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Through Privatization, Indy Seeks Funds for Infrastructure Program

Francesca Jarosz at the Indianapolis Star takes a deeper look at Indy's current large-scale privatization initiatives today in an interesting article. In addition to tapping privatization to modernize its water & wastewater systems and parking operations (discussed here, here and here), the city is also conducting an inventory of city property to identify divestiture opportunities and considering long-term contracts to upgrade golf courses.

One of the more interesting aspects is that, given Indy's long history as a privatization pioneer, one of the recurring themes in the current batch of initiatives is that they're taking services or assets that already utilize some form of privatization and extending the model further (e.g., longer terms, more responsibilities, etc.):

Privatization experts say long-term contracts like the ones Indianapolis is seeking for its already privatized operations can be beneficial in a couple of ways. A longer term allows companies to make capital improvements and can increase trust between the city and the private operator, said Sergio Fernandez, an assistant professor at Indiana University's School of Public and Environmental Affairs who studies privatization.

But, the long-term deals also can bring risks. For instance, the lease of Chicago's meters could be an unwise move because after the initial payment, the city loses out on the revenue. Evan McKenzie, an associate professor of political science at the University of Illinois-Chicago who has written on privatization since the 1980s, equates it to "having a garage sale to pay your mortgage."

Indianapolis leaders say the difference in their efforts is that the revenues would go toward long-term infrastructure improvements, rather than operating costs. They also say they'll vigilantly monitor contracts to avoid another possible risk of long-term privatization: neglect on the private company's part.

"Monitoring is very important," Fernandez said. "One of the ironies about privatization is that it takes good government to make it work."

Investing in long-term infrastructure improvements would be a fiscally responsible use of the revenues from privatization, as I write here.

And indeed, it does take good government to make privatization work, or at least a government that knows how to manage contracts well. That's the key determinant of a successful privatization initiative. Government doesn't just walk away once the contract is signed. By definition, there are two parties to the contract, and it outlines the expectations and responsibilities of both over the term of the relationship. Hence, the relationship between client and contractor is an active one. Once the contract is signed the public sector's role shifts to contract management and oversight. Hence, governments interested in privatization need to be cognizant of the need to have good procurement specialists to build a solid base of expertise to ensure that goals are achieved and that the contractor delivers.

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary

Leonard Gilroy is Director of Government Reform


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