Friday, July 23, 2010

Passing Parking Pontifications

Even though there was a bit of news yesterday about the planned parking asset monetization, I think the real thing to note is just how little interest the public has in all of this.  So what the city is about to sell off ~$300 million in parking assets and raise parking rates throughout the city. No big deal I guess.  If this does not pique people's interest then it's not a big surprise dozens of other issues don't get on anyone's radar at all.

There are more meetings set to discuss the proposed parking lease if you want to participate.

On public reaction, I am also surprised there has been no palpable reaction among the public or media to the jump in parking fines that has already been implemented.  You would think a doubling of many parking fines would at least spark some notice.  I am just surprised that it really has started up without much notice at all.  As to what is coming down the road, I am more surprised all the small businesses in town are not reacting to the proposal being floated as part of all this to extend meter hours from 6pm to 10pm.

But for those asking my current thoughts on the plans to monetize parking assets in the city of Pittsburgh, I have nothing new to say really. Here is a compilation of what I have said in the past for the most part:

Parking garages and parking meters are different issues.. have different policy implications and really don't have much to do with each other in an economic sense.  Maybe they both should be 'sold', maybe neither, or one and not the other. At the very least they should be debated separately and the decisions on what should happen to them should be made at least somewhat independently. Right now this is all being pitched that they are locked together as a package.

Sell vs. lease.  I have to admit I am leaning this way myself, but some very top economists in town have said for the parking garages that they should be sold outright and not leased. Was that advice even considered I wonder?  You can make the argument that leasing gives the city greater control over arguably public assets, but I think it's the other way around actually.  Control over the economic development impact of parking assets can be secured through effective and focused zoning laws and enforcement.  I suspect that a lease agreement between the city and leasor will wind up having a lot more restrictive covenants on what the city can do development-wise in Downtown and environs.  The leasors will want restrictions to prevent their investments, retrictions that probably won't result if you sell some of the large assets outright.  Either way, they are not going away and the parking supply will be there from those garages for some time.  The question is what other developments may or may not happen under either scenario and I bet a leasor will want promises the city does not develop any other garages near Downtown... possibly including other restrictions that prevent others from building large new parking supply as well.  (what is up with the big empty lot across from the city county building anyway....  prime space?)

Speaking of sell vs. lease..  Sell the garages and they will start generating property tax eh?  Lease them and presumably they will not.   Hmm.....  At the end of the day, that is a big part of what is going on here. It's not really privatization as much as a leasing is just monetizing the next couple decades of potential property tax payments into cash.  Somehow Henry George is tied up in all of this..  Hold that thought.

At the end of the day there is the elephant in the room and the city's pension miasma. The city's pension fund is well below the Mendoza line of pension funding and has been for some time. As disclosure I guess I pointed out the inevitability of the parking garage sale in the past.  Like the idea of monetizing the parking assets or not, there are few other things left to alleviate the problem. Will it solve the problem?  Of course not.  I am surprised the debate is still talking about the pension system needing $200 million just to get it to 50%.  That number is already outdated, and will be further underwater by the time current data on the pension fund is released.. let alone where we will be by late fall.

That's not to say there are not other options per se.  Some have been proposed already.  The inevitability is on the monetization of the parking assets, but what form that takes is open.  From a pure economic standpoint, is any sale or lease that much different from floating a revenue bond of similar value?  Not really. Parking is a unique story unlike other proposed 'privatizations' if you want to call it that..  There is very little a private operator will be able to do with the assets that a public manager is not doing already.

50% by the way still counts as one of the worst funding ratios for a pension system anywhere in the nation. Public or private. So our big goal here is still to be the distant outlier when it comes to pension underfunding.  I estimate that right now netting $200 million will put the city's funding ratio at about 45% which is where it was at in 2005 which was not long ago.  So no reason to think the issue is being solved as much as pushed ahead a few years. 

Which leads to one of the funny angles to all of this.   The whole effort being described as an effort to pay more into the pension system is really just an effort to pay less into the system.  The result of not trying to use parking assets to get to a 50% funding level is the spectre of the state "taking over" the pension system.  Legally the state can't lower obligated pension payouts any more than the city can now.  The threat is that the state would require the city to make larger annual payments than it is currently.  Yet the state has no distinct criteria for funding pensions.  If the state will require larger payments it is mostly because their, presumably independent, actuaries are anticipated to calculate a larger minimum payment to get the Pittsburgh pension funds on a path to solvency.  The goal here is all to keep that from happening, thus to keep the city in control of the pension system, and thus have the city actuaries' lower calculation of annual pension funding be used for year into the future. 

So my only prediction is that given the nature of the assets and the state of financial markets these days the bids will come in relatively high for whatever is put up for sale or lease.  Low interest rates these days that the $$ needed for this can be borrowed at very minimal cost so any company with the capacity to borrow at that scale is going to do this with virtually free money in a sense. These are large public assets with future revenues virtually assured by statute and regulation and for the foreseeable future a captive market. It should all end up resulting in being a really good deal for someone and you hope that translates into larger bids.  Possibly a naive thought.  But if I am right, the big $$ being put on the table will blind all other sensibilities and this will all pass without as much consternation as some may be anticipating.  Time will tell. 

Getting near the end here  All this effort to 'monetize' Pittsburgh Parking Authority assets is curious.  No thought of trying to monetize even other public parking assets?  I think the Stadium-less Stadium Authority has some parking assets, as does the URA.  It will be even more curious if the bids don't quite get the pension funds to 50% and just a little more is needed. 

On the "more may be needed angle".   What is up with the $$ of city surplus socked away in the pseudo 'lockbox' because nobody wanted to literally defease debt last year?   I just bring that up because again, if this all gets us to say 45% funding, I bet that comes into play.

Finally...  my 'prediction'.  I suspect the lease will happen...  the 50% funding won't be achievable from the proceeds and the state of the pension fund as of December.  The state still takes over the pension system as it were. The city holds the money with the argument that it needs to hold cash to make the higher annual payments and basically everything is the same except the city now has a big pot of cash to burn through.

Is the ICA still around?  That is only a semi-rhetorical question. A more substantive question may be how much longer it will be around in the future. 

So with all that...  a summer Friday and all..  this and all other related discourse will be lost in the ether.  If you have read this far I will send you a merit badge.


Anonymous Anonymous said...

Much like the North Shore Connector the public will not complain until the deal is done and its too late to back out.

Friday, July 23, 2010 8:13:00 AM  
Blogger Mark Arsenal said...


Oh, the post is over? Sorry, I don't drive so I wasn't paying attention.

I know that's not everyone else's excuse, but it's mine. Personally, I'm all for tearing the garages down and putting something I'll use in their place :P

Friday, July 23, 2010 8:14:00 AM  
Anonymous BrianTH said...

I suspect the big advantage of a lease over a revenue bond from the City's perspective is that it makes the politics of a big increase in rates more favorable. But they may also get a better price--if the bidding is competitive. That could be true not just because of operating efficiencies, but also because a private operator may be able to diversify/hedge their investment in ways the City really can't.

Friday, July 23, 2010 9:59:00 AM  
Anonymous MH said...

The city holds the money with the argument that it needs to hold cash to make the higher annual payments and basically everything is the same except the city now has a big pot of cash to burn through.

All the cash goes to hire somebody's cousin as a consultant and in 2013 Pittsburgh is selling the right to push a barge up the Mon and wondering why the Army Corps of Engineers keeps sending nasty letters.

Friday, July 23, 2010 12:10:00 PM  
Blogger Vannevar said...

Is there a blogging merit badge? There should be.

Friday, July 23, 2010 2:57:00 PM  
Blogger C. Briem said...

Friday, July 23, 2010 3:22:00 PM  
Anonymous Patrick said...

Selling the garages right now may be as bad an idea as selling one's house (or the State Office Bldg); we're in a recession, so potential buyers are not in as good a position as they might be in a couple of years.

Remember, no pensioners are in danger of not being paid any time soon - the problem is the state/feds has deemed, by statute, how much the city must set aside as "just in case" money, i.e. just in case the entire payroll decides to retire en masse in 2011. Whether or not the "just in case" fund meets 50% of "fully funded" has more to do with the price of the stocks the pension fund has bought, and less to do with the city's financial situation.

The state legislature has also, by statute, deemed that physical buildings like parking garages, CANNOT be considered assets of a pension fund, which was the Lamb-Down idea. (The state legislature could change the statute, but...)

Why not create a dummy corporation, "sell" the garages to this corporation for $1, in exchange for the pension fund getting a controlling interest of the stock in that corporation, for say $0.51? Then sell the rest of the stock in increments so as not to sell it all during a recession, set the value based on the price of the stock?

Oh, it's probably in violation of some other state statute, which was passed by the legislature, and could (like all statutes) be amended by the same state legislature.

Turzai? Frankel? Any better ideas? Other than making the pension fund buy lots of stock, which requires transaction fees, attorney fees, etc, etc.? I wonder if the brokers who would potentially profit from those transactions are politically active, and may have donated to the campaigns of influential members of the State Legislature? Or the Mayor? Hmm...

Saturday, July 24, 2010 12:04:00 PM  
Anonymous MH said...

how much the city must set aside as "just in case" money, i.e. just in case the entire payroll decides to retire en masse in 2011.

I'm no expert, but I'm fairly certain that is wrong. For an actuary, a pensions plan's outlays are not a hard calcuation. Obviously, a pension plan's returns are much harder to guess, but nobody both sober and honest would say Pittsburgh's plan could plausibly cover its shortfall by higher returns.

Not that I wouldn't rather not sell the garages.

Saturday, July 24, 2010 3:38:00 PM  
Blogger C. Briem said...

Not that I wouldn't rather not sell the garages.

Is that a triple negative?

For Patrick. I'd be careful with the question of timing. Saying the price will be better in the future is akin to advising someone to try and time the market for investing in equities.. something which is generally not such a good idea. This isn't a prediction in any way, but I can think of a dozen reasons that could make the specific market for parking garages be less in the future than now. Generalizing from the national macro state of things is important, but far from the only thing that matters in this narrow market..

As for the rest. I also think the parking transfer to the pension fund is not quite legal as it stands now. Could a creative lawyer figure a way around that, I bet. But creating some shell company for that process is really akin to what we have already done with the monetization of the city's water department and the creation of the PWSA and we have seen what a mess that has been governance wise.. so I can't imagine we want to repeat that.

but the idea that things are not dire because you say nobody is at risk of not getting paid is just pure denial. Pension funding ratio overall is below 30% for sure at this point. Police funding ratio is probably 20% or less as I type. Those numbers are effectivly bankrupt as pension systems go. City is in fact pretty much in a pay-as-you-go situation RIGHT NOW. These are funding ratios that are a fraction of the ratios of systems considered in dire shape. If things are not dire now then 5 years ago things must have been just peachy? Yet the trend was clear.

Sunday, July 25, 2010 1:38:00 AM  
Anonymous MH said...

Is that a triple negative?

I was told to avoid double negatives. Triple wasn't on the test.

Sunday, July 25, 2010 9:27:00 AM  

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