Wednesday, September 22, 2010

Is Pittsburgh Getting A Better Deal For Its Parking Meter Business?

LAZ Parking has agreed to pay the City of Pittsburgh $451 million for a 50-year lease agreement for the city's parking meter and garage business. LAZ Parking is the same company that paid the City of Chicago $1.16 billion for a 75-year lease of the nation's third largest city's parking meter business. Indianapolis will receive a relatively paltry sum of $35 million and eventually receive a minority share of the parking revenues over the life of the agreement after ACS recoups the $7 to $10 million it expects to invest initially in new electronic parking meters. The City of Indianapolis anticipates it will receive approximately $400 million in shared revenues over the 50-year life of the lease from ACS. J.P. Morgan is partnering with LAZ Parking on the deal, along with IFF Acquisitions. Morgan Stanley served as financial advisor to the City of Pittsburgh. LAZ beat out competing bids by EQT Partners and The Carlyle Group.

"The winning bid of $451 million, it certainly blew away my wildest expectations," Pittsburgh Mayor Luke Ravenstahl said. Mayor Richard Daley came under heavy fire for leaving too much money on the table when he inked his nearly $1.2 billion lease agreement with LAZ Parking for a longer term. Chicago is a city of 2.8 million people compared to Pittsburgh's 311,000 population. Indianapolis is more than double the size of Pittsburgh with a population of 807,000. Ravenstahl had hoped to raise $100 million to cover debt owed by the city's parking authority and another $200 million to support the city's pension fund debt when he first announced his plan to privatize the city's parking meters and garages earlier this year.

Pittsburgh's deal is much different than Indianapolis' deal with ACS to be sure. Parking meter rates in downtown Pittsburg will jump from $2.00 an hour to $4.50 an hour and be adjusted thereafter for inflation compared to Indianapolis' meter rates, which are scheduled to jump from 75 cents an hour to $1.50 an hour and be adjusted for inflation thereafter. Unlike Indianapolis, however, Pittsburgh has lower parking meter rates in areas outside of the downtown area. Neighborhoods outside downtown Pittsburg will see their rates average about 50 cents an hour higher, ranging from $1.00 per hour to $3.00 per hour. Pittsburgh last raised its parking meter rates 15 years ago, while Indianapolis hasn't raised its rates in 35 years. The Pittsburgh deal includes several city-owned parking garages that will see their fares increase substantially. Daily rates at those garages will vary from $9.75 to $24.00. Indianapolis rates would double by 2012, while Pittsburgh's higher rates are being phased in over a 4-year period. Advertising rights for the parking meters and garages are being awarded entirely to the concessionaire under the Pittsburgh deal, which will also have the opportunity to lease out retail space at the ground level of those city-owned parking garages; ACS is required to share some of its advertising revenues with the City. A key difference in the parking situation in Pittsburgh and Indianapolis, however, cannot be overlooked. Pittsburgh has a subway and light rail system to move pedestrians throughout the city, in addition to a public bus system; Indianapolis has one very lousy bus system that inefficiently transports people around the city who choose to go without automobiles. For most Indianapolis residents, public transportation is no substitute for the automobile so it is nearly impossible to avoid the parking fees if you plan to visit downtown or Broad Ripple.

Like Indianapolis, the lease agreement with LAZ Parking is subject to approval by the city council, where support for the deal is not a given. Some business owners, particularly small business owners, have expressed concern about the impact of the higher rates. Pittsburgh's mayor has warned the city may be forced to lay off up to 400 police officers and cut other city services if the deal is not approved. Pittsburgh must come up with $200 million by January 1 to cover its unfunded pension liability or face a state take-over of its pension fund, a move that would thereafter cost the city at least $30 million annually. Mayor Ballard got lucky during the first year in office when the state legislature approved a measure that required the state to pick up close to a half billion dollars in unfunded public safety pension liability. Mayor Ballard plans to use the $35 million upfront payment from ACS to make street and sidewalk improvements in downtown and Broad Ripple neighborhoods where the parking meters are located. Interestingly, the $451 million the City of Pittsburgh is getting for its parking lease deal is nearly identical to what the City of Indianapolis received from Citizens Energy for permanently giving up ownership of the water and sewer utilities, along with giving up billions of dollars in revenue stream derived from operating the utilities. Indianapolis did, however, manage to offload $1.5 billion in debt in the process of giving up ownership of the utilities.

Critics of the Pittsburgh deal point out the City could expect to capture over $1 billion over the same period if it implemented the anticipated rate increases but kept control of the parking meters and garages. Pittsburgh's mayor insists the large upfront payment is essential to shoring up the City's unfunded pension liability, a requirement alternative proposals cannot satisfy. Clearly, Pittsburgh is facing financial problems more serious than Indianapolis is currently facing; however, it's hard to argue Pittsburgh may not be getting a better deal than Indianapolis over the life of the lease when you consider the city is getting all of that money upfront, while Indianapolis must wait 50 years to recoup an even smaller sum of money.

A thought occurred to me after thinking about all of the players in the Chicago, Indianapolis and Pittsburgh parking meter lease deals. Is there a risk of collusion among the key players in this business? LAZ won out in both Chicago and Pittsburgh. Morgan Stanley is a player in all three transactions. ACS participates in the LAZ Chicago parking lease agreement. LAZ Parking competed against ACS for the Indianapolis parking meter deal. LAZ Partners actually offered Indianapolis a larger upfront payment, $46.8 million compared to $35 million. Indianapolis favored ACS over LAZ Parking because it said ACS offered more flexibility to the city on removal of meters, rate reductions and duration charges. The City also preferred ACS because it allowed approval of any meter technology proposed for use by the concessionaire.

1 comment:

Indy Student said...

I've read in a few articles that the $400 million figure that the city collects over 50 years is an ACS estimate. Morgan Stanley, financial advisors to the city, estimate it more along the lines of $167-$251 million.