Parking Privatization a Non-Starter For Now

Parking privatization has received a lot of attention recently because of nationwide city-budget shortfalls and a high-profile privatization of Chicago’s meters. Chicago’s deal, one in a series of privatization deals the Daley administration proposed, netted the city over $1 billion. A windfall of cash certainly is tempting for any Mayor looking for a quick fix to get out of a recession ravaged budget. Indianapolis Mayor Greg Ballard, seeking a way to raise revenue without raising taxes, couldn’t avoid the temptation. Currently, a proposed parking privatization deal is up for approval in Indianapolis. Judging by what can be learned from the Indianapolis deal, however, Milwaukee would be wise to stay away.

It’s hard to argue that the Daley administration bargained for a good deal in exchange for giving up control of 36,000 Chicago parking meters for 75 years. The December 2008 deal netted the city a lump sum payment of $1.15 billion, but in exchange the vendor (Morgan Stanley, Abu Dhabi Investment Authority and Allianz Capital Partners) is budgeting to earning a profit of $9.58 billion. While a dollar today is worth more than a dollar tomorrow, this deal appears to have short-changed future citizens. Worse yet is the flexibility Chicago gave up, the deal is nearly impossible to cancel, and although the concept of street parking is likely to last 75 years, it’s likely that Chicago is going to want to reconfigure or remove a number of the metered stalls along the way. However, each time a stall is removed the vendor must be financially compensated, a move that will make future public space changes for the city a  bit more costly. Chicago is undoubtedly a strong enough city to overcome a lopsided lease of its parking meters, especially given that they came out as winners in other deals. As Aaron Renn noted in his article “Parking Meters and the Perils of Privatization“, the Daley administration has had a number of successes with privatization, including earning a $100 million for a failed deal involving Midway Airport, but the parking deal wasn’t a winner for the city.

But I think it’s fair to say that it’s likely Morgan Stanley got a very good deal on these meters. They closed this deal about the same time the Midway one fell apart. The fact that financing was readily available in tight market for the parking meters while it was impossible for Midway tells you everything you need to know about the relative merits of those deals financially.But even if Chicago didn’t extract the last penny of value out of the parking meters, so what? It’s highly unlikely you are going to win huge in every deal. In fact, the more of them you do – and Chicago has done several – the more likely you’ll encounter a loser. Chicago got massively overpaid for the Skyway and Midway, and on a portfolio basis I feel confident the city is still a net winner from privatization on a cash basis even if it theoretically could have gotten more for the meters.

If one assumed the proposed deal for Indianapolis must be a much more balanced deal, knowing that Chicago got short-changed on their deal, they would be wrong. Aaron Renn, a former resident of Indianapolis, has broken down the proposed deal with 10 key findings in his article “Indy’s “Son of Chicago” Parking Meter Lease to Be a Disaster for City“.

• This is the Chicago parking meter lease
• The city has no right to terminate the agreement
• Penalties are often higher than the actual meter value
• The vendor gets the rights to collect parking ticket revenue and sell advertising and naming rights
• Residential permit parking is coming to Broad Ripple
• The vendor even gets revenue from tickets written by IPD or other city agents
• The vendor automatically gets the right to any new meters, but the city has to pay to remove any meters
• Temporary closure policies are worse than Chicago’s
• Will festival and events organizers see new fees?
• Even the city has to pay to use the spots

While the 3,650 stall Indianapolis deal would be 50 years, instead of 75, it’s still long enough to be debilitating. What does Indianapolis get in exchange for giving up its parking meters? The city would collect $400 million over 50 years (including $35 million up-front), while the contractor (Xerox-subsidiary ACS) will collect between $724 million and $1.2 billion.

To quote Renn one last time…

The deal Indy is signing with its vendor (ACS) is so bad and so one-sided, it almost defies comprehension.

There has yet to be a large city that has struck a good deal by privatizing its meters. And that’s understandably so, returning value for giving up control of meters is an undoubtedly tough thing to accomplish. When it comes to the public realm that is the street, parking meters are everywhere. A parking meter lease is essentially a massive land lease that, as the Chicago and Indianapolis deals show, makes it prohibitively expensive to adapt what is currently flexible space to other uses.

If such a lease was put into place in Milwaukee events like Jazz in the Park, Brady Street Festival, the East Town Farmer’s Market and Al’s Run would become prohibitively expensive to pull off as temporarily closing the meters would necessitate a cash payment to the vendor. Likewise, construction projects that utilize metered spaces as staging areas would increase in cost, all for the profit of the vendor. The recent conversion to two-way traffic on East State Street would have been complicated, as the daily peak-time closure of meters would have necessitated daily payments to a vendor.

If the Chicago and Indianapolis deals show what the market will pay for meter revenues, there is no reason Milwaukee should even consider a privatized deal for parking. The Mayor and Common Council have shown the political courage to raise rates and install new electronic meters (something apparently lacking in Indianapolis and Chicago), moves that have generated revenue for the city without compromising flexibility.

If cities are concerned about generating the most money possible from their parking resources they should look not to privatization, but to the market-based policies proposed by Donald Shoup.