Parking for lease?
Facing decreasing tax revenues and budget deficits, state and local governments are considering monetizing public parking assets, which is a form of public-private partnership in which the value of the assets are turned into readily available cash. Although monetizing public parking assets can be effective, the move presents a set of unique challenges and opportunities for government officials.
Under a typical monetization transaction, government and investment bodies enter into a concession or lease agreement that provides the investment body with certain operating rights, risks, responsibilities and cash flow, while the governmental body receives a significant up-front payment and/or a series of payments at prescribed intervals. The typical term of a monetization lease or concession agreement ranges anywhere from 20 to 99 years.
Over the last five years, Chicago has concluded two public parking asset monetization deals — the first and only two in the nation, so far. Those transactions included four downtown subterranean parking garages totaling more than 9,100 parking spaces and a 36,000-space parking meter system.
For the most part, one of the transactions was successfully concluded without much fanfare. However, the parking meter concession has been fraught with scores of criticism from both the public and private sectors. Nevertheless, other cities, including Indianapolis, Los Angeles, and Pittsburgh, are in various stages of exploring the idea for their parking assets.
Chicago’s experience
The first monetization of a public parking system in the country occurred in December 2006, when Chicago and the Chicago Park District awarded New York-based Morgan Stanley Infrastructure Partners (MSIP) a 99-year, long-term concession lease for four of its parking garages that are located beneath Grant and Millennium Parks. The bid was for $563 million, and the transaction paid off outstanding parking garage bonded debt and provided funding for capital improvements. MSIP receives the revenue from the parking facilities and is obligated to operate the off-street parking system and rebuild the assets.
Chicago monetized the second public parking system in December 2008 in a second agreement with MSIP. It was a 75-year lease concession agreement for 36,000 parking meters. Chicago received a $1.156 billion fee, and MSIP operates and maintains the parking meter system and collects the revenue from it.
Do you want to privatize parking?
Although Chicago’s Mayor Richard Daley has been under fire for his decision to monetize the city’s metered parking system, he has nevertheless set out a model for all subsequent parking-related monetization transactions. Unlike toll roads or wastewater treatment facilities, monetizing parking assets is new, and the marketplace is quickly learning what works and does not work, and it is rapidly modifying its approach accordingly.
There are several considerations in such a move:
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The general public may more readily accept parking rate increases when the increase is preceded by an upgrade in technology that affords an additional level of convenience, such as the ability to pay by credit card.
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Constituents desire transparency. Moreover, even though an administration musters the votes needed to approve a long-term concession agreement, there will almost certainly be criticism during or after project implementation — something the administration must anticipate and plan a response to.
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Monetization transactions typically require city council approval, and in most cases, if the council members are not on board with the administration, the transaction will not go through.
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Customer service is critical because the change can create new problems and inquiries, and the concessionaire must be equipped to deal with emerging developments in an effective, efficient and friendly manner.
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A transition plan is a must. The private sector cannot effectively take over the operation of the public parking asset without a plan that establishes how the control of the public parking assets will change from public to private.
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The details of the concession agreement must suit all parties. Deals can be perceived to be “winners” or “losers” based on the fine points of the agreements. Each agreement is customized, and all parties must actively participate in negotiations until a mutual agreement is reached.
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Has your community steadily increased parking rates for some time? Assuming that parking rate increases are long overdue, does your community have the political will to stomach steep parking rates increases? If so, you may need the private sector to help you increase your parking rates. It is common for cities not to have implemented rate increases for long periods of time, even 20 or 35 years.
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Concerns have been expressed about cities giving up significant revenue streams for many years. Shorter concessions and concessions that offer revenue sharing will likely receive less objection.
Is your community ready to make the move?
Remember, each transaction has its own strengths and weaknesses, and only by negotiating a judicious agreement with the private sector can a government entity protect stakeholder interests. Parking monetization is not necessarily a zero-sum game. Although there can be winners and losers in a parking monetization transaction, agreements can be constructed where both parties benefit. They can be a winning deal for the administration as well as the constituents if properly thought out and constructed.
Project participants’ motives can play a significant role in guiding the final form of the transaction. Answer the following questions before discussing monetizing public parking assets with private contractors:
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Why is the community considering monetizing its parking assets?
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Is the community unwilling to rely on the public sector to meets its objectives? If so, why?
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Is the community willing to set aside significant up-front money to study the merits of a parking monetization transaction, or requiring its financial advisor to work on a 100 percent contingency fee basis?
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Will the community’s interests be protected if advisors are working on a contingency fee basis?
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Before spending taxpayer dollars and consuming the time of both public and private parties, is there an adequate amount of harmony and cooperation among the elected officials to successfully conclude a parking monetization transaction, or is this a “pipe dream?”
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Parking monetization attracts significant media attention. Are you prepared to explore the possibilities of a parking monetization in an open, transparent environment?
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If you have decided that a parking monetization is right for your community, what opportunities will you make available to the public to explore the details of the contemplated parking monetization?
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How will the proceeds of a parking monetization transaction be used?
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Will funds be used to reinvest in the community’s infrastructure or to satisfy short-term operating deficits?
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Are the elected officials motivated by re-election prospects and attempting to retain their power by using parking monetization as a way to address short-term problems at the expense of long-term revenue?
Parking monetization can be used effectively to serve constituent interests. Each transaction must be viewed on its own merits, but, ultimately, there can be winners and losers, and some transactions can be structured as win-wins. The responsible parties need to properly plan and critically evaluate each transaction before using a parking monetization as a tool way to raise money.
John Dorsett is senior vice president and director of the Consulting Resources Group for Walker Parking Consultants in Indianapolis.
