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Sunday, May 20th, 2012

New York Considers Parking Meter Privatization

According to the Wall Street Journal, New York City is on the verge of soliciting interest in some form of parking meter privatization.

In considering this, it is important to understand the nature of parking meters. Parking meters aren’t a capital asset like a bridge or highway. Nor are they a real government service like garbage collection or parks. Rather, parking meters are an urban planning tool that cities use to manage access to precious on street real estate for the benefit of the city and neighborhoods. Because neighborhood business conditions are dynamic, and because the best rate to charge and even the best use of that real estate (which may not be parking) change over time, this makes parking meters an extremely bad fit for privatization in the style of Chicago.

Fortunately New York says that they are “not looking to sell the system” and that they will not relinquish control over setting rates. Those are both positives. While Chicago got it wrong, I think there is certainly plenty of scope for involving the private sector in the management of parking. For example, who cares who takes the quarters out of a meter? I sure don’t.

Also, the private sector could potentially implement new technology better and faster. We are on the cusp of a sea change in parking management. One of the key rationales for parking privatization has been the political difficulty of raising rates. But a new system being piloted in San Francisco, embedding ideas from UCLA professor Donald Shoup, points a better way forward. The idea is to bring congestion pricing to parking, by letting the market decide the value of the spot. The computerized meters there dynamically vary parking prices to maintain 80% meter occupancy. People who want and need a spot can then always find one, but spaces don’t go to waste. It gets the city council out of the business of setting parking rates, and depoliticizes them. There could conceivably be many other ways to both more efficiently manage parking and better deploy technology.

However, the devil is in the details. Private companies aren’t in the business of making investments unless they get a return. So what do you promise them to invest in new technology? The WSJ quotes a NYC official as saying, “Our process has been to consider locking in the current performance, and, if it makes sense, transferring the risk to a third party.” This sounds nice in theory, but to get someone to take on risk requires compensating them to do so. I always saw risk transfer as a key benefit of privatization, but through compensation clauses in contracts, it is clear very little risk is often transferred in these deals.

Thus beyond the concept of doing privatization right, there’s the enormous focus that must be brought to bear on contracting. As I’ve come to discover, too many of these agreements are copy/paste jobs with clauses that really disadvantage the public. New York needs to do better. A key is to make sure the term is limited. I’d say anything longer than around seven years is inappropriate.

In that regard I’m sorry that former Deputy Mayor Steve Goldsmith is no longer around. He’s someone who did many privatizations in Indianapolis nearly 20 years ago. While he’s perhaps more favorable to parking meter privatization than I am, I think he appreciated the need to get the details right.

In any case, New York City is probably right to give this a look, but they should realize that they are playing with fire. More than anything else, the most important thing is to make sure the public of New York doesn’t end up getting burned.

3 Comments
Topics: Public Policy, Transportation
Cities: New York

3 Responses to “New York Considers Parking Meter Privatization”

  1. david vartanoff says:

    Bloomberg should know better. Unless the pretense is that privatisation will somehow make PCO’s work for min wage with no pushback from the current city workers, there is no reason to do this. “Revenue anticipation bonds” as a way of monetising future proceeds without giving away control would be a better bet.

  2. Wad says:

    Correction: Donald Shoup is a UCLA professor, not UC Berkeley.

  3. joejoejoe says:

    Chicago has to pay penalties for lost revenue every time there is a street fair, street closure for construction, or “excessive” handicapped parking usage to the team of Morgan Stanley / Abu Dhabi group (Chicago Parking Meters LLC). For every paid meter the city needs to remove for a future streets plan, it has to pay about $1 million dollars per spot to make up for lost revenue. Based on the Chicago experience I’d say any city that wants to privatize their parking meters should drive a wooden stake through the heart of the idea while wearing garlic and a silver cross.

    By the end of the 75 year deal, the penalties for lost revenue for regular street usage will be more than the entire sum the city got for leasing the meters out in the first place.

    Run! Run away! This is a bad, bad, idea.

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