Privatization Plans Lack Long-Term Focus

Plans to sell national assets in financially troubled Greece have been met with great hostility from the nation’s citizens, yet similar plans in the U.S. have flown relatively under the radar.

The struggling economy and resulting decreased tax bases have left many state and local governments struggling to make ends meet. While the federal government has the power to take on debt to meet its obligations, most of these entities do not and as a result they are looking for ways to close budget gaps in some desperate ways.

Unfortunately, the direction they are taking is often shortsighted. Many states and municipalities have taken to selling off crucial pieces of infrastructure to the highest bidder. Chicago made headlines when it leased its parking meters for the next 75 years for a one-time payment of $1.2 billion. The city did this to meet its short-term obligations, despite the fact that the meters would be worth far more in the long run if the city kept them; somewhere in the neighborhood of $4 billion.

As a result of the sale, Chicago’s parking rates have quadrupled in some neighborhoods and the city has lost full control of its streets. If the city wishes to close a street for a parade, festival or other function, they must compensate the owners of the meters for the lost revenue. Our government should be determining how and when we can use public streets, not a private company, but in the name of short-term gains we have given up that right.

Chicago is not the only example. Indiana has leased the Indiana Toll Road to foreign investors, and states such as Ohio and New Jersey are considering following suit with their turnpikes. Privatization of roads leaves motorists vulnerable to toll hikes, and neighboring towns vulnerable to traffic increases and damaged roads as cars and trucks search for alternate routes. These externalities add up, and quickly the deals that were supposed to save the budget don’t look so great anymore.

One of the most damaging results of taking this route is that many times when public property is privatized, the buyer comes not only from out of state but also from out of the country. The profits that are derived from the parking meter or tolls do not go back into the community like they did when they were state owned, and once the money from the original sale is gone, the state derives no more value but continues to eat the cost of the externalities.

Russia sold resource-rich Alaska to the U.S. for just $7.9 million. We should be careful not to mirror their fire sale approach with our infrastructure.

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