Thursday, August 30, 2012

Privatization and Rent-Seeking

As a reminder, I run a company that privately operates public parks, originally in the pioneering US Forest Service program and today, as park budgets are cut, for many government agencies.

Anyway, about 3 years ago a lobbyist showed up at my door selling his services.  He said he could help me promote this model in various state legislatures.  I was not wildly excited, knowing that legal changes were irrelevant until individual parks agencies saw value in the model.  He then gave me what he thought the best selling point was:  he could get the legislation crafted in a way such that only my company could win the bidding.  I threw him out.

I got into the business out of passion for the outdoors and for what I thought was a better idea.  I felt dirty thinking about creating such crony returns for myself.  But it was a valuable lesson I have remembered ever since when discussing privatization with skeptics:  people fear cronyism in privatization programs -- and they have good reason for doing so.

I am not an expert on private prison arrangements, but I know prison companies are often accused of seeking rents through political favoritism.  With large fixed investments in prisons to cover, private companies have been accused of using legislative influence to increase the rates they are paid, to increase their share of the prisoner population, and even to support laws that would create more criminals (e.g. harsher drug laws).  I have sat in on some of these appropriations sessions and it is not always pretty.

I am working on a post discussing how public recreation agencies avoid many of these issues, but before I get to this material in the next post, I wanted to make a couple of observations that privatization critics often ignore in the rush to tar privatization with the cronyism label

1.  Public actors rent-seek as well.  To my mind, prisons are not a particularly logical place to start a privatization effort, yet they are at the leading edge of American privatization.  This is not accidental -- state run prisons had become tremendously expensive and inefficient, in large part because powerful prison unions played the legislative influence game to beef up their pay and benefits and work rules long before private companies entered the fray.  

Public prison companies have rightly come under fire for lobbying both for larger fees as well as harsher laws that create more prisoners (example from Think Progress).  But what is generally ignore by critics is that public prison unions do exactly the same thing.  I don't have access to the lobbying numbers, but we can look at election donations, as did Reason magazine recently:
Let's take a look at the two top spenders [in the recent election cycle]:
  • The Correction Officers Benevolent Association has spent $183,800 thus far in 2011-2012
  • The California Correctional Peace Officers Association has spent$142,800 thus far in 2011-2012
COBA represents correctional officers in New York; CCPOA obviously represents workers in California. In 2011-2012, these two unions have donated to politicians and PACs in two states almost as much as GEO Group ($170,000) and Corrections Corp of America ($206,000) have donated to politicans and PACs in all 50 states. (Lobbying expenditures is, of course, another story.)

Does that mean public sector prison unions are up to no good, the way private prisons are assumed to be? Or that the politicans they donate to have been corrupted by their influence, as the recipients of private prison money supposedly have been?
In California, the prison guard union wields immense political power -- far more powerful, I would argue, than the private prison companies in Arizona that Think Progress fears is running the state from the back room.  Sasha Volokh wrote in 2007:
The most active public corrections officers’ union in advocating incarceration is the California Correctional Peace Officers Association (CCPOA). It gives twice as much in political contributions as the California Teachers Association, though it’s only one-tenth the size; only the California Medical Association gives more in the state. CCPOA spends over $7.5 million per year on political activities. It contributes to political parties, political events, and debates; it gives money directly to candidates; it hires lobbyists, public relations firms, and polling groups. 
Many of its contributions are impossible to trace back to any particular agenda item: Since the union also opposes privatization, favors higher wages, and has positions on other issues, it’s just as plausible that the contributions were made for those other purposes. 
But many of its contributions are directly pro-incarceration. It gave over $100,000 to California’s Three Strikes initiative, Proposition 184 in 1994, making it the second-largest contributor. It gave at least $75,000 to the opponents of Proposition 36, the 2000 initiative that replaced incarceration with substance abuse treatment for certain nonviolent offenders. From 1998 to 2000 it gave over $120,000 to crime victims’ groups, who present a more sympathetic face to the public in their pro-incarceration advocacy. It spent over $1 million to help defeat Proposition 66, the 2004 initiative that would have limited the crimes that triggered a life sentence under the Three Strikes law. And in 2005, it killed Gov. Schwarzenegger’s plan to “reduce the prison population by as much as 20,000, mainly through a program that diverted parole violators into rehabilitation efforts: drug programs, halfway houses and home detention.”
We have to be careful - such rent-seeking is bad and represents a clear failure of governance, but critics who point it out with private contractors need to be fair and acknowledge similar activities by public employees in those same functions.

2.  And this brings us to my second point, that there is an internal contradiction in much of the criticism of privatization.   Critics will argue that private management fails because private actors have baser motivations than public officials, who are self-selected and trained to only want to improve the public good and make decisions consistent with that good.

What is never explained to me by such critics is how these folks who are so pure of spirit when managing an activity themselves within government, suddenly become so disdainful of the public when managing private contractors.  This makes no sense, which is why we shouldn't be surprised that prison insiders act in many of the same ways whether they are public or private employees.

What we should be looking for is a way to shift the incentives, such that insiders, whether they be public or private, don't have their personal returns and success disconnected from how well they do their core function  or how efficient they are with public funds.

How do we do that?  I will give just a hint right now.  McDonald's would save money by not cleaning the bathrooms.  So why does it clean them?  Marriott would save a ton of money if it did not wash the sheets between visits.  So why does it do so?  Because Marriott and McDonald's make money only when the public finds value in its services.  Neither can run to the legislature for higher prices or more customers if they are not making enough revenue.  In my next post, I will discuss privatization models that establish these same incentives.

Privatization and Learning

This is the second in a series of articles inspired by a couple of stories that appeared on this blog recently -- one the Dorfman and Harel article about prison and military privatization, and the other just yesterday on privatization in the Nebraska child welfare system.  My purpose is not to put a stake through the heart of privatization (since I am a participant in that field), but to tease out lessons for successfully structuring and limiting privatization efforts.

2.  Structuring Privatization for Learning

In states that have parks agencies that are short of funds and facing closures (which is basically all of them), I am often asked to come in to discuss our private operations model with state legislators.  After I describe what we do and the potential savings, the more gung ho members of the group nearly always say something like, "well, we should just get rid of the parks agency entirely and turn it all over to private companies."    

While I appreciate the enthusiasm for what we do, I have to slow them down, for at least two reasons.  The first I discussed in my previous article -- that certain decisions related to parks and public lands need to remain in public hands.   The second reason has to do with learning -- while this model is very familiar to my company, it is completely new to their agency.  How do they write contracts?  How do companies get paid and how does the agency enforce accountability?  Is there a quality vendor pool with real experience and performance history?  Laying off the entirety of an agency's experienced staff, no matter how expensive or inefficient they may be, before these questions are answered is fraught with peril.

Which seems to be exactly what Nebraska did in its child welfare department.  The exact problems are hard to tease out, as it's hard to tell what were pre-existing problems unsolved by privatization and what are new problems brought on by the effort.  As an aside, I can say from some personal experience that there are some inherent problems making child welfare departments work, to the extent that I could likely go to any of the fifty states and document two or three horror stories today, irrespective of their management approach.  Never-the-less, it seems Nebraska went all-in, turning the entirety of the caseload over to five inexperienced companies (if these companies had experience in other states or if other states have tried this model, the author does not tell us this).

The successful privatization efforts I have been a part of have all been implemented in a staged approach.  The US Forest Service today is the world leader in using private companies to manage their public recreation areas, with over a thousand or their largest sites under private management.  But when they began this program 30 years ago, it was in just a few locations that represented less than 1% of their total recreation operations.  

This was fortunate, because the program had to overcome numerous hurdles in its early years. The field recreation staff had no experience managing contracts of this sort.  The agency didn't know how to write a contract for this kind of operation, or how to solicit bids -- today, they have good model contracts but these are third and fourth generation versions that have been refined based on substantial learning in the field, some of it painful.

Perhaps most importantly, there were no private operators with experience in this type of arrangement either, and early on the US Forest Service had problems with contractor performance and financial instability very similar to problems in the Nebraska child welfare program.  But the agency persevered, and today US Forest Service recreation contract offerings tend to attract bids from as many as five or six private companies that have decades of experience working with the agency.

One danger of this approach of starting small and planning for learning and improvement is that it does not always play well in the political process.    While private companies are comfortable expecting mistakes and then learning from them, mistakes in the public world are typically used as ammunition by opponents in political food fights.  It is sometimes hard to give public agencies the protection and space they need to learn and develop.

Public Decisions That Need to Remain Public

I wanted to post some thoughts on a couple of stories that appeared on this blog recently -- one the Dorfman and Harel article about prison and military privatization, and the other just yesterday on privatization in the Nebraska child welfare system.  One potential reaction to these articles is that they are two additional proof points that privatization of government services always fails.  I think a better response is to use them as learning exercises to tease out lessons as to when and why privatization may not succeed, as a precursor to developing a framework for thinking about where and how privatization is likely to succeed or fail.  In a future post, I am going to try to offer the rudiments of such a framework, both from such lessons as well as my personal experience in the sector.

This is the first of three articles on lessons I would draw out from these experiences.

1.  Certain Decisions Need to Remain Public

As it turns out, I have always been roughly in agreement with Dorfman and Harel on privatization of activities such as prisons and combat.  Even in most libertarian models of government (Rothbard and the anarcho-capitalists excepted), government has a virtual monopoly on the use of force.  In fact, it is this one power that  distinguishes it from private entities (and it is this power that caused the founders of this country to work so hard to create multiple layers of control and accountability over government officials).

I cannot get comfortable with delegation of this core power to private entities, especially given the fact that the enormous expansion of government activity over the last 200 years provides plenty of opportunities to find savings from privatization.  I worry that delegation of this power to use force to private actors will tend to weaken and evade limits we have put in place (though to be fair in a world where our President claims the right to assassinate Americans without due process, many of these controls have already been weakened.)  Besides, history in the form of arrangements like the Ferme Générale certainly does not give us much confidence in the delegation of the public power to use force to private actors.

But I think a more general lesson about privatization can be drawn, beyond just to avoid privatizing the use of force:  some decisions need to remain in the public realm.  If I understand it correctly, this is essentially the theme of Dorfman and Harel's work.

My sense is that this was also an issue in the Nebraska child welfare case, though the exact sources of failure were harder to parse from the article.   Certainly I get a bit queasy at the thought of the low-bidder on a government contract making life-changing decisions about kids' foster care.   But on the flip side I have no problem with a private company doing the paperwork and tracking and reporting.  Somewhere in here, I think, is a distinction between critical public decisions and less critical operational activities.

Let me try to illustrate this distinction with an example form my own work.

My company privately manages public parks.  If I just say those words, without further description, the average park lover is immediately nervous.  Why he or she is nervous is important.  When asked, they will say that private companies:

  • just want to build a McDonald's in front of old Faithful
  • will take the land I love and build a resort on it that only rich people can afford
  • will pave over all the wilderness to get more parking to make more money
These are very common, typical concerns.  I debated the head of the Arizona Sierra Club on private operation of public parks and the first slide she showed was an entrance to a popular Arizona state park with a McDonald's sign photoshopped in.

The key here is that the public has entrusted the land to the state because it wants public actors making decisions about the character and use of the land in a way that benefits the whole state.  The implicit assumption is that such a use may be different than the use that maximizes wealth generation from that land  (the strategy a private actor would presumably follow). On the flip side, though, I have met few people who really care if the park's bathrooms are cleaned by an employee of the state or a private company.   Herein lies the opportunity, by keeping public decisions public but putting operating tasks in the hands of lower-cost private companies.  Of course, actually achieving the promise of this cost savings is sometimes difficult, but that is for a later post.

Wednesday, August 29, 2012

Privatized Child Welfare in Nebraska - Another Failure

In his article, Privatization Fails: Nebraska Tries Again to Reform Child Welfare, Kevin O’Hanion offers an inside look into Nebraska’s efforts to privatize its child welfare system and the problems it has inspired. O’Hanion argues that the privatized system’s failure stemmed from inadequate funding and planning, as well as poor execution. After years of problems with Nebraska’s child welfare system, the state implemented a privatized system in an effort to better the public system in 2009. Within six months of Nebraska’s transition to a privatized system, three companies ended their contracts with the state citing financial issues. The Legislative Fiscal Office also reported that Nebraska exceeded their budget for child welfare services by $50 million during the two-year budget period, with the majority of the funds going towards private contracts. The transition to a privatized system has also hurt the children affected by the welfare system on a personal level. The article cites multiple instances of child neglect, as well as instances that reflect the system's poor management of the children. Although the author hints at a personal distaste for privatization, O’Hanion seems more focused on learning from Nebraska’s errors in its implementation of a privatized system. 

Monday, August 27, 2012

Fraud by Special Ed Vendors in NYC

A recent horror story about educational outsourcing can be found here: Fake special ed vendors stole $1.5 million from city, probe finds

Here is an excerpt from the article, but we recommend clicking through the link to read the piece in its entirety - very worthwhile and informative:
Two men used shell companies and forged signatures to charge the Department of Education for sign language services that students didn’t need, an investigation found. The fraud ran for more than two school years and cost the city at least $1.5 million.  The brazen scheme involved claiming payment for services to students who were not enrolled in city schools and, in some cases, offered as proof that services had been provided the forged signatures of people who were retired or even deceased. In one instance, the city paid more than $100,000 over an eight-month period for a student who had left the school system a decade earlier. In another, the city handed out $187,200 in payments that were authorized by someone who had died “several years ago.”  Today, authorities arrested one of the men involved, Nelson Ruiz, while his collaborator, William Cruz, remains at large, said a spokeswoman for the Special Commissioner of Investigation, which conducted the probe.

Sunday, August 26, 2012

GAO: Faulty Estimates for Outsourcing Typical for Govt IT Projects

Nicole Blake Johnson at the Federal Times has a recent article about a pervasive problem with government outsourcing - GAO: Cost estimates are typically faulty on major IT projects

“It is alarming to discover that, despite past cost overruns and failed IT projects, agencies still have not put in place effective cost estimate policies. The time for a dramatic improvement in acquisition planning is now." -Senator Susan Collins, R-Maine.

A new audit, focusing on major technology projects, revealed a widespread deficiency in managers' ability to properly estimate costs. According to the July report conducted by the U.S. Government Accountability Office (GAO), fifteen of the sixteen IT projects, worth a combined 52 billion dollars, are using inaccurate cost estimates.

Most of these agencies fail to utilize the best practices in cost estimation. Many do not require employee training in cost estimation. Furthermore, most agencies lack an independent team responsible for accurately estimating costs. By implementing these simple methods, agencies can take the requisite step in the right direction to ensure more reliable cost estimation.

Government Outsourcing and 1.4 Million Security Clearances

Sean Reilly at the Federal Times has a new article highlighting the massive scale of federal outsourcing, as seen in the number of security clearances given to non-government agents: Report 4.9 million feds, contractors hold security clearances

A report conducted by the Office of the Director of National Intelligence revealed that 4.9 million people held security clearances last year. Of those security clearance holders, 3.5 million were federal employees, 1.1 million were contractors, and the remaining 320,000 consisted of "other" clearance holders who were neither federal employees nor contractors. Although the number of overall security clearances increased by 3 percent from 2010, the number of contractors with security clearance dropped by 8 percent. In several intelligence agencies including the CIA and the Defense Intelligence Agency, clearance decisions took over a  year to process for 5,000 cases involving both employees and contractors. While the process of issuing security clearances must be a thorough and meticulous one because the stakes are so high, there is an urgency for these agencies to complete clearances as efficiently as possible.

Friday, August 24, 2012

Privatizing Social Security?

Michael Hiltzik has a column in the LA Times entitled Proposal to Privatize Social Security Rears its Ugly Head Again - basically an election-season partisan piece attacking Mitt Romney and Paul Ryan for referencing privatization in their campaign rhetoric and pandering to their base.

I am moderately skeptical about privatizing Social Security, mostly because I am skeptical about any proposal to "solve" once and for all the inherent, unavoidable problems with government-provided (or even government-facilitated) retirement benefits - future costs and revenues are simply too unpredictable in a country as large and complex as the United States. I also worry about how a regime of mandatory savings/investment could distort the stock market itself and undermine normal free market competition among firms soliciting investors.

But I'm even more skeptical about how seriously we should take any Presidential candidate's campaign speech points about how to fix Social Security; this is a feature of every election cycle that seems to come to nothing after the election.  Reforming Social Security will be almost entirely a Congressional task, with the President involved only on the sidelines, as a cheerleader for his party's legislators.  Social Security reform would be even more controversial than health care reform; Republicans would probably need a supermajority in each house in order to make drastic changes.  So I am always a little mystified when people are either alarmed or enthused about a Chief Executive candidate - from either party - promising to fix Social Security unilaterally. It's not really within the President's powers, and it's probably not possible in any case. It seems more worthwhile to pay attention when candidates talk about things the President can do - Supreme Court nominations, appointing the Fed Chairman, ordering military interventions overseas, or prioritizing certain types of immigration enforcement.  The President does not directly raise or lower taxes, create or destroy jobs (apart from White House staff), or reduce poverty - on these issues, he is mostly confined to exercising his veto power after Congress enacts its own political compromise.

There's another source of my skepticism about most of the privatization rhetoric - retirement benefits are only a portion (albeit the largest portion) of the SSA's disbursements.  According to the SSA's latest statistics, more than one-third of the benefits paid out in a month are under the disability and survivorship programs, which would be entirely unaffected by privatized retirement plans (almost $20 million per month goes to these non-retiree beneficiaries - disbursements outside the reach of any privatization plans). Assuming we did privatizing retirement benefits, and that it reduced the SSA's spending on the program significantly, the proportion of disbursements going to disabled workers and survivors would become that much greater of the total pie, creating a new host of policy issues and political debates.  In addition, SSA has claimed in the past that 85% of its own agency overhead is spent on the disability program, which requires more than one million  formal adjudicative hearings per year for determining eligibility.  If this is true, then any savings in administrative costs brought by privatizing retirement benefits would affect only a small portion (15%) of SSA's overhead, not a very significant difference.

 - Dru Stevenson

UPDATE: for readers interested in evaluating various plans and proposals for Social Security reform, the FixSSNow website is even-handed enough to post a broad range of proposals for their readers to peruse, which I like. Lots of useful information there on this issue.  Discussion of this post occurs at here.

Thursday, August 23, 2012

New Article: The Case Against Privatization

Avihay Dorfman
Alon Harel
Professors Avihay Dorfman and Alon Harel recently posted a new article on SSRN entitled The Case Against Privatization, which focuses primarily on the problem of private contractors carrying out violent acts or coercion at the government's behest (as part of their contract).  This is a significant contribution to the literature in this area because of its sophisticated philosophical approach to the issue (rather than focusing on efficiency, manpower costs, or agency costs, which tend to dominate the academic literature and political debates about government outsourcing). Here is the abstract:
This article develops a non-instrumental argument against privatization of certain forms of political violence. Its primary foci are the privatization of prisons and the use of mercenaries in wars. The article maintains that some governmental decisions simply cannot be executed by private entities. While private individuals may act in conformity with the state's orders, such conformity cannot count as an execution of the order of the state and cannot be attributed to the state. Conformity that does not constitute an execution of the state's order, in turn, fails to realize the ends for the sake of which the infliction of force is justified, i.e., condemnation of the criminal behavior (in the case of punishment) and fighting for the polity’s public good (in the case of wars).

The article's focus on privatized prisons and military contractors is helpful for the sake of clarity; I think the arguments proposed could apply to other realms of government outsourcing that are inherently coercive (or very intrusive on individual's private lives or families) but not necessarily violent.  Outsourced decisionmaking about child custody, certain welfare or healthcare benefits, and similar matters can have devastating consequences for individuals on the receiving end of a private actor's choices, in a context where both the government and the contractor can hide behind diluted responsibility and disrupted lines of duty.  In any case, I highly recommend this article, and hope it informs the policy discussions about these matters in the future.

-Dru Stevenson

Wednesday, August 22, 2012

New Article: What Should Not Be Contracted Out

Professor Amos Zehavi of Tel Aviv University has made a significant contribution to the academic literature on privatization and government outsourcing with his new article, What Should Not Be Contracted Out: A Consequentialist Perspective, which offers a framework for making normative assessments about when government outsourcing (contracting out) is appropriate.  While I would tend to disfavor privatization in some circumstances where he would endorse it, his framework is a valuable analytic toolkit for policy debates on these issues. Very worthwhile reading.  Here is the abstract:
In what fields, if at all, is contracting out of government functions normatively impermissible? The theoretical framework proposed in this article focuses on this question from the perspective of two normative values: personal rights, and democratic decision-making and accountability. This analysis, conducted within a consequentialist framework, stresses the implications of the explicit and implicit reliance of normative arguments on assumptions concerning privatization outcomes. Special attention is given to the normative implications of three types of variations in the contours of contracting out that affect the severity of the principal-agent problem: differences in public-private incentive alignment; the degree of product observability; and differences in private firms’ market share in product provision. This theoretical framework is then applied to two central case studies: the contracting out of core incarceration and military functions. While the normative assessment of contracting out of incarceration finds little reason to prohibit this practice in some developed nations, an inherent democratic accountability deficit constitutes a grave concern with respect to the contracting out of core military operations in combat zones.

- Dru Stevenson

Monday, August 20, 2012

Five Ways Privatization Degrades America

Paul Buchheit has published an interesting Op-ed entitled Five Ways Privatization Degrades America, in which he lists the chief consequences of privatization.

Even though privatization has inspired these problems, Buchheit argues that the problems have actually furthered the cause of privatization, " the collapse of the financial markets has deprived state and local governments of necessary public funding, leading to an even greater call for privatization."

Saturday, August 18, 2012

New Hampshire Lawmakers Are Pushing To Privatize The State's Entire Prison System

New Hampshire, the "Live Free or Die" state, appears to be the next state looking to privatize its state prison system. Presently, New Hampshire is evaluating bids from four different companies with the help of a private consultant obtained by the state. The final decision will ultimately be made by an Executive Council consisting of five members, needing only three votes to pass. While recent data suggests that privatized prisons can in fact be more costly to maintain than public prisons, it seems only a matter of time before New Hampshire joins the 32 other states that have already adopted some form of the privatized prison system.  A decision is expected to be reached before the end of the year.
New Hampshire Lawmakers Are Pushing To Privatize The State's Entire Prison System

Wednesday, August 1, 2012

Is a Government-Enforced Private Monopoly Better Than Government Ownership

The back story:  Some cities are reversing privatization of water systems based on an example by Paris, among other cities.  Commenting on the story, Tyler Cowen observes:
For advanced water systems, there is no cost advantage to having a privatized system.  It is a regulated monopoly and over time it acquires skill in manipulating the political process, most of all its regulators.  Why expect lower costs and prices?  A wide variety of studies of this topic, including studies by “market-oriented” economists, find no cost advantage for the private sector in this setting. 
For very poor countries, very often water privatization would in principle be a good idea, since the public sector is not supplying much piped water at all.  Monopoly is better than carrying a bucket on your head, and you still can carry the bucket if you wish.  Yet privatization also won’t get very far in many of these cases.  One reason is that there is no way to make people — many of whom are non-registered and lacking in assets — pay their water bills, and not enough legal infrastructure to prevent them from cutting into the pipes or otherwise going rogue.  You shouldn’t “blame” privatization here, but still it may not be a useful option. 
Finally, there is a sweet spot in the middle, often for reforming or middle-income countries.  In those cases water privatization can mobilize private capital rapidly and expand water coverage.  It often brings higher quality water, higher quality connections, lower rates of unaccounted-for-water, and higher prices. 
Certainly private operation without private market signals and competitive threats is is a weak privatization model, particularly if (when?) the company develops all kinds of insider political clout to change rules in its favor.

I am constantly suspicious of privatization deals whose main benefit is a one-time cash hit for a struggling government entity (the equivalent, say, of Arizona's sale and lease-back of its capital building).  A better privatization model would be one that was structured to reduce operating costs rather than generate a one time budget fix.  I wonder if it would be possible to lease the operating rights to the water system, rather than sell it outright?  The private company would still get paid out of water revenues, but a contract end date and rebid process would help keep some competitive pressure on the company even if for the duration of the contract they were effectively a monopoly.  

In the public recreation privatization model, the government retains ownership of the assets and leases just the concession rights.  Private companies in return bid for those rights, and must rebid every 5-10 years.  These bids are not just for concession fees but for fees charged to the public, quality metrics of the operation, capital invested, etc.  Concession fees are used by the agency to pay for capital maintenance and upgrades that are not part of the concessionaire's responsibility.

Update:  Other municipalities are going the opposite direction, from an article by Len Gilroy a while back in the WSJ:
In April, the Chicago City Council overwhelmingly approved Mr. Emanuel's $7 billion program to "rebuild Chicago" by constructing two new runways at O'Hare Airport; replacing 900 miles of water pipes and 750 miles of the sewer system; creating special routes for rapid bus transit; modernizing schools, transit stations and city buildings; and building 12 new parks and 20 playgrounds.
To pay for these projects, Mr. Emanuel is turning in part to private firms including Citibank and Citi Infrastructure Investors, Macquarie Infrastructure and Real Assets Inc., J.P. Morgan Asset Management Infrastructure Investment Group, and union-held Ullico. These firms say they are ready to provide at least $1.7 billion to help build the "new Chicago." (Though the details are not yet set, the likely arrangement would have the private firms putting up capital and then recouping their investments through user fees over a set period of years or decades.)
"This model of private financing for public infrastructure is happening all over the world, but not here in America," said Mr. Emanuel, who served from 2009-10 as President Obama's chief of staff. "I can't get from here to there on the old model—it's broken."... 
Mr. Emanuel's new infrastructure plan is bolstered by the privatization success he's already experienced in Chicago. Last summer he launched a large-scale competitive bidding process in which two companies compete with each other—and head-to-head with city workers—to provide cheaper curbside recycling for Chicagoans.
The competition forced government workers to find better ways to do their jobs, and Chicago reported reducing costs by $2 million in the first six months alone. "The City's crews have worked to close the gap between the private haulers' $2.70 price per cart by reducing their costs by 35 percent from $4.77 to $3.28 per cart," the city government reported in April.
Also privatized by Mr. Emanuel: Chicago's water-bill call center, airport and library custodial services, and the city-worker benefits-management system. Hiring private companies that could manage these services at lower costs led the city to lay off over 600 employees, so the mayor came under predictable fire from government unions. "My duty as mayor is to protect our city's taxpayers and be their voice—not to protect the city's payroll," he responded.