Chicago Olympics Bid Bruised by Failure to Watch Parking Meters
By Michael McDonald and John McCormick
Sept. 30 (Bloomberg) -- Chicagoans are angry about Mayor Richard M. Daley’s deal to lease the city’s parking meters to Morgan Stanley investment funds.
So angry that Daley’s popularity is at a record low, according to a Chicago Tribune/WGN poll. So angry that the 20- year mayor may not have taxpayer support to lease or sell more assets and bolster the city’s budget.
That means Daley is under even more pressure to abide by his pledge that residents won’t pay anything for staging the 2016 Summer Olympics, which organizers say will cost $4.8 billion. The winning site is to be announced Oct. 2 in Copenhagen.
“When they see the city get it so wrong, voters rightfully get very skeptical,” said Ralph Martire, executive director of the Center for Tax and Budget Accountability, a nonprofit public policy group in Chicago.
Taxpayers of the nation’s third-largest city support a total of $14.8 billion in municipal bonds, counting overlapping jurisdictions such as Cook County and the Chicago Board of Education, according to Fitch Ratings.
Daley has asserted repeatedly that taxpayers wouldn’t be on the hook for any financial shortfalls, in part because the bid committee is working to secure about $1.48 billion of insurance to cover any problems.
Meter-Made Trouble
The mayor leased thousands of parking meters, a toll highway and city-owned garages during the past five years, raising a total of $3.45 billion. While that helped prop up the budget, the meter deal incensed residents who faced malfunctioning machines and quadrupled parking rates in many neighborhoods.
In a city where his father, Richard J. Daley, served from 1955 until his death in 1976, just more than a third of voters approve of the job the current Mayor Daley is doing, according to the poll of 380 registered voters taken Aug. 27 through Aug. 31, the Tribune reported. The poll had a margin of error of plus or minus 5 percentage points. As recently as 2003, his approval rating was 72 percent, the newspaper said.
Chicago Parking Meters LLC, majority-owned by Morgan Stanley infrastructure investment funds, paid $1.15 billion for a 75-year lease to run the 36,000 parking meters. That’s $974 million less than the city would have received if it had kept the parking meters and raised prices under the terms it gave the group, according to a June 2 report by the city’s inspector general.
The report calculated the risk differently, skewing the value of the deal, said Pete Scales, spokesman for Gene Saffold, the city’s chief financial officer.
Morgan Stanley referred calls about the parking-meter purchase to Chicago Parking Meters. Avis LaVelle, a spokeswoman, declined to comment.
Daley Apology
Daley, 67, later apologized for how the parking-meter changeover was handled.
“I take responsibility for that,” Daley said at a public hearing Aug. 25. “The implementation was not good at all from the city’s side. You know that. I know that.”
Chicagoans may be taking a cue from the folk-rock classic “Subterranean Homesick Blues,” in which singer Bob Dylan urges: “Don’t follow leaders/Watch the parkin’ meters.”
To help evaluate the bids, the International Olympic Committee commissioned a public opinion poll in each candidate city measuring residents’ support. The IOC’s vote Oct. 2 will be by secret ballot.
The Tribune/WGN poll showed that nine out of 10 voters disapproved of the meter deal, after snafus with the new parking machines and rates as high as $3.50 an hour in the downtown’s Loop.
‘Hide the Money’
“I thought it was a sham, just another way to pad the pockets and hide the money,” said Debra McJunkis, 48, an insurance examiner who lives on the city’s southeast side. “It’s the same thing with the Olympic bid.”
Daley is serving his sixth term and doesn’t face re- election until 2011.
President Barack Obama’s administration has said it will provide backing if Chicago wins the Olympics. The White House said Sept. 28 that Obama is traveling to Copenhagen to support his adopted hometown in the IOC vote.
“The president has pledged full support to make sure that the games are executed flawlessly,” said Valerie Jarrett, a senior adviser to Obama and leader of his lobbying effort for the Olympics. “We will be a very active partner.”
Chicago is the favorite of U.K. bookmakers William Hill Plc and Ladbrokes.com, although its lead over Rio de Janeiro is shrinking. The odds on Chicago to win are 4-5, down from 8-11 on Sept. 24, according to William Hill. Rio’s odds improved to 13-8 from 11-4. Tokyo is at 5-1 and Madrid at 8-1.
Olympics Bill
Estimates of how much federal financial support was paid for past Olympics in the U.S. depend on what is included. About $342 million in federal money was projected to be spent on security, infrastructure and other costs to stage the 2002 winter games in Salt Lake City, according to a report by the Government Accountability Office.
Daley’s financial fortunes hit another rough patch in April when a $2.5 billion deal to lease Midway Airport for 99 years fell through amid the credit crisis. He wanted the proceeds to pay off $1.15 billion of the airport’s debt, finance future infrastructure projects, contribute to under-funded city pensions and plug a city budget deficit.
The city was able to keep $126 million in earnest money and pledged to look for alternative arrangements.
Political Will
The public’s outrage may limit the political will for such transactions in the future, said Richard Ciccarone, chief research officer with Oak Brook, Illinois-based McDonnell Investment Management, which manages $12.5 billion in assets.
“The chances of the airport being sold right now have diminished significantly because of the uproar of the parking meters,” said Ciccarone, 57, who also is a board member of the Civic Federation, a Chicago public policy group.
Saffold, the city CFO, disagreed.
“That was a terrific financial transaction,” he said about the parking meters. “We’ve all admitted here, the mayor has admitted, that we should have a longer transition period to facilitate a smoother transition to a private operator.”
Saffold said the city hasn’t given up finding a buyer for the southwest-side airport.
“Liquidity is returning to the marketplace, in terms of supporting the bid of a prospective operator or concessionaire,” he said. “Those discussions are ongoing.”
Bond Rally
While Chicago’s debt burden tripled during Daley’s two- decade tenure, the city’s bonds have rallied along with the rest of the credit markets during the last six months. Chicago bonds issued in January and due in 2029 traded at 60 basis points, or 0.6 percentage point, more than an index of top-rated tax-exempt bonds on Sept. 15, down from almost 80 basis points above the benchmark on May 13, according to Bloomberg data.The city has an AA credit rating from Fitch.
“Rising tides lift all ships,” said Patrick Morrissey, director of fixed income for private client accounts at Wayne Hummer Wealth Management in Chicago.
Patrick Ryan, chairman of Chicago’s bid committee and founder of insurance brokerage Aon Corp., told reporters Sept. 2 that the city’s finances are more solid than those of some nations that hosted Olympics.
“The Chicago credit by itself is stronger than some past countries who have put up guarantees and won,” he said. “Chicago has a strong credit rating.”
Saffold, like Ryan and Daley, is adamant that the city won’t have to cover upfront costs.
‘Not a Dollar’
“Not a dollar, dime, penny of taxpayer money has been put forth in connection with the bid going forward,” Saffold said. “We don’t anticipate any fronting of monies or upfront expenditures, from the city’s perspective.”
The Daley administration’s problems with the parking deal and Midway Airport followed a successful leasing of the Chicago Skyway, a 7.8-mile (13-kilometer) toll road that in 2005 became the first in the U.S. to be privatized when Macquarie Infrastructure Group and Cintra Concesiones de Infraestructuras de Transporte SA paid $1.8 billion for a 99-year lease.
After the revenue from leasing deals, Chicago still has holes in its budget. The city predicted a shortfall for next year, even after it exhausts a $320 million rainy day fund.
The $6.2 billion projected budget, which includes the city’s airports, water and other funds, could be more than half a billion dollars in the red because of plummeting tax collections and rising wages.
Daley has laid off city workers and pressured unions to accept unpaid furlough days this year to save money.
“Part of his vision is to create a world-class city,” Ciccarone said. “It is very expensive and he’s taken on a lot of debt to do this.”
To contact the reporters on this story: Michael McDonald in Boston at mmcdonald10@bloomberg.net; John McCormick in Chicago at jmccormick16@bloomberg.net.
Last Updated: September 30, 2009 01:01 EDT |
