CHICAGO - Chicago Friday banked $1.15 billion when it closed on a 75-year lease of its parking meter system - the latest in a series of private concession deals involving city assets undertaken over the last four years.
The city will use about half the funds to prop up the general fund and help the city weather the recession over the next four budget years. The remaining proceeds from the first-of-its-kind lease of a parking meter system will go to bolster existing reserves and to support human services programs.
Though the use of proceeds from an asset lease to cover operating expenses is typically frowned upon by fiscal experts, rating agency analysts have not punished the city for the action. They have cited the stretched out use of the funds, the city's efforts to address faltering revenues without burdening property owners, and the increase in reserves.
Mayor Richard Daley's chief of staff, Paul Volpe, who previously served as chief financial officer, said in a statement: "The funds from this parking meter agreement will strengthen our city's finances for the long term, give us the ability to continue investing in people's needs, and most importantly, protect our city and taxpayers from a worsening economy."
A permanent reserve will hold $400 million with interest earnings going to replace revenues now generated by the meters. The reserve will supplement an existing $500 million account established with proceeds of the city's first lease transaction of the Chicago Skyway toll bridge in 2005 that raised $1.8 billion.
Chicago will spend $100 million to support human services program and another $325 million will go into a mid-term budget relief fund that will supplement budgets through 2012. The remaining $320 million will go into a budget stabilization fund that also can be tapped, should revenues continue to falter.
In exchange for the up-front payment, Parking Meters LLC will hold the right to operate the 36,000 meter system for 75 years. Chicago Parking Meters is a consortium that includes Morgan Stanley Infrastructure Partners A Sub LP with a 76% ownership interest, Morgan Stanley Infrastructure Partners LP with a 23% interest, and several other entities sharing 1% ownership. LAZ Parking will run the system.
The system generated total operating revenue of $22.9 million in 2007, with net income of $18.9 million. As part of the deal signed off on by the City Council late last year, meter rates will rise sharply over the next five years.
The city paid $5.9 to William Blair & Co. as lead financial adviser and Gardner Rich & Co. and Samuel A. Ramirez & Co. as co-financial advisers. Legal advisers, including Katten Muchin Rosenman LLP, Charity & Associates PC, Gonzalez Saggio & Harlan, and Burke Burns & Pinelli Ltd., shared fees of $1.5 million.
In addition to the Skyway and meter system, the city raised $563 million from the privatization of four downtown parking garages in 2006 and is awaiting federal approval for a 99-year lease of Midway Airport to a private group for $2.5 billion. That transaction would mark the first privatization of a major airport under a federal pilot program that permits up to five airports to shift to private from public hands.
While some aldermen last year questioned the wisdom of the meter lease's timing and whether more money could be raised at a later date, the council overwhelmingly endorsed the deal as the city faced a budget crunch and a likely public outcry over property or other tax increases.
Facing a $469 million deficit in the 2008 and 2009 budgets, Daley included the use of $150 million in meter lease proceeds in the new budget.
Volpe warned last week that the city may need more funds from the meter lease reserve this year to cope with dwindling tax collections that have resulted in a $50.5 million shortfall in the $6 billion budget.
