Federal regs fight privatization trend
Over the past 10 years, Indianapolis had seen passengers on its publicly owned bus system decline by 40 percent. The drop raised the operating costs of the system and eroded the quality of service.
To deal with the problem, the city wanted to open the system to competition.
But federal regulations said cities that permanently dislodge bus drivers in such cases must give them six years’ severance pay. To avoid getting stuck with that tab, the city financed the change itself.
According to the New York State Research Council on Privatization, between 1985 and 1995, 70 percent of local governments privatized janitorial services, 50 percent employed private waste collection, and 42 percent used private maintenance workers for public facilities.
“In states and cities throughout this nation, the introduction of competition into the delivery of services has resulted in better, less expensive government,” says New York Governor George Pataki.
The trend is not exclusive to the United States. Thailand, Great Britain and New Zealand, among others, have privatized airports, roads and bridges. According to the Bank of International Settlements, worldwide private investment in infrastructure was $240 billion in 1995.
U.S. companies pumped in about $15 billion of that, with only a fraction going to projects in this country.
Domestically, the U.S. government owns roughly $226 billion in infrastructure assets, according to the New York council. Those assets present investment opportunities the private sector would like to tap — if the federal government would step out of the way.
The Clean Water Act, for instance, will require local governments to ante up $136 billion for water projects over the next 20 years, while the Safe Drinking Water Act will mean they must come up with $57 billion by 2000. That’s money they do not have and money that Washington will not allocate.
“All that is needed is for Congress and the Executive Branch to lift the federal barriers that are preventing local governments from making full use of the financial and professional resources of the private sector,” says Ronald Lauder, chairman of the New York council.
According to state and local leaders, federal regulations prevent privatization. For example, municipalities can issue tax-exempt bonds to raise money for infrastructure projects, but private companies that want to raise money for identical projects must sell taxable bonds, which increases their cost of capital and deters them from starting projects.
Additionally, privately owned sewage treatment plants are subject to much stricter and more costly standards than are publicly owned plants.
Consequently, private firms are deterred from buying public facilities, even though the discharges would not change.
But labor insists that privatization solutions are simple and illusory answers to a complex problem.
“Putting America’s infrastructure on the auction block will only serve to harm ordinary Americans, businesses and communities by making public facilities more expensive and less accessible,” says Al Bilik, president of the Public Employee Department of the AFL-CIO.
Bilik cautions that the poor would be hit hardest by having to pay higher user fees, while everyone else would suffer should privatized facilities go belly-up.
But proponents argue that a federal debt of $4 trillion and an annual investment of $60 billion to $80 billion needed to rebuild America’s infrastructure make privatization a plausible solution to an intransigent problem.