Sunday, January 4, 2009

The Parking Meter Deal: Right Idea, Wrong Reasons

posted by chicago pop

Parking is the gender-bender of urban policy issues. It has the capacity to make free-market Republicans slam their fist on the table in defense of subsidized parking anywhere and anytime, while making social democratic types of a green coloration passionate at the prospect of allowing market-clearing prices for curb parking.

But, like Chicago's notorious Blue Bag recylcing program, the higher rates for curb parking that will accompany the privatization of the city's 36,000 street meters give only the appearance of taking the lead of the civilized world, while in fact doing nothing of the sort, and disappointing both of the above constituencies in the process.

To take a few examples: London has implemented congestion pricing of roadways by zone; Paris has reduced the total number of parking spaces in the city, and has actually increased sidewalk space and built separated bike lanes by removing lanes from major boulevards.

New York City recently debated congestion pricing on the London model. The RAND Corporation has determined that the only realistic policies for congestion reduction in Los Angeles are road pricing and higher parking fees. San Francisco is pioneering a high-tech pilot program that will let parking meters charge a true market rate, based on hourly variations in demand (from $0.25 to $6) at individual meters in a given neighborhood.

If a parking system actually did that -- let the true market cost of public curbside parking vary with demand -- then, as parking researcher and guru Donald Shoup argues, you would considerably reduce congestion, as well as the frustration of circling for a parking spot at ungodly hours in ungodly conditions. You could then channel the revenue, through neighborhood parking benefit districts, to projects in the district area, or to related public goods such as a modernized transportation system in Chicago.

The latter prospect, however, is entirely lost in the Morgan Stanley privatization deal. What could be a long-term revenue generator for a city in budgetary crisis and with an enormous backlog of deferred public transportation maintenance has been traded for a one-time fix in operating revenue.

And it leaves one of the most powerful of transportation planning tools -- parking policy -- in the hands of a privately held company that specializes in parking garages. Is anyone at LAZ Parking, in which Morgan Stanley has an equity stake, thinking about Shoup's parking benefit districts? Will they be monitoring San Francisco's experiment with a spot market in street parking?

It's not clear, but there could be some positives. The fact that Chicago's meters will be owned in part by Morgan Stanley, the former investment bank that has since become a "financial services company", leads one to speculate that LAZ Parking may, at some point in the future, be taken public.

There would be every reason, prior to any IPO, for fully modernizing Chicago's street metering. This could go far beyond the contracted promise of non-cash metering by 2011, to include the San Francisco model of a block-by-block spot market in parking.

For Chicago, the benefits would be real but unintended, and the cash benefits more diffuse. Congestion currently costs Chicago commuters approximately $3,000/year, so any congestion reduction resulting from the reform would have the effect of a tax repeal. But the direct revenue benefits from the higher rates themselves would be foregone.

In the City's press release, not a single word mentions transportation, public transit, or any of the innovations in parking charges that are being tested in other areas to deal with these problems.

With long-term higher gas prices likely, and flat property values in suburban regions, people will still need to come and to stay in Chicago. Devising a system of metered parking that adequately prices that demand would be a great boon to the city, in terms of revenue; in terms of freeing up the supply of parking; and in terms of mitigating congestion and the CO2 emissions given off by cars circling for a parking spot.

If the new deal for parking should make anything clear, it is that street parking is not free. It has been massively subsidized for over half a century (Shoup estimates that in 2002 "the subsidy for off-street parking alone was between $127 billion and $374 billion") such that several generations of Americans have grown to maturity believing that street parking is like air or water -- free and plentiful. But, as our economist friends will tell you, there is no such thing as a free lunch.

And in an age of climate change, unstable oil prices and the foreign wars they generate, the unintended consequences of cheap parking are becoming less and less palatable.

There is thus some solace to be taken in the fact that, despite the bad deal that Chicago signed with Morgan Stanley, cheap parking is obviously going the way of cheap oil and cheap credit -- and largely for the better.

But as always, the devil is in the details. Raising parking meter rates is much easier than raising property taxes. If the City had the will to do this itself, instead of outsourcing the dirty work to a "bank holding company", it might have kept the revenues and used them to make Chicago the sort of world city worthy of hosting the Olympic Games.

[This post also appears on Huffington Post Chicago]


Elizabeth Fama said...

Oops, I know I'm supposed to know this, but what are the details of the City's deal? When you say "one-time fix," do you mean they sold the rights to the parking meter revenue for a lump sum? Under certain conditions a large enough sum might provide a revenue stream that amounts to the same thing as the other models you suggest. Also, has the City not earmarked the funds for public transportation infrastructure?

P.S. I don't know any free-market Republicans of the sort you describe in paragraph 1, and I know a lot of free-market types.

chicago pop said...

I should have laid out the bare bones of the deal in the post -- it ran long and I overlooked it. Here you go:

Morgan Stanley is paying Chicago $1.15 billion (or $1.2 billion, depending on what source you use) to operate the parking meter system for the next 75 years.

The most current annual revenue figure for Chicago's meters -- at current rates -- is just under $20 million. The new proprietors will, of course, raise those rates right off the bat, and may do so many more times in the next 75 years. Chicago gets the cash equivalent of the next 75 year's income on the meters at their current rates, which will of course be less than what they in fact generate.

I'll leave it to folks who know municipal finances better than I, and the present value of future discounted whatever, to decide just exactly how much the city is loosing by taking the lump sum up front.

The City is hoping to make up the difference between the lump sum and future earnings off of higher meter rates with interest off of a $400 million reserve created from the payment.

Budget shortfalls and unspecified social programs are the spending items identified by the City for this money; without getting into the numbers here (you can find them on the City's website), a few other bloggers have argued that the City will burn through nearly half this cash within a few years.

As for earmarking, as far as I can tell from the various press releases (linked to in the post), the money is not earmarked for transportation/transit infrastructure.

Raymond said...

Great post. I'm generally against the leasing of public assets the city is undertaking (Skyway, Midway, parking meters). As you note, it takes away policy flexibility that could be used to ameliorate problems we haven't even thought of yet. And I'm especially opposed to the century long nature of these deals. 10 years I could maybe live with, but 75 or 99?

But, from a purely Hyde Park perspective, this deal should be positive (though perhaps not as positive as it could've been), in that it will raise meter rates, which should increase the tunrover of cars at meters along
53rd, 55th, and 57th Streets. That should be good for business...theoretically, at least.

Richard Gill said...

So, after the city burns through the billion in record time, then what? They've already outsourced the Skyway and are doing same for the airports. How many more municipal money machines are left?

chicago pop said...

This episode only confirms my suspicion that the PR about Chicago being "green" is a joke, a collection of fads that follow stuff that Daley notices being done elsewhere, like the whole Velib rental bike in Paris thing. There's a gesture, a high profile gimmick, but no execution.

There are ways in which Chicago is very green, but they are all the result of the way the city was built 100 years ago. Any "green" rep the city has is living off that capital -- the grid, density, a decaying public transit system, the lakefront, parks, etc.

It would have been nice if Daley had bargained for some kind of future input on the goals of parking management from the city in view of walkability, transit coordination, etc. Instead, he just went to the pawn shop and got some quick cash.

Anonymous said...

Agree with Chicago Pop: the green push in Chicago is more gravy than meat. I like the rooftop greenery concept and I like the lip service paid to bicycle friendliness. That said, the glaring omission towards reducing emissions and congestion in general is the unfriendly attitude of Chicago towards scooter/moped and motorcycle riders, which increased significantly during the fuel price explosion last summer.

In all of Illinois (except Chicago) you can park a scooter/moped of 50ccs or less on the sidewalk and lock it up like a bike. Available street parking for these vehicles is a joke: people in huge SUVs park in back of you and knock your bike over, if you get an extra long cable and try to secure it to a pole to prevent theft you get ticketed. One part of a city block near my office always had 10-15 scooters and motorcycles parked on it last summer until, inexplicably, the city put up big "NO PARKING except this time to this time blah blah blah" signs.

The parking garage I use in the Loop has signs that specifically say "No motorcycles or scooters allowed".

If Daley made Chicago more scooter/motorcycle friendly, congestion and emissions in the warmer months would be cut significantly. I'd much rather see a block with 20 Vespas than the same block with 5 Escalades. All it really takes is some competent city planning and real action.

VivaLFuego said...

A few comments:

1. In Illinois, the power to install meters to regulate parking is a police power, NOT a revenue/taxing power. This means that the city walks a very fine line when it comes to delegating pricing, since it is not legal to delegate or otherwise sell a police power. This is important when it comes to things like continuously variable pricing to set rates at maximum revenue / optimum efficiency. I'm no legal expert - maybe someone with experience in land use law and the police power could add more. To really do this thing "right" would require a change in state law, and in the current context of Illinois politics the City of Chicago would be insane to try to get anything out of Springfield (what would the city have to give up in return?).

2. Particularly in this credit environment, my back-of-the-envelope calculations suggest that Chicago got a pretty good deal. If we assume that the current rate hikes increase 2009 annual meter revenue to $30 million (prices nearly double but demand elasticity reduces quantity purchased), then assume 3% revenue inflation for 75 years, then Morgan Stanley's annual discount rate over the 75 years is a mere 5% - low by most investment standards. At 8% discount, the deal would only be worth $630 million to a buyer. Even if figure annual meter revenue can immediately be bumped to $40 million, the MS's discount rate would still be only a touch above 6%.

Obviously MS used much more sophisticated analysis than this, but at minimum I feel confident saying that City Hall didn't get screwed on price - but city residents are indeed getting screwed by a large chunk of the money going to plug an operating budget: selling the furniture to pay the mortgage. Problem solved!

bornatreese said...

The deal did not include the revenue stream from parking meter violations, which I bet more people will be willing to chance as meter rates climb.

Anonymous said...

The comment about police powers brings up another question: How can the police legally enforce meter non-payments now? Will Morgan Stanley assume the cost of funding the "meter maid" force? Or does the City still have to foot that bill?

chicago pop said...

I am told responsibility for parking is very decentralized in Chicago. There is no office/czar/department whose job is to think about and plan parking policy. I don't know about the policing power issue, but certainly several different departments deal with parking issues: Revenue, the guys who put boots on cars and occasionally get shot for doing so; Zoning & Planning, where they set rules for how much parking and where; Transportation, and apparently even Streets and San. How revenue collection, and ticketing, is distributed across this bureaucratic archepelago I have no idea.

On the surface, the idea that parking authority is a policing matter seems, in this day and age, ridiculous. Strike me as some kind of weird bureau ratic anachronism, like the Bureau of Alcohol, Firearms, and Tobacco being a part of the US Treasury.

So how is Morgan Stanley cutting through this mess?

VivaLFuego said...

I'd love to read the full contract if and when it's made available - you guys latched on to some of the vital questions. I have to assume that there are all sorts of provisions for damages or fees being paid in both directions to/from Morgan Stanley depending on action or inaction by the Chicago City Council, the latter of which has the final legal authority to change or not change meter rates according to the legislative will of enforcing the public's "health, safety, welfare, and morals" (i.e. the purpose/scope of the police power.

The question of enforcement (who pays the enforcers, who are the enforcers, and who gets what percentage of the enforcement money) are the biggest questions about the deal that I have.

I believe Depts of Zoning and Planning are generally only concerned with off-street parking spaces, not on-street, so would not be involved. CDOT would deal with where meters, curb cuts, loading zones, and any other parking restrictions are put in place. Streets&San and Revenue (and of course the "Traffic Management Authority") then seem to deal with the day-to-day enforcement such as cleaning, ticketing, and towing.

Your broader point about the lack centralized coordination of parking policy is, if anything, only one narrow slice of the much broader lack of centralized planning of all sorts, including not only parking but transportation and land use. For better or worse, Chicago tends to operate as 50 fiefdoms, with the actual strategic decisions of the above departments made on a case-by-case basis of aldermanic perogative and whimsy.

The Parking Ticket Geek said...

There are actually several different agencies that can issue parking tickets.

1-Parking Enforcement Aides: They are DOR employees. They account for most parking tickets

2-The Police Department

3-CTA: Some managers have authorization to issue tickets, mainly for parking in a bus stop.

4-City Clerk's Office: They have a force of 5-7 people that are mainly looking for city sticker violations although they can issue other violations.

5-Railroad Police: They have ticket books and can issue tickets, but account for minor amounts of tickets.

6-SERCO: This is a private company, contracted by DOR that offers supplemental enforcement.

That's all I can think of right now.

chicago pop said...

the Chicago City Council, the latter of which has the final legal authority to change or not change meter rates according to the legislative will of enforcing the public's "health, safety, welfare, and morals" (i.e. the purpose/scope of the police power.

Fascinating. So the City Council could easily ramp up fees to market levels and do some parking management, with all sorts of positive goals in mind -- congestion and pollution reduction, CO2 mitigation -- all under the authority of a "policing power" exercised in the name of public safety and health. That would make absolutely perfect sense.

And they could keep the cash, too, and watch Chicago suddenly become more livable.

Richard Gill said...

Raymond's discomfort with contracts approaching a century in length is appropriate, especially with technological changes that are certain to occur. Who even knows if, just 50 years from now, there will be cars and roads as we presently know them, and if there will even be such a thing as metered parking.

From the concessionaire's standpoint, though, the possibility of long-term opportunity is probably essential, given the dollar magnitude of the deal. But 75 years is a long time (it will be 2083), and the issue will be dealt with by future generations of managers. That's on the concessionaire side; in 2083, Richie Daley will still be mayor, in his 21st consecutive four-year term.

If you want an extreme example of the unlikelihood of an ultra-long contract actually running to completion, consider Chicago's old Dearborn Station, which was owned by the Chicago & Western Indiana Railroad. In 1890, the Santa Fe Railway signed a 999-year lease to use the station. The station closed in 1971, just 918 years short of the contract's expiration.