Privitization efforts by the City of Chicago

[southsider2k5]

But what are we going to do when the city has sold off all of its cash-generating operations to fix short-term budget gaps? Instead of having some profit come in over the next 75 years from parking (and Midway and the skyway and whatever else is privatized), they get some money upfront. Instead, these profits will get funneled to wealthy board members and shareholders instead of supporting local government. I don't see that as a winning solution in the end.

 

 

 

That's why the article said:

 

"The present value of the contract was $2.13 billion, more than the $1.15 billion the city received"

 

quick edit: there is something to be said about selling off pieces of your business to restructure and refocus on your core competencies, I'm playing more of a devil's advocate here.

 

They also will need a lot small budgets in the future, because they won't be supporting formerly money losing operations on bloated bureaucratic budgets.

[Balta1701]

They also will need a lot small budgets in the future, because they won't be supporting formerly money losing operations on bloated bureaucratic budgets.

Do you really actually believe that will happen? That because they've spun off some things that used to generate small amounts of revenue...their budgets will shrink?

[southsider2k5]

Do you really actually believe that will happen? That because they've spun off some things that used to generate small amounts of revenue...their budgets will shrink?

 

Good point. The Daley's of the world will still find ways to keep their buddies employed.

[StrangeSox]

They also will need a lot small budgets in the future, because they won't be supporting formerly money losing operations on bloated bureaucratic budgets.

 

They'll have to find a way to spin off those money-losing operations or citizens will simply have to give up those operations. Selling off all of your profitable assets just doesn't seem like a winning proposition unless you have massive cuts or tax increases.

[NorthSideSox72]

They'll have to find a way to spin off those money-losing operations or citizens will simply have to give up those operations. Selling off all of your profitable assets just doesn't seem like a winning proposition unless you have massive cuts or tax increases.

Actually, I think that's exactly what government should do. Keeping profitable businesses doesn't make sense for government, for numerous reasons. Government should focus on doing two things: what it was chartered by the people to do, and adding services along the way that only make sense for the gov't to do (and that private industry can't or shouldn't or wouldn't do efficiently).

 

[StrangeSox]

So all government services should be break-even at best? Wouldn't a slight-profitable service and a slightly-unprofitable service work well together to allow the government to keep taxes slightly lower?

[NorthSideSox72]

So all government services should be break-even at best? Wouldn't a slight-profitable service and a slightly-unprofitable service work well together to allow the government to keep taxes slightly lower?

That's what I mean - they should not be profitable, they should be two things: necessary, and at-cost. Profitable is not one of them. But... there is obviously some difference here in what we are considering profitable. Firefighting, for example, will never be profitable, unless we plan to make it a pay-for-service function, which I doubt anyone wants to do. But how do you define profitable? If you allocate $1M to your FD, and they complete the year on $950k, are they profitable? No, they just didn't spend as much as you thought.

 

That rolls into the debate of whether services should be pay-for-service break-even (i.e. DMV charges for driver's licenses exactly what it costs to provide them), or tax-supported.

 

In the case of parking meters, on a direct revenue versus cost basis, if they are making "profit", then one of two things should happen - sell the business for its value, or lower meter prices. If they lose money, you may have to raise meter prices.

 

[Balta1701]

Let me supply a counter-example NSS...let's say that I'm running a municipality, and I discover that there is an inverse correlation between how much people pay for a service...I'm going to use garbage collecting in this example...and the cost for that service.

 

In other words, it costs more to throw out more trash. Therefore, if I set the price at the exact amount that it costs to pay for the collection, processing, and disposal of the trash, or if I subsidize it somewhat through other tax dollars, I wind up collecting more trash.

 

However, if I raise the rates significantly, it turns out i turn a significant profit, but the amount of trash I collect decreases massively as people recycle more and use other means of disposal like mulching, etc.

 

Your argument seems to me to imply that all cases where a government entity turns a profit should be viewed as a bad thing and a potential spinoff opportunity...but you're ignoring the potential societal benefits that can come from things costing more to use than they do to run. Parking meters/congestion pricing could certainly fit that description.

[NorthSideSox72]

Let me supply a counter-example NSS...let's say that I'm running a municipality, and I discover that there is an inverse correlation between how much people pay for a service...I'm going to use garbage collecting in this example...and the cost for that service.

 

In other words, it costs more to throw out more trash. Therefore, if I set the price at the exact amount that it costs to pay for the collection, processing, and disposal of the trash, or if I subsidize it somewhat through other tax dollars, I wind up collecting more trash.

 

However, if I raise the rates significantly, it turns out i turn a significant profit, but the amount of trash I collect decreases massively as people recycle more and use other means of disposal like mulching, etc.

 

Your argument seems to me to imply that all cases where a government entity turns a profit should be viewed as a bad thing and a potential spinoff opportunity...but you're ignoring the potential societal benefits that can come from things costing more to use than they do to run. Parking meters/congestion pricing could certainly fit that description.

Two things.

 

One, I never said it was bad - in fact it is an opportunity, if a profit is turned (in this definition of profit), that should be exploited.

 

Two, you need to look at the full effect of that demand change - people might indeed recycle more or compost, but a lot more will just throw their trash all over the place. So certainly, care needs to be taken here. If garbage collection is a money loser at current rates charged to residents, then you should explore raising the rates slowly and carefully, and within certain boundaries. If collection is so costly that only a massive fee increase covers it, then you may need to supplement with general funds (from taxes or special assessments) in the short run.

 

Also, your bolded line is sort of hilarious, since what you say I am ignoring, I SPECIFICALLY SAID earlier as a benefit.

 

[Balta1701]

Also, your bolded line is sort of hilarious, since what you say I am ignoring, I SPECIFICALLY SAID earlier as a benefit.

I know you cited that earlier, but at least to me, it seems to be in conflict with the idea that a government shouldn't be running any system that turns a profit.

[NorthSideSox72]

I know you cited that earlier, but at least to me, it seems to be in conflict with the idea that a government shouldn't be running any system that turns a profit.

Not at all. To me they are different dynamics. Having things cost what the private market dictates may, at times, mean they are paying substantially more than their raw cost. Sometimes that does have good effects on behavior, and further, if that means private industry runs the action instead of government, then you also get a greater chance at efficiency, growth into jobs that aren't undersalaried and overbenefitted, etc.

 

[southsider2k5]

They'll have to find a way to spin off those money-losing operations or citizens will simply have to give up those operations. Selling off all of your profitable assets just doesn't seem like a winning proposition unless you have massive cuts or tax increases.

 

That is the point here... parking wasn't profitable for the City. It is profitable for a private company.

[StrangeSox]

That is the point here... parking wasn't profitable for the City. It is profitable for a private company.

 

It was slightly profitable for the city. It's very profitable for a private company.

[NorthSideSox72]

It was slightly profitable for the city. It's very profitable for a private company.

I'd say its slightly profitable for both. Again, look at the length of the contract, against that $10B profit, and look at the risk horizon. It was a trade of cash flows, a swap if you will, and I think both sides made out well.

 

[Cknolls]

Do you really actually believe that will happen? That because they've spun off some things that used to generate small amounts of revenue...their budgets will shrink?

 

 

We all know gov't never shrinks. Come on 2k.