Chicago Doesn’t Own Its Own Streets | Climate Town

ah Chicago the summers are hotter than the surface of the Sun and the

winters are so cold they're a violation of the Geneva Convention

but for one or two days in the fall

it's actually pretty tolerable

the thing is if I was to step

here I'm no longer in Chicago

I've officially entered the domain

of Morgan Stanley and the Amir of Abu Dhabi

that's right in 2008

Chicago sold its streets

to Morgan Stanley and a handful of investors

for $1.57 billion more specifically

they sold a 75-year

lease on the city's

36,000 parking meters and their respective parking spaces

and until the year

2084 the people of Chicago will pay a private company

anytime they want to park at a meter

that's right 2084 which means

the Bears might win the Super Bowl before Chicago

is allowed to decide what it does with its own parking meters

it's okay I can say that I was born here

hell can you turn over

here and aside from Chicago

under charging Morgan Stanley and Friends

by billions of dollars

Chicago gave up something even more important

control of their streets

anytime Chicago wants to have a parade or do road work or take a

meter offline for any reason

the citizens of Chicago

have to pay Morgan Stanley

back for their supposedly

lost revenue in 2012

alone the bill was $

31.5 million which by the way was more than Chicago was making from all

36,000 M combined before they sold them to Morgan Stanley

and in a time when using our resources

efficiently is so important

and making our cities more human Centric

is so popular the people of Chicago

have found themselves locked into a parking meter deal

that will prioritize expensive

polluting car Centric infrastructure

for three generations and to help me get a sense of exactly how badly

the people of Chicago got boned in this deal

I'm going straight to the top with Matt Parker from the YouTube channel standup

Maps I'm very pleased to be here thank you for being here I've now

embrace the Chicago life it looks great on you thank you

now uh Matt's one of the best science and math communicators

I've ever met so he's going to help take us through the math part

a little bit we don't actually need you for like probably 5

minutes I got to do some context and then smash to an intro and

that kind of thing but you can read

this here this is a bad situation

but maybe there's something we can do about it perfect

hi I'm Raley Williams

a guy with a climate science and policy degree

and a secret shameful

appreciation for ketchup on hot dogs

and this is a video about the time Chicago

sold its streets to Morgan Stanley

welcome to climate the year was

2008 Breaking Bad just came out get off the toilet Michael Phelps just won

eight gold medals at the

Olympics and America was entranced

by the Meandering nonsense of Jason

morz it was a simpler

time but it was about to get hit by a financial

crisis don't ask me which country started it

I don't no let me take you there through the artart of voice over

last time on Chicago

with the recession looming

the windy city needed to find some cash to plug a $150

million sized hole in their City budget

they could raise property taxes

but Democratic mayor Richard M da knew that that wouldn't be a very popular

idea with the voters

instead he opted for a novel solution

they'd sell off the city's

36,000 parking meters to the highest bidder

what was was he

thinking and while we know it was a trash can of an idea in

hindsight at the time it wasn't quite so obvious

see Chicago had previously

privatized things like janitorial

services tax collection and parking garages

in deals known as public

private Partnerships and the results

had been vaguely positive

see cities have limited resources

and Manpower and sometimes Outsourcing

a job like Street resurfacing

to a private company that already has a Steamroller

and a truck full of yellow paintt makes a lot more sense than the

city of Chicago buying a bunch of new equipment and doing it themselves

so Chicago put their meters up for sale in the form of a 75-year

lease Morgan Stanley crunched some numbers

and decided to offer the city 1

billion1 th000 now a billion

dollar is very cool

and since the majority of Chicago's

meters were still charging

25 to 50 cents an hour they weren't w't exactly a money-making

Enterprise for this city at the time of the deal the entire fleet of

36,000 parking meters was making just $20

million a year for

Chicago now you athletes out there might be saying

hey isn't 20 million time 75

years $1.5 billion now that is technically

true you dorks but getting a billion

dollars up front would allow Chicago

to fix their budget mayor Dy could score some political points by keeping property

taxes low and they could invest the rest in the market

so they could save some of that cash for a rainy day

talk about opening the door to a bright

future oh Morgan Stanley was willing to part with a billion dollars UPF front

by getting some co-signers

on board including the Amir of Abu Dhabi

and they plan to make their money back

by just jacking up the meter prices

plus one or two tiny little details in the contract

that I'm sure won't come up in this episode about how Chicago got totally

screwed by Morgan Stanley

anyway Morgan Stanley the city of Chicago

and the consulting firm William Blair hammered out the rest of the terms

and then gave the city council

two days to read through and approve the 150

page contract when some City Council Members protested

they were reminded that they had already

passed the city's 2009

budget that already included

$150 million from the meter deal and that any third-party

audit of the deal or any

could put the city at risk

this is a very

difficult vote I don't want it to happen

the budget is a difficult vote after only 24

hours of review the city council approved the contract

40 votes to five

ordinances passed and so the deal went through

and when the dust had settled

one thing became abundantly

clear Chicago had beefed it

oh God did they beef it they beefed it so bad and like

of course they did

it's Morgan Stanley you think you're going to beat Morgan

Stanley at money hey here's a crazy tip anytime an investment banking company

is super psyched about a 75-year

deal they're about to do with you

don't take the deal baby

come on you're not going to beat them at money

in fact the consulting

company that was hammering out the deal on behalf of Chicago

was also working with Morgan

Stanley on other deals

and hot diggity dog did Chicago get taken for a ride when Morgan Stanley

came in they quadrupled

the meter prices extended the amount of times meters would be active

and reduced the amount of time you could park to Just 2

hours that Train's going to Harlem

that's going to be a long

ride and then there were the true up payments that Chicago

had to pay back to Morgan Stanley

oh yeah remember those details

we were talking about earlier

well one of the most Insidious

parts of the meter deal was that Morgan Stanley was basically

guaranteed Revenue see Morgan Stanley had the power to jack up the hourly rates

on the meters but Chicago officials had been promised that they could make adjustments

if their constituents got too angry

but Chicago would have to make up the difference in annual payments

back to Morgan Stanley

want to close off a road for construction

the city has to reimburse

the parking meter company

for any Revenue lost

because of road construction

that blocks parking at one of its meters

planning a parade that goes through downtown

by contract those parking meters have to keep running

to make sure that this company is making money want to remove a space

closest to the crosswalk

so cars can see pedestrians

who are trying to cross the street

why why are you doing this

why are you even thinking

this way for practically

any changes to the meter status quo Chicago

had to pay they had the option of adding new meters in comparable

spots to offset the cost but in a city that already has 36,000

MERS there simply aren't a lot of new comparable

areas to put extra meters

Chicago also had to pay Morgan St Stanley anytime more than 6%

of people parked at the meters

had disabled placards see in the state of Illinois

people can park for free with a disabled placard

seems reasonable but now that Morgan Stanley jacked up the meter rates and extended

the hours of operation and paid parking

more and more people were either getting counterfeit

placards from their friends who knew Photoshop

or getting them legally through their doctor

in the first 5 years of operation

Morgan Stanley built Chicago

$ 75.4 million for their supposedly

lost Revenue due to disabled placards

cool stuff and between the true up payments

and the increased meter prices

Morgan Stanley made a killing

by 2019 just 10 years after they signed the deal

they had already made their billion dollars back plus an additional

$500 million as of now Morgan Stanley is looking at 60

years of payments from the citizens of Chicago

I mean that money could be going to city infrastructure

but instead it's going to what I can only assume is a very happy

yacht salesman and in case you were Wonder wondering

Chicago did not save their meter deal money to collect interest for a rainy

day City officials spent almost all of the rainy day fund

by the year 2011

and to top it all off

one year after the ink was dry on the contract

the Chicago Inspector General released a report that concluded that the meter deal was

worth at minimum $2

billion and probably something more like $

3.53 billion and if your keeping score at home that's between two

and and three times what Chicago

actually got paid and that was a conservative

estimate Morgan Stanley internally

valued the deal at like

$99.58 billion which is eight times more than Chicago

got don't take the deal

they're Bankers okay they make predatory

music labels look like Doctors Without Borders

don't take the deal

don't take the okay we could sit here and play Monday morning hot dog

salesman on the Chicago meter deal all

day but the multi-billion

dollar mistake that Chicago

made can be summed up in Just Two Words

the discount rate that is three words just discount

rate discount rate and I know what you're feeling

you're starting to tune me out

that is the correct reaction

I am not the man to tell you about discount rate the man for

that job is Matt Parker from standup maths thanks for standing right there my

pleasure I got us two hot dogs

for you actually and one is hot dog now great and this one is

hot dog later if you pay money

now you eat this hot dog now and I'm hungry now yeah yeah you

want this one yeah of course but if you have to pay money now

and you eat this hot dog later

you're not going to want to pay as much that's right you don't want

hot dog later I pay you

$100 for this hot dog now that feels inflated

but only 50 for that H okay now you're just making numbers up that's

right clearly Chicago wouldn't just do that they would calculate

the discount rate which is the exact percentage

that you would need to reduce the value of hot dog later

to be comparable to hot

now okay and calculating

that is super interesting

but traditionally I would use like a like a whiteboard some spreadsheets

really like I'll show you their working out

oh yeah well I mean this is an episode of climat toown baby we

don't have that stuff here

cuz we forgot to bring

yeah but you can just

turn hard in any direction

and we'll edit it in and it'll look like we planned it I'm just

somewhere else anywhere else I can be at home anywhere you want to be

I'm doing it have the hot dog sure let's

roll hey hey right

okay so um the discount

rate is the exact

mathematical percentage that you'd have to increase

the amount of money by

so that money in a year is equivalent

to money now so if I had two $100

bills that's a bit better

and I say you can have this one now this one in a year

you want the one now but what if I grab some quarters

right I start adding

money to this side

it's now gone up by a percent

it's $101 is that equivalent

$101 in a year to $100

right now first of all we have to factor in inflation

because money in the future is just literally

worth less and the Chicago

Inspector General in the report

said that a 3%

rate for inflation is reasonable

so $100 now is equivalent to $103

in a year's time

just because of inflation

secondly you got to factor in the cost of borrowing

the money so if the city of Chicago

decided after all we do need the money now now

and they hadn't taken the deal

they're going to have to borrow and that cost money although less than it

would for you or I

governments can borrow money

very cheaply and the Inspector General averaged

the cost of borrowing

for the city of Chicago

for the 5 years prior to the deal

and said that on average it would cost them

2.19% per year to borrow money we multiply them together to get their combined

impact and it equals

557 which means we can switch that back to being a percentage

5.26% that is the discount

rate as far as the city of Chicago is concerned

to factor in inflation

and the cost of borrowing at this point it's important to realize

the higher this value ends up being the bigger the discount rate

the smaller the value will be so the smaller the overall

price and so actually

it's in the city of Chicago's in interest to keep the discount rate as

low as possible and it's in the party buying

their interest to make it as big as possible

and so they want to add on some factor

to incorporate the risk they're taking on

that's actually an extra

1.8% risk to factor in

that maybe they won't earn as much as it's predicted to be and so

that gives you uh add in this case you just add them together and

you end up with

7.06% total discount rate although

the Inspector General then did round that to just be a nice neat

7% so how does

this final value of 7%

compare to what actually happened

in the deal well the Chicago Inspector General

made a table big fan

because you got to factor in

that the discount rate

is guesswork and the predicted revenue

is guess works so you want to look at a few different scenarios

to see what some plausible

future options are and here

they've got five different

possible future revenues the expected amount

and then they go one and two degre

of optimistic up from there cuz you never know might be incredible they also

go down two steps

pessimistic and very pessimistic

and then right in the middle

they've got the 7%

discount rate they also include eight and nine

and those are higher discount rates which means the overall price has gone down

and they include just for completeness

six and five so we've now got 25

different possibilities and the most likely one overall

is right in the middle

and I guess that's the one

the city of CH no no

uh right in the corner

the only way you can justify

the 1.16 billion price tag

is if you use a discount rate of

9% which is I mean

I would say way too high

that seems to be what the report says

and you use the

very pessimistic future modeling in all other scenarios

that is desperately undervalued

the what the parking meters are actually worth

and so we can say pretty conclusively

have undervalued what their 75e

contract is worth and why 75

years would a shorter term have been better value for the city of Chicago

well check out this plot from the report

so nice this is showing that the greater your distance into the future

the you mean the more worthless the money is now I mean money 75

years from now is practically worthless

now so they show

if you did half the term

37 years you still could have got

1.08 billion for the half

length contract that's 93%

of the value if they just needed a billion dollars

why do 75 years

when 37 years is more than enough there you have it so that is

how you can calculate a discount rate to calculate how much money you should

demand now in lie

of getting money later

so I'm gonna head back over to Chicago

I guess I've got a

like h i don't

I don't fully understand how this works

but I suspect I've got to be holding

the fish and chips again

right then I just oh if I lose some is that going to make

a difference hang on let me just let me get these

wait wait wait okay okay okay I'm ready

here we go done

wow that was great I mean I assume obviously we haven't done it yet

it's future mat's problem yeah and that but that guy hey he's all over

it he's doing a great job well thank you so much you're officially relased

I'm about to go yeah yeah yeah excellent you do have to slam these

two dogs or you can give it to that

seagull thanks Matt but like

so what right I mean why should we care about this my dad grew

up in Chicago and he's got a phrase

tough beans hard cheese better luck next time

I don't love that phrase

but it kind of makes sense

why should we give a single honk about what Chicago

did it's because every city in America

has the potential to make their own version of the shitty meter deal and

there are some really important things we can learn

to steer ourselves away from this kind of flaming

car wreck of a contract

in the future for starters

we have been boning

ourselves for years when it comes to parking

if you watched my last video about parking first of all thank you so

much oh my God thanks for watching

but second of all you'll know that parking is effectively

an enormous subsidy to car owners

basically by the 1940s

and 50s America's obsession with cars became a sort of catastrophic

horniness that put Millions upon millions of new cars onto the streets

those cars understandably clogged the ever living

out of the roads

city planners decided that a lack of parking was behind all this new traffic

so they promptly passed a bunch of laws called minimum

parking requirements which forced

developers to overbuild parking spaces to fit all the millions of cars we were

cranking out the cost to build and maintain

all that free parking

is just added to housing or groceries

or tuition or Etc

which means people without cars

are subsidizing all that parking

for people with cars

in a city this often takes the form of non-car

owners paying through the nose and taxes

for parking spaces that they will never use those spaces are often used by

drivers who avoid the city's taxes

by living in the suburbs

but drive into town to check out that cool new mural everyone is instagramming

about you see for 70 years we built our cities and towns to cater

to the every whim of the automobile

and seven decades of car Centric urban planning

have turned basically every American

city this now normally

parking meters are a much better deal for a city's inhabitants

than free parking which makes perfect sense

car owners want to store their personal

property on public land

parking meters are a great way for a city's taxpayers

to rent their land out by the hour to car owners who want to

use it and in an ideal world

that money then gets used for things like public transportation

or bike infrastructure or something that the people of the city can use

in the case of the Chicago meters

every time someone rents that Prime City real estate

they give their money to a

bank and yes Morgan Stanley and Company quadrupled

the rates on meters over the first few years of managing

them parking meter rates have gone up again making downtown rates the highest in

the country Downtown parking meter rates went up and by the end of the

month they'll be up all across the city

$6.50 per hour but I'm not even really mad about that part

I mean this is

100 square ft of prime Chicago real estate

per parking spot you shouldn't really be able to rent it for a couple

of bucks an hour

that is a deeply

subsidized price for the land

we all just accept it cuz that's the way it's always been

and as the years since the 2008 meter deal have slowly ticked by people

all across America are waking up to the fact that car Centric urban planning

is just not that fun to you know

exist in over 80%

of the US population

lives in urban areas

and since transportation is one of the largest sources of emissions

making our Ci's more pedestrian

friendly is both better for people

and one of the best ways to combat climate change clawing back cities from

cars and deworming America's

Collective car brain is a Monumental

task for any City

but in Chicago case they also have to contend with Morgan Stanley

forcing the city to maintain their car Centric infrastructure

cuz they have a contract

that says they are guaranteed

to make money off of it in 2020

when the co pandemic forced everybody outside

cities let restaurants and businesses

spill out into the streets and an amazing

thing happened people liked it open streets programs took off Across the Nation and

their overwhelming popularity led many mayors to make the changes permanent

it was one of the most incredible

moments in urban design history

and Chicago was no exception

they had their open streets in 2020

the public obviously loved them but unlike other cities

Chicago would have to pay through the nose to make them permanent

because they didn't functionally

own their own streets

in 2020 alone Chicago had to pay $6.25

million in trup payments to Morgan Stanley

for their street closures

during the pandemic which sounds like something you would write in a movie about

evil bankers and then people would see it and be like

come on no one would actually charge

to let small business owners

sell food to desperate people

outside but in fact dear readers

they did so while most cities are free to adjust their traffic patterns and

parking infrastructure as they wish

Chicago is hit with a bill

anytime they make even a minor change

and yes this inability

to adapt to the Future

has some very negative climate implications

for one Chicago is limited in its ability to improve its bus lines

because meters require that Prime curbside

real estate be devoted to parked cars

the Chicago Transit Authority planned out a network of 20

bus Rapid Transit lines

that would reduce traffic by making what was once a mandatory

car trip into a fast and easy bus ride while implementing

the first bus Rapid Transit line however they discovered they didn't have enough spaces

to replace meters that would need to be taken out of service to run

the other bus lines and the meter deal effectively

blocked Chicago from completing their public transportation

project it's also creating problems for vehicle

electrification the inflation reduction act provides funds for municipalities

to add electric vehicle Chargers

but adding Chargers means removing a metered spot

which is going to cause whatever the opposite of a solution

is when America's pushed to Electrify

all of our vehicles

bumps up against Morgan Stanley's

strangle hold on the parking spaces

and their 2hour maximum

parking limit the Chicago

Department of Transportation is also trying to limit street parking

during rush hour as a way to minimize

congestion during high traffic

time but the true up costs for the lost meter time

is complicating what should be a straightforward

traffic policy and what about all those pedestrian

Parks Chicago had planned

what about the plan to remove parking spaces to install a protected bike lane

or how about that plan to plant and maintain trees

that provide a cooling effect in the event that there's some kind of I

don't know warming that affects the globe

why do you think Chicago

was unable able to implement

any of these plans

all right so the tldd

here is that locking a city into a predatory

contract that hamstrings its ability to improve the lives of its citizens

so a private company can make money

is so super uncool

you guys now I'm not saying that all public private Partnerships

are bad but when a city makes a deal of this kind it should

probably be in service of the city's residents

be open and honor

about the terms of the contract

and have an exit strategy

in case your impressionable

young mayor gets hornswaggled

harder than a naive country western musician in the

1930s and just to throw it out there you should probably have some kind

of third party take a peek at your term sheet

before entering into a 75-year

commitment that gives away control of an incredibly

important city asset and to Chicago's

credit they're working on it they keep sending bills assuming that I'm going to

do the same old same old and pay him and I'm not I'm not

going to pay until I get a complete audit of the books so far

they've been unable to nullify

the deal but in 2013

under mayor Ram Emanuel

they were able to renegotiate

the true up payments to allow the city to calculate the damages

instead of letting Morgan Stanley

tell them how much they owed

amazingly this saved Chicago

millions of dollars every year

and despite being completely ripped off by the meter deal

Chicago has worked very hard to scale up their human Centric City Planning

the bottom line here is that we seem to have exited the

around time and have arrived squarely

in the find out era

we are finding out that cities need to be able to make important climate

decisions that benefit their citizens

without having to negotiate

with a for-profit business

we're finding out how effective Urban living can be when oriented around people

and how hilariously inefficient

it is when it caters to cars and bankers

and if you'd like to find out what in the Sam Hill you personally

can do to help mitigate

some of the damage that's on the way

look no further than your local city council

you you see the meter deal had to be voted on by elected officials

and elected officials have to be

elected and official but elected is the sort of critical word here and voting

for politicians who are fully committed to human Centric infrastructure

is a great first step you can also just go to City Council meetings

and follow up in person

you can contact your local representatives

and let them know that you're in favor of prioritizing

open streets and public transportation

and if you're into parking reform you can watch our other video about parking

which I'm isn't oh my God 31

minutes wow okay well maybe just skip to this part in the timeline

and then you can follow the steps detailed in the Playbook that we created

with our friends over at climate change makers Link in the bio and if

you've already seen both videos

you hear that sound

that means you win you've officially learned

more than you ever wanted to about parking

and you have only yourself to blame

and if you're still not ready to stop learning today

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if it wasn't quite so focused on making sure cars have a nice comfy

place to hang out

247 you can also catch early

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do and that's the end of the episode

you made it to the end

first of all the biggest thank you to Henry grabar

and Donald shup for their books paved paradise

and the high cost of free parking

they were incredibly important to making this video and the other parking video we

made buy their books you will not be disappointed

also a million thank yous to Matt Nicole and Alex from the YouTube channel

standup maths they couldn't be here today

because they live several time zones in the future

think about the sliding doors moments

there but we actually did a two-parter

this is part one of a two-parter

and the second part is over on the standup maths Channel and it's got

all the math from the parking meter deal and even some of the maths

whatever that is you can check it out Link in the description

and finally thank you so much much for watching if you've enjoyed what you've

seen feel free to like And subscribe

or leave me a little comment

you know I'll read it

but if you really

like the channel you can subscribe to our patreon

page where for like five bucks a month you get access to deleted scenes

behindth scenes content just the stuff that wasn't good enough to be free

oh yeah now we're talking

you want some more free

I have an embarrassing

amount of free it almost

implies a lack of confidence in my own product we have a podcast

called the climate deniers Playbook

that features me and my friend Nicole Conlin who's a writer Over The Daily

Show we break down climate myths their origin stories who benefits from them

and more importantly why they're wrong

we also have a newsletter

that we do every time we release an episode that's got all the extra

little tidbits that didn't quite cram

into this episode we also have a Discord server where you can go and

talk to other climate heads we even added a climate Town knowledge Hub where

you can find more climate related resources and info

than doctors recommend and if none of of that sounds interesting to you

just go outside and take a big breath of fresh air

cuz last time I checked in America

that's still free until

Starbucks presents Tesla on

gets their greasy Ms on it

okay thanks for watching

I'll see you later

I have not tried

marijuana uh I have never used it at any is off