After expressing regret at signing off on the city's 75-year parking meter lease (and enduring the substantial backlash generated by the deal), aldermen finally held a hearing on the Chicago parking meter fiasco last Thursday. In typical Daley administration fashion ...
After expressing regret at signing off on the city's 75-year parking meter lease (and enduring the substantial backlash generated by the deal), aldermen finally held a hearing on the Chicago parking meter fiasco last Thursday. In typical Daley administration fashion, public accountability wasn't a particularly high priority. Indeed, the deal's central broker, mayoral chief of staff Paul Volpe, didn't show up due to "a scheduling conflict."
But not everybody escaped scrutiny. Representatives from the companies now controlling the city's 36,000 meters -- investment firm William Blair and Co.; Morgan Stanley subsidiary Chicago Parking Meters, LLC; and operators LAZ Parking -- remained on the hot seat for hours as aldermen tried to better understand the agreement most of them approved with minimal review last December. One of the most noteworthy bits of testimony came from clout-heavy William Blair and Co., which acknowledged that it proposed the lease idea to the city as early as 2006 (a piece of the story uncovered by the Reader last month). Two years later, the firm was rewarded for its "due diligence" when it landed a no-bid, $4 million contract to structure the lease, which Inspector General David Hoffman and others have criticized as a bum deal for taxpayers.
Curiously, in their articles on the hearing, neither the Tribune nor the Sun-Times noted William Blair's acknowledged role in spearheading the deal. Why is this a significant issue? In his scathing report on the lease, Hoffman highlighted Blair's central -- and problematic -- role in valuing the meters. The Reader explains:
In its damning report on the agreement, the inspector general’s office concluded that the city may have leased the meters for $974 million less than they were worth. The reason, the report concluded, was that William Blair’s calculations of the system’s value were all done from the perspective of an investor—they were based on what that investor might be willing and able to pay for the meters, not what their value was to the city. “The City should have conducted this analysis so that its decision about whether to lease the parking-meter system now—and if so, under what terms—could be made in the most informed fashion possible,” the report states. “The failure to conduct this analysis strongly suggests that the decision had already been made that the City was going to lease the meters for the best-available price on the market.”
The result? “This is the worst deal I’ve ever seen,” council veteran Ald. Ed Smith (28th Ward) told the Reader's Mick Dumke after last Thursday's hearing.
Chief Financial Officer Gene Saffold still did his best to defend the $1.15 billion lease as a "transparent and objective process" that "has produced great assets for the people of Chicago." And as Dumke reports, he and William Blair's Tom Lanctot roundly criticized Hoffman:
Saffold and Lanctot trashed claims from inspector general David Hoffman and others that the meters had been sold off cheap. “Many critics from the outside have used academic exercises in an attempt to determine the quote-unquote value,” Saffold said. “But there’s a wide gap between academic theory and the actual marketplace.”
Lanctot concurred. While Hoffman and his staff had performed an analysis that used information “from the Internet,” Lanctot said, William Blair had relied on “widely accepted valuation methods” that more accurately assessed the long-term worth of the meter system. He added, just in case everyone had missed the point before: “There is a big difference between academic theory and the marketplace.”
But this criticism overlooks Hoffman's acknowledgment that the city most likely got the best price it could in the "marketplace." Indeed, Hoffman's point isn't that Daley should have squeezed more money out of the lease, but rather that the city could have generated more revenue over the 75 years by keeping the meters as a public asset. Here's what he told the hosts of Fox Chicago Sunday last month:
HOFFMAN: Our point was: the market is what the market is. At a particular point in time, the market is going to give what it's going to give you. So it wasn't that the city could have gotten a better deal in the market at that moment in time. Our point was: Should the city have done this, especially along the lines of these terms? And there was very little deliberation, very little debate at the time, because it was presented to the City Council only two days before the vote.
The moral of this story: Public policy should be formed with the best interests of taxpayers in mind -- not those of Wall Street investors.
Image used under a Creative Commons license by Flickr user multisanti.