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Pennsylvania Needs to "Man Up" on Asset Privatization

Leonard Gilroy
June 14, 2010, 2:07pm

Last Tuesday, Pennsylvania Governor Ed Rendell reportedly exhorted state legislators to "man up" and vote for a large package of fee and tax increases to solve the state's nearly $2 billion budget deficit:

Gov. Ed Rendell on Tuesday told state lawmakers to "man up" and vote for tax and fee increases he proposed to plug about $1.7 billion in upcoming budget deficits.

Politicians' worries about losing their jobs over a tax increase are overblown, Rendell said during a visit to Pittsburgh. He spoke Downtown at the kick-off of a statewide tour aimed at persuading tax delinquents to pay up by a June 18 tax amnesty deadline. The 54-day amnesty program eliminates penalties and half of the interest charged on back taxes.

The amnesty program, created to boost flagging revenue, enticed 37,500 delinquents to pay $101 million so far, with a goal of $190 million. Those who don't pay will face stepped-up enforcement and another 5 percent in penalties. The state will post their names on its website. The state spent more than $3 million to advertise the program. [...]

But even if the state hits the $190 million goal, it won't be nearly enough to solve budget problems, which is why Rendell pitched new taxes on natural gas extraction and cigars and smokeless tobacco. He wants to eliminate a loophole that gives companies a 1 percent discount for remitting sales tax to the state early, since computers have reduced a once-tedious accounting task to a few keystrokes and wire transfer.

But the very next day, Gov. Rendell gave some very different advice to near-bankrupt Harrisburg, PA, urging city officials to privatize assets to help close their budget deficit:

Gov. Ed Rendell came to the Harrisburg City Council Wednesday night with a plea for consensus building and an exhortation for political courage.

And along the way, he made it clear that if his job title was mayor of Harrisburg, he would be working on a debt recovery plan that hinges on leasing the city's parking garages, rather than taking the city into municipal bankruptcy.

Those garages are the best — if not necessarily the most popular — first step toward recovery, Rendell argued."I know this is an emotional issue," the governor said. But with an agreement that gives the city appropriate controls over future rates and operations, he predicted "once it's operational, it doesn't matter to the people who runs the parking garages."

Given the scale of the budget deficit in the Commonwealth and the veracity with which Gov. Rendell pushed the proposed $12.8 billion lease of the Pennsylvania Turnpike to private investors in 2008—which was snuffed by legislative inaction in favor of a failed plan to expand the monopoly of the PA Turnpike Commission that has since come back to haunt them—it seems odd that the Governor would urge asset privatization at the local level but leave it off the table at the state level in the midst of a fiscal crisis.

The PA Liquor Control Board alone offers a massive privatization opportunity for the state potentially worth hundreds of millions or billions of dollars in both one-time and ongoing revenue to the state (and there's a new legislative proposal, BTW). That's why ABC (alcoholic beverage control) privatization is such a focus right now in Virginia, Washington State and North Carolina. If it's right for Harrisburg to get out of an utterly non-core, non-essential municipal parking enterprise, then getting the state out of an even more non-core, non-essential function of wholesaling and retailing liquor should be a no-brainer. And there are no doubt many, many other privatization opportunities in the state.

Gov. Rendell knows this already from past experience. While serving as mayor of Philadelphia, Rendell saved $275 million by privatizing over four dozen city services.

Given that experience, it seems to me that Gov. Rendell should be telling the intransigent Pennsylvania legislature to "man up" on privatization right about now.


Leonard Gilroy is Director of Government Reform


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