NMA E-Newsletter #259: A Private Windfall, a Public Bust


As 2013 winds down, Indiana lawmakers and Governor Mike Pence are scrambling to come up with the money to fund the state’s transportation infrastructure. Governor Pence announced the creation of a “blue ribbon” panel to look at funding alternatives for future transportation projects, but it may be too little too late.

At issue is the fact that the state has spent nearly all of the proceeds it received in 2006 for the lease of the Indiana Toll Road. That deal, known as Major Moves, formalized a 75-year lease to an Australian-Spanish consortium for an upfront payment of $3.8 billion—the bulk of which was earmarked for transportation projects through 2015. But the money is almost gone, and as a result, Indiana must again rely on the state’s $.18 per gallon gas tax to fund future infrastructure projects.

Indiana’s experience highlights some of the pitfalls of so-called Public Private Partnerships (PPPs). Essentially a PPP is a contractual arrangement between public and private sector partners designed to finance and deliver public services. The public agency may retain ownership of the assets/facilities, but the private entity generally invests its own resources into the venture, such as making an upfront payment to the public partner.

This is exactly what happened with the now infamous Chicago parking meter lease deal. In 2009 the City of Chicago leased the rights to its entire parking meter operation—36,000 parking meters—to a private company controlled by Abu Dhabi interests for an upfront payment of $1.6 billion. The procurement process was rushed and lacked transparency, according to the city’s inspector general. Within months, parking rates soared and many meters were either mislabeled or malfunctioning.

In addition, the contract requires the City of Chicago to pay the private contractor millions in additional fees annually. According to TheExpiredMeter.com, by the time the contract is up in 2084, the city will have paid back the entire $1.6 billion. It will have also lost out on the ongoing revenue stream from the meters themselves. And Chicago-area drivers will have paid 75 years of ever-increasing parking rates controlled by a monopoly not named the City of Chicago.

The Chicago fiasco illustrates many of the myths associated with PPPs: They save the public money; private companies perform better than public agencies; the public still maintains control over the privatized asset or service.

On a more positive note, the newly elected mayor of Cincinnati is attempting to quash a previously agreed to parking meter lease deal involving the Port of Greater Cincinnati Development Authority and two private contractors. Under the deal, the port authority would have assumed control of the city’s parking meters for 30 years and parking garages for 50 years. In exchange, the city would have received more than $110 million for economic development and to ostensibly balance the city’s budget for the next two years. Most of the projects earmarked for funding were not transportation related.

A final example of PPP chicanery comes from Texas and involves the SH 130 toll road. SH 130 has the distinction of having the highest posted speed limit in the U.S.—a whopping 85 mph! Despite the appeal of that for some drivers, traffic is down and the private company that operates the road could be headed for default. The real story here, however, is how the road got that speed limit in the first place. Read Jim Baxter’s account here, in which he sums up the abuses associated with PPPs and why they’re not in drivers’ or taxpayers’ interests.

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