Friday, May 10, 2013

Get Ready for the Push for a Private Public Partnership In Long Beach to Rebuild a Civic Center -- Experts Say These Arrangements May Be New Subprime Problem that Caused Mortgage Meltdown

Cartagena is one of the Colombian cities whose...
Cartagena is one of the Colombian cities whose water supply is provided by a mixed public-private company. (Photo credit: Wikipedia)
There are many ways in which the public sector can work with the private sector for the benefit of both. But the push across the US to form "public-private partnerships" or "P3s" is raising concern of some who see this new way to finance public infrastructure as the next "subprime" problem that caused the mortgage meltdown in this county.

Our current Mayor and some of the City Council are supportive of possibly rebuilding the current City Hall and Main Library using a P3.

Before this goes too far, the public needs to know about P3s and why they aren't all they cracked up to be.

In his paper: "The Political‐Economics of Private Infrastructure Finance:  The New Sub Prime 
Elliott Sclar, Professor of Urban Planning, Director, Center for Sustainable Urban Development,  The Earth Institute at Columbia University ( notes that the same financial institutions which were part of the economic crash caused in part by subprime lending have: 
"fallen in love with public infrastructure. They're smitten by the rich cash flows that roads, bridges, airports, parking garages, and shipping ports generate—and the monopolistic advantages that keep those cash flows as steady as a beating heart.  Firms are so enamored, in fact, that they're beginning to consider infrastructure a brand new asset class in itself. (Thornton, 2007)"

Sclar notes that this has negative impact on "democracy."  Sclar writes: "When infrastructure is 
privatized (or corporatized), the decisions about its size, shape and placement are driven by market demand. The private partners are interested in elements of infrastructure that can yield the longest and strongest streams of privately capturable revenue not the ones that yield the largest public benefits. "

A much more disturbing article on the negative impact of P3s on "democracy" was penned by Ellen Dannin in "Crumbling Infrastructure, Crumbling Democracy: Infrastructure Privatization Contracts and Their Effects on State and Local Governance "(

Dannin reviewed numerous public-private-partnership agreements and found: 

"Our decision-making processes and ways of thinking about privatization and
infrastructure are proving unequal to the complexity and long-term effects of transferring public infrastructure to private hands. It is urgent that we change the terms of this discussion quickly, before contracts have locked away so much of our infrastructure that we have can no longer make critically important policy decisions outside the straitjacket contract terms impose on our legislative, executive, and judicial branches of government. 
 We must, therefore, replace our constricted focus on “dollars and driving, public versus private” with appropriate substantive and procedural principles and processes in order to achieve our articulated goals. Issues that have emerged as important to this discussion include (1) protecting the public welfare; (2) ensuring value for money; (3) taking all contingencies into account; (4) establishing principles to justify the inclusion of each contract term; (5) demonstrating the superiority of privatization over public provision; and (6) establishing a process that ensures all relevant information is presented and properly evaluated. Each of these principles is easy to articulate and should have broad—but not unanimous—support. The difficulty will be in unpacking their content and identifying the contentious issues each presents. Achieving those goals requires a participatory and open-ended process, one that extends into the future. What can be done here is to lay the groundwork by briefly articulating issues related to each of these principles, examining pending proposals concerning infrastructure privatization, and, finally, considering whether those proposals provide a satisfactory way to deal with the complex issues that lie at the intersection of public and private provision of infrastructure."

Dannin (and I echo her sentiments) concludes: 
"Political leaders ignore the public interest at their peril. Reactions discussed throughout this Article have shown that when the citizenry has been kept in the dark and when the public interest has been ignored, people have been deeply indignant. They are likely to be concerned that a fair process be used in making such an important decision. It is possible that people may decide that privatizing public infrastructure is the best alternative for many reasons. They may also decide to reject agreements that put infrastructure, paid for with public funds, under private control. People may also reject contracts that give such strong protection for contractor revenues and place limits on governmental decision making. Without information, however, people cannot meaningfully participate in these important decisions."
Before the City of Long Beach goes any further with discussions about using a P3 for our City Hall and Main Library -- there needs to be extensive public discussion to make sure it is clear that we know what we would be getting our City into if we went down that road.

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