Chicago is the third most populated city in the US, after New York and Los Angeles.
And it has a big money problem.
Currently the Windy City has $10 billion of assets and $41 billion of liabilities. To clear the debt, every taxpayer would have to pay the city $41,900 and that isn’t going to happen.
In 2008, the longest serving Chicago Mayor, Richard M Daley (the second longest, was his dad Richard J Daley) had a bright idea.
Having already sold some small city assets to investors, he agreed to sell their parking meters to a Morgan Stanley led consortium for $1.16 billion, in exchange for the future parking ticket income.
This extraordinary amount of money allowed him to plug holes in the city’s budget for a few years in one transaction. It was a great deal.
Unfortunately for Chicago, it was a great deal for Morgan Stanley and its co-investors, not for the city.
If a deal looks too good to be true, it probably is.
– Michael Douglas
One city alderman, Scott Waguespack tried to raise the alarm at the council meeting that approved the deal but officials had kept the detail limited and not allowed time for proper council or public scrutiny.
The deal was for 75 years.
For tens of thousands of parking meters across the city.
The initial investment amount was repaid to investors a couple of years ago. Since then the investors have been enjoying the income as 100% profit on the investment.
Chicago has lost that income for the next 60 years.
Of course Morgan Stanley did exactly what Chicago should have done in 2008. They doubled parking charges, which both increased income and improved parking for residents (as it reduced nuisance parking and traffic). They upgraded the infrastructure and made parking payments easier.
All of this could have been done by the city and the income would still be rolling in to this day, helping with budget deficits (and managing traffic). This would have been the harder choice.
The easy choice was to take the money up front.
We have recently been trying to counsel ‘pro bono’, a few people connected to our existing clients. Very often, without access to an adviser, they have had their heads turned by the easy choice. There are more ‘get rich quick’ ideas on social media than there are good ideas, by a factor of several hundred times.
The problem is that the easy choice is often the one that is easiest to explain and the most exciting.
No one built up a million followers on TikTok by telling the truth that; you have to invest in the great companies of the world, for as long as you can, at the lowest cost that you can. It just isn’t an exciting message.
It’s not supposed to be easy. Anyone who finds it easy is stupid.
– Charlie Munger, Berkshire Hathaway
For more on the Best & Worst Investment ever:
You can listen to the always excellent Tim Harford on this Cautionary Tales Podcast.
Or read this article from Jordan Stutts.