Infrastructure privatization is in the news. In the past ten years, Pennsylvania, California, Colorado, Indiana, and many other states and municipalities have privatized—or attempted to privatize—toll roads, parking meters and other public infrastructure. State and federal policies have encouraged these public-private partnerships and infrastructure privatizations.A very good read but permit me to jump down to footnote 31 which notes a 2009 article by Dan Mihalopoulos:
Chicago’s new parking meter operators are raking in more than $1.1 million a week and expect even more revenue next year, according to internal company documents obtained by the Chicago News Cooperative. The parking meter company projects total revenues of more than $75 million and net income of about $58 million in 2010…Financial experts who reviewed the data say Chicago could have made out much better in the long run had it just kept the meters. The private company, Chicago Parking Meters LLC, paid the city $1.15 billion in February for the right to reap all parking fee revenues for 75 years.I’m not sure how the city decided that $1150 million was fair market value but let’s do a small DCF model that starts with nominal profits at $58 million per year but let’s this figure rise by 2 percent per year. The fair market value depends of course on what we assume the appropriate nominal discount rate should be. If one is willing to assume a 6.9 percent nominal rate, then this was a fair deal to the taxpayers. The current interest rate on 30-year government bonds, however, is only 3 percent. If we use this as our discount rate, the fair market value would be over $3 billion. Of course this has been an old story – government officials selling taxpayer assets to private companies at bargain prices. I think the President elect even wrote a book on this.