Chicago Inspector General Blasts PPP Meter Lease

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Chicago Inspector General Blasts PPP Meter Lease

The Inspector General of the city of Chicago has released a particularly damning report on the meter lease process and result that took place late last year. The entire report is available here.

 

It’s very detailed and I suggest you take a few minutes to read it. Here’s a press release that summarizes the report:

 

 

REPORT DETAILS UNINFORMED PROCESS, LACK OF TRANSPARENCY,

INADEQUATE FINANCIAL CONSIDERATION, AND VIABLE ALTERNATIVES

TO LONG-TERM PARKING METER LEASE; RECOMMENDS SWEEPING CHANGES

 

CHICAGO – A report released by the City of Chicago Inspector General’s Office (“IGO”), shows, in detail, how the City’s 75-year lease of its parking meters was the culmination of uninformed financial considerations, a secretive planning process, and a failure to explore viable alternatives that would have achieved the same budgetary goals.

The City leased the Chicago Metered Parking System for $974 million less than its value to the City, the independent review shows. What’s more, the City did not properly estimate the meter system’s value in the first place; a vital detail in determining whether such a deal was in the City’s best financial interests.

While the Inspector General’s Office does not question the seriousness of the City’s budget problem that was presented in Fall 2008 because of the recession, the hasty, “crisis” nature of the decision-making process meant that the short-term budget problems and the large upfront payment the City would receive overshadowed all other legitimate, long-term, public-interest issues. The report shows, in addition, that even if the only way the City could close this budget gap was to secure a large one-time payment by leasing its parking-meter system to a private company, there were alternative terms under which it could have done so. For example, the City could have executed a shorter lease with a revenue-sharing provision, which would have plugged the budget gap without having the City suffer a large long-term loss.

However, the ability to consider any alternatives whatsoever was effectively eliminated, when, without any details regarding the lease, the anticipated revenue from the sale was included in the 2009 City Budget.

“The lease terms were negotiated, bids were accepted, and a vendor was chosen well before the Council had the chance to review any of it,” said Inspector General David Hoffman.

Even if members of the Council had more time to review the deal, as presented, it still boiled down to a “yes or no” proposition. With a longer review period, such as the 15-days mandated by a proposal the City Council Finance Committee passed Monday, the result would not necessarily have been a more deliberative process.

“Another two weeks to review the results of months of closed-door negotiations would have been negligible,” added Hoffman.

RECOMMENDATIONS

The report underscores how the lack of transparency throughout the process led to a dubious financial deal for the City and includes a series of recommendations for substantive reform. Among them, the IGO recommends:

  1. The City Council should be given 60-days to review the terms of a lease agreement such as this. However, this time for consideration should be prior to the City’s accepting bids from vendors, not after a winning bidder has been selected. Given that the administration first issued a Request for Qualifications (“RFQ”) to find suitable vendors in February 2008, then negotiated lease terms from April to October, such a review would have been entirely plausible and would have allowed the Council to consider the lease terms themselves.
  2. The City Council should commission a public policy think tank, an academic, or an independent office of City government to conduct an impartial analysis of any lease agreement and release this analysis publicly before the terms of an agreement are voted upon by the City Council.
  3. Public hearings and comment on potential lease agreements;
  4. Without the opportunity for the City Council to thoroughly review, debate, and vote on the terms of the lease a public asset, City Ordinance should bar the proceeds of any such deal from being included as projected revenue in a budget proposal.

     

    The press release is kind. Read the entire report. It is damning. Any city preparing to do a PPP should read it.

     

    JVH

     

John Van Horn

John Van Horn

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