THE BLOG

A New Urban Crime: Selling Public Utilities to Private Corporations

03/21/2014 09:40 pm ET | Updated May 21, 2014

When Michael Nutter first became Philadelphia's mayor in 2007, I was lukewarm in my support for him. The progressive maverick seemed to have all the "right" positions on issues, and he was articulate, polished, and professional, although perhaps too much so. Can a politician be so polished that he or she comes across as slick, as in, "I smell a con job in there somewhere?" In 2007 I even had a Republican tea party friend who volunteered for the Nutter campaign. "Joyce" felt that Nutter would help improve life in the City of Philadelphia.

Dreams (and illusions) die hard. Fast-forward seven years and "Joyce" is hardly a Nutter fan at all and in fact has moved out of the city to the relative quiet of New Jersey. As for me, I could never understand the excitement and support that Nutter received from political progressives. Liberals everywhere seemed to put him on a pedestal. For me it was always a question of when the "real" Michael Nutter would surface.

That happened when the mayor announced his proposal to sell the Philadelphia Gas Works to a private corporation in Connecticut, the UIL Holdings Corporation, for $1.86 billion.

What a bombshell. The New Deal-style political-grassroots Democrat had become an urban version of Gov. Tom Corbett. Welcome to a Philly nightmare.

I say this because I wonder if most Philadelphians know just how bad an idea like this is. The media, namely broadcast news, has had an almost indifferent reaction to the impending sale, choosing instead to headline stories of North Philadelphia crime, or home invasions in the Northeast as "breaking news," while giving minor play to the PGW story. But the fact is that if the mayor's proposal materializes, the city will be giving up its 178-year ownership of PGW. Why is this important? It's important because PGW continues to be a not-for-profit public utility company, "not-for-profit" meaning that PGW's profit margin has more to do with covering operating expenses than with the accumulation of major wealth.

The mayor says the city needs to sell off PGW (for $1.86 billion) in order to rescue "the city's ailing pension fund." He adds that the sale of PGW would inject $424 million into the city's pension fund, a fund that affects only a miniscule percentage of Philadelphians, while the vast majority of Philadelphians have no connection to the fund because they do not work for the city.

PGW is good for Philadelphia because, as a nonprofit public utility, it benefits the entire city with gas rates that, though high, would be three times as high if a private corporation like UIL (which exists only to maximize shareholder value) gained control of it.

Look at it this way. Pension funds all over the country are dying out or being drastically reduced. In some cases, such as in Detroit, city pension funds have been radically cut. Philadelphia's pension fund is, compared with those of other cities, extremely generous. There have been no cuts, although according to the mayor, there is an $8-billion pension-fund deficit.

The people who want to sell PGW insist that $50,000 per year in pension payments isn't really all that high. Well, let's compare that with maximum Social Security benefits, at $2,600 per month (and it is almost impossible to qualify for this). When you spread that $50,000-per-year city pension over 12 months, it comes to $4,166 per month. Even the so-called "cheap" city pension is about $1,600-per-month higher than the maximum Social Security possible. City pensions kick in after 25 years on the job (you start working at age 25 and collect at 50), whereas maximum Social Security requires 47 years in the system so that you can collect it at age 67. What this all means is simple: The current pension system is in fact outrageous.

For starters, an annual pension of $50,000 is huge. Most people in fact do not make that amount annually when they are working, let alone in retirement. And the vast majority of people, who are not city workers, do not even have a pension. The Philadelphia system is bloated, mismanaged, and broken.

One solution to the so-called pension-fund crisis is to fund it with a wage-tax increase, or better yet, lower pension payments to city workers, as was done in Detroit. But don't penalize the entire city of Philadelphia by selling a public utility to a for-profit private corporation.

Philadelphia's mayor and his "for-sale" cronies want to appease the public with promises that UIL will not raise gas rates for customers for three years after the sale, and that UIL will keep discount programs for low-income seniors and others. An additional promise was made that PGW retiree pensions will be respected.

But three years is a very short time, and when that flash in the pan is up, if you think that UIL, a for-profit company, will behave in the low-rate-increase and caring manner that PGW has been adhering to for 178 years, then you are naïve. UIH's first rate increase after three years will of course be very small, because UIH will not want to arouse customer antipathy, but very soon after that, the scenario will change and UIH will do what all private corporations do: go in for the big money.

Within 10 years or less, gas rates under UIL will be through the roof. In the meantime, the temporary fix that Nutter made back in 2014 to fund the "ailing pension plan" will be history, and not only that, but the "for-sale" money, $1.86 billion, will be all used up. The brash of new city pension funds, if pension funds are even around then, will go hurting because of continued city mismanagement. But the lasting legacy of all this will be the fact that PGW will be gone forever. There will only be HIL, a for-profit corporation.

Philly is a poor city, one of the poorest in the nation. With very cold winters becoming the norm, future gas rates under UIH may very well spell disaster for most city residents. Will a private corporation be as benevolent or as generous as PGW when people are late or don't pay their bills? Can a for-profit company ever be as "benevolent" as a not-for-profit company?

Can you name one large private corporation that has ever put people before profits?

YOU MAY LIKE