Chicago parking deal sparks anger, vandalism, legislation

Six months after the City of Chicago approved a deal to lease its 36,000 parking meters to a Morgan Stanley-backed consortium for $1.15 billion, the transaction’s aftermath – higher parking rates and malfunctioning parking meters – has provoked anger, vandalism and a flurry of new legislation in the Midwestern city widely hailed as the fountain head of public-private partnerships in the US.

One of 50 parking meters filled with expanding foam

After the transaction closed in February, parking rates were increased and many meters started to malfunction because their canisters were unable to handle all the additional change required to pay the new charges, according to city aldermen familiar with the issue

Additionally, some meters were calibrated incorrectly and were shortchanging drivers by giving them just seven minutes of parking time for each 25 cents, rather than the standard eight, according to the aldermen. And in May, new electronic meters installed in Chicago’s busy business district went out of service, causing headaches for parking patrons and prompting the city to impose a temporary moratorium on parking tickets.

At a press conference in late March, Dennis Pedrelli, the head of Chicago Parking Meters LLC – the concession company for the parking meters – acknowledged the operational problems. He said the company, operated by LAZ Parking, Morgan Stanley's operational partner on the deal, “under-estimated” the resources required for the system and was working to resolve the issues.

But the mea culpa did little to stem public anger. The malfunctions have led to a spike in parking ticket violations – a 13 percent increase over the first quarter of last year, according to an investigation by the Chicago Tribune – and provoked vandalism across the city. Since February, reports have surfaced of parking meters being set on fire, spray-painted, super-glued, jammed with insulation, bagged and toppled over (see TheExpiredMeter.com for pictures of the vandalism). Just last week, 50 meters on Chicago’s north side were filled with expanding foam and spray-painted to obscure their displays, local television station WGN reported.

The anger has boiled over from city streets to city hall.

“I’m angry and I’m frustrated at the lack of cooperation by LAZ and I’m angry that myself and thousands of other Chicagoans have been taken advantage of,” said Leslie Hairston, alderman for Chicago’s fifth ward.

On 18 May, Hairston sommoned Chicago Parking Meters' Pedrelli to a hearing to address what she described “deceptive business practices” and “fraud”. She said he did not address her concerns and she is engaging a group of University of Chicago MBA students to estimate the amount of revenue Chicago has lost due to the malfunction so that the city can seek reimbursement from or penalise LAZ.

Some aldermen, such as the second ward’s Rob Fioretti, have called for the deal to be cancelled. Others, like Hairston, take a more cautious approach.

“I don’t know whether we can do that – I haven’t seen the contract,” Hairston said. “Just because a bad decision was made doesn’t automatically let you out of a contract . . . the horse is already out of the barn,” she added.

Hairston, one of five aldermen to vote against the deal in December 2008, has joined fellow alderman Manuel Flores in supporting legislation to give Chicago’s City Council more oversight over these kinds of transactions in the future.

One measure – the “City Asset Lease Agreements Disclosure Ordinance” – was passed by the City Council one week ago. That ordinance requires all the asset lease agreements to be made public as electronic, searchable files on Chicago’s finance department website. It also imposes greater transparency protocols for tracking how the proceeds of the transactions are used and what fees are paid for investing the proceeds.

The other measure, introduced in the city council last Wednesday by Flores and two other aldermen, establishes a minimum 60-day review period to allow the council to asses asset lease or sales agreements and adjust them prior to the solicitation of bids. After the bidding concludes, the city council would have a minimum 15-day period to hold a public hearing on the winning bid and decide whether to accept it, according to the proposed ordinance.

“Through a number of hearings it just became clear to me that we needed to have a protocol put in place to better analyze these agreements,” Flores, who originally supported the parking deal, told InfrastructureInvestor.

“At the time I voted for it, I felt comfortable with my vote. What has given me pause is the manner in which the companies have executed their end of the bargain,” he added.

In response to the allegations of fraud and deceptive business practices, the Illinois State Attorney General, Lisa Madigan, has launched an investigation into the deal.

“It’s clear that there have been significant problems in the implementation of the new parking system and the attorney general’s office is investigating to determine whether consumers have been defrauded,” a spokesperson for Lisa Madigan told InfrastructureInvestor.

On May 19, subpoenas were sent to Morgan Stanley Infrastructure, Chicago Parking Meters and LAZ, the spokesperson added.

“If the investigation comes back that these folks are guilty of deceptive business practices, we should terminate the contract,” Flores said.

Officials at Chicago Parking Meters, LAZ and Morgan Stanley did not return requests for comment.

New York Port Authority Bus Terminal, which was cited by Morgan Stanley as a reference for LAZ following Chicago’s request for qualifications for the meters deal, praised LAZ's competency.

“They do a great job for us – super job. I don’t have anything bad to say about them,” said Stephen Napolitano, General Manager of the Port Authority Bus Terminal.