Thursday, February 3rd, 2011
Image via The Expired Meter
It’s almost surreal that the two year old parking meter lease remains politically potent in Chicago. At least two mayoral candidates have said they are in favor of undoing the deal. The others suggest it will be difficult, but haven’t said that it is undesirable. Could Chicago in fact get out of that deal? Possibly, though it’s a long shot. But it’s imperative that the next mayor at least take a run at it.
The reason to undo the lease is not that it was a bad financial deal, that rates went up, or the way it went down. Rather, it has to do with parking meters being a bad candidate for this type of transaction in the first place. As I explain in “Parking Meters and the Perils of Privatization,” parking meters are not a public service like garbage collection, nor a capital asset like a toll road. Rather, parking meters are an urban planning tool that we use to manage access to precious street real estate for the benefit of the neighborhood. Because neighborhood dynamics change over time, the management of the space needs to change with it. Heck, we might not even want to use that real estate for parking the future.
However, the parking meter turned this urban planning tool into a revenue generating mechanism. The lease locks Chicago into a particular policy on parking for 75 years – including setting rates decades into the future. In effect, the city sold off a 75 year ground lease on the streets of Chicago, that is to say in the most important component of the city’s public space, to a private company. This will clearly hurt our ability to implement livable streets type initiatives going forward – the types of projects that are key to attracting the talent Chicago needs to be competitive in the 21st century economy. Maybe they won’t be impossible, but you don’t want to be wearing ankle weights in a race with China – or even New York, which is killing Chicago on the transportation innovation front right now (see here, here, here, and here for examples).
What’s more, Chicago locked itself into an old-school “X quarters per hour” pricing structure just as we’re on the cusp of a revolution in parking management. San Francisco is already experimenting with dynamic pricing. Similar to congesting pricing for roads, this varies meter rates based on demand to most efficiently use the space. It also de-politicizes parking rates by letting the market decide what the price ought to be. Chicago’s lease is the parking equivalent of building the new Comiskey Park right before Camden Yards opened.
So we have to at least take a shot at. How then?
The lease cannot be cancelled. But there’s no reason it can’t be renegotiated. Private businesses renegotiate contracts all the time – all the time. I believe the city should engage with Morgan Stanley and the consortium in good faith negotiations to repurchase the meters at a fair value. I believe Morgan Stanley would be open to this. If not, perhaps the IVI-IPO lawsuit will succeed. And I believe there are other ways we can bring them to the table. But this is not about trying to get revenge or screw the banks. I’m talking a good faith negotiation and fair valuation.
But we already spent the money. So how would we give it back? Good question. Remember though, we would not only have to give the money back, but we would get back the revenue stream. After all, Morgan Stanley gave the city the money in the expectation the meter revenues would pay it back. Why wouldn’t that work for us? The city even has advantages here. It doesn’t need to turn a profit. It doesn’t have to pay taxes. And as a AA- rated borrower with no equity component in the deal, it has a lower cost of capital.
Conceptually, the city would create a parking authority that would issue revenue bonds backed by the meter revenues in order to pay back the money. Possibly this would have to be supplemented with general obligation debt or some type of contingent city guarantee. But the idea is that the meter revenues themselves would cover the payments. If not, then by definition the city overpaid.
You might argue that the city can’t take on any more debt. Well in effect it already did. Because the actual assets of the parking system are minimal, and this more or less just involves a monopoly franchise, another way to look at the meter lease is as a form a high interest off balance sheet financing. In effect, the city borrowed the $1.1 billion from Morgan Stanley to start with and is paying it back with the meter money. I say it’s time to look at refinancing that into a more conventional product. Note that there’s no reason why we can’t continue using a private company to run the system for us, as who cares who collects quarters out of the meters. I have no objection to private sector involvement and am a privatization fan generally – just not of this deal.
Now this isn’t without risk or pain. (It might affect the city’s credit rating, for example). Nor will it be easy. In fact, it’s probably a long shot. But because the price of staying in the deal is so high, it’s something the city has to give a serious look at. Because who knows what we might be able to make happen if we put as much effort behind getting out of the deal as we did to getting into it.
Unfortunately, because we need to use meter revenues to pay back the debt, getting out of the lease only solves half the problem. We’ll still be saddled with having turned an urban planning tool into a revenue raising mechanism. But at least we’ll be in a position to look at solving that problem ourselves. Without getting out of the lease first, there’s basically no hope for the next 73 years.
This article originally appeared in The Huffington Post.