CHICAGO – The Chicago City Council Wednesday adopted new rules governing any future asset privatization deals against a backdrop of lingering political and public anger over the city's parking meter lease fiasco.
Mayor Rahm Emanuel, who had campaigned on a pledge to open up future leases to more public and council scrutiny, submitted an ordinance establishing new guidelines over the summer. It has evolved after negotiations with council members, the Better Government Association, and unions.
The ordinance puts in place a detailed public review of the cost effectiveness, impact, and value of any proposed deal and requires more review, analysis and debate on any future deals. It also puts in place safeguards on the use of proceeds.
"This new ordinance establishes commonsense rules of the road for privatizing city assets or services," Emanuel said in a statement after passage. "It shines a spotlight on the process and ensures that the right questions are asked. That way we will only approve privatization agreements that are good deals for Chicago's taxpayers."
Emanuel said the city followed the basic framework of the ordinance as it sought to resurrect efforts to privatize Midway Airport in 2012. The city abandoned the effort in 2013 after receiving only one viable bid.
The ordinance applies to future proposals to privatize either city owned assets or government service contracts valued at more than $3 million with some exemptions. The ordinance doesn't cover all potential asset deals. The transaction must offer a term of at least 20 years and provide at least $400 million in value to the city to fall under the new rules.
The ordinance, if in place at the time, would have applied to the city's leases of the Chicago Skyway toll road, the parking meter system, and downtown parking garages, the administration said. No current deals are in the works.
Previous privatization service agreements that would have been covered by the new rules include the Water Department Call Center, recycling collection services and City Hall's information technology help desk.
Under the ordinance, Chicago's chief financial officer must issue a request for qualifications, hire an independent advisor to evaluate the potential transaction, and notify the chairmen of the Budget Committee and Finance Committee 90 days before a vote could be held on a privatization agreement.
Public hearings must be held. Seven days prior to a council vote, the committee with jurisdiction must hold a hearing, and 23 days prior to the committee hearing, the city would be required to provide summary information and the report prepared by the independent advisor.
"It represents a significant reform, one that we're glad to support," said BGA policy coordinator Judy Stevens.
With the deal done, the ordinance requires the city to invest 10% of funds not used for investment earnings, expenses, debt service, public infrastructure or pension payments into a fund managed by the city treasurer. The fund could not be tapped until half of the deal's term has expired unless approved by a three-fourths vote of the City Council.
Former Chicago Mayor Richard Daley launched a spree of asset deals beginning in 2005 with its $1.8 billion, 99-year lease of the Skyway toll bridge. The city maintains a permanent $500 million reserve, considered crucial to the city's ratings, from the proceeds.
The city privatized its downtown garages in a 99-year, $563 million deal in 2006 and has taken two stabs at Midway Airport. Daley's attempt failed after the winning bidder couldn't raise the capital for the deal after the 2008 financial crisis. Emanuel resurrected the idea but only one bid was received under tougher terms and the effort was dropped in 2013.
The city's 75-year, $1.15 billion lease of its parking meter system in 2008 is the one that has left a bitter distrust of such leases for both the public and the council.
The private operators were overwhelmed initially in implementing a new system of pay boxes, resulting in operational troubles.
Skyrocketing rates allowed under the lease terms also fueled anger, along with the council's vote approving the deal after less than a three-day review.
Daley then went on to exhaust nearly all of the proceeds to balance his last few budgets and a former inspector general issued a report contending the city didn't get a fair price. The bitter aftertaste lingered as the city annually was hit with a bills for taking meters out of service and landed in arbitration to settle claims. Lease revisions approved in 2013 eased those terms but the city was forced to provide concessions in exchange.