Monday, June 06, 2011

Pension Parking Permutations again

I regret the snark, but if you want to see how professionals monetize parking revenues see the Bond Buyer today: MBTA Uses Parking to Get Ahead.

No need to sell off the assets, no need for any existential waving of hands about what is, and what is not, an asset.  Simple, or at least time-proven and financially well understood. But no, we can't do this here.  Council refuses to sell assets and administration refuses to do a bond, but you know... at the end of the day these options are all far more similar than they are distinct.  The machinations are really all just about how it appears to the public in the end.  One way or another, we really don't need a fraction of the drama we get.

Speaking of debt, this also in BB reminds me of other greater pain we keep putting off: St. Louis Sewer District Submits $945M Bond Plan for Capital Projects.

20 Comments:

Anonymous Anonymous said...

Chris,

This exactly the type of deal we originally attempted last year. We considered non-profits like the RIDC, the URA, the county, etc. We also considerred creating a non-profit for this purpose. Unfortunately any of those options only work if you have the support of the administration, which we did not.

Michael Lamb

Monday, June 06, 2011 9:19:00 AM  
Anonymous MH said...

Cheer up. This could all lead to a nice example of intransitive preferences for the rational choice people to use in text books.

Monday, June 06, 2011 10:04:00 AM  
Anonymous BrianTH said...

There are lots of ways to structure these deals, but the following are non-trivial issues, particularly for very long arrangements:

(1) Who takes on the revenue risk?

(2) Who takes on the maintenance/upgrading risk?

Monday, June 06, 2011 10:23:00 AM  
Anonymous MH said...

From the city's point of view, a lease limits the downside, but it also gives away any upside. A bond is the opposite. That's pretty clear.

Monday, June 06, 2011 11:14:00 AM  
Anonymous BrianTH said...

MH,

It is a little more complicated than that. Not all risks come with compensating rewards in the form of higher expected returns. One general category of risks for which you can usually expect no compensation is diversifiable risks.

Accordingly, it is generally a bad idea from a financial perspective for sovereign funds to invest in risky assets located within the relevant jurisdiction, because they are likely taking on diversifiable, and thus uncompensated, risk by doing so.

Of course for policy reasons a public authority may prefer to invest available funds in its own jurisdiction anyway. But if you have the option to swap positions with an outside investor and put your investment into assets located outside the jurisdiction instead, that will likely be a good idea financially.

Monday, June 06, 2011 11:49:00 AM  
Anonymous MH said...

When the assets in question are the outer most 5 feet of the streets, you aren't talking about diverifying risk. You're talking about selling a monopoly or tax farming. It is how ineffective governments have raised money since at least the days of the Romans.

The parking garages should be sold, but that is different.

Monday, June 06, 2011 12:06:00 PM  
Anonymous BrianTH said...

Monopolies face risks too. They still face a demand curve which can shift, still have costs, and so on.

And of course there is also an extremely long history of governments selling/leasing monopoly rights, thereby transferring a lot of the related risks to the buyer/lessee in exchange for a fixed financial benefit. Often governments have actually created and enforced these monopolies.

In that sense, none of these options are really fundamentally new.

Monday, June 06, 2011 4:13:00 PM  
Blogger C. Briem said...

while I take the point on where the risks reside, I think the panoply of risks in each option were greater than as depicited which generally made the options much more homogeneous in the long run than they would appear up front.

Monday, June 06, 2011 4:24:00 PM  
Anonymous MH said...

thereby transferring a lot of the related risks to the buyer/lessee in exchange for a fixed financial benefit.

If the city actually needs the leased asset, say so that you can stop your car, you haven't actually traded the downside risk. Somebody has just pretended to take that risk and will keep the profit if it works out and abandon the thing if it doesn't. It will happen pretty much the same way as the taxpayers got stuck for Fannie Mae.

The only point of the lease (as opposed to raising parking fees) was to provide political cover. I have no idea why they don't want to sell the garages. I suppose patronage.

Monday, June 06, 2011 4:54:00 PM  
Anonymous BrianTH said...

Chris,

I don't really understand what you wrote. For example, I would agree with the proposition that the revenue risks over the full term of the lease were likely higher than many people, including the winning bidder, were assuming. I'm not sure why noting that makes the options more homogenous.

MH,

I also don't understand your point. Say future revenues are less than expected because future parking demand growth is slower than expected. If the operator abandons the lease as a result, who cares? We got their money up front, and we won't have to give it back.

In fact even if they abandon it because of excessive costs, we are STILL better off because we got their money up front, and we are no worse off than we would have been if we had to pay the costs from the beginning.

Running a parking system isn't a risk-free annuity. It is a risky venture, and so it really does matter who bears the relevant risks.

Monday, June 06, 2011 5:05:00 PM  
Anonymous MH said...

We got their money up front, and we won't have to give it back.

Yes, you're right on that. Unless they some how bottle it up so that it can't be used. Not that it would be possible to cut maintance more than the status quo.

Monday, June 06, 2011 5:07:00 PM  
Blogger C. Briem said...

I would say that the question of this meta risk on the future of the Pittsburgh parking market are overwrought at the very least. Take that away and any differences go away.

but even if that risk is really out there. Even what was known publicly had all sorts of promises of future investment that was part of the calculation. The real issue, and llet's just say I am old and cynical, is that the contract with JP Morgan et al was never written so nobody can really say how the risk would plave laid out even superficially.

Remember, I was, and still am in general a proponent of selling the garages outright. If ever there was a rivalrous and excludable service provided by a public asset it is the garages. The city has not exercised them as a tool of economic development in many decades, if ever. but given the powers that be think that isn't such a good idea, I really don't see much difference in most of proposals floated to monetize the garages... except for the mega-life insurance buy that was proposed. That was by far the greatest idea ever. I mention it on occassion to folks from beyond the shores of the Mon and most just don't believe me that it was taken seriously.

Monday, June 06, 2011 5:45:00 PM  
Anonymous BrianTH said...

Chris,

Google has people working on that very issue. Are you really saying there is no chance Google will succeed? Given 30 years?

I think your point about future investment promises is valid (that falls into the cost-risk category), as of course would be any similar point about revenue-sharing provisions. But I am not trying to say anything in particular about any particular version of the deal--I'm just saying these are real issues and it matters how you structure the deal.

Incidentally, I agree about the merits of selling the garages, no strings attached. But I also think MH has a point about street-parking--the government has to stay involved in some way with regulating the use of that property, regardless of how it structures the financial aspects.

Monday, June 06, 2011 7:04:00 PM  
Anonymous MH said...

I'm thinking outside the box on how to clear the political deadlock. Does anybody know Breibart's number?

Monday, June 06, 2011 9:24:00 PM  
Blogger Bram Reichbaum said...

"That was by far the greatest idea ever."

High praise indeed.

Monday, June 06, 2011 10:10:00 PM  
Blogger C. Briem said...

Google is working on a revolutionary change in Downtown Pittsburgh's parking supply and demand... or they are working on Dead Peasant policies on Googol-scale??? (no sic needed by the way... gotta love Carl Sagan).

Monday, June 06, 2011 10:33:00 PM  
Anonymous BrianTH said...

The parking issue. Specifically, Google is working on creating an integrated automated car and car-sharing system which, among other things, would dramatically cut the need for parking cars in places where land is scarce and valuable.

And in fact they have the cars ready (they've already been operating them in U.S. traffic), and are lobbying Nevada to become a test-bed location, potentially including such a service in Las Vegas.

Tuesday, June 07, 2011 10:18:00 AM  
Anonymous MH said...

Is this just the self-driving car? You can send it to the cheap lots or back home.

Tuesday, June 07, 2011 11:08:00 AM  
Anonymous BrianTH said...

MH,

Google has announced it is looking to combine its self-driving cars with carsharing services, ala Zipcar.

You are correct that the former alone would likely be enough to slash demand for parking in high-rent areas, but adding the latter to the mix means you need fewer cars (and thus less parking) in total. Plus you can provide drop-off/pick-up much more efficiently if it doesn't need to be any particular car doing that for a given individual.

Of course it is tough to put odds on this sort of thing actually happening, but the basic technology already exists and the potential economic savings are huge. Combine that with the long-term of these proposed deals, and I really do think the risk to the total value of these deals is not at all negligible.

Tuesday, June 07, 2011 1:32:00 PM  
Anonymous BrianTH said...

Not sure anyone is going to read this, but as a followup, Nevada just authorized Google's driverless cars:

http://latimesblogs.latimes.com/technology/2011/06/nevada-authorizes-driverless-cars-like-the-ones-at-google.html

Friday, June 24, 2011 7:17:00 PM  

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