Consultant: Management fees in Cincinnati parking lease are excessive
June 20 memo not given to City Council
Kevin Osborne, WCPO Digital
9:32 PM, Jul 14, 2013
5:35 PM, Jul 15, 2013
CINCINNATI - A memo by Cincinnati's parking consultant that is highly critical of the deal to lease city-owned parking assets was kept from City Council and the Port Authority until after the lease was signed.
The memo concludes operating expenses and management fees included in the city's 30-year lease are excessive, far above both the city's historical experience and the industry norms paid by other cities that struck similar deals.
Overall, operating expenses for on-street parking are 257 percent higher under the lease than the city's most recent in-house experience in managing the meters and related costs, the memo states.
"The on-street operating expenses shown in the model are projected to grow at a faster rate than operating revenues," the memo states.
"The city should expect a private operator to run the parking system more cost effectively than the current operation, not less effectively," the memo continued. "Therefore, revenues should be expected to increase at a rate faster than expenses, not slower"
WCPO Digital obtained a copy of the June 20 memo on Sunday after placing a public records request with city administrators last week.
As of Sunday, City Council members appeared to be unaware of the memo's existence or its contents.
John Dorsett, of Walker Parking Consultants, wrote the memo. It was given to Odis Jones and Sam Stephens in the city's Economic Development Department.
Although the memo is dated June 20, it wasn't given to City Council or Port Authority board members before the lease was signed on June 21.
Xerox Fee Higher Than Those in Other Cities
Among its findings, the memo states the proposed $627,063 management fee that would be paid to Xerox Corp. in 2013 to operate Cincinnati's parking meters equals 14.6 percent of estimated net operating income.
That amount is far above the 2.1 percent to 2.3 percent that has been paid to operators in other cities.
By comparison, Denison Parking will get a 1.3 percent management fee to operate the city's parking garages.
Xerox's fee is 1,603 percent higher than Denison's, the memo noted.
A spokeswoman for City Manager Milton Dohoney Jr. didn't respond to several questions submitted about the memo Sunday evening.
Mayoral candidate John Cranley, an ex-city councilman who opposes the lease, was outraged the memo's contents weren't shared publicly before the June 21 lease signing.
"Walker, the city's own parking expert, has concluded this deal is fleecing the public," Cranley said.
"The city administration misled the public for months on the need for the deal, saying it was needed to avoid laying off cops and firefighters and then they don't do it," Cranley added. "Now it's keeping vital information from the public and council. It's a violation of the public trust of the highest order."
Under the lease approved by City Council in March, the Port Authority will manage the city's parking meters, lots and garages. The Port, in turn, will hire Xerox Corp. and Denison Parking to oversee daily operations.
The joint effort is collectively known as ParkCincy.
Cincinnati will receive an upfront payment of $92 million from the Port Authority once the lease is fully implemented.
Also, the city would get annual payments that would begin at $3 million and gradually increase over time.
The Port Authority would issue 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.
Lease Understates Gross Revenues
But the Walker memo indicated the city should get more value from the lease.
For example, ParkCincy's estimated margin on gross revenues – which is net operating income divided by gross revenues – is too low, the memo stated.
ParkCincy's estimated margin begins at 45 percent in year one, peaks at 63 percent, and declines to 56 percent by year 30.
Walker evaluated 10 other municipal on-street parking systems and found they had a median margin of 71 percent.
Also, two municipal on-street systems that were bid on by private parking operators – similar to the situation here – had margins of 74 percent and 78 percent.
The memo clarifies that about one-half of the growth in parking revenue increases will come from increased citations; and nearly one-third of the increase in parking meter revenue will come from higher rates and the elimination of grace periods.
Councilman Christopher Smitherman, a lease opponent, called the memo "a smoking gun."
"The content clearly shows the lease is a bad deal for taxpayers," Smitherman said. "The administration withheld information in a very unethical way."
In a 5-4 vote in March, City Council approved the lease of city-owned parking meters, lots and garages to the Port Authority using an emergency ordinance. The vote occurred just 15 days after the plan was unveiled publicly and presented to City Council.
Councilman Chris Seelbach, who opposed the lease, then provided the sixth vote necessary to enable the city to enact it as an emergency ordinance, which officials thought would make it immune to referendum.
Shortly thereafter, however, various citizens opposed to the lease got an injunction from the Hamilton County Common Pleas Court against the action.
The Common Pleas Court said citizens had a right to mount a referendum on the November ballot.
But the First District Court of Appeals reversed the decision in June, stating the lower court had erred. Two of the appellate court judges said the city's charter allowed the use of emergency ordinances in specified circumstances.
After last month's court ruling, a City Council majority said it wanted to cancel the lease and try to negotiate a better deal.
Mayor Mark Mallory used a procedural maneuver to prevent that from happening, and City Manager Milton Dohoney Jr. signed the lease a few days after the appellate court decision.
Lease supporters have said the deal will give the city much-needed cash to quicken several development projects that will help expand the city's tax base.
Opponents, however, said the lease would cause rate increases and aggressive enforcement might drive away customers from small businesses, while some residents said the city was undervaluing a prime city asset.
The city owns seven garages and lots, and has 4,978 parking meters.
You can read the full memo in the media player below (mobile and tablet viewers can view the memo at the following link: http://goo.gl/7h7zI)