Los Angeles to vote on parking PPP

The city’s 15-member city council could decide as early as 2 February whether to qualify bidders for its ten parking garages. A separate, larger PPP for the city’s parking meters is also in the works, but Los Angeles has struggled to hire sell-side advisors for both deals due to concerns over a law prohibiting conflicts of interest.

The Los Angeles City Council is set to decide whether to go ahead with the first phase of a planned public-private partnership for its parking assets, a move which could make the cash-strapped California city the largest municipal government in the US to pursue such a deal.

The 15-member council’s vote, which could come as early as tomorrow, would decide whether Los Angeles can issue a request for qualifications to qualify bidders for a long-term concession its 10 parking garages.

The parking garages, which cleared nearly $21 million in operating revenues during the city’s 2009 fiscal year, have been studied since November 2008 as a potential candidate for a 50-year lease to the private sector as a way to help the cash-strapped city raise money.

Late last month, Miguel Santana, the city official in charge of the study, urged the City Council and Mayor Antonio Villaraigosa to proceed with the deal. Santana said the city could raise between $200 million to $300 million from such a lease, versus the $198 million in proceeds it could gain from keeping the garages on its books for the next 50 years.

A second, larger city-owned parking asset – Los Angeles’ 41,000 on-street parking meters – has also been studied as a potential candidate for a private-sector concession. However, Mayor Villaraigosa has asked Santana’s team to study the concession further in an effort to avoid mirroring the upfront payment required in Chicago’s $1.15 billion lease of its parking meters in 2009.

One option being considered, according to a recent letter from Villaraigosa, is a concession that would give Los Angeles a stream of payments over the life of a lease.

Overall, though, Villaraigosa still supports the idea of such a public-private partnership for the meters, saying in the letters he agreed with council members’ assertions that “there’s gold in the gutters’” but “the issue is how best to mine the gold.”

Advisory conflict

Los Angeles has previously selected a group of sell-side advisors – Ramirez & Company, JP Morgan and Loop Capital Markets – to aid it in pursuing public-private partnerships for both the garages and the meters. However, there are mounting concerns about a decades-old California law against conflicts of interest in government contracting, which have given some of the advisors pause about executing a contract with the city.

Ramirez & Company terminated its contract with Los Angeles on 28 November 2009 because of concerns over the legislation, according to documents provided to InfrastructureInvestor. JP Morgan and Los Angeles haven’t been able to sign a contract because of the same issue, according to the documents. Consequently, Loop is now acting as the city’s sole sell-side advisor.

Should the city council vote to go ahead with a request for qualifications for the parking garage deal, Los Angeles would be authorised to spend $510,000 on hiring outside counsel, sell-side advisors and financial advisors to execute the deal, according to Santana’s letter. The law firm of Katten Muchin Rosenman would be also hired for a term of two years to provide legal advice on the deals, according to the letter.

If Los Angeles cannot come to an agreement with JP Morgan over the conflict issues, the city will seek to find another sell-side advisor to fill its role, according to a person familiar with the situation.

A clarification of the issue is expected to come soon from the Los Angeles city attorney, according to the person.