Streetsblog Los Angeles

Like a once-vanquished zombie rising from its grave in a poorly conceived sequel, the city is reportedly considering  a series of plans that would hand over control and profit for nine city-owned parking garages to a private entity.  Last January, the City Council rejected a proposal by Mayor Antonio Villaraigosa to begin soliciting bids for the city’s lots, but apparently that didn’t stop some organizations from soliciting bids anyways.  City Watch reports that City Administrative Officer Miguel Santana has received several “unsolicited” offers to manage or lease the 8,200 parking spaces located in nine garages.  Jack Humperville reports:

BRAINS!!! Or market-rate car parking profits! One or the other. Image: Dead Rising

These offers included a proposal to sell the parking garages for an upfront payment of over $200 million, similar to the proposals that were rejected by the City Council.  There are also convoluted Lease-Leaseback transactions that involve considerable financial engineering.  But again, they all appear to involve upfront cash in return for the ability to operate the parking garages.

The CAO report, embedded at the bottom of Humperville’s story, lists four options that the City Council might want to consider in a closed door session.  They include a $200 million offer to lease the garages for fifty years, a series of lease-leaseback agreements where the city receives and upfront payment but then leases back the garage from the private partner, and creating a city-wide management contract that would require the winning bidder to pay off the city’s parking lot debt.

We should stress that at this point, the Council hasn’t responded to the CAO’s report, but if the city is going to move forward (again) with privatizing city-controlled lots, it doesn’t mean that they can’t get a good deal out of a potential lease.  If the Council, CAO and Mayor’s Office can answer these four questions, which Streetsblog has presented before, then Los Angeles could be the first city in the country to have a “public-private-partnership” involving the leasing of parking spaces in the country. Read more…

Later today, behind closed doors, the Los Angeles City Council will meet to debate and discuss whether to put out to bid a plan to lease all of the city controlled parking lots throughout the city for fifty years.  The debate over whether the city should proceed has been almost completely centered around whether or not the cost to residents and businesses of increasing parking costs will be worth the fiduciary benefit to city coffers.

Mayor Antonio Villaraigosa has written the City Council urging the Members to allow the city to solicit bids to lease the lots for fifty years or else the city would be forced to layoff and/or furlough more civil employees.  He cites a report by the City Administrative Officer and Chief Legislative Analyst that basically says that the Council has a choice between approving a “public-private partnership” to lease the lots or being responsible for scores of furloughs.  His position is further boosted by editorials that appear in today’s Los Angeles Times and Los Angeles Daily News urging a quick sale of city lots.

Nobody is debating whether or not the city is in a dire financial state, but rather whether a plan to basically privatize a public resource is a good idea.  Below are 4 questions that the Council needs to know the answers to if they’re serious analyzing the proposal and not just being a rubber stamp.

The best known parking lease plan in America was the leasing of metered and street parking spaces in Chicago.  To put it mildly, Chicago got fleeced.  Morgan Stanley has raised parking rates and already recouped their initial investment.  The next seventy three years of their lease will be pure profit.  Children not even born will have grandchildren paying for this sweetheart deal because the Chicago politicians were too scared to raise meter rates on their own.

Thus, the first question should be: How does Los Angeles avoid becoming the next Chicago?

And let’s be honest, a closed-door discussion of the issue doesn’t inspire confidence that our city’s leaders are confident they can get the best deal from a parking agency.

Business groups in Hollywood, Westwood and the Downtown have fought the privatization plan, but they’re basically doing so because they believe that subsidized parking is key to local business models.  Drivers and businesses basically went on the warpath after the city raised meter rates and installed smart meters in 2009.  City Watch will never be happy with any deal that gives the city more money.

But here’s the rub.  Those people are basically arguing for a subsidy for parking their car.  If the city believes a private operator can make enough profits to temporarily fix the city’s budget, it means that it believes that the operators are going to do so by raising the rates.  In other words, the city hasn’t been pricing its spaces at market value and has been subsidizing the cost of parking in city owned garages.

So here’s the second question: Rather than outsourcing profits, why doesn’t the city just raise the rates at these garages?

In today’s editorial, the Daily News basically calls advocates of market rate parking who believe the Council has the guts to do this their own dayreamers:

And those who think the City Council will on its own make the financially responsible but politically difficult choice of raising rates and ending parking subsidies have their heads in the sand. The council has consistently balked at making hard choices for the good of many when confronted by the protests of the few.

But outsourcing the political will to adjust parking costs to meet the market rate did not shield Chicago pols from public outrage when rates went up and the profits went to Morgan Stanley instead of the City of Chicago.  That the beneficiaries of subsidized parking won’t get mad at the city when rates go up have their heads in the same theoretical sand.

If the city believes these garages aren’t something that can raise revenue, and believes that they are going to fleece the private operator; that means these garages are a bad use of public spaces.  Land is one of the most valuable resources in the city, and if we’re wasting some of it on parking, and the city doesn’t mind losing control of the land, our next question is obvious.

Why aren’t we looking at just selling the land outright?  If someone wants to operate a parking lot, fine.  If someone wants to use the land for something else, why not?

And here’s the last question, and one that’s been so ignored that the leasing plan hasn’t even been heard by the City Council Transportation Committee.  What impact will leasing these garages have on local traffic circulation and any long-term reforms that future mayors or Councils might want to implement?

Nobody is discussing this, other than the below-market rate advocates who worry the increased rates will drive away business.  A study by LADOT or some other parking expert, should be a prerequisite before any city makes a plan to lease their public parking.

Hat tip to reader Ryan Lehman

Privatizing public parking has been referred to in some circles as "the outsourcing of political will" to raise parking fees.  In short, because politicians don't have the spine to raise parking fees, they sell or lease their parking meters and garages to the highest bidder.  The city has a one-time payment, usually used to fund a related transportation project, and the proud owner of public parking makes a windfall profit over the life of the lease.

Ever since Mayor Villaraigosa first announced his intent to lease the city's parking meters and garages to temporarily plug the city's budget hole, the news for supporters of privatized parking has not been good.  Because of the recession, the money to pay for "public-private partnerships" is drying up driving the money that a city can expect for a transportation structure down.  Conversely, in Chicago, the other major American city to privatize, their parking dollars were basically stolen in the name of "public-private partnerships" by the buyer who is getting rich off what should be public funds.

But that isn't stopping the Mayor from keeping up his public relations campaign.

The city's website now features an interactive "game" called the Los Angeles Budget Challenge.  Basically, in an effort to "educate" voters and residents on how hard it is going to be for our elected leaders to balance the budget, "players" are asked to make decisions on a series of possible "cuts" and "revenue enhancements" and the site shows you how your decisions can help close the city's $400 million budget chasm for the 2011 fiscal year.

There's just one problem, it's impossible to close the budget in the game without privatizing public metered parking, garage parking, or both.  In politics, this tactic is called a "push poll."  Instead of actually seeking input, it would appear the point of this series of questions is to push the idea that selling the rights to collect city meter revenues is the holy grail that will magically fix our budget.  There is, of course, no reference to the cost in terms of development or long term fiscal losses that the city will endure under any privatization scheme.

Streetsblog isn't the only journalist to note the city's attempt to push parking privatization through the Budget Challenge.  City Watch Greg Nelson writes:

I had the pleasure of meeting him at a national conference in New Hampshire last year and we’ve stayed in contact.  I’m even his Facebook friend.

Tim took the budget survey and noted that if the responders are too achieve the goal of closing the city’s estimated budget deficit, it can’t be done by selecting all of the proposed cost cutting measures. 

The survey is designed so that we must agree to entering into a public-private partnership agreement for at least the city’s parking structures.

Parking privatization isn't the only Livable Streets Issue that is discussed in the challenge.  After the jump you can see screen shots of questions on open space, transportation funding, parking privatization, and parking fees.

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It's been six months, to the day, since we last checked in on the Mayor's desire to privatize the city's parking meters and publicly owned parking garages.  Under the Mayor's draft plan, the city would get an as of yet undisclosed amount of money to turn over the money generated by its parking assets.

While half a year hasn't been enough time for J.P. Morgan Chase to finish the study which would tell the city how much to expect for the sale of its meters.  While we wait for the investment firm to encourage the city to its cash cow for a handful of magic beans, there have been some changes in the privatization front from around the United States.

First, in Chicago, where meters were privatized under a deal with Morgan Stanley, it looks as though the city was more than fleeced.  Writing for Streetsblog back in June, John Kaehny writes that while the city received $1.3 billion for a seventy five year lease, it will cost those parking nearly $975 million in income that could have gone towards nearly anything.  While Chicago pols made a short-term political calculation, the city handed over a staggering 146% rate of return for the investors.  In other words, let the seller beware when taking advice from investment firms when it comes to pricing their meters.

Of course, there are also smart growth and urban planning reasons not to hand over street parking to investors.  Most importantly, it effectively kills efforts of communities to remove street parking and better opening the street to all users.  Chicago communities are already complaining that they've lost control of their streets that are now in the hands of private investors.

Of course, the Mayor's office isn't pushing privatization because it's good urban policy.  It's pushing it because it's looking for a quick fiscal fix during the recession and decreasing tax receipts.  Bad news on that front too.

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It appears Chicago politicians who privatized city parking meter
operations traded short-term political gain for long-term fiscal pain.

Chicago may have left as much as $974 million on the table under the terms of last year’s agreement with Morgan Stanley. A June report from the city inspector general [PDF]
blasted the deal for being rushed, secretive and vastly too expensive
for taxpayers. The report’s revelations incensed motorists already antagonized by a ragged roll-out of meter rate hikes.

All
in all, it wasn’t the money for nothing bargain the City Council seemed
to think it was back in December when Morgan Stanley handed over a
check for $1.157 billion. This manna from Wall Street plugged the
city’s gaping budget hole and allowed the council to avoid painful tax
hikes and service cuts. It also enticed lawmakers in Los Angeles and
Philadelphia, where officials were considering their own parking
privatization deals.

In return for the upfront cash, Chicago
leased its 36,000 parking meters for the next 75 years to the
Morgan-led consortium, and granted it the authority to double and
triple meter rates. By 2013 downtown meters are slated to double to $6
per hour; neighborhood meter rates are to double to $2 per hour.

The
deal was pushed hard by Mayor Richard Daley. The core of his
privatization argument was that Chicago lacked the political will to
raise meter rates and that desperate fiscal times demanded unlocking
the value of public parking. He noted that city meters were only
generating about $20 million a year, and because of neighborhood
resistance, meter prices hadn’t gone up in 20 years. His conclusion was
that Chicago had to outsource the political will to raise meter rates.

However,
the inspector general’s report concludes that, "If Chicago were to keep
control of the parking-meter system and operate it under the same terms
as the private company, the system would be worth approximately $2.13
billion (in present dollars)," or $974 million more than the city
received. Ironically, another cost of Chicago parking privatization was
that it
quashed a number of neighborhood-supported parking improvement
districts, in which higher meter fees were to be invested in local
pedestrian, bicycle and transit improvements.

While
public-private partnerships can be appealing because they require
motorists to pay more of the actual cost of driving, are these deals
really the only way to overcome political resistance to higher motoring
fees?

This weekend, the Times looked into some of the pitfalls the city should strive to avoid if and when it privatizes its metered and public garage owned-parking.  The Times correctly warns that while the scheme may close a budget hole temporarily, it opens new ones in the long-term. However, anyone expecting an essay on how losing control of its parking imperils a city's ability to kick its car addiction is going to be disappointed, the article focuses almost exclusively on the cost to drivers.

We've already discussed at length some of the other concerns that need to be raised, and raised quickly, if we're to make enough noise to reach politicians through the haze of a promised quick fix of cash.  First off, the city needs to explain why it makes more sense to allow a private company to raise parking rates to fill its coffers instead of the city needing to do the same itself.  Second the city needs to explore what are the impacts on transportation planning and parking reform.

That being said, the Times piece does contain one crucial piece of information:

Villaraigosa plugged an $80-million figure into his 2009-10 budget, but administration officials expect the gain to be substantially larger, depending on how much property is auctioned and how the deal is structured.

In other words, the upcoming budget assumes that metered parking is going to be  privatized and that the city is going to receive a windfall.  Unless that language is changed, any City Council Members that oppose Villaraigosa's scheme are going to face extra pressure to bow to the Mayor's wishes or explain to their constituents why extra cuts or tax increases are underway when the final privatization proposals are presented to the Council later this year.

Thank goodness for KNBC or maybe the City Council's decision to spend half a million dollars to study parking privatization may have passed without any news outlet covering the story.  Did I miss something, is parking and parking rates not a major issue in Los Angeles anymore?

Regardless, the Los Angeles City Council voted yesterday to further explore selling the rights to collect revenue from the city's parking meters for an undisclosed amount of time for an undisclosed amount of money.  The city hopes to use the proceeds to fill an $80 million hole in next year's budget.  The rest of the proceeds would go into reserve accounts.

The lone dissenting Councilman was the Valley's Greg Smith, who questioned whether or not the timing was right to sell the rights to the city's meters given the national fiscal crisis and what the city was going to do with out the $45-$50 million the city nets every year from 41,000 parking meters and parking lots at Hollywood & Highland complex, Pershing Square, the Cinerama Dome and lots on Robertson Boulevard and Broxton and Cherokee avenues.

Councilman Greig Smith cast the lone dissenting vote. He argued that the city was being shortsighted in selling its assets for an influx of cash when the parking lots and meters provide a constant revenue stream.

"We're selling property at the bottom of the market. What a stupid idea," Smith said. "If we were stockbrokers, we'd be in jail with Bernie Madoff for this kind of scheme. This is foolhardy economics."

To read more about the effort to privatize parking in Los Angeles read our mini-series from a couple of weeks ago and for some balance, the series by the Reason Foundation in response.

For the politicians looking to close a loophole in the city’s budget through privatizing street parking, the biggest question is going to be “how much money can the city get” for leasing enforcement and collection of paid street parking.

Reporting from this week’s City Council hearing, Joe Linton writes, “The city is facing a $35M deficit in the current fiscal year.  The deficit projected for next fiscal year was projected at $433M (out of a $7B budget), but that forecast is being revised to about $530M.”  If Chicago got $1.16 billion for leasing control of its 36,000 meters, Los Angeles should be able to get at least that much for it’s 43,000 metered spaces, right?

Not necessarily.  First, given the backlash that the city experienced for just raising the hourly rate for many meters, can we really expect the Council to either let the investor decide the new rates or agree to a series of rate increases that would place L.A.’s parking rates at the top of the country’s?

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Thus far, the discussion on how to, and whether to move forward with a plan to privatize the city’s metered street parking has focused on what impact a similar plan has had in Chicago.  The final deal between the Windy City and Morgan Stanley netted Chicago $1.16 billion up front, for turning over parking revenue, enforcement, collection and maintenance for the next 75 years.

The biggest complaint that a privatization plan has is that such a plan almost always costs residents money in the long-run as the companies who sign the contract recoup their investment and then make millions or even billions over the course of the contract.  That’s a big price tag to plug a budget hole and outsource the political will to raise parking costs. 

The Chicago Tribune estimates that if Chicago pols had shown the guts to just raise parking fees at the same rates as Morgan Stanley, that the city would have brought in $1.5 billion over the life of the contract, over $300 million more than the initial payment the city received.

And, those rate hikes were pretty steep, all things considered.  Assuming that Los Angeles follows the same model as Chicago, the first thing Angelenos are going to have to accept is that the cost of parking on the street is going to go up by a lot, and go up quickly.  Following their agreement with Morgan Stanley, the city outlined a series of rate hikes that will soon give Chicago the priciest street parking in all of America. 

While the impact of increased street parking is generally good news for reformers, increased rates have historically led to less driving, the Chicago model put none of the upfront money towards transportation projects.  In short, they raised the cost of car driving, but did nothing to make other options more attractive.  Originally, Chicago tried to sell the privatization scheme to residents by promising better bus and Bus Rapid Transit service.  Somehow that part of the deal got lost in the paperwork.

So how will that $1.16 billion be spent?  The website Progressive States explains:

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Privatizing street parking.

There are few transportation-related measures that will generate more controversy, more heated discussion and more strange bedfellows than a proposal that combines flashpoint issues from across the spectrum: Smart growth, privatization, parking, urban planning and budget issues all wrapped up in one neat package.

And now, Los Angeles is considering privatizing our street parking. 

On Monday, a joint meeting of the Budget & Finance and Transportation Committees, a report was presented from the Office of the City Administrator about the benefits of the city selling the rights to maintain and collect revenues from the currently-owned city parking.  In attendance were Councilmembers Bernard Parks, Bill Rosendahl, and Wendy Greuel.  Also present were a small horde of business interests looking to cash-in.

It’s not like we’re going to wake up tomorrow and the city will have handed over control of its parking meters.  However, because the city is looking to collect a one-shot fee to plug a budget hole for the next two budget years;  unless someone stands up to fight the proposal we could end up seeing a rushed process that is all about the city’s short-term budget needs.  Such a deal could leave Los Angeles with another significant hurdle to bringing the kind of transportation reform the city really needs.

I was planning a giant post on the issue for tomorrow, but realized that it's just too big to write about in one sitting.  So, as the city begins to examine the possibilities of temporarily closing a budget loophole at the expense of a revenue stream for the long-term; Streetsblog will devote a significant portion of time and effort into examining the pitfalls and opportunities of privatizing city parking.

Tomorrow, we’ll talk about some of the transportation reform issues that are being experienced in Chicago, a city that recently privatized its street parking.

Thursday, we’ll discuss some of the issues about how to price the contract from potential bidders and how to control rate increases.

We'll take a break on Friday, since I'll be out of town.

Next, we’ll talk about some of the long-term transportation issues the city should consider in drawing its RFQ.

We'll wrap next Tuesday with a synopsis and try and answer any questions that come up in the comments section.