Selling public resources to private companies for them to profit off of is a hot trend in cities and states—not all of them controlled by Republicans, either. Privatization deals affecting everything from parking meters to child welfare to public water systems are often negotiated in secret, carried out with little oversight, and subject to massive cost overruns and corruption.
The sordid story of Chicago's parking meters has to be a top entry in any "worst privatization stories" competition. Rick Perlstein laid out the ugly details in The Nation a couple months back:
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. [...]But Chicago is far from the only place where a private company controls the roads or has an outsized impact on what once were and should be public functions, often at great taxpayer expense. From South Carolina to Indiana to Colorado to California, come below the fold for details on six more of the most outrageous privatization stories.
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 ... 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."
In the Public Interest has assembled a list of more than 20 privatization horror stories. These are my top five (besides the Chicago parking meters), but you may want to take a look at the report—after all, I'm leaving a nun with cancer being kicked off of food stamps off my top five list.
Mismanagement, tax evasion, and defying oversight:
Recently in South Carolina, the Jenkinsville Water Company failed to pay state employee payroll taxes, lost millions of gallons of water, and could not account for tens of thousands of dollars. Concerned about mismanagement of funds, residents and journalists submitted open records requests to the company seeking copies of financial records, including audited financial statements and budgets. The company refused to comply.Children were being abused ... but it took three years of financial mismanagement and failure to pay taxes for the contract to stop being renewed:
State Senator Creighton Coleman (D-Fairfield) sought an opinion from South Carolina Attorney General Alan Wilson to determine whether the company was bound by the
state’s open records laws. The Attorney General’s office stated that the Jenkinsville Water Company had to disclose the records. But even after the opinion was issued, the
company refused to hand over documents, leading to a lawsuit filed by The Independent Herald newspaper.
Los Angeles County continued to annually renew a foster care services contract with an outfit called Wings of Refuge. Despite the aspirational name, multiple reports surfaced of children placed in homes where they experienced severe abuse, including cases in which children were beaten and locked in their rooms for days. For years Los Angeles County’s Department of Children and Family Services renewed the company’s $3 million annual contract, making it one of the largest private foster care providers in the county, responsible for thousands of vulnerable children.Shades of Chicago:
The county only canceled its contract after the contractor failed to file required financial forms for three years, had accumulated $458,000 in delinquent payroll taxes and was more than $2 million dollars in debt, according to licensing records.
A corporate consortium led by Portugal-based Brisa Auto-Estradas holds a 99 year contract to operate the Northwest Parkway in Denver, Colorado. In 2008, the consortium objected to improvements to a free local road near the parkway, citing contract language that prevented such improvements on city-owned and maintained roads that “might hurt the parkway financially” by providing an alternative route for travelers, thus potentially reducing toll revenue.And more shades of Chicago, with costs to public safety as an added benefit:
Specifically, the contract included a section stating that construction of a “competing transportation facility” would entitle the toll-road operator compensation from the government. Even as residents’ needs and travel patterns change, the city will be unable to make improvements on “competing” free public roads for the next 99 years.
In 2006, Indiana leased its toll road to a conglomeration of companies, including transportation infrastructure giant Macquarie and Spain-based Cintra. In 2008, Gov. Mitch Daniels declared an emergency during a massive flood and waived tolls for motorists escaping the affected areas. Because the contract contained a compensation clause, state taxpayers were required to pay the privatized toll road operator $447,000 for the cost of those waived tolls.74 The company prioritized profit over safety again when it did not allow Indiana state troopers to close the toll road during a snowstorm, claiming it was a private road.States should not be entering contracts promising they'll put more people in prison or pay for the failure, can we agree?
A recent study by In the Public Interest found that 65% of state and local for-profit prison contacts studied include quotas, which require state and local governments to maintain a high occupancy level in private facilities. These clauses incentivize keeping prison beds filled, which run counter to many states’ public policy goals of reducing the prison population and increasing efforts for inmate rehabilitation.Strikingly, some cities and states have put privatization up to actual competitive bidding—and found that proposals from their own workers brought the best service and biggest savings. That's why transparency, oversight, and accountability are among In the Public Interest's top recommendations to "promote responsible contracting." Taxpayers should know how much is being spent on contracts with private companies, know how much money the parking meters and roads being contracted out are worth, be allowed to look at the records of companies running public services just as they can look at government records, and have confidence that if the contract turns out not to be in the taxpayers' best interests, it can be canceled.
In 2012, Corrections Corporation of America (CCA), the largest private prison company in the country, sent a letter to 48 state governors offering to buy up their public prisons. CCA offered to buy and operate a state’s prison in exchange for a 20 year contract, which would include a 90% quota for the entire term or a requirement that taxpayers pay for unused beds. While no state took CCA up on its offer, many existing prison privatization contracts contain such occupancy guarantees, with some as high as 100%.