Under fire from the City Council for hiding behind a non-disclosure agreement waived weeks ago, Mayor Brandon Johnson has finally come clean about why he offered $700 million more than a New York investment firm to re-acquire Chicago parking meters and about the financial risks that prompted his administration to abandon that $3.2 billion bid.
In a memo to Finance Committee members preparing for Monday’s showdown vote, Johnson’s administration submitted an initial bid of $2.8 billion, advanced to the second round with a $2.85 billion bid and upped the ante to $3.2 billion after being told that nothing short of $3 billion stood a chance.
The higher bid also took into consideration the fact that the city’s acquisition was “expected to result in tax liabilities for the sellers” totaling “several hundred million dollars” that would not have accompanied an acquisition by a “private entity,” the memo states.
The city’s last, “best and final offer” was accepted as the initial winner. That allowed the Johnson administration to “evaluate the transaction on an exclusive basis and assess whether such a price and transaction structure was in the best interest” of Chicago taxpayers.
The Johnson administration ultimately concluded that the risk of undoing the parking meter deal that Chicagoans love to hate was not worth the reward either financially or politically.
To bankroll the massive “bond-financed” purchase, the city would have been required to issue debt backed by parking meter revenues at a time when Chicago is already saddled with a higher debt level per capita than any big city in the nation.
It would have been required to pledge to siphon other major sources of revenue that the city depends on “if parking habits shifted, alternative modes of transportation become more common” and “driver/commuter behaviors” changed.
That’s a distinct possibility amid a fast-changing landscape for parking demand that includes everything from self-driving vehicles and robot deliveries to congestion fees that discourage people from driving downtown.
“If parking meter revenue was not sufficient to cover the principal and interest payments, then spending on other infrastructure projects or critical services would have been impacted,” the mayor’s office memo states.
In order to attract “a large number of investors to a long-term borrowing of more than $3.2 billion” at what the mayor’s office called an “acceptable interest rate” would likely have required “pledging motor vehicle parking fine receipts as well as off-street parking/garage receipts in addition to all parking meter revenue, the memo states.
“Such supplemental revenue sources would serve as a backup repayment source in the event that parking system revenues were insufficient, thus putting the city’s current operating funds at risk,” the memo states.
The gap between annual revenue generated by the metered system after operating costs and debt service payments would have been “narrow throughout” the life of the bonds.
“The long-term expectations for driver behavior, system revenues and, more broadly, the city’s financial condition in those distant years is…the time period in which the greatest uncertainty exists,” the memo states.
“If those less-certain, longer-term revenues significantly under-performed, the system’s financial value would be greatly diminished…To the extent that parking meter revenues were not sufficient, the city’s general obligation bond ratings could have been negatively impacted…The risk of interest rates rising was a material concern.”
For all of those reasons and more, Johnson decided that the “most responsible decision was to walk away from the bid with no risk to the taxpayers and no penalty to the city,” the memo states.
That leaves the political hot potato created by Stonepeak’s $2.53 billion offer squarely in the City Council’s court.
The Council is facing a July 24 deadline to either authorize the sale to Stonepeak or reject it and risk a lawsuit by Chicago Parking Meters LLC, a consortium that includes Morgan Stanley, Allianz Capital Partners and the Sovereign Wealth Fund of Abu Dhabi.
Ald. Matt O’Shea (19th), one of Johnson’s most outspoken City Council critics, said the mayor’s after-the-fact explanation about a bid the city could not afford is an insult to a City Council he failed to consult.
“This is the equivalent of trying to explain with an apology weeks after you committed the original sin,” O’Shea said Friday.
“People still don’t trust him. When I say `people,’ I’m talking about a majority of the City Council. And I would say the majority of taxpayers in our city don’t trust him with the checkbook.”
Asked if the mayor’s memo would impact the City Council’s vote, O’Shea said, “Not at all. The votes aren’t there. The votes won’t be there because people don’t trust him.”