Chicago - WARNING! To all cities dreaming of making a killing on privatization deals of your public assets: DON'T DO IT!!
A public rebellion is sweeping the city as Chicago begins leasing its 36,000 meters to Morgan Stanley bank. In many areas, people have stopped parking at meters! (In the stretch of Halsted St above, normally every meter is taken) This is in response to a 400% increase in meter rates overnight. Rates will increase another 400% by 2013. HOLY COW!
Television interviews reflect how angry city residents are over the increase. "We are being nickel and dimed to death!" said one. Another threatened to move out of the city.
The city netted a sweet $1.16 billion on the 75 year lease deal that was championed by Mayor Daley and passed in City Council in 48 hours with only 5 opposing votes. The city will still collect on all parking tickets, determine the number of meters and their rates. But in getting the money up front, they lose a long term revenue stream.
The meter privatization is being called a "watershed" moment by the investor community.
The AMLaw Daily reports: Chicago co-bond counsel Lewis Greenbaum, who was assisted by Katten Muchin public finance partners Milton Wakschlag and Christopher Torem and tax planning partner Ziemowit "Jim" Smulkowski, thinks Chicago's parking meter privatization could provide a roadmap for other municipalities seeking to raise funds in tough economic times. It's a notion seconded by his colleague across the table.
"The municipal bond market is basically closed, pricing is terrible, and [local governments] are running out of borrowing headroom," says Kent Rowey, head of the U.S. infrastructure practice at Freshfields Bruckhaus Deringer in New York."
This is the third major privatization deal in the last few years, making Chicago the leader in privatization of city assets. Chicago is being pressed by growing budget shortfalls and is looking for a short term quick fix to the detriment of long term financial stability. One elected official called it selling off your furniture to pay the rent.
Chicago sweetened the deal even more by installing thousands of new meters at the cost of $500 each. Back in late October (in anticipation of the deal) the city installed 1,250 meters in what is called a "dead zone" in the 2nd ward. The Parking Ticket Geek, who has become an overnight sensation, says:
"Based on a cost of approximately $500 to install each meter, you’re looking at around a $1 million in hardware and no one to park there and feed the meters.
What kind of return on investment is that?
If the city is footing the bill for this when we already have a multi-million dollar budget hole this is an absolutely irresponsible expense."
According to my calculations, had the city kept the meters it would have grossed $1.42 billion over the 75 years. At the rates expected to rise to $4 an hour and with the same usage, Morgan Stanley will gross $11.36 billion. Now that's an eye popping return!
But my prediction is it won't turn out quite like that. People will find every way they can to avoid parking at meters. There will be constant pressure on the city to raise rates further. Morgan Stanley will still make a huge profit. But in the end, the people may just say, "we've had enough" and vote Mayor Daley and his cronies out.
And next time someone tells you privatization is more efficient than public administration, tell them about Chicago.
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