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Tuesday, June 25, 2024 | Back issues
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Chicago’s decadeslong parking privatization contract goes before Seventh Circuit

In 2008, the city entered into a 75-year contract to lease its street parking meters to a private company. On Thursday, the Seventh Circuit considered whether that contract violated antitrust law.

CHICAGO (CN) — The Seventh Circuit heard oral arguments Thursday challenging Chicago's infamous parking meter privatization deal, in the latest of several legal attempts to oust a billion-dollar corporation that has made street parking spots in the Windy City some of the most expensive in the country.

In some parts of downtown, rates can run as high as $7 an hour. But this wasn't always the case.

Before 2008, street parking in most Chicago neighborhoods had cost 25 cents per hour for decades. But 14 years ago the City Council, at the urging of then-Mayor Richard M. Daley, sold the city’s street parking meter system to the private company Chicago Parking Meters LLC for $1.15 billion. Rates in most areas quadrupled to $1 per hour in 2009, and have only increased since then. Free parking hours in the city also shrank after the deal was struck, and meters began appearing on what had previously been free parking streets.

For CPM, mostly owned by Morgan Stanley but with healthy investment from the Emirati oil industry, the contract was a clear win. Street parking generates millions in profits per year, and by 2019, CPM had made back its initial $1.15 billion investment plus $500 million in profit on top. But for regular Chicagoans, particularly the city's low-income residents, it was such a bad deal that the Better Government Association called it a "lesson in 'worst practices.'"

It wasn’t a short term deal, either. The concession agreement CPM signed with the City Council won’t expire until 2084. 

Unsurprisingly, the contract has faced several legal challenges since it went into effect. The most recent was in June 2021, when three Chicago residents represented by the law firm Despres, Schwartz and Geoghegan sued CPM in Northern Illinois District Court. They claimed CPM's control of the parking meters was an illegal monopoly that violated federal antitrust law.

"CPM has obtained an unlawful monopoly for an unreasonable 75-year period over the lease of parking spaces in a fixed number and at fixed rates and without active regulation by the City, without regard to consumer preferences for alternative forms of transportation," the 2021 complaint states.

That complaint, like those that came before it, failed. U.S. District Judge Matthew Kennelly tossed the suit in January. The Bill Clinton appointee did not dispute that CPM has monopoly control over the city's parking meters in his ruling, but instead found that Chicago's municipal government was well within its rights to turn over the parking meters to a private company.

"Nothing in the text of the [Illinois Municipal Code] suggests that the city is required to own and operate parking meters on public streets," Kennelly wrote.

To back up his opinion, Kennelly invoked both the legal doctrine of state action antitrust immunity, which says that the federal government must respect state-level legislation that willingly allows for seemingly monopolizing conduct, as well as the Illinois municipal code. The code allows municipalities to manage and control their own parking meters, and also to "enter into contracts dealing in any manner with... the leasing of space on, or in connection with, parking meters for advertising purposes."

"The state action immunity doctrine shields state action from federal antitrust liability if the challenged conduct is 'clearly articulated and affirmatively expressed as state policy,'" Kennelly wrote. "This immunity extends to a municipality if its 'anticompetitive activities were authorized by the state pursuant to state policy to displace competition with regulation or monopoly public service.'"

The plaintiffs in the suit, unsatisfied with Kennelly's ruling, appealed the case in February. After several months of waiting, attorney Thomas Howard Geoghegan appeared before the Seventh Circuit on Thursday morning to plead his clients' case. As in the initial complaint, Geoghegan claimed CPM's concession agreement with the city violated antitrust law.

"This is a monopoly. It is a violation of the Sherman Act," Geoghegan said.

He faced almost immediate resistance from U.S. Circuit Judge Diane Wood, a Clinton appointee and one of the three judges sitting on the morning's panel. Wood said she was "dubious" that the contract was actually a monopoly, pointing out that there were other parking options in Chicago besides CPM's meters, like garage parking and non-CPM parking lots.

"There are many other options," Wood said.

Geoghegan retorted that Kennelly himself had not contested the monopoly claim. He also said that unlike private garages or parking lots, CPM's parking meters in Chicago were ubiquitous. For anyone looking to park their car on city streets, he said, there were no other options.

"Everyone has to use the Chicago Parking Meters system sooner or later who has a car in the city of Chicago," Geoghegan said.

He also pointed out that the length of the contract was a factor to consider - 75 years is a very long life for a contract, enough time that people may be born, live and die having never known any other alternative. This point was questioned by U.S. Circuit Judge David Hamilton, a Barack Obama appointee. He asked if the contract would still be monopolistic if it lasted only five years.

Geoghegan conceded that a five-year contract may not constitute a restraint of trade as defined by federal antitrust law, but he urged the panel not to get bogged down in hypotheticals and legal formalism.

"It's about the economic reality," he said. "We have alleged that the city has no effective control over this [contract]. It's not able to regulate it."

While he further conceded that Chicago does still retain some regulatory authority on paper - such as setting the parking rates and expanding the number of meters in the system - any attempt to cut the system's profitability for CPM could result in penalties and fees that city couldn't afford. He also said that CPM still has the "nuclear option." Per the contract, if the city's actions reduce the value of the agreement by 25% or more, CPM can choose to terminate the agreement and demand payment for the rest of its projected 75-year profitability.

"That's billions of dollars. Billions of billions," Geohegan said.

CPM's attorney Linda Coberly from the law firm Winston & Strawn did not argue that the stipulations of the contract were harsh. Instead, she simply pointed out these were the stipulations the city agreed to when it signed the deal.

"It is expensive. That's the deal the city chose to strike," Coberly said. She argued that while it may seem unfair, there was nothing illegal per se with CPM's contract.

"Is it your bottom line... just that unfortunately the city just cut a very bad deal for itself back when it decided to contract with CPM?" Wood asked her upon hearing this argument.

"If it was a bad deal, that's a political problem. That's not an antitrust problem," Coberly responded.

The panel of judges, rounded out by U.S. Circuit Judge Amy St. Eve, a Donald Trump appointee, took the case under advisement following the arguments. The judges did not say when they intended to issue a ruling.

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Categories / Appeals, Business, Government, Regional

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