FOR THE LAST three years, Mayor Nutter has struggled to handle enormous shortfalls in the city budget.
He's tried basically everything except mass layoffs: tax hikes, fee increases and deep service cuts. Now, as we approach another budget process that is likely to feature a big deficit, the city is running out of options.
It's a common story for governments during these hard times. As the the economic downturn continues, elected officials are beginning to consider a more radical way to generate revenue: selling off public assets - bridges, roadways and other forms of infrastructure - to the private sector.
The latest example of this trend comes from Pittsburgh, where Mayor Luke Ravenstahl is pushing hard to lease the city's parking assets to a private company. Last week, a collection of investors led by JP Morgan Asset Management offered $452 million for a 50-year lease to operate the Iron City's parking garages, lots and meters.
It's not hard to see why Ravenstahl is eager to collect. The city will get a big upfront payment, which the mayor is planning to use to avoid a state takeover of Pittsburgh's troubled pension fund. And he'll get the money without having to raise taxes or cut benefits for municipal employees.
This isn't a new idea. Back in 2007, Gov. Rendell proposed leasing the Pennsylvania Turnpike for an upfront payment of $12.8 billion. A group of lawmakers has also suggested selling the state liquor stores.
Both plans stalled in the Legislature, but selling public assets has gained traction in other places. Chicago recently leased its parking operation for $1.1 billion. Indianapolis is considering a similar deal for $35 million. But we hope that our mayor and City Council exercise caution before jumping on this bandwagon. There may be initial benefits - but real problems may be just behind the scenes in the long term. Here are some of the risks of selling public assets:
Short-term benefits vs. long-term costs. Leasing a parking lot or bridge to a private company is attractive to elected officials because it generates a big chunk of cash upfront. The tradeoff is that future revenue from the asset is reduced or eliminated by the leasing agreement. These deals are also somewhat unfair to future administrations, which lose out on the regular revenue stream but had no say over how the lump sum was spent.
Protecting service quality. One of the reasons public assets are attractive to investors is that they often involve a monopoly of some kind.
For example, a company might gain a bridge that's the only way to cross a river. That means it can increase tolls and let the bridge surface fill up with potholes without worrying about competition. Governments must make sure that lease agreements protect taxpayers from these kinds of abuses.
Government loses influence over public policy. The sale is about more than money. It's also about the city's ability to manage itself. For example, parking rates in Center City were scheduled to increase last year from $2 to $3 to help reduce congestion. But the Parking Authority called it off because an earlier increase already had accomplished that goal. If the parking meters were in private hands, the increases would be aimed at earning a profit, not public policy.
Success is hard to measure. It's difficult to judge these partnerships because many of the deals are long term, and we won't know the end result for decades. And it's also difficult to set benchmarks for success because there are vast disagreements about the proper role of government in society.