Desperate for a leader or at least a visible public figure who doesn't humiliate the entire movement, conservatives have recently rekindled their love for Margaret Thatcher. One of the Iron Nitwit's quotes has been making the rounds lately, popping up on t-shirts and bumper stickers hawked by people who lack the creativity to come up with their own slogans: "The problem with socialism is that you eventually run out of other people’s money." Interesting logic. Let's run with it.

Indiana Governor Mitch Daniels became something of a hero for the Cato Institute crowd while igniting a fierce controversy here in the Hoosier state when he announced a plan to auction off the rights to Indiana's toll roads. For a one-time payment of $3.8 billion dollars, the state surrendered the rights to a Spanish transportation conglomerate for 75 years. The system was making $160,000,000 in revenue annually. Indiana drivers (and long-haul truckers serving the state) have noticed no change in quality of the road conditions, which is good. They have noticed that all of the tolls have doubled, which is bad. So everything's the same except that the state no longer makes money from the endeavor and it costs more for the same services.

In Chicago, Mayor Daley and the county board are in the midst of an orgy of privatization as they desperately try to un-bugger municipal budgets that are bleeding red. Daley leased the city parking meters to Morgan Stanley for $1.16 billion – and rates immediately quadrupled. This is in addition to the 99 year lease on city parking garages that Da Mare sold Stanley for $563 million in 2006. And in September the city accepted a $2.52 billion bid on Midway Airport from a Citigroup-led team of investors.

As municipal governments across the country run out of revenue, this kind of cannibalization of assets will only become more common. Minnesota legislators are suggesting a "garage sale" of municipal assets starting with the airport, and in Texas they think that privatized roads are about the greatest idea since beer helmets. All of these transactions follow the exact same pattern: state surrenders revenue-generating asset to private bidder, private bidder forks over some up-front cash, and the costs to end users, i.e. you, double or triple.

Basically it's a payday loan. Only worse. And the problem with this strategy, as Ms. Thatcher would no doubt point out in the interest of ideological fairness, is that eventually you run out of shit to sell.

Only two kinds of people take out payday loans: the desperate and the phenomenally stupid. These state/local governments are among the former (and perhaps the latter, but for different reasons). I think they realize that the assets they're selling could produce more revenue over the life of the leases than the pittance they receive up-front, but…they need money now. As each dollar one borrows from Check-and-Pawn Express takes three or four future dollars out of one's wallet, each asset sale deals another blow to states' ability to generate revenue in the future. Draw your own conclusions about how pathetic it is that our governments are now responding to the same incentives, and in the same way, as the urban poor.

I see no conservative tears being shed over this future-mortgaging exercise in fiscal irresponsibility largely because, as usual, it is only the sacred ideology that matters. The Free Market is better than public ownership; so was it written, so shall it be. Why bother worrying about the fact that Chicago could make ten or fifteen times as much profit over the 99 years for which they've sold off city assets. Like a starving person, they can no longer conceive of a future and are beginning to digest their own organs in a desperate effort to get through the next minute, the next hour, or perhaps the next day.

So you get screwed and the Free Market wins big. Stop me if any of this sounds familiar.


  • I share your skepticism of these one-shot deals. One element you left out of this privatization circle jerk is the role of "independent" consulting firms in valuing the assets in question. I would submit that the Crowe Chizek analysis of the Indiana Toll Road was deeply flawed at best and disingenuous at worst. A simple technique like taking the most pessimistic demand estimates can lower the value of the asset and thus provide political cover for politicians who want an easy one-shot injection of revenue. Same goes for the I-69 project: the major consulting firm cost-benefit analysis of I-69 (which, surprise surprise, supported it) would not pass muster using CBA best practices. Too many of these firms are simply answer-whores, finding ways to torture data until it coughs up the answer the clients want.

  • I was stupefying myself by watching 20/20 a while back, and the intrepid John Stossel (who looks like a cross between a weatherman and a child molester) was presenting the privitization of the Indiana Toll Road as if it were a unparalleled success, and that it should be a model for other states.

    In the case that you should want to experience simultaneously the usually disparate feelings of scary uncle-induced childlike fear, and the boredom of waiting for "Local on the 8's".

  • Well, to be fair, according to the conservative crowd the nation will implode within the next eight years tops, let alone one hundred. By their logic, Chicago won't last long enough to enjoy the benefits of holding onto their parking meters and decks.

    That said, it's pretty funny how as soon as something gets privatized, the price immediately jacks up by enormous factors. This is reminiscent of the way gas was sitting at $4.00 a gallon until people finally decided enough was enough and started resorting to alternatives… and then the price instantly crashed back to a dollar. Almost like it never took anywhere close to four bucks to make, and the invisible hand of the market was just strangling people because it thought it could get away with it. I seem to recall some strange talk from the right that the private sector does everything cheaper and more efficiently than the government… I wonder where that talk is now?

    Oh, that's right. Most of them have never driven a toll road or parked their car themselves a day in their lives.

  • This is nothing new. A lot of towns and cities used to have public utilities like powerplants that were sold years ago to corporations. Electricity is always cheaper when it is run by a public utility.
    I know of one small city that has had to fight in court to keep its public cable TV system. The residents there have cable bills that are half or less than the neighboring cities.
    Selling off public assets is a form of self-cannibalisation.

  • I remember several years ago there was a lot of discussion concerning private industry buying up water utilities. If i remember correctly, this was occurring primarily in poor countries in S. America and Africa. The same effect was immediately apparent, water services did not improve radically but the cost of water to the population went up dramatically. It looks like our country is heading down the same path.

  • I hate the tortured logic of having government public goods being sold off as 'free market' – where can there be competition? Can a plucky startup firm create a whole other interstate system or a system of roads in a downtown environment?

    We also don't build roads to maximize the profits of some firm that happened to score the contract – we build roads to efficiently transit people from urban core to urban core. These are on two entirely seperate tracks. sigh.

  • The central problem with privatization is that the profit motive immediately displaces the original purpose of the utility in question as the paramount goal of that utility's operators. When (for example) power generation is run as a public utility, the primary goal of the people running it is to provide power in the best, most efficient way possible, and make sure to serve the public to the greatest possible degree. But as soon as it is privatized, the people running it are concerned with making a profit first and generating power second.

    That's the question that is not asked often enough in debates about privatization: are the users of the utility in question willing to accept that privatization means quality will degrade and costs will rise? (And of course quality will degrade and costs will rise. If the people in charge care first about making money, and second about running the utility, how else are things going to go?)

    But in regards to roads and parking: both of these have been so massively subsidized in America for so long that almost no one realizes the true cost of either thing. The true legacy of the Eisenhower administration: Americans take it for granted that the government will spend uncounted billions to build and maintain gold-plated roads and parking facilities. At some point, that's going to have to change. I don't like private toll roads, but I do like public toll roads, where the revenue is used to maintain the road minimally and also to build and maintain mass transit.

  • Pair that with the crapification of the former state jobs and you have another lose/lose situation for the citizens. Rendell tried the same thing here, so far with no luck.

  • So let me get this straight. The government sold all the revenue that comes in from a toll road for the next 75 years, in return for roughly 4 years worth of tolls?

    To put in perspective, assuming that tolls rose at the rate of inflation (i.e., not including the private company's hiking of the fees), this is the exact equivalent of selling $75 for 4 bucks. That is a 1,875% profit for the company. Nearly two thousand percent! That's really seriously in payday loanshark territory.

    a) The government here is just un-the-fuck-believably beyond stupid
    b) The setup as explained is omitting some enormous factors, such as the private company spending its own money to maintain the roads and assume other expenses. And even then, running roads and a few toll booths can't be THAT expensive.

  • The figure I cited is revenue; maintenance costs come out of that, and of course the leasing party is now responsible for maintenance. I'm pretty sure, based on the first couple years of this experience, that their plan is to no do any.

    So the state was in the black on the toll road. By doubling the tolls (and slashing the labor costs of whatever human workers are still required) you can imagine how healthy the private group's profit will be, especially if they shirk on maintenance.

    If the state was willing to accept doubling all of the tolls it made far more sense to keep the road, double the tolls, and pocket the profit.

    But the Spanish corporation offered a big check NOW! That, apparently, is way better.

  • Patriotism = working for the common good of the community. I find it laughable that so many of the advocates of the unfettered market are also constantly in our face about how much more patriotic they are compared to us. Last time I looked, selling your fellow citizens down the river and wrecking your nation's economy wasn't patriotic.

  • The meter thing here in Chicago is a complete boondoggle, and may end up costing the city money.

    And the deal for Midway, in delicious bit of irony, has collapsed due to the fact that the purchasers could not secure adequate credit for the deal because of the recent credit crunch.

  • This wouldn't have happened if Congress had acted swiftly to provide low-cost loans to maintain state and city budgets at certain levels for the duration of the financial crisis. Many states and cities can't run deficits. And the financial crisis decimated the bond market, for those cities that can run deficits. Layoffs from local government jobs, and government spending (which supports all sorts of private enterprise) further depress economies, needlessly, It's better to save present jobs than dream up new ones.

    This is something that can be laid squarely on the republican party's feet, along with the gormless section of democrats. Local government shrinking to next to nothing is the hard-core republican's dream, and Obama is allowing it to come true under his watch. More targeted stimulus is needed yesterday. Obama needs to dress down congress, and argue for them doing things his way. He won. They (all of congress) lost.

  • i am afraid, crf, that it doesn't matter what kind of assistance the states get from the feds. these deals to sell public assets to private parties are essentially done between friends — state officials and their "business partners" who hire the state officials' family members after the sale and the state officials when they "retire."

    it's mutual masturbation with your money by those who "know better."

  • I have to disagree with your analysis, and your attitude. FIGHT!

    karen marie, my point is that if your state constitution or city charter says that you cannot run a deficit, and your tax base has just cratered, and the bond market is dead, you still have to get money for needed services, now. Absent money from the federal government, a city or state government is obligated, by law (we're still a nation of laws, mostly ;) ) to either sell assets, raise taxes to stupid levels, or declare bankruptcy. So what is happening now isn't due to the sudden resolution of local political arguments over the merits of private investment in public utilities.

    What is happening, in towns, cities and colleges across the nation, is a republican dream. And it is being, and has been, allowed to occur with a democratic controlled congress who've refused to even bother for a fight to tide over city and state budgets through this downturn. Since the reason for stimulus is maintain jobs, the first thing congress ought to have done was to save present government paid-for jobs, rather than ignoring that problem, and trying to create completely new government paid-for jobs (of perhaps dubious value — as republicans gleefully, and with some justification, argue). Right now, were spending money by the truckload and too little of it in areas that provide immediate value for citizens. A republican is going to ask "your government is spending truckloads of yours and your children's children's money: Wall street got their share, but, while your city is crumbling about you, what have you seen of it?", and a typical citizen is probably going to answer, in a justifiably angry rage: "nothing: turf these bums out!"

    Obama needs to force his democratic congress to pass a new stimulus bill which is focused on state and city aid. OF COURSE it matters what sort of aid states and cities get. Democrats own all the problems now. But they have at their disposal, more power than the world has ever seen to try to solve them. Whatever happens now, it's their fault.

  • While I don't like many taxes, per-use charges are a ssleibne way to go.Now we just need to kick some Va-legislators in the tail (Reps Dems) and clean up Richmond.

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