Comments on: Principles of Privatization – Part 4: Guidelines for Action http://www.urbanophile.com/2009/11/15/principles-of-privatization-part-4-guidelines-for-action/ Passionate About Cities Fri, 10 Sep 2010 09:01:13 +0000 http://wordpress.org/?v=2.9.1 hourly 1 By: Brian Imus http://www.urbanophile.com/2009/11/15/principles-of-privatization-part-4-guidelines-for-action/comment-page-1/#comment-6157 Brian Imus Sun, 06 Dec 2009 17:51:10 +0000 http://www.urbanophile.com/?p=1060#comment-6157 There is an effort to implement taxpayer protection principles to future Chicago privatization lease deals. In response to the parking meter privatization lease fiasco, Aldermen Scott Waguespack introduced the Public Interest Ordinance on Leasing City Assets. If passed, the ordinance would improve the ability for City Council Aldermen and the public to scrutinize future lease agreements. There is an effort to implement taxpayer protection principles to future Chicago privatization lease deals. In response to the parking meter privatization lease fiasco, Aldermen Scott Waguespack introduced the Public Interest Ordinance on Leasing City Assets. If passed, the ordinance would improve the ability for City Council Aldermen and the public to scrutinize future lease agreements.

]]> By: Phineas Baxandall http://www.urbanophile.com/2009/11/15/principles-of-privatization-part-4-guidelines-for-action/comment-page-1/#comment-6147 Phineas Baxandall Sat, 05 Dec 2009 20:21:14 +0000 http://www.urbanophile.com/?p=1060#comment-6147 The reason that lease deals are so long is partly to inflate the short-term value and sweeten the deal. The other big reason is that it triggers a large federal tax subsidy. Lease deals that exceed the expected life of a toll road (normally about 45+ years) can write off the value of the road over 15 years. This accelerated depreciation allowance is big money, but it doesn't make policy sense. The prime justification for these deals is that they are supposed to save the government money. Taxpayers shouldn't be subsidizing the same deals through the back door. For those who are interested in learning more about public asset privatization and to see similar principles for protecting the public, you can check out these two reports: 1) An examination of Chicago's aggressive spate of privatization, including roads, parking meters and public garages: http://www.illinoispirg.org/home/reports/report-archives/transit/transit/privatization-and-the-public-interest 2) An analysis of existing privatized toll road deals and 79 proposed deals around the country, found at http://www.uspirg.org/home/reports/report-archives/transportation/transportation2/private-roads-public-costs-the-facts-about-toll-road-privatization-and-how-to-protect-the-public-north-carolina The reason that lease deals are so long is partly to inflate the short-term value and sweeten the deal. The other big reason is that it triggers a large federal tax subsidy. Lease deals that exceed the expected life of a toll road (normally about 45+ years) can write off the value of the road over 15 years.

This accelerated depreciation allowance is big money, but it doesn’t make policy sense. The prime justification for these deals is that they are supposed to save the government money. Taxpayers shouldn’t be subsidizing the same deals through the back door.

For those who are interested in learning more about public asset privatization and to see similar principles for protecting the public, you can check out these two reports:

1) An examination of Chicago’s aggressive spate of privatization, including roads, parking meters and public garages: http://www.illinoispirg.org/home/reports/report-archives/transit/transit/privatization-and-the-public-interest

2) An analysis of existing privatized toll road deals and 79 proposed deals around the country, found at
http://www.uspirg.org/home/reports/report-archives/transportation/transportation2/private-roads-public-costs-the-facts-about-toll-road-privatization-and-how-to-protect-the-public-north-carolina

]]> By: west town ed http://www.urbanophile.com/2009/11/15/principles-of-privatization-part-4-guidelines-for-action/comment-page-1/#comment-5827 west town ed Tue, 17 Nov 2009 03:45:40 +0000 http://www.urbanophile.com/?p=1060#comment-5827 To me, your most interesting question is why are the leases for the Skyway and the Indiana Tollroad leases so long. From a friend in London who bought a condominium on a 99 year leasehold from the Duke of Westminster, I know that such things are possible. I went to Wikipedia seeking information and under something like "leasehold" learned that the leaseholds can be bought and sold just as if they were "real" property -- which they are. This means, I think, that the owner can buy back the property at any time as long as the owner is willing to sell. Even after reading this I still do not know why 75 years (or 95 years or 99 years) is chosen. To me, your most interesting question is why are the leases for the Skyway and the Indiana Tollroad leases so long. From a friend in London who bought a condominium on a 99 year leasehold from the Duke of Westminster, I know that such things are possible. I went to Wikipedia seeking information and under something like “leasehold” learned that the leaseholds can be bought and sold just as if they were “real” property — which they are. This means, I think, that the owner can buy back the property at any time as long as the owner is willing to sell. Even after reading this I still do not know why 75 years (or 95 years or 99 years) is chosen.

]]> By: Alon Levy http://www.urbanophile.com/2009/11/15/principles-of-privatization-part-4-guidelines-for-action/comment-page-1/#comment-5825 Alon Levy Tue, 17 Nov 2009 03:05:49 +0000 http://www.urbanophile.com/?p=1060#comment-5825 There's another issue you need to consider: political incentives. One of the problems of prison privatization is that it creates a large industry whose financial interest is in locking up more people. The prison industry uses its power to lobby for harsher sentences even for trivial offenses such as possession of marijuana, which conflicts with the public interest in rehabilitation and low incarceration rates. I think another case where this is prominent is road privatization. I don't think it's a coincidence that the biggest cheerleader for private toll roads - Wendell Cox, Robert Poole, Randall O'Toole - all denigrate mass transit. Road privatization relieves the government of the need to maintain roads, but on the other hand the pollution externalities are still there, only now there is a large lobby for having taxpayers rather than drivers pick up the tab. Again, the public interest in efficient mass transit conflicts with the private interest in maintaining toll revenues. There’s another issue you need to consider: political incentives. One of the problems of prison privatization is that it creates a large industry whose financial interest is in locking up more people. The prison industry uses its power to lobby for harsher sentences even for trivial offenses such as possession of marijuana, which conflicts with the public interest in rehabilitation and low incarceration rates.

I think another case where this is prominent is road privatization. I don’t think it’s a coincidence that the biggest cheerleader for private toll roads – Wendell Cox, Robert Poole, Randall O’Toole – all denigrate mass transit. Road privatization relieves the government of the need to maintain roads, but on the other hand the pollution externalities are still there, only now there is a large lobby for having taxpayers rather than drivers pick up the tab. Again, the public interest in efficient mass transit conflicts with the private interest in maintaining toll revenues.

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