Will 2013 be the year of US parking PPPs?

OHIO STATE UNIVERSITY

Parking public-private partnerships (PPPs) in the US have worked through varying headlines for several years including disagreements between mayors and city councils and the voices of the “but we’ve always done it this way” crowd – so it was refreshing to participate in The Ohio State University (OSU) parking PPP that recently reached financial close.

The process started with OSU getting pre-approval as long as a few well-defined criteria were met. The school administration committed to transparent communication and maintained this posture throughout. In the end, OSU memorialised in a concession that campus parking in the future would be operated consistent with the past. This included rate increases while receiving an upfront payment of $483 million, or $108 million above the $375 million minimum the university set for a long-term concession.

OSU added the payment to its endowment allocating endowment returns to facility initiatives, transportation, pedestrian projects, scholarships and an arts district while also providing the university funds for a worst-case scenario of reduced public education funding.

The university also recognised an experienced private parking operator would operate the campus parking under a cost structure consistent with its industry sector, albeit lower than higher education sector, in part by spreading its organisational costs and technology over hundreds of parking operations versus a single university absorbing the full cost of maintaining these competencies itself. The university also transferred the future risk of garage structural maintenance to the concessionaire.

WILL UNIVERSITIES AND CITIES FOLLOW OSU?

If the core mission of higher education is to teach, while that of government is to deliver quality services to the public, then many universities and cities will look to follow the OSU’s leadership. State and city budgets are stressed by undeniable looming pension liabilities and stagnant tax revenues while federal budget support remains constrained. In this climate decisions being made by all levels of government are focused on doing more with less. This is requiring everyone to evaluate how long it will remain affordable to just keep doing things the same way because “that’s how we’ve always done it”.

Is a PPP option part of a comprehensive solution?  Yes – if done right.

PUBLIC PPP EDUCATION

In many countries government is more centralised than the US so it’s easier to educate a smaller group of public officials on how to do PPPs right. For example, in 2009 the Puerto Rico Public-Private Partnerships Authority was established, creating a public leadership structure that has embarked on PPP projects covering toll roads, the San Juan LMM Airport and construction of a new youth social treatment complex. The same public officials experienced in PPPs led each project.

In contrast, the State of New Jersey has over 500 governmental jurisdictions with each county, city and parking authority having its own mayors, city councilors, board commissioners and staff. Is it possible to educate all of these leaders about PPP and ensure, if they embark on a parking PPP, they do it right?

I have met with many mayors and the first step is not to say they should do a parking PPP but to educate them on the wide variety of approaches they can take when considering their options. The conversation starts with the benefits of outsourcing, allowing the city or university to tap into technology and centralised competencies that may be too costly to implement on their own.

The immediate results of outsourcing – correctly done – are lower operating costs, improved service and enhanced revenue. Longer term, partnering with the private sector also serves to reduce future pension liabilities.

Newport Beach, California, is an example. In 2011 the city outsourced its on-street meter system under a hybrid PPP contract model where a private parking firm took over enforcement, maintenance and collections. The contract included updating the on-street technology and for the parking company to take on the risk of future increases in operating costs. Newport Beach publically stated in August 2012 in the Orange County Register that the city “has seen a 24.4 percent increase in parking meter revenues over last year and salary savings of approximately $500,000…” It is important to note parking rates and hours of meter enforcement were unchanged so the results came from technology and adopting best practice management.

The City of Indianapolis took a different PPP approach in 2010, shifting more risk to their PPP private partner under a concession where the city received a $20 million upfront payment as part of a long-term on-street meter concession. Tailoring its PPP concession, the city added features such as the ability to periodically terminate the concession early tied to an amortisation schedule. In October 2012 the City of Cincinnati embarked on a parking PPP concession bid that is similar to the City of Indianapolis.

The OSU model is a third option and there are also funds committing capital to a fourth option where the private equity is structured as debt tied to parking system. The feedback I hear once an official understands the benefits and flexibility of parking PPPs is the desire to learn more – so the door is open in 2013.

Next on the agenda in 2013 is to accelerate the education of public officials and staff by stepping beyond the one-on-one conversations with individual universities and cities to working with associations such as the American Council on Education, National Association of City Transportation Officials, The United States Conference of Mayors and the National League of Cities to raise the profile of the parking PPP option and the benefits it has to offer.

SMARTER CITIES INITIATIVES

In many cities it is often cited that 15 percent to 30 percent of traffic is caused by cars looking for on-street parking causing congestion that adds to pollution, noise levels and lost time affecting all residents, workers and visitors to the city whether an individual is driving, biking, using mass transit or walking.

The cities of San Francisco, Los Angeles and others are now testing strategies such as demand-based pricing for on-street meters to reduce traffic congestion by insuring there are always a few open spaces in congested areas. This requires adding vehicle sensors embedded in the pavement to communicate through a common network where there are open parking spaces. Real-time space availability information is made available to the consumer via an app or car navigation system directing drivers to open spaces and reducing congestion.

Predictive analytics tools and system integration with other technologies are being developed to advance how on-and-off-street parking systems are managed in a “smarter city”. IBM, Citi and other organisations have coined the term “smarter cities”, an environment where parking works in unison with all modes of transportation.

Smarter cities initiatives will drive the need for parking PPPs in several ways. First, the investment in essential skills and technologies is becoming more complex than historical parking management methods and technology advances cost more to develop, making it more difficult for individual cities or universities to keep up. Future PPP partnership models will need to anticipate the smarter cities future, including the need to integrate parking management with other modes of the urban transportation system.

On the heels of OSU’s success, additional universities and cities are evaluating parking PPPs so 2013 may be a breakthrough year in the US. Based on the opportunity and benefits to partner with the private sector, the momentum should only accelerate.

Rick West (rick.west@comcast.net) has 30 years of operating and investment experience in all sectors of the parking industry including PPP, municipal, airports, urban, acquisitions, dispositions and operations. In addition to participating in most US parking PPPs he recently worked with the buyers of Central Parking to take the firm private in 2007, followed in 2010 when West joined Central as executive vice president serving on its executive committee with a wide range of responsibilities. Upon the completion of the recent merger of Central and Standard Parking in October 2012, creating the largest parking firm in the US with over 4,200 locations, West returned to his firm West-FSI, focused on working with buy and sell side groups in parking PPPs, asset management and restructuring.