Privatization fetishists resist reform, costing cities millions Proposed reform could add transparency and public input to such deals, but some like Rahm Emanuel aren’t interested

Local governments around the country are facing budgets deep in the red. And for some, the solution is to privatize city assets and services. But few large cities have pursued this agenda as aggressively as Chicago, where everything from tollways and parking meters, mental health care and public education, and even infrastructure funding itself has been turned over from public ownership into the hands of private corporations.

Now a proposed law in Chicago, backed by a coalition of community groups and unions, could slow the selling off of everything city-owned not already nailed to the floor. The Privatization Transparency and Accountability Ordinance (PTAO) is designed to help prevent abuses of privatization, and avoid the kinds of deals negotiated in the past that were intended to help close budget deficits but turned out to be massive boons for corporations and Wall Street while losing long-term revenue for the city.

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The bill could serve as an example for cities around the country, and put a check on free market-minded politicians like Mayor Rahm Emanuel attempting to sell off as many public goods as possible. But despite support of a strong majority of the city council, the bill has sat in a forlorn committee where it has not moved since it was first proposed nearly a year ago. Emanuel seems to want the bill to stay buried, away from public debate, so the city’s privatization deals can remain largely unscrutinized.

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Introduced in November, 2012, and backed by a coalition of unions and community and good government organizations, the PTAO would require the city of Chicago to engage in a multistep process involving the public before it privatized any asset or service.

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The city would be required to conduct an independent cost-benefit analysis study; demonstrate at least 10 percent cost savings and prove that the economic benefits of privatizing an asset or service would outweigh the benefits of keeping it public; hold at least one public hearing on the deal; deliver an annual report for each privatized deal on costs and the state of services; require at least 50 percent of subcontracted workers reside within Chicago; and attempt to work with workers’ unions rather than steamrolling them.

The bill has been praised nationally by government watchdog groups. Donald Cohen, executive director of the Washington, D.C., privatization resource center In the Public Interest, says, “Chicago plays a key role in setting national standards for cities,” and the bill’s provisions could be instituted elsewhere.”

Henry Bayer, executive director of AFSCME Council 31, one of Chicago’s major public employees unions and a key backer of the bill, says the measures are “common sense.”

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“There’s no good argument that we shouldn’t have transparency,” Bayer says. “The city over the years has done a lot of privatization, and they’ve never been required to demonstrate that they were actually saving any money, nor that the service levels were being maintained or improved. They just do it based on this false notion that if the private sector is doing it, it’s automatically more efficient than the public sector.”

Bayer’s union has been hit hard by the city’s privatization deals, begun by Mayor Richard M. Daley and massively accelerated by Emanuel. In her critical book on Emanuel, "Mayor 1%," a meticulous dossier of the mayor’s privatization deals and other achievements at the head of the rightmost flank of the Democratic Party, Chicago journalist Kari Lydersen notes that even in his election speech in 2011, “without saying the words ‘union’ or ‘labor,’ [Emanuel] alluded to the looming battles” with public sector unions around privatization and budget cuts that began almost immediately.

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One of the first was over the outsourcing of 34 union jobs at the city’s water department. The deal saved the city a paltry $100,000 (out of a $8.3 billion budget). And the work was outsourced to a company based in Tokyo, meaning the economic benefits would be reaped by a corporation in Japan rather than working class Chicagoans.

City council member Roderick Sawyer says the move “woke us up, to what could go on if we just let these deals go on unchecked.” His district, a middle and working class African American neighborhood on the city’s South Side, was hit hard by the layoffs.

“We hardly knew about it because it happened so fast,” Sawyer says. “A lot of them were members of my community. I found out their jobs were going out of the country, and they were going to get paid a lot less.”

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Around the country, neighborhoods like Sawyer’s have been hit hardest by privatization. Historically locked out of high-paying private sector jobs, public sector jobs form the backbone of America’s black middle class; the wave of privatizations and downsizings in the public sector since the 2008 recession has sharply eroded those long-tenuous gains.

Sitting in the city council chambers after the water department announcement, Sawyer remembers thinking, “‘Why are we letting these privatization deals go through and we don’t have any oversight whatsoever?’” Citing potential ripple effects like foreclosures, Sawyer says, “We think we’re saving a couple dollars here or there, but getting rid of these jobs decimates our communities.”

In consultation with AFSCME, other city unions, and good government and community groups, Sawyer introduced the PTAO in November 2012. Thirty of the council’s 50 aldermen cosponsored the bill.

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But before it could even be debated, a procedural move by an ally of Emanuel shifted the bill to the Rules Committee, where, in the words of columnist Ben Joravsky, “good legislation goes to die”--especially when a mayor wants it to stay dead.

The bill has remained there since November. Absent a committee chairperson and a majority of council members willing to vote to move the bill from committee and buck the mayor, who has issued no public statements on the bill and likely wants to continue passing privatization deals with no oversight, the bill will remain undebated--and privatization deals will continue unchecked.

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Privatization of government functions and publicly-owned goods has become central to governance for both political parties. The underlying idea is the private market can manage goods and services cheaper, more effectively, and better than the government ever could--an idea politicians have run with. One wealthy conservative Atlanta suburb decided to privatize everything it does upon incorporation in 2005, leaving only seven employees for a town of 94,000; in 2010, Maywood, Calif. fired all city employees and outsourced everything. Democratic politicians like Mayor Cory Booker in Newark, N.J., and former Los Angeles Mayor Antonio Villaraigosa have privatized services like park restoration and zoos -- moves praised by the Wall Street Journal’s opinion page.

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“It’s an ideological wave,” says Evan McKenzie, lawyer and professor of political science at the University of Illinois-Chicago and author of two books on privatization. “[Politicians] try to argue that privatization is about sheer dollars and sense, that it’s cost benefit analysis. That’s hogwash.”

Countless privatization schemes have turned out to be disasters. In 1999, the city of Atlanta entered into what was then the largest privatization deal in the country, selling off the city’s water systems. The city broke their contract four years in after poor service and city residents’ water repeatedly turned brown--and the savings were far lower than projected. The state of Wisconsin privatized much of its department of transportation, only to discover through a 2009 internal audit that $1 million was wasted on the project, and 60 percent of the subcontracted jobs could have been done at a cheaper cost by state workers. In 2006, Indiana privatized its public benefits system, contracting IBM to process services like food stamps; three years later, after admitting the move was a failure and that service suffered tremendously, Gov. Mitch Daniels canceled the contract, costing the state $52 million immediately and $12 million later in payments to IBM.

“The losses are sometimes mind-boggling,” McKenzie says. “Once these deals are made, judges enforce them deals--and government stands to lose.”

And privatization inevitably leads to lower wages for workers, as the decent-paying and good benefits public sector jobs are replaced by contractors whose cost-effectiveness is based on cutting workers’ wages.

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“Most of the people who say we need middle class jobs then turn around and spend most of their time figuring out ways to drive people out of the middle class,” says Bayer.

Few major American cities have led as aggressive a campaign of privatization as Chicago -- and few have proven to be as spectacular a disaster. The city’s $1.4 billion parking meter privatization deal, negotiated under the city’s previous mayor, Richard M. Daley, and overwhelmingly approved by the city council in 2008, is known throughout the country as a botched privatization deal par excellance, shafting taxpayers, average citizens, and the city’s very ability to govern itself.

A group of investors led by Morgan Stanley won the bid, gaining near-total control of the city’s parking meters for 75 years at a fire sale price--according to one city council member’s projection, the deal was worth something more like $4 billion. Immediately, parking prices doubled or even tripled, with some zones become the most expensive in the nation; not long after, contract provisions emerged that actually required the city to pay the company for lost revenue during street festivals or parades, and bills for tens of millions of dollars were delivered to the city from the parking company. The money from the investors’ payment to the city, meanwhile, has almost entirely been spent.

So a Wall Street firm snatched a major city service for a steal, public coffers were drained of perhaps billions over the next three-quarters of a century, the city actually began receiving bills from a deal that was supposed to plug a budget gap, and average Chicagoans’ parking rates skyrocketed.

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The parking meter deal is universally loathed in Chicago -- even by Emanuel, though his publicly-expressed distaste has not squared with his actions as mayor -- but it is far from the only such deal in the city. Chicago has become a national leader in selling off public goods. Richard M. Daley also privatized the city’s Skyway toll road (the first time any existing toll road in the U.S. had been sold off to private interests), the city’s parking garages (also to companies owned in large part by Morgan Stanley), and over a dozen other city services and assets.

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The shoddy, damaging deals that enriched corporations while hurting Chicago and other cities and states might have been avoided with the institution of rules similar to the PTAO. For his part, Emanuel recently rejected a bid to privatize one of Chicago’s two airports, Midway International, after he said the received bids were not a good enough deal for taxpayers. (The political fallout of the parking meter likely weighed heavily on his mind.)

McKenzie says the move was the right one, but not enough. A thorough, transparent bidding process needs to be institutionalized.

“It can’t just be a matter of, ‘trust me, I’m an honest mayor,’” McKenzie says. “I hope that’s true, but it’s not enough. There have to be extensive safeguards put in place.”

Those safeguards are still sitting tight in the city council’s rules committee, leaving a piece of legislation of national importance stuck in limbo. Two requests for comment from the rules committee chair, Ald. Michelle Harris, went unanswered. But Ald. Sawyer says he is “fairly confident” the bill will move soon. He recently co-authored an op-ed with two other aldermen arguing the PTAO “deserves a full hearing.”

Without it, the only thing in Chicago standing between layoffs, wage cuts, worsening service, and the auctioning off of most of the city seems to be Rahm Emanuel’s benevolence.

“Cities across the nation are looking closely to see what kind of protections are put in place” around the selling off of public goods, Cohen says. With the PTAO, “Chicago would become a leader of taxpayer protection rather than a worst case scenario to avoid.”