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Reason Foundation

Chicago Responds to Parking Meter Privatization Critics

Leonard Gilroy
June 26, 2009, 4:14pm

The City of Chicago has released an official response to a report released earlier this week by the Active Transportation Alliance (a Chicago bicycle & pedestrian advocacy group) which claimed that the city had relinquished control over its parking meter system in the $1.15 billion, 75-year lease of the system to an investor-operator team lead by Morgan Stanley.

Though the City's response is focused on the ATA report, it offers what I find to be a sound rebuttal of several prominent critiques of the half-year old deal. Among them:

Transaction Provides Optimal System Utilization
As ATA notes, the objective of market-based pricing is to bring pricing to a level that will provide optimal utilization of the system. The meter rate increase implemented in early 2009 were intended to do just that, specifically reducing cruising for underpriced parking and promoting turnover and availability. This makes locations served by meters more popular. Before that, meter rates had not been increased at nearly 75% of the parking meters in more than two decades.

Parking Meter Concession Will Help Maintain and Improve City Neighborhoods
The ATA argues that revenues generated from parking meters should be earmarked for "filling potholes, repairing sidewalks, planting trees, replacing streetlights, and funding more efficient transportation options." First – net revenue from the parking meter system historically did not fund these specific items, but rather was part of the general corporate fund revenue stream.

But the proceeds from this transaction – as well as other long-term leases – have very much allowed the City to continue to invest in neighborhood improvements and quality of life. In fact, in 2005, after the City closed the Skyway transaction and set aside $500 million in a long-term reserve, the City earned rating upgrades from all three rating agencies.

A strong credit rating has an substantial impact on the City's cost to issue debt – higher credit ratings mean lower borrowing costs, which is critical to funding transportation infrastructure projects that improve Chicago's neighborhoods and transportation system And it is misleading for the ATA to assert that drivers will not see benefits from the concession deal – the benefits of greater parking availability, less congestion, as well as the benefits that the city’s corporate fund provides – including clean and safe streets and traffic control – are all being furthered by this transaction.

City Maintains Control Over Public Way
Further, the City of Chicago always retains control of its public way. The claim that the City has lost control of “one of their most powerful urban planning and revenue generating tools" is absolutely incorrect.Chicago has a 15 plus-year track record of improving the bike, pedestrian and transit environment (i.e. non-motorized) including one of the country’s largest on-street bike networks and myriad safety education and outreach programs. Those programs are continuing across the City, and will continue for years to come, in part, because of the money received from the concession agreement.

To suggest that the parking meter concession "restrictions will severely limit innovative planning for bicyclists, pedestrians and transit users" is wholly wrong. To the contrary, the City continues to pursue a wide range of planning efforts and construction projects, part of an ongoing effort to offer attractive non-driving options.

Substantial Operating Efficiencies and Customer Service Improvement to Be Realized
The ATA is also critical of the concession, claiming that there are "no appreciable operating efficiencies to be gained." At the same time, the ATA also notes that the concessionaire "is required to pay for all capital improvements to the system, including the transition from typical meters to pay and display boxes that accept credit cards."

Pay and displays are costly. In the first year alone, the capital expenses for this technology will cost the concessionaire between $40 and $50 million to install 3,000 pay and display boxes, while the City only installed 190 over the last five years. $40 million to $50 million is more than two times the meter revenue in 2008, and it is an expense the concessionaire will own several times over during the life of the agreement.

This is the very technology necessary to measure utilization and accomplish the ATA's goals of congestion and peak period pricing, as well as its goal of un-cluttering city streets and sidewalks.

The City Sheds Risk of Reduced Auto Parking
The ATA's report also neglects the notion of risk. The ATA would like to see a reduction in vehicle use and an increase in walking, biking, and public transportation. Increased use of other modes of transit – which ATA supports – will surely negatively impact meter utilization. And that is a significant risk to revenue that the City no longer owns.

In fact, over the 75-year period of the concession there are a number of significant risks that the City no longer bears, including those utilization risks associated with changes in population, economic activity, and technology. For instance, there were no combustible engines 75 years ago, and 50 years ago there were no parking meters. To assume there are no technological advances that will change the use of on-street parking meters would be naïve.

City Uses Proceeds for the Long-term and Today
The $1.156 billion received by the City is not an “upfront payment that solves short term financial problems without considering the long term implications.” A significant portion of the payment the City received is being invested for future use. In fact, the City invested more than $400 million in a long-term reserve that will replace the net revenue provided by the meter system and increase the City’s long-term reserves to $900 million.

The City also invested $325 million in a mid-term budget relief fund that will help us balance budgets through 2012, and $320 million in a budget stabilization fund that may be used to help bridge the period until the nation’s economy recovers, allowing the City to continue vital services and avoid steep tax increases. Finally, the City is investing $100 million in human infrastructure programs like the low income housing trust fund, and ex-offender and other job and social programs. Finally, $150 million was used to help balance the 2008 and 2009 budgets, avoiding major layoffs or tax increases.

City Maintains Control Over Parking Rates and Meter Placement
And finally, the ATA’s claim that the City has lost control over the parking meters specifically is purely fiction. The setting of meter rates is a reserve power of the City. It cannot be assigned to the concessionaire. Changes to the rate structure and hours of operation can be implemented, but the City must be cognizant of the implications those changes may have on revenues. The City has historically always owned the risk of a revenue impact when changes to the meter system are made. It continues to own the risk today.

There are opportunities, however, to reduce the economic risk. The City can increase rates, hours of operation, or even the number of meters to mitigate the impact. A cost benefit analysis is always necessary to determine if changes to on-street parking are advisable. These benefits are not always economic, but could have to do with promoting the free flow of traffic or providing deterrence to parking in heavily congested area.

This is indeed a lengthy excerpt, but I'd also advise reading the full four-page paper for more responses to commonly-raised concerns about the parking meter transaction. Given the obvious misunderstandings regarding the initiative (which I've written extensively on), the City's rebuttals on critical points are well-timed and offer some substance to counter the many myths and misperceptions that have arisen in recent months.

Perhaps the most important point to reiterate repeatedly is that via privatization, city officials actually gain control over the system, not lose it, as critics often assert.


Leonard Gilroy is Director of Government Reform


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