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Lessons from Chicago on Parking Meter Privatization

July 31, 2012
By Marc Bussanich, LaborPress City Reporter
 
Mayor Michal Bloomberg continues to forge ahead with privatization of public services in the city. The next target for privatization is the city’s parking system, contributing to the ire again to DC 37 union members. Local 1445 of DC 37 represents about 450 members in the system, and according to the local’s president, Mike DeMarco, the muni-meters his members install represent a huge revenue source for the city—approximately $58 million.

DeMarco said at a presser at City Hall on Monday, July 30 that, based on estimates from the Office of Management and Budget, “the city brought in over $189 million through parking meters and garages and long term parking fees last fiscal year that the city uses to provide other crucial city services.”

DC 37 expresses anger over privatizationHe added, “We are the ones who collect that revenue. According to our calculations only about 5 percent of that revenue goes to our members in the form of wages and benefits. The rest goes to the city.”

Tomorrow, the city is supposed to receive responses to the Request for Qualifications it issued through the Department of Transportation to private companies that are qualified to operate parking systems.

During the presser, the union and pols such as Comptroller John Liu and Council Member and Chair of the Transportation Committee, James Vacca, referred to the experience in Chicago as a warning against privatization because the Windy City signed a 75-year contract with a private company that can raise fares on a whim after five years.

They also claimed why the city should fix something that’s not broken. “The city realizes $150 million annually in revenue just from the parking system.”

Indeed, Mick Dumke, a reporter for the Chicago Reader who, along with a colleague wrote a three-part investigative series on the privatization of Chicago’s parking meters, said, “I would warn New Yorkers that even if you’re open to the idea of privatization to be very careful because generally the privatizers have an extraordinary level of expertise that usually people in government don’t have.”

He added, “Even if the Bloomberg administration thinks privatization is a good deal, I’m very skeptical the administration will get the upper hand on investment bankers who do this for a living.”

LP readers can read the series via www.chicagoreader.com/chicago/fail-chicago-parking-meter-privatization-archive/Content?oid=1265254)

Dumke noted that before privatization, Chicago earned about $20 million annually from its parking meter system. After the company, Chicago Parking Meters, LLC (http://chicagometers.com/) took over, it reported $75 million in revenue last year.

A couple of reasons explain the big revenue jump. Firstly, the company jacked up rates by two or three times. Chicagoans used to pay in the neighborhoods 25₵ for half an hour and $1 dollar for half an hour in the downtown. They now pay 75₵ and $3 dollars, respectively.  

Also, whereas drivers left a parking spot with time remaining, allowing another driver to park, the company replaced the old quarter-fed meters with pay boxes that now forces drivers, regardless of time remaining, to pay a new charge, contributing greatly to the company’s revenue increase. 

Back in 2009 when privatization took effect, the company was backed by a group of investors, including Morgan Stanley, retirement funds such as the Teachers Retirement Fund of Texas, the Emirate of Abu Dhabi and a couple of foreign companies, according to Dumke.

While Chicago did get a $1.2 billion fee to basically hand over control of the system to a private company, Dumke said that people soon started to question whether the city could have gotten more value from the sale if it had conducted a more thorough evaluation process.

Dumke and others believe, conservatively, that Chicago could have gotten up to three times as much as it did for the system.

Instead, the city hired William Blair as an advisor, a Chicago-based global investment and banking and asset management firm, without going through a bidding process.

“Blair was essentially hand-picked by members of former Mayor Richard M. Daley’s administration,” said Dumke.

According to Dumke, the firm just did a quick survey of other locations such as in Europe, where meter systems are not as pervasive as in Chicago.

“The bottom line is that the public really never saw how Chicago determined that $1.2 billion was the system’s true value. In addition to handpicking financial advisors, Daley’s administration handpicked legal advisors. In fact, after Daley stepped down, he, along with the city’s top lawyer and top two press aides went to work for the law firm, Katten Muchin Rosenman, that drew up the contract to privatize the system,” Dumke said.

He noted that a public interest group filed a lawsuit to declare the deal unconstitutional on grounds that Chicago gave away its legislative and policing powers. But he’s skeptical the group will win the lawsuit.

While all the candidates in Chicago’s 2011 mayoral election pledged to either undo the deal or soften the blow over time, the problem, Dumke noted, is that the city did get $1.2 billion and has spent most of it.

Also, while Chicago’s new mayor, Rahm Emanuel, has said publicly that he wants to extricate the city from the deal, he has city lawyers fighting the lawsuit in Chicago’s courts because the city, based on the contract it signed with Chicago Parking Meters, is required to defend the contract!

Bloomberg’s administration has said that its privatization will be different from Chicago because the city will retain control over meter rates and the rights to place and remove meters, but Dumke said, “It would behoove people in New York to study this carefully and closely as it proceeds.”  marc@laborpress.org

July 31, 2012

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