Tuesday, June 2, 2009
News / Clout City IG: Taxpayers hosed on the parking meter lease deal
Posted by Mick Dumke on 06.02.09 at 04:01 PM
In a damning 45-page report issued this afternoon, city inspector general David Hoffman said the Daley administration's "hasty" consummation of the parking meter privatization deal--as well as the absence of deliberation in the City Council--cost taxpayers at least $1 billion.
"The City was paid, conservatively, $997 million less for this 75-year lease than the City would have received from 75 years of parking-meter revenue had it retained the parking-meter system under the same terms that the City agreed to in the lease," states the report, the result of a five-month investigation. The city received about $1.16 billion in its deal with Chicago Parking Meters LLC.
"Because the deal was presented to the City Council with very limited information and because the Council scheduled its vote a very short time later, there was no meaningful public review of the decision to lease the parking-meter system," the report says. "What is standard in the PPP [public-private partnership] 'best practices' model--informed deliberation, transparency, and full analysis of the public interest considerations--was not present here.
"In addition, the driving force behind the decision to lease the parking meters was the City’s short-term budgetary need. While we do 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 was receiving overshadowed all other legitimate, long-term, public-interest issues."
Read the full report here [PDF]. More updates later.
UPDATE: Paul Volpe, Daley's chief of staff and formerly his chief financial officer, disputed Hoffman's report in a quickly called press conference this afternoon. He said Hoffman had overestimated the long-term value of the meters and underestimated the risk in investing in them now. Volpe also denied that the deal had been hurried along or kept from the public. "The city conducted a robust, open, transparent, and competitive bid process," he said. Read his full statement here [PDF].
Comments (15)
Showing 1-15 of 15
like
dislike
At least 40 of the Aldermen need to pay (with their jobs) for this fracus - they say they're afraid of His Highness - they need to be afraid of us.
I am really glad that both the alderman where I live (Ocasio) and where I own my business (Waguespack) voted against this fiasco.
Can someone tell Volpe that 2+2= 4 You fucked up $1,000,000,000.00 dollars ! Thats criminal! Congrats to Hoffman.Now go get Daleys nephew.
Hoffman's report makes the claim that William Blair, the City's consultant on the deal, estimated "free cash flow (net revenue) in year 5 of anywhere from $85 million to $130 million.†The report goes from there to make use of the "mid point" of the projections -- "free cash flow" of $107.5 million in year 5. That net revenue projection defies imagination. It's over 35% HIGHER than the revenue projections generated by Scott Waguespack's report -- which, itself, used a methodology that admittedly produced an overstatement of 2009 revenues of 26%. In other words, what the report says are William Blair's revenue assumptions are NINETY-SIX PERCENT higher than the numbers generated by the Waugespack report's methodology (adjusted for the overstatement). If you use the Waugespack report's methodology to project revenues -- and discount it at the discount rate the Inspector General's report says is appropriate (7.06%) you arrive at a Net Present Value of $1.123 billion. It's unclear the purpose for which William Blair's revenue projections were being used. If they were being provided to bidders to potentially enhance the value received by the City, obviously they were viewed skeptically by potential bidders. Paul Volpe's response seems to assume the validity of the William Blair projections in valuing the lease agreement (he only seems to takes issue with the discount rate that the report applies -- which actually seems to be its strongest section). I'm guessing he's constrained by the process in some regard -- that he can't come out and say that the revenue projections they provided the bidders were "pie in the sky," unrealistic numbers. What has gone unsaid is the strongest endorsement of the whole thing: not even the Inspector General could find fault with the bidding process (as opposed to the political process). We live in a capitalist society. If this lease were "really" worth $2 billion, why did all of the other competing parties disappear? The response to the report speaks volumes the terrible press operation that is permitting the the Mayor's reputation to be destroyed. Paul Volpe thrown to the wolves -- left to defend the lease by himself. Where's William Blair?? Why aren't they out front and center on this thing? Tomorrow, David Hoffman will be treated like a conquering hero by the newspapers -- and urged to run for Mayor himself. I predict he will answer the call of the Editorial Boards and throw his hat in the ring -- which makes this report -- and everything else he does -- coldly calculated to win himself an election. Is that really an appropriate use of his appointed office?
NPV = $1,123,045,428 Discount Rate = 7.06% Inflation = 3% Year Net cash flow 2009 $21,787,132 2010 $28,613,252 2011 $35,439,371 2012 $50,200,422 2013 $54,974,747 2014 $56,623,989 2015 $58,322,709 2016 $60,072,390 2017 $61,874,562 2018 $63,730,798 2019 $65,642,722 2020 $67,612,004 2021 $69,640,364 2022 $71,729,575 2023 $73,881,462 2024 $76,097,906 2025 $78,380,843 2026 $80,732,269 2027 $83,154,237 2028 $85,648,864 2029 $88,218,330 2030 $90,864,880 2031 $93,590,826 2032 $96,398,551 2033 $99,290,507 2034 $102,269,223 2035 $105,337,299 2036 $108,497,418 2037 $111,752,341 2038 $115,104,911 2039 $118,558,058 2040 $122,114,800 2041 $125,778,244 2042 $129,551,591 2043 $133,438,139 2044 $137,441,283 2045 $141,564,522 2046 $145,811,457 2047 $150,185,801 2048 $154,691,375 2049 $159,332,116 2050 $164,112,080 2051 $169,035,442 2052 $174,106,506 2053 $179,329,701 2054 $184,709,592 2055 $190,250,880 2056 $195,958,406 2057 $201,837,158 2058 $207,892,273 2059 $214,129,041 2060 $220,552,912 2061 $227,169,500 2062 $233,984,585 2063 $241,004,122 2064 $248,234,246 2065 $255,681,273 2066 $263,351,711 2067 $271,252,263 2068 $279,389,831 2069 $287,771,526 2070 $584,176,197 2071 $601,701,483 2072 $619,752,527 2073 $638,345,103 2074 $657,495,456 2075 $677,220,320 2076 $697,536,929 2077 $718,463,037 2078 $740,016,928 2079 $762,217,436 2080 $785,083,959 2081 $808,636,478 2082 $832,895,572 2083 $857,882,440 2084 $883,618,913
If David Hoffman ran for Mayor, he would win with 58% of the vote, with a turn out over 50%.
Please save your genius analysis. There is no talking yourselves out of this mess.
Great idea I am going to run for mayor of Chicago! You can run my campaign into the ground.
Chicago is rotting from within. Daley needs to go. the next thing he will do is sell children to the highest cash bidder. got to love the daley supporters.
Daley has not been able to get a police contract together for almost three years because he wants to play hard with the funds needed to get more police on the street and pay them. Yet he just left ONE BILLION on the table? And Morgan Stanley walks away laughing? Who cares less about the people of this city?
Everyone but Daley and Volpe believes they left money on the table. All that's left is PR offensive (or defensive), which is always job #1 for Daley. City Council, do your damned job. Despite the Daley administration's hysterical cries this deal would not have evaporated if you had taken your time and carefully evaluated it. Grow a set, please. Daley's entire mayoral reign is now based on getting the Olympics as a monument to himself and his legacy. He will mortgage anything and everything to get them. He is completely out of control.
