Pittsburgh has begun qualifying bidders for its 20,000-space parking system, an effort hailed by Mayor Luke Ravenstahl as a “one-two punch” aimed at stabilising the city’s financial situation and replenishing its woefully underfunded pension plan.
The request for qualifications makes Pittsburgh the fourth US city to begin a bidding process for its parking assets in the last two weeks. Indianapolis, Los Angeles and Hartford, Connecticut have taken similar steps. But Chicago is so far the only major city to successfully execute such a public-private partnership, or PPP, in which municipalities raise money by auctioning off parking meters, garages and lots to the private sector.
Pittsburgh: looking to get
Parking assets can be run just like businesses, produce cash and the public opposition to privatising them isn’t so big because “people think parking is not public business to begin with”, Goldsmith added.
As a result, faced with the choice of cutting public services or spinning off parking assets as a way to raise cash, the latter option is much more attractive during this difficult economic climate.
In February 2009, Chicago leased out its 36,000 parking meters to a Morgan Stanley Infrastructure Partners-backed consortium for $1.16 billion and used $150 million of the proceeds to plug a budget gap. That same month, the Pittsburgh Parking Authority launched a search for consultants to help it determine the fasibility of pursuing as similar deal.
In Pittsburgh, the city’s finances have become dire enough that the Pennsylvania government has placed it in “distressed” status under a 1987 law known as Act 47. The act gives the state the ability to withhold government funding from Pittsburgh and forces it to get its financial house in order.
In response, Ravenstahl has proposed a $457 million 2010 budget that seeks a way out of the distressed status by a combination of spending freezes, tax increases and a long-term lease of its parking assets. Those assets include 10 parking garages and one attended parking lot, 6,931 on-street parking meters scattered across downtown Pittsburgh and surrounding neighborhoods, and 33 surface parking lots with metered parking spaces.
The parking system cleared $32.6 million in revenues across all these assets in 2008, according to the request for qualifications. The Pittsburgh Post-Gazette has previously reported that a long-term lease of the city’s parking garages alone could infuse $300 million into the city’s pension after the Parking authority’s $108 million in debt is paid off.
Potential proceeds from the lease would be used to replenish the city’s public pension system, which has only 30 percent of its $898 million in liabilities, according to a November press release announcing the mayor’s budget plan. Ravenstahl hopes to channel $15 million a year in new annual revenue toward the pension plan – what he called a “one-two” punch of replenishing the pension plan and stabilising the city’s financial situation, according to the press release.
A spokesperson for Ravenstahl did not return requests for comment.
Should Ravenstahl fail to increase the pension’s funding, the city could lose administration rights over the pension to the Pennsylvania Municipal Retirement System, the state’s pension manager, and be required to make additional payments of at least $30 million a year. A law enacted by Pennsylvania lawmakers last year, Act 44, gave Pittsburgh until January 1, 2011 to get its pension more than 50 percent funded in order to avoid this outcome.
The city is moving quickly to seal a deal by year’s end. Interested bidders have until 19 March to express their interest in the parking assets. Qualified bidders will be invited to submit final proposals by July and a financial close is expected by November, according to a tentative schedule.
The Pittsburgh Parking Authority hired investment bank Morgan Stanley as its sell-side advisor for the deal. Chicago-based advisory firm Scott Balice Strategies is Pittsburgh’s financial advisor and law firms Katten Muchin Rosenman and K&L Gates are the city’s legal advisors.
Morgan Stanley is also advising Indianapolis on its potential parking deal.