Mayor Brandon Johnson said Tuesday City Hall has dropped out of the competition to take back Chicago parking meters after determining that the $3 billion asking price “would have made a bad deal even worse.”
“The price is too high and requires debt service payments that extend too far and impose too much risk. Chicagoans would most likely end up footing the bill, yet again… The more we looked into it, the more problems emerged,” Johnson said Tuesday.
“The City would have been required to debt-finance the entire purchase," Johnson continued. "This would eliminate the flexibility to… remove parking meters to make way for pedestrian ways and bike lanes. Instead, we would be locked into ever rising debt payments that would require City Council to consistently vote to raise parking rates year after year.”
Johnson said it “would have been deeply irresponsible” not to “run the numbers and look at every variation of a potential deal” for the 57 years that remain on the parking deal that Chicagoans love to hate.
The window opened last summer when Morgan Stanley, Allianz Capital Partners and the Sovereign Wealth Fund of Abu Dhabi signaled their desire to unload Chicago parking meters and started inviting potential bids.
But after submitting an undisclosed bid, the mayor quickly learned that the asking price would have been nearly triple the $1.15 billion that Chicago received from the 75-year lease in 2008. Johnson decided that the risk wasn’t worth the reward, either financially or politically.
The leveraged buyout would have pledged parking meter revenues as collateral, requiring a steep schedule of rate hikes even higher than the ones built into the lopsided deal signed in 2008 by former Mayor Richard M. Daley.
Whether the math even worked would have depended on the interest rate on the borrowing, and the annual growth in parking meter revenues amid a fast-changing landscape for parking demand that includes everything from self-driving vehicles and robot deliveries to congestion fees that discourage people from driving downtown.
“If for whatever reason parking habits shifted and revenues were significantly reduced due to changes in user behavior, the City would still be responsible for 100% of the debt repayments. That represents an even greater level of risk than what we face with the current contract,” the mayor said.
Ald. Bill Conway (34th), vice chair of the City Council’s Finance Committee, was relieved that Johnson ultimately decided not to reopen the political can of worms.
“If we were to have bid $3.4 billion, that would have been a bad choice, a bad investment for the taxpayers of Chicago,” said Conway, a former investment banker who still teaches college finance.
“At a time when we face billion-dollar deficits as far as the eye can see, a $40 billion unfunded pension liability and $25 billion in debt, we cannot afford to make a terrible financial decision or make what is already a disastrous deal for the taxpayers even a bigger disaster by throwing good money after bad.”
Conway urged Johnson to use the required city approval of an ownership transfer to exact changes benefiting the city, like reclaiming control of city streets and reducing payments due investors when meters are taken out of service.
Former Mayor Rahm Emanuel similarly managed to make the best of a bad situation by reducing the city’s liability via increasing the hours and days motorists pay for parking.
“When Mayor Emanuel faced this exact same situation in 2013, the contract got amended… We were able to make the deal a little bit better for the city,” Conway said. “We do have a bit of leverage here. And I hope that more rigorous analysis is done into how to negotiate that leverage as opposed to the initial bid we put in.”
Ald. Scott Waguespack (32nd) cast one of only five “no” votes against the parking meter deal in 2008.
As much as he would like to use the required city approval of an ownership transfer to exact changes benefiting the city, Waguespack said he does not believe that would be possible.
He argued that the 75-year, $1.15 billion deal that privatized Chicago parking meters was so lopsided in favor of private investors, the City Council had no choice but to authorize a $15.5 million settlement to resolve claims that stemmed from a pandemic-era scheme devised by former Mayor Lori Lightfoot.
“It just showed it was an ironclad concession agreement. Even with the pandemic, you could not break this thing open,” Waguespack said. “The only thing you could really change is raising the rates, adding meters, tweaking a few things here and there. But I don’t think there’s anything there that would allow you to go in and say that you’re going to substantially change the agreement."
Johnson agreed that what he called the "worst deal in the history of municipal finance" leaves the city with "extremely limited options to intervene on any re-sale of our parking meters."
