Like the Fed, states and local governments appear to be between a rock and a hard place, and like the Fed's QE2 program now aimed at Main Street, solutions for state and local governments have been so far less than palatable. One such solution known as "infrastructure privatization" has been rapidly gaining momentum in recent years and involves the sale and/or lease of public assets to private interests. These assets include such things as airports, parking meters and parking garages, public water and utility systems, toll roads and bridges, sea ports, zoos and other outdoor spaces, and more - all originally built by taxpayers and paid for with taxpayer monies.
Metered municipal street and garage parking spaces are among the most popular of recent municipal privatization schemes with one of the first taking place in Chicago "where the city received $1.16 billion in 2008 to allow a consortium led by Morgan Stanley to run more than 36,000 metered parking spaces for 75 years." Essentially Chicago residents and visitors will for the foreseeable future be paying Morgan Stanley and cohorts for the privilege of using parking meters that had already been built and paid for by taxpayers -- the income from which heretofore had been used primarily for governmental operating expenses.
This particular parking meter deal, similar to many such "privatization" schemes, immediately translated into higher fees - which not only resulted in a huge public outcry but prompted the inspector general to assert that "the city was short-changed by about $1 billion" based on the new fee structure. Meanwhile alderman Scott Waguespack, who voted against the lease, noted dryly that "The investors will make their money back in 20 years and we are stuck for 50 more years making zero dollars." But perhaps the biggest blow to the city came when Fitch Ratings downgraded Chicago's bond rating to "AA" from "AA-plus" last August, a move which could - happily enough for the banks - raise the city's borrowing costs. This downgrade, Fitch said, was due in part to Chicago's "accelerated use of reserves to balance operations."
Chicago's experience is not an isolated one but many nevertheless insist that such privatization schemes may now be an essential element of the fiscal pie, one important ingredient of which includes, disconcertingly enough, foreign investors. Overall the results aren't pretty even when analysts such as Robert Kurtter, a managing director at Moody's opine that: "We view these asset sales as 1-shots"that create structural budget imbalances in future years, but that may be necessary actions to bridge the time gap until revenue stabilization or growth returns."
Not only is this privatization trend "being spurred by a cottage industry of consultants, lawyers and bankers" but even more importantly, it amounts to " a fire sale that could help plug budget holes now but worsen their financial woes over the long run." Some have gone so far as to say, not wholly without justification, that this collective governmental move toward privatization of public assets amounts to little more than corporate fascism -- ruled by government proxy through state appointed regulators, rather than citizen votes.
The Debt Crisis, Real and Imagined
Curiously, and at the same time that local governmental entities have been selling off public assets to buyers far and near through "infrastructure privatization," many have also been actively acquiring a wide variety of assets as investment vehicles and profit centers. These assets, taken together , show that "collective government has controlling interest in all Fortune 500 companies and most other major corporations in and outside of the United States." Documented evidence of this can be obtained through careful study of at least a portion of some 185,000 governmental entities -- everything from school districts to city and county governmental bodies to state government -- now using CAFRs, or the Comprehensive Annual Financial Reporting System.
Used by investment rating companies such as Moody's and Standard and Poors to determine a state's fiscal integrity and set bond rates, these CAFRs are an accounting tool meant to reflect "a thorough and detailed presentation of the state's financial condition." The Institute for Truth in Accounting describes the CAFR mechanism this way (emphasis mine):