The great sell-off: Chicago auctions city assets

The city is auctioning private assets to the highest bidder. But private ownership of parking meters stirs a backlash.

By , Correspondent

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    Outsourced: In the face of a staggering deficit, Chicago's government has sold or leased a number of public institutions, including the Chicago Skyway.
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No city in America beats Chicago when it comes to selling public assets - garages, bridges, even parking meters - and contracting with private companies to supply traditional public services.Over the past five years, the Windy City under Mayor Richard M. Daley has sold or leased out public institutions such as the Chicago Skyway ($1.83 billion), underground garages beneath Grant and Millennium Parks ($563 million), and, more recently, city parking meters ($1.15 billion).

That's not exactly chump change, especially for a city still grappling with a $469 million budget shortfall from last year, not to mention an estimated $300 million deficit this year.

But the privatization onslaught is under fire - and the barrage is intensifying amid complaints about a parking-meter deal between the city and Chicago Parking Meters LLC, a Morgan Stanley company.

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Earlier this month, the Chicago Inspector General's Office called the parking meter sale "a dubious financial deal." In late May, 250 new pay-and-display boxes malfunctioned in the Loop. Residents are now waging informal protests against the sale, saying that since Chicago relinquished the meters three months ago too many meters are broken, inaccurate rates are being posted, and fines have been unfairly leveraged.

"It's fraud; it's extortion," says Sam Wolfson, owner of String-A-Strand, a crafts-supply store in the Lincoln Square neighborhood, where meter rates have jumped from one quarter to four quarters for one hour. Signs in his shop window register his protest, and "100 percent" of neighbors who have read them agree, he says.

Debate over privatization of public services is as old as the trend itself. The practice caught on in US cities during the early 1980s. Supporters argue that private firms are more efficient than government and can deliver better service and value to residents. Revenue from privatization contracts also boosts city coffers, they argue, preventing the need for tax hikes or service cuts. Critics counter that selling off public assets represents short-term thinking, is prone to cronyism and graft, and introduces a profit motive that leads firms to cut corners and underpay workers.

"Most public policymakers don't think long-term because there's a rule in the long term: We all die," says Ralph Marteri of the Center for Tax and Budget Accountability, a Chicago-based bipartisan think tank. "They are willing to lose future benefits because it doesn't hurt them [in the present]. It's a real problem."

Chicago's privatization trend has had its stumbling blocks: A $2.52 billion sale of Midway Airport fell through in April when the buyers couldn't get financing. The Daley administration, however, says the ongoing meter flap won't deter it from courting private buyers for certain city assets, or from contracting out for management of services including parking at O'Hare Airport, vehicle towing, janitorial maintenance, and street resurfacing.

In the case of the parking meters, "we should have had a longer transition period from public to private," concedes Peter Scales, spokesman for the city's budget office. Still, he adds, "we're always looking for other ways to generate additional funds, but not done in a way that's for emergency reasons. These are long-term visions of leasing an asset that will help and protect taxpayers well into the future." The alternatives, Mr. Scales says, are to cut workers or, as a last resort, to raise taxes. Of Chicago's $3.1 billion budget this year, 80 percent goes to cover salaries of city employees.

City officials, though, are feeling the heat over the parking-meter deal.

Mr. Wolfson, the shop owner, complains that the sale was pushed through with zero public input. "City Council members couldn't care less for the people of Chicago," he says.

The Chicago City Council approved the sale in two days without seeing a copy of the full contract. Five of the 50 aldermen voted against the sale.

The inspector general's report said Chicago may have undervalued its meters - to the tune of $974 million. It called for a law that mandates a "far more transparent, public and deliberate process" and for "a far more robust role for the City Council" in future privatization deals.

Alderman Leslie Hairston, who opposed the meter sale, says council members are stymied by limited resources, staff, and time.

"We only have ourselves and our staff of three, ... which is why [we] rely on the mayoral support staff," says Ms. Hairston, who says she has yet to see the full contract despite repeated requests.

Hairston says she is asking the state attorney general to examine potential "deceptive business practices" concerning broken meters and subsequent parking-violation fees. She asks: "If you buy a dozen eggs, you check to see that none are cracked, so why don't you do the same when you [buy] thousands of parking meters?"

The Attorney General's Office issued subpoenas May 19 "to determine whether there has been consumer fraud," says spokeswoman Robyn Ziegler. The attorney general is "not investigating the City of Chicago," she stresses. "We're looking for information on the ... implementation of the contract as it relates to the potential of consumer fraud."

To privatization critics, the problems are par for the course. The top motive for firms seeking municipal assets "is to make a profit," says Mr. Marteri. "For them, for example, higher tolls are a good thing, lower labor costs are a good thing, more congestion is a good thing. They don't want alternative transportation - it diverts traffic from moneymaking tolls. Everything that benefits a private-sector interest hurts the public-sector interest."

Shoring up city funds through privatization can work as long as it is transparent, says Scott Bernstein of the Center for Neighborhood Technology, a Chicago-based think tank on urban policy. It also requires residents to grasp that the likely alternative to these lucrative contracts is higher taxes. "In some sense, it should work," he says. "You just have to have a very different culture to support it."

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