Magazine article Government Finance Review

Examining Parking Privatization as a Fiscal Solution: There Are Pros and Cons for Governments to Consider When Looking at Leasing Their Parking Assets in Public-Private Partnerships

Magazine article Government Finance Review

Examining Parking Privatization as a Fiscal Solution: There Are Pros and Cons for Governments to Consider When Looking at Leasing Their Parking Assets in Public-Private Partnerships

Article excerpt

Most cities are facing fiscal difficulties and significant budget deficits, and many are instituting hiring freezes or layoffs, delaying or canceling infrastructure projects, or implementing cuts across the board in an effort to improve their situations. Cities are also trying to raise revenues by increasing charges for services, property taxes, and sales taxes. These bailout methods either reduce a city's resources or place a greater financial burden on citizens. However, cities have also begun finding new, creative ways to generate money to finance projects, pay off debt, and secure employee pensions. This has led to numerous cities considering public-private partnerships that involve leasing their on-street or off-street parking assets.

A public-private partnership involves the long-term lease of a city's parking assets to a private operator in exchange for periodic payments, or an upfront lump sum. The private operator receives the revenue generated by the parking system over the course of the lease and is responsible for the management, capital repairs, and maintenance of the parking system. Public-private partnerships are not a new concept in the United States; cities have outsourced the operation and management of toll roads, wastewater management, urban development, utilities, financial management, and the operation of schools. But the United States has lagged Europe, Australia, and Canada in privatizing parking assets. This is not because of a lack of private investors--large financial investment firms have both available capital and interest in parking investments, viewing them as a safe spot in an otherwise risky market. The question for a city, then, is whether privatizing its parking systems is an effective solution to help raise capital and improve its financial situation.

MAKING THE DECISION

In a public-private partnership, a city still has some rights in the management of the parking system. To set the parameters and guidelines of the deal, a concession agreement is designed with input from both the seller (the city) and potential buyers (investment firms or a parking operator). The concession agreement is formulated to determine points including who will collect enforcement revenue, what happens if meters are removed, and how new meters are installed. Many issues need to be considered, and the city should have a plan that promotes development and allows for checks and balances. Some cities seek a parking consultant to assess future issues that need to be addressed in the concession agreement.

Other than assessing issues that might arise regarding the management of the system, the city should also understand the potential value of the asset before placing it on the auction block. The organization needs to perform the proper due diligence by assessing the system's revenue potential, future capital expenses, and necessary technology upgrades. This helps avoid selling the asset below its market value and shortchanging residents--a government needs to understand the full revenue potential of the parking system to insure that it is sold at a fair amount of money. The assessment should consider the following major factors: rate increases, future demand, capital expenses, new revenue collection equipment cost, and elasticity of demand.

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THE DOWNSIDE

Even after the value of the parking system has been estimated, a number of pros and cons need to be considered. Cities need to carefully weigh the disadvantages, as well as the advantages. Potential disadvantages of privatizing a city's parking system include: losing the existing parking management labor force, upsetting residents and parkers due to increased parking rates, and losing control of the parking system.

Staff. A private-sector operator might require that its staff operate the system. In that case, the city could require in the concession agreement that all current employees maintain their positions. …

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