Friday, February 1st, 2013
The Wall Street Journal reported last week that New York has scrapped its plans to privatize parking meters.
It’s no secret that I’ve generally been a critic of long term privatization deals for on-street parking. The reason is simple. Parking meters are not a capital asset like a toll bridge, nor are they a traditional city service like garbage collection. Rather, parking meters are an urban planning tool we use to manage access to precious on-street real estate. As the way we will want to manage this real estate over time will change, it’s a bad fit for a long term privatization deal. In fact, parking meter privatizations are effectively a lose-lose-lose proposition that involve high interest off balance sheet borrowing, selling off a ground lease on the streets of our cities (i.e., the most important component of our public space), and ceding some degree of de facto urban planning control over our streets to a private entity.
Privatization – and in this case I am referring to items like long term asset leases, not shorter term operating contracts – can actually be a great thing. For example, Governing magazine just ran a piece on the effectiveness of public-private partnerships in British Columbia and elsewhere. They highlight having a professional staff that is able to properly evaluate deal structures.
But another thing is to make sure we understand what it is we should potentially privatize. I won’t claim to have the entire answer, but it’s something that every city and state should be thinking through. What attributes make something a good candidate for privatization versus a bad one?
I will share a few considerations.
1. Standalone nature of an asset. The more standalone an asset is, the better a candidate for privatization. For example, a freeway may have had a huge neighborhood impact when constructed, but after it is in place, additional impacts from tolls, repairs, etc. are more limited (though not non-existent). Contrast this with on-street parking, which impacts everything that happens on that street intimately.
2. Bespoke nature of the asset. If an asset lends itself to only one type of use, then it’s a better candidate for privatization. A highway, hospital, or airport are difficult types of items to reuse for other purposes, whereas something like on-street parking is simply general real estate that could easily be repurposed to other items. The more like general purpose real estate or buildings something is, the worse of a candidate for privatization it is.
3. Public visibility of the asset. I saw someone quoted one time who suggested that sewers were a good thing to privatize but not water, because people care about what comes out of their tap but not what goes down their toilet. This is exactly backwards. We want to privatize particularly where there is huge public visibility and demand for proper performance. This is ultimately the only way to have accountability on the contract. Where a service is delivered off the radar, it is a horrible candidate for privatization. That is why I am resolutely opposed to any type of private prison, for example.
4. Likelihood of disruptive change. How likely is the basic need likely to change over time? Think about change in the 20th century. Could we have privatized a road or airport 75 or 99 years ago and had the contract still be relevant today? No. Standards and needs have changed radically. I would assume we’ll see similar radical changes in many things over the course of this century. So we need to have our eyes wide open about what changes in needs means, particularly as it in effect creates a built-in option for the vendor to renegotiate and extract even more money when the public needs change. For example, we are on the cusp of a revolution in parking policy where we will increasingly see shifts to more dynamic pricing versus fixed rate, X quarters per hour type pricing.
These are just some initial thoughts. Feel free to add your own.