Privatization and tax hikes
Friday, Oct 23, 2009 - Posted by Rich Miller
* Fran Spielman looks at five city services that could be privatized, including…
WATER SYSTEM: This sounds intriguing, but it’s fraught with political danger. It’s one thing to privatize the Skyway and street parking, which play to more limited audiences. But everybody uses Lake Michigan water purified and pumped through Department of Water Management facilities. Does Daley really want to put that service in the hands of a private company that might cut corners to improve its bottom line? One City Hall observer called it “a gamble I wouldn’t take.” Another complication is the condition of the city’s water mains. Like the Midway deal, a private contractor likely would be required to offer jobs to city workers. Would they pay top dollar, only to inherit employees implicated in the Hired Truck and city hiring scandals?
SEWER SYSTEM: This would probably make more sense from a political standpoint. “To put it crudely, people are less sensitive to the quality of what’s going out than they are about the quality of what’s coming in,” Schmidt said. Chicagoans pay a sewer surcharge that amounts to 86 percent of a customer’s water bill. If sewer service alone is privatized, those fees tacked on to water bills would have to be separated.
I’m generally not a fan of selling off assets. Privatizing the management of the Lottery is somewhat different because we’re using the private sector’s expertise to make more money off the asset. And I’m somewhat OK with selling off an asset if the proceeds are used to pay down long-term debt, like the pension fund. But to just sell it off and then spend the cash - as Daley has been doing - is just not right.
* Most people hate the penny increase in the Cook County sales tax, but the county isn’t considering these sorts of schemes. It would be if they didn’t have that money. Believe it…
The sales tax paid in Cook County _ now at 10.25 percent in the city _ remains the biggest blockade to development and yet the [new Cook County] budget gives no consideration to reducing it, said Laurence Msall, president of the Civic Federation, a nonpartisan government watchdog agency.
“This appears to be a status-quo budget that benefits from the sales tax,” he said, despite a push by state lawmakers and county residents to reduce the tax.
What few news outlets ever report is that the county’s portion of that sales tax is quite small.
And this column doesn’t mention a very important fact until well into the piece…
No one seems to care much about the poor of the Southland. Cook County has announced plans to shut down inpatient care at Oak Forest Hospital, which it owns and operates.
That means sick people in the Southland without health insurance will have to travel to Stroger Hospital in Chicago or, more likely, end up in the already overcrowded emergency rooms at privately owned hospitals in the area.
The “county” isn’t shutting down the inpatient care. The much-praised and ballyhooed independent board overseeing the hospital system is doing the deed.
The Tribune offers further praise today…
More than a year ago, though, a new panel of health professionals took control of the system. Lo and behold, the pros are doing what the pols never would: They’re cutting the featherbedded payroll — and they’re asking taxpayers for less money.
* Related…
* Cut tax, lose benefits: Stroger
* County budget proposal would cut jobs, keep taxes steady
* Stroger proposes no new taxes or fees in Cook County budget
* The Shadow Budget: The Daley administration commands an off-the-books kitty of taxpayer money equivalent to a sixth of the official city budget.
- CircularFiringSquad - Friday, Oct 23, 09 @ 10:56 am:
For those who want to sell Chicago water two thoughts:
1. They should have extracted a real price out of DuPage years ago
2. Googgle “American Water” to see how well private ownership — or call Bolingbrook
- George - Friday, Oct 23, 09 @ 10:58 am:
I think a general rule of government is - don’t privatize the things that you can’t risk failing.
Private industry is centered around a culture of risk - everything is evaluated based on its risk of success & profit vs. absolute failure. By increasing profit (or cost savings in this discussion), you are often increasing risk of absolute failure.
While that is fine in our global market (because someone will come along to fill any resilient demands), it isn’t fine when you are talking about a government service that can’t fail.
The Skyway and parking meters are not essential government services.
Water and sewage - I would say they are, especially how we have it set up in Chicago.
Other essentials include education, public safety & criminal justice.
I would even throw snow removal in that pile of non-privatizable services in Chicago - more because of the political risks of absolute failure, it would not be recommended.
- Reality Check - Friday, Oct 23, 09 @ 11:00 am:
If you live in Chicago and like what Mayor Daley did for your parking meters, wait’ll it comes to your kitchen sink.
Just think, with every glass of water, every load of laundry, every shower and every flush, you’ll be lining the pockets of some corporate executive!
And … for your convenience … credit card readers installed on every tap!
- True Observer - Friday, Oct 23, 09 @ 11:04 am:
“And I’m somewhat OK with selling off an asset if the proceeds are used to pay down long-term debt, like the pension fund.”
Long term debt is like a mortgage you pay off over time. If you have a secured line of credit against the house and keep borrowing against it, it’s not the same thing because it will never be paid off.
Pension debt is also being added on to on a continuing basis.
Paying on it may help but it doesn’t solve the problem.
- dave - Friday, Oct 23, 09 @ 11:06 am:
The Trib missed something on the cuts to the County Health System. Let me add it:
“They’re cutting the featherbedded payroll — and they’re asking taxpayers for less money. And offering less services, even though thousands of Cook County residents depend on them.”
There - that is a little better.
- John Bambenek - Friday, Oct 23, 09 @ 11:09 am:
There’s a difference between parking and water services… Parking is a pure revenue source. The only cost associated with it is enforcement costs because you are taking something you already have (roads) and making people pay for the privilege of using them.
Water you are purchasing an actual service which, theoretically, is supposed to be provided without markup. I have Illinois American Water, I’m not all that broken up about it. Now, I do believe water should be regulated as should sewer (because you can’t have competition in those industries in a sane way), but say, garbage service? Sure, you can have competition and that works.
- wordslinger - Friday, Oct 23, 09 @ 11:19 am:
No way on the water and sewer systems. They’re inextricably entwined and are engineering marvels. Don’t put them in the hands of some cheap hustler MBA looking for a quarterly dividend.
Before the reversal of the river (sorry about that LaSalle-Peru, Peoria), Chicago experienced chronic cholera outbreaks due to filthy water. We’re built on a swamp, remember?
Believe it or, business and government got together to float the bonds to ensure a clean water supply that set the stage for the city’s success.
These weren’t kumbaya-singing goo-goos; we’re talking the Grey Wolves and the Robber Barons. Even they recognized a role for government and that you can’t do everything on the cheap.
- Greg B. - Friday, Oct 23, 09 @ 11:24 am:
If you are selling off an asset such as a park or golf course the revenue garnered is usually used to pay short term debt or pay for government operations during some an economic downturn.
A long term management contract where revenue comes every year for running a service — the sky way — can help with longer term payments. The key is matching revenue with obligations. Blagojevich wanted to privatize short term to pay for long-term bills… Not a good match.
As far as “cutting corners” goes, much of that could be called efficiencies. Built into a contract for water delivery would be contract deliverables and other safeguards and standards. Don’t meet them you don’t get the money or you get fined. If a company show they can deliver the same commodity at the same price with lower overhead, then that’s where they can profit. If they can charge market rates and profit and obviate the need for taxpayer subsidies — here again everyone is a winner.
- TaxThePoor - Friday, Oct 23, 09 @ 11:28 am:
Right, because government is always completely responsible when running things like water companies. Just ask the citizens of Crestwood, Illinois about government monopoly water companies run by Chicago-style Democrats. And weren’t there government employees dealing heroin out of the Chicago water department at one point? Let a private company run the water system and let a citizen panel oversee the local water company because the Illinois EPA can’t even catch Chicago Democrats in Crestwood poisoning their children.
We need to take our vital water resource out of the hands of government employee heroin dealers and Chicago Democrat children poisoners. Let citizens, not government patronage hacks, protect our water before its too late and we all end up with Crestwood government water.
- Rich Miller - Friday, Oct 23, 09 @ 11:34 am:
===Just ask the citizens of Crestwood, Illinois about government monopoly water companies run by Chicago-style Democrats.===
Just two contributions listed by Mayor Robert Stranczek…
Stranczek, Robert & Laurie
14210 S. Kenton
Crestwood, IL 60445 $200.00
3/12/2002 Individual Contribution
Citizens for Patrick O’Malley
Stranczek, Robert & Laurie
14210 S. Kenton
Crestwood, IL 60445 $200.00
12/6/2001 Individual Contribution
Citizens for Patrick O’Malley
- Brennan - Friday, Oct 23, 09 @ 11:35 am:
Question: Why is energy and natural gas operated by private corporations that receive public subsidy to cover as much of the map as possible?
But water is an essential public service.
On pensions, the solution is simple. Reform the labor contracts. The system is a ponzi scheme that only stays afloat when you have steady growth in population that yields growth across all the major economic indicators. Once it slows the system starts to fall apart.
Fear not lawyers. You can go compete for real jobs when the public sector runs out of other people’s money.
- John Bambenek - Friday, Oct 23, 09 @ 11:37 am:
Rich-
It costs more than $400 to rent a politician
Blago ran $25,000 for instance.
- TaxThePoor - Friday, Oct 23, 09 @ 11:58 am:
Chester was charge a LOT longer than his son.
Chester Stranczek (Village of Crestwood/Mayor), (Zip code: 60445) $250 to LIPINSKI FOR CONGRESS COMMITTEE on 10/29/02
Chester Stranczek (Village of Crestwood/Mayor), (Zip code: 60445) $500 to LIPINSKI FOR CONGRESS COMMITTEE on 05/15/01
CHESTER STRANCZEK (VILLAGE OF CRESTWOOD), (Zip code: 60445) $1000 to LIPINSKI FOR CONGRESS COMMITTEE on 03/07/00
CHESTER STRANCZEK (VILLAGE OF CRESTWOOD), (Zip code: 60445) $500 to LIPINSKI FOR CONGRESS COMMITTEE on 07/25/00
CHESTER STRANCZEK (VILLAGE OF CRESTWOOD), (Zip code: 60445) $1000 to LIPINSKI FOR CONGRESS COMMITTEE on 10/05/99
CHESTER STRANCZEK (VILLAGE OF CRESTWOOD), (Zip code: 60445) $750 to LIPINSKI FOR CONGRESS COMMITTEE on 06/23/98
DIANE STRANCZEK (HOUSEWIFE), (Zip code: 60445) $750 to LIPINSKI FOR CONGRESS COMMITTEE on 06/23/98
CHESTER STRANCZEK (VILLAGE OF CRESTWOOD), (Zip code: 60445) $500 to LIPINSKI FOR CONGRESS COMMITTEE on 09/24/97
- George - Friday, Oct 23, 09 @ 12:03 pm:
Why is energy and natural gas operated by private corporations … But water is an essential public service.
No water, you die.
No electricity, you’re bored.
- Brennan - Friday, Oct 23, 09 @ 12:10 pm:
In the year 2009 the first cold winter will make contact with the state of Illinois.
- Central IL Guy - Friday, Oct 23, 09 @ 12:32 pm:
When it comes to water, I view it as a resource, not a commodity. Yes Crestwood was a debacle, but I think our drinking water systems should remain under local government control with oversight by the state. There are plenty examples of the private sector squandering and polluting our water resources.
- Thomas Westgard - Friday, Oct 23, 09 @ 1:11 pm:
Can we outsource the patronage hiring? It’s so darned inefficient to have our graft conducted by municipal employees. The market would reward us if we had a private company choose the unqualified graft workers for the City payroll. They could use some sort of computerized relationship analyzer to figure out who’s closely enough associated to be loyal, but not so close as to tip off the public about the relationship.
- Aakash - Friday, Oct 23, 09 @ 1:12 pm:
Here is a national item, from the very-major “Americans for Tax Reform” organization, which was issued shortly before Comptroller Hynes formally announced for Governor.
Without going into too much detail, it provides a well-written overview about how hiking income taxes during tough economic times doesn’t work.
But please also see my thoughts about this, and the longer-term context.
Both parties are in large part to blame, for the messes our state is [continually!!!!] in.
We need to go out with the old, and bring new, fresh, principled, honest, and conservative leadership, to our party, and to our state as a whole!
- A Naughty Moose - Friday, Oct 23, 09 @ 1:24 pm:
Um, Aakash, dude, maybe you could actually make your own arguments? Instead of offlinking and repeating tired, meaningless talking points?
Hey Rich, tinfoil spambot at 1:12 …
- Rich Miller - Friday, Oct 23, 09 @ 1:32 pm:
===a well-written overview about how hiking income taxes during tough economic times doesn’t work.===
Actually, it just links to a Heritage Foundation report that claims taxing top earners at a higher rate will introduce more volatility into revenue receipts.
- jacketpotato - Friday, Oct 23, 09 @ 1:49 pm:
This is also goofy because there is no way to get any financing for a project this large. The only reason that the deals for the Skyway and Meters went through is that there was a huge liquidity crisis. There is no huge pool of cash sitting around anymore. Add to that the coming commercial real estate crisis; it means that no one wants to make deals for large assets in the near future. Folks are waiting for the other shoe to drop.
- Rich Miller - Friday, Oct 23, 09 @ 1:54 pm:
===The only reason that the deals for the Skyway and Meters went through is that there was a huge liquidity crisis.===
Wrong.
Skyway lease was signed in January of 2005 - long before the liquidity crisis.
Try a simple Google search before you comment, please.
- Anonymous - Friday, Oct 23, 09 @ 2:08 pm:
Wrong, Dave. The cook county hospital system budget is based on NO service cuts. Just cuts in unnecessary personnel. (You may be confusing it with the proposed strategic plan, which DOES involve moving sites of services around, although again, with no overall cuts.)
- Arthur Andersen - Friday, Oct 23, 09 @ 2:26 pm:
Brennan, the notion that “pension funds are ponzi schemes” is a bunch of hooey.
Only in Illinois, where the State has spent the pension money on everything from Build Illinois to AllKids, does the model fall apart. The funds survived and grew over a number of less-than “steady growth in population that yields growth across all the major economic indicators.”
Rich, if you think selling the Lotto is a good idea (and I disagree with you) AA predicts you will love Quinn’s budget.
- wordslinger - Friday, Oct 23, 09 @ 11:38 pm:
AA, I’m with you. You are someone who is truly a conservative. And I mean that in a good way; Main Street, smart, reasonable.
We could use a lot more of you and Schnorf.
- Fred Slocombe - Saturday, Oct 24, 09 @ 1:07 pm:
Every time I hear the word “privatization” I remember David Brooks on PBS News Hour with Jim Leherer saying “companies should be allowed to police themselves,” the standard conservative mantra. But then I remember how well Peanut Corporation of America policed itself. I’ll bet Goldman Sachs would have gotten the contract if Bush privatized Social Security. The mere mention of privatization is political suicide. I think we should work to guarantee that.