Dec. 5th, 2008            A-L-E-R-T         (This just in ... Chicago sold 35,000 parking meter system for 75 years.  This is an article from a legal journal.  Attorney's have great expectations of a new and ongoing revenue source from privatization 'deals')

Chicago’s $1.16 Billion Parking Meter Privatization 'A Watershed Event'

Posted by Brian Baxter  Dec. 5, 2008  The American Lawyer Daily magazine

Earlier this week the City of Chicago announced a winning bid of $1.157 billion by a consortium led by Morgan Stanley Infrastructure Partners seeking a 75-year concession to take the city's parking meter system private. City council members approved the transaction in a 40-5 vote on Thursday and Mayor Richard Daley subsequently signed an ordinance effectively approving the deal.

For the Windy City, it was the latest in a series of public-to-private partnership (P3) transactions in recent years. In September the city announced a $2.5 billion deal to lease Midway Airport, the first privatization of a major airport in U.S. history. In 2005 the city privatized its Skyway Toll Bridge in a $1.83 billion deal.

The growing popularity of P3 deals is certainly no secret, but at a time when the flow of M&A and structured finance deals has slowed to a trickle, infrastructure finance could be the next big thing for hungry transactional lawyers. And some see this week's Chicago parking package--in addition to 35,000 meters, the deal involves several municipal parking lots--as a sign that P3 deals could become counter-cyclical.

"This [deal] is a watershed event in the P3 world," says Michael Smith, a real estate and infrastructure finance partner at Baker & McKenzie in Chicago. Smith, who represented several bidders that dropped out of the parking meter sweepstakes that began 11 months ago, thinks that other municipalities will take note of Chicago's haul from a transaction that is unique in its complexity.

While the private consortium is entitled to all revenues from the system, the city by law must retain its reserved powers. Those powers include revenue from parking tickets, the ability to decide which parking spaces will be metered, those meters' hours of operation, and the rates for those meters, says Katten Muchin Zavis Rosenman public finance partner Lewis Greenbaum, who serves as co-bond counsel to the City of Chicago. Greenbaum was one of the lead lawyers on the deal for the city along with assistant corporation counsel James McDonald and a team of lawyers from Chicago's Charity & Associates and Milwaukee's Gonzalez Saggio & Harlan. (The city evidently likes to spread the P3 wealth around as former chief-of-staff to Mayer Daley and current Mayer Brown partner John Schmidt generally serves as the city's lead counsel on privatization deals, having done the Skyway and Midway Airport transactions.)

Greenbaum, who was assisted by Katten Muchin public finance partners Milton Wakschlag and Christopher Torem and tax planning partner Ziemowit "Jim" Smulkowski, thinks Chicago's parking meter privatization could provide a roadmap for other municipalities seeking to raise funds in tough economic times. It's a notion seconded by his colleague across the table.

"The municipal bond market is basically closed, pricing is terrible, and [local governments] are running out of borrowing headroom," says Kent Rowey, head of the U.S. infrastructure practice with Freshfields Bruckhaus Deringer in New York. Rowey, who represented Morgan Stanley on its winning Chicago bid, believes P3s are going to become more popular, particularly in light of the pledge by President-elect Barack Obama, a Chicago native, to rebuild the nation's infrastructure as part of an economic stimulus plan.

"I think Obama's transportation transition team is quite familiar with the P3 structure and I hope that's going to be a prominent feature of his infrastructure finance policy," Rowey says. "I can't imagine that you can develop a sensible policy that requires federal funding without a private finance component. There's a lot of equity on the sidelines looking for places to invest and infrastructure is usually a good long-term investment."

That doesn't mean municipalities are about to start selling off any public asset for a paycheck. While speedily approved, the Chicago deal has its detractors, including those who think the city will raise meter rates to please the private interests who cut the check.

Such opposition can prove formidable: In September, for instance, a planned $12.8 billion privatization of the Pennsylvania Turnpike was scuttled after the state's own Turnpike Authority opposed the deal. (Mayer Brown's Schmidt advised the state on the proposed 75-year lease of the 535-mile turnpike.)

As counsel to the lenders for the winning consortium on that deal, Rowey had a ringside seat to when P3 deals go bad. "It was unfortunate because a lot of time and effort went into that bid but things just got so politicized," he says.

To lawyers like Baker's Smith, letting politics scuttle such deals is shortsighted. Many infrastructure assets have lower earnings when they're operated as public entities, he says, noting that Chicago's parking meter system generated average revenues of roughly $19 million for the city when it was publicly owned, far less than the nearly $1.16 billion it made the city this week.

"If you've got underutilization to a certain degree--like earning $19 million on a $1 billion asset--then you're just wasting money," Smith says. "Even if the [private owners] raise rates over the next few years, the public is still capturing the value of its assets."

Smith says he's already heard from several municipalities--he won't name who--intrigued by Chicago's parking privatization. He intends to make the deal "Exhibit A" in his pitch to potential clients. "What's really going to be interesting is when you get to the second-tier cities like St. Louis, Louisville, Indianapolis, and Cincinnati," he adds. "Then you really have a huge market for this."

While P3 deals are common abroad--Spain's Abertis, Cintra, and Global Via and Australia's Macquarie and Babocok & Brown are principal players--Americans have yet to adopt them with the zeal of their international counterparts. Besides Freshfields and Mayer Brown, firms like Allen & Overy, White & Case, and Milbank, Tweed, Hadley & McCloy are striving to complete more P3 infrastructure projects stateside.

Rowey, who began doing large-scale infrastructure finance deals in the 14 years he worked in Freshfields's London office, is optimistic that Chicago's latest large-scale P3 transaction will encourage other U.S. municipalities to follow a similar path. This year he's already advised a Portuguese company, Brisa, in a $500 million privatization of Denver's Northwest Parkway. Now he's working for Florida's Department of Transportation on a planned privatization of a 78-mile stretch of Interstate-75 known as "Alligator Alley" that runs between Naples and Fort Lauderdale in the southern part of the state.

What's Up (Or NOT!) In Pennsylvania:

Pennsylania $12.8 Billion Turnpike Deal
Rejected by Legislation by a vote of 185-12

HIDDEN COSTS will make Turnpike Deal a bad one  
by Ellen Dannin and Phineas Baxandall
May 27, 2008 Philadelphia Enquirer
http://www.philly.com/inquirer/opinion/19274764.html
(Note from CTC: We HIGHLY recommend
that you click on the link above
and read the Hidden Costs article!!!!)

"...wondered why we are seeing leases running from 50 to 99 years?...They are required by new federal tax laws. ...let private companies write off their investments within the first 10-15 years of the lease, as long as the duration of the lease exceeds the useable life of the asset."

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Turnpike Lease Proving No Easy Sell For Rendell

By: Brad Bumsted & Kari Andren, © Pittsburgh Tribune-Review 05/27/2008

Harrisburg - By now, Gov. Ed Rendell's proposal to lease the Pennsylvania Turnpike for $12.8 billion should be riding a wave of popular support in the General Assembly.

It's the largest proposed toll road privatization deal in the United States, and Mr. Rendell claims it would provide more money annually for roads, bridges and mass transit than the state's current transportation law.

Instead, Mr. Rendell's plan is on life support in the Legislature, lawmakers and political observers say.

"It would be a very, very tough sell," said Bev Cigler, a political science professor at Penn State's Harrisburg campus. "It's very new. It's very scary to a lot of people. It's a big step."

Mr. Rendell didn't come in with the eye-popping bid he needed to bring wavering lawmakers and some opponents on board, and he must overcome complex obstacles to win support by early September, as he wants.

"My first reaction is that (the bid) seems a little underwhelming," said Rep. David Reed, a Republican from Indiana County. "Folks here talked about leasing the turnpike for $20 billion, $25 billion or $30 billion, so to see the figure just over $12 billion with only two bidders seems a bit disappointing."

"I expected something much higher," agreed Rep. Bill Kortz, D-Dravosburg.

The offer by Madrid-based Abertis Infraestructuras and Citi Infrastructure Investors of New York City and Criteria CaxiaCorp, a major Abertis shareholder, would enable the companies to lease the turnpike for 75 years. Citi Infrastructure is a division of Citigroup.

Toll rates would increase 25 percent next year and about 3 percent thereafter, about the same rate as under Act 44, the highway funding bill approved in July. The governor says approving the lease would enable the state to drop its plan under Act 44 to toll Interstate 80, vastly unpopular with legislators in the northern corridor and something that needs federal approval.

"I haven't heard anyone supporting (the lease) other than maybe some elected officials who have Route 80 running through their districts," said Rep. Mark Mustio, R-Moon.

Mr. Rendell said turbulence in financial markets brought in a lower-than-expected bid. Morgan Stanley, Mr. Rendell's financial adviser on the deal, last year predicted it was worth $12 billion to $18 billion.

"I think the debate has just begun," said Chuck Ardo, Mr. Rendell's press secretary. "We believe as both the Legislature and the public learns more about the details, and has the opportunity to examine specifics, that support will grow for the deal."

Rep. Don Walko, D-North Side, said, "I'm just very cautious of quick fixes, when it comes to selling a major asset of the commonwealth for an influx of money."

Among the obstacles Mr. Rendell faces:

* A perception among many lawmakers that secrecy surrounded the bidding process.

* A foreign company's involvement in leasing critical infrastructure, which could raise concerns about national security.

* A legislative time schedule that is frustrating to many who need the General Assembly to take action, starting with a two-month summer recess and a typically glacial pace in considering bills.

* Questions about the lease deal's numbers and whether the state can get an answer from the federal government on tolling I-80, without which the state loses almost half of its new highway, bridge and transit money.

Not long after Mr. Rendell announced the bid, Senate President Pro Tempore Joe Scarnati spoke about the "secrecy and cronyism" involved in the deal and his suspicion all along that it would "stink" when details emerged.

Mr. Scarnati, a Republican from Jefferson County, referred to Mr. Rendell's paying his former law firm, Ballard Spahr Andrews & Ingersoll, more than $2 million for legal work on the deal - without legislators' knowledge - and the fact that one subsidiary of Citigroup gave the turnpike financial advice while another division was bidding to lease the highway.

Mr. Ardo said the deal was aboveboard and anything but secretive. "The process has been as open as we could probably make it," he said.

Rep. Daryl Metcalfe, R-Cranberry, said it would be foolish to lease the turnpike to a foreign entity because he thinks there are unknown consequences of involving other countries in part of Pennsylvania's infrastructure.

Mr. Metcalfe said America's war on terrorism does not have geographic boundaries and it can be difficult to tell which countries accommodate terrorists. That makes him wary of allowing foreign countries access to our core infrastructure.

But, argues Sen. Don White, an Indiana County Republican: "It's not like we're talking about leasing it to North Korea or Iran."

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Excerpted From PIRG Memo (See tab for October News)

Pennsylvania opposition to privatization grows over time

Several polls have shown widespread opposition to the proposed leasing of the Pennsylvania Turnpike to private investors. The Mid-Atlantic chapter of the AAA showed that 70 percent of its members in southeastern Pennsylvania opposed such a deal. 4

Quinnipiac University conducted a series of polls that show growing public opposition to a privatization deal among Pennsylvanians over time. In March 2007 support for the proposed lease deal was 49 percent among Pennsylvanians; but this fell to 44 percent in May 2007 5  and dropped precipitously to 29 percent by August 2008. 6

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Pennsylvania Turnpike Lease Plan Withdrawn as Credit Market Tightens

10/1/08 By Bruce Buckley Engineering News Record