Why the rush to sell off Ohio’s assets?

Toledo Blade - June 22, 2011
   

by Zach Schiller

Ohio used to be known for making and building things. Now state government seems to be more interested in selling them.

The state House and Senate have passed versions of the budget that contemplate massive privatization of public assets. They could range from the Ohio Turnpike and Ohio Lottery to public schools and college dormitories. We need to ask some questions:

Are we giving away state and local assets, which taxpayers have spent a lot of money to build, for less than they are worth?

The Senate budget would require school districts to make unused buildings available for $1 to charter-school buyers that rank in the top half of academic performers. The measure does not require the charter school to have enough money to maintain the building, which the public system still would own. This looks like an asset giveaway.

Similarly, the proposed 25-year lease of the state’s liquor distribution business to JobsOhio, the new nonprofit group that will run state government’s economic development efforts, appears underpriced.

The $1.2 billion to be paid for the business would provide $500 million to balance the upcoming two-year budget. But after that, the state no longer would collect more than $100 million a year from the business that has been going to support public services, creating another budget hole.

Will privatizing actually cost less?

The proposed sale of five state prisons is based on supposed savings that would be achieved by private operation. But the state has not shown it has a reliable way to compute such savings from two existing prisons run by a private company.

A recent study for Policy Matters Ohio finds the state’s calculations to be not only riddled with errors, oversights, and omissions of significant data, but also potentially tainted by controversial accounting assumptions that many experts consider deeply flawed.

The state Department of Rehabilitation and Correction has released a new set of numbers that also, not surprisingly, tout dramatic savings. But these new calculations raise as many questions as they answer.

Will privatization limit our ability to make decisions and deliver good services?

A turnpike lease could last as much as 75 years, far longer than the existing interstate highway system, and take out of public control a key piece of transportation infrastructure. If rising turnpike tolls cause drivers to use other roads instead, maintenance costs for these roads will increase.

The Senate budget says the turnpike contract may include certain terms approved by the state budget director, including financial and other data reporting requirements. “May” is not the same as “shall.”

Too often, privatization deals include clauses that require taxpayers to compensate the buyer if steps are taken that might reduce the private owner’s return. For instance, Virginia must pay the private contractor for one of its highways if carpooling grows beyond a certain amount.

Chicago can’t reduce its number of parking meters without compensating the company that is leasing them for 75 years. Such clauses restrict government’s ability to make decisions about how to provide the best public services.

Who will benefit from these deals, and will that adversely affect making of good policy?

The provision in the Senate budget for lottery privatization was submitted by a gaming company lobbyist, and was nearly identical to legislation the company drafted. Private-prison owners want more prisoners, while the public wants to keep people out of prison as long as public safety is preserved.

The House and Senate wisely rejected a budget proposal by Gov. John Kasich that would have given his administration the authority to contract out any state service for as long as 75 years. Under some privatization proposals, the General Assembly directly would authorize a sale or lease. In other cases, the shift to private operation would require the legislature’s review or other action.

But nearly all of these prospective deals raise the question: Will Ohio taxpayers be able to find out how well services are being delivered, and to keep tabs on the private monopolies that will provide these services?

Ohio is rushing to privatize without good answers to such important questions.

Zach Schiller is research director of Policy Matters Ohio, a not-for-profit research organization in Cleveland that examines the effect of economic issues on working families.

Why the rush to sell off Ohio’s assets?

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