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City of Chicago hit with $57.8 million tab in parking garage snafu

City Hall has been hit with $57.8 milliarbitratiruling favor private investors who took over four city-owned parking garages downtown Chicago

City Hall has been hit with a $57.8 million arbitration ruling in favor of the private investors who took over four city-owned parking garages in downtown Chicago for allowing this competing parking garage to open at the Aqua building, 225 N. Columbus Dr.

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Updated: April 22, 2013 12:25PM

Chicago taxpayers have been hit with a $57.8 million ruling in favor of the private company that runs four city-owned, downtown parking garages — stuck with that bill because former Mayor Richard M. Daley’s administration mistakenly allowed a competing garage to open nearby, according to documents obtained by the Chicago Sun-Times.

Mayor Rahm Emanuel has 90 business days to appeal the Feb. 25 decision by a panel of independent arbitrators regarding Chicago Loop Parking LLC’s claim that City Hall violated the terms of its 99-year garage-privatization deal by subsequently approving plans for a garage in the 82-story Aqua building, about a block from the company’s nearest garage.

But it doesn’t appear the city can avoid paying. Under terms of the city’s $563 million, 99-year contract with Chicago Loop Parking, the arbitrators’ ruling “shall be final and binding.”

The company originally demanded at least $200 million from City Hall for violating the parking-garage privatization deal, signed in 2006, by allowing the competing garage to open in the Aqua building.

“We succeeded in reducing the claim we inherited by $150 million, or 75 percent,” Stephen Patton, the city’s corporation counsel, said Wednesday. “We are exploring our options in terms of what — if anything — we can do further to reduce the city’s exposure and protect taxpayers.”

The big judgment in favor of the parking-garage company is the latest in a string of costly legal setbacks for City Hall.

The mayor set aside $27.3 million to settle lawsuits against the city this year but already has spent almost twice that much to settle cases of police abuse and wrongdoing.

And, in October, Emanuel announced that the city would borrow $78.4 million to compensate thousands of African-American job-seekers harmed by the city’s discriminatory handling of a 1995 firefighters’ entrance exam. The tab in that case was twice as high as expected.

Chicago Loop Parking is a consortium of investors organized by Morgan Stanley Infrastructure Partners, an arm of the Wall Street financial services giant. It was the winning bidder in 2006 for the right to operate — and collect all payments from — the 9,178 spaces in the city’s Millennium Park garage and the Chicago Park District’s Grant Park North, Grant Park South and East Monroe Street parking garages.

Chicago Loop Parking was granted the right to raise parking rates in the garages as high as it wanted under the deal, which the Chicago City Council approved 37-8. At the time, Daley called the plan “an outstanding deal” for Chicago taxpayers.

To protect the investors, the city promised it wouldn’t allow any new garages offering public parking to open within an area bounded by East Wacker Drive, Harrison Street, Lake Shore Drive and State Street.

But, within months of signing the garage lease, the Daley administration approved plans for the Aqua tower that included a garage with 1,288 spaces. Standard Parking Corp. then was granted a license to operate an open-to-the-public garage at the new building at 225 N. Columbus Dr.

City officials say they made a deal with Standard Parking in February 2010 restricting public parking in the Aqua garage to drivers only from the surrounding area, but Chicago Loop Parking said that still violated the privatization deal and filed for closed-door arbitration, as its contract allows, rather than having to air the dispute in open court. A hearing took place before three arbitrators from the American Arbitration Association over seven days last October.

The city was represented for free by the law firm Bartlit Beck, according to Patton. Chicago Loop Parking’s arbitration claim was filed by lawyers from Sidley Austin LLP.

During the hearing, the parking-garage company cut the amount is was seeking from at least $200 million to $121.6 million — $50.5 million for past and future revenue losses and $55.2 million for “increased financing costs” blamed on the Aqua garage’s opening, plus $15.9 million in interest.

Patton said the arbitrators “split the baby,” ruling the company is entitled to only the $50.5 million revenue-loss claim, plus $7.3 million in interest.

Reached Wednesday, a spokeswoman for Chicago Loop Parking had no immediate comment.

A spokeswoman for Daley, who’s now in private law practice, would not comment.

The Emanuel administration also faces another arbitration case with a potentially huge pricetag. In two arbitration cases, Chicago Parking Meters LLC — another Morgan Stanley-organized company, this one in charge of Chicago’s parking-meter system, under a $1.15 billion, 75-year exclusive deal with the city — is demanding more than $60 million from City Hall for having to take parking meters out of service and having to provide free parking to people with disabilities.

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