promotes his city's. As former alderman Dick Simpson explains in Rogues, Rebels, and Rubber Stamps, Chicago's early city leaders were real-estate speculators motivated by personal profit as well as by civic pride.

Not surprisingly, the man who brought in the railroad was also involved in introducing streetcars: Ogden and four co-owners organized the North Chicago City Railway Company.

When the City Council heard the first local proposal for streetcars in 1854, the United States was in the midst of a railroad boom. Stephen Douglas, by then a U.S. senator, had led the way in 1850 as Congress gave 2.6 million acres of federal land to the state of Illinois, which signed it over to the Illinois Central Railroad Company. In return the railroad agreed to give the state 7 percent of its gross receipts.

It was the first time the federal government had given away land to help a private company build a railroad, but it wouldn't be the last. In the 1850s and 1860s the U.S. turned over at least 130 million acres to the railroads in exchange for discounts on transporting troops and freight. Looking back on this deal in 1997, historian John Stover wrote in American Railroads that the benefit to each side was "roughly equal," the land and the discounts (which remained in effect through World War II) each being worth about half a billion dollars.

But it did not look so reasonable early on, when a series of scandals turned public sentiment against the railroads. "Many, perhaps most, of the post-Civil War railroad lines suffered from the evils of inflated construction costs, fraudulent stock manipulations, and incompetent management," Stover wrote.

In the 1920s, historian Vernon Louis Parrington had described Douglas's push for railroad land grants as the opening of America's Gilded Age. "In the tumultuous decades that followed," he wrote, "there was to be no bargaining with corporations for the use of what the public gave; they took what they wanted and no impertinent questions were asked."

Chicago epitomized this acquiescent relationship between politics and business. Donald Miller observed in City of the Century: "The city of Chicago may not have given a single cent of its tax revenue to the railroads, but it handed over to them something far more precious—its very land, air, and water. Railroads . . . had an unlicensed right of way to go anywhere and build anywhere in the city."

It was in this atmosphere that Chicago began considering streetcar plans in the 1850s. Chicago's street railways received no government land, but they got the exclusive right to run streetcars on certain public streets practically free of charge. As with the 2008 parking-meter deal, critics focused on the length of the deal and what benefit the city got out of it—or didn't.

Unlike the Illinois Central, the streetcar companies weren't required to give the government any of their revenue. This outraged some Chicagoans. In 1859 a citizen identified only as "F" wrote the Tribune condemning aldermen for having "foolishly bartered away" a valuable franchise without getting a red cent in return.

Like the firms seeking today's privatization deals, the 19th-century traction companies wanted contracts or franchises long enough to make their investments worthwhile. But how long was that? Chicago gave them 25-year franchises, and after a judge ruled that the city had lacked the authority to do so, the Illinois General Assembly stepped in and gave them similar terms.

In 1865 the street railroads successfully lobbied in Springfield to extend their franchises to 99 years. They complained that their expenses were going up and it was hard to make a profit, thanks to the city's five-cent limit on fares.

The Tribune didn't buy it. "They are the most gigantic beggars that ever went on the town, for nothing less than an income of millions will give them relief," the newspaper wrote. It suggested that Chicago could cover all its expenses for public schools and city government simply by deducting the money from the "enormous profits" of these "bloated monopolies."

Governor Richard Oglesby vetoed a bill giving the companies the leases they wanted, but the General Assembly overrode his veto. It was a representative from Peoria, Alexander McCoy, who made one of the most impassioned speeches against Chicago's streetcar monopolies. "The streets of a great city are being voted away to a mammoth corporation," he said. "It prevents all competition. It gives the control of all the streets of a great city, so far as railways are concerned, into the hands of a great monopoly for almost a century to come."

Confusing matters, in 1870 Illinois approved a new state constitution that gave cities the power to grant streetcar franchises while preventing the General Assembly from doing so without permission from local officials. In 1875 Chicago got a new city charter, including a 20-year limit on streetcar franchises.

These actions left Chicago's traction system in a state of uncertainty. Did the railways now have franchises for 99 years or 20? Or was it back to 25? The argument went on and on. In 1878 the City Council imposed an annual license fee of $50 per streetcar that the companies refused to pay and challenged in court. In 1883 the city said the 25-year franchises signed in 1859 were expiring, while the companies insisted they were good till 1958.

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