The bankruptcy of our capital city is a national embarrassment. Although Harrisburg has taken the unprecedented step of formally filing for bankruptcy, cities across the commonwealth are struggling with choking debt and overstrained budgets. Solutions to these situations are difficult, but we should begin with an analysis of what pushed these distressed municipalities to the brink in the first place.
In Harrisburg, it is widely accepted that the fiscal mess centers on the staggering debt created by the city’s incinerator. Less than a decade ago, Harrisburg City Council approved a loan of $125 million to fix the incinerator. That debt has mushroomed to nearly three times the original amount.
Moody’s recently published a report citing our city as a prime example of the perils of “enterprise risk,” the financial community’s term for borrowing — backed by taxpayer money — for projects as diverse as Harrisburg’s incinerator and other municipalities’ golf courses. Moody’s concluded, “One common thread among these troubled enterprises is that they all operate in sectors that have ample competition from nonpublic organizations.”
That raises the most fundamental question: Why is government competing with private business in the first place? Why are taxpayer funds being used to compete against taxpayers?
President Ronald Reagan used a simple test. He called it “The Yellow Pages Test,” meaning that if a service could be found in the Yellow Pages, government should probably not be involved in that business.
Yet across Pennsylvania, we see examples ranging from the state’s liquor business to local municipalities’ health and fitness centers. Municipalities across the commonwealth own nearly 50 golf courses. The Dauphin County Authority owns a hotel outside Pittsburgh. Nearly half of Pennsylvania’s counties operate nursing homes.
A few years ago, Hampden Twp. seriously considered building and operating a health club that would have directly competed (using taxpayer money) with the local YMCA and several privately owned gyms and fitness centers. Thankfully, the proposed project was defeated by a citizen uprising.
Municipal taxpayer-supported enterprises typically involve essential services (and natural monopolies) such as water and sewer. Much riskier, even from the standpoint of those who support government involvement in such enterprises, are ventures like water parks, real estate deals and golf courses. Just across the river from Philadelphia, Collingswood, N.J., recently saw its bond rating plummet from investment grade to junk status because of a failed multimillion dollar condominium project.
Moving away from these models are proposals to lease Harrisburg’s parking system and sell its water system and real estate holdings. Across the country, privatization initiatives are being studied and implemented.
Privatization is not merely selling or leasing municipal assets. It takes many forms, including private-public partnerships, partnering with nonprofits and managed-competition opportunities.
Privatization is hardly a partisan concept. While Ronald Reagan was given great attention for promoting privatization, his administration did more to study and promote privatization than it did to sell off billions of dollars of assets to pay down the national debt. Reagan did successfully privatize Conrail, which had been taken over by the government from the bankrupt Penn-Central.
It was President Bill Clinton who sold the multibillion dollar Elk Hills Naval Petroleum Reserves and U.S. Enrichment Corp. He also applied competitive contracting to numerous military base functions and airport control towers.
Recently, our Gov. Tom Corbett appointed an advisory council, on which I am honored to serve, to explore whether functions now performed by the state might better and more cost-effectively be performed by the private sector.
The mission of Gov. Corbett’s council is to “achieve a combination of quality, cost savings, expertise and effectiveness. It will also examine roadblocks to sensible privatization, drawing on the experiences of past privatization efforts.”
As Gov. Corbett pointed out, “From snow removal to social services, private job-creators have been doing work that government bodies simply could not do without an increased cost to taxpayers and a drop in efficiencies. Too often, debates over privatization fail to recognize this simple fact — it’s already working to the benefit of taxpayers.”
Privatization works because it brings competition to the delivery of public services. Ultimately, privatization is only a tool. If used properly and effectively, privatization will bring greater efficiency, lower costs and better service for taxpayers. It can result in increased innovation and quality of service.
When properly applied, privatization allows government and taxpayers to gain accountability, increases transparency and saves taxpayer money. And it puts business back in the hands of those in the Yellow Pages.