The Parking Meter Fiasco, Part 4

The Parking Meter and Parking Garage Lease Connection

Mayor Daley Put Chicago in a Financial Black Hole

When I participated in the University of Illinois, Chicago Circle Campus mayoral forum, I asked the 750 people in the audience a simple question. “How many of you know that the same company that leases Chicago’s parking meters also leases Chicago’s downtown parking garages?” Only five of the 750 people raised their hands and acknowledged that they had been aware Chicago awarded both the parking meter and parking garage leases to Morgan Stanley. Among Chicago’s three major leases, Chicago’s underground parking meter lease is arguably the worst lease of a Chicago asset. Had the good citizens of Chicago reacted to the underground parking garage deal like they continue to react to the parking meter lease, Mayor Daley would have never moved forward from the parking garage lease in 2006 to the parking meter lease in 2008.

Morgan Stanley paid Chicago $563 million for the rights to lease Chicago’s downtown parking garages. The $563 million the city received from the 99 year downtown parking garage lease is nearly half of the $1.15 billion dollars Chicago received from the 75 year parking meter lease. Compared to the parking meter lease, Mayor Daley bestowed Morgan Stanley with an additional 24 years to collect parking garage revenue from Chicago drivers who have little or no other parking options if they want to park downtown. Financial experts and citizens complain that the 75 year parking meter lease is too long, but the parking garage lease is worse, Mayor Daley leased the downtown parking garages for a length of time that is one-third longer (99 years) than the parking meter lease (75 years).

The parking garage lease makes car owners vulnerable to price gouging. At least with the Chicago Skyway and the parking meter leases, Mayor Daley put the rates to drive on the tollway or park on public streets into the Skyway and parking meter contracts. Mayor Daley’s parking garage contract did not include a garage parking fee schedule, which means Morgan Stanley can charge what it wants for you to park in a downtown lot. Furthermore, Morgan Stanley can legally buy additional parking lots not owned by the city to create a parking monopoly. The terms of the downtown parking garage lease is the reason why it cost you $27.00 to park your car in a parking garage formerly operated by the city.

Mayor Daley used the $562 million from the downtown garage lease to pay off the debt the city incurred in building Millennium Park. Chicago’s Chief Financial Officer Gene Saffold called the downtown parking garage lease a “prudent and responsible financial decision.” Was it really prudent and responsible to sell off an asset for 99 years primarily to pay for a park that came in hundreds of millions of dollars over budget? Mayor Daley already had plans to spend the lump sum payment before Morgan Stanley turned over the $562 million dollars to the city for the downtown parking garages. The parking garage revenue lost to Morgan Stanley would have infused cash into Chicago budgets for one-hundred (100) years if it weren’t for this ill-advised lease. Mayor Daley’s decision to lease the parking garages for a $562 million lump sum payment reduces the money available to pay for city services for the next 94 city budgets or 94 years.

When Mayor Daley sold off the rights to the Chicago Skyway, parking garages, and parking meters, Daley’s concern was his political future. Mayor Daley failed to consider neither the future of subsequent Chicago mayors nor the long-term fiscal security of Chicago. Mayor Daley sold off Chicago’s parking garages to payoff the debt he created in building Millennium Park. Mayor Daley has since spent Chicago parking meter, and Skyway lease money to pay other debts and bills to keep Chicago running during his tenure as mayor. Within five years Mayor Daley has spent nearly all of the $3.6 billion dollars that he received in upfront money from the toll road, parking meter and parking garage leases. For the next 94 years Chicago will not receive so much as a dime from people who pay to drive on the Chicago Skyway or park in a Morgan Stanley operated parking garage. For the next 73 years Chicago will not receive any cash each time a driver pays for street parking. Mayor Daley leveraged Chicago’s financial future so he could have more money to spend. Mayor Daley opting to turn Chicago assets into instant cash has put the city in a deep financial hole that will last 90 or more years.

Morgan Stanley is Unfit to Partner With Chicago

When the City Council voted on the parking garage lease in 2006, Ald. Dorothy Tillman (3rd) denounced the deal because she claimed Morgan Stanley had slavery related investments and profited from the slave trade. After Corporation Counsel Maria Gorges and Ald. Ed Burke (14th) disproved Morgan Stanley’s slavery connection, the City Council passed the parking garage lease by a vote of 37 to 8. Besides Tillman, seven other African American aldermen voted against the parking garage lease, and another four African American aldermen skipped the parking garage vote altogether. Chicago’s African American aldermen were right to question Morgan Stanley’s integrity. Had one of the fifty Chicago aldermen investigated and made an issue of Morgan Stanley’s recent checkered past, no one would have supported leasing Chicago’s parking garages or meters to Morgan Stanley.

In the five years prior to Morgan Stanley taking over Chicago’s parking garages and meters, Morgan Stanley had a series of financial and legal troubles.

• (2003) As a result of New York Attorney General Elliot Spitizer’s fraud investigation, Morgan Stanley agreed to pay settlements that exceeded a billion dollars.

• (2004) Morgan Stanley settled a $54 million sexual discrimination lawsuit with the Equal Opportunity Employment Commission.

• (2005) The New York Stock Exchange fined Morgan Stanley $19 million for regulatory abuses.

•(2006) Morgan Stanley settled a $42.5 million class-action unfair labor practice lawsuit.

•(2007) Morgan Stanley agreed to pay the National Association of Securities Dealers (Now FINRA) $12.5 million.

The fines and settlements that Morgan Stanley paid from 2003 through 2007 should have served notice to Mayor Daley and the City Council that Morgan Stanley would not make a fair and honest deal with Chicago. Morgan Stanley was neither a good company nor a good citizen when Mayor Daley inked the two parking agreements.

As you would expect, Morgan Stanley’s financial and legal troubles caused Morgan Stanley’s stock to drop. According to a September, 2008 British “Newsright” program, Morgan Stanley’s stock slid 42%. Morgan Stanley was in such dire financial condition in 2008, Morgan Stanley offered itself to JPMorgan Chase free of charge. JPMorgan Chase declined Morgan Stanley’s no-charge acquisition offer. The September, 2008 report of Morgan Stanley’s 42% stock drop occurred less than three months prior to Mayor Daley and the City Council approving the parking meter lease with Morgan Stanley. Given Morgan Stanley’s history of financial and legal problems, did Mayor Daley or the aldermen ever question the consequences of a partnership with Morgan Stanley?

Mayor Daley’s Due Diligence Failure

Due diligence is an investigation of a business or person prior to signing a contract. Due diligence includes investigating a business or person’s financial and legal history. Financial and legal background checks are very useful in determining whether or not it is advisable to sign a contract with a business or person. For example, prior to signing a commercial or residential lease, a real estate property owner or manager investigates a prospective renter’s credit and employment history. As with a commercial or residential lease, Mayor Daley had the fiduciary responsibility to perform his due diligence prior to leasing the parking garages and meters to Morgan Stanley. Had Mayor Daley performed a minimal of due diligence prior to signing the parking garage and parking meter leases, Mayor Daley would have been obligated to kill Morgan Stanley lease deals. Mayor Daley was so intent on receiving money from Morgan Stanley that he ignored Morgan Stanley’s history of financial and legal problems.

Mayor Daley also had the due diligence to investigate the financial, legal, and macroeconomic aspects of the parking garage and parking meter leases. Mayor Daley failed miserably in these three due diligence areas. Depending on whether you talk to Alderman Scott Waguespak (32nd), Inspector General Joe Ferguson, or Jay Stone, Mayor Daley’s parking meter lease deal is costing Chicago taxpayers between $1 billion and $7.5 billion dollars (financial due diligence). There are two parking meter lawsuits pending (legal due diligence). The IVI-IPO lawsuit alleges the City of Chicago doesn’t have the legal authority to lease or sell its public streets.

Mayor Daley did not perform his macroeconomic due diligence for three reasons: 1. The city did not include a parking fee schedule in the parking garage contract. This oversight has led to exorbitant parking rates. 2. By leasing both the parking garages and parking meters to Morgan Stanley, Mayor Daley has allowed Morgan Stanley to potentially have a city-wide parking monopoly. 3. The high price of parking meters is having a detrimental effect on small, neighborhood stores and restaurants. People are not patronizing their neighborhood shops and restaurants because they don’t want to pay the high parking meter fees that are necessary to shop or eat at local businesses.

There is a reason why Mayor Daley deliberately failed to perform his due diligence when he chose the worst of the three parking meter revenue alternatives. Mayor Daley decided to lease the parking meters to Morgan Stanley because it gave him the most upfront cash. When Mayor Daley and the City Council approved the Chicago parking meter lease in 2008, Mayor Daley was in the midst of bidding for the 2016 Olympics. The revenue from upgrading and retaining the parking meters or a cost-plus parking meter contract would have trickled in over the course of 75 years. Mayor Daley wanted the $1.15 billion parking meter lease money in reserve to show the Olympic Site Selection Committee that Chicago had the financial wherewithal to host the 2016 Olympics. Of the three parking meter options available to Mayor Daley in 2008, leasing the parking meters to Morgan Stanley for an immediate $1.15 billion cash infusion was the only option that created a financial reserve that would impress the Olympic Site Selection Committee. In 2008 Mayor Daley had no reason to create an additional $1 billion reserve other than having money stashed for his Chicago Olympic bid. Mayor Daley used very poor financial practices in order to make Chicago’s bid for the Olympics appear more viable. Unfortunately Chicago residents will bear the costs of Mayor Daley’s greed and incompetence for another 90 or more years.