Is privatization inherently bad or just botched?
I've repeatedly thrown barbs at Chicago's parking privatization plan and LA's proposed garage privatization, but haven't fully explained why these are bad plans. Their flaws aren't necessarily inherent drawbacks of privatization, but rather consequences of the way local governments use them for short-term, and short-sighted, gain by spending all the money up front and limiting options in the future.
Putting parking pricing into the hands of a private entity has a lot of advantages. Parking is a limited and exclusionary resource. Typically, private entities do a better job of matching supply with demand in such cases.
If the good is being underconsumed, a private company is quicker to market it through advertising and other means. If it's overconsumed, they're more able to raise prices than governments, which face political obstacles. Parking management companies do more to price by time of day, vary prices from garage to garage, and otherwise match market demand, at least most of the time.
In theory, therefore, letting a private company set prices and manage parking meters for Chicago should be a smart move. Chicago could get more revenue, and the company could manage the parking systems more efficiently. The same goes for LA's proposed garage privatization, where the winning bidder would manage ten of the city's garages and share the revenue with the city.
But there are two big problems with these deals: the contracts lock the city into existing decisions about parking, and the cities go and spend all the money, further constraining their future choices.
As Stephen Smith argues in Market Urbanism, the LA deal lets the partner manage the garages, but only for the purpose of parking cars. There's considerable additional value in the properties if they're used as housing or offices, perhaps with underground or internal parking, but the contract prohibits it.
LA's contract would last for 50 years. Should the city decide 25 years from now that it would rather use the space for something better, they're stuck. They might be able to renegotiate the contract or include options for termination (details aren't available, or are not yet decided), except for the second big flaw in this privatization plan: they'll spend almost all the money up front.
This isn't a deal where the private operator runs the garages at a greater profit and shares the proceeds with the city. Instead, this deal has the operator paying about $189 million in one lump sum payment, along with small revenue shares in future years. If the city decides it's ready for something other than parking, they'll presumably have to repay the initial payment. Maybe the land would fetch so much money that it could cover the debt, but what if they want to build a school, or affordable housing?
Chicago's 75-year parking meter deal also promised the vendor revenue from all existing parking spaces. If they decide to conduct some construction or hold a street fair, they have to reimburse the vendor, with even greater penalties if they want to remove parking spaces to create a bicycle facility, bike racks, wider sidewalks, bulb-outs, sidewalk cafe space, or anything else.
Chicago's deal also provided a single lump sum, and as you might expect, the city couldn't resist spending it. 2/3 is already gone after the first year. That saddles all future leaders with the debt from the past constraining their choices about their own public space. They can't make choices freely, because officials long dead chose to solve the past's budget problems with the future's money.
Elected leaders seem to find more and more ways to borrow from their children and grandchildren. We finance construction and transportation projects with bonds, transfer preventative maintenance dollars to operating expenses, sell off public facilities and lease them back, and more. Financing actual infrastructure and economic development can make sense because it facilitates greater economic growth in the future to make back the investment. But using future parking meter or garage revenue for today's budget hole doesn't grow the pie one bit. Instead, it just adds new obstacles to making the pie sweeter in the future.
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