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Is Privatizing America’s Public Sector in the Public Interest?

Indiana really is the crossroads of America, politically that is. The state is at the center of privatization,  a hot trend for our nation’s Republican governors and mayors.  GOP politicians and dominated legislatures sell public resources to the highest private bidder, using extensive, longer-than-long-term contracts.  The deals often block the State from modernizing public transit, or placing resources more efficiently to save money. Is privatizing in the public interest?

In Indiana, Governor Mitch Daniels undertook an initiative to privatize the toll roads on the Indiana highway.

According to the Dave Jamieson of the Huffington Post “In 2006, under the orchestration of Gov. Mitch Daniels (R), the state struck a deal to lease the road for a period of 75 years to Australia-based Macquarie Group and Spain-based Cintra. The investors paid the state $3.8 billion upfront in exchange for the right to collect tolls. The investors are required to maintain and upgrade the road for the duration of the lease.”

Sounds like a good deal?  It put billions into state coffers, and took the expense of running the tollways off of the State’s budget.  Except that it has not been in the public interest. In as short as 5 years, the tolls for this highway have jumped 203%, from $18 to the new July 2011 cost of $36.60, effectively doubling the cost of travel along those routes.  Would the state, without a profit motive, have to do the same? Unlikely.

To make matters worse, the contract that the state signed with the investors forbids Indiana from investing in alternative options of transportation such as high speed rail. The state would need to repay the foreign leaseholder’s for “lost revenue” in conjunction with such an effort.  Leaseholder’s also have the option of raising the tolls annually and the state is dissuaded from upgrading alternate routes of transportation: The other publicly owned roads.

A 2009 study by the U.S. Public Interest Research Group shows that privatizing toll roads creates a quick fix in the state’s budget on the backs of the private citizens who will be using the toll roads in the future by allowing the toll road to be controlled by corporations who are indebted to their shareholders, not the general public.

Another disadvantage to the privatization of the Indiana Highway is that the state is on the hook for any lost revenue due to unforeseen circumstances, such as in 2008 when the tolls were waived due to flooding in the state.  The state’s ability to act in the public interest of it’s citizen falls by the wayside when they have to figure in the cost of loss revenues to the leaseholders.

Maryland Freshman State Delegate Mark Fisher wants to begin a study to privatize a the brand new Inter-County Connector toll road, MD-200, which will eventually run for a total of 18.8 miles [1].  This public resource, using the tax payer’s money, was just completed in late February, 2011. Many in Maryland are against such a venture.

“You don’t give away an asset for a short-term gain at the expense of long-term revenues,” said House Majority Leader Kumar P. Barve (D-Dist. 17) of Gaithersburg. “I’ll vote for it when he sells the naming rights to his house.” [2]

Ohio residents need worry too.  The very unpopular Governor of Ohio, Governor Kasich is looking to privatize the Ohio toll road for a large sum of money upfront, but, if the deal is structured as most of these privatization contracts seem to be, it will likely be to the detriment of future road users.

Rep. Dennis Ross is calling for selling the Government’s 70% stake in the land and buildings of Utah. And  another fine example of the err of privatization is the sale of parking meters in Chicago.  The parking meters were awarded to Wall Street giant Morgan Stanley, but while the state was debating on the sale, the financial giant was quietly arranging a sale of the meter licenses to a wealth fund in Abu Dhabi [3].  The sale was complete in 2008 and is under a 75 year contract.

In short time, the cost to park on the streets of Chicago quadrupled.   Now Chicago is on the hook for lost revenues for closing the streets for everything from street cleaning to festivals. They are also limited in how they can regulate parking hours, which takes away their ability to make common-sense decisions about everything from snow emergencies to more efficient ways to use the streets for mass transit.  Harrisburg, PA is considering a similar plan [4].

These “lost revenue” deals are a tax on the public for turning over their resource to the private sector, a factor when considering the public citizen’s best interest.

Another fan of privatization is the reprehensible Gov. Scott Walker of Wisconsin.  He has been a champion of privatization since his days of being a city councilman, fighting to privatize everything from the zoo to city psychiatric staff.  While the protests early this year in Wisconsin were unsuccessful in fighting off the state from stripping unions of their collective bargaining rights, it did fight off similar privatization efforts in the bill. [5]

Privatization is not new, though.  Prisons and schools, water authorities and other public facilities have been privatized as well.

“The State paid more per inmate in private prisons that for equivalent services in state facilities,” notes a report to the Arizona Legislature, State of Arizona Office of the Auditor General in September, 2010. [6] Corrections Corporation of America (CCA) a private prison firm, is questioning its ability to continue to operate profitably in the light of new guidelines and rules being put in place by the states where it does business. [7]

Indiana’s Daniels, Wisconsin’s Walker and “Chopper” Chris Christie of New Jersey want to privatize public schools, even though the idea is not popular. Between 1966 and 2000, vouchers were put up for a vote in states 25 times, and voters rejected voucher programs 24 of those times.  Blame it on Billionaires with a profit motive to screw over the taxpayer. The DeVos family, with ties to military privateers Blackwater, who, along with Halliburton ran up our Iraq War bill billions for private contractors, has poured millions into education reform. has an extensive article on this movement.

The issue of privatization has even reached the federal level. The House Republicans are looking to privatize the profitable Northeast corridor of our Amtrak rail lines [5].  Private passenger rail was a hallmark of American transportation prior to the Aviation Age, but in the current system, only select routes are profit generating. The profit from them is used to subsidize necessary, but less profitable routes elsewhere. The bill faces mounting criticism from House Democrats. It  likely will not pass in the Democratic held Senate, either.

This is not the only fight in Congress about privatization.  Often the state privatized resources were paid for, in part or in whole, by federal tax dollars.  Senator Dick Durbin of Illinois has introduced a bill which would force the states to reimburse any federal monies they received to build the roads or airports prior to selling these assets to private investors.[8]

The senator gave this statement to the Huffington Post regarding his bill:

“I’m really trying to stake some ground here on a principle and position that we ought to reflect on.  The federal government is in debt. We are borrowing money to sustain our operations, and we’re sending some of that money to states and localities for investment in infrastructure. We’re making quite a sacrifice. If a decision is made by a local unit of government to privatize that public infrastructure, federal taxpayers should have a seat at the table.” [9] 

It makes sense.  Federal tax dollars were given to these states to assist in the building of these roads and airports, therefore American citizens are the true owners of such resources.  The states who attempt to sell or lease these entities to corporations, foreign investors or bloated financial groups are essentially trying to sell property they do not own.  This bill could also derail the fight to privatize parts of Amtrak.  This bill was in its purest state created to protect tax payers and their investments in America’s infrastructure.

But Sen. Durbin’s bill may not be enough if the GOP is successful in taking control of the White House in 2012.  Tim Pawlenty was subsequently ridiculed for saying that he would privatize anything you could look up on Google.  In the second Republican debate, Newt Gingrich said he thought NASA should be privatized. Privatization is at the core of many GOP legislators’ agenda.

No one is sure, either, what will happen if companies like the prison operator, CCA, no longer find enough profit in the business of housing inmates. The private enterprise, turned back over to the state, could cost the taxpayers billions more than they “saved” on the sale in the first place.

Public projects underwritten by the federal, state, and county governments are generally started to improve the community and to provide necessary, functional services that improve the ability of their populations to live well and conduct their business.  Removing public utilities and schools and prisons may read like a savings on paper in the short term, but they cost individual Americans billions in profits taken by these companies that raise rates to incentivize owning public services.  When rates jump 200% on a highway, it is the equivalent of increasing the tax on every citizen of that state.  Instead of the money going back to the state for the benefit of its people, though, it ends up in the pockets of Wall Street and a handful of sheiks in Abu Dhabi. 

Suddenly the privatization joke, “Ohio, brought to you by Wal-Mart Corp.” doesn’t seem so funny any more.

2 comments on “Is Privatizing America’s Public Sector in the Public Interest?

  1. wordkitty
    June 19, 2011

    Privatization=Corporate Profits.

  2. Jane Mossy
    June 19, 2011

    That’s exactly why it’s not in the best interest of the people to privatize everything. At least if they are held as government entities the people still have a voice. Corporations only answer to shareholders and we can never get our resources back.

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