PGH Council's study implies parking lease price is fair (leasing, neighborhoods)

[BrianTH]

Here is a link:

Council gets study of pension fund solutions

Key excerpt:

The study valued the parking assets. The consultants estimated that the net present value of the garages and meters ranges from $286.2 million to $470.7 million, but noted that certain factors, such as parking demand, could skew the numbers. The number they felt most fair was $401.1 million.

The final bid was more than the estimated fair value, and actually pretty close to the top of the range.

The study also discusses the available pension funding options, basically adopting a least-bad framework. There is a lot of speculative stuff and I personally think the treatment of the pros and cons of the lease seems biased, but even so I think the fair conclusion is that if the City got a good enough bid, the lease option was likely the least-bad. And it got a pretty good bid, according to the study.

[pman]

seems like another plug. I've been impressed with how the mayor's office has handled it so far and it certainly shows in the bid. obviously the high bidder had some different assumptions but it certainly shows that there's risk involved in not selling the garages. does the study take into account smaller things like adding city owned assets back to the property tax rolls?

[BrianTH]

I actually wonder if this is a case of winner's curse:

Winner's curse - Wikipedia, the free encyclopedia

You'd kinda expect a result in the high side of a reasonable range if it was:

In a common value auction, the auctioned item is of roughly equal value to all bidders, but the bidders don't know the item's market value when they bid. Each player independently estimates the value of the item before bidding. The winner of an auction is, of course, the bidder who submits the highest bid. Since the auctioned item is worth roughly the same to all bidders, they are distinguished only by their respective estimates. The winner, then, is the bidder making the highest estimate. If we assume that the average bid is accurate, then the highest bidder overestimates the item's value. Thus, the auction's winner is likely to overpay. . . . In the 1950s, when the term winner's curse was first coined, there was no accurate method to estimate the potential value of an offshore oil field. So if, for example, an oil field had an actual intrinsic value of $10 million, oil companies might guess its value to be anywhere from $5 million to $20 million. The company who wrongly estimated at $20 million and placed a bid at that level would win the auction, and later find that it was not worth as much.

There is also some discussion there about how bidders can avoid the winner's curse, but you could also imagine how the two-step auction process was designed in part to defeat those measures. Pretty clever stuff being done by (or on behalf of) the City.

Anyway, here is the study:

https://docs.google.com/fileview?id=...dmT734Eq&hl=en

I only looked at it quickly, but the three main options considered are retaining the assets and allowing a takeover, retaining the assets and issuing a bond, or leasing the assets.

[BrianTH]

By the way, you could see this coming:

Parking report lacks conclusions

That article headlines the $2.4 billion in total revenues estimate, the cumulative total spread over 50 years. Eventually they get around to explaining what that means in present value terms, and that is actually what counts (particularly when you take into account all the risks associated with that total revenue estimate).

[pman]

two notable things in that article:

[LEFT]He said his estimate was "more conservative than aggressive"...[LEFT]Councilman Ricky Burgess, a lease proponent, said the study reinforced his commitment to the plan. He said he wants to take $120 million in lease proceeds and use the money to stimulate investment in city neighborhoods, including some that might be hurt by parking rate increases.

Read more: Parking report lacks conclusions

the study really only shows that the estimate isn't conservative. the major flaws with any discounted cash flow analysis/NPV will always be the assumptions that have to be made. you make different assumptions, you get different values. anyway, the last part is exacltly what I'm afraid of. council divying up some pork as a sop.
[/LEFT]

[/LEFT]

[BrianTH]

I don't want to repeat our argument from the other thread, but I will note if you want to compensate for more expensive parking, it would make sense to invest in public transportation, and maybe walking/biking infrastructure.

[pman]

Originally Posted by BrianTH

I don't want to repeat our argument from the other thread, but I will note if you want to compensate for more expensive parking, it would make sense to invest in public transportation, and maybe walking/biking infrastructure.

it could help but it's far from a sure thing that it's a good use of the money, or that it won't go into pet projects, streetscape projects, and other things of that nature.

[BrianTH]

Originally Posted by pman

it could help but it's far from a sure thing that it's a good use of the money, or that it won't go into pet projects, streetscape projects, and other things of that nature.

Yeah, that's the argument in the other thread.

Here, I just wanted to make the point that random investment in various neighborhoods doesn't make much sense as a response specifically to more expensive parking. To address that issue, you need to be fostering alternative modes of transportation.

[pman]

[LEFT]But Martin Berger, a Downtown business owner and longtime parking lease holder, is among those suggesting the city would be getting hosed.
"They're selling a billion-dollar asset at half-price,'' Mr. Berger said, "to the shrewdest investors in the world.''

Read more: Parking-pension fix is certain to be costly[/LEFT]

I wonder if they've considered selling, rather than leasing, some of the assets rather than leasing all of them.

[BrianTH]

That was a pretty silly column--to be blunt, there is no particular reason to believe that Mr. Berger knows what he is talking about.

There was a brief discussion about selling the assets, which I would have been fine with at least in the case of the garages, but the lease lets them set a lot more conditions and reserve a lot more control in the future, which the City preferred.