CHICAGO – Chicago has settled a legal dispute with the private operators of its parking meter system over lost revenue in an agreement that modifies the much-maligned lease and could save the city as much as $1 billion over the next seven decades.

The city will pay Chicago Parking Meters LLC $64 million in claims to compensate it for revenue lost when meters were taken out of service during various events and for disabled parking in recent years, but Mayor Rahm Emanuel claims changes in how future charges are assessed will save the city $1 billion.

Emanuel’s administration had initially challenged the company’s request for compensation under the binding $1.15 billion lease struck by his predecessor Richard M. Daley, questioning how the company reached those figures. As part of negotiations with the company, the city sought to revise how lost revenues are calculated and to modify lease terms aimed at easing public angst over the deal.

Emanuel said the $1 billion in savings would be achieved over the remaining term of the 75-year lease struck in 2009 by eliminating $20 million in annual charges. The city and not the company will calculate lost revenues going forward.

Motorists also will no longer have to feed meters on Sundays and a pay-by-cell system will be launched. The time during which motorists must pay to park in some areas of the city, however, will be extended.

“Let’s be clear here, this does not solve all of our parking meter problems. That’s just not possible. I’m trying to make a little lemonade out of a big lemon. We can’t make this bad deal go away, or make it into a good one, but we did make it a little less bad for the next seven decades, while adding some breaks and convenience for Chicagoans along the way,” Emanuel said.

Emanuel has been among the vocal critics of the deal handing over 36,000 metered parking spots to private operators.

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 swift review of the deal. Daley then went on to exhaust most of the proceeds to balance his last few budgets. The parking meter company then began pursuing the city for lost revenues.

Emanuel said the private operators “expressed a shared interest” in resolving the legal dispute and possible modifications that would make the lease more palatable to the public. Chicago Parking Meters includes Morgan Stanley Infrastructure Partners A Sub LP with a majority ownership interest. LAZ Parking runs the system. Morgan Stanley does other business with the city, including underwriting bonds, providing a strong incentive to negotiate with Emanuel’s administration. The settlement and amended contract will be submitted to the City Council for review and approval next month.

Chicago Parking Meters issued a statement, saying: “In the best interests of the people of Chicago, CPM collaborated with the administration and believes that our willingness to work with the city demonstrates our desire to provide the most efficient and technologically advanced parking meter system possible for the city of Chicago.”

Some council members responded to the news skeptically, saying the city should not have agreed to the longer paid parking hours. Some would prefer that the city try to get out of the contract, but the city can ill-afford such a move with a looming $600 million increase in pension payments in 2015.

A group of Chicago taxpayers have filed a lawsuit challenging the legality of the lease. The lease marked a first of its kind involving a big city’s parking system. Others have said it provides a cautionary roadmap for future deals with a tougher eye on lease terms, contract length, and provisions for revenue-sharing. 

Emanuel last year launched an audit of the parking meter and other city asset leases struck under Daley and he has pursued a Midway Airport lease with caution.

The parking meter lease is not the only inherited headache for Emanuel. Chicago recently resolved arbitration with the operators of four downtown city-owned parking garages. It must compensate the operators for $58 million in lost revenue and interest stemming from the city's approval of a competing parking facility. Morgan Stanley is also a lead investor in the 99-year $563 million parking garage lease struck in 2006.

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