May 2, 2013
On Monday April 29th, Mayor Rahm Emanuel announced that an agreement had been reached in the disputes between the City of Chicago and Chicago Parking Meters LLC (CPM), whose investors include Morgan Stanley, Allianz Capital Partners and Abu Dhabi Investment Authority. The agreement potentially determines how much the City owes to CPM for lost revenue of meters altered for City use. Additionally, an arbitration panel settled a separate dispute between CPM and the City with regard to disabled placard parking. The agreement between the City and CPM also extends hours on some parking meters, offers free Sunday parking on some meters and introduces new technology with the pay-by-cell phone option. The City believes the agreement will eliminate over $1 billion of future charges over the remaining 71 years of the contract. The proposed agreement will be introduced to City Council on May 8th and up for a vote on June 5th.
For an overview of the City’s 75-year parking meter lease and the use of its proceeds, see our previous blog on the City’s asset lease reserves.
The dispute between the City and CPM centers on two major issues: invoices to the City for altering parking meter usage and the widespread use of EPAEL, or disabled placard parking, which the City contends is often fraudulent.
The City received additional charges from CPM for altering parking meter usage as a result of restricting parking for police operations, repairs or activities like street fairs. The City also modified some of its rush hour parking restrictions, allowing drivers to park in certain spots during rush hour. Per the parking meter contract, the City is liable for modifications to CPM’s parking meters. According to the City, CPM charged approximately $49 million for the two-year period ending March 2013 for previous changes. The City would have been liable for these charges for the remainder of the lease. Because the Emanuel administration began collecting and analyzing parking meter data for the first time, the City was able to negotiate those invoices to approximately $8.9 million based on their own calculations. The City believes it will only have to pay $4.0 to $4.5 million for past meter changes for the rest of the contract, potentially saving $20.0 million per year.
Since taking office, Mayor Emanuel’s administration has made efforts to reduce fraudulent disabled placard abuse, including coordinating stings to pursue motorists who often use the placards in the absence of the authorized user for free parking. According to previous state law, cars with disabled placards were allowed to park at a meter for free for an unlimited period of time. CPM charged the City for revenue lost to disabled parking according to a formula. The City has since worked with State legislators to enact a law narrowing the use of the disabled parking placards that will take effect January 1, 2014. An arbitration panel ruled that the City could settle the dispute with CPM over disabled parking for $12.0 million plus outstanding claims for 2011 and 2012 totaling $42.9 million.
The Civic Federation believes the proposed settlement agreement is a step forward in better management of what has long been considered a bad deal for the City and its taxpayers. The City unfortunately does not have the billions of dollars that would be necessary to end the contract and is thus bound by the past actions of the City Council and the previous administration, which did not properly vet and understand the contract when it was enacted in 2009. However, it appears that the settlement will ameliorate some problems with the lease.
The Federation has traditionally supported public-private partnerships when appropriate. The Civic Federation was not able to take a position on the parking meter privatization in 2009 because it was approved the by the City Council before the Federation could complete our review. The Federation has strongly held that privatization efforts must meet stringent criteria and contain sufficient safeguards, including:
- A competitive bidding process for operator selection must be used;
- There must be strong and sustained management oversight by the government to protect the public interest;
- All potential costs must be considered including direct and indirect costs, transition costs, short-term and long-term costs, oversight costs, the impact on outstanding debt and future grant eligibility and long-term impacts on rates or charges;
- When transferring responsibility for service delivery by means of a long-term lease or sale, governments must carefully consider the policy implications of matters such as limitations on competition and eminent domain;
- There should be a full and deliberate public discussion and review of significant proposals and there must be requirements for public reporting of financial and operational results;
- Any proceeds generated from asset sales or leases must be appropriately used – proceeds should not be used for recurring expenditures or as a temporary fix to a structural fiscal challenge; and
- Communities should also examine what are core public functions and what are non-essential services to prevent losing control over core public functions.
The Federation strongly urges City Council to adequately review the settlement proposal over the next month and work with the City’s administration to manage its parking meter lease so that ongoing costs and future liabilities can be minimized.