Finding the balance

‘Balance’ is a powerful word as it references a point of equilibrium. Applied to a city beginning to evaluate a parking public-private partnership (PPP; P3), it translates into finding the right balance between achieving economic and social objectives and communicating how the proceeds of a parking P3 will be used to support each city’s goals.

P3 procurement

Public dialogue

Most parking P3s continue to focus on the size of the upfront payment to the city to fill a budget gap, build a stadium or make a pension contribution. This approach colours the ensuing public dialogue which is limited to whether the parking P3 should or should not occur, on how the city will spend the proceeds and whether the city is ‘selling out’.

Little discussion takes place around the benefits a P3 can bring to a city by investing in new technology to improve service, address deferred maintenance found in garages built 20 to 40 years ago, or the benefits of best practice management which can boost the parking bottom line without rate changes.

By example, Newport Beach, California outsourced its parking meter services in 2011 under a multi-year agreement including new parking technology and the outsourced operator taking responsibility for increases in future operating expenses and introducing a best practice management programme applying its national experience to Newport Beach.

As quoted in the Orange County Register, the City of Newport Beach “has seen a 24.4% increase in parking-meter revenues over last year and salary savings of approximately $500,000 from outsourcing parking-meter operations.” What makes the Newport Beach case compelling is the parking rates and hours of meter enforcement were not changed so technology and best practice management delivered the results.

Upfront vs. future payments

Municipal leaders ask about the Ohio State University (OSU) parking P3 completed in 2012 and its $483 million upfront payment and no future revenue share. OSU is a successful case study but there are many differences between a city and a university where parking supply is provided exclusively by the school and the primary driver of future parking demand is primarily tied to the size of the student population.

In contrast, in a city, parking demand is generated from a diverse set of traffic generators and there are longer-term trends – such as people moving back to the city centre, the rise of car sharing, and future technology such as drivers using their on-board car technology to be directed to open parking spaces – that make the future less predictable.

This fundamental difference makes it more difficult to forecast future parking revenue from a municipal parking system and is one reason why cities should include future revenue share in addition to an upfront payment so the city will benefit from its future growth, including the growth that is not fully quantifiable today.

Social priorities and technology

Municipal parking systems are a key part of every city’s core social infrastructure so, while it is important the parking system is efficiently run to the city’s economic benefit, the parking system needs to continue to support the businesses, restaurants, residents and local institutions which are the future of the city.

Cities should consider adding a social assessment to a procurement to balance the needs of the users of the parking system, as well as the economic benefit to the city. Key areas of the social assessment may include: environmental (parking sensor investments made to reduce traffic congestion which reduces emissions and noise levels); local MBE/DBE participation; the impact on existing jobs (timing or the transition plan to re-train or assist in job placement); and innovative rate policies (for example, rate increases in high demand areas offset by rate decreases in other areas).

The social assessment also refers to each city deciding how upfront and future proceeds from a parking P3 will be spent – for example, allocating one-third of proceeds respectively to: non-parking new infrastructure investment, pension catch-up contributions and an unrestricted allocation.

Technology and social priorities change over time and often in unexpected ways. For example, several US cities are testing dynamic pricing for their on-street parking in an effort to reduce traffic congestion and the associated pollution, lost time and noise caused by cars circulating city streets looking for an open parking space.

Parking P3s that lock the current on-street parking rate model in place with scheduled price escalations for many years have not anticipated smarter city initiatives such as the technology and analytics being developed today to address traffic congestion and informing drivers which city streets have open space real time through the car’s navigation system.

It is not possible to identify every future need or technology so parking P3 policies and tools need to be built into the procurement process to allow the parking system to continue to evolve.

P3 partnership model

One partnership model garnering attention is using a non-profit entity to hold the assets of a public parking system which provides the security to sell bonds which generate an upfront payment to the city. In addition to the upfront payment, under the non-profit model, parking profits after bond debt payments, reserves and for administering, operating and maintaining the parking system, also go to the city.

Under the non-profit model, if equity is also required in addition to the bond proceeds due to the size of the upfront payment to the city or investments required to repair garages, add new technology or build a new garage, then institutional equity can be injected into the capital structure in the form of mezzanine debt. This concept was highlighted in an Infrastructure Investor November 2012 article by Masood Sohaili of DLA Piper.

New Orleans International Airport followed a P3 parking model in 2001 before these types of public and private collaborations became known as P3s. The City of New Orleans, which owns the airport, created a non-profit known as Parking Facilities Corporation charged with leasing land from the airport, financing and developing a long-term parking garage and managing the parking during the term of the bonds.

Development and management functions were outsourced and the outsourced company also provided certain guarantees the project would be completed. Parking Facilities Corporation is governed by a five-member board with the Mayor, President of the New Orleans Building Corporation, the City Council, the Chairman of the New Orleans Tourism Marketing Corporation and the CEO of the operator of the parking company each appointing one member. This governance structure reflects the continuance of local control teamed with private expertise.

Two ongoing parking P3s following hybrid non-profit models are the City of Harrisburg and City of Cincinnati. In 2012, Cincinnati issued a traditional P3 Request for Proposals (RFP) and, during the bid process, the Port of Greater Cincinnati Development Authority (Port) teamed up with an institutional funding source and won the award. Under the bid, the Port will lease the municipal parking and, using the parking lease as collateral, will sell bonds to make an upfront payment to the city. A revenue share provision is also part of the lease. The Port’s board is appointed by the city and county.

In Harrisburg, while terms of the deal are still being finalised, the city’s parking will be leased to the Pennsylvania Economic Development Financing Authority (PEDFA) which, in turn, will partner with the Capital Region Economic Development Corporation (CREDC), a local non-profit entity. CREDC will oversee management and maintenance of the assets to be managed on a day-to-day basis by sub-contracting these activities to a national parking firm. A separate private firm will serve as asset manager providing long-term business management and bond compliance.