TLP: When Government Runs Like a Business. A Really Bad Business.
We've seen the steps some state and local governments have taken to deal with budget crunches. Selling off buildings, contracting out prisons, for example.
Things may be getting out of hand.
Cities and states across the nation are selling and leasing everything from airports to zoos—a fire sale that could help plug budget holes now but worsen their financial woes over the long run.Not good, whichever way you look at it. Keep government running as is and continue down the red-ink river. Sell today and end up drowning in it later. Of course, there's always the hope that someone somewhere in government will have a big enough pair to, I don't know, stop spending.
California is looking to shed state office buildings. Milwaukee has proposed selling its water supply; in Chicago and New Haven, Conn., it's parking meters. In Louisiana and Georgia, airports are up for grabs.
About 35 deals now are in the pipeline in the U.S., according to research by Royal Bank of Scotland's RBS Global Banking & Markets. Those assets have a market value of about $45 billion—more than ten times the $4 billion or so two years ago, estimates Dana Levenson, head of infrastructure banking at RBS. Hundreds more deals are being considered, analysts say.
The deals illustrate the increasingly tight financial squeeze gripping communities. Many are using asset sales to balance budgets ravaged by declines in tax revenues and unfunded pensions. In recent congressional testimony, billionaire investor Warren Buffett said he worried about how municipalities will pay for public workers' retirement and health benefits and suggested that the federal government may ultimately be compelled to bail out states. ...
While asset sales can create efficiencies, critics say the way these current sales are being handled could hurt communities over the long run. Some properties are being sold at fire-sale prices into a weak market. The deals mean cities are giving up long-term, recurring income streams in exchange for lump-sum payments to plug one-time budget gaps.
The deals are threatening credit ratings in some cases and affecting the quality and cost of basic utilities such as electricity and water. Critics say many of the moves are akin to individuals using their retirement plans to pay for immediate needs, instead of planning for the future.
"The deals are part of a broader restructuring of our economy that carries big risks because of revenue losses over time," says Michael Likosky, a professor at New York University who specializes in public finance law.
Uh huh. That's what I thought.