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The Mechanics
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Chicago Fri Dec 05 2008

Private Meters, Public Benefit

With the rubber stamp, Chicago aldermen approved the sale of the parking meter system to a private entity. The floor discussion was absent any real debate and without drama, although Alderman Richard Mell's claim to ignore the "small print" was somewhat discouraging. Instead of taking the time to legitimately debate the issue, aldermen generally made ancillary arguments that demonstrated a fundamental misunderstanding of the pertinent issues regarding the lease of a public asset.

Though drivers will most assuredly bemoan the increased cost of parking curbside, the one-time installment of 1.2 billion dollars is worth the inconvenience. It is not difficult to see the benefit to the city. Given the dire condition of municipal finances and the need for a source of capital spending, private ownership of public assets is a great money-generating tool for Chicago. It is only the municipality that has the legal framework to build parking meters (or an airport or tollway, for that matter); however, the capitalistic efficiency displayed by private ownership eludes them as it devolves into waste.

While opponents of the deal will argue that cheap metered parking is a public benefit, it is difficult to see without assuming car ownership. Others argue that the higher-priced meters will discourage retail traffic, a claim refuted directly by store owner Alderman Thomas Tunney. He explained how lower meters encourage longer parking periods and less turnover. As a suburban center encourages shoppers to stay by providing free parking and every service imaginable, city shops thrive on foot traffic and large volumes of people. Hence the ridiculous frustration of a suburbanite destined for State Street or Michigan Avenue who expects to park curbside. The imagined, de facto American right of cheap parking is dissolving as drivers are expected to bear the burden for their transportation choice.

Dense neighborhood shopping drags such as Clark Street are built for pedestrians and already harass the insistent driver, regardless of parking meter prices. The tantalizing addiction of vastly underpriced city-run meters will cause much of the initial outcry. Consider that a space on the street will, under new ownership, cost between $2 and $7 per hour. Alternatively, a space in the parking garage right next to the meter will cost, at current rates, up to $10 to $15 per hour. Certainly the metered spot cannot justify the discount as any matter of quality beyond a car being sheltered from the weather.

The large concern regarding private leasing of public assets should be whether or not the sale represents an appropriate present value of the asset. The difficulty in answering this is that parking meter leases have a very limited market and American municipalities are just now discovering the benefits of these deals. While Mayor Daley has been laudably progressive in pursuing these deals, it is difficult to forget the adage "the explorers get the arrows and the settlers get the land." Hopefully the Department of Finance accurately priced the sale of the meters to prevent any arrows from striking future city budgets.

 
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Pete / December 5, 2008 8:46 AM

Give me and all the Chicago residents a break, this is another tax on the working class. Add this to booting after 3 tickets, this is oppression pure and simple. Gawd forbid we make businesses pay their fair share, we'll just squeeze the plebians a little harder.

Carl GiomettiAuthor Profile Page / December 5, 2008 9:13 AM

I don't think you can isolate a particular class that will be hurt more or less. Obviously, a higher price on anything makes it more difficult for the less wealthy. Owning a car and having inexpensive parking available are not entitlements, they are conveniences. If people living on a tight budget are finding the increase in meter rates difficult to cope with, I would recommend that they seek alternative, cheaper transportation. AAA estimates that the average annual cost of a owning a car is $4,500 to $9,000. One year of unlimited transit rides costs less than $1,000 per person. Incorporating biking, car-sharing, and walking can lower that cost further without losing many of the benefits of car usage. These are several great ways to remove the fluctuation of parking prices from impacting your finances.

Brian / December 5, 2008 12:14 PM

Alderman Waguespack had a financial analysis done that determined the city should receive about $1.5 Billion with meter rates left as is.

After quadrupling the prices of some meters, as Morgan Stanley will do on January 1, 2009, and increase again by 2013, the analysis shows that the actual value over 75 years is closer to $4 Billion.

So is this really a good deal?

Carl GiomettiAuthor Profile Page / December 5, 2008 1:45 PM

Brian, this is where the real discussion comes in. The lack of precedent for all these deals adds a certain amount of risk.

Without more information, I would question Ald. Waguespack's numbers. With these assets, a coporation can generate much higher revenue that the city by hiring non-union employees and other streamlines that elude government entities. It seems unlikely that the city could produce cash flows with a such a large present value. I would guess that the city knows it could raise meter rates and increase cash flow but I think they are looking for liquidity, in the case, in the form of a lump sum of $1.2 billion.

You do have a real concern about these sales, though. It doesn't seem like there is anyone who can accurately price large, complicated assets. I just hope that more of the proceeds begin to be funneled towards capital expenditures. I would hate to wake up one day and find that everything in the city has been sold and all we got out of it was a AAA credit rating.

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