Is privatization driven by corruption? The Chicago parking meter debacle

Update: I spoke at length with Angie Coiro and Blaine Rummel, from In The Public Interest, about this topic. The show was In Deep with Angie Coiro, and the audio is available here. Scroll down and click the player to listen. Enjoy!
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I’ve been writing about privatization lately, a movement that’s picking up steam all over the country, and indeed all over the world. The Mubarak regime, for example, was widely considered a  “neoliberal” and privatizing one, famous for looting the Egyptian state and economy of its wealth.

I want to just add this. Given the immensely favorable deals that governments — federal, state and local — give to their private “partners,” how can crony corruption and kickbacks not be a part of it.

For example, consider just this via Rich Perlstein, on the sale of revenues from Chicago parking meters to a consortium led by Morgan Stanley and including the Sovereign Wealth Fund of Abu Dhabi.

Perlstein writes (my bolding and some reparagraphing):

On Privatization’s Cutting Edge

… Everyone, I suppose, dislikes parking meters. Chicagoans hate them even more. That’s because Mayor Richard M. Daley in 2008 struck a deal with the investment consortium Chicago Parking Meters LLC, or CPM, that included Morgan Stanley, Allianz Capital Partners and, yes, the Sovereign Wealth Fund of Abu Dhabi, to privatize our meters.

The price of parking—and the intensity of enforcement—skyrocketed. The terms were negotiated in secret. City Council members got two days to study the billion-dollar, seventy-five-year contract before signing off on it. An early estimate from the Chicago inspector general was that the city had sold off its property for about half of what it was worth. Then an alderman said it was worth about four times what the city had been paid. Finally, in 2010, Forbes reported that in fact the city had been underpaid by a factor of ten.

Who would negotiate such terms, if they had anything like the city’s interest at heart? But wait, there’s more:

Money politics corruption

Money via Shutterstock

The deal, you see, is structured like this. Not only does CPM get the money its meters hoover up from the fine upstanding citizens of Chicago. It gets money even if the meters are not used. Each meter has been assigned a “fair market valuation.”If the City takes what is called a “reserve power adverse action”—that can mean anything from removing a meter because it impedes traffic flow, shutting down a street for a block party or discouraging traffic from coming into the city during rush hour—“CPM has the right to trigger an immediate payment for the entire loss of the meter’s fair market value over the entire life of the seventy-five-year agreement.”

Shut down one meter that the market-valuation says makes twenty-two bucks a day, in other words, and the City of Chicago has to fork over a check for $351,000—six days a week (why six days? more on that later), fifty-two weeks in a year, times seventy-five—within thirty days. Very easily, Geoghegan points out, a single shut-down of parking in a chunk of the city—say, for something like a NATO summit Chicago hosted last year—“could be more than the original purchase price of the deal.”

Do read the rest. A great many privatization schemes like this have the same profit-guaranteeing clauses in them. I recently did a radio interview with Angie Coiro and Blaine Rummel of In The Public Interest discussing just this subject. Blaine pointed out that prison privatization contracts typically had a “guaranteed occupancy” clause (think about that; think about the incentives that sets up), as well as a taxpayer-funded reimbursement if those occupancy quotas aren’t met.

Who would negotiate such a contract, except someone in bed with cronies, or benefiting from kickback.

By the way, in the Chicago story, Richard M. Daley (of that Daley family) is the brother of Bill Daley, of JP Morgan Chase  — and also the Obama administration.

The Rich and the Rest. Predators and prey.

GP

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Gaius Publius is a professional writer living on the West Coast of the United States.

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