Key Takeaways
- Chicago privatized its 36,000 parking meters in 2008 through a 75-year lease for $1.16 billion.
- The deal became highly controversial due to unfavorable terms for the city and rapid public backlash over increased rates.
- Financial analysis later revealed the city likely undervalued the asset, receiving significantly less than its potential worth.
- The privatization serves as a case study on the complexities and potential pitfalls of selling public assets for immediate revenue.
Deep Dive
- In December 2008, Chicago Mayor Richard M. Daley's administration agreed to a 75-year lease of the city's 36,000 parking meters to private investors for $1.16 billion.
- The administration previously used privatization, such as the Chicago Skyway lease and parking lots, to secure upfront payments for city budget issues.
- Journalist Mick Dumpke began investigating the deal, sensing it warranted further scrutiny, leading to over 15 years of reporting.
- The deal is presented as a notorious miscalculation and a textbook case of privatization pitfalls.
- Morgan Stanley Infrastructure Partners, the acquiring firm, conducted on-the-ground research across Chicago neighborhoods to assess parking meter usage patterns.
- The firm utilized the concept of the time value of money and discount rates to calculate the present-day value of 75 years of future parking meter profits.
- Their calculation resulted in a $1.16 billion bid, which won the deal, surprising some city council members due to the swift announcement.
- Alderman Scott Waguespack expressed immediate concern, finding the deal 'weird' and requiring further examination.
- An alderman noted pressure from the mayor's office for a rushed approval in late 2008, citing the city's economic crisis and a budget reliant on the deal's revenue.
- Despite attempts by some aldermen to oppose it and concerns over unread extensive contract documents, the City Council approved the lease by a vote of 40 to 5.
- This approval highlights how politicians' focus on election cycles can prioritize short-term solutions over long-term problems.
- After Chicago Parking Meters LLC took over in February 2009, parking rates significantly increased, and some meters malfunctioned, leading to widespread public protest.
- Alderman Scott Wagesbach reported that the city incurred significant costs by having to pay the private company when meters were removed for events, further exacerbating public anger.
- Alderman Scott Wagesbach found discarded city documents revealing that a portion of the parking meter system had been sold to the Abu Dhabi Investment Authority without full city council disclosure.
- An inspector general investigation determined the city failed to calculate the meters' value if retained, estimating they were worth approximately $2.1 billion to Chicago.
- Analysis showed Chicago received significantly less than the potential billion dollars more, with 93% of the deal's value realized in the first half of the 75-year lease.
- The deal is criticized as a short-term budget fix that cost the city a valuable asset, raising questions about negligence or ineptitude.
- The buyer has recouped its $1.16 billion investment and earned an additional $800 million with nearly 60 years remaining on the contract.
- Alderman Scott Wagesbach called it the 'worst' U.S. municipal history deal, attributing its failure to excessive discounting of the future and rushing the decision during a crisis.
- The contract concludes on February 29, 2084, leaving Chicagoans to pay the private operator for decades.