Public-Private Partnerships Must Survive this Attack on the Public Sector

by Arturo Herrera on December 18, 2017

We are not even a year into the Trump Administration, but its reflexive and unthinking attack on the government it supposed to be running is well underway. Inconvenient but life-saving regulations are being eliminated, environmental rules are relaxed or unenforced, key positions are left vacant and now we have a tax law that includes a wide variety of anti-public measures. I know it’s popular to believe that the private sector is a paragon of efficiency and government is simply waste, fraud and abuse–but it is simply not true. Even more destructive is the idea that the private sector can succeed without an effective public sector. At the federal level, we are in the fourth decade of an effort to starve the (federal government) beast. The number of federal employees continues to shrink while the dollars spent on federal contractors continues to grow. Young people interested in public service have largely given up on a career in the U.S. federal government.

The most prosperous, successful and sustainable cities are those that demonstrate the skill to foster partnerships between the public and private sectors. Real estate developers, retailers, and other commercial businesses need government to provide public safety, public space, health care, mass transit links, energy supply, water, sewage and solid waste disposal services. To attract employees, they need good schools, cultural institutions, entertainment and restaurants. They also need clean air, clean water and a toxic-free environment. The best way to deliver these services is through public-private partnerships. Almost two decades ago I wrote about this and analyzed the distinct roles of the public, private, and nonprofit sectors in delivering public services. Back then I called it “functional matching”, which was an academic’s way of saying that some things are better done by private for-profit organizations, some by mission-driven nonprofits, and some by the government. The ideological battle between the communists and the capitalists is over. We need both individual incentives and community-funded and directed services. In a global economy, with highly mobile businesses, starving the public sector has the effect of driving away the private sector.

Here in New York we’ve gotten used to a federal government that takes more than it gives, but at least it tended to stay out of our way. The new tax law sets a cap on state and local tax deductibility at $10,000. Once we hit the cap, and many of us will, the money we pay for our schools, roads, trains, public hospitals, fire, police and other public services will now be counted as income on our federal taxes and so in “high tax” states we will pay tax on our taxes. This is an attack by anti-government red states on the blue states that have a robust public sector and tend to charge more for the services offered in that state. Another anti-public-sector clause in this tax bill is that the “529” accounts that allow you to shelter up to $10,000 a year for college savings accounts can now be used for private elementary and high school costs as well. The same law that attacks the source of revenue for public schools will help subsidize private schools.

The media pundits tell us that the anti-tax fever will now spread even more intensely to the blue states, and that federal entitlements like Social Security and Medicare will now be attacked since the federal government will have to reduce its expenditures. I am too much of an optimist to believe that will happen. The Republicans in Washington will learn the hard way that senior citizen entitlements are the third rail of American politics. Those cuts will never happen. Governments in high tax states like New York, California, New Jersey and Connecticut will be under greater financial pressure to reduce taxes, but will also be under political pressure to continue to deliver services. These high tax states also tend to be high income states, and may find themselves taxing their higher income people to make up for their inability to raise property and other no longer deductible taxes.

In short, high tax states will need to take back the tax cuts for the wealthy given by the federal government if they are to adequately fund state and local services. Since these wealthy individuals are far from over-taxed, there is little harm in taking back these tax cuts. Perhaps some rich people will move out, but others will move in. Maybe the president will make a show of moving from Trump Tower to Mar-a-Lago in Florida, but then again, I don’t think it’s in his financial interest to encourage rich people to leave high-priced Manhattan real estate.

The symbolic policies made in Washington have to survive a real-world reality test in our local communities. The president believes the tax cut will stimulate an economic growth rate of 6%. Unless he frees up immigration, we don’t have the labor force to generate that level of growth, even if American businesses became that exuberant. But in addition to rhetoric and symbolism, the federal government is doing damage to governmental capacity. The federal government has become an unreliable partner to states, cities and businesses. Staff and grant cutbacks, declining morale, regulatory uncertainty and non-enforcement are rippling through the nation and their long-term effects will not be good. Even worse, the promised trillion-dollar infrastructure program, so desperately needed by communities throughout America, seems to be either a shell game or a mirage. The multi-billion-dollar tunnel from New Jersey to New York, finally agreed to by those states, awaits a commitment from the federal government. Trump’s idea of a trillion-dollar infrastructure investment seems to be similar to his real estate investment strategy: invest other people’s money and then put your name on the property.

We have now experienced eleven months of this administration’s incompetence, immorality and inability to tell the truth. Other American institutions have done their best to fill the gaps left by our declining national government. Within America, many of those gaps will be filled. Outside our nation, the administration’s inability to understand the role of state department diplomats, or even commercial, visa and immigration staffs will harm our participation in the global economy. It will take a few years for these problems to become obvious and their impact to be measured and understood. There is no substitute for the federal government in foreign affairs and so those gaps will not be filled.

The modern global economy is an outgrowth of the nation-based industrial economy that America once dominated. It is a natural outgrowth of advances in the technology of communication, computing, transport, automation and production. Just as America’s 19th century farms grew due to the public-private partnerships that built, for example, the Erie Canal and our land grant colleges, our 20th century industry required government-built infrastructure for transportation, energy and water. The 21st century’s requirements are still emerging, but we know they require a competent, effective public sector. The better we get at building public-private partnerships, the stronger our economy will be and that in turn will help build healthier communities and a higher quality of life. The nasty, ideological wars in politics emphasize the few things we disagree about and ignore the many things all Americans have in common. The president’s personal, ceaseless negative tweets about real and imagined attacks set a tone that is difficult to ignore, and reinforces differences rather than common goals. It is essential that we rise above Washington’s useless battles and focus on building the collaborations that have long made this nation great. Our long tradition of public-private partnerships must survive this attack on the public sector.

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