Privitization efforts by the City of Chicago

[NorthSideSox72]

Here's the real answer: it depends. If your local government is bleeding that bad and needs a cash infusion to just run basic things, then, yea, I guess you do it. There's a whole lot more cost benefit analysis that should be done - and not just accounting benefit, economic benefit as well. In the future, how much money is this going to cost you for a short term cash infusion?

 

Actually there was an article by a local writer down here just this Sunday and he brought up some interesting points. The big kick (as in and around Chicago) is privatizing highways so that they can get cash now to build more roads. All of these new roads are going to be tolled, of course, but the main point this guy was trying to make is if we would have just bit the bullet and paid a ten cent increase in taxes, the money recieved would be way over the amount that they are getting in short term cash infusions now to build these roads. He made a pretty good argument that no matter when it's done, a tax increase on gas should be/should have been done rather then privatizing all this and turning over that revenue stream to a "for profit" company.

 

I can't wait for all these @$^@#$^ road projects - they are getting ready to spend $1billion right around the north side of the airport... that will be a nightmare.

In this case, the city was making nearly zero money on parking meters. So the period to generate a billion dollars would be basically infinate. Selling the asset generated a billion in the short term, which they wouldn't get until decades and decades down the line. And the lease is up well before then anyway. So its hard to see how it isn't a financial move that makes sense. So the future cost is miniscule, against a large cash infusion.

 

I don't defend the way the city spends money. But in this case, this was clearly the smart move.

 

[Y2HH]

In this case, the city was making nearly zero money on parking meters. So the period to generate a billion dollars would be basically infinate. Selling the asset generated a billion in the short term, which they wouldn't get until decades and decades down the line. And the lease is up well before then anyway. So its hard to see how it isn't a financial move that makes sense. So the future cost is miniscule, against a large cash infusion.

 

I don't defend the way the city spends money. But in this case, this was clearly the smart move.

 

It is bordering crazy how much you seem to trust government math.

 

Yes, they were making 0 dollars, that's why it was worth a billion.

 

The lease is for 70 years, so no, it won't be up by then, or anytime in your lifetime.

[Y2HH]

Correction -- 75 year lease.

[NorthSideSox72]

It is bordering crazy how much you seem to trust government math.

 

Yes, they were making 0 dollars, that's why it was worth a billion.

 

The lease is for 70 years, so no, it won't be up by then, or anytime in your lifetime.

70

 

Its bordering on crazy that some of you aren't able to make a decision on this issue, versus saying all things must by nature be bad if they came from government. And ironically, you are even attacking how bad the government is, when it is trying to remove government from the equation. Bizarre.

 

Go do some research on this if you want to know more, everything I've stated is out there. The reason they got a billion for it is that the company holding the lease will raise revenues, and do it at a lower cost than the city could do it. Not that complicated, really, its a basic business decision. One entity can maintain a business more efficiently than another, so they buy it, and do just that, benefiting both.

[Y2HH]

70

 

Its bordering on crazy that some of you aren't able to make a decision on this issue, versus saying all things must by nature be bad if they came from government. And ironically, you are even attacking how bad the government is, when it is trying to remove government from the equation. Bizarre.

 

Go do some research on this if you want to know more, everything I've stated is out there. The reason they got a billion for it is that the company holding the lease will raise revenues, and do it at a lower cost than the city could do it. Not that complicated, really, its a basic business decision. One entity can maintain a business more efficiently than another, so they buy it, and do just that, benefiting both.

 

Actually I did some research.

 

The city's governmental watchdog, the inspector general, has just wrapped up a five-month long investigation into the parking meter lease deal. And like most of the folks who park their cars in Chicago, he doesn't like what he found. Not at all.

 

The big money lease of the city's parking meters to private operators has not only been a source of anger and more anger for city drivers, it's also turned out to be a very bad financial deal for the Daley administration.

 

That's the gist of a 43-page report by Chicago's inspector general.

 

"The city failed to make a calculation of what the value of the parking meter system was to the city," Inspector General David Hoffman said.

 

Charts and graphs in Hoffman's report say the city, eager to balance the budget, unloaded its meter revenues for $974 million less than they were actually worth over the life of the 75-year deal. That's just shy of $1 billion.

[Y2HH]

But you're right, basic business decisions to sell an asset at 50% off are...well, basic!

 

I can't wait for you to sell your house for 50% off, let me know when you put it up for sale, I'll buy it, since selling it at such a steep discount is so...basic!

Edited January 12, 2010 by Y2HH

[southsider2k5]

So how many businesses get sold for their estimated 75 year earnings expectations? Most mergers and acquisitions I see around Wall Street are for a fraction of that number. Keep in mind, that would mean the City of Chicago would essentially get a 75 P-E value for their business of parking.

 

I love to call the Daley Administration for the mat for what they do, but getting essentially a 40 P-E for an asset is pretty damned impressive.

[NorthSideSox72]

Actually I did some research.

 

The city's governmental watchdog, the inspector general, has just wrapped up a five-month long investigation into the parking meter lease deal. And like most of the folks who park their cars in Chicago, he doesn't like what he found. Not at all.

 

The big money lease of the city's parking meters to private operators has not only been a source of anger and more anger for city drivers, it's also turned out to be a very bad financial deal for the Daley administration.

 

That's the gist of a 43-page report by Chicago's inspector general.

 

"The city failed to make a calculation of what the value of the parking meter system was to the city," Inspector General David Hoffman said.

 

Charts and graphs in Hoffman's report say the city, eager to balance the budget, unloaded its meter revenues for $974 million less than they were actually worth over the life of the 75-year deal. That's just shy of $1 billion.

You mean the study that looks at projected revenues assuming increases in fee rates? Again, you have to look at the full math.

 

Currently, the city makes no money on the meters. If they raised fees like the lessee is doing, then obiously they start to make money. That's not the issue, though. The question becomes... do you do that, or do you have someone more efficient do it, and split the difference? That's what was done here.

 

Furthermore, this dismisses the fact that if the city itself raised meter rates like this, as bas as this private company has been at implementation, how much worse do you figure it would have been if the gov't did it?

 

Oh and, if people don't pay the meters, the city still gets the ticket revenue, which I didn't see mentioned in that report either.

 

And that quote is garbage, because if you look at his report, he specifically states what value the system had to the city WAS calculated by the city, and he even uses those numbers as a comparison!

 

The margin difference that is at stake here is, the difference in increased revenue versus efficiency. Assuming the gov't would be less efficient in implementation and maintenance - and I think we can assume that - then how much of that marginal difference goes to the city? That is where the real difference lies, in how good a deal this was. That report, which I saw before, doesn't see things that way. They see only the lost revenue. Its not a great analysis, from my perspective.

 

Now that all said, the city might not have gotten a great return on this when compared to future cash flows ASSUMING the rate increases (which, again, would likely not have been possible had the city run the meters). There could be some variance there. And the report does work with a reasonable discount rate to make that accounting, which is good. But this is also the reality of giving gov't work to private businesses - they want a profit. You can't have it both ways.

 

What would you have suggested doing, by the way? Continued the same path, having the gov't continue its inefficient ways, and not get anything? Raise meter rates themselves (which I guarantee would be stopped by the city council)? What are the REALISTIC alternatives to this that are better?

 

I am no great supporter of city government, but I'm also not just going to blindly dismiss all actions of an agency or party because they sometimes make bad decisions.

 

[NorthSideSox72]

So how many businesses get sold for their estimated 75 year earnings expectations? Most mergers and acquisitions I see around Wall Street are for a fraction of that number. Keep in mind, that would mean the City of Chicago would essentially get a 75 P-E value for their business of parking.

 

I love to call the Daley Administration for the mat for what they do, but getting essentially a 40 P-E for an asset is pretty damned impressive.

Thank you.

 

I hate defending city gov't, usually I don't, but in this case, they got it right.

 

[NorthSideSox72]

But you're right, basic business decisions to sell an asset at 50% off are...well, basic!

 

I can't wait for you to sell your house for 50% off, let me know when you put it up for sale, I'll buy it, since selling it at such a steep discount is so...basic!

House is an asset, not revenue generator. Its not a business. Your example only works for the hard assets they sold off that were previously used to maintain the system.

 

[Y2HH]

You mean the study that looks at projected revenues assuming increases in fee rates? Again, you have to look at the full math.

 

Currently, the city makes no money on the meters. If they raised fees like the lessee is doing, then obiously they start to make money. That's not the issue, though. The question becomes... do you do that, or do you have someone more efficient do it, and split the difference? That's what was done here.

 

Furthermore, this dismisses the fact that if the city itself raised meter rates like this, as bas as this private company has been at implementation, how much worse do you figure it would have been if the gov't did it?

 

Oh and, if people don't pay the meters, the city still gets the ticket revenue, which I didn't see mentioned in that report either.

 

And that quote is garbage, because if you look at his report, he specifically states what value the system had to the city WAS calculated by the city, and he even uses those numbers as a comparison!

 

The margin difference that is at stake here is, the difference in increased revenue versus efficiency. Assuming the gov't would be less efficient in implementation and maintenance - and I think we can assume that - then how much of that marginal difference goes to the city? That is where the real difference lies, in how good a deal this was. That report, which I saw before, doesn't see things that way. They see only the lost revenue. Its not a great analysis, from my perspective.

 

Now that all said, the city might not have gotten a great return on this when compared to future cash flows ASSUMING the rate increases (which, again, would likely not have been possible had the city run the meters). There could be some variance there. And the report does work with a reasonable discount rate to make that accounting, which is good. But this is also the reality of giving gov't work to private businesses - they want a profit. You can't have it both ways.

 

What would you have suggested doing, by the way? Continued the same path, having the gov't continue its inefficient ways, and not get anything? Raise meter rates themselves (which I guarantee would be stopped by the city council)? What are the REALISTIC alternatives to this that are better?

 

I am no great supporter of city government, but I'm also not just going to blindly dismiss all actions of an agency or party because they sometimes make bad decisions.

 

I would agree with you 100% if we got anything out of it, but we didn't. Our taxes will NOT go down, despite our burden being less, and now the meters will cost us more, on top of the same taxes we are going to continue to pay.

 

This is reality.

 

The only thing the City did was plug a hole they created themselves via poor management of assets and funds. We pay for it. And will continue to pay for it.

 

I repeat one final time...our taxes will NOT be going down, DESPITE our burden having gone down.

 

How much would you like to bet our taxes won't fall no matter how much of these things they sell off? Nothing? Didn't think so.

 

And furthermore...our taxes will continue to increase just as fast as they are now...since I know this will be the attempted counter argument. It holds no water. As a matter of fact, property taxes just had one of their biggest increases EVER, and this coming AFTER they sold this asset.

Edited January 12, 2010 by Y2HH

[NorthSideSox72]

I would agree with you 100% if we got anything out of it, but we didn't. Our taxes will NOT go down, despite our burden being less, and now the meters will cost us more, on top of the same taxes we are going to continue to pay.

 

This is reality.

 

The only thing the City did was plug a hole they created themselves via poor management of assets and funds. We pay for it. And will continue to pay for it.

 

I repeat one final time...our taxes will NOT be going down, DESPITE our burden having gone down.

 

How much would you like to bet our taxes won't fall no matter how much of these things they sell off? Nothing? Didn't think so.

 

And furthermore...our taxes will continue to increase just as fast as they are now...since I know this will be the attempted counter argument. It holds no water. As a matter of fact, property taxes just had one of their biggest increases EVER, and this coming AFTER they sold this asset.

Property taxes are mostly county, not city.

 

And you really think that a billion dollars and a 75 year projected revenue haul is nothing? You really think that if we hadn't done this, the taxes would not have gone up? If so, there isn't really much left to discuss.

 

[Y2HH]

Property taxes are mostly county, not city.

 

And you really think that a billion dollars and a 75 year projected revenue haul is nothing? You really think that if we hadn't done this, the taxes would not have gone up? If so, there isn't really much left to discuss.

 

No, I'm saying EITHER WAY OUR TAXES ARE GOING UP...and that's the problem.

[NorthSideSox72]

No, I'm saying EITHER WAY OUR TAXES ARE GOING UP...and that's the problem.

Going up less, I'd suppose, in this case.

 

[southsider2k5]

Going up less, I'd suppose, in this case.

 

Which is a decrease if you ask any politician...

[NorthSideSox72]

Which is a decrease if you ask any politician...

I never said it was a decrease. That wasn't my point. My point was, this deal is not "nothing". It clearly has positive effect.

 

[southsider2k5]

I never said it was a decrease. That wasn't my point. My point was, this deal is not "nothing". It clearly has positive effect.

 

That was sarcasm to be perfectly honest.

[Y2HH]

I never said it was a decrease. That wasn't my point. My point was, this deal is not "nothing". It clearly has positive effect.

 

And my point wasn't that this is necessarily a "bad idea" if it's done right. But if they're going to just sell things off, make money short term, have less burden, but continue to increase the taxes -- which is exactly what they will do. In that case, than this isn't good for the taxpayers, because it gets us nothing real in return. Our taxes still go up, only now that private companies own these services, the fees go up on them, too!

 

If I worked for the City financial unit, I'd be harping about how great of an idea this is -- it sheds burden, we can continue to take money from people and just spend what we were spending on Y and put it into Z, until we sell Z that is...then we'll take the extra money no longer going to Y and Z and put them into X!

 

It's Chicago.

 

To expect anything else is insanity.

Edited January 12, 2010 by Y2HH

[lostfan]

Seriously though, like I posted earlier, I fully expected to be sodomized when I paid to park my car based on the reactions to this I've read the past couple of years (obviously since I don't live in Chicago it's not something I see every day). It was nothing like that at all unless it's different downtown where I haven't been yet.

[Texsox]

You still don't understand the multiplier effect and how that works, do you?

 

 

I do, which is why y'all worrying about a bigger government costing you money is confusing. We cut taxes and the government has more money. It multiplies. Why are you and SS worried about a bigger government costing you more money?

[Texsox]

As far as outsourcing from public to private, as the government does more and more of this, there will be a learning curve. We will make some mistakes and there will be some major successes. The mistakes should not be a reason to stop. Blackwater may have been a mistake, but we fix that and move on.

 

The danger I see is when connected corporations wind up with sweetheart deals.

[Balta1701]

The danger I see is when connected corporations wind up with sweetheart deals.

You say this like it's an unusual occurrence. In general, my impression is it's much more the norm of how these contracts are given out.

[southsider2k5]

As far as outsourcing from public to private, as the government does more and more of this, there will be a learning curve. We will make some mistakes and there will be some major successes. The mistakes should not be a reason to stop. Blackwater may have been a mistake, but we fix that and move on.

 

The danger I see is when connected corporations wind up with sweetheart deals.

 

As opposed to governments who give sweetheart deals in exchange for cash? I think there is actually more accountability in the corporate sectors, because at least they have to answer to shareholders. Judging by re-election rates, the government doesn't seem to have that problem.

[Balta1701]

As opposed to governments who give sweetheart deals in exchange for cash? I think there is actually more accountability in the corporate sectors, because at least they have to answer to shareholders. Judging by re-election rates, the government doesn't seem to have that problem.

Really, it doesn't strike you at all that corporate sweetheart deals happen all the time?

[southsider2k5]

Really, it doesn't strike you at all that corporate sweetheart deals happen all the time?

 

And it doesn't strike you that governmental ones happen all of the time?