One of the ongoing themes in Chicago’s controversial parking meter privatization is the question of whether or not the city received the best and highest value in the $1.156 billion transaction. I haven’t seen any evidence to support that contention myselfâ??in fact, this sort of claim is usually either (1) based on a flawed analysis of costs, risks and discount rates, or (2) pulled from the grab bag of tired, old anti-privatization rhetoric (i.e., “the city could run it more efficiently and keep the savings,” which of course never really pans out much in real life).
In a new Reason.org interview, I asked Chicago’s Chief Financial Officer Gene Saffold to share his take on the issue of valuing Chicago’s parking meters, after a recent New York Times article suggested that the concessionaire is “piling up profits” and that the city could have gotten a better deal. Suffice to say, Saffold sees it differentlyâ??here’s an excerpt:
The City of Chicago competitively bid the metered parking system, and the high bid was $1.156 billion. That amount was on the high side of our projections. As such, it was more than just a good bid; it was an economic boon to the City.
There have been a few contrarian valuations offered to date, but they’ve generally failed to fully factor annual operating expenses and recurring costs, like capital expenditures, or failed to allocate the appropriate level of risk. Risk discounts future cash flow. Let’s be honest, there are some very real risks associated with the metered parking system, like labor costs, fuel costs, expanded use of public transportation, and changes in driver behavior. The City has shifted those risks, however, from the taxpayers to the concessionaire. […]
I don’t think the whole story is told unless one notes the benefits that flowed from the metered parking concession. For example, prior to this year, hourly rates had not been increased in nearly 20 years at 75% of Chicago’s parking meters. Under-priced meters lead to congestion, increased travel times, and pollution. Today, however, Chicago’s hourly parking meter rates are comparable, even less, than a number of cities throughout the Unites States. They create turnover and availability, making businesses and institutions served by meters more attractive.
The technology side has improved as well. The concessionaire has installed more than 4,200 pay boxes, replacing about 32,000 single space parking meters. The pay boxes take credit cards and notify the concessionaire when they are broken or need collection. As a result, there are now fewer broken meters. Those meters that are broken are repaired in a couple of hours. It used to take the City days.