Thursday, June 14, 2012

Local governments dial up JG Wentworth

While Mayor Bloomberg has been receiving a lot of attention for his proposed soda ban, it's a different Bloomberg proposal that could have a much greater impact on life in Manhattan--despite receiving little fanfare at all (isn't that always the way?). Old friend Matt Taibbi has the scoop:
Readers of my last book, Griftopia, might recall a chapter about the city of Chicago leasing 75 years of its parking meter revenue to a coterie of private investors, some of them from the Middle East. The end result was and is a political obscenity: Native Chicagoans are now completely at the mercy of private interests when it comes to parking rates, collections, even holidays. When elected officials in Illinois can’t shut off the parking meters on Abe Lincoln’s birthday because a bunch of sheiks in Dubai don’t want the revenue stream turned off even for a day, you know something has gone seriously sideways in the national body politic. 
Well, Chicago isn’t alone anymore. Hizzoner Michael Bloomberg in New York has decided to do his own version of the Chicago infrastructure bake sale; the city announced that it is putting up nearly 90,000 parking meters for lease. They’re expecting to get over $11 billion in upfront money from the deal, which is great news if you’re Mike Bloomberg, who gets to use that money to patch current budget holes instead of making tough cuts or raising taxes. The news is less awesome for the next half-dozen New York City mayors, or for the citizens of New York, who now will get to spend most of the 21st century grappling with its increasingly monstrous deficits with a major tributary from the city’s revenue stream shut off. 
A New York parking meter deal, like the Chicago deal, would be a perfect example of the deeply cynical short-term thinking of many American politicians these days. These deals involve a sitting executive selling off a valuable piece of city property at a steep discount to private financial interests (often, to friends or campaign contributors), in order to solve a current cash flow problem that, surprise, surprise, will still be there the year after you finish spending the proceeds of your sale. 
In Chicago’s case, Mayor Richard Daley sold 75 years of meter revenue – worth an estimated $5 billion – for $1.2 billion. So he gets 20 cents on the dollar for the city’s parking meters in 2008, and then in 2009 the city still has a budget problem that’s now worse, because there’s no parking meter revenue anymore, ever. Meanwhile, a bunch of private investors rounded up by Morgan Stanley – these bankers go on road shows here at home and abroad to places like Geneva and the UAE to hawk discount American infrastructure to foreign billionaires and sovereign wealth funds – get to enjoy the fruits of raised rates. In some Chicago neighborhoods, the meter rates went from .25 cents an hour to $1 an hour in the first year of the deal, and then to $1.20 after that.
As Taibbi points out on his own blog, this is basically the government equivalent of dialing up JG Wentworth (877-CASH NOW!! 877-CASH NOW!!) to pull forward future government revenues into the current period. Who cares if I'll be broke in 5 years, it's my money and I need it now!! It's a slightly more desperate version of the privatization of liquor stores proposal put forth in my state two years ago, on a much larger scale with much more at stake.

For what it's worth, according to my math the discount rate implied in selling a revenue stream worth $5 billion for $1.2 billion in present-day cash (as Chicago's Mayor Daley did) is about 5.5%--in other words, the city government is effectively borrowing money at a 5.5% rate, which is.... eh, not great, not terrible. But the loss of control over the property is a significant problem, as the Chicago case has shown. Private parties can and will take advantage of the kindness of government bodies, and they have done so before. Those with foreign allegiances will feel even less shame when they do so--all is fair in love and international business.

We simply can't allow our governments--local, state, or federal--to continually take out mortgages on the nation's property just to plug current budget holes. If they continue to do so, what will be left of our sovereignty at all? Will we be the United States of America in name only, with all future economic production belonging to China or Dubai?

But by all means, New York, please pay no attention to this case. It's way less important than the size of your drink container, so please ignore it entirely, and direct your legal and political might toward challenging stupid and irrelevant nanny laws. Because by the time you realize you've been screwed, it will be far too late to do anything about it.

[Rolling Stone]

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