Parking Meter Monopoly Malfeasance
Chicago reveals the perils of non-competes in infrastructure projects.
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A group of Chicago drivers earlier this month filed an appeal in an antitrust lawsuit they brought, which alleges that a deal the city made to privatize its parking meters for 75 years constitutes an illegal monopoly. They want the court to give the city the power to cancel the agreement outright, and bring competition back to the world of Chicago parking meters.
“It is an unconscionable monopoly of a public function — barring any interference by competitors — and otherwise an unreasonable restraint of trade for a fixed term of 75 years,” the plaintiffs said.
The case was dismissed earlier this year on the grounds that some local contracts are shielded from antitrust scrutiny, but the plaintiffs say the judge erred by giving deference to the city for creating a wholly privatized monopoly, as opposed to something more akin to a utility, with the state “actively supervising” the private entity.
But I don’t actually want to get hung up on the ins and outs of the court case, but rather use it to highlight a very pernicious public policy practice that needs to go away, and which causes many of the woes the plaintiffs are concerned about: Non-competes in infrastructure projects.
Back in 2008, Chicago leaders privatized the city’s parking meters, gifting Chicago Parking Meters, LLC — the main backer of which is the Wall Street bank Morgan Stanley — with an exclusive 75 year deal to run the meters, in exchange for $1.15 billion up front. It’s turned out to be an amazing deal for the investors: They’ve made a $500 million profit, with 61 years still to go on the contract. It’s worked out less well for Chicago drivers, who pay the highest parking rates of any large city, save for New York.
But that’s not really what bother me: Urban parking is a valuable commodity and should be priced accordingly. No, what bothers me is the non-compete clause the city included in the contract, which precludes it from doing anything that might dent the profits of the parking meters investors, even as the city’s transportation and transit needs change. It even forces it to pay a hefty chunk of change to the investment group every year, undermining the whole point of the deal in the first place.
When most folks think of non-competes, I imagine they think of those that apply to workers, which prevent them from leaving one job for a similar one with a competitor. But governments, be they state or local, also include them in public-private infrastructure projects. They prevent the government from “competing” with those privatized projects in some way that would reduce the privatized profits.
So, for example, Chicago is prevented from engaging in changes to the streets that might “compete” with parking spaces, such as adding bike or bus lanes or expanding sidewalks, no matter what the current preferences of the city’s residents are. With some exceptions, the city is also barred from providing any public off-street parking within one mile of a privatized meter parking spot.
But it gets worse. The city has to compensate the private investors when it takes meters out of commission for activities such as parades or street fairs, or, say, when it wants to open up streets for restaurant eating during a pandemic. These payouts totaled $27 million in 2012 before the city slightly renegotiated the deal; they still came in at $20 million in 2018, $11 million in 2019, and more than $6.2 million in 2020, the last year for which I can find data.
As one academic paper put it, “Risk reduction mechanisms embedded in the contract resulted in the city absorbing new costs and risks that negatively impacted city finances and remade the local state as a risk manager tasked with responsibilities that protect the rate of return of the global infrastructure investment fund.”
In other words, the city became responsible for protecting investor returns, while putting itself in a worse financial position.
Chicago’s meters are the most well-known example of non-competes in privatized infrastructure, but there are plenty of others. For example, in this paper I told a story from North Carolina:
In 2014, the North Carolina Department of Transportation signed a contract with a private developer, I-77 Mobility Partners, to build new lanes on Interstate 77. Unbeknownst to local officials and residents, it included a non-compete clause requiring the state to compensate the developer if the state built new exits or added lanes to the highway. The non-compete is in effect for 50 years, effectively preventing local communities from taking steps to build new transportation infrastructure if they don’t simultaneously want to compensate a private firm to the tune of millions of dollars.
The non-compete is really at the heart of the troubles Chicago has with its parking meters, limiting the city’s ability to adapt to changes on the ground or the changing desires of the city’s residents, and locking it into having to pay for what everywhere else would just be the normal evolution of the city’s transportation system. Unfortunately for Chicago drivers, I’m not optimistic they’re going to win their case.
But fortunately, there is an easy step states can take to prevent these sorts of boondoggles from occurring in the future: Simply banning non-competes in infrastructure projects.
Already, nine states, as well as the District of Columbia and Puerto Rico, ban non-compete clauses in at least some public-private contracts. The most recent to do so, as far as I know, was Maryland, which in 2018 passed a ban on non-competes in transportation infrastructure projects that would prevent the state from funding other transit-related items, such as bus lanes, commuter rail, or what have you.
Let Chicago be a lesson: There’s no need for other states or cities to set themselves up for similar monopoly malfeasance.
ONE MORE THING: Teachers in Columbus, Ohio, marched last week to protest the city’s use of corporate subsidies, which are draining school budgets. You love to see it!
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— Pat Garofalo