Mayor Rahm Emanuel (D) last week nixed a possible deal to privatize Chicago’s Midway Airport, ending a process that could have seen the country’s first major commercial airport to be placed in private hands. It was an understandable decision for a politically -attuned politician — or at least a politician who remembered what happened the last time his city made a significant deal with a corporation.
At the height of the financial crisis in 2008, the chairman of a major finance company addressed the National Council for Public-Private Partnerships. “Desperate government,” he said, “is our best customer.”
And plenty of governments were desperate. Mounting pension costs, declining tax bases, crumbling infrastructure and a growing number of out-of-work citizens relying on social safety nets meant deep budget deficits and tides of red ink. To close the gaps, cities turned to a source of quick cash: privatization.
In some cases, privatizing city services proved smart a way to infuse a cash-poor city with financial resources while trimming budgetary requirements. But in others, privatization was the governmental version of a payday loan gone bad; some cities will regret their decisions to trade long-term resources for one-time cash payments for years to come.
Privatization skeptics hold up one deal as particularly bad: an agreement to hand control of Chicago’s 36,000 parking meters to a private corporation, in exchange for about $1.15 billion in quick cash.
In December 2008, Emanuel’s predecessor, Richard Daley, was desperate for the money. The budget shortfalls and declining revenues meant the city needed the cash. A consortium led by Morgan Stanley won a bidding process that drew withering complaints from city aldermen; at a hearing of the city council’s Finance Committee the day after Daley awarded the contract to the consortium, where aldermen were meant to approve the lease deal, committee members had to ask to see a copy, according to the Chicago Reader. The following day, the council approved the deal — and the city got its cash.
In exchange, the consortium, run through a company dubbed Chicago Parking Meters LLC, won the rights to operate and collect fees from the parking meters for 75 years. One alderman’s analysis estimated the corporation would reap about $4 billion over that time.
The problems began mounting almost immediately. The corporation jacked up meter rates, and some meters couldn’t handle the number of quarters required to pay the fees, the Reader reported. Frustrated parkers began a boycott. Others started vandalizing meters. The city’s inspector general reported [pdf] that the process used to award the deal cost the city, “conservatively,” $974 million. Even today, the parking meter deal is a stain on Daley’s legacy.
Emanuel wasn’t about to let another public-private partnership go awry. In an op-ed piece published in the Chicago Tribune on Monday, he cited the parking meter deal three times in explaining why the move to privatize Midway would be put on hold.
This time, Emanuel insisted that any lease be capped at 40 years, instead of 75 years. He wanted revenue shared with the city, instead of going entirely to the winning bidder, and he demanded a Travelers’ Bill of Rights, which would have capped parking and food prices and required the winning bidder to provide a clean terminal with snow- and ice-free entrances. Emanuel also wanted a guaranteed number of restrooms. He appointed a board of outside advisers, including aldermen and labor and business leaders (including Martin Nesbitt, the chairman of PRG Parking Management and one of President Obama’s closest friends).
But making so many demands scared away some prospective investors. Sixteen initially expressed interest in submitting bids; in the end, all but one pulled out. Citing the lack of a competitive bidding process, Emanuel pulled the plug.
The mayor is still interested in leasing city services, which he says will pay for what he called the city’s “huge structural deficits.” But the parking meter saga taught him five lessons he said would inform any future deals.
“[F]irst, a group of outside experts should be impaneled at the start of the process to monitor each step; second, there must be a minimum 30-day review by the City Council before the project is voted upon; third, there should be a clear set of standards so the public can judge a potential partnership when it is presented; fourth, the funds should be invested in infrastructure rather than used as a plug for short-term budget holes; fifth, a true public-private partnership requires that taxpayers maintain control of the asset and share in management decisions and financial profit,” Emanuel wrote in his Tribune op-ed.
Public-private partnerships and privatization of city, county and state services are on the rise across the country. States have been privatizing prisons for three decades, and new deals are in the works on transportation, education, even water and sewer systems. But the lure of quick cash can mask the negative parts of a deal.
“That doesn’t mean that we shouldn’t consider such investments in the future,” Emanuel wrote. “It means that we must be willing to say ‘no’ when partnerships don’t measure up to our standards.”