Response to "Company Piles Up Profits From City's Parking Meter Deal"

NOTE: This letter is a response to Dan Mihalopoulos’ November 20th story about the private owners of Chicago’s parking meters

Dear Mr. O’Shea:

Earlier this year, Chicago Parking Meters, LLC (CPM) paid the City of Chicago $1.156 billion for the right to operate and collect parking meters for the next 75 years – an amount produced after a robust and competitive bidding process, and it was on the high range of values expected by the city.

Reporter Dan Mihalopoulos of the Chicago News Cooperative obtained an early draft of a CPM’s 2010 pro forma budget and used it to seek theoretical valuations and claim CPM is making a large profit (“Company Piles Up Profits from City’s Parking Meter Deal,” New York Times, November 20, 2009). His assertion is off base and wholly inaccurate.

Mihalopoulos reached his conclusion based on very flawed methodology. First, the draft pro forma budget does not account for all costs, particularly non-recurring costs or future capital costs, and overestimates revenue. As such the numbers in the draft pro forma budget are likely inflated. Additionally, the pro forma budget does not include any of the investors’ own costs (administration, funding, oversight) that also affects its bottom line. But even ignoring these omissions, if one uses the numbers in the draft pro forma budget, a $58 million net revenue figure in 2010 would represent a cash-on-cash return of approximately 5% – not exactly “piled up profits.”

Moreover, future parking meter revenues are subject to very real risks associated with operating and maintaining a parking meter system of Chicago’s size over 75 years. Those risks include potential increases in costs for labor, fuel and equipment; and potential decreases in revenue due to expanded use of public transportation and changes in driver behavior. How those risks affect future utilization of the system will have the greatest impact on what rate of return the investor eventually earns.

Mihalopoulos writes that “there is little doubt [CPM] will recover their investment in a relatively short period of time,” when no such conclusion can be drawn from the information he uses. In fact, the numbers seem to support just the opposite case.

Finally, Mihalopoulos fails to mention how the transaction benefited Chicago residents in important ways. CPM has replaced 32,000 older, single-space, coin-only meters with the far more convenient and environmentally friendly pay boxes. Broken meters have been reduced, and those that are broken are being fixed faster than ever.

Additionally, and most importantly, the concession proceeds have been used by the City to build reserves, support people in need, and help balance Chicago’s operating budgets during the worst economic recession in over 70 years.

At a time when other cities and states are struggling to balance their budgets – raising taxes and cutting services – Mayor Richard M. Daley has worked to ensure that Chicago taxpayers are protected with transactions like this one.

Sincerely,

Gene Saffold
Chief Financial Officer
City of Chicago