Sunday, March 03, 2013

Cincy Resorts To Junk Bond Financing/Parking Meter Privatization To Close Budget Gap

Cincinnati's elected officials are even dumber than Indianapolis' if you check out this scheme they've concocted to turn their parking meter and city-owned parking garages over to their port authority, which in turn will enter into a privatization agreement with AEW, Xerox and Denison Parking to manage the parking meter and garage assets. Under this scheme, the port authority will pay Cincinnati a $92 million upfront payment it needs to partially close its budget gap over the next couple of years and provide an annual revenue stream of about $3 million a year over the 30-year life of the lease agreement. The port authority will issue approximately $128 million in tax-exempt junk bonds that will be backed by the revenues generated from the parking meter assets and parking garages after expenses are paid.

One council member wondered if the modernization plans promised by the privatization deal could be achieved without turning the assets over to a private operator. The bottom line according to a memo to council members was that the city couldn't close its big budget gap if it didn't find a way to unload the assets for at least 30 years and capture a large upfront payment. They also noted that the private operators would have no qualms about jacking parking rates in the future, unlike city officials if the assets remained under city control. The  memo points to Indianapolis as an example of how easy it was to double parking meter rates simply by turning the parking meter assets over to a private operator. City officials say not to worry if the port authority defaults on repayment of the bonds because neither the city nor the port authority will be liable to pay the balance of the debt owed to the bondholders; however, the bondholders could take possession of the assets, in which case the city would have no choice but to pay off their debt in order to regain control of them.

Naturally, parking rates are going to more than double just like occurred in Indianapolis. Even worse, the parking fines, which are currently $35, are going to increase to $60 over a 2-year period. Ouch! And I thought Indianapolis' $20 fine was excessive. City officials anticipate that the parking assets will generate more than double the current revenues within a few years, jumping from $7.3 million to $14.3 million by 2016, and will increase to $19 million by 2023. The private operator will have to issue at least 107,000 tickets annually to reach its goal of collecting $4.8 million from parking enforcement. The city issued fewer than 65,000 parking fines last year.

The deal with the port authority will be overseen by an advisory board controlled by appointees of the port authority and one representative of the private operator, which will set rates. Remarkably, the city claims that no elected official can sit on the advisory board in order to maintain the tax-exempt status of the bonds that will be issued by the port authority. Even worse, the advisory board will not be subject to Ohio's public records law. Good luck there. With this Detroit-style financing being utilized by city leaders, Cincinnati should be facing bankruptcy in a few years just like Detroit.


Cato said...

It's sad what cities will do to their residents to avoid slashing police salaries and benefits.

Cut cop salaries, and default on their pensions.

guy77money said...

Cincinnati is in worse shape then Indy and it is doing what every other big city been doing is kicking the can down the road. I wouldn't be surprised if they used some of the money in this sale to finish the street car line that nobody wants with the exception of some misguided city officials.

Pete Boggs said...

Deals like this are quiet admission of insolvency.