Parking, Pensions and Prices in Pittsburgh

Will parking rates skyrocket if the City successfully leases its publicly owned garages and lots over to a private operator? Several members of the Pittsburgh intelligentsia seem to be convinced this is the case. Officials of the Downtown Partnership feel that there will be an "impact on the affordability of parking Downtown" and this will make "the City even less attractive to developers, shoppers, businesses, etc." The Mayor even played prognosticator back last January when he first announced his idea to lease the garages in order to fund pensions: he noted that "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". And therein lies a clear indicator of the City’s real problem, i.e., shift blame and cost to someone who cannot vote you out of office.

The implication seems to be that putting parking in private hands with the market determining rates that operators are simply going to gouge people who park.

But the big problem in Pittsburgh is that there is a mismatch between the supply of parking and the demand for it. This mismatch existed as far back as 2002 when we studied Downtown parking. And what has been happening to parking demand and supply in recent years? The building of three new sports venues, convention center, residential, retail, cultural and new office buildings over the last decade or so has increased parking demand in Downtown and near-Downtown with relatively few new parking spaces being provided. This desire to have people come into the City has forced existing firms to ration the spaces to an increasing number of users by employing the basic market tool-pricing.

The other big problem is the parking tax, a tax that further jacks up the price of parking in the City. The true irony here is that the civic leaders who are now expressing concern about the price of parking in Downtown Pittsburgh did nothing to push City officials to lower the tax dramatically over the last few years, especially since the state legislation in 2004 that mandated a lowering of the parking tax from 50% to 37.5% merely spelled out the maximum rate the tax could be set.

The same City officials who realized the inelastic nature of parking demand and boosted the tax to 50 % in order to increase City revenues substantially now rail against operators who dare to be motivated by profits and a reasonable return on investment. How hypocritical. How typically Pittsburgh.

Will Too Many Boards Spoil Parking Lease Concoction?

Last week we wrote about City Council wanting to have lead time on the decision to accept proposals from firms interested in entering into a sale agreement or long-term lease for the Parking Authority’s garages and lots. Now that an official timeline for the transaction has been published (all business related to the deal is to be done by November 1, 2010) there comes another interesting wrinkle.

Here’s what the article said: "On April 1 [of 2010], companies would be formally invited to bid to control the authority’s garages, totaling 8,874 spaces, and around 8,500 meters and lot spaces. Lots controlled by the Urban Redevelopment Authority and Sports & Exhibition Authority may also be included". Now the wrinkle is not the date, indicating a very expensive April Fools’ Day joke, but the fact that the deal might include parking owned by the URA and SEA.

Perhaps the parking is located in lucrative spots: a 2005 consultant’s report to the oversight board on the SEA and the Stadium Authority states that the SEA owns the North Shore Garage (it was operated by a private entity at the time of the report) but no value was placed upon it; the 2008 City CAFR list no parking facilities owned by the URA under capital assets, but it is possible they have control of facilities somewhere. Adding other authority lots into the mix may be the City’s way of ensuring they meet the 50% minimum funding ratio that would avoid a state takeover of their pension plans. Recall too that the Mayor indicated he wanted to retire the Parking Authority’s $108 million debt as part of the deal; the overage goes to the pension funds.

But with Council wanting a say that might drag out the process, what does adding the boards and officials of these two powerful entities do? Certainly they won’t just hand over the parking lots, they will want compensation. Maybe that means the Parking Authority has to purchase them first to get a unified package deal to a bidder. What if the other authorities don’t play nice? Is the City overstepping on an already complicated deal?

Putting the Cart before the Parking Lease Horse

Now comes Councilman Dowd with legislation requiring the Parking Authority to receive City Council approval before it issues requests for proposals to sell or lease the Authority’s assets. This is a bit premature as well as ill advised.

Cast your mind back to August and September when pension reform legislation was being hammered out in Harrisburg. The City pleaded with the Legislature to give Pittsburgh two more years to solve its woefully underfunded pension plans. One of the major promises made by the City was to privatize through a lease agreement the Parking Authority’s garages. By so doing, the City hoped to raise as much as a net of $200 million to be applied to the pension plans to bring them up to 50 percent funded.

The City has been talking about a lease of parking garages for about a year and still has not issued a request for proposals-RFPs. This is a necessary step to determine whether there is a bidder who will offer enough money to make the deal worthwhile. It does not represent a commitment to proceed with any RFP responders.

By requiring Council approval 60 days in advance of issuing RFPs, the process could get bogged down in endless wrangling over RFP language and delay a process that needs to be expedited if the City is to meet its obligation to have its pension plans 50 percent funded by 2011.

The City has committed itself in good faith to the Legislature to pursue leasing the garages. To put road blocks in the path so soon after the pension reform legislation was enacted would surely raise legislators’ eyebrows. What will be next-approval of the deal itself after the contracts are drawn up?

It is time to proceed swiftly and carefully to get the deal done. If the City does not meet its 2011 target, its pension plans will be placed under state control with onerous payment provisions, the very thing the City fought to avoid. Is the plan to scuttle any parking lease and then go back to the legislature and ask for more time or perhaps even direct financial aid to cover pension shortfalls? Is this yet another cynical effort to ensure major privatization never comes to Pittsburgh?

One would think that a mayoral veto is inevitable if the Dowd bill is passed by Council.

Garage Privatization Plans: Stuck in Neutral?

Earlier this year the Mayor of Pittsburgh announced his plan to sell or lease garages and lots, possibly meters as well, in order to get an up front lump sum amount that could both retire the Parking Authority’s debt and make a healthy down payment towards the City’s unfunded pension liability. Soon after, the County Executive likewise floated the possibility of leasing or selling the parking garage at Pittsburgh International Airport as a method to bring down airport debt.

What has happened since then? It is almost November and the gears are grinding slowly. The City’s Parking Authority has heard from a consultant that told them, yes, there would be a lot of interest in a lease or sale of the assets. But there are additional steps to be carried out: an even if an interest is expressed, there is a lot of negotiation to follow. Keep in mind that the City has until 2011 to show a 50% minimum funding ratio for its pensions to avoid a state takeover. One would think there would be more urgency.

The County’s Airport Authority-the entity that would have to sign off on a deal for the County-has yet to publicly discuss the issue at any of its board meetings, according to the Authority’s public records officer. There is no timeline other than a self-imposed one by the County Executive (a May newspaper article said the Executive "…will ask the county airport authority to put Pittsburgh International’s parking garage and surface lots, about 13,200 spaces in all, up for sale this year"); by that measure there is no way a deal gets done this year.

County Catches Parking Privatization Bug

The County Chief Executive wants to explore the possibility of turning some 13k parking spaces at Pittsburgh International Airport over to the private sector. The hope is that a private interest would be attracted to the possibility of managing and profiting from airport parking and would give the County a massive up-front payment, something to the tune of $500 million or so. That money could then be used to retire a big chunk of debt related to the airport and hopefully lower the fees the airlines operating at the facility are now paying to help retire the debt. Those fees are very uncompetitive in comparison with other airports.

It is a good idea that should be explored. Much like the Pittsburgh proposal to turn over parking garages and lots to a private operator in order to get money to retire debt and shore up pensions, the County would have to work through a separate entity to get the deal done. In the case of the County it is the Airport Authority. The Authority would likely have to complete a valuation of the assets and determine bidding procedures, etc. Though some have been optimistic that the parking could fetch $500 million, considerations like staffing, maintenance, ability to increase rates, applicable FAA regulations, and private ownership (which would entail having to pay property taxes) might lower the number.

Another thing to keep in mind is the $110 million left from the gaming disbursement for retiring debt at the Airport. If a bid is pursued, is successful, but brings in less than the $500m, that money could be used to close the gap. If the bid brings in at least $500m (or more), there will be a strong temptation to use that money for other purposes (the County intercepts all of the money according to state law) that don’t involve paying off airport debt.