As the City of Pittsburgh prepares to open up the envelopes in the bidding for its parking assets, the figure of $317 million will loom large as a barometer of the deal’s success – and the city’s efforts to get it done.
The $317 million is about how much Pittsburgh needs to net from a 50-year lease of the parking assets to avert losing control of its municipal pension system to the state. Avoiding that outcome, which would likely result in higher taxes and cuts to city services, has been the key driver of the deal.
The openness is something that distinguishes this transaction
But rather than simply sweetening deal terms to maximize the upfront payment they’re likely to receive, city officials have instead taken a more balanced, if not riskier, approach. They’ve solicited input from Pittsburgh residents and city council on how to structure the deal in a way that gets them on board, even if it means accepting a lower upfront rent fee for the parking lease.
“We know we’ve cost ourselves some money. But we think we’ve balanced the needs of the city and the concessionaire,” said Scott Kunka, Pittsburgh’s director of finance.
The balancing act highlights a familiar trade-off faced by cities all across the US as they mull leasing out their parking and other assets in exchange for upfront payments from private investors. Do they keep a tight lid on the process, so as to minimise interference and maximise proceeds? Or do they give the public a voice in how the deal is structured and make changes that could potentially result in a smaller upfront fee?
“We recognized that at least in the short term, until the problems were worked out with that particular health group, the increases should be [lower],” Kunka said.
Other changes included sharing advertising and other new revenues with the city and installing new, meter-less collection technology if parking rates go above $1.50. Additionally, “all the increases that are not already indicated in the agreement [have] to come back to council [for approval],” said Reverend Ricky Burgess, council member for Pittsburgh’s 9th district.
On 30 June, to facilitate the feedback, Pittsburgh Mayor Luke Ravenstahl published a draft of the lease agreement for Pittsburgh’s parking facilities on the city’s website. A series of public meetings, as well as city council meetings, were then scheduled to solicit feedback on changes to the agreement before final bids were sought from seven pre-qualified bidders.
“We’ve opened up the books,” said Joanna Doven, a spokesperson for Mayor Ravenstahl. “We were worried it would scare investors and prevent us from saving our pension fund and protecting our taxpayers,” she added. But, instead, all seven pre-qualified bidders have remained in the process and the end result is “this deal really balances the needs” of the city.
We've opened up the books
The process also sets some new precedents for these kinds of transactions. It’s the first time a concession agreement has been released to the public during the bidding process, Ravenstahl said in a press release.
“The openness is something that distinguishes this transaction,” said Tom Morsch of Scott Balice Strategies, one of Pittsburgh’s financial advisors on the deal. Pittsburgh could afford to run such an open process, he said, because “we didn’t go in day one with the objective of getting the largest possible check”. Instead, the objective was to get the “minimum” required to save the pension, Morsch said.
We know we've cost ourselves some money
Pittsburgh’s actuary has determined that the city needs to place at least $217 million into the pension to get it up to the 50 percent funded level and prevent the state from taking over. An additional $100 million of parking debt would have to be repaid from the proceeds, bringing the total to $317 million.
The seven pre-qualified bidders are set to submit their final offers for the 50-year lease of the city’s parking garages, lots and meters on Wednesday.
Kunka seemed confident the extra terms added to the deal as a result of the public hearings would not bump the city below the $317 million.
“We’re expecting a lot more than that,” Kunka said.