Markets

Wall Street Investments In Main Street A Recipe for Political - And Financial - Disaster

By Carter Dougherty

Updated on: August 9, 2010 / 2:12 PM EDT / MoneyWatch

Around the country, cities are looking around for what they can close, lay off or sell to Wall Street investors to raise much-needed cash for general operations or pension funds. And they are lighting some time bombs in the process.

A diamond-hard piece of reporting by Bloomberg has shed some light on what Chicago -- a leader in municipal financial trouble -- did when it sold a long-term lease on its parking system in 2008 to a Morgan Stanley-led consortium. One of the banks that got a bailout from the federal government will earn a 9.53 billion profit -- 80 cents on the dollar! -- over the 75-year life of the lease. The company that runs parking at O'Hare and Midway airports earned 4.84 cents on that same basis last year.

No wonder that some Chicagoans, who saw their parking rates rise immediately, are giving their meters the unidigital salute (see photo).

As I wrote in The Fiscal Times earlier this year, Pittsburgh is now contemplating a sale of its parking system (meters, lots, garages) to a private investor so it can use the cash to restock a depleted pension fund. Right now, there is a political tug-of-war. The mayor, Luke Ravenstahl, wants an outright sale, while others, including Councilman Patrick Dowd, would like to sign the parking system over to become an asset of the fun. (The city is under pressure from the state to boost the pension fund's reserves. And, to be fair, both cover up a failure to properly save for pensions in Pittsburgh.)

Public-private partnerships, as they are known, are a goldmin in the making. By one estimate, Wall Streeters have raised $250 billion to participate in this new market. And they've hired the politically connected talent that make the deals happen. Former Secretary of Transportation and Democratic House member Norman Mineta now works for Credit Suisse to engineer these kinds of deals.

The Reason Foundation, a think tank that advocates free-market solutions to public policy issues, has been arguing for some time that privatization makes sense. Reason's Leonard Gilroy:

Parking is a natural privatization opportunity. Few public officials would argue that providing municipal parking facilities-garages, surface lots and parking meter systems-is a core function of government. Rather, parking is essentially a commercial venture, and governments aren't particularly adept at running business enterprises, presenting opportunities for private providers to improve operations.

Except that parking is often a public good, whose disposition ought to be the subject of democratic debate. Dowd and the city controller, Michael Lambert, argue that parking systems are vital tools in urban redevelopment -- you build them to attract businesses or customers or you move them to accommodate building. All that becomes impossible when an investor owns them -- and especially when, as in the case of Chicago, all they have to do is sit on the asset to make money. Sales to private investors work well "for private companies, not public benefit," Dowd told me.

Reasonable people could disagree here. There are places where it might make sense to privatize parking (like at airports, where urban planning policy has already been executed) and other places where it is a public good. But you probably won't hear much of that.

Instead, you'll see a pattern: Cash-poor city proposes sale of parking assets to private investor. Sale goes through with minimal information in heated city council session. Outrage directed at Wall Street investors. Furor dies down a bit. Rates for parking rise. More outrage. Buyer returns big profits to investors. City fumes.

And critics say: "I told you so."

Image from get directly down via Flickr
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