Parking meter deal violation could cost Chicago over $100 million

Chicago’s much-maligned parking meter privatization deal could soon be costing the city even more money.

Chicago Parking Meters, the private company with a monopoly on the city’s paid street parking, filed a lawsuit in April asking the court to enforce an arbitration panel’s ruling that determined the city twice shorted the company under former Mayor Lori Lightfoot.

Experts hired by the city and CPM agree the cost of one of the rulings, over an alleged scheme by the city to take advantage of parking space value fluctuations, could be more than $100 million, according to court records.

Mayor Brandon Johnson’s administration “is vigorously defending itself in this matter” as it awaits an independent appraisal of the cost ordered by the arbitrators, Chicago Chief Financial Officer Jill Jaworski said in a statement Friday.

The city may be able to cover the potential cost by giving CPM control of more parking spaces, she said. The city gets the bulk of the revenue from what are designated as reserve spaces, while the company takes all of the revenue from concession spaces.

“The concession contract with CPM also allows the City to mitigate the damages using means such as converting reserve spaces to concession spaces. Such actions would limit the impact of any damages awarded,” Jaworski said.

The parking firm alleged that Chicago took advantage of fluctuations in parking space valuations during the pandemic to sweeten its side of the deal, effectively taking money away from the company.

In November 2021, while parking space values were suppressed because of decreased 2020 revenues, Chicago designated 4,011 spots as reserve, taking near total ownership of those spots, according to the arbitrators. The move cost the city $10 million in payments to CPM.

Just two months later, when parking meter valuations rebounded based on updated 2021 revenues, the city returned 2,646 of those spaces to CPM for $13.8 million in credit while keeping the rest of the spots for itself as reserve spaces, according to the arbitrators’ ruling.

The tactic generated almost $11 million for the city in credits and new revenue, according to the arbitrators. But it also violated the parking meter deal by having an adverse effect on the parking meter system’s value that could have been reasonably expected, the arbitrators determined.

An appraiser for CPM determined the city’s maneuvers reduced the parking meter system’s value by $321.53 million. The city’s appraiser came up with a figure of $120.7 million, an amount cited as “more reliable” by arbitrators, according to court records.

The parking meter deal requires the city to compensate CPM for reasonably expected drops in the parking system’s value caused by the city’s designation of spaces. An independent, third-party appraiser will determine how much Chicago should pay CPM, the arbitrators determined.

The arbitrators indicated that Lightfoot’s staff seemed to understand the risk of what it was doing.

As the plan was being developed, city officials referred to the scheme as “arbitrage,” the arbitrator panel said. When a Lightfoot staffer prepared a PowerPoint on the plan, he included a slide detailing the contract clause that could make the city liable for related drops in the parking meter system’s value.

In November 2021, just before the city took the first step in its plan, a CPM CEO Dennis Pedrelli wrote to Chicago’s then-Chief Financial Officer Jennie Bennett cautioning against the move, according to the arbitrators.

The city’s scheme would constitute “a breach of the City’s duty of good faith and fair dealing,” Pedrelli wrote, according to court records. But the city proceeded to implement the plan anyway.

In a second claim, arbitrators awarded CPM $2 million plus interest, tied to Lightfoot’s decision to temporarily cease parking meter enforcement during the COVID-19 pandemic’s initial months, according to Cook County court records.

Mayor Johnson’s Law Department confirmed it is challenging the $2 million award in court, but declined to comment further on the ongoing litigation. The city and company are next scheduled to appear in court in October.

The arbitrators ruled in favor of the city on a third claim made by CPM. They found that Chicago does not need to pay $36 million in lost parking revenue for allegedly failing to enforce some parking rules between 2014 and 2022, according to court records.

The so-far-unsettled lawsuit could be just the latest steep cost tied to Mayor Richard M. Daley’s infamous parking meter deal.

In 2008, CPM bought 75 years of control over the city’s then publicly owned parking meter system for a one-time payment of $1.15 billion. Daley quickly used much of the money to plug budget gaps.

Critics have long blasted the deal as a short-sighted fix that stripped Chicago of a valuable public asset — the meters once provided the city around $20 million annually in net income — and will make it difficult for Chicago to alter roadways for decades to come.

CPM already has recouped its original $1.15 billion investment, plus hundreds of millions more and counting. The private firm made $150.9 million in parking revenues in 2023, according to an annual audit by accounting firm KPMG.

The deal requires the city to compensate CPM for meters taken out of services for things like festivals, street repairs or new bike lanes. Compensation can come in the form of new parking spaces or cash payments referred to as “true ups.”

Those payments for lost revenue have often risen above $10 million since CPM bought the system, the 7th Circuit Court of Appeals wrote last year while ruling in favor of CPM in a lawsuit brought by a group of Chicago drivers seeking to void the deal.

Like former Mayor Rahm Emanuel before her, Lightfoot vowed as mayor-elect to improve the deal for Chicagoans. But by her third year in office, her administration had overseen the addition of pay meters at 1,802 previously free parking spots throughout the city.

At the time, Lightfoot’s administration said the parking spots did not represent an additional tax burden, because the revenue generated by the new meters would be used to cover “true-up” costs.

In mid-March 2020, as COVID-19 closures rippled across Chicago, Lightfoot announced the city would limit ticketing, towing and impounding to public safety-related issues.

“We think that given the challenges that many of the people who will be most impacted by fines and fees are having, now is the time to act,” she said. “It’s the right thing to do.”

A September 2020 Tribune analysis found the city still issued more than 35,000 parking tickets during the period Lightfoot told Chicagoans they’d be getting a break. Nearly half of the tickets were given to cars for expired meters in the downtown area — an infraction Lightfoot specifically had singled out as exempted from punishment.

jsheridan@chicagotribune.com

ayin@chicagotribune.com

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