After three decades of privatization with its massive divestment from our public infrastructure and services, we are finally taking stock. Our levies are broken, drinking water poisoned. We have collapsed bridges and power outages. Making vital decisions based on ideology instead of evidence has had real costs.
With astounding infrastructure needs and severe budgetary shortfalls, we are in national crisis. So, we are turning to private investment to co-finance our recovery--public-private partnerships (P3s)--to repair levees, bridges, and water systems, as well as to build large scale clean energy projects, high speed railroads, and power plants. If done right, we can forge a public-private partnership akin to the Second World War when P3s drove us to victory.
However, our least patriotic institution, the large scale investment bank, seems to have something different in mind. After decades of taking money out of the pockets of the poor and middle class in order to line their own pockets and pay for private jets, they are now queuing up to profiteer on our social services and public works. Infrastructure is expensive, and arranging deals can net big fees. As we tighten our belts in order to afford the cost of new water pipes and windfarms, they reach for our wallet.
The People of Chicago paid out $26,802,220 to lawyers, bankers, and other professionals to arrange the Skyway, Downtown Public Parking System and Metered Parking P3s. This included $8,400,000 to Goldman Sachs for the Skyway alone. If the quality of the contracts and the performance of the projects is any indication, the professionals who arranged this triad of P3s took more out of the public purse than they contributed.
If we are going to aggressively pursue P3s for our reinvestment, then we need some basic rules when it comes to how much these barons can charge.
Professional fees are one of the biggest costs of capital. They drain value from our projects, making it less likely that we'll be able to pay back the money. They also take money out of government budgets that would be better spent keeping school lunches going.
Only three rationales exist for professional fees:
1) If the professional shoulders risk.
2) If the professional vouches for the quality of the project, the bond, or the contract.
3) If the professional provides expertise.
All else is nothing more than a toll charge on the road to capital. Recycled contracts are nothing more than a toll charge. Just like I don't pay my bank teller to reach into the drawer to give me money from my bank account, I should not pay a TARP bank to use my money to pay for drinking water.
It is not enough for cities to publish financial data about P3 deals once they've closed. We need to know how much professionals are charging before a deal closes, so that we can judge the quality of the deal before we invest. These charges must be transparent and widely circulated. And, accounted for.
After the Second World War, companies that profiteered on government contracts were widely condemned as unpatriotic and sometimes prosecuted.