Not the Mayor’s Choice?

Today the Mayor’s spokesperson was quoted as saying that the parking lease for pension relief deal is something the Mayor is being forced into. "Let’s be clear: The mayor doesn’t want to do this" was the exact statement.

Consider for a moment that the state is not (and never was) going to swoop in and rescue troubled pension systems like Pittsburgh; there is no magic wand to wipe away the $650 million in unfunded liabilities; there are few options to generate a lump sum of cash to put into the pension fund; there is no free lunch.

But to imply that the Mayor does not want to do the lease is disingenuous. Recall that the state passed Act 44 last fall as a way to deal with municipal pensions. It even had the makings of moving to a defined contribution system and away from defined benefit plans. But the Mayor wanted no part of it and said, nearly a year ago, "just give us a chance to solve this locally. We can do it. … Give us a two-year window to explore leasing [public] garages".

Out of that came the amendments to Act 44 and the granting of the Mayor’s preferred alternative, the same one we are now told he is lukewarm on.

Parking Authority: A Shell of Itself?

If we connect the dots between two documents-the July 15th presentation made by the Mayor to members of the public on the parking lease and today’s official press release on the "final parking proposal"-the City’s Public Parking Authority would remain in place to monitor the lease but would be forbidden from building new parking facilities in a "no compete area" that constitutes much of the Golden Triangle.

Someone-either the Authority or the City-will own the garages according to the July presentation. Presumably that means the garages will continue to be exempt from real estate taxes. That same presentation assures Authority employees that they "are protected". The lessee is to honor collective bargaining agreements in place and those not offered employment with the Authority will be offered a job with the City. The July document also states that the authority will remain in place to monitor the lease.

The Parking Authority is prohibited from adding new parking in Downtown, but the door is open for the City’s development arm, the URA, to enter into the parking business (it presumably still owns garages at the South Side Works). The press release states "new parking can continue to be built in this area by private developers, the Urban Redevelopment Authority and the City/Authority for use by municipal buildings such as a courthouse, police station, fire station, government administrative building, correctional facility, public school, public library, public parking or recreational facilities". If there is a new garage built, the lessee has to prove it has been harmed in order to be awarded financially.

So what will the post-lease Parking Authority look like? It may or may not actually own any parking facilities, it may or may not be debt free depending on how much the lease nets, it will have minimal staff to monitor the lease, its other employees will either be working for the lessee or the City, and it won’t be permitted to add parking for the next five decades.

Pittsburgh’s Pension Solution: Between a Rock and Hard Place

In last week’s Policy Brief (Volume 10, Number 37) we showed that the proposal to lease Parking Authority facilities as a means to raise $200 million for Pittsburgh’s pension funds would require-at a minimum-a near doubling of the cost to park at the lessee’s garages, lots and meters.  Factoring in inflation, the hikes in cost to park necessary to make the lease a break even situation for the lessee could exceed 100 percent in four to five years.  Clearly, there is a high probability such large increases in parking rates at the Parking Authority’s spaces will be a major deterrent to parking in the City.  Many businesses would suffer, creating further, and possibly irreparable, economic damage to Pittsburgh’s already beleaguered private sector.  And that in turn will reduce the City’s tax base, something it can absolutely not afford.

 

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The Proposed Pittsburgh Parking Lease: A Look at the Numbers

As the Mayor takes his case for leasing the parking garages, lots, and meters to the public he has to wonder if at least one of the interested companies will see sufficient earnings potential from a long term lease to justify an offer of $300 million the City hopes to get. This is the amount needed to cover the Parking Authority’s outstanding bond debt of about $100 million and provide $200 million for the City’s pension funds.

 

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What Will Council’s $250,000 Parking Study Accomplish?

City Council wants to leave no stone unturned and wants to make sure that when it decides to approve or disapprove of any agreement the Mayor reaches with a potential lessee of parking facilities that will provide funds to bolster the City’s ailing pension funds it will base its decision on a thorough examination of facts and options. That’s why, with the blessing of the City’s oversight board, Council will spend $250,000 to engage a consulting group to study the lease-for-pensions deal. 

 

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The Parking Lease: What’s Included?

The City will arrive at a critical juncture in the next ten days: that because parties interested in pursuing a lease of the City’s parking facilities have until 5 PM on March 19th to reply to the Request for Qualifications proposal. The lease (or concession, as it is described in the RFQ) will "grant certain operating management, and revenue collection rights for a certain period of time in exchange for an upfront, lump sum payment".

That lump sum payment is expected to be used to pay off the Parking Authority’s debt and the remainder for helping the City’s ailing pension funds. At least $200 million would be needed to bring the funds to a level of health necessary to avoid a state takeover of the pensions.

So what exactly is to be included in the lease?

  • 8,987 spaces in 11 garages and 1 attended lot in Downtown, Oakland, and Shadyside
  • 6,931 spaces served by on street meters
  • 1,776 spaces in metered surface lots

All in all, some 17,694 spaces are up for grabs, but the RFQ points out that "certain facilities, assets, and elements may be added or removed during the process and will be further detailed in the subsequent RFP". Much of that continues to play out as Council debates as to how the deal will be structured.

Lease Components Coalescing?

Here is a summary of the recommendations of an advisory task force on the proposed parking lease:

  • The prospective lease holder would not be constrained by rate caps, but would be guided by "market factors, industry standards, and regional inflation"
  • A 50 year lease term
  • The Parking Authority would continue to exist, but it might or might not be able to build new garages
  • Authority employees would get jobs with the lessee, the Authority, the City and would not lose existing pay and benefits

Since all of these recommendations are non-binding, it is anyone’s guess as to what would make it into an eventual executed lease. It is encouraging that the task force did not advocate for rate caps-perhaps it was because it was not their place to say, perhaps they realize that maybe the parking market forces can work to allocate the resource of parking, or perhaps they did not want to keep that condition going forward in the lease, realizing that the more conditions up front will lessen the take from the lease.

The recommendations do raise the important question about the Parking Authority’s place in the equation after a successful lease deal. For one, will they have any role other than managing the lease? Will they own other properties that will continue to operate as parking facilities? Or will they simply be monitoring the terms of the lease?

There is nothing in existing Commonwealth law that would prohibit the City from creating a new Parking Authority should the present one be dissolved (part of the up front lump sum is supposed to pay off the Authority’s debt) and likely some type of clause would have to be added to the lease that prohibited publicly owned parking. And if there are extensive and numerous lease details it is possible that the function could be moved to the City government proper.

Lastly, there has to be a realization that if Authority employees land jobs with the lessee and pay and benefits remain intact that rates will rise in order for the lessee to achieve an adequate return.

The Competing Interests in the Parking Lease Plan

Modern urban politics is not at all exempt from the old axiom that "you can’t please all of the people all of the time". This is playing out in the discussion over leasing the garages, lots, and meters owned by the Parking Authority to a successful bidder in return for a lump sum that will then be handed over to the City to shore up pensions.

  • The head of the Downtown Partnership is worried that there will be "a private operator coming in and doing whatever the heck they want" (that would be true if the City and the Authority were just selling the garages and lots and allowing for the buyer to develop the property as they see fit);
  • a Council member wants the Authority to retain the right to lease the garages but then be able to build new ones if it so pleases (since 2001 the Authority has built garages and lots that account for 30% of its total Downtown inventory: close to 50% of spaces were built prior to 1960);
  • the Controller wants meters to not be included in the lease because "we would be better off dealing with a local entity than we would with Goldman Sachs".
  • the finance director has intimated that the more conditions placed on the lessee-"the more that you take up front, you’re going to get less on the back end"-will harm the deal, even though that individual, wearing his hat as chair of the Parking Authority board, said that no one at the Authority would lose their job over a potential lease deal.

Even the Mayor noted in January of 2009 the balancing act when he said "I’ve got to protect pensioners, I’ve got to protect city taxpayers…And of course I’d like to protect parkers, too, but not at the expense of city taxpayers and pensioners."

Which interest will win the day? It remains to be seen.