If It Sounds Too Good ... What You Need to Know, but Don't,About Privatizing Infrastructure

Subject: Re: If It Sounds Too Good ... What You Need to Know, but Don't,About Privatizing Infrastructure

What is the definition of a Third World Nation?  When everything the people used to own is sold to other governments, that is as Third World as it gets. 

 

Carl Jarvis

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From: Miriam Vieni

To: Blind Democracy List

Sent: Saturday, March 05, 2011 6:33 PM

Subject: If It Sounds Too Good ... What You Need to Know, but Don't,About Privatizing Infrastructure

If It Sounds Too Good ... What You Need to Know, but Don't, About
Privatizing Infrastructure
Ellen Dannin | Saturday 05 March 2011
Remember the old joke about some sharpie who takes innocents by "selling"
them the Brooklyn Bridge? By the time the poor guy finds out he was taken,
the crook is long gone.

Flash forward to the present. States and cities are being told that they can
fix their budgets and have money left over by leasing their infrastructure
for 50, 75 or even 99 years. It sounds great, even miraculous. But we all
need to slow down and do our homework, because the rule "If it sounds too
good to be true, it is" still applies, and there are good reasons why state
and local governments should not want any part of these deals.

The truth is that, rather than making money on just tolls and fees, private
contractors make their money through big tax breaks and by squeezing state
and local governments for payments for the life of the contracts.

In fact, tax breaks explain why the deals last generations. One tax break
for leases that last longer than the useful life of the infrastructure
allows investors to write off their investment in just over a decade. A
second tax break lets private companies issue tax-free bonds to finance
their deals. While tax-free bonds and tax breaks make it less expensive to
finance these deals, the downside is that governments lose tax revenue.
Losing tax revenue puts government budgets deeper in the red and worsens
problems privatization was supposed to fix.

But that's not all. Infrastructure privatization contracts are full of
"gotcha" terms that require state or local governments to pay the private
contractors. For example, now when Chicago does street repairs or closes
streets for a festival, it must pay the private parking meter contractor for
lost meter fares. Those payments put the contractors in a much better
position than the government. It gets payments, even though Chicago did not
get fares when it had to close streets.

Highway contractors can be entitled to payments if there is an accident on
the highway and if the police, fire and emergency crews do not give
"appropriate" notice and do not perform their emergency work in a way that
is "reasonable under the circumstances." And, given the vagueness of those
standards, states and cities may end up paying just to avoid the costs of
litigation.

Highway privatization contracts also often include terms that forbid
building "competing" roads or mass transit. Some even require making an
existing "competing" road worse. For example, the contract for SR-91 in
Southern California prohibited the state from repairing an adjacent public
road, creating conditions that put drivers' safety at risk. A proposed
private highway around the northwest part of Denver required that local
governments reduce speeds and install speed humps and barriers and narrow
lanes on "competing" roads to force drivers to use the privatized road.

And worst of all, these deals put a stranglehold on democratic decision
making and the public interest. For example, Virginia decided to promote
carpooling to cut down on pollution, slow highway deterioration and lessen
highway and urban congestion. As a result, Virginia must reimburse the
private contractor for lost revenues from carpoolers, even though not all of
the people in a car would otherwise have driven individually.

Chicago is not allowed to reduce the number of parking meters for the life
of the contract. So, when there have been changes that mean parking meters
in one location are no longer appropriate, the city has had to install
meters where none have ever been.

All of these contract terms put the public safety and well-being last and
the investors' profits first. And although infrastructure privatization
proponents claim that the deals transfer risk from the public to the
contractors, a fair reading of the contract terms shows that this is not the
case. State and local governments lose control of their destinies and
communities, while giving private investors power over our new dollar
democracies.

These problems will persist even when the private contractor does a good job
in maintaining the infrastructure and providing good public access to it.
But contractors have not always done a good job in keeping their agreements.

Shortly after it took over the Indiana Toll Road, the private contractor put
sand-filled barrels in turn-arounds with no notice to the state. State
officials begged and pleaded for the barrels to be removed, so police and
emergency crews could get to accidents and deal with other public safety
problems as quickly as possible. Those pleas fell on deaf ears, while the
turn-arounds remained blocked for months.

Or consider the poor people of Auckland, New Zealand. Their government had
become enamored of privatization, because they had been told that the
private sector always provided better service at lower cost. The private
company, Mercury, that bought the electrical service for Auckland decided to
save costs by eliminating backup power, by not replacing parts of the system
that were years past their normal life, by doing no maintenance, by having
no electrical cables in reserve and by terminating its repair crews. When
they were terminated, the crews left New Zealand to find work elsewhere. All
these decisions were made to increase company profits.

Those decisions may have lowered the company's costs, but at a huge price,
most of which it did not bear when the power cables to Auckland's central
business district failed. Banks, stock exchanges, restaurants and all
functions that depended on electricity were hard hit. Water, sewage and all
systems went down and the power outage lasted nearly two months, because it
had no repair crews or replacement components on hand.

Auckland's businesses lost millions of dollars. Companies tried to stay open
by using generators, office workers climbed stairs in skyscrapers in
mid-summer and generator noise and diesel smoke filled downtown. At one
point, Auckland was provided power to essential facilities through an
electric cable plugged into a large ship in the harbor.

You would think that New Zealand privatization advocates would have
rethought their positions after they saw the carnage created by Mercury. But
that was not the case. They actually claimed that the problem was caused by
not having privatized enough infrastructure. While ludicrous, given what
they had experienced, that view is not unique.

Consider, then, that at this very moment, state and local governments are
contemplating signing contracts that restrict their rights to inspect
infrastructure paid for with public money. Consider that they are agreeing
to sign away their ability to protect the public interest and are setting in
motion the same sort of disaster that Auckland faced, while the federal
government is offering tax breaks to promote privatization.

The lesson and warning for states and local governments that are being wooed
by private contractors is to do their due diligence. Read the contracts.
Demand explanations and information. Ask for evidence that the public sector
cannot do what private contractors do - and at lower cost - since the public
sector does not need to pay dividends to investors. Get advisers who are not
beholden to the privatization industry. And use common sense.

If you had thought the miracle of infrastructure privatization sounded too
good to be true, now you know it is. But if you still have a hankering to
give privatization a try, well, I just might have a bridge to show you ...


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