Below is a short summary and detailed review of this video written by FutureFactual:
Discount Rates, Parking Meters, and Chicago's 2008 Lease: A Stand-Up Maths Deep Dive
Matt Parker and Rollie Williams dissect Chicago’s 2008 decision to lease 36,000 parking meters for 75 years, showing how discount rates, inflation, and revenue projections shape the true value of a long-term public contract. The video untangles a complex calculation chain—annual revenue forecasts, growth, borrowing costs, and a risk premium—and compares predicted outcomes to later audits, highlighting policy and climate implications.
Introduction: The Chicago Lease Question
The video opens with a classic time-value-of-money puzzle: should a city take money now or wait for more money later? Using Chicago’s 2008 decision to privatize parking meters as a case study, Matt Parker and Rollie Williams outline how the city faced a $150 million budget gap and chose to sell control of 36,000 meters for $1.157 billion over 75 years to Morgan Stanley and an Abu Dhabi partner. The question isn’t just how much money they could raise, but whether the upfront sum justified surrendering decades of future revenue. The hosts set up the core problem: quantify future cash flows, decide when money is worth more, and apply a discount rate to compare money now with money later.
"So the question is, how do you calculate the benefits of money now versus more money later" - Matt Parker
Revenue Projections and the Discount Rate
The collaborators detail the revenue forecast used in the deal: after an initial 4-year write-off, annual revenue was projected to range from $85 million to $130 million, growing at about 3% per year to reflect inflation. The city’s Inspector General later broke the range into pessimistic, optimistic, and midpoint scenarios. The challenge is turning those future dollars into present value, which requires a discount rate. The panel walks through the construction of that rate from two components: inflation (3% per year) and the cost of borrowing (2.19% averaged over the five years preceding the 2009 report). They show how to combine these into a single rate, first by inflating then discounting, and then by adding a risk premium (1.8%), yielding around 7.06%.
"This is going to have a lot of important math questions that only you can handle" - Rollie Williams
Detailed Modeling: Spreadsheet and Year-by-Year Valuation
The video then shifts to a hands-on modeling approach. The hosts describe a spreadsheet that iterates the forecast year by year from 2009 onward to 2083, applying 3% annual inflation and the chosen discount-rate scenarios. They show how changing the discount rate changes the present-value of the 75-year stream of revenue and how longer contracts tilt the balance toward or away from upfront payments. A concrete example is given: a 100-dollar income paid for three years, with inflation pushing future payments higher but discounting pulling their present value downward, illustrating how higher discount rates erode value even when nominal cash flows rise due to inflation.
"If you just did a half length contract, you're still going to get 93% of the value" - Matt Parker
Reality Check: The 2021 Audit and Implications
Using the year 2021 data, the video contrasts predictions with outcomes. Chicago’s private-meter operation had actually recouped the purchase price and generated substantial further revenue, contradicting the more cautious optimistic scenarios. The audit revealed that, by 2021, the city’s transfer had already paid for itself and then some, with years of profit still ahead. The discussion expands beyond numbers, noting how the lease locked in car-centric infrastructure and enabled refinements like refinancing at favorable valuations, which further increased actual gains beyond early forecasts. The presenters explain that the deal could have been structured more aggressively to capture additional gains and that the city’s governance decisions significantly influenced outcomes.
"There are actually a tonne of pretty negative climate implications in all of this" - Rollie Williams
Takeaways: Lessons for Public Finance
The final sections connect the math to policy, urging viewers to use transparent, data-driven analyses when negotiating long-term contracts with private partners. The hosts emphasize the value of projecting multiple scenarios, testing sensitivity to discount rates, and considering non-financial effects such as urban traffic patterns, emissions, and resilience. They encourage applying these methods to other public-private arrangements and highlight the potential benefits of sharing calcualtions and models with policymakers to avoid hindsight bias and mispricing in long-term investments.
"There are other ways that the council could have got more money" - Matt Parker