Chicago Tribune Editorial: Daley's meter debacle/Inspector general lambastes city meter lease - Chicago lost hundreds of millions in deal, he says

Chicago Sun-Times Editorial: Meter is running on city's loss
Copyright by The Chicago Sun-Times
June 3, 2009
http://www.suntimes.com/news/commentary/1604168,CST-EDT-edit03b.article


Let's say you decide to rent out a few rooms in your home, but instead of figuring out what rents go for in your neighborhood, you just decide to see what people will pay.
Or let's say you want to sell your business, but instead of figuring out what it's worth, you just put it out for bid and take the highest one -- not even knowing what a minimum bid should be.

Goofy, right?

That's essentially what the City of Chicago did when it leased out its parking meters for 75 years, according to an analysis by the city's inspector general, David Hoffman.

The city was paid $1.157 billion for a 75-year lease of its 36,000 parking meters. But if the city had continued to manage the meters, assuming the same rate increases, it would have collected more than $2 billion during the same time, according to the report's conservative estimate.

The city, amazingly, never made that most basic of calculations.

"You need to know how much money is on the table," explains DePaul Professor Woods Bowman, who was Cook County's chief financial officer from 1990 to 1994. "You may get bids too low, but you don't know it until you do the calculation."

City officials say they didn't make such a calculation because that would have required meter rate increases -- and there was no political will among the aldermen to raise rates.

Funny, though. That's exactly what the City Council did when it approved the deal to lease out the parking meters and boost rates.

Mayor Daley defended the lease deal Tuesday, noting that the city needed the money to fill a $150 million budget gap.

That hardly justifies a bad deal.

Perhaps the city could have looked at other ways to raise money or slash spending.

Perhaps the city could have offered a shorter lease, reducing the risk of leaving money on the table.

No such alternatives were considered, unfortunately, because the mayor rammed the deal through the Council.

Hoffman has proposed a city ordinance change to require that aldermen get the details on such big deals before the city puts them out to bid.

We support that and Council efforts to bring more deliberation and transparency to such deals, which are to be considered today.

We also support privatizing city assets when the taxpayers can get a good deal and the private sector can do the job better.

Neither happened in this deal.

"This is all about vision," the mayor said.

Not when you're wearing blinders.




Chicago Tribune Editorial: Daley's meter debacle
Copyright © 2009, Chicago Tribune
June 3, 2009
http://www.chicagotribune.com/news/opinion/editorials/chi-0603edit2jun03,0,3891050.story


"By giving up control of the parking-meter system for 75 years, the city relinquished future parking-meter revenue that has a present value of approximately $2.13 billion. This means that the city received about $974 million less for the parking-meter system than it was worth to the city -- or, alternatively, that the city leased the system for a price that was 46 percent lower than its value to the city. The report's calculations are quite conservative ..."

-- Report of Chicago Inspector General David Hoffman, June 2, 2009.

Translation: Mayor Richard Daley's meter debacle is even more wrongheaded, more costly to Chicago's future finances, than you thought. By leasing the meter system for $1.15 billion to meet short-term needs, City Hall may have left almost that much booty -- $974 million! -- on the table.

Go ahead, beef about meters that cost too much on the days when they work. Those driver-unfriendly aspects aren't the essence of this damning report from Hoffman. The real value here is that Hoffman and finance experts on his staff have given Chicagoans what a high-pressure Daley administration didn't offer, and what an intimidated City Council didn't demand: an independent review of this lease and how Chicago bumbled into it.

Let's posit that some leases or sales of public assets make sense, some do not. But precious few deals of any sort make sense during the sort of bum's rush that characterized this one: The Daley administration announced a lease agreement on Dec. 2 and the City Council approved it Dec. 4 by a vote of 40-5. Due diligence? Fiduciary responsibility? Simple scrutiny? No time.

One troubling result, Hoffman reports, is that City Hall didn't assess other options -- when, "in fact, there were valid alternatives to this lease deal that could have solved the city's short-term budget problems" without raising rates so high or ceding control of the meters for three generations. Instead, says the report, the Daley administration argued that "the city had to take the best deal the market would offer at the time, whether good or bad."

The report contends that a much shorter lease (20 or 30 years), with revenue-sharing between Chicago and a vendor, would have been smarter for the city over time.

How to keep City Hall from swindling itself in future deals to lease Midway Airport or other valuable assets?

On Wednesday the council likely will consider an ordinance that would require a 15-day review for many privatization deals when a winning bidder has been chosen.

That would be better than the status quo. But Hoffman's office recommends that aldermen hire independent analysts to conduct a 60-day review after the administration has decided on its terms for leasing or selling city assets but before companies place their bids. Once aldermen know and accept the privatization terms, "a two-week period should be more than enough for the City Council to hold a hearing and debate whether the winning bid is a bid the city should accept."

Aldermen, you helped get Chicago into this fiasco. Make sure whatever changes you adopt halt the next fiasco in its tracks.







Inspector general lambastes city meter lease - Chicago lost hundreds of millions in deal, he says
By Dan Mihalopoulos
Copyright © 2009, Chicago Tribune
June 3, 2009
http://www.chicagotribune.com/news/local/chi-parking-inspector-03jun03,0,6922988.story


City Hall's inspector general blasted Mayor Richard Daley's parking meter lease Tuesday, alleging the administration gave up the potential for hundreds of millions in additional cash when aldermen rapidly rubber-stamped the deal.

While Inspector General David Hoffman put an official seal on what critics have been saying for months, the scathing report comes amid public outrage. Anger over the parking meter meltdown has yet to subside in a rare case where a blunder is sticking to a mayor who has outrun many controversies during his two decades in office.

Though Hoffman declined to single out Daley for criticism, the report will resonate at City Hall, where the mayor's tight rein is legendary and aldermen almost always are expected to back his agenda with little scrutiny. The report takes the City Council to task for ratifying the deal by a 40-5 vote in December, just a day after Daley aides briefed aldermen on it.

"There was no meaningful public review of the decision," Hoffman wrote.

The city got about $1.15 billion upfront for jacking rates and turning over control of its paid street parking system to a private company that gets to keep all the meter money for 75 years. Hoffman's report calls the lease a "dubious financial deal," arguing the city could have raked in at least $2.13 billion if only it had kept the meters after raising rates -- minus the cost of collecting the money and maintaining the meters.

Top Daley aide Paul Volpe immediately fired back at what he called a "misguided and inaccurate" report.

"This was a good transaction that protected taxpayers both in the short and long term," said Volpe, who was the mayor's point man for the deal and received particularly strong criticism in the report.

Volpe said the parking meter money has helped the city avoid service cuts and steep tax hikes. The money from the parking meter deal in this year's budget is equal to the cost of retaining 2,000 police officers, or half the budget of the Streets and Sanitation Department, Volpe said.

He added that aldermen were kept informed as the administration sought the highest qualified bidder.

"We do not force things through City Council," said Volpe, who also appeared to suggest Hoffman was out of his depth in analyzing the deal. "I'm sure the inspector general or his team have never conducted a project like this."

Even as they were voting for the deal, aldermen complained they had little choice because Daley already had built $150 million from a parking meter lease into his budget before a winning bidder emerged. Now some council members say they made a mistake in voting for the deal and want the city to back out.

Though the report only makes a glancing reference, the transition to the private company led by New York-based Morgan Stanley was botched and led to confusion on the streets. Meters often broke down when too many quarters were stuffed into them to pay the higher rates. Last week, some 250 new credit card payment boxes the company installed malfunctioned across downtown Chicago.

But Volpe insisted Tuesday that the private operators are better suited to run the 36,000-space system than public officials.

As for whether the lease price was right, an analysis conducted for the Daley administration in April 2008 concluded that leasing the parking meters could fetch between $650 million and $1.2 billion. Though the winning bid came in at the high end of that range, Hoffman said the study failed to factor in revenue the city lost by relinquishing control.

Tuesday's finding echoed a report by DePaul University professor H. Woods Bowman, a former Cook County official. Bowman's analysis, which the Tribune reported in February, concluded the city could have raked in $1.54 billion by keeping the meters in public hands.

Hoffman also said the city should have considered alternatives to the 75-year deal, such as a shorter-term lease with more modest rate hikes. Rates immediately quadrupled at most meters around the city, with the cost to park at some downtown spots to rise to $6.50 an hour within four years.

Aldermen weary of public criticism are expected to approve a measure Wednesday that would give them at least 15 days to review future privatization deals. Hoffman said that would be too little, too late and suggested an outside analyst be hired.

Asked at his news conference if the council is no more than a rubber stamp for the mayor, Hoffman replied, "A good and strongindependent legislative branch in the city would be a good thing -- is a good thing."

Volpe was Daley's chief financial officer when the deal was put together and has since been promoted to chief of staff. He shot back that Hoffman's analysis was flawed because it did not take into account the risk of declining parking meter use over the life of the lease.

Before Hoffman's report was released Tuesday, Daley again had defended the deal. "If we didn't have this money, you had better believe we would be in the tank," the mayor said.

Daley appointed Hoffman in 2005 to head an office that is supposed to root out wrongdoing in city government. Hoffman has expanded the role to include issuing public reports on city government's performance.

In one report last year, investigators spied on city garbage crews, alleging that truck drivers and laborers loafed for about two hours of every eight-hour shift.

dmihalopoulos@tribune.com