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Cincinnati would get less than half of parking deal's total value
Kevin Osborne, WCPO Digital
4:47 PM, Mar 26, 2013
12:57 PM, Aug 6, 2013
CINCINNATI - New documents released by City Hall reveal Cincinnati may be leasing its parking system for less than half its market value over the next 30 to 50 years.
And exactly how much the city will get from outsourcing the parking system depends on whom you ask.
In today’s dollars, the lease of city-owned parking meters, lots and garages to the Port Authority is estimated to have a value of $475 million.
Meg Olberding, citing a New York-based financial consultant hired by the city to study the issue, said the city would get $197.4 million – or 41 percent of its current market value.
The city’s economic development director puts that number at $113 million – or just 24 percent of its current value.
City Council contentiously approved the lease deal by a 5-4 vote earlier this month, just 15 days after it was first proposed.
Proponents have said the move will generate millions in much needed revenue for the city and help spur further development.
Opponents have argued that locking the city into a long-term commitment is bad business and that the city is making a quick decision without fully evaluating its financial implications.
The lease is currently on hold until a judge rules on a citizen lawsuit asking that the issue be put to voters to decide.
Neither estimate on the amount of money the city will see, which is calculated as net present value, was mentioned publicly during council hearings on the issue.
And that has left some City Council members troubled.
Laure Quinlivan, who supported the lease, said she was unaware of the figures and anticipates discussing them further with the city’s financial adviser.
Councilmember P.G. Sittenfeld, who opposed the lease, said the deal doesn’t maximize the profitability to the city.
“I think the city is leaving money on the table,” he said. “We’ve clearly sold ourselves short in this deal.”
What the deal is worth today
Under the deal, the city’s parking meters would be leased to the Port Authority for 30 years, while the city’s parking lots and garages would be leased for up to 50 years.
In return, the city would get a $92 million upfront payment, along with annual payments of about $3 million for the remainder of the lease.
City officials would use the money to help avoid deficits in the 2014 and 2015 budgets, and to quicken the pace of some citywide development projects.
The city recently released the documents outlining the net present value after a request by WCPO Digital to more fully understand the value of the deal over its lifetime.
Net present value is a way of comparing the value of money now with the value of money in the future, taking inflation and returns into account. It is commonly used in business to analyze the profitability of an investment or project.
Tim Carden, managing director of Public Financial Management in New York, reviewed the deal for the city. His review indicated the deal was a reasonable one.
“Based on our independent verification of the assumptions in (the) financial model, we consider the city’s upfront near-term and projected financial benefits to fairly reflect the value of a lease of the city’s parking assets,” Carden wrote in a letter to the city manager.
“Moreover, there is substantial potential that increased use of the system and control of expense growth would generate stronger cash flow than is currently forecast,” the letter added.
Odis Jones, the city’s economic development director, said looking at the net present value of the city’s revenues by itself is misleading. To get a better understanding, the parking system’s operating expenses should be considered.
Those expenses, which would include upgrading meters, improving garages and hiring staffers as well as management fees, would total about $213 million during the lease term.
Those are costs the city will not incur under a lease arrangement.
Digging deeper into the numbers
The Port Authority would hire two private firms to handle daily operations. Xerox Services would manage the meters, while Denison Parking would manage the lots and garages.
Another firm, AEW, would serve as asset manager.
The $213 million would be paid to those three subcontractors, with an estimated $188 million going into operation and upgrades to meters and garages. The remaining $25 million would be paid, in today’s dollars, as management fees.
Jones would not define what percentage of revenues each firm would receive.
The Port Authority would issue $127.65 million in tax-exempt bonds to finance the deal. Bonds would be issued by New York-based Guggenheim Partners, which could write off part of the expense as a tax break.
Of the $475 million in net present value generated by the deal, $116 million would be used to pay debt service on the bonds.
The deal’s revenue estimates can only be met by making upgrades and improvements to the system, Jones said. If the system were left in its current condition, it wouldn’t generate as much money.
“In order to generate the projected $475 million, the parking facilities require both operating expenses and capital investments,” Jones said.
“The parking system could not be maintained or generate the revenues projected without these required capital investments,” he added.
Increases in tickets and fines feared
The lease relies on increases in meter enforcement and ticket prices. Supporters have said the deal would limit hikes to either 3 percent annually or the Consumer Price Index, whichever is higher.
But an advisory board that would be created to oversee the lease could raise rates higher under limited circumstances and with multiple layers of approval.
In the deal’s cash flow summary:
· The volume of parking tickets issued is estimated to increase, thus generating more money, which is estimated to jump from $4.8 million in 2014, to $7.5 million by 2017, $9 million by 2023, and to $11.3 million by 2033.
· The price of tickets issued for meter violations is expected to jump from $45 now to $60 in 2017, to $72.61 by 2023, and to $99 by 2033.
Several small business owners and some neighborhood groups oppose the lease because they believe higher meter rates and aggressive enforcement will drive away customers and people to downtown.
Vice Mayor Roxanne Qualls, who is the lease’s most prominent supporter, didn’t respond to two requests for comment. Qualls is running for mayor this fall, and the lease has become a central issue in the campaign.
John Cranley, an ex-council member who’s running against Qualls for mayor, said the deal only makes financial sense if it generates at least $20 million annually for the parties involved.
As a result, aggressive enforcement will be needed, meaning the numbers of tickets written will substantially increase, he added.
“That’s what they did in Elmwood Place with the speeding cameras. Suddenly, everybody going one or two miles over the limit were getting tickets,” Cranley said. “It was bad for business and people don’t want to drive into Elmwood anymore.”
Cranley insists the city could make some improvements to the system and still operate it for $260 million less than what the private contractors will be paid over the lease’s term.
“This is like taking out a home equity loan to buy your groceries,” Cranley said. “It’s a bad deal.”