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Taxpayer Group Sues Chicago Over Parking Meter Lease That Benefits Taxpayers

Leonard Gilroy
September 11, 2009, 7:53pm

Paradigm shifts are hard, and many struggle through them kicking and screaming. That appears to be the case in Chicago, where a local taxpayer group is challenging the constitutionality of the city's $1.1 billion lease of its downtown parking meter system to a Morgan Stanley-led consortium. Per Forbes:

An Illinois judge on Friday allowed a lawsuit challenging a controversial deal that leased Chicago's metered parking system to a private operator to proceed.

Cook County Circuit Court Judge Richard Billik said a petition by taxpayers to bring the lawsuit contained reasonable grounds under state law to allow the lawsuit to be filed. However, he removed the Illinois secretary of state from the list of defendants in the case. [...]

The lawsuit seeks to stop both the city and state from spending taxpayer money related to the now privatized parking meter system and suspending Illinois driver licenses for Chicago parking meter infractions.

Chicago earlier this year entered into the deal to lease 36,000 parking meters with Chicago Parking Meters LLC, comprised of Morgan Stanley Infrastructure Partners and others.

The lawsuit claims the deal violates the Illinois Constitution by requiring the city to spend public funds to "police, enforce and maintain" what is now a "privately controlled parking meter system." Chicago also overstepped its legal authority granted by the Illinois General Assembly by leasing on-street meters, according to the lawsuit.

While Chicago did not file objections to the taxpayers' petition, a spokeswoman for Chicago's law department has said the suit is "wholly without merit, both factually and legally."

I'm not a lawyer, but I'm having difficulty seeing the problem here. How "privately controlled" is the parking meter system now, exactly?

Can the private operator raise the rates if they want? No, the city retained that control. Can the operator extend the length of time of operation of the meters? No, the city retained that control. Can the operator adjust the length of stay on the meters? No, the city retained that control. Can the operator hire supplemental enforcement personnel if the city falls down on the job over time? Technically yes, but it wouldn't make any sense for them to unless things got dire because any revenues generated by stepped-up enforcement would be for and to the benefit of the city alone. Put simply, it would be a net cost to the operator since they wouldn't stand to collect even a dime of additional revenues.

In fact, it's my understanding that separating the operational side of the parking meter system from the regulatory/policymaking/police power issues were a key consideration in the design of the concession agreement itself to ensure it passed constitutional muster, which explains why you see those elements described throughout the paragraph above.

I'm not familiar with the taxpayer group that filed this lawsuit or what their angle is, but what I can say is that my own body of work is also oriented towards taxpayer-friendly policies, and as I write in detail here, it seems to me that the obvious benefits to Chicago taxpayers through the parking meter lease—as well as the Skyway and downtown parking garage leases before it—vastly outweigh any perceived trade-offs.

The city has received well over $3 billion by leveraging underperforming city assets, investing the proceeds in a mix of short and longer term investments. They have paid down city debt, removing long term taxpayer obligations. These transactions played a key role in Chicago getting an upgrade on its bond rating, lowering its costs of borrowing capital. The city has not been able to avoid the same fiscal crisis that so many other governments are dealing with these days, but it has have been able to cushion the blow and reduce pressure for higher taxes and greater service and employee cuts. The city also shed a lot of future operational and revenue risk from the public sector (i.e., taxpayers) to the private sector, and this risk has significant value.

Sure, users will pay more for services that were previously way undervalued. And they'll complain about it, as they are now with the parking meters. In the end though, the city got over $1 billion, a brand new parking meter system (with more rebuilds to come over the term of the lease, all on the operator's dime), improved urban mobility and a major budget assist that will keep on giving. And the city structured the deal to ensure that it preserved its constitutional police power responsibilities of rate setting, enforcement and the like.

What's the problem again?

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary


Leonard Gilroy is Director of Government Reform


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