Chicago Outsources Parking Reform to Morgan Stanley

chimetr2.jpgThe Chicago City Council has approved by a vote of 40-5 a deal to privatize the city’s 36,000 metered parking spots for the next 75 years, trading meter revenues for an upfront payment of $1.15 billion.

Under the agreement with Morgan Stanley Infrastructure, meter rates will rise substantially and some meters
will operate overnight and on Sundays. Chicago currently nets $20 million a year from its meters, and revenue should triple or quadruple given planned meter rates. The deal is by far the largest of its kind in the US and
continues Chicago Mayor Richard Daley’s privatization of city transportation infrastructure,
including Midway Airport and the elevated Chicago Skyway.

The agreement is interesting from a transportation reform perspective because the higher meter rates, applied through modern meters, will help sharply reduce double-parking and cruising traffic. This means less air pollution, less time wasted in traffic, and more potential street space for sidewalk extensions, bikes and buses. 

Despite these benefits, Chicago’s privatized road to parking reform has serious flaws. The concession will cost future taxpayers several hundred million to even a billion dollars in foregone parking revenue — a lot to pay to outsource the political will to raise rates. Additionally, none of the upfront payment will be dedicated to transportation improvements. The bulk of the money will go to balancing the budget and fiscal "stabilization" with $100 million earmarked for social programs.

Chicago will soon have the highest meter rates in the United States. The 8,100 meters in the Loop Central
Business District will rise 50 cents to $3.50/hour next month and $6.50 by 2013. Neighborhood rates will quadruple
to $1 an hour next year and reach $2 by 2013. (San Francisco’s SFpark is also raising rates, though it’s not clear how fast and by how much.)

Daley’s press press release further details how meter rates will be set:

  • The City will implement graduated
    meter rate increases over a period of five years that will bring rates closer
    to market level. After that, any increases will be subject to the approval of
    the city council and are expected to be at the rate of inflation.
  • These increases will be the first
    in more than 20 years for more than 25,000 of the 36,000 meters.
  • By the middle of 2011, all meters
    must have both cash and cashless payment options.The City Council retains
    the right to revise the meter increases, change the number of meters or the
    hours of operation. But to the extent the City takes action that negatively
    impacts meter revenue, it will be obligated to make the private operator whole.

Despite its problems, the Chicago deal should send a loud message to New York, and other big US cities, that they are leaving huge sums of potential public revenue untapped, and contributing to traffic congestion and air pollution by leaving meter rates too low.

Photo: itsbetteronamac/Flickr

  • Couldn’t the City of Chicago securitize future parking revenue without having to sell the concession to Morgan Stanley, using that future revenue to borrow money now? Or has the market for that sort of thing disappeared? I’m not really a fan of putting things like highways into private hands, and recent financial developments around the globe have shown that the private sector doesn’t necessarily do things better or more efficiently than government.

  • oh my god. whose the mayor of chicago? those people need to go to jail. you can’t just give away the city like that can you? i mean, i understand politicians have been doing this kind of thing forever, now, but 75 years of parking? wow – it’s classic – it’s straight-up robbery. these folks need to go to jail stat. i don’t think people could have known this was going on. someone need to call in Fitzgerald, stat.

  • Larry Littlefield

    “These folks need to go to jail stat. i don’t think people could have known this was going on.”

    They are only giving up 75 years of parking revenue for money to spend in the next few years.

    May I remind the audience that the Ravitch plan involves securitizing a 0.33% wage tax increase into the indefinate future to spend in the next few years, as far was we know.

    Why did the framers of the NY State Constitution put in that now-dispensed with clause about debts requiring a referendum? Think about it.

  • Rhywun

    Selling 75 years worth of parking revenue to help plug a budget gap in your notoriously corrupt and mismanaged city seems like a colossally stupid idea to me. What tricks are they going to come up with next year?

  • JK

    Good question Eric. Maybe a muni finance person could explain this. I don’t know why Chicago couldnt bribe itself with a big upfront payment based on bonding off of higher rates. Based on my rough calculations it appears they got more upfront in present value than the existing $20mil/yr net parking revenue, but a lot less than the present value of the $60 to $80mil generated by the new rates. I’m waiting for my bond guy to lay the numbers out.

  • Boris

    How is this “outsourcing political will” if the City Council votes on the meter rates anyway?

    In an ideal world, the city of Chicago would side with the people and aim to put the corporation out of business by investing in transit and making the meters useless. But with the promise of making “the private operator whole” that’s not likely to happen.

  • Larry Littlefield

    To me this is no different than the Ravitch plan.

    Yes, there is an attractive aspect to each in the allocation of scarce space, tolls and on-street parking. But the sell out of the future to cash in during the present is so much more important than anything use that anything else is irrelevant.

    The future of our country, city, and state is being sold out from under us, every day, by people with power and a runaway sense of entitlement.

  • one advantage of selling it for 75 years though, is that by the time the franchise is over, no one will remember the days of cheap parking. There will be less impetus to push it and make parking free. So in one small sense, it seems smart.
    Requiring a council vote on increases though is going to end up being a problem, like when fare increases on the IRT & BMT subways were subject to city approval here in nyc, and thus fare increases were never improved, and the subway companies were slowly bled dry.

  • Jeffrey W. Baker

    This is a brilliant idea if you think cars and parking are going away. Chicago has secured, at a reasonable rate, a future cash flow that stands a very good chance of disappearing. Morgan Stanley could end up in the red on this deal, in the long term.

  • Larry Littlefield

    (This is a brilliant idea if you think cars and parking are going away.)

    Not if it means that if Chicago wants bike racks where the car parking used to be, Morgan Stanley gets to charge for that, too.

  • Heather

    A DAY OF RALLYING!
    TUESDAY, DECEMBER 16, 2008
    5:00 PM
    Assemble at MTA Headquarters
    347 Madison Avenue at 44th Street

    IN ORDER TO PROTEST:
    SERVICE CUTS
    FARE HIKES
    LAYOFFS

  • ben

    how does this play into getting rid of parking and making sidewalks bigger?

    In 2080 they might want to.

  • JK

    Ben — if cruising is say a quarter to a third of traffic and you eliminate it through higher meter prices, you’ve got a lot of extra street capacity to potentially reprogram for wider sidewalks, curb extensions, BRT, protected bikeways etc. If you do nothing, then the cruising will eventually be replaced by more traffic. Chicago isn’t thinking this far ahead, but they should be.

  • Ian Turner

    JK,

    From appearances Chicago is not looking more than a few months ahead.

  • The good:

    * The system gets $1.15 billion
    * Market rate parking makes parking a commodity and not free
    * People can’t just lobby a few politicians to get free parking back

    The bad:
    * Chicago spends $1.15 billion in 20 years and realizes it has lost a source of revenue
    * Morgan Stanley sues Chicago when they try to eliminate future parking spaces to make way for better sidewalks, bike lanes, etc
    * City loses control of its land

    I am worried that it means they won’t be able to make complete street changes AND that they’ll squander the money in too short an amount of time.

  • JK

    Fritz, 9th avenue in Manhattan is a good example of a complete street design that swapped traffic capacity for a protected bike lane without the loss of curbside parking. When double parking and cruising are reduced through higher meter prices, you can, and should, reprogram space taken by traffic lanes and leave the parking capacity alone. Agreed that Chicago does not appear to appreciate the transportation implications of their privatization, nor did they dedicate some portion of the upfront payment to streetscape and transportation improvements.

  • Lee

    If you believe that massive inflation is about to take place (as I do) then this looks like a pretty crappy deal for the city. They will squander that payout in record time. Not to mention they are no longer easily able to change out the auto parking for complete streets, etc. So stupid!

  • Chicago isn’t really mortgaging its future to attend to the present. They are locking away $400 million of the $1.15 billion, and using the interest to replace the funds they had received from parking.

    They are losing control and potential (assuming the political will could be generate to tap it), but they are not losing any money in the long term.

  • Scott

    I really can’t believe we are doing this. I think the citizens deserve a better deal than this. I don’t understand why Daily can’t get the city council to approve meter rate raises and parking lot tax increases but he can get them to approve selling pieces of the city away like that. I hope he vetoes this. The last thing the city, citizens or developers need is a party with no interest in the city being involved in how we develop and operate our streets.

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