What Happened?
Chicago is considering privatizing Midway Airport in an effort to increase revenue and pay off debt. A deal with the previous Mayor had plans to lease a portion of the airport to private financiers for 99 years at $2.5 billion. The new plan would test the privatization market with a shorter contract.
So What?
The city is seeking to maintain ownership interest in the airport and does not want to completely privatize it, protecting consumers over the long term.
Under a previous plan, Midway Investment and Development Co. LLC would have had control over parking, concessions and passenger ticket taxes profits, while paying the city of Chicago a hefty sum in return.
What This Means
The reconsideration of privatization comes after the City Council’s Finance Committee approved a plan to refinance $1.5 billion in Midway Airport debt. Money generated from a privatization deal could be used to not only reduce the airport debt, but also support city infrastructure projects and repay unfunded public employee pension funds. The city’s police and fire pension funds liability, for example, requires a $700 million contribution just to be stabilized in the current economic climate.
LaGuardia Considers Private Financiers
The Port Authority of New York and New Jersey is also considering privatizing $3.6 billion in renovations to LaGuardia Airport. This 27-page RFQ details the requirements for potential partners. Considered one of the worst airports in the country, yet managing the travels of more than 11.5 million passengers annually, the facility is due for expansion and redevelopment.
The Port Authority is looking at 15 private firms to pay for the majority of the construction, which will allow the facility to handle more passengers comfortably and improve overall efficiency. The renovations will include new parking and road improvements that will benefit local travelers, without costing taxpayers any money. Throughout the selection process, the Port Authority is considering:
- Cost-value of the partnership to stay on schedule and under budget
- Minimal disruption to patrons and passengers throughout the construction process
- Risks and benefits to be appropriately allocated between the Port Authority and the private firm
- An efficient and functional design for new infrastructure
- World class expertise to improve passenger satisfaction with the improvements
Security Issues with Privatization
While working with companies may reduce debt for cities, privatization of all aspects of an airport, such as passenger screenings, may not benefit the public. According to a study conducted by the Government Accountability Office on the Transportation Security Authority’s Screening Partnership Program, privatized airports may offer lower quality screening procedures for passengers. About 16 airports nationwide are implementing private screeners at security checkpoints rather than working with TSA agents. Because these screeners are not held to TSA standards, the federal government is considering drafting a formal process to measure performance of private agents. Municipalities considering using private screeners should develop performance metrics to maintain high levels of safety for all passengers.
Furthermore, MIT reported privatization of airports can:
- Take a long time to complete
- Require extensive negotiations between public and private entities
- Necessitate complex solutions to common problems
Research
The Reason Foundation has significant reporting and research on transportation privatization, including an Annual Municipal Privatization Report.