Privatization and the Sale of Tax Revenues

By Julie A. Roin. Full text here.

While the privatization of governmental activities may have begun as an effort to obtain efficiency gains, increasingly privatization transactions have become a mechanism for surreptitiously borrowing money. One city’s 2008 decision to “sell” its parking meters for $1.56 billion provides a perfect example of this sort of revenue-driven “privatization.” The technique is almost infinitely expandable, and is increasingly attractive to cash-strapped governments seeking to avoid explicit tax increases or debt issuances. The Article lays out the difficulties engendered when municipalities incur debt through privatization transactions, and suggests legal changes that, if adopted, may reduce localities’ incentive to engage in inefficient transactions.