Rocco Rossi Goes Underground

May 5, 2010

So now Rocco Rossi’s going to build us subways. Two kilometers of track and one stop per year for the next ten years. Once we get that albatross Toronto Hydro from around our necks, the world will be our oyster! Get cheque. Go to the bank. Pay off debt. And the money will start rolling in.

Monetization of public assets. It’s so simple that it’s amazing no one else has ever thought of that before.

Oh, wait. They have. Margaret Thatcher. Ronald Reagan’s President’s Commission on Privatization in 1987. Our very own Mike Harris. Remember the 407? (Hey! There’s a snappy campaign catch phrase. Remember the 407! Reminiscent of the defiant battle cry, Remember the Alamo! It’s open for public use. Maybe you want to use it, Councillor Pantalone. A little bump to help you step up and get involved in the conversation.) How about the recent long term lease deal/debacle in Chicago where they outsourced the revenue for parking meters and lots into private hands?

What I’d like to know before we go all weak in the knees over Mr. Rossi’s plan to trade Toronto Hydro for subways is does it make an economic sense? With more than a few substantive examples of privatization plans gone awry, where are the positive illustrations of asset monetization? One? Any? I’m all ears here.

Even in the Fraser Institute’s call to privatization arms, the to-the-point article entitled Time to privatize, there’s talk of the tremendous benefits of “sweeping privatization” backed by overwhelming research in academic literature. The results have shown that privatized firms increased profitability, efficiency and dividends while reducing debt ratios. OK, but what about any benefits to the public purse? What does the public gain from monetizing assets?

Errr… well, a better run, more profitable company will help increase economic growth overall. More money, more tax revenue. So we’re counting on that old trickle down theory that conservative groups like the Fraser Institute love so much. There’s also the possibility of an increased amount of capital investment which would also stimulate overall economic growth, taking us back to trickle down again.

There seems to be a much more robust argument against privatization coming from people like Dexter Whitfield and the Municipal Services Project. Mr. Whitfield summarizes the crux of his recent book, Global Auction of Public Assets: Public Sector Alternatives to the Infrastructure Market and Public Private Partnerships, in a post at Truthout. His view seems to be that the public is better served by directly investing in infrastructure without relying on the private sector. Real life examples seem to back his argument up.

Examining Mr. Rossi’s plan specifically, things just don’t seem to add up. If I understand correctly, the city of Toronto garners more equity annually from it’s ownership of Toronto Hydro than it spends on servicing the debt. In selling Toronto Hydro, we pay down some of the debt thereby decreasing the amount of interest we pay per year. But after the one time payday, we get no further revenue from Toronto Hydro. So unless Mr. Rossi plans on paying off the debt entirely, we’re still in a negative cash flow situation as opposed to a slightly positive one if we keep revenue coming in from our ownership of Toronto Hydro.

And he plans to build 2 kilometres of subway track and one station per year at roughly $200-300 million a pop? How? Where’s the money going to come from?

Yet this announcement was made to great fanfare yesterday morning. What has Rocco Rossi done to earn himself such a free ride? Serious candidates should have serious plans not simply the hocus-pocus of you want subways? I’ll give you subways. Just don’t look behind the curtain.

Rossi’s announcement is the latest in a trend from our conservative candidates of shameless pandering that was best summed up in the Tweet-o-sphere yesterday by Graphic Matt. Look at me! I’m a right-wing candidate for Mayor of Toronto. Here is my proposal: subways! Here is how I will pay for them: magic!

— head scratchingly submitted by Cityslikr