‘These people will try to bully us’

A recent Board of Aldermen meeting to vote on New Haven’s parking meters – and whether or not to privatise them – resulted in discussions of community gardening, libraries, lay-offs for school nurses and all manner of topics related to the day-to-day life of the city, of which Gates Capital Partners, a Ohio-based investment firm looking to lease the city’s parking assets for 25 years, was conspicuously not a part.

The privatisation idea was trounced. Only two out of 10 aldermen voted in favour of it. According to a live blog of the meeting by local newspaper The New Haven Independent, one alderman said the parking meter monetisation was being pushed by corporate lobbies, and called it “the worst idea since margarine”.

The US is often cited as an unfavourable environment for private infrastructure investment because of the lack of a systematic political approach to projects. In the US, a “politically fractured government has mustered little appetite” to confront “daunting” infrastructure challenges, according to a recent report by consultancy Ernst & Young and US think tank Urban Land Institute. A disorganised political framework is steering investors away from the US, even as the need for upgrades and repairs mounts, the report contends.

The twists and turns taken by Harrisburg’s parking concession provide an example – albeit in microcosm – of US political and fiscal insecurity. It highlights the challenges cities and states face when trying to move forward with infrastructure projects, and show how difficult it can be to attempt to calibrate public and private interests.

A conditional offer

In Harrisburg, Pennsylvania’s state capital, financial distress has led city officials to consider privatising some assets, including parking garages, though the political process behind those decisions has not always been smooth.

In 2008, New York-based investment firm LambdaStar Infrastructure signed an agreement with Harrisburg’s former mayor, Stephen Reed, allowing the city to receive $215 million in exchange for a 75-year parking concession.  The idea did not muster strength in the City Council, however, where it was unanimously voted down. 

But a new twist in the drama of the city’s troubled finances has led LambdaStar Infrastructure to bid again for the city’s parking assets.

This time, LambdaStar did not bid directly for Harrisburg’s parking garages, however. Instead, the firm put forward a $140 million all-cash bid, together with fellow infrastructure fund EQT Infrastructure, to acquire the city’s struggling incinerator plant. 

Default looms

The incinerator has burdened Harrisburg with hundreds of millions in debt and pushed the city toward default on its general obligation bonds, according to a report on Harrisburg’s finances by New York law firm Swaine, Cravath and Moore. The city is currently subject to a Pennsylvania law known as Act 47 that allows the state to help “financially distressed” municipalities restructure their debts and undertake other reforms to balance their finances.

EQT and LambdaStar said they would lease the incinerator only on the condition that they receive a 75-year or 50-year parking concession. For the 75-year concession, the two firms offered $215 million, and for a 50-year concession they offered $195 million.

In a letter to The Harrisburg Authority, the independent municipal agency that owns the incinerator, EQT and LambdaStar said they were only proposing to lease the incinerator facility in order to help “stakeholders to develop a comprehensive solution to Harrisburg’s financial dilemma”. They argued that the parking concession was the only way to begin to retire the incinerator’s debt.

But Dan Miller, controller for the city of Harrisburg, disagrees with that assessment. “It’s one way to do it. It’s not the only way and it’s not really the question. The question is what is the best course of action for the city of Harrisburg,” Miller said. “These people will try to bully us because they will make a tremendous amount of money on this.”

Miller says the city is also facing a shortfall of about $6.4 million in operating expenses that have nothing to do with the incinerator, and that the city might need to use “the hammer of bankruptcy” to craft a sustainable fiscal plan.

But he emphasises that selling parking garages will not help Harrisburg down the line. He says the city needs to undertake negotiations to reestablish balanced finances, and that “in the long term, selling our revenue-generating assets only limits us more”.

He also said the LambdaStar deal, as proposed in 2008, was “not a viable deal”, and that it transferred too much liability to the city.

Further complicating the issue, Harrisburg Mayor Linda Thompson issued a statement saying that The Harrisburg Parking Authority had undertaken a new valuation of the city’s parking garages just two weeks after EQT and LambdaStar submitted their bid. Thompson said a new report conducted by Wilbur Smith Associates showed that the garages could be valued at $215 million for a 30-year concession.

Thompson did not mention LambdaStar and EQT, but the report suggests that the firms’ proposed 75-year concession would require a higher payment than $215 million.

The Mayor’s office and The Harrisburg Parking Authority declined to comment on the report, or to specify when the city had had last conducted a valuation of the garages. 

But Miller says previous attempts to value the city’s garages had gotten lost in City Council politics and the pressure created by the private sector bid.

“I don’t know that we have ever had it truly independently valued by experts. Independent is such a key word,” Miller says.  

Obstacle on the line

In California, would-be investors in high-speed rail must take heed of criticism of the body overseeing the project.

In a recent report, California’s Legislative Analyst’s Office, a non-partisan government organisation that provides fiscal and policy advice to the state legislature, argues that the state’s massive high-speed rail project, which aims to connect cities including Sacramento, San Francisco, Los Angeles and San Diego, has some critical flaws.

One of these is that the California High-Speed Rail Authority (CHSRA), the independent body that governs the project, does not have the state’s interests at heart and has a governance structure too weak to sustain the project, according to the report.  The LAO report recommends that the CHSRA be transferred to a separate division within the California Department of Transportation where it would be subject to better oversight.

Mac Taylor, the Legislative Analyst, said in a press conference that the CHSRA had been given “lot of autonomy, but we are not convinced that it’s looked out for the state’s fiscal interest”. As an example, he said the CHSRA had offered matching state funds to the 2009 federal stimulus programme funds, “even though that was not required”. He also said the CHRSA had not been providing adequate information on the project to the state legislature.

In a statement following the LAO report, CHSRA chief executive Roelof van Ark, who previously worked in the private sector at Alstom Transportation and Siemens, said freedom from typical government restraints would be crucial to the project’s completion.

“I was brought on to ensure the successful implementation of California’s high-speed rail project. I believe this project has been successful thus far because it has strived to operate more like a private business than a typical government bureaucracy,” he said.

But the CHRSA does not operate like a private sector entity, nor does it compete with other private sector entities, the report says.  And the private sector cannot be expected to shoulder the risk of a project the size of California’s, the report argues.

“At the most optimistic, we feel it’s highly uncertain whether the state would get the kind of money it needs to finish off the project,” Taylor said.