Chicago’s good parking deal
File under “events which don’t happen every day”: Gawker describing a newspaper article as being “real journalism” (their emphasis) and “what news alarmists say will be missing if and when we lose newspapers”.
But the fact is that the article in question, an investigation into Chicago parking-meter revenues by Dan Mihalopoulos, is contentious, one-sided, and flawed.
A bit of background: in February, a company named Chicago Parking Meters LLC paid the city $1.15 billion for the right to parking fee revenues for the next 75 years. And now? Well, the headline seems unambiguous: “Company Piles Up Profits From City’s Parking Meter Deal”. But in fact the article only gives numbers for revenues and operating profits. There’s no indication of Chicago Parking Meters’s cost of funds, or whether, after paying the interest on its debt, it’s managing to make any profit at all.
The theme of the article is that selling the rights to parking fee revenues was a mistake:
“Had we done this ourselves, it could have made a lot more money,” said Alderman Scott Waguespack…
The economist Roger Skurski calculated the current value of the deal. Mr. Skurski said his conservative estimate was that “the city could have earned about $670 million more by keeping the asset.”
But this ignores the whole point of doing the deal in the first place: that the city was politically incapable of raising the parking-meter rate itself. This was clear as far back as December, when I wrote that “this parking-meter initiative is the municipal equivalent of a CEO hiring McKinsey to come in and recommend job cuts: it’s a way of doing what needs to be done while somehow managing to blame someone else”. When the deal went through, Chicago parking meters were charging just 25 cents per hour: all the proof you’d ever need that the city, on its own, was incapable of charging a market-clearing price for on-street parking.
Mihalopoulos also ignores the question of whether higher parking-meter rates might benefit the city of Chicago in other ways, by reducing the congestion from cars circling downtown streets at a crawl, desperately seeking a Spot.
And he also buries the news that in fact Chicago Parking Meters is making less money than it had expected:
According to the meter deal’s income statement for May 2009, revenues for the month were about 20 percent below projections. At the same time, expenses were far over budget, mostly for “supplemental staffing.”…
Because the company is not writing tickets, it seems many Chicagoans are getting away with parking for free. A company audit of a section of the North Side found 41 percent of occupied spaces filled by motorists who were not paying, according to the company records.
What’s more, at the end of the story we find this:
Before entering into the parking meter deal, the city hired a consultant whose confidential report suggested the lease could generate $650 million to $1.2 billion for the city.
The report was not disclosed to the public until after the check from the winning parking meter bidder cleared. Officials say revealing a consultant’s valuation analysis before a deal closes would hurt the city’s chances of getting the best possible deal.
This datapoint comes well over 1,000 words after Mihalopoulos tells us about the $1.15 billion deal value. If you don’t remember that number from the beginning of the article, the tone of the writing makes it seem as though the city was somehow hiding a report which showed it got a bad price. Instead, the report reveals that the city got a price at the very top of the expected range.
So far, Chicago Parking Meters has made rather less money than it had hoped out of this deal. Maybe its revenues will recover, as Mihalopoulos seems to think they will; on the other hand, maybe they won’t. The risk all belongs to the company, rather than the city. The city just gets to spend a whopping great big check, and also bring the price of on-street parking up to where it should have been for years. A good deal, not a bad one.