The Hazards of Privatizing Public Infrastructure

To privatize or not to privatize? When it comes to public
infrastructure investments, from rail service in the UK to the Indiana
Turnpike, more governments worldwide are choosing to hand the reins to
private businesses. What are the early lessons of this trend?

The
companies leasing Chicago’s parking meters expect to generate $11.6
billiion from their $1.15 billion, 75-year lease. Photo: Watawa Life via TreeHugger

For an instructive example, Yonah Freemark at The Transport Politic
is taking a look at the city of Chicago’s 2008 decision to farm out its
parking meter operations to Morgan Stanley. It’s a deal that seemed skewed in Morgan Stanley’s favor, and Freemark notes that it looks even worse from the city’s perspective today:

About two years ago, Chicago Mayor Richard Daley sold off the
rights to 75 years of his city’s public parking meters for $1.15 billion
to a partnership of private companies led by Morgan Stanley. Mayor
Daley pushed the city council to approve the deal, since it would mean a
huge cash infusion into a municipal government facing large budgetary
shortfalls. And he argued that putting the parking system in the hands
of private enterprise would bring in market-based pricing, essential to
improve the circulation and distribution of automobiles in the city’s
downtown, but impossible to implement because of a lack of political
will.

Bloomberg News, however, revealed last week
that the private partnership that bought up the spaces expects to
generate at least $11.6 billion in revenues over the course of the
contract — producing a potential profit of $9.58 billion, twice what
some anti-Daley city council staffers predicted in 2008 the city would lose
by selling off the meters (an amount that at the time was considered
outrageously high). Chicago, meanwhile, has virtually exhausted the
initial funds it received from the deal, having done little to adapt to
its local government funding shortfalls. 

Freemark goes on to cite another cautionary tale from the UK, where
the government has decided to lease out a new high-speed rail line for
30 years. This carries other risks in addition to the swindling faced
by Chicago, he writes:

Moreover, by agreeing to lease out the line, the government basically
abandons any hope of using the program for the benefit of the greater
good. Granting control of the infrastructure to a profit-motivated
enterprise basically ensures putting existing operators in financial trouble. The infrastructure owner seems likely to demand high usage fees, and these may make the provision of low fares more difficult. Is this in the general interest of the public?

Also on the Network: Reinventing Transport offers a video on pay-as-you-go car insurance; Cascade Bicycle Club advocates for framing the debate around bicycle-friendly communities as a “win-win,” rather than “cars vs. bikes”; and NEOHouston wonders whether the country’s new high-speed rail investments will be significant enough.