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Chicago's Privatized Parking Meters Sour Airport Lease Deal
Originally published on Mon September 30, 2013 6:47 am
Close to 19 million passengers come through Chicago's Midway Airport each year, and many will spend a lot of cash here — on food, drinks, books, gum, parking and rental cars — not to mention the landing fees and gate fees paid by airlines.
There are a lot of opportunities to make money in a bustling hub airport like this, and the city was hoping to cash in.
Last winter, when the city opened the bidding process in what would have been the first commercial airport to go private, six investment firms expressed interest. But by this summer, the number dwindled to just two, and now, one of the final two has dropped out.
Mayor Rahm Emanuel's response? "I said no to the privatization on Midway. It was not right for the city," Emanuel said earlier this month.
Emanuel says without competitive bids, which he hoped could net the city up to $2 billion up front, he could not guarantee a good return on Midway's lease.
But what got in the way actually had nothing to do with the airport. It was Chicago's parking meters.
What 'Hampered The Deal'
Former Mayor Richard Daley privatized the city's parking meters for $1 billion five years ago and rammed the sweetheart deal through a compliant city council without releasing many details to the public. Parking meter rates skyrocketed to the highest in the country. The city spent the $1 billion up front to balance its budget. And for the 75-year term of the lease, Chicago taxpayers still must reimburse the private operator millions of dollars a year for parking spaces the city has to take out of commission. (A 2009 report from the city's inspector general called it a "dubious financial deal.")
With Chicago voters leery of new privatization deals, Emanuel tried to impose conditions on the Midway deal. He shortened the lease term to no more than 40 years, capped food and parking prices and mandated revenue sharing on top of the big payment the private operator would make up front. The mayor also created an independent oversight panel to review the terms of any Midway lease, chaired by Peter Skosey with the non-profit Metropolitan Planning Council.
"Some of these constraints that we put on it to protect the public interest may have hampered the deal a little bit, and I think the numbers just didn't come out as favorably," Skosey says.
In other words, the private investors didn't see enough profit to make it worth their risk.
Now, experts say that doesn't mean privatization deals shouldn't have protections. The key is balancing safeguards for taxpayers with the opportunity for private investors to make a profit. That balance is trickier when leasing airports, as opposed to simpler assets, such as toll highways and bridges, says Joseph Schofer, an expert in transportation policy and finance at Northwestern University.
"These are bigger deals, more complicated deals and what the municipality, what the region or what they government agency is looking for is the movement of a big chunk of cash across the table to them so they can use that. And I think that investors are looking at that saying, 'There's a lot of risk and I'm not that anxious to be the first one to do that,' " Schofer says.
But, Schofer and other experts say airport privatization in this country will eventually take off, especially as the government entities that own and run them increasingly find it more difficult to raise big sums of money in more traditional ways.