Private government saves money at a price
Efforts to apply the presumed efficiencies of the private sector to the operations of the public sector go back a long way. Indeed, in Illinois as elsewhere, most of the now-accepted functions of local government—roads, libraries, and child welfare, to name three—once were provided by private entities, until it became plain that there are some things for the public that are better done by the public.
Sadly, that lesson about privatization must be learned and re-learned. Dumping the cost and the responsibility of public services on someone else has an evergreen appeal to elected officials.
It's just not that simple," a frustrated Mayor Richard M. Daley intoned to reporters last spring. He was getting impatient with questions about alleged foot-dragging in his administration. The issue was the prolonged haggling between city officials and the Marquette Park Community Association over the group's application to establish a special service area, or SSA.
This would be no routine thing. Back in November, the association proposed—and voters in that neighborhood overwhelmingly approved in an advisory referendum—a plan to set up an SSA that would be empowered to levy a special, single-purpose tax on local real estate. The revenue would pay for two cars' worth of private security guards. The idea was coming from a community that generally supports Daley, but the mayor could hardly be enamored with it. After all, these people were saying that Chicago police weren't giving them enough protection, that they would take the unusual step of paying for more security. So Daley responded by saying that Marquette Park would get its SSA, but that the legal issues were complex and that city lawyers would have to scrutinize everything. This was in March. It took another four months for the Daley administration to propose the Marquette Park SSA to the City Council, which has yet to act upon the ordinance.
In the old days, people in the private sector who got impatient with the red tape, poor performance and excessive cost of government (especially local government) tried to reform it. Today, the trend is to replace it by setting up organizations in various guises that provide private alternatives to services such as courts, police or sanitation that once were the exclusive province of public authorities.
"Private government" of this sort should not be confused with "privatized government." Privatization is when government itself hires a private firm to perform a traditional public-sector service, such as operating bus lines or water purification plants, while retaining responsibility for that service. A private government, on the other hand, provides services instead of or in addition to those of the regular government. An example is the private group of bondholders that has talked about buying out—not just running—the troubled Chicago Skyway.
There is a whole family of quasi-public entities that function in effect as private governments, from dues-levying private associations to condominium boards to assorted authorities and commissions. The list also properly includes the so-called special district, a quasi-public single-function government formed by a majority of property owners in a limited area who agree to assess themselves a set amount for a specific purpose. The funds are spent under the supervision of a board of affected members, so that most special districts tend to serve constituencies so narrowly drawn as to be private.
Special districts are familiar—indeed epidemic—in Illinois. They are especially popular as a means to sell bonds to generate capital to build levees or sewer systems or other capital-intensive projects that can't be funded any other way. The bonds are paid off by taxes or fees for using the resulting system. The Illinois State Toll Highway Authority is one such district, but most are so small as to be invisible in Illinois's crowded government landscape. One of the most recognizable of these agencies is the Metropolitan Water Reclamation District, which is notable in that it relies on taxes levied against all property in the Chicago area so it can serve the region's sewage-treatment needs.
Among these special districts are SSAs. There are about a dozen of them in Chicago—all neighborhood merchants' groups that pay for economic development and retail promotions and to sweep streets, scrub graffiti, put up holiday decorations and shovel snow. SSAs are usually described as a means to pay for "extras" such as the parking facilities provided by the Belmont-Central Parking Commission or —as is the case with the Southeast Chicago Development Commission—infrastructure repairs or improvements. An SSA has been formed to fund the local share of the proposed downtown trolley system.
In Illinois, SSAs may be established by the approval of a majority of affected property owners. The taxes they levy are quite small, being usually less than 1 percent, or $1 per $100 of a property's equalized assessed valuation (the value for taxing purposes). For example, the SSA governing the State Street Mall levies taxes totaling only about 30 cents of each $100. Under such arrangements, funds are collected by a commission that oversees how the money is spent and whose members are appointed by the mayor upon the recommendations of the affected community or business group.
The Chicago City Council retains the power to approve SSA budgets, but SSAs are allowed to function autonomously—as long as they do not infringe upon City Council powers (or egos) or stir embarrassing controversies. The Edgewater Development Corp.—which oversaw an SSA for businesses on Broadway, Clark, and Devon affiliated with three community and chamber of commerce groups—learned that lesson.
The SSA was founded in 1989, but Aid. Bernard L. Stone (50th) succeeded in deleting its budget, effectively halting its operations. He was responding to the complaints of some businesses in his ward. "It was too large and poorly managed," he says. In the world of neighborhood retailing, money spent cleaning up graffiti four blocks away might as well be spent on the moon. Members were taxed equally, but needs (especially for security) were not spread evenly across the SSA.
"Businesses in my part of the district complained that for what was spent, they received little in return," recalls Stone. "We had a meeting. One hundred and fifty people from the north and west ends of the SSA came and I bet that 145 were opposed to it."
Yet another kind of private government that has triggered controversy also operates in the Marquette Park area. It's a home equity commission, which insures homeowners against declines in their property values by levying a small property tax within its jurisdiction. The obscure commission was set up to foster racial stability and to quell real-estate "panic peddling." But the commission made news when it was accused of giving a sweetheart contract to a relative of one of its members.
Unequal allocation of services. Hints of corruption. Inefficiency. Private government suddenly sounds a lot like public government, Chicago-style.
Most public institutions—schools, libraries and hospitals chief among them—evolved as alternatives to private predecessors. The public park was a free alternative to the old private estate. Today, new forms of the old private estate are becoming popular as a more exclusive alternative to the public park. The 1,500-acre Morton Arboretum in Lisle functions as a private, paid-admission park that on weekends welcomes more joggers and family excursionists than tree lovers.
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Increasingly, public amenities such as parks and meeting places are provided by the private realm, usually in the form of the suburban office campus and the almost-downtowns of the big malls. The "gated community" offers alternatives to both the public park and the street. These residential enclaves are to the real-estate industry of the 1990s what the golf-course condo development was to the 1970s and '80s. Managers of these private preserves often function as full-service small-town governments, responsible for street cleaning, security patrols, garbage pickup, tree-trimming, parks and sewers for the members.
Gated communities took root in Chicago's suburbs, but their seeds have spread to places such as posh condo towers, which are gated communities stood on end, and Dearborn Park, where the mayor is moving. Most of the new housing built in the city since the mid '80s has been limited-access "communities" modeled on suburban superblocks, typically consisting of townhouses that surround a fenced courtyard or secured parking area on private "streets" that have only single entry and exit points.
Urban nostalgists often decry the loss of community that these enclaves represent, but to the people who live in them, community is precisely what they offer. Just as suburbanites often identify themselves not as part of a town but of a subdivision, so do city dwellers—who are strangers in and alienated from the surrounding city—identify themselves as residents not of Wicker Park or Lakeview but of Noble Street Lofts, Hawthorne Court, Park Lane or Terra Cotta Village.
But increasingly, it is not just community but basic city services that private governments are providing. The appeal of these neo-governments in the big city is thatthey render corrupt or incompetent city agencies moot. Such parallel governments have their price—residents in effect pay a surtax for services in the form of dues or fees on top of regular local property taxes—but paying less for what you don't get in the first place apparently doesn't strike people as a bargain.
One of the things that people think they don't get from public government is police protection. "Personal security is as basic as it gets," explains Scott Dixey, president of the Marquette Park Community Association on the Southwest Side. (In one recent Chicago Tribune article about new in-city residential developments with controlled access, words like "security" and "safe" appeared 14 times.) "The police don't have the horses," Dixey explains. "Someone in the crowd at one of our meetings said, 'Why not do it ourselves?' "
The association undertook a two-month experiment in which private security personnel patrolled a 100-block area south and east of the park itself. The patrols were paid for through voluntary donations of $20 per month per house. The experiment succeeded in law enforcement terms. "The neighborhood was quieter and safer," Dixey recalls. "The patrols knew who the right guys were and who the wrong guys were. They were like a beat patrol out there."
However, the voluntary system was a failure in bureaucratic terms. The association found itself functioning as a collection agency and the participants were getting tired of carrying free riders. "The patrols were being paid for by a relatively small number of participants," Dixey says. "To be fair, the service and payments should be spread evenly across the neighborhood." Thus, the proposal for the SSA—the first in Chicago set up to deal solely with crime.
The results of the subsequent advisory referendum to set up an SSA for security surprised Dixey. "I expected a negative vote because of the tax increase." The surtax was modest— 0.0041 per $100 of equalized assessed valuation, or enough to generate about $50 per homeowner per year—but many in Marquette Park are of modest means. People voted 3 to 1 in favor. "There's a real big difference from any other tax increase," Dixey says. "People understand that the service will be community-based and community-run. The money wasn't going to just be shoveled off to City Hall."
Making payments equitable in a mixed—commercial and residential—neighborhood isn't easy. Some 30 percent of the assessments would be paid by higher-valued businesses in the area, especially Kraft General Foods (which does not oppose the SSA); the Marquette Parkers plan to give local business representatives seats on the SSA governing board proportional to their funding share.
That is, all of that would occur with the City Council's approval. That hasn't happened. It was only in August that the council received from the mayor's office the ordinance setting up the SSA. And the ordinance itself prompted a brief dispute over who gets to control the commission that would rim the SSA.
The Daley administration drafted language letting the mayor make most appointments without community input, while Dixey's group wants an ordinance specifying that most appointments come from its own list of nominees. Meanwhile, other civic groups in the affected area have spoken up, saying they want a cut of the appointments.
Noelle Gaffney, Daley's deputy press secretary, says the language in the original ordinance was "fairly standard" but that the administration agreed to change it as soon as the community voiced objections. "We have bent over backwards to help them on this. The mayor's attitude is that the people voted for this, so they should have it." She says the ordinance will be amended to parcel out the appointment power in whatever manner the community sees lit.
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Private and public governments exist in a state of symbiosis. The latter will tolerate the presumption of their private counterparts only as long as it is convenient—or politically unavoidable. No SSA can exert true municipal police or taxation powers independently, for example, and the powers of other kinds of special districts are legislatively constrained as creatures of state, county and municipal authorities, with whom ultimate power still resides. And while the management of residential enclaves enjoy more latitude of action, they exercise it over very limited territory.
Creating what amounts to a new tier of government within the existing one leads to predictable complications—and misunderstandings, at least at first. Dixey, for example, complains that city officials he dealt with "kept saying, 'We have to make a policy decision' about this or that’ and I said, 'Our people voted for it. That's the policy decision.' "
Current state law requires that all property owners be notified of any resulting tax increase. Most commercial SSAs include a few dozen properties; the Marquette Park SSA includes some 3,700, which required a long slog through the swamp of county records that was expensive (the city says it will cost $165,000) and time-consuming. What an impatient Dixey first saw as foot-dragging he now recognizes as a result of ambiguous legal language and red tape. "Bureaucracies can't turn on a dime," he says. "They're working with us now."
In meetings with the Marquette Park representatives, the city's corporation counsel expressed concerns that even though the city acts only as a pass-through mechanism for SSA money, it still is exposed to liability for actions taken by private security officers under SSA hire. The typical private security guard is ill-trained and supervised compared with the best of professionalized cops.
Neighborhood patrols have been derided as local militia and Chicago Police Supt. Matt L. Rodriguez publicly has raised questions about coordinating his force with Marquette Park's private cops. For a model, he might look to Hyde Park, where the University of Chicago runs a highly visible police force.
U of C spokesman Jonathan Kleinbard explains that the operation changed from night watchmen to a full-fledged police unit beginning in 1968. Today, U of C employs a full-time force of 62 officers, plus many part-timers—trained to the same standards as Chicago police—and a fleet of 13 cars.
"We share radios. When someone at the University of Chicago calls to report a criminal act, we immediately call city police," Kleinbard adds. And the Chicago police superintendent has deputized U of C police so they have full arrest powers within their bailiwick—from 47th to 61st streets and from Cottage Grove Avenue to Lake Shore Drive. Kleinbard acknowledges that, given the pressures on the city budget, the U of C police have handled an increasing share of the calls in their region. "We're pleased and proud of the public-private partnership we have with the city. But it's very expensive. Philosophically, we agree that it's a city responsibility."
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City services are the common coin of Chicago's political as well as its government system. The trend toward enclave communities has a political dimension; some builders talk of "organized clout" that these instant neighborhoods achieve by aggregating constituent interests. But if people can get their garbage picked up by calling their SSA, what's an alderman good for? Aldermen nevertheless generally follow their constituents when it comes to setting up SSAs, even when they think they're a bad idea. Stone thinks SSAs are easily misused, even when they are set up to address a legitimate need. "There are other things that can be done in the way of self-help," he insists, such as expanding support for community policing. "That creates a relationship between law enforcement and the community."
Aid. Mary Ann Smith (48th), whose ward includes the Edgewater SSA, fought with Stone on the issue and calls the taxing districts "an incredibly valuable option for communities." Losing the Edgewater SSA has been "devastating," she says. "We know that in many parts of the SSA, we have seen more garbage in the streets and more loitering." Not only does she want to get it back, but she suggests a new task for an SSA—hiring lawyers to challenge property reassessments in reviving neighborhoods.
SSAs can be a valuable option for mayors, too; they offer city bosses a way to defuse chronic complaints about the levels of taxation and policing by letting residents tailor levels of services (and taxation) for themselves.
Everyone has heard of school choice. SSAs would give police choice and garbage choice. Daley in March said he was considering making the whole city an SSA. Neighborhoods that wished could opt in for extra police protection in return for a supplemental property tax, thus adding "extra cheese" to the menu of government services.
The trend seems likely to grow even without City Hall's sponsorship. Dixey says his group has received calls from four or five curious neighborhood groups in other parts of the city, which should find it easier to set up their own SSAs; a bill passed by the most recent General Assembly and awaiting action by Gov. Jim Edgar would eliminate the canvass of property owners.
The obvious danger is that cities may become balkanized. But the cities already are balkanized; the issue, say advocates, is whether the dissection is done by the people or by City Hall. Basically, SSAs would replicate on a neighborhood scale the same sorting out that began on a metropolitan scale at the turn of the century. Then, an expanding and prosperous upper middle class exploited congenial laws to create same-class residential enclaves in the form of new suburban municipalities. These were, and remain, in effect gated communities protected by walls of exclusionary zoning laws and covenants.
Suburban-style segregation within the traditional city may prove popular. It even has historical precedent; many of Chicago's neighborhoods, after all, began as independent incorporated villages, each offering its own panoply of services.
Skeptics may note that racial segregation has historical precedents, too. Harvard economist-turned-Clinton-Labor-Secretary Robert B. Reich wrote in The Work of Nations that "giving locals the power to tax and the power to enforce the law is creating a separate city within the city." From the other end of the ideological spectrum, Charles Murray of the American Enterprise Institute has worried in print about the U.S. turning into a Latin American-style democracy complete with "mansions on the hills above the slums."
Well, maybe three-flats on the hill in the case of places like Marquette Park. Businesses and homeowners who pay for security on their street are less likely to pay for it on someone else's street. That might make citywide tax increases that much harder to pass. In New York City, community boards that traditionally exercise control over city spending on local police and street crews have backed legislation to curb the powers of business improvement districts on grounds that property owners who opt in to quasi-governments opt out of the real one.
Janet Rothenberg Pack, professor of public policy and management at the Wharton School, University of Pennsylvania, has written about private government and agrees that its proliferation leads to the balkanization of the cities. "That's not highly desirable, socially," Pack says drily. In Chicago, with its sometimes contemptible social history, the issue is inevitably cast in racial terms. Dixey's Marquette Park has known its share of racial strife, but he describes the security plan as really a case of biracial cooperation—black and white, in this case. "People of all races voted for this plan," he says. And the only balkanization he foresees is separating law-abiding people from what he calls "predators."
Pack thinks that the solution is to expand, not restrict, the use of SSAs in central cities, converting them into agglomerations of self-governing "suburbs" as people sort themselves by the level of public services they are willing to support. "We should make sure there are many of these things, including in poor business districts, which could be able to do the same things if they had some help from the city," she says. The ability of neighborhoods to direct their own police forces would seem especially useful to poorer neighborhoods, which often complain that their service from city police ranges from indifferent to brutal.
Says Bernard Stone, "SSAs can be a reasonable tool for commercial uses but they have to become easier to get out of." He adds that SSAs can't work if they get too big and there is no monitoring for potential conflicts of interest. (Oversight by the city occasionally has been less than rigorous, Stone says.) Since SSAs are creatures of the state legislature, these improvements will require action in Springfield, not City Hall.
So are private governments boon or bane? Most embattled public administrators have welcomed them because they reduce both claims against public budgets and complaints against elected officials. What we label SSAs, other cities typically call business improvement districts and they do their jobs so efficiently that some have been offered as models for city government departments. On the debit side, private governments are throwbacks to the days when participation in government was open only to the propertied. The idea of SSAs has an undeniable appeal but the more they proliferate, the more they redefine our notions of community and the common good. ●