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FAIL, Part One: Chicago's Parking Meter Lease Deal

How Daley and his crew hid their process from the public, ignored their own rules, railroaded the City Council, and screwed the taxpayers on the parking meter lease deal

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No one in Chicago has been happy about the recent hike in parking meter rates, but by last week the frustration had become outrage, and the outrage had become a political problem. Since the city's speedy decision in December to lease the meters for 75 years in return for about $1.2 billion in quick cash, what you get for your quarter has declined precipitously. Worse, residents are fed up with the tickets they're receiving thanks to broken meters and outdated labeling. Some are boycotting meters by parking on side streets or not driving at all; others have tagged or vandalized them.

Finally, on March 31, city officials called a press conference to confront the problem—or at least to offer up someone who could take the blame so the Daley administration didn't have to. They presented one Dennis Pedrelli, chief executive officer of Chicago Parking Meters, the private entity that's now responsible for operating the meters. Pedrelli delivered a mea culpa. "We regret any issues that occurred," he said. "We are working as quickly as possible to address those issues." He promised that the company wouldn't raise rates or write any more tickets until it had fixed the broken meters and posted accurate information.

But the event didn't touch on what's really behind the parking meter problems: the deal that put the city's 36,000 meters in the hands of Pedrelli's company. Once city officials decided to privatize the meters, they rushed into a deal with little regard for the financial risks or potential impact on the public, turning control of a revenue-generating city asset over to a company that had just qualified for federal bailout funds.

The origins of the meter debacle actually date back to 2005, when Mayor Daley began selling off public property for up-front cash payments without much scrutiny from the City Council or the public. Then last year, when tax revenues plummeted, the mayor increased the pressure, directing his staff to be "creative" in attacking budget problems. But even as city officials celebrated privatization agreements for Midway Airport and the meters, both worth billions of dollars, they refused to release the most basic information about how they'd been reached—such as which firms had bid, how much they'd offered, and short-or long-term cost-benefit analyses. Both plans were hustled through the City Council in less than a week. As one alderman told the Reader, but not for attribution, during a hearing on Midway: "Somewhere in this deal we're getting screwed. I just can't figure out where yet."

We can help with that. First off, a private company gives the city—i.e., the mayor—a big pile of cash that conveniently isn't subject to the same oversight as the rest of the budget. Eventually the private company will make a fortune off the deal—but by then everyone now running the city will be gone. In the meantime, fees are raised and management is moved out of the reach of voters.

With the parking meter deal the mayor has figured out how to get the public to pay more for less control. Daley gets more control over resources—and less responsibility for delivering services in return.

The ever-fearful City Council let him run roughshod over them, passing the deal with virtually no consideration. The citizenry never even had a chance. Now, thanks to the Freedom of Information Act, we've obtained documentation of the process that should have been made public in the first place. We've still got some unanswered questions, but we've managed to fill in some holes in the chronology of how the process got hijacked. Here's how it went down.

January 24, 2005 Mayor Daley signs a deal to lease the Chicago Skyway for $1.83 billion to the Cintra-Macquarie Consortium, based in Spain and Australia, for 99 years. The dailies praise the deal—the Tribune calls it a "windfall"—and public officials around the country hail it as a model for privatizing public assets, indicating that it'd be a good way to manage the upkeep on toll roads and highways. Daley says he'll be looking into other lease agreements. And so it begins.

October 13, 2006 Daley announces plans to lease four parking garages under Millennium Park and Grant Park to a division of Morgan Stanley, the Wall Street investment bank, for $563 million. Daley calls the 99-year lease an "outstanding deal for the taxpayers of Chicago," which "allows for a massive shift of capital resources from downtown parking garages to neighborhood parks."

February 8, 2008 The city issues a request for qualifications (RFQ) inviting firms to present credentials for leasing the rights to the city's 36,000 parking meters. Collecting parking fees and fines is one thing the city seems to be pretty good at—with operating expenses of $4 million it hauled in almost $23 million in 2007. But chief financial officer Paul Volpe says a private company would do a better job managing the meters. The RFQ asks bidders to demonstrate their "financial capability" as well as outline plans to manage the system and provide service to meter users. Responses are due in March.

February 11, 2008 The Chicago Park District announces it's spending $22 million to buy the office it's been renting at 541 N. Fairbanks, in Streeterville. The building's owner donated $50,000 to Mayor Daley's 2007 reelection campaign; Park District officials say there's no connection.

Money for the purchase comes out of the $563 million the city and Park District received from Morgan Stanley for leasing the parking garages. Much of the money is already earmarked to pay off debt and after this deal there's only about $100 million left over for neighborhood parks. It turns out they'd have benefited more if the city had held on to the garages.

March 28, 2008 Ten groups have submitted packets detailing their "qualifications" for leasing the city's parking meters, including Morgan Stanley, JPMorgan Chase, Lehman Brothers, and partnerships led by Macquarie Capital Group and Cintra, the overseas firms that leased the Skyway. Several promise quick technology upgrades to make street parking easier for users and more lucrative for operators. Morgan Stanley says it would hire another company to manage the meters—LAZ Parking, a national firm based in Hartford, Connecticut. Morgan Stanley says LAZ would place a big emphasis on maintenance: "Since broken or jammed meters cannot bring in revenue, we will address preventive measures to ensure a reduction in malfunctioning meters." City officials keep the bids to themselves, declining to show them to the public and refusing a direct request from us. When we ask for details about the process, they say they'll spend the next few weeks determining whether the interested parties are qualified to continue with the bidding process.

August 14, 2008 The administration announces that its budget projections are a bit off—the city is $420 million in the hole. The figure grows to nearly $500 million in the following weeks as the housing market implodes and revenues from real estate transfer taxes dry up. Volpe rules out raising property taxes but admits, "We're going to have to make some tough choices." He declines to provide specifics, saying, "We're not here today to talk about solutions."

September 22, 2008 A week after Lehman Brothers is liquidated amid the biggest Wall Street crisis since the Great Depression, Morgan Stanley and Goldman Sachs, the largest remaining investment banks in the United States, announce they will become bank holding companies, which are subject to stricter regulation. The firms "requested the change themselves," according to the New York Times, "a blunt acknowledgment that their model of finance and investing had become too risky...." The Times calls this "a turning point for the high-rolling culture of Wall Street, with its seven-figure bonuses and lavish perks for even midlevel executives."

September 30, 2008 Two years after talks begin with federal and airline officials about privatizing Midway Airport, Mayor Daley announces the city has reached a $2.5 billion, 99-year deal with Midway Investment and Development Company. The consortium includes John Hancock Life Insurance and YVR Airport Services, a Canadian company that manages airports. City officials say six firms went through the initial round of the bidding process, but they won't name them or reveal which ones submitted formal offers until the deal is closed. Daley staffers call aldermen downtown for closed-door briefings over the next couple days.

October 3, 2008 Fearing a run on banks, Congress props up the industry by passing the Troubled Asset Relief Program (TARP)—the $700 billion bailout bill. About $10 billion goes to Morgan Stanley. JPMorgan Chase—whose midwest chairman is the mayor's brother William Daley—gets $25 billion. A few weeks later JPMorgan announces plans to buy a new fleet of corporate jets. Morgan Stanley quarterly dividends are paid out on schedule.

October 6, 2008 The Chicago City Council holds the first of two hearings to approve the proposed Midway lease. Many aldermen complain they haven't had enough time to study the details. Volpe says after paying off its debts the city should have about $900 million left to put toward pension obligations and $100 million for discretionary spending. He says aldermen will be consulted at a later date about where this money will go.

Under questioning from 38th Ward alderman Tom Allen, Volpe reluctantly concedes the city will probably have to spend at least $1 billion on police and fire protection for Midway over the next 99 years, meaning the deal is essentially a money loser. Nevertheless, the council's finance committee approves it, which virtually assures its passage.

October 8, 2008 The full City Council approves the Midway lease deal by a vote of 49-0. One alderman who's been critical of the deal speaks frankly to us on the condition that we not identify him: he says he didn't really think the mayor would withhold services from his ward in retaliation for a nay vote but he voted yes anyway, figuring, "Why take a chance?"

Another admits that privatizing assets gives city officials cover when fees are jacked up. If aldermen voted to raise the tolls on the Skyway or the price of parking downtown, citizens might get upset at them, he says—so why not let a private company take the heat while the city gets a quick injection of cash?

October 15, 2008 Mayor Daley releases his 2009 budget, which he says will be balanced despite the city's "financial challenges." It hinges on hundreds of layoffs, hiking various fees and fines, and an expected $150 million infusion from a parking meter lease. Many aldermen say this is the first they've heard that the city is close to such a deal.

November 19, 2008 The City Council approves Mayor Daley's budget by a vote of 49 to one. It projects a balance by firing workers, hiking various fees and fines, and leasing the parking meters. Daley and the aldermen congratulate themselves on working through a dire financial situation together. "Often the City Council is looked at as a body, that if we all vote one way or another, it's a rubber stamp," says 46th Ward alderman Helen Shiller. "But that doesn't fit the times." The lone dissenter, the 26th Ward's Billy Ocasio, has a different take: "Yes, these are hard times," he says. "But I think in this budget we haven't been that responsible."

November 21, 2008 Unbeknownst to the public or the City Council, the city receives two official bids for leasing the parking meters. (At deadline budget department spokesperson Peter Scales had not been able to provide an explanation of how the pool was winnowed down from ten.) According to the documents obtained by the Reader through the Freedom of Information Act request, the bids came from Morgan Stanley, for $1,008,500,000, and the Macquarie partnership, for $964,226,025.

December 1, 2008 Final bids on the parking meter lease are due. "We open the envelopes and the winning bidder is the highest bidder," Lisa Schrader, a spokesperson for the budget department, tells us later that day. In the last week Morgan Stanley has upped its bid to $1,156,500,000. The Macquarie group's final bid comes in at $1,019,022,803.

At 8:34 AM finance committee chair Ed Burke calls a special meeting for December 3 to discuss the deal; aldermen still have no information about who has bid or how much. At 3 PM, the mayor submits paperwork to the city clerk's office calling a full council meeting for December 4 "for the sole purpose" of approving the agreement.

December 2, 2008 Daley holds a press conference to announce that his administration has agreed to lease the meters for 75 years to Chicago Parking Meters LLC, a newly created entity led by Morgan Stanley, for nearly $1.2 billion. In its bid documents Morgan Stanley lists itself as the sole vendor, with no reference to creating Chicago Parking Meters or any other offshoot involving other investors.

The deal "comes just at the right time," says Daley. Parking rates will go up, he says, but some of the money will help pay for social services.

The mayor and his aides won't reveal the names or number of other bidders or how much they bid. "We do not disclose information that is part of the competitive bidding process until the transaction is closed," explains a budget department spokesman.

Aldermen are invited to a briefing with city officials, who distribute an eight-page summary. It reads in part, "City Council retains the right to set rates, hours of operation and designate meter locations. However, reduction in meters, rates or hours that negatively impact the overall value of the meter system could result in a payment by the City to the Concessionaire." Due to the short notice some aldermen aren't able to attend.

December 3, 2008 An ordinance is required to finalize the lease deal, and the finance committee meets to consider it. Ten minutes into the meeting some aldermen point out that they still haven't seen it. After copies the orrdinance have been provided, many remain confused. Where are the details of the agreement? What's the rush? Why haven't you kept us informed before now? And who in the heck is the company that will be managing the meters?

Volpe tells the aldermen it's critical to finish the deal quickly, since interest rates are at an all-time low and any upward movement will cost the city money. But he also assures them that the city will replace the $20 million it now clears annually from parking meters with 5 percent interest on the $400 million it intends to put in the bank. No one bothers to remind him that in the current economic meltdown nothing is generating a 5 percent return.

Alderman Berny Stone praises Mayor Daley's fiduciary prowess by explaining that the lease will help avoid tax hikes: "You can't avoid death, but you can try to avoid taxes." Other aldermen pause to reflect on the deeper meaning of his remark.

Alderman Richard Mell points out that workers employed to write tickets and empty the meters won't be subject to the federal ban on patronage hiring. That means they could work the precincts or contribute to the campaigns of powerful politicians. The aldermen appear to consider the possibilities.

"We're rushing through this," says Alderman Robert Fioretti. "Why?"

"We've been working on this for the better part of a year, so we haven't been hasty," Volpe insists.

"You had a year, but you're giving us two days," says Alderman Ike Carothers.

To help aldermen understand some of the terms, Jim McDonald, a lawyer for the city, reads some legalese from the proposed agreement.

Ocasio bellows: "What does that all mean?"

City officials then pass out a corporate flow chart to offer some "clarity" on who exactly will be leasing the meters. At the top of the chart it says "Chicago Parking Meters LLC." It looks like the plan for a Rube Goldberg invention. (A copy of the chart is posted with this story at chicagoreader.com.)

Judging from the chart, Chicago Parking Meters investors include various arms of Morgan Stanley, JPMorgan Chase, the Teachers Retirement System of Texas, and other insurers and pension funds. Several aldermen turn the chart upside down to see if it makes more sense that way.

McDonald says the new company supplied the law department with its economic disclosure statement—required by city law—"yesterday." Meaning December 1. Even though according to the original request for bids in February, "Qualified Bidders will be required to submit an Economic Disclosure Statement and Affidavit and comply with certain other requirements before submitting final bids."

Alderman Burke warns that LLC stands for limited liability company, designed, as the name suggests, to help the owners avoid liability if they're sued. "It can be a shell," says Burke, who's recently delivered a series of populist speeches against the abuses of corporate America. "This is why we don't trust Wall Street. It's why they've brought us to the brink of financial disaster."

Still, after a couple hours Burke and his colleagues conclude it's too good a deal to pass up, and the finance committee gives its stamp of approval.

December 4, 2008 The full council meets to consider the deal. Many aldermen privately concede they still don't understand it. Alderman Scott Waguespack unveils an analysis his staff has put together that shows the city would make far more money if it just held on to the meters—he estimates their value over 75 years is about $4 billion. "I argued that the city was not getting a good deal, and that at a minimum the Council should see the City's numbers," he later writes in an e-mail to constituents. "They instead argued our numbers were wrong (without having seen them). I was then told I could see some numbers, but not before the vote."

Others are less critical. Alderman Mell contends the council has had more than enough time to study the deal: "How many of us read the stuff we do get, OK? I try to. I try to. I try to. But being realistic, being realistic, it's like getting your insurance policy. It's small print, OK?" From the council floor Alderman Stone assures any citizens who are listening that "this money is not going to be spent like a drunken sailor."

The full council approves the deal 40-5, with the nays coming from Toni Preckwinkle, Leslie Hairston, Rey Colon, Waguespack, and Ocasio. Five aldermen—Shiller, Carothers, George Cardenas, Ariel Reboyras, and Sandi Jackson—manage to miss the vote.

January 21, 2009 Mayor Daley suggests that newly inaugurated president Obama follow his lead in learning to "think outside the box" and start leasing public assets. "If they start leasing public assets—every city, every county, every state, and the federal government—you would not have to raise any taxes whatsoever," he says. "You would have more infrastructure money that way than any other way in the nation."

February 13, 2009 The city announces that it's finally finished all the final legal work and closed the deal with Chicago Parking Meters LLC and day-to-day management of the system will be turned over to LAZ Parking. Rates go up at some meters within days.

February 25, 2009 The Reader submits a Freedom of Information Act request asking for documents related to the parking meter lease agreement, including the materials submitted by all bidders at each stage of the bidding process—in short, all the stuff the city never got around to revealing during council meetings. By state law, the city is required to respond within seven working days.

March 10, 2009 Having received no response to our FOIA request, we follow up with several phone calls to the city's budget department. Eventually we receive an e-mailed form letter explaining that our request "cannot be compiled by the agency within the time limits prescribed" under state law. The department needs more time because the records are not readily available.

March 20, 2009 The Tribune's Jon Hilkevitch reports that all hell is breaking loose on the parking meter front—the meters can't handle all the extra quarters required by the new rates. In some places the rates aren't posted clearly, and drivers are furious that they're getting ticketed as a result. City spokesman Ed Walsh tells Hilkevitch: "We feel it is too early to evaluate performance." Walsh also suggests that motorists report broken meters to the city's 312-744-PARK hotline so "this can be used later as a defense to an issued ticket, if need be." Thousands of grateful motorists thank Ed for his legal advice. Just kidding.

Meanwhile, Mayor Daley is in San Diego, speaking to a group of CEOs about the benefits of privatization. "Government can only do so much," Daley says, according to the San Diego Union-Tribune. "Government has to be more welcoming to business."

Later that day, we call and e-mail the budget department, asking for an update on our FOIA request.

March 22, 2009 Sun-Times columnist Carol Marin describes an emerging parking meter boycott. She quotes the Parking Ticket Geek, the blogger behind theexpiredmeter.com, on his efforts to reach someone with LAZ Parking: "I called for a week straight.... I am friendly and nice and polite on the phone... and never ever get a call back."

March 23, 2009 We send another e-mail asking about the bid documents. Peter Scales writes back, apologizing for the delay: "I'm still waiting for some documents to be returned to me. I should have them in a day or so. I'll turn this around in a couple of days."

March 24, 2009 The New York Times reports that Morgan Stanley paid chief financial officer Colm Kelleher $2.1 million last year to cover the expense of having to work in New York even though he lives in London. Kelleher also receives a monthly housing allowance of $28,600. Walid Chammah, a Morgan Stanley copresident who also lives in London, received benefits worth $790,150 in the form of flights on the corporate jet. CEO John Mack "informed the board that he would start reimbursing Morgan Stanley for his personal use of the company's corporate jet." No word on what impact this will have on parking meter rates in Chicago.

March 25, 2009 The Sun-Times notes a surge in parking meter vandalism, and Marin suggests that the meter rate hikes and breakdowns could ignite a voter backlash similar to the one that drove Mayor Michael Bilandic from office back in 1979, after his response to a blizzard was perceived as inadequate.

March 26, 2009 Mayor Daley sends out city work crews to fix broken parking meters, even though Morgan Stanley and LAZ Parking are supposed to be responsible for maintenance now.

March 31, 2009 City officials stage the press conference with Chicago Parking Meters CEO Dennis Pedrelli. In addition to promising not to raise rates or write tickets till the sytem's been cleaned up, he announces plans to reimburse the city for the labor of its work crews.

March 31, 2009 The Sun-Times reports that the Midway privatization deal is on hold: Midway Investment and Development Company LLC is having trouble lining up the funds. City officials say they'll give Midway Investment up to six months to get the money together.

April 1, 2009 Mayor Daley holds a press conference in Douglas Park to assure the world that the city has a plan to pay for the 2016 Olympics that "protects taxpayers."

April 3, 2009 On a Friday six weeks after our original request, we call and e-mail the budget department about those documents again. At 7 PM, we're told they're ready.

The documents:

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