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Politics & Government
Sat April 26, 2014
Before it moves ahead on parking, Detroit might want to take a close look at Chicago
If you’ve had a frustrating experience with a Detroit parking meter, you’re definitely not alone--about half those meters aren’t working at any given time.
The situation has the bankrupt city looking for outside operators to fix, and possibly run, its parking system.
It’s likely such a deal would get done fast. But experts warn Detroit might want to take a close look at Chicago’s recent experience first.
A “terrible deal” in Chicago
Detroit emergency manager Kevyn Orr faces a tough balancing act.
He needs to find a way to wring money from city assets to pay off creditors. But he also needs to patch things up enough so Detroit can function post-bankruptcy.
One thing that’s definitely not functioning now is the city’s parking system.
Orr’s Chief Operating Officer, Gary Brown, calls the current system “horrible.” He says it’s antiquated, inefficient, and often downright broken.
Brown says Chicago-based parking consultants Desman Associates are looking into it.
“They were brought on to evaluate the system, and tell us what the asset’s worth,” Brown says. “[They’ll] also look at the operation and maintenance, and give a recommendation of how we can make it more efficient.”
From there, Brown says there are basically three options: “Either change out the meters, enter into a public-private partnership with someone, or possibly even sell that portion of the asset.”
That second option—a public-private partnership—might be the most likely. It basically amounts to a long-term lease with a private operator.
A few years ago, Chicago made that kind of deal. Desman Associates was one of many groups that helped put it together.
It hasn’t gone well.
In fact, “It’s been derided both nationally and internationally as a terrible deal for the taxpayers,” says Paul Sajovec.
Paul Sejovec is chief of staff to Chicago Alderman Scott Waguespack. Waguespack was one of only 5 Chicago City Council members to vote against the original deal in 2008.
Chicago leased its system to a group of investors, led by Morgan Stanley. In return, the city got $1.2 billion upfront.
But it also gave up all future parking revenues for the next 75 years.
The city used the money to plug budget holes, and now it’s almost gone. In the meantime, parking rates shot up, the city largely lost control of the system, and it’s ended up in a legal battle over millions in unexpected payments to the operator (Mayor Rahm Emanuel and the operating group did reach a settlement, though many people question whether it actually helped the city).
It’s now estimated Chicago will lose at least $10 billion over the term of the lease.
Sajovec says these types of asset leases are kind of a sneaky way for cities to borrow money—instead of committing to future payments in return for cash upfront, they give up future revenues.
And Sajovec says that unless cities see the deals that way—and put the money into worthy long-term investments—it’s usually a losing bargain.
“Unless you can make the case that you absolutely have to have a certain amount of money upfront, and you know you’re going to end up at the end of the deal collecting far less money that you would have otherwise…it’s really hard to craft an argument why these kinds of deals would be beneficial,” he says.
Good deals and bad deals
Richard Little has a slightly more optimistic view of these arrangements. Little is the Director of the Keston Institute for Public Finance and Infrastructure Policy at the University of Southern California.
“It is a way to turn an underperforming public asset into a revenue stream. And Detroit probably needs all the revenue streams it can find,” Little says.
Little says private investors generally have a strong incentive to upgrade meters and make sure the system works—because if they don’t, they’re losing money.
But he cautions that there are good deals, and there are bad ones.
Little says if Detroit enters into a public-private partnership to run its parking, it shouldn’t follow Chicago’s example and do it for a big, one-time payment.
Instead, Detroit should make sure the city gets a percentage of all future parking revenues. Little says Indianapolis has largely benefited from a similar deal.
And Little says it’s critical to have “somebody independent” and knowledgeable check the math to make sure the all details add up, so the city doesn’t “get rolled.”
“If the deal only looks good if you’re standing in a dark closet, it’s probably not a good deal,” Little says. “These things ought to look as good in full sunshine as they do in the dim light.”
But Detroit might be starting out in a weak bargaining position. Orr is under a lot of pressure to get the city through bankruptcy fast—and as of late last week, his office said Desman Associates had not yet submitted its report.
This time pressure, plus a lack of on-staff expertise, has raised serious questions about the city’s ability to negotiate and vet potential deals. Similar concerns have been raised about Orr’s decision to potentially take a similar path with the city’s water department.
“The city shouldn’t be like the girl or the guy who’s desperate for a prom date, and just goes with the first person who asks,” Little says. “They need to make sure they take the time to do it right.”
Politics & Government
Politics & Government