December 3, 2008
  

Chicago's New Parking Deal Accents Tricky Terrain For P3s

Matt Rosenberg

Transportation public-private partnerships should not be used to plug holes in a government budget. The proceeds should be directed to transportation capital investments. But the Chicago Tribune reports that under a new agreement starting January 1, the City of Chicago will lease for 75 years its 36,161 metered parking spaces to a Morgan Stanley partnership for $1.1 billion, with the proceeds going, variously: to patch the city budget through 2012; to a special fund to offset city revenue shortfalls tied to the economic downturn; to a special reserve fund; and to city programs for low-income individuals. I won't say this sort of, ah, creative attempt to breach city fiscal gaps smells exactly like the thousands of dead alewives that used to wash up on the 57th Street Beach in Hyde Park when I was growing up in Chicago, and giving tours of the captured German U-Boat at the Museum of Science and Industry. But it's sure not anywhere near what you'd call "best practices," either.

There are two upsides to the deal, which are not uncommon to P3s in transportation. A private management team with industry expertise will oversee the metered street parking system, including maintenance and operations. And a scarce public resource will be priced more competitively with private parking, driving more consumers to consider other options - like taking transit or ride-sharing, versus driving alone.

Back in the day, on temporary hiatus from college, I drove a limo for a service owned by a mean, badly-toupeed guy named Ribaldo - and used to pride myself on finding street parking for the beastly Caddies and stretch Lincolns in downtown Chicago anytime anywhere. But those days are as distant as a solvent federal gas tax trust fund.

As we've made clear repeatedly at this blog and elsewhere, we're all for properly structured public-private partnerships in surface transportation. P3s and heftier user fees through time-variable tolling, increased transit fares, and perhaps even a vehicle mileage tax will have to cover an increasing share of the infrastructure costs in major metro regions struggling to catch up with growth and beat congestion. The U.S. is improving but still far behind Europe, Canada and Australia in recognizing the robust life-cycle cost savings, accelerated project completion, and facility management benefits of transportation P3s.

However, public and political skepticism toward transportation P3s abounds, and one reason is that they can be used as cash cows to patch budget shortfalls resulting from poor management of public monies. For coherent, sound public stewardship, the lion's share of upfront proceeds to the government lessor in a P3 need to go back into the sector from whence they came, to meet high-priority infrastructure needs. Future cost avoidance and debt resolution may also be considered good cause for transportation P3s, but this "escape hatch" rationale has limited political appeal.

Chicago has been in the forefront of U.S. transportation P3s - a canary in the coal mine, if you will. The 2006 Chicago Skyway lease deal brought $1.8 billion to the city. As reported by the well-regarded magazine Illinois Issues, the proceeds went to: paying off city and Skyway debt; long-term investment reserves; mid-term investment with earnings used to help plug city budget holes until 2011; and after-school programs, parolee job training and services. Whiff of alewives, the prequel.

Another deal signed in 2006 had a better fragrance, fiscally. For $563 million the city entered a long-term lease with a private partnership to manage its underground parking garages on a long stretch beneath downtown city parks property including Grant Park - where for 25 years the world's largest free blues festival has been held, featuring such legends as Pinetop Perkins amidst a sea of liquid-fueled revelry. One of the garages was relatively new, but the rest were older, and one badly needed repairs. And parking garage management was not something at which the city excelled, versus, say, blues festivals. Better still, funds reaped from parks department properties went into new capital development for the city parks system. Then-City of Chicago Chief Financial Officer Dana Levenson told Parking Today:

"When an investor is waving a large check in front of you, it's going to have some influence....The city was on the hook for the debt service...payments that the garage revenues were servicing. What this did was that if you took the price that was paid against the amount of debt that was outstanding, there was a significant amount of excess left over, not to mention the $65 million or so in cost avoidance ... for the East Monroe Street Garage repair and rebuild.

You take that excess above and beyond the debt and you apply it to a capital budget for city parks throughout the city, not just downtown but throughout the neighborhoods. It was a rather elegant solution to a problem that we were having in terms of city parks that needed a capital budget and didn't have one before that.

.....Ultimately, for any municipality looking at an asset like this, they have to think about, first and foremost, not that they are going to get a lot of money but what they are going to use the money for. The municipality that takes the money and plugs their budget hole is doing itself and the taxpayers such a disservice, because the following year they will have the same budget hole and then some and they will have nothing to show for it."

The city's P3 deal this fall to lease Midway Airport to a private operator yielded $2.5 billion. As the Chicago Tribune noted, under a special state law, ninety percent of the remainder, after debt resolution, has to be apportioned to infrastructure projects, or public employee union pension funds.

The latter are an emerging, and important source of capital for P3 infrastructure investments, which can earn steady long-term returns for pensioners. But many city governments - not to mention major U.S. automakers - have over-promised and under-delivered to employee pension funds. Sales of public assets should not be used to stanch that bleeding for a few moments.

In addition to exacting contracts with private partners to protect the public interest in locales where the political environment actually encourages P3s, what would make sense are comprehensive laws in still more U.S. states, removing barriers to transportation P3s. These laws should also require that all proceeds from the lease or sale to private operators of existing, publicly-owned transportation assets be reinvested in transportation. Any operating revenues which might be apportioned to the government owner of the leased facility, should be used similarly.

Put another way: don't rob Peter to pay Paul. Peter in this case representing those who pay every day with time and money to use inadequate, congested surface transportation systems in our country's major metro regions.

RELATED:

"A State Agency Eyes Public-Private Transportation Funding," Crosscut.

"How To Pay For The Roads Still Travelled," Crosscut.

"Toll-booth-free Tolling On SR 520 and I-90," Crosscut.

"A Discriminating View Of Public-Private Partnerships," Cascadia Prospectus.

2:55 PM |

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