by Matt Taibbi
“We’re rushing through this,” says Alderman Robert Fioretti. “Why?”
“We’ve been working on this for the better part of a year, so we haven’t been hasty,” [city chief financial officer Paul] Volpe insists.
“You had a year, but you’re giving us two days,” says Alderman Ike Carothers.
To help aldermen understand some of the terms, Jim McDonald, a lawyer for the city, reads some legalese from the proposed agreement.
[Alderman Billy] Ocasio bellows: “What does that all mean?”
The aldermen are told by CFO Volpe that the reason the deal has to be rushed is that a sudden change in interest rates could cost the city later on, which makes one wonder about Volpe’s qualifications for the CFO job—this was in the wake of the financial crash, and interest rates were at rock bottom, meaning the city stood only to lose money by hurrying. Higher interest rates would have allowed them to use the interest on the lump payment to fill their budget gaps, rather than the principal of the payment itself.
“I hear that excuse a lot whenever the mayor wants to pass something fast,” says Colon. “As far as I’m concerned, I’ll take that risk.”
Again, the council at this time has no idea who’s actually behind the deal. “We were never informed,” says Hairston. “Not even later.”
Nonetheless, the measure ended up passing 40–5, with Hairston and Colon being among the votes against. I contacted virtually all of the aldermen who voted yes on the deal, and none of them would speak with me.
Mayor Daley, who had already signed similar lease deals for the Chicago Skyway and a series of city-owned parking garages, had been working on this deal for more than a year. He approached a series of investment banks and companies and invited them to submit bids on seventy-five years’ worth of revenue on the city’s 36,000 parking meters. Morgan Stanley was one of those companies.
Here’s where it gets interesting. What Morgan Stanley has to do from there is two things. One, it has to raise a shitload of money. And two, it has to find a public face for those investors, a “management company” that will be presented to the public as the lessee in the deal.
Part one of that process involved the bank’s Infrastructure group going on a road tour to ask people with lots of cash to pony up. It was these guys from Morgan’s Infrastructure desk who took their presentation to the Middle East and pitched Chicago’s parking meters to a room full of bankers and analysts in Abu Dhabi, the Abu Dhabi Investment Authority, who ultimately agreed to purchase a large stake.
Here’s how they pulled off the paperwork in this deal. It’s really brilliant.
At the time the deal was voted on in December 2008, an “Abu Dhabi entity,” according to the mayor’s office, had just a 6 percent stake in the deal. Spokesman Peter Scales of the Chicago mayor’s office has declined to date to identify which entity that was, but by sifting through the disclosure documents, we can find a few possibilities, including a group called Cavendish Limited that is headquartered in Abu Dhabi.
Apart from that, most of the investors in the parking meter deal at the time it was voted on look like they were either American or from nations with relatively uncomplicated relationships with America. The Teacher Retirement System of Texas had a significant stake in one of the Morgan Stanley funds at the time of the sale, as did the Victorian Funds Management Corporation of Australia and Morgan Stanley itself. A Mitsubishi fund called Mitsubishi UFJ Financial Group also had a stake. There were a variety of other German and Australian investors.
All of these companies together put up the $1.2 billion or so to win the bid, and once they secured the deal, they created Chicago Parking Meters LLC, a new entity, which in turn hired an existing parking management company called LAZ to run the meter system in place of city-run parking police. The press stories about the deal invariably reported only that the city of Chicago had leased its parking meters to some combination of Morgan Stanley, Chicago Parking Meters LLC, and LAZ. A Chicago Sun-Times piece at the time read:
Under questioning from Finance Committee Chairman Edward M. Burke (14th), top mayoral aides acknowledged that the partnership that includes Morgan Stanley Infrastructure Partners and LAZ Parking recently formed a limited liability corporation in Delaware, but never bothered to register in Illinois.
But two months after the deal, in February 2009, the ownership structure completely changed. According to Scales in the mayor’s press office:
In this case, after the Morgan Stanley investor group’s $1.15 billion bid was accepted and approved by the City in December 2008, Morgan Stanley sought new investors to provide additional capital and reduce their investment exposure—again, not an unusual move.
So, while a group of several Morgan Stanley infrastructure funds owned 100% of Chicago Parking Meters, LLC in December 2008, by February 2009, they had located a minority investor—Deeside Investments, Inc.—to accept 49.9% ownership. Tannadice Investments, a subsidiary of the government-owned Abu Dhabi Investment Authority, owns a 49.9% interest in Deeside.
So basically Morgan Stanley found a bunch of investors, including themselves, to put up over a billion dollars in December 2008; a big chunk of those investors then bailed out to make way in February 2009 for this Deeside Investments, which was 49.9 percent owned by Abu Dhabi and 50.1 percent owned by a company called Redoma SARL, about which nothing was known except that it had an address in Luxembourg.
Scales added that after this bait and switch, the original 6 percent Abu Dhabi “entity” reduced its stake by roughly half after Tannadice got involved. According to my math, that still makes Abu Dhabi–based investors at least 30 percent owners of Chicago’s parking meters. God knows who the other real owners are.
Now comes the really fun part—how crappy the deal was for other reasons.
To start with something simple, it changed some basic traditions of local Chicago politics. Aldermen who used to have the power to close streets for fairs and festivals or change meter schedules now cannot—or if they do, they have to compensate Chicago Parking Meters LLC for its loss of revenue.
So, for example, when the new ownership told Alderman Scott Waguespack that it wanted to change the meter schedule from 9 a.m. to 6 p.m. Monday through Saturday to 8 a.m. to 9 p.m. seven days a week, the alderman balked and said he’d rather keep the old schedule, at least for 270 of his meters. Chicago Parking Meters then informed him that if he wanted to do that, he would have to pay the company $608,000 over three years.
The bigger problem was that Chicago sold out way too cheap. Daley and Co. got roughly $1.2 billion for seventy-five years’ worth of revenue from 36,000 parking meters. But by hook or crook various aldermen began to find out that Daley had vastly undervalued the meter revenue.
When Waguespack did the math on that $608,000 he was going to be charged, he discovered that the company valued the meters at about 39¢ an hour, which for 36,000 meters works out to $66 million a year, or about $5 billion over the life of the contract.
“When it comes to finding a figure for the citizens of Chicago, they say the meters are worth $1.16 billion,” Waguespack said shortly after the deal. “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?”
The city inspector at the time, David Hoffman, subsequently did a study of the meter deal and concluded that Daley sold the meters for at least $974 million too little. “The city failed to make a calculation of what the value of the parking meter system was to the city,” Hoffman said.
What’s even worse is this—if they really needed the up-front cash, why sell the meters at all? Why not just issue a bond to borrow money against future revenue collection, so that the city can maintain possession of the rights to park on its own streets?
“There’s no reason they had to do it this way,” says Clint Krislov, who’s suing the city and the state on the grounds that the deal is unconstitutional.
When the
y asked why the city didn’t just do a bond issue, some of the aldermen say they never got an answer.
“You’d have to ask the mayor that,” says Colon.
But the most obnoxious part of the deal is that the city is now forced to cede control of their streets to a virtually unaccountable private and at least partially foreign-owned company. Written into the original deal were drastic price increases. In Hairston’s and Colon’s neighborhoods, meter rates went from 25¢ an hour to $1.00 an hour the first year, and to $1.20 an hour the year after that. And again, the city has no power to close streets, remove or move meters, or really do anything without asking the permission of Chicago Parking Meters LLC.
Colon, whose neighborhood had an arts festival last year, will probably avoid festivals in the future that involve street closings.
“It’s just something that’s going to be hard from now on,” he says.
In the first year of the deal, Alderman Hairston went to a dinner on Wacker Drive near the Sears Tower (now the Willis Tower, renamed after a London-based insurer), parked her car, and pressed the “max” button on a meter, indicating she wanted to stay until the end of that night’s meter period. She got a bill for $32.50, as Chicago Parking Meters LLC charged her for parking overnight.
“There are so many problems—I’ve had so many problems with them,” says Hairston. “It tells you you’ve got eight minutes left, you get back in seven, and it charges you for the extra hour. Or you don’t get a receipt. It’s crazy.”
But to me, the absolute best detail in this whole deal is the end of holidays. No more free parking on Sunday. No more free parking on Christmas or Easter. And even in Illinois, no free parking on days celebrating, let’s say, a certain local hero.
“Not even on Lincoln’s birthday,” laughs Krislov.
“Not even on Lincoln’s birthday,” sighs Colon.
Wanna take Lincoln’s birthday off? Sorry, America—fuck you, pay me!
And here’s the last very funny detail in this whole business. It was the grand plan of CFO Volpe to patch the budget hole with the interest earned on that big pile of cash. But interest rates stayed in the tank, and so the city was forced to raid the actual principal. In a few years, the money will probably be gone.
“We did have a big hole in the budget,” admits Colon. “But this didn’t fix the problem. We might still have the same hole next year, and then where will the money come from?”
Bizarrely, a month and a half or so after this deal was done, a gloating Mayor Daley decided to offer some advice to the newly inaugurated President Obama, also an Illinois native. He told Obama he needed to “think outside the box” to solve the country’s revenue problems.
“If they start leasing public assets—every city, every county, every state, and the federal government—you would not have to raise any taxes whatsoever,” he says. “You would have more infrastructure money that way than any other way in the nation.”
And America is taking Daley’s advice. At this writing Nashville and Pittsburgh are speeding ahead with their own parking meter deals, as is L.A. New York has considered it, and the city of Miami just announced its own plans for a leasing deal. There are now highways, airports, parking garages, toll roads—almost everything you can think of that isn’t nailed down and some things that are—for sale, to bidders unknown, around the world.
When I told Pennsylvania state representative Joseph Markosek that someone had been pitching the Pennsylvania Turnpike to Middle Eastern investors, he laughed.
“No kidding,” he said. “That’s interesting.”
Markosek was one of the leading figures in killing Governor Ed Rendell’s deal to sell off the turnpike, but even he didn’t know who the buyers were going to be. He knew that Morgan Stanley was involved, but that was about it. Mostly he just thought it was a bad idea on general principle. “It would have been a bad deal for Pennsylvania,” says Markosek. “There’s a lot of speculation that the governor would have just taken that lump sum and used it to balance the budget this year, because he has a significant problem with the budget this year. But that would have left us with seventy-four more years on the lease.”
The reason these lease deals happen is the same reason the investment banks made bad investments in mortgage-backed crap that was sure to blow up later, but provided big bonuses today—because the politicians making these deals, the Rendells and Daleys, are going to be long gone into retirement by the time the real bill comes due.
Welcome to life in the Grifter Archipelago.
6
The Trillion-Dollar Band-Aid
Health Care Reform
ON JANUARY 21, 2010, just a couple of days after a dingbat cookie-cutter right-wing automaton named Scott Brown defeated a hapless historical footnote named Martha Coakley in the Massachusetts Senate race, Mississippi Democratic congressman Gene Taylor stood up at a meeting of the House Democratic Caucus and through a deliberate Gulf Coast drawl tried to put things in perspective.
Speaker of the House Nancy Pelosi was trying to buck up her caucus and convince them that President Obama’s health care bill was not actually dead yet, that the loss of the Democrats’ so-called supermajority in the Senate thanks to Brown’s upset win didn’t mean the jig was up, that this thing could still get done. Pelosi was talking about using the reconciliation process—a parliamentary maneuver allowing a bill to pass with a simple majority instead of the usual way requiring a filibuster-proof sixty votes—to get some defaced version of whatever would be left of the bill passed. This was ironic because the Democrats probably should have gone that route all along but were reverting to it now in desperation just so they could pass something they could call health care reform. Taylor, whose Fourth Mississippi District covers Biloxi and other parts of Mississippi’s Katrina-ravaged coastline, wasn’t so sure it was going to work.
“This is a flashback, for me, to Katrina,” Taylor told the Democrats.
He then told a story about how he and his family had evacuated from the coastline during Katrina to a spot some twenty miles inland. And after the wind and the storm had died down a bit, he went back to his neighborhood to take a look at what was left.
“I drive down, take a boat, go back to Bay St. Louis,” he said. “And I go around the bend, to where there used to be a big ol’ concrete bridge. And at the foot of the bridge, that’s where the yacht club used to be. And a little bit up from the yacht club, well, there’s my house.
“I go around the bend, there’s no bridge. No yacht club. And no house.”
Taylor then told the story of going back inland and telling his neighbors, who are waiting for a report: “It’s all gone.”
And they say, “What do you mean, it’s gone?”
“They’re just gone,” he said.
Then he told the story of one particular woman who refused to believe Taylor’s report: “But not mah house,” she said. “Mah house cain’t be gone. You cain’t see mah house from your house, because mah house behind Corky house.”
To which Taylor answered, “My house is gone. Corky’s house is gone. And your house is gone.”
He went on: “And this woman, she tried to ask: ‘You mean, just the roof is gone?’ And I said, ‘No, ma’am. It’s all gone.’ ”
He paused, to let the story sink in for the Democratic Caucus.
“And that,” he said, “is where this health care bill is right now.”
When the bill miraculously revived and passed, Barack Obama evaded what would’ve gone down as one of the most awesome blows to the American democratic process in the whole history of our country. It would’ve been a blow to democracy not because it was a good bill—it wasn’t. In fact, it might very well have been the worst bill ever to make its way through both houses of Congress. No, what the near failure of Obamacare represented instead was a colossally depressing truth about the American political system, which is that our government is so dysfunctional that it can no longer even efficiently sell out to the private interests that
actually run things in this country. Taylor was wrong about the bill. But he was right, too. Something was long gone.
Obamacare had been designed as a coldly cynical political deal: massive giveaways to Big Pharma in the form of monster subsidies, and an equally lucrative handout to big insurance in the form of an individual mandate granting a few already-wealthy companies 25–30 million new customers who would be forced to buy their products at artificially inflated, federally protected prices.
The essence of Obamacare was two ruthless power plays fused at the hip. It was the federal government seizing control of a sector of America’s private industry worth about 16 percent of GDP. And it was that same sector of private industry in turn seizing permanent control of about 8 percent of America’s taxable income, for converting to private profit. What was little understood by the public, even after more than a year of near-constant media blathering and manufactured talk-radio controversies, is that the Obama administration tried to pay for the first power play by green-lighting the other.
The admittedly ingenious plan devised by our freshman president and his indomitable chief of staff—an overconfident and immensely unlikable neo-Svengali named Rahm Emanuel, who resembled Karl Rove, only more driven, with better hair, and without the distantly validating sense of humor—was to buy the insurance and pharmaceutical industries’ acquiescence to the gentlest of regulatory regimes by giving them back the one thing they had to trade: the power to tax the public.
The result was a new law that will radically remake the faces of both the federal government and the private economy and also ratify the worst paranoid fears of both ends of the political spectrum.
The right-wing teabagger crowd spent all of 2009 protesting Obamacare as a radical socialist redistribution, and you know what? They weren’t all wrong, although the people who wrote this bill were about as far from being socialists as people can be.