After putting up a slightly hurried blog entry yesterday, I’ve spent a large part of this afternoon doing a deep dive into the sale of the license to run Chicago’s parking meters: many thank to the Parking Ticket Geek and Daniel Strauss of Gapers Block for prompting me to revisit the issue.

If you really want to get up to speed on all this, there are two main sources worth reading. The first is a long investigation by Ben Joravsky and Mick Dumke of the Chicago Reader, especially part two, which was published in May of this year. The second is a 46-page report by the Chicago Inspector General, David Hoffman, also looking at whether the city got a decent deal; it dates from June. Both of them are well-written and comprehensive examinations of the deal, which are invaluable when it comes to understanding it.

Daniel asks me a few questions, via email:

Where did the city go wrong? And why isn’t there a broader consensus on what should’ve been done? (Changing things is difficult in Chicago politics but hindsight is fairly easy to come to a consensus on.)

Boiled down, what the city of Chicago did was to rush a bill selling the parking-meter concession through the city legislature without allowing lawmakers to give it a detailed reading. The city claimed it got a good deal, basing that claim on a single valuation from its own advisor. But after the fact, a number of analysts, including the Inspector General, have concluded that actually the deal wasn’t very good at all.

The one claim in the IG’s report that I find the most compelling is that the term of the deal — 75 years — is far too long. Here’s their chart:

This is the IG’s best attempt to reverse-engineer the amount paid for the concession: in order to get to the final sum of $1.16 billion, they had to assume an 11% discount rate. (Which, yes, is pretty high.) When your discount rate is that high, there’s little point in selling off a 75-year concession: you can cut the life in half and still get 93% of the value.

It’s worth pointing out at this point that another critic of the deal, Scott Waguespack, uses a valuation methodology where the discount rate is 3% and the inflation rate is also 3% — in other words, the value of a real dollar in 75 years’ time is the same as the value of that dollar today. That’s just ludicrous.

But what isn’t ludicrous is that nobody has a clue what the parking-meter industry is going to look like in the 2080s: will there even be cars parking at meters then? If someone bought a franchise in 1934 in just about any industry — even if it was heavily regulated by the government — they’d have no ability to foresee what kind of revenues that franchise might be bringing in today. As far as the purchaser is concerned, the second half of the deal basically has option value: there’s a possibility that it might be hugely lucrative, but there’s also a possibility that it’ll be worth nothing. Looking at the price, it doesn’t seem that the buyers paid anything at all for the option, so it was silly of Chicago to just give it away.

But weirdly, the length of the deal is not one of the main points that the critics bring up. Instead, the point that they return to over and over again is that Chicago would make much more money, over time, if it kept all the parking-meter revenue for itself, rather than giving it to a private-sector contractor.

That’s true. But is it relevant? I’m a believer in what the IG report calls “the impossibility argument” — that even if Chicago did manage to raise meter rates on its own, pushback from constituents would surely force it to roll back those hikes sooner rather than later. As the Parking Geek himself says,

From every report I’ve read and every city hall insider I’ve spoken to, all 50 alderman, a full year after the deal was signed, are still receiving holy hell for the rate increases from their constituents.

The only way of baking in these price hikes was for the city government to tie its own hands — which is exactly what it did. And more broadly, it’s possible that the only way it could tie its hands in this manner was precisely by pushing the bill through in a rushed and bullying manner. (It’s not the first time that’s happened in Chicago, and it won’t be the last: it’s called politics.) Maybe doing the deal in this way was the only way a deal could be done at all.

But that still leaves the question of whether Chicago should have done this deal. I’ve already said that the tenor of the deal is too long: a 30-year concession would have made much more sense. But what is the value of the deal to the purchaser? Was Chicago ripped off? Let’s say I’m auctioning off a vintage Rolls Royce which I have no use for because I can’t drive and I think it’s ugly. Even if I sell it for $100, the cash will be worth more to me than the car. But I’d be stupid to do that, because there are people who would pay a lot more, and the market value of the car is many times greater.

So was Chicago stupid in this case? Did it leave money on the table in its negotiations to sell the parking-meter concession?

My feeling, after reading the IG report, is that Chicago got a good price for the concession, if not a very good price. There’s no doubt that the price would have been much higher had the auction taken place at the height of the credit bubble, when money was almost free, rather than at the height of the credit crunch, when persuading anybody to part with over a billion dollars for anything at all was quite an impressive achievement. What’s more, the critics of the deal generally ignore the tail risk involved: there were lots of things which might go wrong for any purchaser, and as a result the reasonable market price was lower than the revenue projections might suggest.

Indeed, after the parking meters were handed over to Chicago Parking Meters, lots of things did go wrong. And that brings me to the second part of Daniel’s question, where he asks about yesterday’s story, which came out of the Chicago News Cooperative, and which prompted my blog entry:

How does this reflect on the CNC? Many Chicagoans are curious/excited/nervous about the venture but it’s run by the same Tribune people that arguably ran it into the ground. Is this story prophetic of what the venture will be like in your opinion?

The simple answer to the last question is no: it would be ridiculous and invidious to judge an ambitious new news organization by its first story, and I wish the CNC all the best.

That said, after reading a great deal of material from this summer on the subject of the parking-meter deal, I’m even less impressed by the CNC story, whose conclusion was clearly foregone. The new news in the story is about the actual revenues that the private-sector parking meters have generated — and it turns out that those revenues were significantly lower than expected. Yet the CNC story largely skates over that fact, to paint a picture of a company “piling up the profits”, in the words of its headline. To the extent that the CNC story looks at the mechanics of the deal itself, it adds nothing to the Chicago Reader’s investigation, which of course it doesn’t mention.

Going forwards, I’m hopeful that the CNC will produce good work. But I stand by my original verdict that this particular story is flawed. I neither hope nor expect that someone in Chicago is going to write a long, contrarian article explaining why the deal was magnificently good after all. But it’s worth at least examining both sides of the argument.

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.

Alex Pareene has a wonderful rant about New York’s MTA, which picks up on this astonishing line from the Daily News:

In addition to the 2010 budget, the MTA released a four-year fiscal plan. It envisions 7.5% fare and toll hikes in 2011 and 2013 as the agency tries to establish a pattern of regular inflation-based increases.

‘Cos obviously consumer prices generally are going to rise by 15.5% between now and 2013.

Pareene also has a very good point about the fungibility of city revenues:

Fares are simply taxes—incredibly regressive taxes, just like the sales taxes that New York City residents suffer to fund our own transit while suburban New Yorkers bitch about the prospect of being charged to clog our streets with their cars, and Jersey dicks bemoan the tolls they have to pay to enter the city where they make all of their money while contributing nothing back.

This is one reason why Charles Komanoff’s plan for reducing MTA tolls while implementing a congestion charge makes so much sense — and it’s a reason which has yet to fully penetrate the consciousness of most New Yorkers. There’s no particular reason why the MTA’s revenues should cover the MTA’s costs, especially when the MTA benefits the city in so many other ways, such as reducing congestion and increasing possible population density and therefore total taxes. Yet somehow everybody seems to blindly accept that the MTA should cover most of its costs through selling MetroCards. Sad.

In September, Tyler Cowen picked Berlin as his “preferred exile”:

There would be plenty of art and music, lots of smart people to talk to, access to other good locales, and the near-certainty of public order, yet with bearable winters and good health care.

Today, on the 20th anniversary of the fall of the Berlin Wall, he’s not so enthusiastic:

I like spending time in Berlin. But I am never sure I like Berlin itself, West or East. Berlin is Germany being imperial. Berlin is Germany looking toward the east. Today Berlin is Germany pretending it is normal, while not yet having a new identity.

Maybe the change in tone is a function of all the news coverage about Berlin right now, all of it concentrating on the city’s historical importance. But the fact is that for all Berlin is now the capital of the most important country in Europe, it’s still, as its unofficial slogan puts it, arm, aber sexy. (Poor, but sexy.)

I spent four months in Berlin in 2008, and never once did I think of it as “being imperial”. Being grungy is more like it. The most imperial thing in Berlin is the Reichstag, which, after it was wrapped by Christo, was topped by Norman Foster with a transparent dome and opened to the public in as non-threatening and enjoyable a manner as he possibly could. Can Berliners be rude? Yes. But not in an imperial way, more in a sullen way.

Berlin has celebrated mainly itself since the wall went up, and even more so since the wall came down. It was always exceptional in many ways, being divided into quarters given to each of the Allied powers, and being a domicile of choice for young West Germans looking to avoid military service. With the exception of a flurry of construction activity in the early 90s, money has never had much interest in Berlin: it’s much more famous for the Love Parade.

Neither Berliners nor the rest of Germany consider the capital to be particularly German. Instead, it’s a historical anomaly, most of which was literally walled off from the rest of the world for 30 years, and all of which remains a very long way from any other major city. When you’re in Berlin, with its dearth of high-speed rail lines, you don’t feel particularly connected to the rest of Europe: instead, you feel the freedom associated with being distant from the concerns of others. I love the city, and I send it all my love on this special day. Long may it retain its singular character.

Copenhagen:

The morning and afternoon commute in Copenhagen is a spectacle involving tens of thousands of cyclists roaring down dedicated lanes in tight packs, past cars moving at half the speed, if at all…

Traffic lights that were once co-ordinated for car speeds were adjusted to cater to the pace of the average cyclist, allowing them to travel long distances without ever getting a red light. To increase safety, stop lines for cars are five metres behind those for bikes. Cyclists get a green light up to 12 seconds ahead of cars to help increase their visibility.

In the winter months, bike ridership drops off 20 per cent. Still, an armada of plows is ready to clear bike lanes when snow flies. They get priority over routes for cars.

How do other cities get there from here? Slowly. You don’t do everything at once, but instead just add things incrementally, until you reach the point at which cyclists outnumber car drivers. Lots of attitudes need to be changed, including those of today’s cyclists, who, in car-centered cities, tend to be highly aggressive. And attitudes change slowly. But it can — and should — be done.

(Via Florida)

Ryan Avent explains, contra Matt Yglesias, why hosting the Olympic games makes sense from a behavioral-economics perspective:

Infrastructure benefits begin appearing years down the road and last for decades beyond that, while many of the costs — the political headaches, the need to put together financing, the disruption of construction, and so on — are relatively immediate. Winning the Olympics ties an immediate benefit to the immediate costs.

More to the point, it sets a deadline. Infrastructure projects invariably end up plagued by endless delays: just ask anybody who currently commutes on the Second Avenue subway line in New York. And deadlines are often the only way that anything ever gets finished: just ask any journalist. If you win the Olympics, you know that for all the construction headaches you’ll have to endure before they open, at least you’ll have some decent infrastructure thereafter. If you don’t win the Olympics, then even if you’re enlightened enough to invest in infrastructure, you can have no faith in its arrival.

Rio de Janeiro has desperate need for a good subway system. If it wins the Olympics, it will probably have just such a system by 2016. If it doesn’t win the Olympics, there will still be a lot of infrastructure investment in the city. But without a deadline, I don’t think anybody has any faith in getting that subway system any time soon.

Matthew DeBord takes aim and fires:

Salmon also makes it sound as if the average American eats primarily at off-the-freeway fast-food joints in between trips to the supermarket to fill their car with huge amounts of groceries. They nourish themselves by “absent-mindedly shovelling down an unknown quantity of something random while watching the TV.”…

Oy! Talk about an east-of-the-Hudson River, blinkered mindset. There are plenty of cities in the U.S.—and the rest of the world—where the urban concentration isn’t that dense, people own cars…and remain thin while eating both restaurant cuisine and keeping the pantry stocked, preparing delicious, unfattening meals at home. That’s right, they have restaurants! And they don’t eat their ice cream by the gallon while watching Survivor! Some of them even use their cars to transport their bikes to the (beach, mountains) to ride them for…miles and miles! Or they drive someplace rugged and scenic to take a hike. Or they take frequent walks while also owning a car!

No argument at all, DeBord is right. An active lifestyle on the outskirts of somewhere like Boulder or Portland or San Diego trumps a relatively sedentary life of pork-and-butter-heavy NYC expense-account dinners any day.

On the other hand, if you’re an overweight suburbanite there’s a good chance that you don’t live an active lifestyle. And for the large number of people without the “personal discipline” that DeBord writes about, ceteris paribus they’re likely to be thinner if they live in an urban center. Although buying a bike and heading for the local foothills on a regular basis would be cheaper, more convenient, and more effective.

Dan Ariely wonders how the New York bus system could cope with the extra demand created by making crosstown buses free. (Actually, he does more than wonder: he simply asserts that it couldn’t.) But Charles Komanoff has already run the numbers, and as far as anybody knows, they do add up.

Laura Conaway asks why pedestrians walk in bike lanes, and reprints the photo above, which might well have been taken on Broadway, just south of 42nd Street. I know that stretch well — I bike down it on my way from work — and in general I stick to the road-for-cars, rather than risking life and limb on the bike-path-for-bikes.

This is a badly designed bike path, because of the location of the pedestrian zone you can see on the left hand side of the photo. There’s the sidewalk, and then the green bike path, and then the brown pedestrian zone, and then the black car lanes. When Broadway is bustling with foot traffic, it’s only natural for pedestrians to move back and forth between their two zones, especially during times when bike traffic is light.

But more generally I think it’s just that pedestrians were taught the rules of walking on streets by recourse to fear: look both ways, lest you get run over by a car. The natural corollary to such thinking is that if there’s no danger of getting run over by a car, there’s no need to look out for traffic. (If and when pedestrians do see me biking down the lane, they’re generally good enough to stay out of my way; the much bigger problem is the oblivious pedestrians, often listening to their iPods, who have no idea I’m there, and never stop to look.)

There’s also the natural impatience and pushiness of New Yorkers, who have a natural tendency to use bike lanes as a staging point in their rush to cross the street. No one in New York waits patiently on the sidewalk for the lights to change; instead, they inch forward on the road as far as they can without walking straight into the path of cars. They don’t worry about getting into the path of bikes, though, and if they see a bike coming, they generally stay put, since they couldn’t possibly step backwards. And if they’re crossing mid-block, which they often do, they generally take one step out from between parked cars before looking for traffic, since they know any car driving down the road won’t drive that close to the parked cars. (Bikes, again, they just don’t think about.)

Bicyclists, I have to say, are just as bad, if not worse: at intersections they never stop where they’re meant to, and instead stop either (a) right in the middle of the pedestrian crosswalk, or (b) right in the middle of the cross-street’s bike lane. (And don’t even get me started on the “bike salmon” who ride the wrong way down the block and seem to think that all bike lanes are two-way streets.) Although bikers get very mad at motorists, the fact is that car drivers are much more law-abiding than either bicyclists or pedestrians, and tend not to feel that the rules don’t apply to them. I’ve even noticed an increasing number of car drivers who seem to know the difference between a bike lane and a left-turn lane.

In northern Europe, everybody tends to be much better behaved. I think that’s learned: as the number of cyclists in a city rises, two things happen. Firstly drivers and pedestrians become more conscious of the fact that a cyclist is likely to be on the road. And secondly there’s an increasing number of what you might call non-brave cyclists, who don’t consider biking to be some kind of urban warfare and who are more likely, at the margin, to simply follow the rules of the road which they know so well from driving cars. Eventually their good behavior rubs off onto the more reckless.

Ultimately I think it all comes down to a combination of visibility and civility. As bikes and bikers become more visible, everybody else will be more conscious of them. And as they feel more noticed and less victimized, they will start to behave more responsibly to other road users, on foot and in cars. Who will then start to reciprocate even more. The problem is this takes years; it doesn’t happen overnight. And in the meantime there will be nasty bike-pedestrian collisions, some of them unspeakably tragic. My friend Josh Phillips died in 2006 after hitting a pedestrian on his bike. The pedestrian wasn’t malicious, just oblivious. But that’s no solace to Josh’s family and friends.

Update: Walking back from lunch, I noticed this scene on 41st and Broadway. You can shout as loud as you like, this obstacle won’t get out of the way. And as a result you can see two bicyclists having to detour into the pedestrian zone.

Anecdotally (which means that I don’t have any empirical data on this, but it feels this way), transportation spending is second only to defense spending when it comes to waste, inefficiency, and a general syndrome of money going to politically-influential districts rather than where it would make the most sense.

But then the Obama administration started banning earmarks in the stimulus bill and, I thought, leaving decisions on the allocation of funds to an independent central authority rather than to bickering legislators. I was rather surprised, then, to read this:

The stimulus law provided $26.6 billion for highways, bridges and other transportation projects, but left the decision on how to spend most of it to the states.

The results have been predictable: disproportionate amounts of money for roads in the middle of nowhere, while important urban transit projects go unfunded. Seattle, for instance, got none of the first tranche of federal stimulus funds; Charlotte got less than 2% of North Carolina’s.

This is why we need an Urbanist Party: so that city-dwellers can finally punch their weight in politics (Obama is the first president from a city in living memory) and so that local, state and federal government starts paying much more attention to the people who really make any modern economy run.