Tuesday, September 21st, 2010
Image via The Expired Meter
Indy Star Op-Ed
This is my op-ed from the Sunday, September 19, 2010 Indianapolis Star.
Mayor Greg Ballard should be applauded for seeking ways to repair the city’s crumbling infrastructure without raising taxes. His water company transaction was a great, creative deal that lowered costs, maintained local control, and generated badly needed funds for capital improvements. But the proposed parking meter privatization is a bad deal, and one that puts the future of Downtown and Broad Ripple at risk.
Modernizing meters and bringing rates in line with the market are good ideas. But while the city did learn some important lessons from the now infamous Chicago parking meter disaster, there are still too many things in common, making this a danger to Downtown.
Whoever drafted the Indianapolis agreement used Chicago’s contract as a template — a contract notorious for being one-sided in favor of the vendor. So while the financial structure is different, most of the contract is word for word identical. That contract was set up for a deal that involved a $1.1 billion up front lump sum, where obviously the vendor needs strong protections. But in Indy’s case, the city is only getting a small amount of the deal upfront, so these are completely inappropriate.
Most critically, the deal will be almost impossible to terminate for 50 years — even if the city gives back the money. The vendor would have to default, such as by filing bankruptcy, which is not likely. If this deal is ever no longer in the public interest, there is no way out.
The contract also lists penalties if the city ever removes a meter, reduces rates, or even temporarily bags meters in almost all cases. Bagging fees can even be higher than if the meters were occupied 100 percent of the time — these have to be paid by the city even during road construction projects. If the city adds meters, raises rates or extends hours, the vendor automatically gets that upside while the change fees protect it from downsize risk. It’s heads the vendor wins, tails the public loses.
If the city builds a parking garage in Broad Ripple as planned, it is actually required to implement resident only permit parking, meaning anyone who drives to Broad Ripple will have to pay up. The list goes on.
Because the quantity, rates and locations of meters are all set in the contract, and the city has to pay hefty penalties to change them, the city has effectively frozen parking policy for 50 years. It cannot replace meters with electric car charging stations, or lower rates on Mass Ave if business starts to suffer, or implement any change at all that doesn’t make the vendor richer. Not without paying fees a broke city can’t afford.
Indianapolis has the best Downtown of any city its size in the country today because of 35 years of innovation, such as taking lanes away from cars and giving them to people as part of the world class Indy Cultural Trail. This deal puts future innovation at risk.
The city is selling a property right interest — a de facto 50-year ground lease — on its public streets, which is to say, in the most important component of the city’s public space.
This also appears to be a bad financial deal. Unlike the Indiana Toll Road, which had never earned a nickel in the 50 years the state owned it, parking meters are profitable today. With rates increasing, longer hours, contract penalties and efficiency gains from modern technology, it is easy to see this going up even higher for the vendor.
While the state took a money-losing Toll Road and converted it into $3.9 billion, the city is taking a profitable asset and giving away more than half the future value for a mere $45 million ($35 million in an upfront payment and $10 million for new parking meters).
This deal is really a high interest loan. The city is borrowing $45 million from the vendor and paying back hundreds of millions of dollars in interest over the next 50 years. This is the civic equivalent of taking out a 50-year payday loan.
The city’s plan for modernization, rate rationalization, and infrastructure improvements is sound. But I urge the city to cancel this contract and find another way such as revenue bonds to make it happen.
The Star has another article on the parking meter lease today. A couple points are worth noting:
1. ACS is now saying it will create 200 jobs in Indianapolis. This is not in the lease contract anywhere, but in some side agreement. The meter lease contract, like most corporate deals, has a clause that says, “This Agreement constitutes the entire agreement between the Parties pertaining to the subject matter hereof and supersedes all prior agreements, negotiations, discussions and understandings, written or oral, between the Parties.” In short, if it’s not in the contract, it doesn’t count. The only reason – the only reason – to put a jobs pledge in a separate “letter of agreement” is to render it unenforceable. Even if it magically were, the jobs only have to be around for seven years – a far cry from the 50 they expect the people of Indianapolis to commit to – and the fine for not creating a job is less than the penalty the city would have to pay for removing just one meter. That’s right, those jobs are worth less than a parking meter each even in the unlikely event the agreement is enforceable. In short, this agreement is basically worthless and clearly just a gimmick to try to salvage a deal pretty much everyone recognizes is bad for the city.
Update: Paul Ogden further deconstructs the ACS-City agreement regarding the jobs.
2. ACS claims it will only earn a 10-15% return on its initial investment. Xerox’s cost of capital is higher than 10%. If they only earned 10%, the deal would represent an economic loss to Xerox’s shareholders, so I’m very skeptical of these figures. I find it interesting how eager ACS is to tell us up front how little they expect to make while simultaneously making it impossible to find out how much they actually will make. There’s no way ACS would have signed a deal at that low a return. It’s also worth noting that in Chicago, and now in Pittsburgh, where ACS participated in a true bidding procedure for selecting the vendor, they lost. They are only winning in places like Indianapolis where there was a no-bid RFQ process. This shows I believe that they are more protective of their profit margins than their spokesman might suggest.
Parking Meter Media Roundup
In roughly chronological order from newest to oldest.
Indy Star: Is meter lease a good deal for Indianapolis?
Aaron M. Renn: Proposed deal would be wrong move for the city – my op-ed on the Star’s site
Michael Huber: Plan would generate more revenue, efficiency
IBJ: City’s parking deal similar to much-maligned Chicago pact – subscription, but well worth picking up the hard copy to read
IBJ Editorial: City’s parking plan needs work
Indy Star Editorial: Take more time on meter verdict
Indy Star: Indianapolis parking lease draws heat
Amos Brown/Indianapolis Recorder: Ballard’s parking deal: payday loan from a bad check cashing store
David Hoppe/Nuvo: The parking meter gambit: raising rates or is it taxes?
Urbanophile: Indianapolis parking meters – the city’s response
IBJ: Downtown merchants want parking plan revoked
Urbanophile: Indy’s “Son of Chicago” Parking Meter Lease to Be a Disaster for City
IBJ: City vendor may get $1.2B from parking privatization deal
Urbanophile: Parking meters and the perils of privatization
My appearance on Amos Brown’s radio show is here. Huber and I debated the deal on Abdul’s radio show, but I don’t think it is online.
There is significant coverage in the Indy blogosphere too lengthy to list here, but check out Ogden on Politics, Indiana Barrister, Indianapolis Times, Had Enough Indy?, Sheila Kennedy, Indy Student and last but not least Advance Indiana. Indy has a great political blogosphere. These folks are opinionated to be sure, but also do a lot of original research and break stories.