Top bidder offers $452 million for parking lease (Pittsburgh: leases, insurance)

[BrianTH]

We noted this briefly in another thread, but I think it deserves its own:

JP Morgan group bids $452 million for Pittsburgh garages

If accepted this would mean there was something like $120 million or more available after paying of the parking authority debt and getting the pension to 50%. It may well be the case investing the rest in the pension too would be the best idea, but I'm sure they will look at multiple options (although if investing in the pension is a good enough deal, they could always issue bonds for other projects).

I'd also note that Chicago, a city roughly 10 times the size of Pittsburgh, leased its parking assets for 25 more years (75 instead of 50), and only got about 2.5 times as much ($1.16 billion). So at least relative to that, this seems to be a decent deal.

[pman]

the advantage of putting it in the pension is guaranteed as is debt reduction. anythung else you run the risk of squandering it. getting the pension up to 70 pct would be a game.changer from a long term perspective. hopefully they wont get greedy, should be a boost for the mayor

[grimacista]

Obviously you have to study other options to see if this is the best deal possible. However, if it is, all of the money should go to fixing the pension disaster and paying down the city's long-term debt. While street paving and snowplowing in the city seem relatively nonexistent, I think it would be a mistake to use this prospective 'windfall' on any kind of short-term expenses. This city has been killed by mountains of debt and onerous retiree benefit plans for decades and this may represent an opportunity to really make a dent in that. Hopefully they don't squander it on neighborhood themed trash cans at $700 a piece but after hearing Doug Shields on the radio say that bids for the garages on the open market do not reflect the market value of the asset, I wouldn't be surprised if the money was blown.

[BrianTH]

If further reducing the pension shortfall would have a proportionate effect on the City's required payments, I'd tend to think that was the best use of the funds. But to make an argument for the other side, the pension crisis is in part the fault of the state (primarily through Act 111's binding arbitration scheme and Act 205's scheme for taxing insurance and then allocating the funds), and I could see an argument for holding out for state reform first before doing more than the minimum required.

[BrianTH]

Another informative article:

Parking lease is best of Pittsburgh's few options, mayor warns - Pittsburgh Tribune-Review

One thing to note is that this deal is really for more than $500 million, since it includes mandatory capital investments (for things like restoring garages, upgrading parking meters, and installing a phone app program to direct potential parkers to vacant spaces) that would total over $50 million. In fact I suspect there are additional mandatory durable expenditures that would further increase the total value of the deal to the City.

[tranceFusion]

doesn't this essentially give the investors a monopoly on parking? in other words, prices will become insane?

[BrianTH]

Originally Posted by tranceFusion

doesn't this essentially give the investors a monopoly on parking? in other words, prices will become insane?

The garages are already in competition with private garages, and to some extent so is street parking. Also, the leases contain some limits on rate increases.

Generally, though . . . first, to the extent the street parking has something of a monopoly, you are just swapping one monopolist for another. Second, what you would adopt as an ideal public policy for parking pricing is actually pretty close to what a monopolist would likely do.

Basically, from a public policy perspective, you would want parking rates set high enough to ensure there were a few spots available for potential parkers in the relevant area (a typical number is that you would want around 85% occupancy). That is because if occupancy rates get too high, you get a lot of people driving around looking for parking, and that is bad: it causes additional local street congestion, increases air pollution, increases the risk of car accidents, and so forth. And in terms of parkers, what you are doing is swapping people who care more about saving small sums of money in for people who care more about their time and convenience, and that isn't really conducive to maximizing local economic activity.

Meanwhile, a monopolist seeking to maximize revenues is likely to end up with a similar occupancy rate, in part for the last reason mentioned above (they get the most revenue from having their parking go to the people who are most willing to spend a little more money). There may not be an exact match so you might want to retain some control over rates, but overall the dangers of below-market-rate parking are much higher than the dangers of monopoly-priced parking from a public policy perspective.

[tranceFusion]

Well, previously the private garages would have been in competition with the city garages with artificially low prices.

You are assuming though that parking is elastic.. I would assume that given the number of people with long term commitments that require parking downtown that the the demand may change little yet people will have less money to spend while they are there, which could have a negative effect on the rest of the local economic activity, at least in the near term.

.. not that I against the free market, in fact it would have made more sense if the parking garages were always public. We may have had more investors willing to compete for parking, building new garages, all along if they didn't have to compete with the city garages. I am just annoyed about the effects caused by a potential instant 300% increase in parking costs.

[tranceFusion]

Also, are the pensions a thing of the past? or are workers still receiving them? In other words, is this an actual fix, or just a band-aid while the pension demands continue to grow?

[BrianTH]

Originally Posted by tranceFusion

Well, previously the private garages would have been in competition with the city garages with artificially low prices.

Correct, but that would mean the new outcome would not be monopoly pricing for garages, but rather the end of subsidized below-market pricing.

You are assuming though that parking is elastic.. I would assume that given the number of people with long term commitments that require parking downtown that the the demand may change little yet people will have less money to spend while they are there, which could have a negative effect on the rest of the local economic activity, at least in the near term.

It is likely the elasticities would grow over time (at least that is how it works with increases in gas prices, and I would assume it would be similar with increases in parking prices). As for substitution, I don't think there is any particular reason to assume the increased parking payments would come exclusively from funds that would have been spent where the car is parked, as opposed to wherever the car is coming from, or anywhere else the relevant individual spends money.

I am just annoyed about the effects caused by a potential instant 300% increase in parking costs.

It won't be instant and it won't be 300% in many cases. But I agree there will likely be some costs to making the transition--people get used to their subsidies, and it takes them a while to stop grumbling about losing them and just adjust.

On the plus side, things like going to credit card meters, the cell phone app to locate vacant spots, renovated garages, and so on should be well-received if properly implemented. I think this is an underdiscussed aspect of the deal: these improvements would cost the City $50 million or more if they don't do the lease deal, which means they probably would be deferred indefinitely.