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Thursday, May 24, 2012
Council agrees to seek lessee for city parking operations
by Melissa Corker, published on December 13, 2011 at 11:39 PM
Storyline: Politics
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The City Council voted 7-2 Tuesday to pursue an agreement that could potentially bring in $250 million for a new arena by leasing the city’s parking system to a private operator.
“This is just one piece – a very important piece – in our ability to build an entertainment sports complex,” City Manager John Shirey said Tuesday.
Council members Darrell Fong and Sandy Sheedy were the only “no” votes.
A recent analysis of the city’s parking system concluded that the city could lease the parking system to a private operator for 50 years – releasing all revenue and control of the system for the life of the lease – and receive an up-front lump payment of nearly $250 million.
With an ongoing city budget shortfall of more than $20 million, a lump sum of more than 12 times that amount is appealing – but some council members expressed concerns.
Fong said he sees Sacramento carrying the biggest burden to get an arena financed, but he wants other cities in the region that will benefit from the arena to pitch in, too.
“I’d like (Sacramento) to make a real effort to see which other cities in the region would be our partners and would contribute to this in a real way,” Fong said.
“I just wonder why other cities in the region aren’t looking at monetizing their parking, or selling surplus land.” Fong said. “What’s good for the goose is good for the gander. We aren’t going to get anywhere without some real contributions from our partners.”
Sheedy asked staff to come back to the council in February with a measure to put on the June ballot for the voters to decide of they want the city to pursue a lease of the city’s parking system.
“We cannot continue to ignore the voice of the voters,” Sheedy said. “We are just sitting here not paying attention to that elephant in the room.”
According to a city staff report, a private operator does not face the same political constraints in raising parking rates or extending chargeable parking hours.
A private operator could also reduce staffing or employee benefits – a concern voiced at the council meeting by labor representatives.
“Some call it ‘monetizing parking’,” said Steve Crouch, district representative for the Local 39 labor union. “We call it stealing from the public treasury to fund an arena for the Maloofs.”
Crouch said letting go of parking revenue for years to come would deepen the city’s budget hole, forcing additional cuts to police, fire, parks and community centers.
“The numbers just don’t add up,” Crouch said. “To move forward with this absurd concept of financing is a mistake.”
Kunal Merchant, chief of staff to Mayor Kevin Johnson, said Tuesday that concerns about staffing, rates and other nuances of a lease would be hammered out once potential operators have expressed interest in taking over the city’s parking system.
The city’s parking system includes 7,200 spaces located in seven parking structures, 5,500 on-street metered spaces and revenue from parking citations from the city’s enforcement program.
With the council’s vote Tuesday, staff will start a “request for qualifications” process to gauge the interest of potential private operators.
“(RFQs) ask potential private operators, ‘Are you qualified to take over our parking, and what are you willing to pay?’ ” Merchant said.
Once interest is established, Merchant said, then the process moves forward to gathering proposals and looking for the best lease agreement for the city.
“If (a lease bid) makes economic sense, then the city should do it,” Merchant said. “If not, then, no, it shouldn’t.”
Merchant said it’s too early in the process to determine what the final terms of any parking lease might contain.
Dangberg told council members that RFQs will be sent out by Dec. 22, and responses will be expected by the third week in January.
City staff will return to council in February with recommendations for possible bid proposals, Shirey said.
Melissa Corker is a staff reporter for The Sacramento Press. Follow her on Twitter @MelissaCorker.
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In their comments, Council members all objected to the 50 year term spelled out in the public document released for this meeting. If the term is reduced to 30 years Council members seem to strongly prefer, what effect will this have on the amount they hope this will raise?
Did anybody at the meeting address what would happen to parking validations for downtown businesses, venues, restaurants, events?
"Council says yes to privatizing parking for arena financing"
I think NEWS 10 did a better job with their title:
"Sac City Council votes for more info to privatize city parking"
Even CBS, who in the past has almost always been a cheerleader for the Mayor got their story title closer to the events of the nights events:
"City Council Approves Accepting Bids For Parking Deal"
As did FOX 40:
"Parking-For-Arena Trade Gets First Yes From Sacramento City Council"
This title makes it sound like it's a done deal, which it is not.
If that's meant to be a dig at my last article, "The Downtown arena funding plan is a complete mess", I filed that story under the storyline: OPINION. The discussion that followed was very healthy.
"City Council votes to seek parking operator".
That's way closer than the headline you chose.
Joell83 - ZING or no Melissa is a full time professional beat reporter who has been covering this story and our city council. You may not like one headline, but questioning her credential as a reporter seems like a claim you might want to back up - this is her full time job after-all.
By the way, Fret Retort is the name of my new bluegrass ska band.
"Council agrees to seek lessee for parking" or more accurately "Council agrees to issue RFQ for potential parking lessees"
Beyond that it's a true reflection of what occurred last night.
On another note...how did we get here?
On May 18, 2010 City council heard the "CITYWIDE FINANCIAL AND OPERATIONAL REVIEW " report prepared at CC direction by Management Partners.
http://sacramento.granicus.com/GeneratedAgendaViewer.php?view_id=22&clip_id=2302
Item 21: Read the report...if you want to see some of the strategies the city is employing, in an attempt to balance expenses with revenues.
Open the report and do a search with "parking" as the operative term
It wasn't until ThinkBig came along that the recommendations for the possible outsourcing of the parking department got contrived into a scheme to use the funds generated in the construction budget for an arena...without a public vote!
Item 21
http://sacramento.granicus.com/GeneratedAgendaViewer.php?view_id=22&clip_id=2302
The idea surfaced back in mid 2010...only somebody's primary concern was about being a certified "strong mayor".
One observation: I found myself agreeing with Rob Fong during pretty much his entire comment. This should be a 30 year deal; the general fund must remain whole; they cannot take the $48M already promised to the Convention Center; the current employees must be protected.
Will miracles never cease? I found myself saying, "Right on, Rob!".
Because if they do all that, this plan will not make it to March 1. I don't see how. All those conditions cause the offer to DROP in value, not INCREASE. So, suppose the worst happens, and someone offers to lease the parking, without meters, for $129M; then, we pay off the existing $52M in bonds.
Then what?
Then, we have netted $80M, and have "only" $400M to go to fund the new arena and pay off the existing $67M in bonds. Isn't that right about where everyone realizes Anaheim is the only viable option left?
The next 8-10 weeks are going to be pretty entertaining.
Added:
By the way, even at the $245M level, this still only nets $193M, and leaves "only" a $300M gap. Same problem, slightly smaller magnitude.
The preference for a 30 year deal, rather than 50 years, means that the proposal is only worth 60% as much, since the contract length is 60% as long: instead of, say, $200 million, it becomes worth $120 million.
The requirement that city staff be retained for parking enforcement, instead of staff provided by a contractor, means that overhead costs are higher, again lowering the value of the contract: instead of, say, $120 million, more like $90 million.
The requirement that parking fees not be raised exorbitantly, in order to avoid a scenario like Chicago where parking fees quadrupled, also limits the value of the contract--although parking fees would absolutely have to rise (the parking study mentioned an immediate increase of 25 cents an hour, increasing to 75 cents an hour in a few years.) This puts a cap on how much the parking contractor can earn, again limiting the maximum value of the contract--say from $90 million to $60 million.
And, finally, the Council has expressed some pretty big concerns about the fact that parking fees currently provide $9 million to the city's general fund, funds that would be lost if the city sold those parking fees. $9 million multiplied by 30 years is $270 million (assuming that parking demand and revenue don't increase for the next 30 years), which means selling the parking rights for $60 million would cost the city $270 million, for a net loss of $230 million. Some have suggested that increased revenues will somehow make up for that net loss, but there are no clear figures regarding how that will actually work other than vague statements about playing the odds and other phrases probably better suited to a Lotto commercial than sound public policy.
If the city "monetizes" it's parking system, it leases the facilities to a private operator and trades all of the revenue the parking system is expected to earn over the life of the lease for an up-front, lump sum payment.
The city currently gets approximately $9 million per year from it's parking system. Instead of saving up that $9 million each year for about 27 years to finally have a $250 million bucket of cash, the city could "monetize" the parking system and get that $250 million from the lessee right now...
Of course, as commenters are pointing out, there are some wrinkles in such a plan that the city would need to iron out – starting with a $54 million bond debt that would have to be paid off at the get-go, thanks to tax rules.
And, there is the ongoing discussion of the actual amount of any lump sum yet-to-be-received: How much would it really be? Optimists might say one number, while pessimists might say another, but in the end the bottom line is simply, "too soon to tell," according to Kunal Merchant.
And note that the best-case-scenario $200-240 million fund is based on a 50 year contract, not 27 years as in Melissa's example--and that best-case scenario would also involve changing state law to make it possible for street parking meter revenue to be included in the deal. And then there's the bond-debt wrinkle that Melissa mentions...and, well, there are kind of a lot of wrinkles. Maybe the wrinkles should be a separate article entirely.
Big enough to where some of the skeptical members -- I count about 6 of those -- should have, at that meeting, asked the hard questions about the meters.
Just a simple set of questions:
1) Can the meters be included in this given the current laws?
2) What is the price range given the current laws?
3) Do you think there's a chance Sacramento can petition for a change in these laws?
4) How much will the deal net without meters included?
It would have opened up a whole new avenue in the debate. Right now, it's a sleeping tiger. I wish it wasn't asleep; I wish it was stalking Kevin Johnson.