Chicago's parking meter lease deal has turned out to be a national inspiration: elected officials, policy makers, and financial analysts across the country have conclude that the way Chicago cut its meter deal is a model for how not to do it.
The libertarian Reason Foundation recently released its annual privatization report, and it's no shocker that the section on local government is dominated by an approving analysis of Chicago's parking meter agreement. "Despite the early glitches in implementation, the city reports that parking meter operations have been steadily improving and that the
concessionaire has responded well following the transitional problems," the report says. It accepts at face value the city's contention that it received a fair market price for the system—but ignores the question of whether it was in the public's best interest to forge the deal at that time or at all.
Far more illuminating is the report's rundown of parking privatization proposals by other local governments, including Allegheny County, Pennsylvania; Pittsburgh; Philadelphia; and, most recently, Indianapolis. Without intending to do so the report highlights how the process of privatizing assets in those places is proceeding far differently than it did in Chicago. Here the Daley administration and the no-bid contractors they hired to advise them made their minds up to lease the meter system, drew up plans and took bids behind closed doors, and revealed next to nothing about the process to the public or City Council until it was nearly complete. In contrast:
* Specifics of the Allegheny County and Pittsburgh proposals were floated to the public, studied by experts whose results were shared with local legislators, and discussed and debated in the media for months. Plans still haven't been confirmed by either government.
* Before being asked to consider a lease deal, the Los Angeles City Council voted to approve a half-million-dollar contract to study meter privatization.
* Indy issued a request for proposals to wring more money out of its parking system, but a Chicago-style lease on the future was just one of several options. "Proposals ranged from technological and system overhauls to long-term leases to private sector operators," the report says.
Other cities, it notes, continue to explore privatizing services—LA has raised the possibility of outsourcing garbage collection and waste water treatment. But proposals to lease more local assets, including airports in LA and Milwaukee County, have gone nowhere because of the economic slowdown and political opposition.
The reluctance to enter into those sorts of deals may not last long, according to an article by Brendan Schlauch at the Governing magazine's Web site. The outcry in Chicago after the parking meter mess helped kill enthusiasm for long-term asset leases, but experts say the tide's turning back—experts such as Dana Levenson, Mayor Daley's former chief financial officer and the architect of Chicago's privatization spree. “The need for private capital to supplement governmental funds is very, very clear,” says Levenson, who now works for the Royal Bank of Scotland. As he knows, investors will be happy to capitalize.
But the article makes it clear that governments have learned a lesson from Chicago: don't give away the store. "Where states once signed lucrative long-term leases that ceded significant control over public assets to the private sector, tomorrow’s deals are likely to be structured in a way that more clearly has the state’s and citizens’ interests in mind," Schlauch writes. "Part of that will be tougher management standards aimed at avoiding the problems Chicago experienced after leasing its parking meters."
One possibility: instead of selling the asset off for generations, the government can hire a private firm to manage it. The payoff wouldn't be as high up front, but the government would benefit from cost savings while retaining control, paying the contractor as it meets performance requirements.
In other words, this new approach makes sure the public gets the most out of its asset and the private firm does the job it was hired to do. Kinda makes sense.