Chicago’s Parking Fiasco Fails to Stem Calls for Privatization of Infrastructure

» As the United Kingdom encourages investors to pony up billions of pounds for its High-Speed 1 route, Chicago’s sell-off of parking assets comes back to bite.

Who knew an investment in public infrastructure could be so profitable? Or rather, are government entities being bamboozled out of the value of their own property?

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.

This situation should put a chill in the spine of those who believe that privatization of public infrastructure will benefit the public pocketbook. And it should be a lesson for politicians who advocate balancing the budget in the short-term through the sale of assets that generate income over the long-term.

Yet the City of Chicago continues to consider the leasing out to private corporations of its Midway Airport. Major candidates running for mayor in Toronto are actively discussing the possibility of privatizing parts of that city’s transit system.

And on the other side of the world, Britain’s new conservative government is hyping the lease-off of the 68-mile High-Speed 1 rail line completed in 2007 at a cost to the government of £6 billion. On Tuesday, between two and six investors submitted their final bids (currently undisclosed) for the 30-year concession that officials expect to bring in between £1.5 and 2 billion, enough to aid the cost-cutting government in reducing its deficit.

Evidence from Chicago suggests that if investors are willing to put up £2 billion now, they are likely to make several times that amount over the course of the contract. In other words, by selling off the rights to High-Speed 1, the British government may get a big boost immediately but find itself yearning for more funds several years out. What makes this agreement particularly galling is that the U.K. already had to bail out the (private) constructor of High-Speed 1 and if the private operation that runs the line eventually faces financial difficulties, the government will likely have to do something similar again, just as it has done repeatedly since the recession began.

That’s because when it comes to public infrastructure, the public seems always to take in the losses even as private companies reap out increasing profits.

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?

Nonetheless, I do not want to suggest that there can be no appropriate role for private entities in the construction and management of public infrastructure. But it may make more sense to keep for-profit businesses involved only on secondary elements of a project, not have them get directly involved in the transportation element.

And in defense of the City of Chicago, Mayor Daley was likely right when he suggested that only in privatization would the city ever see increasing parking fees. But that fact strikes at the heart of the issue: selling off public infrastructure is too often a response to a lack of political will to get what is needed done.

In Chicago’s case, a politician who has won every mayoral election since 1989 claims he wouldn’t be able to assemble support for raising parking rates, so he would prefer handing out profits on meters to a private group than pushing for his cash-poor city to take the same difficult step. In the U.K., an unwillingness to consider other revenue sources forces a debt-ridden government to sell off its most valuable assets rather than milk them for all they’re worth.

For the average person, privatization probably won’t appear to have changed matters much. But the money they spend parking their cars or taking the train will be going into private hands, not public ones.

Image above: Flyover for High-Speed 1 at Ashford Station, from Flickr user Elsie esq (cc)