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Privatization Winners, Losers: Indiana Toll Road vs. Chicago Parking Meters

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Privatization Winners, Losers: Indiana Toll Road vs. Chicago Parking Meters

Chicago Tribune July 6, 2016
Urban PolicyInfrastructure & Transportation
Public SectorReinventing Government

Amost everyone agrees that Mayor Richard M. Daley's parking meter lease was an epic civic fiasco. But one bad deal shouldn't cause us to write off all long-term privatizations.

If Chicago's 2008 leasing venture was a disaster, former Gov. Mitch Daniels' Indiana Toll Road lease was the complete opposite.

There are characteristics of parking meters that make them a bad thing to privatize, no matter how well a city negotiates.

Done right, privatization can be a boon.

Yet because very long-term deals are higher risk than shorter ones, great care must be taken in choosing the asset to privatize and managing the process well.

Chicago's 75-year parking meter lease is so bad that it's hard to know where to start.

The $1.2 billion deal was approved by the City Council after less than three days of review. It flopped right out of the gate when the vendor failed to empty meters overflowing with quarters. The city then proceeded to spend almost all of the lease money shoring up future budget deficits.

These are all things the city could have done differently.

But there are characteristics of parking meters that make them a bad thing to privatize, no matter how well a city negotiates.

First, parking spaces are taken out of service all the time — for parades, street fairs, special events such as the NATO summit, road construction, etc. These closures, and exemptions such as free disabled parking, require compensating the vendor for lost revenue. So the lease turned the parking meters from a revenue stream for the city into a cash drain every single year.

Further, parking meters, strictly speaking, are not an asset. They are a planning tool cities use to allocate precious on-street real estate for the benefit of the neighborhood. This means meter rates need to be tuned to a neighborhood's business conditions. It means the best use for the space might be something other than parking, such as a bus or bike lane.

By requiring compensation payments for changes in parking policy, the parking meter lease hamstrings a city's ability to change its public policies about the most important part of its public space — its streets.

Gov. Daniels' 75-year Indiana Toll Road deal in 2006 was subject to a robust two-month debate prior to approval — a debate that even included running ads for and against the proposal. The transition to the vendor was remarkably smooth. The state also used the $3.8 billion in lease money to finance a major 10-year capital improvement program.

Cities and states looking to privatize assets should avoid Chicago's pitfalls and learn from Indiana's success.

Toll roads are an optimal asset to lease. Governments rarely close them, so there aren't many compensation events. In fact, Indiana has paid compensation only once, when the Borman Expressway flooded and the state made the toll road free for a week as an alternate route.

It's also not likely that Indiana would have ever wanted to do something else with the toll road. Tearing it down and repurposing it would be hugely expensive.

The consortium that leased the Indiana Toll Road went bankrupt but far from showing this was a bad bargain, it only reinforces that the state got a great deal. The vendor paid way too much money for the lease, which Indiana got to keep.

All of these factors make toll roads ideal candidates for privatization.

Cities and states looking to privatize assets should avoid Chicago's pitfalls and learn from Indiana's success.

This piece originally appeared in the Chicago Tribune

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Aaron M. Renn is a senior fellow at the Manhattan Institute and contributing editor at City Journal. Follow him on Twitter here.

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