SIDDIQUI: How to do privatization the right way

February 11, 2017

Privatization is a growing trend. The argument is that the private sector can provide efficiencies and services that government and its bureaucracy cannot. Furthermore, privatization generates immediate funds to resolve immediate issues. Unfortunately, privatization is also a way in which our political leaders can receive immediate funds for their budgets without having to increase taxes.

How can politicians shine? Provide more services (like building roads) while reducing taxes. Indiana is a great example of how this magic can happen. Gov. Mitch Daniels pushed for the lease of our toll road to an international consortium. The funds received were put to great use through the Major Moves initiatives. Daniels also provided Hoosiers with a rebate check because of a surplus.

The challenge is that the Major Moves funds have been depleted and our roads still need repair. The lease hasn’t expired and it will be another 60-plus years before we can make this magic again. Unfortunately, our infrastructure maintenance (roads and bridges) won’t wait that long.

Similarly, we hear politicians push for the sale of public utilities, lands and other publicly owned entities. The idea is to receive immediate injection of funds to fulfill current budget needs by permanently selling an asset. In essence, it is like selling your home to pay for your current bills.

This behavior prevents tax increases, which means we do not have a public dialogue of the true cost of public policy.

John Hopkins Universityscholar Lester Salamon proposes a better idea. He suggests that privatization funds should not be used in the current budget cycle. If privatization can serve a broader public purpose than immediately plugging a budget shortfall, the funds generated should be invested in an endowment. The endowment funds should be dedicated to an agreed-upon public purpose.

In essence, we create a foundation using public funds. In fact, Salamon argues that philanthropy through privatization can become the largest resource for private foundations in the future. The foundation can have an appointed board, a predetermined purpose and controls that ensure its income can be used for the good of the public in perpetuity.

The Indiana General Assembly and many Indiana cities have some important budgetary decisions in the year ahead. The use of funds generated through privatization of public resources seems like a quick fix to a short-term budget gap. Increasing taxes is never seen as a good political option. Indianapolis Mayor Bart Peterson tried to do the right thing but ended up losing the election.

The public must hold its political leaders accountable for the sale of public assets. We should demand that our politicians use funds generated through privatization for the perpetual use of the public rather than short-term politically expedient goals.•


Siddiqui is an attorney, has a doctorate from the Lilly Family School of Philanthropy at IU and leads the Association for Research on Nonprofit Organizations and Voluntary Action. Send comments to ibjedit@ibj.com.


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