5 ms·
> Way back in 2009, Chicago’s inspector general confirmed that the city had sold out for far less than the lease’s value. A report by Bloomberg Business said CP
by didgeoridoo 3y ago
> Way back in 2009, Chicago’s inspector general confirmed that the city had sold out for far less than the lease’s value. A report by Bloomberg Business said CPM stood to earn about 10 times what it paid over the life of the contract. Any way you slice it financially, Chicago got taken to the cleaners.
That’s approximately a 3% annualized return on investment (1.03^75 ~= 10). EDIT: Nope. See downthread.
That’s really not bad at all, especially if the vendor has to pay to administer, maintain, and update the meters.
I wonder how the IG got the idea that effectively selling a $10B 75-year taxable bond for $1B (in a year when high-grade muni bonds were yielding over 7%) was remotely a bad deal. Unless I’m missing something, this is a fantastic deal for Chicago and its taxpayers.
- sharedbeans 3y agoMaybe the report already discounted the future cash flows? I agree it would be pretty ridiculous if they didn’t.
- didgeoridoo 3y agoSo when the report says “10 times what they paid”, it means “10 times the amount the $1B would be worth in 75 years at the currently-forecasted risk-free rate of return”? I can’t imagine that’s true, but who knows I guess.
- Retric 3y ago10 times the inflation adjusted number seems to be the implication. However, the company receives money every year not a single lump sum at the end. If I lend you 10$ and you agree to pay me an inflation adjusted 1$/year for 100 years that’s vastly better than getting an inflation adjusted 100$ in 100 years. In the initial example the first dollar is discounted X%, the second X%^2, the third X%^3… Where getting paid an inflation adjusted 100$ after 100 years is fully discounted X%^100. The first case is equivalent to a bond paying nearly 10% + inflation with annual payments where the second is closer to 4.7% + inflation without annual payouts. PS: Further it’s ~zero risk as the contract states the city is responsible if revenues fall below projections.
- pc86 3y agoIt's local news, I'm absolutely positive it's just raw numbers. $1.16 billion paid and ~$11.6 billion in total estimated revenue over 75 years. No reporter is doing discounted future cash flow calculations even if they know how to (they don't).
- ses1984 3y agoIf the city of Chicago had just raised prices instead of leasing out the meters and letting someone else raise prices, it would have been a much better deal for the city of Chicago.
- asu_thomas 3y agoIt would have been a worse deal for the politicians who brokered it.
- HDThoreaun 3y agoThis would likely be impossible politically though.
- ses1984 3y agoThen the lease should have had language against setting politically impossible prices.
- naturalauction 3y ago>That’s approximately a 3% annualized return on investment (1.03^75 ~= 10). That isn’t accurate, the cash flows should according discounted by the period they’re received in (this contract produces some profits in year 1, more in year 2, etc). What you’ve done is treated it as if the 10x payment is received all at once in year 75.
- onlyrealcuzzo 3y agoLove the idea that people can project how much parking there will be in 75 years. It's possible there won't be cars at all in the areas parking meters currently make most of their money in Chicago.
- cool_dude85 3y agoPresumably any explicit policies along these lines would require the "true up" payments described in the article. If you mean a non-mandated move away from cars in that time, the only plausible scenario I'd imagine that happening is one where Chicago has much more serious problems than a bad contract.
- dharmab 3y agoThere's a clause in the contract about guarantees for lost revenue, so the city may have to pay anyway.
- deleted 3y ago[deleted]
- dfxm12 3y agoIt's possible, but as others are saying, there are guarantees in the contract. All things being equal, this makes it more likely that Chicago will do what it can to motivate people to park cars next to meters for 75 years to come.
- didgeoridoo 3y agoNice catch, it's actually an ~13.5% annualized rate of return when taking into account the cash flows (assuming annual payments distributed evenly across the contract life, I'm sure you could refine it further). It's still unclear that this is a bad deal financially. What percentage of that return is going to the vendor's costs? What costs would the city incur if they tried to do it themselves? What were the city's other options in raising cash? If there was a cheaper muni float option on the table and Daley went with this deal instead, then that feels worth investigating to see whose pockets got lined. Otherwise, it's probably not as bad of a deal as the headlines make it seem.
- ydc123 3y agoThis is unquestionably not a "fantastic deal for Chicago and its taxpayers". Did you read the article or just do a brain-dead interest calculation? The deal forces the city to remain car-dependent, which is absolutely not in the best interest of the people. We should be moving away from cars and making things friendlier for pedestrians, cyclists, public transit and ride-sharing, not just for the climate but for the safety and the health of the city overall.
- WC3w6pXxgGd 3y ago[dead]
- didgeoridoo 3y agoYikes. Honest mistake. Try to be civil on this forum please, this doesn’t add anything to the conversation.
- ydc123 3y agoCalling this a "fantastic deal" is the opposite of civil. The article literally has "disaster" in the title and goes into excruciating detail about how damaging it has been to the city.
- didgeoridoo 3y agoI’m sorry you’re so angry about this, but direct personal attacks are in a different category from commentary on an article. It’s generally not considered “uncivil” to question the premise of a headline. Calling another commenter “brain dead”, however, is not acceptable here.
- ydc123 3y agoYou didn't "question the premise", you disregarded the content of the article and why it was written. Doing this opens yourself up to criticism.