Wednesday, June 10, 2009

Leading by example

Posted By on 06.10.09 at 10:21 AM

During his spirited defense of the parking meter lease deal last week, Mayor Daley argued that the cash it had brought in had helped keep the city government working during a horrible economic time. He said that no other cities had built up a reserve fund--otherwise known as a "rainy day" fund--of several hundred million dollars, and now the rest of the country was looking to the example of Chicago. 

Daley admitted that the early days of parking meter privatization hadn't gone that smoothly--"I know people are frustrated"--but he stood by the deal and suggested that others like it were on the way. "I've been looking at different assets we can lease to help the city financially."

He didn't specify what might be next, but already the city has paid outside lawyers tens of thousands of dollars to do preliminary work on a possible lease of its three material recycling and recovery facilities--garbage sorting centers designed for the blue bag recycling program. The MRRFs cost taxpayers $60 million to build in the early 1990s--double the price Daley had estimated--but are of little use since the city ditched the blue bag program after tens of millions of dollars and diminishing results.

But as the New York Times recently reported, privatization deals have become far less appealing since the economy tanked and investors began struggling to raise cash. The story notes the demise of Chicago's deal to lease Midway airport when the financing disappeared. It adds that "late last month plans to privatize 'Alligator Alley,' a 78-mile stretch of Florida highway that connects Fort Lauderdale with Naples, collapsed when no bidders showed up."

No bidders is just two less than the number who made offers for Chicago's parking meter system, but city officials maintain that even amid a recession those bids were higher than what they'd expected.

Meanwhile, a nationwide poll has just found that the public supports privatization deals--if the deals produce infrastructure investment and prevent tax hikes. Support is also much higher if the deals only last 15 to 20 years--rather than 75 or 99, as has been the case here--and include incentives to ensure performance by the private operator. For example, "the deals could be structured with a 15-year lease that would automatically renew if certain operating standards are met--a structure that could be beneficial to both investors and voters."

Those were among the recommendations for future long-term asset sales that were proposed last week [PDF] by the office of city inspector general David Hoffman--in the same report Daley chief of staff Paul Volpe dismissed [PDF] as "misguided and inaccurate."

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