New Parking Meter Analysis: ROI, Payback Period, Cost-Plus Contract, and Alternative Use of Capital
Mayoral candidate Jay Stone used his MBA knowledge and information recently released by Chicago Parking Meters to analyze Chicago’s parking meter contract. Jay says CPM is making a profit more than 24 times the industry’s gold standard. CPM’s much higher than average profits shows how Chicago leased its parking meters for much less than what they were worth.
CPM’s parking meter contract defies the laws of investment. The general rule is, the higher the risk, the greater the profit or loss. The parking meter contract favors CPM so much that the company harbors no financial risks. CPM is profiting from its risk-free parking meter lease longer than pharmaceutical companies who must assume the risks and costs of researching and developing each new drug. CPM’s parking meter lease allows the company to earn $9.58 billion in profits without assuming any of the risks associated with financial investments.
Jay calculated CPM’s payback period occurs in year 27 of CPM’s 75 year lease. CPM will be making mostly profit for 48 years out of its 75 year lease. CPM’s 48 year cash cow is more evidence of how Mayor Daley and 45 members of the city council undersold the Chicago’s parking meter lease.
Jay also says a cost-plus parking meter contract would have been a much better deal for Chicago. If parking meter costs are $2.02 billion, at a cost-plus 20%, CPM earns $404 million instead of the $9.58 billion it expects to receive. Using CPM’s anticipated earnings of $9.58 billion, Chicago stood to earn more than $8 billion in parking meter revenue if the city opted for a cost-plus contract.
Bidders competed against one another for the parking meter rights, but bidders should have also competed against alternative financing methods. Mayor Daley’s biggest mistake is that he failed to evaluate other financing alternatives before he awarded the parking meter contract to CPM. Prior to awarding CPM a contract, Mayor Daley failed to perform a financial analysis if Chicago continued to maintain its own parking meters or awarded a cost-plus parking meter contract. Had Mayor Daley followed the common “alternative use of capital” business practice, Chicago would have maximized its parking meter revenues.
Jay Stone has an MBA degree from Loyola University of Chicago.
To read Jay Stone’s full parking meter analysis, visit http://stoneformayor.com/issues/parking-meter-fiasco-part-2/
