When Daley administration officials announced in December that they were leasing out the city's parking meters for nearly $1.16 billion over 75 years to a consortium of investors headed by Morgan Stanley, they assured the media and anyone else who asked that this was a great deal for taxpayers in economic hard times.

Yet not three months later administration officials inadvertently revealed to an alderman that the potential revenue from the meters was as much as four times more than what the city got for them.

By then the city had already given the Morgan Stanley consortium, known as Chicago Parking Meters LLC, the authority to raise rates and extend hours. Though the city technically retained final say over meter placement and pricing, any changes to their lease agreement, such as reducing the number of meters or even their hours of operation, would cost taxpayers big money in penalties—potentially more in just the next few years than the city had been paid.

How the value of the meter system shot up in a matter of weeks—or, to consider the more logical alternative, why the city agreed to lease it for far less than it was worth—is a question the administration still can't or won't answer, five months after the City Council consummated the deal.

In fairness, even critics of the deal concede that trying to project the value of 36,000 parking meters is hardly a straightforward task. There aren't really any models, since no municipality has ever forged a deal quite like this. Because the agreement is supposed to last so long, the financial projections are complicated and by necessity somewhat speculative.

But the city has made things murkier by resisting the release of information showing how it determined what would be a fair price. And the little it's released so far suggests the deal was structured to benefit Morgan Stanley and the current occupants of City Hall rather than Chicago's taxpayers.

For much of the past decade the meters have brought in about $20 million a year, costing $3 million to $4 million a year to maintain. But as the economy began to cool in fall 2007, the administration proposed a series of fee and tax hikes for the next year's budget. Among them was a doubling of parking meter rates: in documents released publicly in October 2007, city officials predicted the hike would boost meter revenues from about $22 million in 2007 to $56 million in 2008. Aldermen protested that the increase would be bad for business.

The administration eventually pulled it off the table, but it wasn't the victory for the common man that it might have seemed at the time. The proposal now looks a lot like a maneuver by the city to boost the value of the meters while persuading aldermen it would be better to let a private company raise the rates and take the heat.

On October 17, 2007, Sun-Times columnist Michael Sneed reported that a source had told her that "a super secret deal is afoot at City Hall. . . . Sneed is told Mayor Daley's fiscal advisers are working on a deal to privatize the city's parking meters, which could potentially reap 1 BILLION bucks for the cash-strapped city."

Sneed went on: "The sweetener to the deal is already on the books: a provision to raise the parking meter rates, which is clearly a carrot for whomever buys the meters." Her source also told her the city had already hired legal and financial advisers to help work out a deal.

On February 8, 2008, the city announced that it was looking for qualified firms interested in leasing the meters. In words that would come back to haunt him, Paul Volpe, Daley's chief financial officer at the time, said a private company would do a better job of running the meter system. He said the lease would probably last 50 years.

DePaul professor H. Woods Bowman, an expert in public finance who in the early 90s served as chief financial officer of Cook County, says the idea didn't make much sense to him. "The argument in favor of selling public assets is that a lot of the assets aren't tied to the core functions of the government, or that there are cost inefficiencies associated with them," he says. "Parking [policy] ought to be a core function of the city, and there are no appreciable operating efficiencies to be gained here. It only costs the city a couple of million dollars a year to run the system."

But the Daley administration, interested in the cash it could get up front, quietly pushed ahead with the bidding process, which yielded just two offers. Along the way neither Daley nor his staffers commented publicly on the pending lease. There were no hearings on the value of the meters as a revenue producer or as a tool to shape traffic or parking policy.

When budget time came around again last fall, the city was in an even tougher spot than it had been a year earlier, with a deficit approaching half a billion dollars. Administration officials proposed setting off $150 million of it with proceeds from the proposed meter lease but offered few specifics.

In one closed-door budget meeting, Volpe was asked for more details, and "he threw out $2 billion" as a rough estimate of what the city might get in the deal, says Scott Waguespack, alderman of the 32nd Ward. But Volpe, he says, emphasized that the bidding process wasn't complete.

The administration made no other pronouncements on the subject until the December 2 press conference where they announced the deal. Two days after that the council met to consider the agreement. "The most important thing is that we have these funds when we need them most," Volpe told aldermen.

The aldermen didn't discuss whether $1.16 billion was a fair price or what the administration had done to analyze the meters' value. But several indicated that they wanted to make sure they'd still have a say in deciding where meters went in their wards and what hours they're in operation. Volpe said they would, though there was a caveat: "If we remove too many the payout to the city will be reduced."

By their own admission, most of the aldermen at the meeting had not seen the proposed contract, but it probably wouldn't have clarified matters—the formula it offers for determining what the city would lose in these circumstances is based on a complicated set of calculations involving "the then current Metered Parking Fee, Period of Operation, Period of Stay, Rate to Fine Multiple Factor and Expected Utilization Rate."

Even without this information, the city council voted 40-5 to approve the deal, and within weeks Chicago Parking Meters as much as quadrupled hourly rates at meters all over town, igniting outrage among motorists.

Waguespack, one of the five nay votes, says he dinged the deal for a number of reasons, including a not-baseless hunch that the city had given up too much for too little. Two of his staffers had used their training in finance to calculate a range of projections for what Chicago Parking Meters would collect over the next 75 years. They concluded that under most scenarios the meters were worth between $2 billion and $5 billion.

Administration officials told Waguespack that his numbers were way off, but they didn't show him any of their own—until he attempted to change parking policies in his own ward in early February, days before the new rates went into effect.

For a couple years the rookie alderman had been working with Bucktown residents on a congestion and parking plan for stretches of Milwaukee, North, and Damen. When Chicago Parking Meters took control of the system, the company announced that the hours for all of the meters in the area would be extended—going from 9 AM-6 PM Monday through Saturday to 8 AM-9 PM seven days a week. Waguespack decided it was in the best interest of businesses and residents to stick with the old schedule for 270 of those meters. After all, he had been told this was his prerogative as alderman.

When he notified the Department of Revenue, though, deputies to commissioner Bea Reyna-Hickey told him the city would have to return money to Chicago Parking Meters to account for the loss of revenue: $162,334 in the first year, $202,918 in the second, and $243,501 in the third, or $608,753 total. Waguespack, who considers himself a budget watchdog, felt he had to back down.

But the information was revealing. It confirmed that Chicago Parking Meters assumed its revenues would go up each year. If the middle number can then be seen as a conservative base, it means the company puts a value of $202,918 on 519,480 hours of meter use (37 hours a week per meter x 270 meters x 52 weeks a year), or about 39 cents an hour. For 36,000 meters that works out to more than $66 million a year—and nearly $5 billion over the life of the agreement. Some meters elsewhere in the city may not generate as much money, but others, such as those in the Loop, could be expected to yield more. Plus, it's likely that more parking spaces will be added to the system as the company switches from meters to pay boxes.

Even if investment costs and inflation knocked the total value down by an astronomical amount—say 50 percent—that would still suggest the city got less than half what the system was worth.

"When it comes to finding a figure for the citizens of Chicago, they say the meters are worth $1.16 billion," says Waguespack. "But when it comes to finding a figure to cover Morgan Stanley, they say they're worth, what, $5 billion? Who are they looking out for, the residents or Morgan Stanley?"

On February 25, we submitted a Freedom of Information Act request to the city seeking "copies of all materials and correspondence submitted by bidders or potential bidders" and "copies of all analysis, correspondence, memoranda, or other documentation related to the city's evaluation and concession-awarding process."

On April 3, after weeks of back and forth, budget department spokesman Pete Scales let us know our materials were ready. But what he gave us didn't include any financial analysis, which meant that either budget officials hadn't done any or they hadn't fully complied with our request. The state FOIA law requires that "each public body or head of a public body denying a request for public records shall notify by letter the person making the request of the decision to deny such, the reasons for the denial, and the names and titles or positions of each person responsible for the denial."

On April 14 we sent another request asking specifically for "records showing how the city analyzed the financial costs and benefits of entering into a lease agreement."

Two weeks later Scales e-mailed to tell us he had some more materials for us. We asked why they hadn't been included the first time around. He said he would check with other officials and get back to us; a week later he hadn't yet.

The new documents offered only minimal evidence of financial analysis by the city. Among them were a series of meeting agendas that suggested city officials had met separately with representatives of eight interested firms and, after greetings and "refreshments," had asked them to review their qualifications, explain why they "would be a good partner for the City of Chicago," and lay out "what concession terms will be most important in maximizing the value of the concession." No record of the firms' responses is provided.

Other records show that the city hired Chicago-based investment firm William Blair & Company as a consultant on the leasing process. On April 22, 2008, William Blair representatives presented city officials with a "Summary of Preliminary Valuation"—a sketch of what the meters might be worth on the market. The analysis, which is labeled confidential on every page, notes that at that point in time each meter collected 47 cents an hour, on average—a figure higher than the one used to calculate penalties in the 32nd Ward. It also discusses plans to raise rates by as much as 700 percent (from 25 cents an hour to $2) by 2013.

But because any private investor would have to borrow big sums of money to finance a long-term deal, pay corporate taxes, and make capital investments, Blair concluded that the "estimated value of the Chicago On-Street Parking System is approximately $1 billion."

It wouldn't be free money. "Value is linked to control," Blair advised. "Maximizing prepaid rent depends on the City's willingness to concede its interest in future revenues derived from its System." In other words, the more money the city wanted up front, the less control it would have over the next 75 years.

That's the kind of mind-set that galls Bowman. "Blair is doing this from the point of view of the investor," he said when we showed him the analysis, noting that the firm factored in costs like taxes that the city wouldn't be responsible for. "They should have done this from the city's point of view too. I mean, if you're going to put this on the market, you want to know what it's worth. But to see what the city's leaving on the table you need to check the differences. I guarantee you the value would be higher for the city."

Only two of those eight firms followed through with bids. On November 21, 2008, according to a two-page meeting agenda obtained from the city, Volpe, Reyna-Hickey, former Daley chief of staff Lori Healey (now president of Chicago's Olympic bid committee), and other administration officials gathered to review the bids in a 29th-floor conference room in the Adams Street offices of William Blair & Company.

The process started with Jim McDonald, a lawyer for the city, taking a look at the bid packages. Then . . . we don't know. On our copy of the agenda almost a full page of bullet points is blacked out.

We later learned that both bidders—Morgan Stanley and a partnership led by Macquarie Capital Group, one of the investors that leased the Skyway in 2005—offered about $1 billion, right around what Blair had pegged as the "estimated value" of the meters. Scales, the budget department spokesman, says the bids were so close together that the city asked both firms to go through a second round: "Per the bidding rules, when two bids came in within 10 percent of each other, the City acted on its right to ask for a best and final bid from each. This is a common practice in these transactions, and it ensures the city receives the highest possible value for the asset."

About two weeks later, records show, the same city officials met in the same conference room to go over the final bids. McDonald was again charged with reviewing the bids, and again we don't know what else the process consisted of, since the second half of the agenda we received is also blacked out.

That afternoon Morgan Stanley was declared the winner with an offer of $1,156,500,000, topping the Macquarie group's $1,019,022,803.

Bowman says his "back of the envelope" calculations suggest the city might have been able to get as much as $3 billion for the meters, though he admits there are so many variables that projections are basically a "crapshoot."

And he says that just proves his point that the city shouldn't have privatized this asset at all. "What the investors are interested in is the ability to set fees. The city has traditionally had trouble doing it," because it's politically unpopular to raise meter rates. But that's hardly a reason to sell the whole system off. "There's nothing that the lessor is going to do to raise money that the city couldn't do itself without a little moxie," says Bowman.

Worse, he adds, is that the Daley administration appears to have given very little thought to the long-term consequences of the deal. City officials have promised to set aside enough money to replenish the $20 million per year that the meters have generated over the past few years—but that's a fraction of what Chicago Parking Meters will reap starting this year and not half what the city estimated, in its withdrawn proposal from 2007, that it could collect by raising rates on its own. By privatizing the meters, the city has created at least a $30 million gap in its annual budget that it will have to fill with other taxes, fee hikes, or service cuts. So as taxpayers spend more to park on city streets, they'll likely get worse city services in return.

"For the next 75 years we have to live on the money we're getting now," Bowman notes. "There is no growth built into the money stream. Down the road it's going to put increasing pressure on city budgets."

Meanwhile, officials with the city and Chicago Parking Meters want you to know there's good news for people who use the meters. LAZ Parking, the firm hired by Chicago Parking Meters to oversee day-to-day operations of the system, has been aggressively replacing old, poorly functioning meters with new parking boxes, so that by the end of the summer drivers around the city will be able to pay the soaring meter rates with their credit cards. "CPM, through its operational partner LAZ Parking," Scales announced in a press release, "has successfully addressed the majority of the issues associated with the transition of the metered parking system."

Not everyone's convinced. At a hearing on Monday, five and a half months after the council approved the deal, angry aldermen fired questions at officials from Chicago Parking Meters, LAZ, and Morgan Stanley. A couple even demanded that city lawyers determine whether the contract can be terminated. They vowed to take the matter up again soon, once they have more information—including copies of the contract itself, which, incredibly, none of the aldermen present had seen yet.

Testimony at the hearing confirmed that the City Council had voted before receiving a substantive analysis of what the meters were worth and what leasing them out for 75 years might cost. At one point alderman Helen Shiller asked Fred Pollock, an executive with Morgan Stanley, to explain how much more money they expected to collect this year through rate hikes and the switch to pay boxes. "I would like to know what assumptions you made when you were looking at this deal," she said.

"Some of the assumptions you've asked for are proprietary," Pollock told her. "We don't want to share those pieces of information—it's valuable to us as a business in terms of other transactions we may pursue."

Shiller impatiently cut him short a few times. "Some of us, at least, were under the impression that we would have flexibility and we would be able to make changes and make it work based on the needs of our community," she said. "We then discover, any time we raise any questions about making changes, that oh no, we're either going to lose money or we can't because it's not in this agreement."

Pollock said he understood her need for information and would find a way to tell her what the costs would be of changes to the meters in her ward.

For related documents, including the contract, find this story at chicagoreader.com.