The Parking Meter Lease, And Non-Compete Clauses, Rear Their Heads Again

Another week, another possibility the city owes a contractor money based on non-compete clauses in privatization deals. At least we’re not alone?

Chicago parking meter

 

The Sun-Times has an excellent report on the latest developments in the ongoing saga of Chicago’s parking meters:

The private investors who run Chicago’s parking meters are doing better than expected, and now they’re demanding an additional $14 million they say they’re owed under obscure provisions of the wildly unpopular 2008 deal that privatized metered parking and caused rates to soar, records show.

That sort of depends on what you mean by “obscure.” The deal is that Chicago Parking Meters LLC says they’re owed because “the city took meters out of service last year because of street repairs, festivals and other city-sponsored activities.”

It might have been obscure when the deal was passed, but the whole thing was obscure then. Since then, the problems with what amount to non-compete agreements with formerly public infrastructure have been well-documented:

[E]very potential project on a street featuring meters—including expanded bicycle lanes, sidewalk expansion, streetscaping, pedestrian bulb-outs, loading zones, rush hour parking control, mid-block crossing, and temporary open spaces—are dictated, controlled, and limited by the lease agreement. These restrictions severely limit innovative planning for bicyclists, pedestrian, and transit users.

That includes festivals, and pretty much anything the city wants to do with its streets for the next 75 years. Which is not to say the city necessarily will have to ante up for all of it, but anything the city wants to do that could impact Chicago Parking Meters’ control of their property faces the possibility of litigation, or in this case, arbitration. And there’s a lot of money at stake: up to $13.5 million for 2010, up to $14 million for last year alone.

To put that in context, here’s a brief reminder of what the city got for leasing the meters: $1.15 billion overall, with about $400 million meant to go into a reserve fund that would, at (a perhaps generous rate of) five-percent interest, bring in $20 million a year, more or less the revenues the meters brought in on a yearly basis before they were leased. This was supposed to be the consolation prize, as Gene Saffold explained at the time—while we were lacking political will to raise the rates to what Chicago Parking Meters did (bringing in $45.6 million in 2009, $82.8 million in 2011), the returns from interest would at least more or less cover the revenues that the meters collected without a rate hike. By political math, it was a wash, replacing the pain of raising rates with the frictionless beauty of compound interest.

And it didn’t happen. As of April last year:

Thanks to more money coming in than anticipated, the city will put $50 million back into an account created when Mayor Richard Daley leased Chicago’s parking meters.

Even with that bit of good financial news, the city expects to have only about $125 million left in that reserve fund at the end of this year, less than three years after it signed the 75-year lease that came with a one-time payment of $1.15 billion.

The balance at the end of last year was $98 million. So the city expected about $20 million a year from reserve-fund interest on a $400 million balance. At $98 million, five-percent interest is only $4.9 million. (In 2010, the year the city earned the most interest on the revenue replacement fund, it got $10 million.) They’re primitive back-of-the-envelope calculations, but it suggests the replacement money Chicago Parking Meters claims the city owes could easily outstrip the revenue-replacement interest the city receives, should the city lose its case for 2010 or 2011.

It’s cold comfort, but Chicago’s hardly alone in having trouble with provisions of privatization/public-private contracts with such non-compete clauses. As I mentioned previously after the parking garage non-competes flared up, such clauses are a regular and troublesome feature of P3s that have caused many cities considerable headaches. At best, the fact that they’re often broad invites litigation; at worst, they cost cities revenue and prevent future development, as cities find themselves legally outmatched and outgunned by experienced, deep-pocketed firms with much more experience in the specifics of the law. I can’t help but wonder if this is part of the appeal, perhaps counter-intutively, of infrastructure trusts: if the public-sector decision-making process is liable to cut a poor deal in the private sector, it’s tempting to add a private component to the decision-making process as well.

 

Photograph: juggernautco (CC by 2.0)

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2 years ago
Posted by thinklongterm

The executives should be ashamed to sap the city and as a result its citizens of a right to enjoy their own land. An already great deal does not need to be made sweeter by bullying... Such actions will only incite Chicagoans to try to undermine your business.

2 years ago
Posted by joejoejoe

Can we stop pretending Chicago Parking Meters LLC is a real company and not a shell and just name Morgan Stanley + Abu Dhabi Investment Authority as the partners on the other side of this deal? Chicago Parking Meters LLC will never make another deal until the end of time and cannot be pressured. Morgan Stanley and Abu Dhabi Investment Authority will be doing business (and fleecing our idiot leaders) in the future so that is where the focus should be.

Believing Chicago Parking Meters LLC and Chicago Loop Parking LLC are two unrelated entities is like believing Dr. J and Julius Erving are two different people. They are both Morgan Stanley!

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