Cities Learn From Chicago Parking Meter Debacle. Did Goldsmith?

Though U.S. cities have reconsidered their parking privatization plans in the wake of Chicagos bum deal, NYC Deputy Mayor Stephen Goldsmith remains a privatization booster. Image: AP.
Though U.S. cities have reconsidered their parking privatization plans in the wake of Chicago's bum deal, NYC Deputy Mayor Stephen Goldsmith has defended it. Image: AP

When Chicago Mayor Richard Daley announced that he was striking a deal to privatize his city’s 36,000 parking meters, it was a golden opportunity for transportation reform. If all went well, the deal could have cleared a political path for higher peak-hour meter rates, curbing double-parking and congestion-causing cruising.

But Chicago managed to completely bungle that opportunity, inking a contract that gave away billions of dollars in revenue to Morgan Stanley. That agreement, which was worked out behind closed doors and then rushed through the approval process, earned the city an up front payment of $1.15 billion while Morgan Stanley will earn ten times that amount, according to Bloomberg News. The city of Chicago could have earned nearly a billion more dollars up front had it just raised meter rates itself and bonded out the revenue, according to Chicago’s inspector general.

The details of the contract have also come back to haunt Chicago. The city can’t leave the contract for 75 years, and as the Urbanophile’s Aaron Renn has noted, that means any attempt by the city to re-purpose curb space for public use, bus or bike lanes, can’t proceed without Morgan Stanley’s permission.

Chicago’s bum deal seems to be leading many U.S. cities to revisit or even cancel their plans to privatize parking. Bloomberg News reports:

Chicago’s agreement for a Morgan Stanley partnership to run its parking meters for 75 years, expected to cost drivers $11.6 billion, has Indianapolis, Pittsburgh and Los Angeles rethinking their own deals.

Indianapolis, whose city council plans to vote tonight on a proposal with Xerox Co.’s Affiliated Computer Services, would rather take less money up front in favor of more total fees in its 50-year transaction. It also wants something Chicago didn’t get: exit clauses that let the city end the lease.

Those three cities are each looking to learn from Chicago in different ways. Indianapolis, as noted above, is leaving itself room to escape the contract and forgoing a big one-time payoff in favor of spreading out the revenue it will receive. Los Angeles, which is privatizing off-street lots, is rejecting a provision that would relinquish city control over rate hikes.

In Pittsburgh, the City Council has reacted even more strongly. They voted down a plan to lease their meters to JPMorgan, though Mayor Luke Ravenstahl is still pushing the plan, according to Bloomberg.

New Yorkers should keep a close eye on parking privatization plans in all of these cities. Public-private partnerships of this sort are gaining in popularity nationwide, and perhaps no figure in the country is more closely associated with the idea than our new deputy mayor, Stephen Goldsmith, who made his name by privatizing many of Indianapolis’s services when he served as mayor there.

Renn distinguishes Goldsmith’s deals from Chicago-style meter privatization by noting that he farmed out public services through competitive bids that regularly came up for renewal — a far cry from Chicago’s 75-year, one-shot “jackpot.” However, unlike civic leaders in Indy, Pittsburgh and L.A., Goldsmith has remained a believer in Chicago’s privatization.

In an article for Governing magazine this January, Goldsmith argued that the fundamentals of the Chicago deal were sound, even if a few details could have been worked out more smoothly. One red flag: The first “mistake” Goldsmith highlighted was a parking rate hike that Chicago enacted around the same time as the privatization. That may suggest that Goldsmith underestimates the potential of these parking deals for transportation reform while overstating their fiscal prudence.

  • Russell Bartels

    In addition to being bad idea financially, any contractual arrangement would freeze parking management with existing meter technology instead of Time and Place technology based on GPS, and other sensors, such as the techniques proposed for San Francisco. See: http://www.nytimes.com/2008/07/12/business/12newpark.html

  • TKO
  • JK

    It is alarming to learn that Dep Mayor Goldsmith believes the Chicago parking deal “was fundamentally sound.” What? This deal should be featured in public policy text books for years to come as an example of how rushed and secretive processes lead to disastrously bad deals for the public. The deal is so “fundamentally” flawed it’s hard to know where to begin. Let’s start with mortgaging 75 years of future revenue for a one shot aimed at closing a current operating deficit. What basic municipal finance class was Goldsmith teaching at Harvard? Let’s say you believe that proposition is OK, how about exploring alternative political structures that allow the city to raise rates while keeping more revenue and policy control; for instance, an authority led by long-term appointees.

  • mike

    Goldsmith is a disaster waiting to happen.

  • Chris

    Makes you wonder if that’s part of the reason why the 1st and 2nd ave bike lanes haven’t been extended

  • Great post Noah. With municipalities facing budget deficits all over the country, it is likely we’ll see more of these deals in the future, so its important to know the pros and cons of how past deals were structured. It’s not only cities that are pursuing privatization deals, NJ Transit is proposing a similar arrangement for its parking facilities, which we wrote about this week on our blog if anyone is interested: http://njfuture.wordpress.com/2010/11/16/questions-loom-as-nj-transit-considers-privatizing-parking/

  • Gargamel Tralfaz

    It’s just like those horrendous ads you see on television – “Did you win the lottery or have a structured settlement and you need cash now?!” Does Goldsmith think that is a good idea?

  • Larry Littlefield

    Again, was this deal a one off, or indicative of a set of values of those in charge, and not just in Chicago? Consider Chicago’s pension fund.

    http://www.chicagotribune.com/news/local/ct-met-pensions-deals-20101116,0,4059864.story

    “Time and again, the funds have been used as a bargaining chip or a piggy bank. Politicians trimmed budgets by offering early retirement incentives and greased union contract deals with increases in benefits. “Pension holidays” allowed the city to avoid paying into workers’ retirement funds.”

    “As a result, the funds soon may not be able to keep promises that are codified in the state constitution, threatening the retirements of tens of thousands of rank-and-file union members and leaving taxpayers on the hook for billions of dollars owed to teachers, police officers, firefighters and others.”

    “What’s happened in Chicago is a reckless disregard for the next generation of taxpayers and workers,” said Jeremy Gold, a national pension expert who advises public and private pension funds. “Their birthright has been sold out from under them because they’ll be paying for services and benefits that were rendered before they grew up while theirs are cut to save money.”

    “The political economy of all this is really the bottom line,” said Olivia Mitchell, executive director of the Wharton School’s Pension Research Council. “Nobody was acting like a grown-up and looking at the long-term consequences of the promises that were being made.”

    And what does this remind the unions of?

    “Union representatives say the problems with the pension funds don’t have to do with benefit levels but, rather, inadequate contributions from the city. “It was a series of bad decisions and financial mismanagement, not unlike the parking meters.”

    Just like the parking meters, in fact. And as for “bad” decisions, they were good for some and bad for others. Past members of those unions also got a piece of that financial mismanagement. And Illinois has already passed the “screw the newbie” portion of the “screw the newbie, flee to Florida” sequence, but it’s too late to stop bankruptcy.

  • I work in the City of Indianapolis. You should hear some of the terms people use who worked here under Mayor Goldsmith. It’s not pretty. I think NYC is strong enough to push back against him, unlike Indy.

  • zach

    Anyone know who pays to protect parking meters from vandalism in Chicago? If the city isn’t making money off the meters, it won’t be particularly motivated to spend a lot of money dealing with it. Maybe Morgan Stanley has to hire private cops and make its own prisons to hold people who vandalize meters?

    An NPR article last week said vandalism of meters has skyrocketed since the privatization.