Guest Commentary: F.C. Should Not Privatize City Government Buildings

January 31, 2013 11:10 AM4 comments

I read with interest the Guest Commentary regarding the so-called “Kearney plan” in the Dec. 27 2012 issue of the News-Press. This commentary detailed a proposal to move Mt Daniel Elementary School to the current site of City Hall and to relocate City Hall/the City Library/local courts to a new privately-owned building. It is too early to know whether this self-described “out of the box proposal” to build a new school and municipal complex has merit. Too little hard information has as yet been released to the public to weigh the various policy options in terms of new/renovation and where any new buildings should be located.

But the taxpayers of Falls Church do have enough information to rule out one very troubling part of the proposal: namely privatizing the physical infrastructure housing our City Hall, the Library, and our court facilities. The commentary proposes an arrangement – known as a public-private partnership – whereby the government of Falls Church City becomes a tenant in an as-yet-to-be-built privately-owned property that would contain private office space as well as City government.

These “public-private” arrangements are often sold to cash strapped and credit starved communities because the private “partner” can show a short term financial benefit either in terms of a new facility, new services, or even a lump sum cash payment. Over the life of the project however the cost is substantially higher using this privatization arrangement instead of traditional financing mechanisms. That is because the City can borrow money more cheaply than the private developer and does not have to fund a profit line.

The excessive cost of the privatization approach is most dramatic when one considers that the City could be in a decades-long lease and thus paying rent long after any public debt would have been paid off had the City used traditional financing. Having to make these long-term (and generally increasing) rent payments will drain the money that our City will need to educate future generations of Falls Church children.

The suggested approach is the equivalent of buying furniture at a rent-to-own store. Those small weekly payments sound great and there’s no borrowing involved. But at the end of the process you’ve paid two or three times the cost of buying the television outright or even putting it on a lower interest credit card.

Not only are these arrangements financially disadvantageous to the community, they are also hardly “out of the box.” They have been pushed all over the country with some very troubling results.

Governor Arnold Schwarzenegger proposed doing a sale leaseback with government buildings in California. It was cancelled by his successor because it would have ultimately cost the taxpayers some $6 billion more than just keeping the buildings under state ownership. The payback by taxpayers relative to the upfront money they would have received equated to an interest rate of over 10%. Surely the City of Falls Church can borrow for far less than that.

A few years ago the City of Chicago privatized its parking meters. They now have the highest meter rates in the country and a new study suggests the City undersold its assets by almost $1 billion. (This problem with underselling an asset is one the City will have to be very wary of should hot properties like the Mt. Daniel Elementary site or the City Library site be sold).

And let us not forget the State of Arizona that a few years ago sold and then leased back state buildings including its State Capitol. The State Capitol portion of the sale landed the state $80 million. The same governor who sold it proposed early last year that the State buy it back for over $100 million. (That’s a lot of interest for only a couple of years). Her rationale: Paying the extra money now will save the State over $40 million over the life of the deal.

While these “public-private partnerships” take many different forms, they all have one key element in common. They create a long-term income stream from taxpayers to the pockets of private individuals.

Some might say this approach will prevent the City from having to do more traditional borrowing. But trading low interest bonds for decades of rent makes no financial sense. If more money is unnecessarily coming out of taxpayers’ pockets to pad the wallet of private parties it doesn’t matter what you call it.

Our community needs to come together and have a frank and civil discussion about what our school and municipal facilities needs are; whether it makes more sense to do repairs or build new; and if we do build new buildings where they should be. But let us also make sure that we finance any new construction in a way that is pro-taxpayer and pro-education. Corporate welfare is a cost that we – and future generations of Falls Church children – just can’t afford.

 


Jeff Weaver is a local business owner and resident of the City of Falls Church.

4 Comments

  • Kudos to Mr. Weaver for revealing the truth about the P3 model. Public-private partnerships have been a colossal failure and should be avoided. It is nice to know that Falls Church has business owner that take a long-term sustainable view on such matters.

  • The comparison to buying furniture rather than renting is too simplistic. Both the city and the private contractors have employees that could take care of the buildings. The real issue is whether, over the long-term, the private contractors can bring sufficiently more efficiency/productivity to bear so that they can do the job at a lower price than the city even including a profit. I’m not aware that anyone has supplied an answer to that. As to boblaj’s condemnation of such partnerships as a “colossal failure”, is that how he describes the 495 Fast Lanes, compared to, say, the Big Dig in Boston?

    • It’s a stretch to compare the fairly straight-forward 495 fast
      lanes project with the incredibly complex big dig, but I get Dan’s
      point. That said, the private sector has shown itself capable of plenty
      of glaring mismanagement in recent years, so it’s pretty obvious that
      both the public and private managers can make expensive mistakes. I’m
      not clear on whether Dan believes there are notable pockets of waste in
      City Hall. We’re a tiny city with a very active public, so it seems
      hard to imagine they could continue for long if there were.

      To
      the bigger point that Weaver is making, the City has done a fine job of
      maintaining it’s credit rating, so I’m still not clear what
      advantage comes with the P3 proposal. If, as Dan suggests, private
      contractors would do a better job of maintaining City property, then the
      City can by all means buy maintenance services without becoming a
      renter.

  • Right on target, Mr. Weaver. This proposal is, at best, a short-term gimmick. I am hoping that the Little City’s financial situation is not in such an extreme way that it needs to entertain this proposal.

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