Private Investors Buying Up Government Resources Cheap: The Great Government Fire Sale Is On

The Associated Press
May 13, 2011

As 2010 drew to a close, the mayor of Newark, N.J., was staring into a budget abyss so deep that he sold 16 city buildings to pay the bills. They included the architecturally significant Newark Symphony Hall and the police and fire headquarters.

In New York, the transit authority may sell its Madison Avenue headquarters, complete with an underground tunnel connected to Grand Central Terminal and air rights to build a skyscraper on top.

And soon, if state legislators have their way, private investors will be able to buy plenty of other municipal treasures: power plants in Wisconsin, prisons in Louisiana and Ohio and municipal buildings in Boston.

The Great Government Tag Sale is on. As states and cities struggle with billions of dollars in shortfalls, elected officials are increasingly selling public assets to cover their costs. Sometimes municipalities sell the buildings to pocket a one-time pile of cash and then lease them back so they can continue to use them.

To proponents, selling government property is an efficient way to plug budget holes. That's one reason the Obama administration has looked at unloading office towers, courthouses, warehouses and shacks. Private owners who develop the properties can inject vibrancy into municipal dead zones, the thinking goes. Buildings that were once exempt from property taxes are put back on the rolls.

But to critics, these sales are as misguided as pulling money out of your house to pay your bills. They point out that the government is letting go of a long-term, valuable asset in exchange for a one-time payment. When the asset is a building, a municipality then has to spend more money on leasing it back or renting another facility.

"This is tantamount to selling the family china only to have to rent it back in order to eat dinner," says economist Yves Smith, author of the top-rated business blog Naked Capitalism.

The Desperate States of America, yes. But in some cases, politics is influencing policy. Selling state assets has long been a part of the conservative playbook, which calls for moving some of the traditional functions of government to the private sector. And in other instances, the deals are shaded by accusations of corruption.

In Wisconsin, the center of the state budget battles, legislators lobbied for the budget repair bill to allow politicians to sell any state-owned heating, cooling or power plant to anyone for any price at any time — without public approval or a call for bids.

Critics of Republican Gov. Scott Walker charged that Koch Industries, an energy conglomerate that made a $43,000 donation to his campaign, the biggest from any corporation, might stand to benefit. Koch's head of government affairs, Philip Ellender, says the company was never interested in buying a state-owned power plant.

The provision was removed from the budget bill just before it passed. But it is expected to be taken up again later this year.

In many ways, it's the perfect time to market these deals as do-or-die propositions. Elected officials across the country say the ravages of the Great Recession have given them no choice, as evidenced by the escalating conflict between governments and the unions representing their employees.

Local and state governments made promises about their retirement benefits but often failed to set aside the money to make good on those promises. Now those governments say they simply can't afford them. Illinois' pension fund, for example, is only 45 percent paid for. Actuaries recommend 80 percent.

Years of wishful budgeting and fiscal gimmickry have finally caught up. The states' "ridiculous" budget and pension accounting would "make Enron blush," as Microsoft founder Bill Gates recently put it. For fiscal 2012, states face a $125 billion shortfall, according to the Center for Budget and Policy Priorities.

Elected leaders have already raided road-repair budgets and borrowed from emergency-service coffers. They've nabbed citizens' unclaimed checking account cash and sold future proceeds from lotteries. Detroit and Omaha just reduced the pensions of the police.

Now that other options have been exhausted, officials say that to avoid mammoth tax hikes — or any tax hikes, in some cases — they have no choice but to sell municipal assets.

Greece Reassures the IMF That It Will Privatize Services to Comply with Terms of Its International Bailout

The International Monetary Fund (IMF) is to send a permanent team of officials to Greece to oversee the country’s efforts at economic reform. It had originally held off placing representatives in Athens but has made the decision after Greece was provided with its second installment of the €110 billion ($144 billion) bailout package agreed by the IMF and the EU earlier this year. The inspectors have now been sent out to the country with a brief to keep a watch on tax collection and public spending reform. - Claire Archer, IMF to send permanent officials to Athens, September 21, 2010

Reuters
May 13, 2011

Despite bailouts for Greece, Ireland and Portugal, Europe's debt crisis may yet spread to core euro zone countries and emerging Eastern Europe, the International Monetary Fund said on Thursday.

The stark warning came as government sources in Athens said international inspectors checking on Greece's compliance with its EU/IMF rescue package had found problems and were pressing for deeper spending cuts to cover a likely revenue shortfall.

"Contagion to the core euro area, and then onward to emerging Europe, remains a tangible downside risk," the global lender's latest economic report on Europe said.

A Reuters poll of investors and economists showed an overwhelmingly majority believe Greece will restructure its debt, possibly as soon as later this year. Most fund managers expect Athens to pay back less than half of what it owes.

The IMF said it stood ready to provide more aid to Greece if requested, but the country that triggered Europe's sovereign debt crisis in 2009 still had plenty of untapped potential to raise extra cash itself though privatizations.

Finance ministers of the 17-country single currency area are set to approve a 78 billion euro ($109 billion) rescue plan for Portugal next Monday after Finland's prime minister-in-waiting clinched a deal to ensure parliamentary approval of the package.

But markets are increasingly concerned that Greece will never be able to repay its 327 billion euro debt and will have to restructure, forcing losses on investors with severe consequences in the euro zone and beyond.

Asked whether there could be new aid package to help Greece work through its fiscal recovery program, Antonio Borges, the IMF's European department director, said the fund was open to the possibility.

"The Greeks have to take the initiative, and so far they have not approached us. The IMF stands ready (to provide additional support) as a matter of policy," he told reporters.

The semiannual IMF report said peripheral members of the euro zone needed to make "unrelenting" reform efforts to overcome the debt crisis and prevent it spreading further.

It also urged the European Central Bank to tread carefully on further rises in interest rates after last month's first increase since 2007, saying euro zone monetary policy could "afford to remain relatively accommodative"...

Greece Reassures IMF on Privatization

UPI
February 14, 2011

Finance Minister George Papaconstantinou said Greece was committed to privatizing services to comply with terms of its international bailout.

Greece received a $148 billion loan from the International Monetary Fund and the European Union in May. The terms include an agreement to sell $67 billion in state assets, the EUobserver reported Monday

An assessment team from the IMF and the EU recently criticized Greece for its slow efforts to turn services over to private concerns. In turn, a spokesman for the Greek government on Saturday said the assessment team had "behaved unacceptably."

"We asked them for help ... not to meddle in our internal affairs," the spokesman said.

Papaconstantinou sought to calm tensions Sunday after a statement from the European Central Bank and the IMF applauded Greece's effort to comply with the terms of the loan.

"We recognize the difficult challenge facing the Greek economy and we have the deepest respect for the tremendous efforts being made by the Greek people," the IMF and the ECB said.

Papaconstantinou said Greece "will commercially exploit public property," but drew the line at selling state land.

"We will not sell off state land," he said.

"The decisions about how this will be done will be taken by the Greek government and nobody else," he added.