DealBook’s questionable argument on privatization
Public-Private Partnerships Could Be a Lifeline for Cities http://t.co/qNiA1490XY
â DealBook (@dealbook) July 15, 2013
The New York Timesâ DealBook, ran a blog post written by an attorney involved in some of the worst privatization deals in America. The author Kent Rowey is described by DealBook as âa partner in the energy and infrastructure practice at Allen & Overy in New York.â What DealBook fails to disclose is that Rowey was the transaction attorney for the deals he is praising in the piece and using as examples for other cities to follow. Is this anything less than a paid advertorial in The New York Times?
Rowey jumps into the hellfires of muniland with his piece (emphasis mine):
Gaining much needed cash and operating efficiency are prime incentives for municipalities to undertake such transactions [public-private partnerships]. Chicago entered into a concession for 36,000 parking meters a few years ago through a 75-year contract valued at more than $1 billion. Besides streamlining the costs of running the citywide program, the new concession exposed abuses of handicapped parking permits and led to the passage of a law preventing abuses. Today, the Chicago Metered Parking System is considered one of the worldâs best.
Actually, Chicagoâs parking deal is considered one of the most egregious municipal scams in the last century. Here is the current mayor of Chicago, Rahm Emanuel, recently describing the deal:
âI know this tested everybodyâs patience. This deal tests the patience of our residents every day,â the mayor said.
During a news conference later, he said, âItâs a bad deal. Itâll stay a bad deal. But, given that we were stuck with it for 71 years, how did you, on the margins, slightly make it palpable? I hope we made that improvement,â he said.
After the transaction was completed, Bloomberg reported on the financial details and wrote this:
Chicago drivers will pay a Morgan Stanley-led partnership at least $11.6 billion to park at city meters over the next 75 years, 10 times what Mayor Richard Daley got when he leased the system to investors in 2008.
Morgan Stanley, Abu Dhabi Investment Authority and Allianz Capital Partners may earn a profit of $9.58 billion before interest, taxes and depreciation, according to documents for a $500 million private note sale by their Chicago Parking Meters LLC venture. That is equivalent to 80 cents per dollar of projected revenue. Standard Parking Corp., which runs 30,000 spaces at the cityâs OâHare and Midway airports, earned 4.84 cents on that basis last year, data compiled by Bloomberg show.
DealBook did not disclose that Rowey had worked on the Chicago parking meter deal, though a quick click on his biography at his law firm uncovers this:
Morgan Stanley Infrastructure Partners in connection with its acquisition of a 75-year concession for the City of Chicago’s Metered Parking System for USD1.15bn and the subsequent 144A bond financing of the Chicago Metered Parking System by Chicago Metered Parking LLC.
This is sloppy journalism, but it is also a disservice to readers who need facts about the costs and problems, as well as the advantages, of P3 projects.
The most interesting omission in Roweyâs piece is the U.K. from his line-up of nations that have embraced P3s. He wrote:
American infrastructure has fallen behind countries like France, Italy, Spain, Portugal, Poland, Hungary and countries that have long embraced privatization of urban systems.
Margaret Thatcher became the worldâs leader in privatizing public services. Maybe Rowey overlooked the granddaddy of P3s because it has moved away from the strict privatization model that he advocates. Today the U.K. is something more like a public minority investor in P3s:
The [U.K.] government launched its new approach to Public Private Partnerships in December 2012. As part of its reforms to the Private Finance Initiative (PFI), the government announced that it will look to act as a minority co-investor in future PF2 projects, promoting better partnerships with industry, a stronger public voice on projects and greater transparency about the performance of PF2 projects.
How will this new arrangement work?
In each case the government will invest alongside the private sector into a âjoint venture companyâ. Each company will be majority owned by the private sector and the government will invest on the same terms as the private sector. The publication of the draft Shareholders Agreement (Shareholders Agreement Consultation Draftâ) marks another step in the reform process as this â together with other legal documentation included in the pack â sets out the proposed terms of the governmentâs investment. It includes details of the voting arrangements, the governmentâs right to appoint a director to each company and increased information other shareholders will be required to disclose to provide greater transparency to the public.
It seems that the P3 model that Rowey advocates didnât work out so well for the U.K. We have a lot to learn from this experience, while Rowey wants to promote a model that has minimal public oversight.
More than anything, America needs strong public leaders, not private parties dealing away the nationâs patrimony. Whenever I see advocacy like Roweyâs, I look for real economic analysis that justifies privatization. Itâs never there.
DealBook owes more to its readers than promoting advertisements without disclosure.