CHICAGO — Chicago will seek independent audits to assess the operational and financial management of its asset leases, beginning with its controversial $1.15 billion 2009 parking meter concession contract, Mayor Rahm Emanuel announced Monday.
Emanuel has asked his finance and legal teams to bring in independent auditors to conduct the periodic reviews. The 75-year lease of the city’s parking meter system — the most controversial in a series of city leases involving existing assets — is first in line for an audit. It will begin in November.
The consortium, Chicago Parking Meters LLC, sparked public and City council anger over operational problems in its takeover of the system that includes more than 36,000 metered slots.
Skyrocketing rates, allowed under the lease terms, also fueled anger along with the council’s swift review of the deal struck by then-Mayor Richard Daley. The mayor then went on to exhaust most of the proceeds to balance his last few budgets.
“To ensure we are responsible stewards of taxpayer dollars being paid to CPM, it is imperative this administration vigilantly exercise due diligence while effectively managing each contract. These comprehensive, regular audits will help ensure accountability and keep those behind the agreements honest and responsible,” Emanuel said in a statement.
The lease was a first-of-its kind at the time and has been cited as an example by other issuers considering such deals as providing a cautionary roadmap of pitfalls to avoid.
It has also proven a headache for Daley’s successor. CPM is seeking to recoup more than $50 million in lost revenue from the city from metered spots taken out of service to accommodate various activities and for the disabled. The city disputes a portion of the company’s request.
The parking meter audit will cover financial and operational adherence to the lease and transaction and collections record and is expected to include interviews with CPM’s top officials, key contractors, and representatives from its principal investor, Morgan Stanley. It could be expanded to include additional financial and operational processes.
Chicago Parking Meters includes Morgan Stanley Infrastructure Partners A Sub LP with a 76% ownership interest, with a 23% interest, and several other entities sharing 1% ownership. LAZ Parking runs the system. The system generated total operating revenue of $22.9 million in 2007, with net income of $18.9 million.
“As I have said before, the city does not cut a check simply because we receive a bill,” Emanuel said in a statement.
Audits of the city’s 2005 $1.8 billion Skyway toll bridge lease and the $563 million 99-year lease of four downtown parking garages struck in 2006 will follow.
Chicago pioneered the path to asset privatization with the 99-year Skyway deal. Most of the city’s $624 million in reserves stem from that lease.
The audits come as the Emanuel administration is weighing whether to pursue a lease deal involving Midway Airport. A $2.5 billion proposed lease fell apart in 2009 when the private consortium that won a competitive bidding process couldn’t come up with the financing due to the international credit crunch at the time.
Under state legislation, proceeds would have been earmarked for city pensions and infrastructure after Midway debt was retired. Market participants have said with markets now more favorable Midway could fetch strong interest.
Chicago faces an end of the year deadline to decide or it forfeits the hub slot under a federal airport privatization pilot program. Emanuel during his 2011 campaign sounded a cautionary tone on future lease deals, but the city faces a looming pension crisis in 2015 when its pension payments will rise by $700 million. The city is also strapped for ways to fund infrastructure given its high debt load.
Emanuel said last week of resurrecting a Midway transaction: “We are in the process of reviewing it right now” and are “analyzing choices.”
The Skyway was leased to Macquarie Infrastructure Group and Cintra Concesiones de Infraestructuras de Transporte while the parking garages — owned by Chicago and the Chicago Park District — were leased to the infrastructure group within Morgan Stanley Investment Management.