Who Really Runs Your City?

Privatization of Municipal Services Often Means Selling Off Democracy

ver the past decade, the city of Chicago has sold off more of its public infrastructure and services than any other city in the U.S. It is the poster child for privatization—for privatization gone wrong.

In 2006, the city leased four major parking garages to a Morgan Stanley-led firm for $563 million. In 2009, Morgan Stanley sued the city for threatening its profits by allowing a nearby building to open a public garage. Chicago had to pay $62 million to settle.

In 2008, Mayor Daley sold off 36,000 city parking meters to another Morgan Stanley-backed company, with little public input. It was later revealed that the deal was undervalued by $1 billion. Meter rates skyrocketed from $3 an hour to $6.50 an hour. And the firm charged the city millions for violating the contract by putting certain meters out of use for street repairs, parades, and festivals, and for giving free parking permits to people with disabilities.

Chicago has sold off a slew of other public functions in recent years, from school janitorial services to recycling collection to transit fare cards to its Skyway toll road, and has also farmed out government health and mental health clinics. City officials say they need the upfront cash to fill budget holes.

Andre Delattre, the executive director of the consumer group U.S. PIRG and a Chicagoan since 2004, says that the wave of privatization deals that have overtaken the city in the past decade have “reinforced the sense amongst citizens that the city is captured by special interests looking to benefit from these deals—that that is what is driving these deals, not any intent to act in the interest of the city or residents.” (Chicago machine politics, revelations of police killing cover-ups, and a “rubber stamp City Council” don’t do much to mitigate this sentiment.)

Chicagoans aren’t alone. The decades-long national trend of local governments passing off the duty to provide citizens with services and infrastructure “reinforces the disaffection so many people have with government at all levels,” Delattre says. “That’s the major dynamic we’re seeing in the election this year.”

We know by now that many of the grand promises that pro-privatization advocates have made over the past few decades—the piles of cash for broke cities, the efficiencies the private sector would to bring to public service delivery—haven’t panned out. After a roughly 30-year experiment in selling off traditionally public municipal functions—from garbage collection to toll-road operation to nursing home care—many cities around the country have been left with shoddier services, lower general fund balances, and poorer citizens.

But to this day, there is little discussion of the ways in which municipal privatization also erodes democracy itself. Privatization contracts are usually backroom agreements approved with little public say in the matter. They contain so-called “non-compete” and compensation clauses that prevent cities from implementing policies that impinge on firms’ profits, even if the policies are necessary to protect the public interest. And contract lengths are typically extraordinarily long—Chicago’s parking garage deal will last 99 years—preventing generations of voters from having a say in policy around that service.

As the Chicago case shows, as privatization undermines the very purpose and nature of a city, it also undermines the people’s connection to the city, and their desire to invest in and contribute to it.

Private “Public” Services

“Privatization trumps our democracy,” says Ellen Dannin, an expert on privatization and former National Labor Relations Board attorney.

The trend toward outsourcing toll road operation illustrates this well. As road privatization has become more and more common in recent years, cities and states nationwide have found their agendas bound by contracts penalizing them for building mass transit and alternative road systems, allowing carpooling, and even responding to emergencies.

Between 1994 and 2006, 43 highways became so-called public-private partnerships, according to a 2009 report by the Frontier Group. Many toll road contracts include provisions discouraging governments from improving or expanding nearby public routes in order to funnel traffic—money—to the privatized road.

Virginia’s 2006 contract with two private firms to build toll lanes on the Capital Beltway requires the state to compensate the companies whenever carpools exceed 24 percent of traffic in carpool lanes for the next forty years—“or until the builders make $100 million in profits.”

In 2008, the private consortium that owns the Northwest Parkway in Denver, Colorado, opposed improvements to a nearby public road, pointing to contract language that barred improvements—for 99 years—on city-owned roads that might divert traffic and “hurt the parkway financially.”

The state of Indiana had to reimburse the private company operating the Indiana Toll Road $447,000 in 2008 because the state waived the tolls of people who had to evacuate during severe flooding. The company also refused to allow state troopers to close the toll road during a snowstorm because it would hurt profits.

"After a roughly 30-year experiment in selling off traditionally public municipal functions—from garbage collection to toll-road operation to nursing home care—many cities around the country have been left with shoddier services, lower general fund balances, and poorer citizens."

“The terms [of contracts like this] may even create financial disincentives to government’s taking life-saving action,” Dannin warned in a 2011 paper. “[A] state or local government that is so short of money that it must ‘sell’ valuable public infrastructure has more to consider in a disaster than just saving lives. If it needs to ask how much protection it can afford, it may…be tempted to decide against taking actions that will require reimbursing the contractor.”

These types of deals “tie the hands of...government by saying, ‘you’re going to have to pay if your transportation system changes,’” says Tony Dutzik, a senior policy analyst with the Frontier Group, an environmental policy think tank in Washington, D.C.. Metropolitan areas have doubled their population size over the past few decades. Drastic changes in technology are bound to take place within a couple decades, let alone 75 or 99 years. “We could be in drones in 75 years!” Dutzik laughs.

“For environmental reasons, it’s infuriating” as well, says Ben Davis, an analyst at In The Public Interest (ITPI), an anti-privatization research and policy organization, because these contract clauses prevent states and municipalities from adapting transportation policy to address climate change.

Some 700 jurisdictions across the country have elected to privatize transportation policy on the traffic enforcement side as well, in the form of red light cameras. These are the cameras mounted at intersections that take a photo of your license plate when you run a red light. The company will then issue the ticket, usually after approval by local authorities.

Some of these firms require cities to approve a fixed percentage of all tickets in order to guarantee the company a certain level of income, thereby eliminating local judicial discretion. Some companies impose financial penalties on municipalities that make safety improvements at intersections if those improvements could affect the volume of tickets a company can issue. Contracts in the California towns of Corona, Bell Gardens, Citrus Heights, and Hawthorne on the city if it extends the length of the yellow light at intersections, which would cut down on the number of tickets the firm can give out.

“These deals sometimes prevent local governments from acting in the best interests of their citizens,” the authors of a 2011 US PIRG report noted, “especially when the terms of the deal prioritize delivering profits for the…private firm” over safety.

One of the sectors where privatization is most destructive is waste incineration. About 12 percent of all trash in the U.S. is burned in incinerators—called the most polluting possible way to dispose of trash by some environmental groups—and most of those facilities are operated by private companies. Typically, firms force so-called "put-or-pay" clauses on cities, which require the municipality to deliver a certain amount of trash to the company or compensate the company for lost profits.

Detroit’s private incinerator contract—which terminated in 2014—essentially banned curbside recycling. Once waste and recyclables were set out at the curb, they belonged to the Detroit Department of Public Works, which was required to deliver all of it to the incinerator.

“For close to 30 years, the city of Detroit was the only major city that didn’t have a curbside recycling program,” says Ahmina Maxey, the U.S. and Canada campaigns and membership coordinator at Global Anti-Incinerator Alliance (GAIA), who fought incineration in Detroit for many years.

The city of Indianapolis was fined half a million dollars annually for years because it couldn’t deliver the 60,000 tons of trash per quarter stipulated in the city’s put-or-pay contract with the local incinerator. That contract ended in 2014.

“Cities may have a desire to really push and lead on recycling, but financially and economically…they don’t have that option,” Maxey says, if they’re bound by a private contract.

"These contract clauses make it harder for us to redesign our communities to address climate change and avoid a carbon-based, unsustainable future," says Donald Cohen, the executive director of ITPI and a former AFL-CIO official.

“Shouldn’t there be a referendum?”

Compensation clauses and non-compete clauses are found in a wide variety of infrastructure privatization contracts.

“They operate as a form of penalty for governments taking actions in the public interest,” Dannin wrote in the 2011 report.

The Chicago meter contact, for example, discourages the city from opening bike routes or bus lanes or adding mass transit systems that could help address congestion and climate change because this would involve taking meters out of commission and interfering with Morgan Stanley’s profits.