Pittsburgh should save its under-funded pension by selling its parking assets to another public entity rather than leasing them to a private investor.
That is the main thrust of a “public parking plan” put forth by City Controller Michael Lamb as an alternative to Mayor Luke Ravenstahl’s plan to lease the parking assets to a private investor for 50 years.
The Mayor’s plan would also increase parking rates gradually over a five-year period and index future increases to the consumer price index, a measure of inflation.
Lamb said in an interview he doesn’t like the idea of leasing out the parking assets because “you’re basically giving up the right to collect something in excess of $2 billion of revenue” over the life of the lease.
The assets up for lease include a mix of parking garages, lots and meters. Some of the garages, lots and meters are owned directly by the City of Pittsburgh; others are owned by the Pittsburgh Parking Authority, a municipal authority created by Pittsburgh in 1947 to manage its parking.
As an alternative, Lamb proposes the city sell its directly owned parking assets to the Pittsburgh Parking Authority. These assets include all of the city’s meters, one parking garage and one-third of all the surface parking lots up for lease, Lamb said.
We value those assets at about $220 million and we think that's a pretty conservative estimate of what that value is
“We value those assets at about $220 million and we think that’s a pretty conservative estimate of what that that value is,” Lamb said.
Depending on the conditions the city government places on any deal, Lamb expects the sale to bring in at least $150 million to $160 million. “We tried to leave [the proposal] flexible enough so that mayor and council could have a say,” Lamb said.
“We are reviewing the plan and [are] pleased that council has another option from which to choose,” said Joanna Doven, a spokesperson for Ravenstahl.
The goal of any deal is to save Pittsburgh’s pension. A 2009 Pennsylvania law requires all municipal pension funds that are less than 50 percent funded to be taken over by the state. Pittsburgh gained an extension from the takeover under the condition that it gets its pension, currently about 30 percent funded, up to the 50 percent threshold by the end of 2010. Doing so requires a minimum cash infusion of $210 million, Lamb said in a statement.
If the city sells its parking assets for less than the minimum $210 million needed for the pension, Lamb believes the city could make up the difference with cash it has in reserve. The remainder of the purchase price would be financed with debt.
We are reviewing the plan and [are] pleased that council has another option from which to choose
Ravenstahl has in the past opposed any pension-saving measures that would require the city to issue more debt. Lamb believes his plan would conform to this requirement.
“In this scenario, the city wouldn’t be issuing any debt – the parking authority would,” Lamb said. The new debt would be “dedicated to new revenue” resulting from rate increases, but the rate increases would be “far less” than “what is contemplated by the mayor’s lease plan,” Lamb said.
Lamb did not provide specific details about the rate hikes.
Lamb also believes issuing debt could be advantageous because “we are in a historic opportunity with respect to borrowing [rates]”, Lamb said. And the new debt could be issued subordinate to existing debt, eliminating any premium for paying off existing bondholders.
The city council is expected to take action on Ravenstahl’s parking lease in the next few weeks. The $452 million offer from JPMorgan expires 1 November.
If the city council declines the offer in favour of Lamb’s plan, Lamb estimates it would take about seven or eight weeks to do a parking bond issue against a 31 December deadline for funding the pension.
“They’ve got to make a decision pretty quick,” Lamb said.