The $452 Million Question

After opening the two high bids yesterday afternoon a partnership of LAZ Parking/JP Morgan emerged as the winner with a bid of $451.7 million for a 50 year lease of the City’s parking system-a combination of garages, surface lots, and metered spaces that the Mayor has viewed as the way out of the pension morass.

As of the last actuarial statement the three pension funds contained $339 million for $989 million, a funded ratio of 34%. Under the terms of Act 44, the state required the City to get the funds to a 50% funded level. As part of the deal from the inception of the idea the Mayor wanted to retire the Parking Authority’s $108 million debt.

So let’s assume that $452 millionis handed over to the City. After taking $108 million to pay the Authority’s debt, there is $344 million remaining. In order to get to the bare minimum 50% level under Act 44, the City would need to take $160 million which leaves $184 million. Plowing all of the money after paying off the Authority’s debt would mean the pension funds would have $683 million in assets. Measured against current liabilities the funding level would reach 69% under this scenario.

Clearly City officials are pleased that the bids came in well above what they expected. What the City needs to do is have a twofold realization: one, there will be endless demands and suggestions for what to do with $184 million if the City only aims to get the pension funded at the 50% level (that is, taking $160 million of the $344 million and putting it to the pensions). Realize that that the $184 million overage basically equates to two years of debt service payments for the City. Two, the City needs to look at short term history to know that in the mid to late 1990s (after selling pension bonds) that the funding level did reach 70%. That was frittered away by benefit enhancements, stock market losses, etc. The City still needs to pursue pension reform and has to cut costs. What does the above expectation bid do for those goals?