Picture two cities: one with a budget surplus, efficiently run and maintained, the other in a financial crisis, threatened with a state takeover of its finances and no easy way out. Both own parking assets they could easily lease or sell for upfront cash. Which city do you think would be likelier to do the deal?
If you’ve been following market sentiment over the past few years, you’re likely to have chosen the latter. As large, chronic deficits have cast a cloud over much of the US’ state and municipal governments, the thinking was they’d be sure to sell, lease or monetise non-core assets to ease their financial burdens. After all, it was either that or another, politically unpopular option: raising taxes. And surely, politicians cannot raise taxes in the wake of a steep recession, can they?
Sure they can – and how!
Illinois is a case-in-point. In 2006, the state received a valuation study from Credit Suisse showing that the Illinois Tollway System could be worth up to $24 billion if the state were to lease it for 75 years and allow for steep toll increases. In 2011, faced with a projected $15 billion budget deficit, lawmakers didn’t reach for a tollway lease: they increased the personal income taxes by two-thirds, upped corporate income taxes by nearly 50 percent and – a bonus – prompted the CEO of Caterpillar, the Illinois-based maker of heavy building equipment and machinery, to consider moving his business elsewhere.
At the municipal level, asset leases were thought to be a much easier proposition. Fewer decision-makers would need to ok a deal and one asset class in particular – parking garages and meters – was seemingly ubiquitous as a potential source of leases and monetisations.
In this context, early 2010 was an exciting time for anyone interested in parking. Hartford, the Connecticut state capital, began a bidding process for its parking assets, followed shortly by similar moves in Los Angeles, Indianapolis and Pittsburgh. Added to potential deals considered in two other cities – New Haven, Connecticut and Harrisburg, Pennsylvania – there seemed to be a flood of opportunity for investors looking to buy into long-term parking concessions.
A year later, only one of the six deals has reached financial close. Not Los Angeles, New Haven or Hartford, which face budget deficits, not Pittsburgh or Harrisburg – so financially distressed that the Pennsylvania state government is overseeing their finances – but Indianapolis: the only one of the six to have a budget surplus.
“We’re actually one of the few major cities in the country that’s in the black,” says Ryan Vaughn, president of the Indianapolis City-County Council. Nevertheless, Vaughn backed a 50-year lease of the city’s parking meters because while “we did not have an operating budget deficit”, the city had what he called an “infrastructure deficit”.
The city’s Infrastructure Advisory Commission has estimated that Indianapolis faces $5 billion of critical infrastructure needs, one of which is crumbling streets and sidewalks. So the thought was: why not hire a private operator to make the city’s parking operation more profitable and then use the proceeds to make those repairs? In retrospect, Vaughn believes this was crucial to getting the deal through his city council.
“I think the key to developing our political will was we made very clear that all money generated from parking meters was to be used to improve the streets and sidewalks in the areas where those parking meters were located,” Vaughn says. By a vote of 15-14, council agreed.
In Hartford, Mayor Pedro Segarra championed a parking proposal that shared Indianapolis’ desire to invest in its infrastructure. The plan was to lease the city’s parking system, put the proceeds into a trust fund and use them to bankroll “transformative” infrastructure projects, such as improving city streetscapes, park improvements, traffic signal synchronisation and others.
But, earlier this week, the Hartford City Council shot down the idea nevertheless. Council president rJo Winch, who twice voted to table the parking measure, told Infrastructure Investor she liked the idea of making improvements with proceeds from such a deal.
“That would have been a pro,” she says.
Still, giving up 50 years-worth of parking revenue at a time when the city faces a budget deficit made the deal a no-go for her. “If I could have gotten them to shorten the time period, like 15 to 20 [years], maybe” she says. “But 50 is a really long time”.
This is not to say that a shorter Hartford concession won’t come back once the city’s finances take better shape. But if the past year has shown investors anything, it’s that they shouldn’t view cities’ dire finances as a catalyst for parking deals. So far, they’ve been anything but.