The Wall Street Journal

Big City Democrats Are Embracing Privatization

Heavyweights like Chicago's Rahm Emanuel are going around public agencies and unions to improve schools, roads, parks and more

We often hear that America's infrastructure is crumbling, but did you know that tens and possibly hundreds of billions of dollars in private infrastructure funds are waiting to be spent? It's money that Chicago Mayor-and Democratic Party powerhouse-Rahm Emanuel has spotted, rightly calling it "a tool here that takes some of the pressure off taxpayers."

In April, the Chicago City Council overwhelmingly approved Mr. Emanuel's $7 billion program to "rebuild Chicago" by constructing two new runways at O'Hare Airport; replacing 900 miles of water pipes and 750 miles of the sewer system; creating special routes for rapid bus transit; modernizing schools, transit stations and city buildings; and building 12 new parks and 20 playgrounds. 

To pay for these projects, Mr. Emanuel is turning in part to private firms including Citibank and Citi Infrastructure Investors, Macquarie Infrastructure and Real Assets Inc., J.P. Morgan Asset Management Infrastructure Investment Group, and union-held Ullico. These firms say they are ready to provide at least $1.7 billion to help build the "new Chicago." (Though the details are not yet set, the likely arrangement would have the private firms putting up capital and then recouping their investments through user fees over a set period of years or decades.) 

"This model of private financing for public infrastructure is happening all over the world, but not here in America," said Mr. Emanuel, who served from 2009-10 as President Obama's chief of staff. "I can't get from here to there on the old model-it's broken." 

There are decades of major public-private partnership success stories in the United Kingdom, France, Italy, Spain and elsewhere. The Reason Foundation's Annual Privatization Report finds that partly or fully privatized airports-such as Heathrow and Stansted in London, and Leonardo da Vinci-Fiumicino Airport in Rome, which make money from airlines and especially from passengers in stores, parking lots and the like-handled 48% of European air travel passengers in 2011. That's one reason Chicago is considering privatization plans for Midway Airport (which would ultimately require approval from the Federal Aviation Administration). 

Mr. Emanuel's new infrastructure plan is bolstered by the privatization success he's already experienced in Chicago. Last summer he launched a large-scale competitive bidding process in which two companies compete with each other-and head-to-head with city workers-to provide cheaper curbside recycling for Chicagoans. 

The competition forced government workers to find better ways to do their jobs, and Chicago reported reducing costs by $2 million in the first six months alone. "The City's crews have worked to close the gap between the private haulers' $2.70 price per cart by reducing their costs by 35 percent from $4.77 to $3.28 per cart," the city government reported in April. 

Also privatized by Mr. Emanuel: Chicago's water-bill call center, airport and library custodial services, and the city-worker benefits-management system. Hiring private companies that could manage these services at lower costs led the city to lay off over 600 employees, so the mayor came under predictable fire from government unions. "My duty as mayor is to protect our city's taxpayers and be their voice-not to protect the city's payroll," he responded. 

Mr. Emanuel is doing what sensible leaders do: focusing resources on the core functions of government and using competition to lower costs on the rest. When government agencies are forced to compete with the private sector, it saves taxpayers money and makes government more responsive to its customers. Performance-based contracts that set clear standards ensure that high-quality services are delivered by private firms that are held accountable. 

Other prominent Democrats are joining Mr. Emanuel in embracing privatization or nonprofit funding for the countless nonessential services that drain city coffers. 

Los Angeles Mayor Antonio Villaraigosa, who will chair September's Democratic National Convention, last year handed over the Northeast Valley Animal Care Center, which would have cost taxpayers $3 million per year to operate, to a nonprofit animal-rescue group. Mr. Villaraigosa is now in negotiations with the nonprofit Greater Los Angeles Zoo Association to privatize the Los Angeles Zoo and Botanical Gardens, which received over $14 million from the city last year.

In Jacksonville, Fla., Mayor Alvin Brown (formerly an adviser to Bill Clinton and Al Gore) created an Office of Public-Private Partnerships in 2011, saying that "If the private sector can do something better than city government, and in a way that saves money for taxpayers, then we should work together." 

Another high-profile Democrat, Newark Mayor Cory Booker, has been directing a $40 million initiative to restore and build city parks, with much of the funding coming from the nonprofit groups GreenSpaces and Trust for Public Land. 

Newark attracted $19 million for its public charter schools in 2008 from the Gates Foundation, among others, and in 2010 Facebook CEO Mark Zuckerberg famously pledged $100 million to help improve the city's schools. The Pershing Square Foundation, founded by New York investor Bill Ackman, has given a $25 million gift to Newark schools as part of Mr. Booker's effort to raise matching funds for the Facebook money. "It's your right to have a good education," Mr. Ackman told Bloomberg Businessweek. "If you can't, your government has failed you and the private sector has to get involved to fix the problem." 

Harsh fiscal realities are making it easier for local politicians to spot the differences between vital government services and luxuries. "You never want a serious crisis to go to waste," Mr. Emanuel famously said after President Obama was elected in 2008. Now that he's at the local level, Mr. Emanuel is demonstrating that cutting government waste and partnering with the private sector is how you actually get out of a serious crisis.

Len Gilroy is the director of government reform and Harris Kenny is a fiscal policy analyst at Reason Foundation, a Los Angeles-based think tank. They are editors of the foundation's Annual Privatization Report, available online.

This article originally appeared in The Wall Street Journal

Leonard Gilroy is Director of Government Reform

Harris Kenny is Policy Analyst






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