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Reason Foundation

Chicago Continues Asset Privatization Push

Leonard Gilroy
August 13, 2008, 5:33pm

As detailed in Reason's Annual Privatization Report 2008, Chicago Mayor Richard Daley has continued to raise the bar on municipal privatization the last several years. After the blockbuster $1.8 billion lease of the Chicago Skyway in 2005 and the $563 million lease of four underground parking garages downtown–-in addition to the dozens of other city services and functions privatized over his 19-year term–-Daley is now moving to privatize several additional big ticket city assets. While Daley's push to privatize Midway Airport has certainly generated the most attention (see here, here, and here), Chicago has several other precedent-setting privatization initiatives in the works. First, in February 2008 the city and the Chicago Park District jointly solicited qualifications from private bidders interested in a long-term lease of the city's parking meter system--one of the largest in the United States with 35,000 parking meters generating roughly $20 million per year. Chicago's would be the first major public parking meter operation in the nation to be privatized under a long-term concession, though Portland, OR and Harrisburg, PA officials are floating similar proposals. The concession agreement for the parking meter system is anticipated to be 50 years in length and will grant the operator the right to maintain and operate the meters in exchange for an upfront payment to the city. The city will retain parking enforcement authority and the right to set parking fees. Industry observers expect the bid process to be similar to those for the Skyway, the parking garages and Midway Airport. Chicago officials will need to resolve several legal issues related to the project, including: the city's obligation not to create competing spaces, city maintenance of existing roads and access routes, the city's and Park District's liability for failure to enforce tolls or to increase rates, how to address major project risks (i.e., would revenues be affected if the city pursues congestion pricing in the future?) and how to address changes in parking meter technology. On the transit front, in early 2008 spiraling costs forced Chicago to cancel an ambitious plan to build a transit station in downtown's "Block 37" and develop express train service from the new station to both O'Hare and Midway airports. The Chicago Transit Authority (CTA) had spent $250 million on the project so far, but rapid construction cost inflation, poor site conditions and larger-than-expected utility relocations left CTA with little to show for their efforts–-just an almost-completed shell of a station. To rescue the project, CTA President Ron Huberman recently announced plans to partner with a private sector team to complete the build-out of the transit station and develop and operate the airport express train service. The city of Chicago is working with the CTA to develop a request for proposals for the project. Meanwhile, the CTA will spend an additional $45.6 million to complete the shell of the station and construct the underground lines to connect with existing rail lines. Work on both is expected to be completed by 2009. According to Huberman, "[t]he CTA is committed to developing a premier service that will enhance Chicago's standing as a world-class city. Tapping into private sector expertise at this stage allows us to leverage our existing investment in this project, creates an opportunity for outside investment and can bring in partners who have experience building and managing premium services." Lastly, seven firms have expressed interest in pursuing long-term leases of the city's three material recycling and recovery facilities, which are currently operated under a five-year, $78.8 million contract held by Allied Waste Transportation. Mayor Daley has indicated that upfront proceeds from the lease could be used to finance a costly expansion of the city's curbside recycling program. The current contract with Allied Waste Transportation was signed in July 2006 and included a provision that it could be canceled with 60 days notice if the lease plan moves to completion. For the latest on state and local privatization, see our Annual Privatization Report 2008. And be sure to visit Reason's Privatization center for our research archives.

Leonard Gilroy is Director of Government Reform


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