The Privatization Of Government (Part 1)

The mantra of the Republican is to let the private sector do it. They want to privatize Social Security and they are fighting to do away with Medicare. On the state level they have privatized prisons, roads, water works, and even parking meters

Well government is not a business.

There are certain things that have to be done no matter the cost. Public heath must be maintained. Bridges have to be maintained. The water distribution systems must be updated. The railroads must be brought up to modern standards. Because of the fatal train wreck just outside of Philadelphia Congress order the railroads to move up their schedule for adding automatic safety features to the trains but that resulted in many of the bridges from the 1800s being delayed in their replacements because Congress refused to grant them additional funds to do both.

Congress went on vacation instead of debating fund to fight the Zika and before they went on vacation many of the Republican legislators were refusing to add funding unless the budget was cut somewhere else. Now we see it spreading in Miami from the area of the original outbreak.

5 ways privatization is fleecing American taxpayers
Government outsourcing goes horribly wrong more often than not. Here are a few representative horror stories
Salon
By Dave Johnson
May 20, 2014

For decades we’ve been subjected to constant propaganda that government is inefficient, bureaucratic and expensive. We’re told that the answer is to “privatize,” or “outsource” government functions to private businesses and they will do things more efficiently and everyone comes out ahead. As a result we have experienced decades of privatization of government functions.

So how has this wave of privatization worked out? Has privatization saved taxpayers money and improved services to citizens? Simple answer: of course not. If a company can make a profit doing something the government had been doing, it means that we’re losing out one way or another. It’s simple math. And the result of falling for the privatization scam is that taxpayers have been fleeced, services to citizens have been cut way back and communities have been made poorer. But the companies that convinced governments to hand over public functions have gotten rich off of the deal. How is this a surprise?
[…]
1. Chicago Parking Meters
The mother of all privatization horror stories is what happened with Chicago’s parking meters. In 2008 the city “financialized” its parking meter revenue stream. It leased the rights to collect from parking meters to a consortium led by Wall Street bank Morgan Stanley. The lease is for 75 years.

Right away parking-meter rates went up fourfold and meters stopped working. The city’s residents were unhappy, but there was nothing they could do about it.

But wait, it gets worse. Unsurprisingly, it turns out that the big Wall Street bank was more interested in making money than in giving Chicago the best deal it could. An inspector general looked into the deal and found that the city was shortchanged by at least $974 million. But a 2010 Forbes story says the Morgan Stanley consortium may realize a profit of $9.58 billion after paying Chicago only $1.15 billion.

To top it off, the city not only gave up 75 years of revenue for not nearly enough up-front cash, it had signed a contract prohibiting the city from interfering with Morgan Stanley’s ability to profit from the deal. This means the city can’t build parking structures where they are needed and can’t even give out disabled parking permits. The city can’t even close streets to have street fairs or festivals without paying Morgan Stanley for lost meter profits.

2. Toll Roads
Some states are considering privatizing their roads with “public-private partnerships.” The deal is that private companies maintain the roads and in exchange can charge a toll and make a profit. How is this working out?

In 2006 Indiana privatized I-80, the Indiana Toll Road. For $3.8 billion the state gave a 75-year lease to the Australian company Macquarie Group and Spain’s Cintra. (Goldman Sachs is said to have earned $20 million for brokering the deal.) At the time Washington Post business columnist Jerry Knight wrote that the deal sounded like “tossing the family furniture in the fireplace to keep the house warm.”

Since then tolls have just about doubled. And it’s going to get worse. Dave Jamieson at the Huffington Post explained, “The road’s leaseholders can now raise the toll annually at one of three rates — at a flat two percent, at the percentage increase in the consumer price index or at the percentage increase in gross domestic product — whichever is highest. Over the course of the coming decades, Hoosiers can expect to learn a hard lesson in compound interest, long after Gov. Daniels is gone.”

In 2007 Colorado leased its Northwest Highway to a Portuguese/Brazilian company for 99 years. The company raised tolls 50% and taxpayers have to pay the company if too many carpoolers use the high-occupancy lanes. The contract includes a “non-compete” clause that “requires payments to the foreign corporation if certain roads or facilities are built in the area that would compete with the toll road.” In other words, if traffic gets really bad Colorado is not allowed to do anything to solve the problem for its citizens – mass transit, congestion-relief arteries, etc. — instead forcing citizens to use that highway and pay whatever the toll is. For 99 years.

The article goes on to list prisons and how business gouge the government for any changes. In some states they have to pay the private prisons for prisoners that they don’t have, so that is an incentive to jail people for even minor offenses in order to keep the jails full. In Pennsylvania a just was convicted to taking kickbacks from the private prison company to send my juveniles to prison.

The article concludes,

Government outsourcing, also known as privatization, has been going on for decades, and now governments are reassessing whether turning public property and services over to private companies has really been a good idea. Story after story has appeared detailing horror stories of corruption, incompetence and general scamming by companies interested only in profit. Molly Ball reported recently in The Privatization Backlash in the Atlantic, “In states and cities across the country, lawmakers are expressing new skepticism about privatization, imposing new conditions on government contracting, and demanding more oversight. Laws to rein in contractors have been introduced in 18 states this year, and three—Maryland, Oregon and Nebraska—have passed legislation, according to In the Public Interest, a group that advocates what it calls ‘responsible contracting.'”

We all have heard about the disaster of the Detroit Water Department privatization…

Water Privatization: Facts and Figures
Privatizing local water and sewer systems usually does far more harm than good for our communities.
Food & WaterWatch
August 31, 2015

Water privatization – when private corporations buy or operate public water utilities – is often suggested as a solution to municipal budget problems and aging water systems. Unfortunately, this more often backfires, leaving communities with higher rates, worse service, job losses, and more.

Problems with Water and Sewer Privatization
Loss of Control

• Privatization is irresponsible. By privatizing water and sewer systems, local government officials abdicate control over a vital public resource.

• Privatization limits public accountability. Multinational water corporations are primarily accountable to their stockholders, not to the people they serve.

• Loss of public input. Because water service is a natural monopoly that lacks a true market, consumers can exercise choice only at the ballot box through the election of the public officials who oversee their utility. They don’t have a vote in the corporate boardroom. With public ownership, residents can visit their elected officials and directly express their opinions about the operation of their water systems. If the officials fail to respond, the community can vote them out of office. The public lacks similar mechanisms to address their concerns with private utilities and appointed state regulators, and long-term complex contracts can tie the hands of local governments.

• Loss of transparency. Private operators usually restrict public access to information and do not have the same level of openness as the public sector.

• The objectives of a profit-extracting water company can conflict with the public interest. Because a water corporation has different goals than a city does, it will make its decisions using a different set of criteria, often one that emphasizes profitability. This can create conflict.

• Cherry picking service areas. Private water companies are unlikely to adopt the same criteria as municipalities when deciding where to extend services. They are prone to cherry-picking service areas to avoid serving low-income communities where low water use and frequent bill collection problems could hurt corporate profits.

• Contributing to sprawl. Local governments can use the provision of water and sewer services to promote smart growth, while water companies often partner with private developers to supply service to sprawling suburbs.

• Undermining the human right to water. As a result of price hikes, service disconnections, inadequate investment and other detrimental economic consequences, water privatization often interferes with the human right to water. Read the issue brief: Water Equals Life: How Privatization Undermines the Human Right to Water

They also point out that the private water companies cost almost 60 percent more than public water departments. The higher rates result from,

Higher Operating Costs

• Private operation is not more efficient. Empirical evidence indicates that there is no significant difference in efficiency between public and private water provision.

• Lack of competition. In theory, competition would lead to cheaper contracts, but in practice, researchers have found that the water market is “rarely competitive.” The only competition that can exist is the competition for the contract, and there are only a few private water companies that bid to take over municipal water systems. Once a contract is awarded, the winning company enjoys a monopoly. A lack of competition can lead to excess profits and corruption in private operations.

• Privatization often increases costs. Corporate profits, dividends and income taxes can add 20 to 30 percent to operation and maintenance costs, and a lack of competition and poor negotiation skills can leave local governments with expensive contracts. Read the fact sheet: Public-Private Partnerships: Issues and Difficulties with Private Water Service
• Public operation often saves money. A review of 18 municipalities that ended their contracts with private companies found that public operation averaged 21 percent cheaper than private operation of water and sewer services. Read the fact sheet: The Public Works: How the Remunicipalization of Water Services Saves Money

And this leads me to Sunday’s noon post about federal prisons and charter scools.