Parking Meters, or Whatever Happened to Cool Hand Luke

[Jim Garrettson]

Parking Meters, or Whatever Happened to Cool Hand Luke Edit

Indy’s “Son of Chicago” Parking Meter Lease to Be a Disaster for City
The next couple of generations will pay the price…It’s despicable, the
way it went down…I don’t think the aldermen understood the long-term
consequences of what they did. – Chicago Ald. Scott Waguespack
These deals are rarely done under the bright light of public scrutiny.
Often the facts come out long after the deal is done. – Richard
Little, Director of the Keston Institute for Public Finance and
Infrastructure Policy at the University of Southern California
Note: If anyone wants to republish this, feel free to do so.

I previously explained why signing a long term lease on parking meters
was a bad public policy idea. Today I’ll show the practical dangers,
using the Indianapolis example as a cautionary tale of how a parking
meter lease can go wrong and turn into a civic fiasco. Even if you
don’t live in Indy, this is relevant to you as your city is likely
looking at privatizing parking or other services where these are
things to look out for.

I’m not in Indy anymore, so perhaps this should be of no concern to
me. But when I see something so terrible about to befall a place I
care about, I have to say something. The deal Indy is signing with its
vendor (ACS) is so bad and so one-sided, it almost defies
comprehension.

Parking Meters Will Be a Cash Register That Never Stops Ringing for
the Vendor
The first and most fundamental question is why the city needs to pay a
third party vendor so much for something as basic as running a parking
meter system. The city says it will get $400 million under this
contract. The Indianapolis Business Journal estimated that the vendor
would get between $724 million and $1.2 billion. How much of that is
profit to the vendor? No one will ever know since according to the
contract, the city is specifically barred from learning anything about
the cost or profitability of the system, and any information it does
get from the vendor has to be treated as confidential with the city’s
people signing non-disclosure agreements, unless the law compels
otherwise. The city has said the vendor’s profits are no concern of
theirs.

But let’s do the math for ourselves to take a quick look. According to
Schedule 9 of the concession contract, the operations of the parking
system only costs the city $844K/year right now. That’s not very much,
and shows that whatever efficiencies might be gained, they won’t be
big dollars in the grand scheme of things. Let’s assume this remains
constant in real dollars, and inflates at the same 2.5% rate used in
the contract. According to this presentation from the city (slide 50),
it will cost $7 million to upgrade the system to pay and display and
such. So let’s also assume the vendor has to pay that $7 million in
capital every ten years, also adjusted for inflation. That adds up to
about $82M in operating expenses and $61M in capital expenses for a
total cash outlay of $143M.

On a pre-tax basis, this deal is almost pure profit for the vendor,
adding up to between ~$600 million and ~$1.1 billion, or a potential
profit margin of almost 90% in the high scenario.

The totals would need to be discounted back to find the present value
of the profits, but it is very clear that the city is giving away a
huge chunk of the system profit. And for what? Collecting quarters out
of meters? Doing basic maintenance? Writing tickets? These could
easily be obtained on the open market on a simple service contract
basis. Denison Parking does the job today in fact, and I haven’t heard
complaints. The vendor is assuming Denison’s contract, so why is the
city forking over all this money again?

The Timing and Approach Is Flawed
Indy is signing a 50 year deal in a terrible market. We are in the
middle of the worst recession since the Great Depression. Are asset
values likely to be high or low now? It’s obvious. Is now a good time
to be selling a house? Clearly not, so why would be it a good time to
do a 50 year sale of parking meters? The Toll Road lease was
masterfully done at the peak of the bubble. The city is under no
pressure to do a deal, but is selling at a time when it will only get
fire sale prices.

Also, it does not appear the city engaged an independent financial
advisor to look at the deal from the public’s perspective, repeating a
key failure in the Chicago lease process. The Chicago Reader noted a
Chicago Inspector General’s report critical of that city’s deal: “In
its damning report on the agreement, the inspector general’s office
concluded that the city may have leased the meters for $974 million
less than they were worth. The reason, the report concluded, was that
William Blair’s calculations of the system’s value were all done from
the perspective of an investor—they were based on what that investor
might be willing and able to pay for the meters, not what their value
was to the city.”

No financial advisor other than Morgan Stanley (which is in William
Blair’s role on the Indy deal) was listed on the city’s parking web
site or in a presentation (slide 58) listing the city’s team members.
By contrast, Pittsburgh not only hired Morgan Stanley as an investment
bank, they hired Scott Balice Strategies as an independent advisor to
represent the city’s interests.

Incidentally, Morgan Stanley is the concession holder on the Chicago
lease deal. They appear to have fleeced that city. Don’t take my word
for it, read the independent financial press, such as this Bloomberg
piece, “Morgan Stanley’s $11 Billion Makes Chicago Taxpayers Cry” or
in the New York Times: “Company [Morgan Stanley] Piles Up Profits from
City’s Parking Meter Deal.” This should be raising major questions
about their role in the Indy deal.

The Contract Is Unconscionably Awful for the City
I also read the entire concession agreement. While I’m not a lawyer,
I’ve negotiated multi-million contracts on both sides of the table and
actually used to work in the outsourcing business, so I’m extremely
familiar with the issues from a corporate perspective. I would
certainly encourage anyone to do their own due diligence and study
this for themselves, but even if I’m wrong on a few of these, the
overall thrust is almost surely accurate.

Among my findings:

1. This is the Chicago parking meter lease.The city has said this deal
is very different from Chicago’s notorious parking meter lease. But
what they didn’t tell you is that not only is this very much like
Chicago’s, it’s literally the exact same contract. That’s right, Indy
took the Chicago contract, did a Save As, and tweaked it. Check for
yourself. Indy’s deal is here and Chicago’s is here. Given that
Chicago’s deal is famously one-sided, this is mind-boggling. I
estimate that the majority of the two contracts are word for word
identical. This tidbit – “the foregoing sentence shall be interpreted
and applied in a manner most favorable to the Concessionaire” – gives
you a flavor of how the thing goes. And where Indy’s differs, it is
often even worse. I never would have believed that possible.

2. The city has no right to terminate the agreement. The contract for
this 50 year deal explicitly states: “The City hereby acknowledges and
agrees that it may only terminate this Agreement in accordance with
the express terms hereof and shall not, in any event, have the right
to terminate this Agreement for convenience.” (Section 16.1). The city
can only terminate the deal if the vendor defaults, which is virtually
impossible. In a deal like Chicago’s meter lease or the Toll Road,
where the only payment the government gets is a lump sum up front fee,
perhaps there’s some logic in not allowing the deal to be terminated.
But with a very modest $35 million up front fee (compared to a deal
value of over $1 billion) and with a needed up front investment of
only $7 million (according to the city), it’s unconscionable to not
have the right to terminate. The citizens of Indianapolis with be
irrevocably locked into a terrible deal for more than a generation –
and for very little upfront cash.

3. Penalties are often higher than the actual meter value. One aspect
of the Chicago deal that was heavily criticized is that when the city
shuts down meters, it has to pay a penalty that assumes the meters
were fully occupied at all times, regardless of how much they are
normally occupied. Believe it or not, Indy even upped the game here.
In two out of the four zones, the penalty for closing the meter is
more than if the meter is 100% occupied. The closure fee is $15 for
Zone 2 & 3, increasing with inflation. But fully increased rate for
Zone 2 is $1 an hour for 13 hours a day – you do the math. It’s only
$1 an hour for 11 hours a day in Zone 3. Those meters are literally
worth more to the vendor bagged than they could ever be operational.
These penalties have to be paid regardless of the actual average
utilization of those meters. The penalty for the other two zones ($20)
is just shy of the theoretical maximum, but still way too high. (See
Definitions, “Temporary Closure Fee” and Schedule 5).

4. The vendor gets the rights to collect parking ticket revenue and
sell advertising and naming rights. In the Chicago deal, the city gets
all of the money for tickets, and retains all the rights and money for
advertising and naming rights for itself. In the Indy deal, the vendor
gets these rights, though the city has to approve the specifics of
advertising. What is an advertising concession for thousands of
locations downtown worth? It could easily be more than the meters
themselves. This should have been bid to major outdoor advertising
firms in an open process to maximize city revenue, not thrown into the
parking meter deal, assuming festooning downtown with ads is something
you want to do in the first place.

5. Residential permit parking is coming to Broad Ripple. The city says
it plans to use the meter proceeds to build a new garage in Broad
Ripple. Broad Ripple is Zone 4, and the contract says, “In the event
the City builds a public parking garage in Zone 4 during the Term, the
City will agree to institute a Residential Permit program for non-
metered parking spaces in and around Zone 4 to be administered by the
Concessionaire on terms mutually agreeable to the Parties.” Did you
know that? The city is contractually obligating itself to specific
permit parking policies in that neighborhood. Now perhaps permit
parking’s not a terrible idea, but isn’t it something that should be
vetted through the normal political process? And be subject to change
over time, not locked in for 50 years?

Outside of Broad Ripple, the city has actually limited its ability to
establish residential permit parking zones. Per the contract: “The
City reserves the right to designate certain on-street parking that
are not Metered Parking Spaces as residential parking requiring a
Residential Permit, provided that such designation does not materially
effect the Metered Parking System in the surrounding area.” How nice
of the vendor to agree to this. If it does affect the vendor, they are
entitled to compensation. Also, if the city does establish permit
parking, the vendor gets to run that too – including getting the
revenue from parking tickets.

6. The vendor even gets revenue from tickets written by IPD or other
city agents. The vendor has the right to write tickets on the system,
but the city also has the rights. And even if the city writes the
tickets, the vendor still gets the money: “The Concessionaire shall
have the exclusive right to collect and retain all Parking Violation
Revenue during the Term in accordance with Enforcement Policies and
Procedures, regardless of whether such Parking Violation Revenue
resulted from Parking Enforcement conducted by the Enforcement
Operator or the City’s designated law enforcement officers.”

The city retains the cost of adjudicating parking tickets, however. It
does get to judge the validity of tickets, but disturbingly, the
contract actually specifies the judicial outcomes it expects: “The
City shall remain responsible for the adjudication related to the
Parking Enforcement; provided that such adjudication shall be
consistent with the historical practices of the City, including a
consistent level of parking tickets that are dismissed or appealed.”

Incredibly, the city even owes money to the vendor if the public
starts appealing tickets at a rate more than 30% more than currently,
regardless of whether the appeals have merit or not (Section 7.8).
It’s considered a “Compensation Event.”

Add this up and what it means is the vendor can write tickets, gets to
have the revenue counted to it (minus the revenue share), and if the
vendor just starts writing bogus tickets to inflate its own revenues,
and the public protests them, the vendor gets even more money. That’s
right, the vendor can literally print money for itself simply by
writing as many tickets as it feels like.

Another hugely risky item. One other change from the Chicago deal is
that the city is agreeing to indemnify the vendor against any court
ruling that the vendor can’t write tickets or collect parking ticket
revenue (Section 12.2). Someone is challenging the Chicago lease by
saying that since the city transferred the meters by bill of sale
(just like Indy), it’s a private business now and the city’s police
powers can’t be used to enforce parking rules for the benefit of a
private company. I believe this is still being litigated. I’m not sure
what the law would be in Indiana, but if similar claims were raised
and ended up being successful, the city could be on the hook for
possibly hundreds of millions of dollars.

7. The vendor automatically gets the right to any new meters, but the
city has to pay to remove any meters. In the Chicago deal, the city
has to negotiate with the existing vendor for new meters outside the
existing concession area, but is free to take its business elsewhere
if the vendor won’t match what a competitor would offer. In Indy, any
new meters are automatically enrolled in the new deal. (Section 7.7) I
didn’t see where this was limited to the four specified zones, so it
might in fact apply to any meter in the city.

However, if the city removes a meter, they have to pay a meter removal
fee. In the first year, this is $15,400 per meter in Zone 1. I didn’t
see any provision for offsetting adds and removes, meaning if the city
adds three meters and removes one, the vendor gets the three new ones
automatically and the city is still on the hook to pay for the one
they removed. What’s more, the city is also on the hook for any lost
parking ticket revenue the vendor would have gotten off that space
too.

To show how one-sided this deal is, if the city adds more than 10% new
meters, the vendor actually has the right to reject them. That doesn’t
mean that the city can take its business elsewhere though. Rather, it
puts them into a special category where the vendor runs them, but the
city is responsible for the costs of setting them up (Section 7.7).
That hardly sounds like what we’ve been told that all the risk is
outsourced. By the way, Chicago has these types of meters too, but the
vendor is only entitled to a 15% management fee for them, whereas in
the Indy deal, they get a full revenue share.

8. Temporary closure policies are worse than Chicago’s. There’s a cost
associated with closing meters for more than a very small temporary
closure allowance. The Indianapolis closure allowance is worse than
Chicago’s. In Chicago’s system, closures of six hours or more are
treated as an entire day while those less than six hours are ignored.
In Indy, anything greater than four hours is treated as a full day
closure. In Chicago, Central Business District meters can be closed
under the contract for up to 8% of the days without penalty. In Indy
it is only 6% (see Definitions, “Temporary Closure Allowance”).

9. Will festival and events organizers see new fees? Section 7.6 says,
“the Concessionaire shall charge, collect and retain the applicable
Temporary Closure Fee from any Person (other than the City), in
advance, in respect of any Temporary Closure requested by such
Person.” What this sounds like to me is that if anyone other than the
city wants to shut down meters, they’ve got to pay the vendor, and pay
in advance. Does this mean anyone who wants to hold a festival or
event downtown – even on a Saturday, since meters need to be fed then
under the new contract – will have to pay this parking fee? And since
the city has a revenue share, is this a stealth tax on those events?
It’s not clear to me, but the contract explicitly says valet parking
operators have to pay up.

10. Even the city has to pay to use the spots. As part of this
program, all city issued parking placards are cancelled (Section
3.19). Now clearly this program has been abused in the past, but it
seems legitimate that city vehicles on official business should be
able to park on the city’s own streets for free. But I couldn’t find
any provision of the deal that allows city owned vehicles to be parked
in these spots for free even on city business, other than emergency
response vehicles during an actual emergency. The contract does talk
about an “employee parking program”, but the city or the employees
will be paying for it. This is even more revenue for the vendor.

I could go on and on, but these are the highlights and should
establish pretty clearly how bad this contract is for the city. It’s
one of the worst I’ve ever seen. Even the Force Majeure clause is one
way and only provides an out for the vendor, not the city.

An All Around Bad Deal
I’ll again reiterate that this deal is simply bad public policy.
Because none of the parameters of parking policy can be changed unless
they make the vendor even richer, the city has de facto frozen its
parking policy for 50 years. This even applies to areas people
probably have no idea of, like requiring permit parking in Broad
Ripple.

An example. Imagine the city wanted to take 20% of its metered spots
and replace them with electric car charging stations, making them free
and reserved for electric vehicles in order to encourage that
transition? Can’t do it. (If the city did that, it might fall afoul of
the even worse Adverse Action clause I didn’t get around to).

Another example: Maybe the city decides it wants to close Monument
Circle (or any other street) to traffic after all. It can’t do it
without paying a big fee, both for the directly impaired meters, and
for obstructing access to other meters, which the contract forbids the
city to do.

The list goes on and on. We have no idea what the world will be like
in 10 years, much less 50. This isn’t something like a water system
where all it is really useful for is delivering water and it is pretty
reasonable to assume we’ll still want plenty of safe, clean water
tomorrow. This is general purpose real estate. This is one of the most
precious assets of any city – its public space – a policy area that is
experiencing rapid innovation. In fact, Indy is on the forefront of
that with the Cultural Trail – but perhaps no longer. No matter what
the contract might say, this is a de facto ground lease on the streets
of downtown and Broad Ripple.

But beyond bad policy, again, it would appear given even a casual
analysis to be a terrible financial deal for the city. And the market
timing couldn’t be worse in the teeth of the Great Recession. And the
contract is an unmitigated disaster.

If the City County County votes to approve this deal, the city will
regret it for decades to come, just like Chicago. I hope city leaders
see this and change course before it’s too late.

Chicago vs. Indianapolis
Here is a summary of various aspects of the two cities’ deals, showing
how Indy’s is actually worse than Chicago’s in many respects:

Item Chicago Indianapolis
Naming Rights Retained by the City Given to Vendor
Advertising Rights Retained by the City Given to Vendor
Parking Ticket Revenue Vendor Can Write Tickets, City Gets 100% Vendor
Can Write Tickets, Vendor Gets 45-80%
Annual Closure Allowance (CBD) 8% 6%
Threshold for Considering a Day Closed 6 hours 4 hours
New Meters Outside concession area, city can bid to others
Automatically given to concessionaire
Indemnity for Vendor Being Declared Ineligible for Parking Ticket
Protection None Unlimited
Fee for Reserved Meters (ones the vendor didn’t want to install) 15%
Management Fee to Vendor Full 45-80% revenue share split
Penalty Rate for Closures Maximum Possible Meter Utilization for Day
Greater than the Maximum Possible Meter Utilization for Day in two
zones
Recommended Reading



More Indy Parking Meters
I was honored to be on Amos Brown’s radio show for the first time
yesterday talking about Indy’s parking meter deal. I don’t have
embedded audio, but you can listen to the segment here. I must say,
the role of activist is an new and uncomfortable one for me, but I
feel compelled to step up.

A couple of additional points on the Indy meters:

You might think that an almost 90% potential profit margin for the
vendor is ludicrously unbelievable. Think again. This isn’t like the
Toll Road. The Toll Road had never earned a nickel for Indiana in 50
years. By contrast, the parking meters are very profitable. The city
already makes millions in profits every year off them. In fact, even
with the existing inefficient system, the city itself is already
generating a 77% profit margin. With higher rates, longer hours,
penalties galore, and promised efficiencies, it is easy to see how
that goes way up. Again, let’s review – Toll Road: a money loser
turned into $3.9 billion. The parking meters: a lucrative business of
which as much as 3/4 of the value is being given away for $35 million.
In effect, ACS is loaning the city $35 million and is getting repaid
with potentially a billion in interest. That’s like you or me
borrowing $35,000 and paying back a million in interest. Even credit
card companies aren’t that greedy. This is like taking out a 50 year
payday loan from the worst check cashing store in town.
As for the $400 million revenue share, that money already belongs to
the city. Instead of giving away $724M to $1.2B, why not just raise
rates yourself and keep it all for the public? Unlike with Chicago
where rates went up to something like $8/hr and people were literally
carrying around ziplocks full of quarters, these rates are only going
up to $1 to $1.50/hr total. That will hardly provoke a riot. Everyone
knows rates need to be raised – an action I fully support.

Amos Brown asked me about MBE participation in the deal and I did not
know the answer. But I looked it up. The Chicago contract requires 25%
MBE participation, Indy requires 15%. Indy is higher for WBE at 8% vs.
5% in Chicago, and also has a 3% veteran owned business requirement
Chicago does not. That’s 30% vs. 26% for total DBE target.
Since this deal was won by ACS, I should be sure to note that I used
to work for an ACS competitor, though I never was in the public
service practice and don’t ever remember competing against them. I
don’t know who the others bidders all were, but to the best of my
knowledge, my former employer was not one of them. I don’t have a
financial interest in the deal, and if anything opposing it is a pure
cost to me since I’ve doubtless made several new enemies in return for
nothing.

I normally maintain a policy of not getting involved in current
political disputes or criticizing elected officials. But when there is
something with the potential for significant, long term, irrevocable
harm, I have to speak out. I don’t hate Mayor Ballard. In fact, I
think he’s done many good things ranging from the water deal that I
think was a great one (and very creative too – Michael Huber did a
fantastic job on that one), to endorsing IndyConnect, to his bike
infrastructure initiative, SustainIndy, and re-establishing mayoral
control over the police department. I appreciate his looking at
creative ways to close an infrastructure deficit that he had no role
in creating. But this is not the right way to do it. If I didn’t
believe this deal was a serious, long term danger to downtown and the
city, I never would have spoken up, no matter how bad the financials
were. I beg the city to reconsider and not do this deal. Fifty years
is an awful long time to have your hands tied.

Indianapolis Parking Meters – The City’s Response
I hope my readers will indulge my writings on this issue, which might
be irrelevant to those of you who aren’t in Indy. But this matter is
of critical importance. Hopefully at least the principles of deal
analysis are useful.

The city has issued a response to my parking meter post . By Deputy
Mayor Michael Huber, it is titled “Parking Meter Modernization Will
Improve Infrastructure and Spur Economic Activity” and that link will
take you to the entire text. I hold Michael Huber and his capabilities
in high regard, but I must disagree with him in this instance.

The first part of the response deals with the modernization plan. Let
me be clear: I fully support modernizing meters, bringing parking
rates in line with the market, and investing in infrastructure. That
plan is a good one and Mayor Ballard should be applauded for
addressing an area that has been ignored for too long. I believe this
enjoys wide support in the community. My issue is with the
privatization agreement that is proposed to implement the plan. The
report also mentions the water transaction, which I’ll again note that
I thought was a good one, even though there were many critics.

I should also acknowledge that the city did learn some important
lessons from the Chicago fiasco. This is not a lump sum deal. Money is
going to infrastructure, not papering over deficits. Rates won’t go up
until the meters are upgraded. There was a limited exemption from
bagging fees for a small number of mega-events like the Super Bowl.
And they even made sure the receipts would work with motorcycles.

Unfortunately, the deal still contains fatal flaws that would make it
a big mistake to implement.

The city’s response more or less acknowledges most of the points I
made – the contract cannot be terminated for convenience, the contract
is similar to Chicago’s, permit parking is required in Broad Ripple,
bagging fees are $15, the placard program is being revoked, etc. They
merely disagree on some of the specifics around them and the
importance of them.

This is very positive since now the debate can be on those issues,
which are the real critical parts of this deal. It has become clear
that the majority of people had no idea about these items. The bulk of
the discussion has been around the modernization aspects that are
fairly uncontroversial. I will address some of the points the city
makes. As always, I encourage everyone to investigate for themselves
and draw their own conclusions.

Use of the Chicago Template
The financial structure of the Indianapolis deal is very different
Chicago’s. But the contract is very similar. The city says,
“Indianapolis and Chicago may be similar in certain provisions of the
contract, but that is where the similarity ends.” I believe this
understates the degree of similarity between the two contracts, of
which large portions – I estimate a majority – are word for word
identical.

There is no reason not to use tried and true templates. But the city
should not have used the Chicago contract as a model. The Chicago
contract is known to be bad for the public.

The city also says that other concession agreements such as the
Indiana Toll Road are also similar. I have not reviewed that
agreement, so it is certainly possible. However, the Toll Road,
Chicago Skyway, and Chicago parking meter transactions all involved
large, one-time lump sum payments in excess of one billion dollars.
The Indianapolis agreement is not a lump sum deal, and so the use of a
contract template built for lump sum deals is not appropriate.

The Indianapolis contract should have been structured as a partnership
or joint venture, without the onerous and one-sided provisions of the
Chicago contract. The majority of the defects in the transaction stem
from the use of this template.

Termination for Convenience – The Most Critical Issue
The city notes that the contract does provide for termination by the
city in select cases. As I myself noted, “The city can only terminate
the deal if the vendor defaults, which is virtually impossible.” The
conditions under which the city can terminate include things like the
vendor filing bankruptcy. These are extremely unlikely to happen.

The city acknowledges that the contract cannot be terminated for
convenience. This is what would give the city the right to cancel the
deal if it decides that it is no longer in the public interest. The
city says, “if the City could simply walk away at any point in the
contract, there would no practical reason for ACS or any third party
to make an up-front investment without substantial penalties to the
City for termination.”

Obviously if a vendor gives you $35 million in cash, it would be
unfair for to terminate it without penalty. But in this case, the city
cannot terminate the agreement even if it gives the money back. This
might not matter in the case of the Toll Road, since refunding $3.9
billion is not realistic for the state. But in this case it is very
realistic.

Typical outsourcing contracts would provide for a termination for
convenience with a pre-negotiated penalty that declines over time,
decreasing to zero at a reasonable point (e.g., seven years). This
figure should be set high enough to compensate the vendor for their
investment and discourage gratuitous cancellation, but not so high as
to be a de facto lock in.

Unlike with a Toll Road that is only about moving cars, the role of
parking is not principally financial or even about transportation.
Rather, it is about optimizing the use of a precious public resource.
Rates should be set high enough so that there are spots available if
someone wants to patronize a local business, but not so high that it
keeps people away. Because neighborhoods change over time, and
business conditions are dynamic, this isn’t a process that can be done
all at once for 50 years. What if business on Mass Ave starts to
suffer? What if Broad Ripple hits a rough patch? This might seem
unlikely, but who could have predicted 50 years ago in 1960 what would
happen to the city’s various neighborhoods? By the way, can anyone
even remember who was mayor in 1960?

I’m a white kid who used to live in a trailer on a gravel road in
Southern Indiana. That’s about as far removed from the urban African
American experience as you can get. So it didn’t occur to me until
after Amos Brown’s show was over that in 1960 Indianapolis was a
segregated city. The Civil Rights Act wasn’t passed until 1964. Today
we have a black President of the United States. That’s change. And the
world is changing even faster by the minute. There is simply no way to
predict what will happen even 10 years out. Setting parking rates far
into the future, with significant penalties for reductions, unduly
ties the city’s hands.

The city simply should not commit itself to a long term deal of this
nature. There is nothing more important in this matter than obtaining
a reasonable termination for convenience that the city could
realistically exercise if conditions change. This is even more
important than getting more money. Because if the current deal is
executed, it will be game over for 50 years.

The Deal Financials
The city takes a different financial view of the deal that me, but I
will demonstrate that even with the city’s numbers the deal still
looks very profitable to the vendor, that costs should actually go
down, not up, and that this transaction is really a form of high
interest borrowing a la payday loans.

This Is a Very Profitable Deal
I tend to avoid marketing materials and look directly at raw financial
statements. The parking meter financial statements are in Schedule 9
of the contract on page 151 of the PDF. It reports revenues of
$3.7380M, expenses (personal services, contractual services, and
“internal charges”) of $844.1K for a EBITDA (profits) of $2.8867M, or
a profit margin of 77%.

The city’s response says that this does not include enforcement,
indicating that actual expenses are $3.1M and only $750K in funds
available “for infrastructure improvements or parking meter upgrades.”
It is not clear to me if that is intended to indicate the total system
profits, but let’s assume that it does. Even $750K a year is $750K
more than the Toll Road made in 50 years, so this is a profitable
asset.

I would be interested in seeing a detailed schedule of the other
$2.26M expenses. Even at a fully loaded cost $100,000 per year, this
is 22 FTE’s. That’s a lot of people to write parking tickets for
meters.

I had previously used a $7M estimate for meter upgrades based on an
August city presentation. The city’s response indicates that their
current estimate is $10M. The city and I agree that potentially 3-4
technology refreshes would be required. The Indy Star reported this
morning that the city has 3,669 metered spots. The contract requires
the city to add 130 new meters for a total of 3,799. This equates to
$2632 per spot for upgrades. Chicago has about 26,000 meters and a
spokesman for the concessionaire says that they invested $40 million
This equates to only $1538 per spot for upgrades. And this is based on
actual investments already made.

However, using the city’s numbers, and factoring in inflation, I would
estimate the vendor would incur approximately $300M in operating costs
and $85M in capital costs. Based on the IBJ’s estimate of $724M-$1.2B
in revenues for the vendor, this would mean total profits of $339M to
$815M, or a potential profit margin of 68%. Obviously the total
profits would have to be discounted to the present value, but so would
any future city revenues.

Costs Should Go Down, Not Up
I assumed costs would remain constant on a real basis and increase
only with inflation. The city says this does “not include millions of
dollars in new expenses that would be incurred by the vendor,
including the operation and maintenance of high-end technology systems
(including new hardware and software), the additional personnel
required to operate a stand-alone business, or the proposed extended
hours of the parking system.”

I find it difficult to accept that putting in modern technology will
actually raise costs by millions of dollars. People implement modern
technology to reduce costs. That’s what modernization is all about.
For example, each pay and display meter will serve up to 20 spaces.
Even at lower densities, that is far few meters to empty, maintain,
etc. With credit card payments, there will be less change to collect,
etc.

Pay and display systems are basically special purpose computers like
ATMs. We all know the cost of computer technology is plunging, so
future purchases may be far less expensive. And each generation of
technology gets better and cheaper. For example, we used to have to
get paper tickets for airlines. Now we get e-tickets. You still had to
stand in line to get a boarding pass, so the next generation replaced
expensive agents with self-serve kiosks. Now the kiosks are likely to
be eliminated as well since you can have your boarding pass texted to
your cell phone – how much does that cost? This all happened within a
decade or so. This has been repeated across almost every industry.

In the future, you might not even need machines. Maybe you’ll just
text your license plate number to the system, and it will register
your presence in the spot. Then an enforcement officer driving down
the street could simply scan license plates electronically. Or even
maybe future chips in cars will be picked up by a wireless network and
they’ll text you a ticket, or let you refill the meter by text. This
is all very realistic technology. Remember, we already have full body
“x-ray vision” scanners at airports.

When I was managing technology systems, we were expected to reduce
costs by at least 5-10% per year no questions asked, no excuses, even
when we already benchmarked as best in class on costs. I expect that a
well-run company like ACS/Xerox has similar expectations for its
managers. While some debate this, I believe strong cost control is one
reason the private sector really can do things more cheaply than
government. That’s why I don’t object to hiring ACS to run the meters
on some type of an annual contract. Though given that Denison parking
already operates the system and will continue doing so, it’s not clear
to me exactly what ACS will be doing other than being the city’s
banker.

This Transaction Is Really a High Interest Loan
Speaking of which, unlike the Toll Road lease which should be thought
of as a sale, the best way to look at this transaction is as a loan.
The city is in effect borrowing $45 million from Xerox, and that
company’s profits on the transaction represent the interest. So it is
critical to understand how much profit they plan to make to understand
if this is a good deal or not.

Is it better to borrow money from Xerox or some other way such as
issuing bonds? There are several reasons to believe, even beyond
analyzing the deal financials, that Xerox is more expensive.

1. Credit Ratings. Depending on the source, the city has a credit
rating of AAA/AA+, the best there is. As of February this year, Xerox
had a credit rating of BBB-, the lowest investment grade rating. Xerox
can’t get money for free. It has to come from somewhere. It costs them
more to get it than it would Indy directly, so that will be passed
through, with margin, to the city. Indianapolis can issue debt
directly at rock bottom rates.

2. Taxes. Municipal bonds issued by the city are tax exempt. Xerox is
not. The US corporate income tax rate is 35%. This means a good chunk
of that company’s share of the profits is likely to get sent to
Washington. So they need to earn more profits to cover that.

3. Cost of Capital. Businesses can be funded with either debt or
equity. Debt like bank loans or bonds are safer than equity. They get
guaranteed interest and have first priority to be repaid. For equity
like stocks, there’s no guaranteed return, the price might go down,
and if the company goes bankrupt, you lose everything. So equity
holders demand the prospect of higher returns for that risk. If the
city issued debt, it would be a very safe investment, so it has a low
risk premium. But Xerox is a publicly traded company. Beyond the debt
it issued at BBB-, its stockholders have equity, and demand higher
returns than what they can get on municipal bonds. If the stockholders
wanted muni-bond rates, that’s what they would have bought, not stock.
So Xerox’s CFO makes sure that whenever they take on a deal, it earns
a high enough return to please stockholders, not just bond holders.
This makes rates even higher.

Add it all up and Xerox is not a particularly good place to borrow
money. They aren’t a bank. That’s not their business. They are a
technology company – and a very good one. Incidentally, the concession
holder on the Chicago agreement, Morgan Stanley, is literally a bank.

I again draw an analogy to a person who can’t get a regular bank to
loan them money, and so has to go the check cashing store to get a
payday loan. But the city is hardly a deadbeat and can get money even
cheaper than Xerox can.

They city says it would probably have to use “the moral obligation of
the City to sell bonds given the lack of detailed historical financial
information regarding parking revenues.” This sounds to me like they
mean they couldn’t issue revenue bonds, but would instead have to
issue general obligation debt. The city previously said in the IBJ it
would be able to issue about $20 million in revenue bonds. That leaves
a $25 million gap to get the same upfront cash and pay for
modernization.

Even general obligation debt would be cheaper than this transaction.
Also, there may be other creative ways to access funds. Perhaps
Citizens Energy could take this over too. They are a locally
controlled non-profit that is a quality operation with a long track
record of managing field service operations. And one that would
probably do a true partnership model without all these fees.

Whatever the case, I believe there are better financial options for
the city than privatization. While there would be more revenue risk to
the city, given the 45-80% of the revenues being given away, it would
take quite a collapse indeed for the city to be any worse off by
owning the meters itself. And no doubt ACS/Xerox factored all the risk
into their price up front, so the city is already paying for it.

Even Abdul Hakim-Shabazz wrote, “I think revenue bonds tied to the
parking meter revenue will be a better way to go. You modernize the
meter system, retain ownership, and still get your infrastructure
fixed.”

Penalties, Etc.
The most important thing to understand is that the risk of having to
pay penalties to the vendor is very real. This is not a theoretical or
academic exercise. CBS-2 Chicago, in a story entitled, “Parking meter
firm gets paid even when streets are closed,” revealed:

It’s the gift that just keeps giving, to the private company the city
hired to operate city parking meters….Here’s the reason: There are
street repairs, art fairs and block parties –- all events that prevent
you from parking in normally legal spots. When those spots have
parking meters along them, Chicago Parking Meter LLC, the company that
got the billion-dollar deal with the city, can’t make money, right?
Actually, it’s a great deal for the parking meter company. They
usually make money because you have to plug the meter to park legally.
When you can’t park at a metered spot because of street construction
or other projects, they still get paid.
…
Records obtained by CBS 2 for the first quarter of 2009 of the
contract lists street by street the lost income for February March and
April of 2009 totaling more than $106,000. That amount will surely go
up for the spring and summer — the seasons for street closings. “The
city will be paying perhaps as much as $500,000 a year to protect the
revenue stream for those guys,” Krislov said.

The question is how much the city might have to pay. The city says
that the closure allowances need to be viewed in light of the larger
hours Chicago’s meters are enforced, and “the recommended temporary
closure threshold is about the same for both Indianapolis and
Chicago.” This is a fair point. However, Chicago got a bad deal.
Indianapolis could do better. Remember, Chicago is exceeding their
allowances.

The city notes that events will not necessarily be charged a closure
fee, saying “If the City deems that a specific event or organization
will not be required to pay to temporary close meters, the City has
the flexibility to close meters beyond its 6 percent allowance, and
the vendor will withhold a proportionate amount of revenue share for
that right.” Withholding revenue in this case means paying the vendor.
It is true that the city could cover this fee itself. But it is not
required to, and if it won’t, then the event will have to pay. The
city says, “each program or request will be assessed on its merits (a
continuation of the current policy).”

I think I may have been unclear in my original post on permanent
removal fees. I only intended to say that the bagging fees assume more
or less 100% occupancy, not the permanent removal fees. The city is
correct that after year one, this is based on actual revenue
reductions based on the formulas on pages 132 and 133 of the contract.
I should note, however, that these formulas do not account for any
corresponding reduction in cost from having fewer metered spots to
manage. These fees will be significant in any case.

As with Chicago, it is actually better for the vendor if meters are
shut down, such as during a long construction project. They get paid
as if the meters were operational, but don’t have to do anything. To
consider an extreme case, if the city decided to make parking free and
remove all meters, the vendor could simply cease all operations except
cashing the city’s checks and still make as much revenue as ever
without any corresponding costs. This is very unlikely to happen, but
it demonstrates the principle at work.

The city notes that even if the privatization transactions was not
done, the city would still lose money if it removed meters
permanently. That is correct. But it would only lose its own money. It
would not be required to guarantee profits for a private company on
that spot.

Permit Parking
The city says, “A residential parking permit in Broad Ripple and a
parking garage have been considered a high priority long before this
parking modernization effort began.” That’s true. And I have no issue
with implementing a residential permit parking scheme. However, it is
important to remember that the contract requires the city to have such
a plan if it builds a parking garage in Broad Ripple: “In the event
the City builds a public parking garage in Zone 4 during the Term, the
City will agree to institute a Residential Permit program for non-
metered parking spaces in and around Zone 4 to be administered by the
Concessionaire on terms mutually agreeable to the Parties” (page 47).
Establishing permit parking should not be done in a vendor contract,
but through the normal public process. And it should remain free to be
changed if conditions changed.

The city disagrees with me that it has limited its right to establish
other zones. I will simply reprint the relevant passage from the
contract: “The City reserves the right to designate certain on-street
parking that are not Metered Parking Spaces as residential parking
requiring a Residential Permit, provided that such designation does
not materially effect the Metered Parking System in the surrounding
area.” (page 38, emphasis added).

The city notes that the Concessionaire can only charge a nominal
management fee for running these. That is true. But remember, the
vendor will get the rights to the parking ticket revenue from
enforcement, less the revenue share: “All fees collected for the
issuance of Residential Permits shall be retained by the
Concessionaire and all Parking Violations Revenue shall be retained by
Concessionaire.” (page 38) That’s where the money is.

Miscellaneous
Reserved Meters: The city notes that the vendor is only entitled to a
25% share of these meters, not a full revenue share. They are right
and that was my mistake. I will correct the original post.

Revenue Share: Several times the city points out that any funds that
go to the concessionaire must be split with the city, so they do not
all go to the vendor. That’s true, but it is still 45-80% of the
money. It is not clear why the vendor should be entitled to anything
from tickets written by IMPD, advertising, etc. Or why the vendor
should receive this compensation when the city uses the spots for
itself on official business.

Indemnification: If this is not a risk, then the vendor should have no
objection to removing the clause. I found this particularly
interesting because it was a clear change to what was otherwise the
same text as Chicago, and one that served to create an even more iron-
clad contract for the vendor. The success of the IVI-IPO lawsuit or
similar suit might be the only way for Chicago to extract itself from
that disaster. If the vendor considers it a risk, the city should
consider it a risk.

Offsetting Adds and Removes: One thing I did not see the city address
was the lack of any provision for offsetting adds and removes. I could
not find that in the contract, but admittedly, it is long and complex.
If the city adds 10 meters and removes 5, that should be treated as a
net add of 5, not 10 adds + penalties for five removals.

Morgan Stanley and Timing
The city says that different Morgan Stanley groups worked on Indy and
Chicago. I never said the exact same divisions worked on it. Morgan
Stanley, like most large corporations, is a many-tentacled beast. But
whether it is the left hand or the right hand, it is all a family,
dedicated to making money across all of its groups.

Consensus is Morgan Stanley made a huge profit on Chicago’s deal. But
that came at a cost. Privatizing parking meters got a well-deserved
black eye, so they can’t repeat that coup. That market died. So now
Morgan Stanley has an incentive to want to restart the market for
privatizing parking. If Indianapolis leases its meters, other cities
might start taking a serious look at meter privatization, then the
other arms of Morgan Stanley can swoop in for another payday. As Am
Law Daily noted of Pittsburgh consideration of leasing meters, this
puts parking meters transactions “back in play.” Morgan Stanley has
every incentive to want to restart that market.

Admittedly, so do all over investment banks. If there’s one thing we
learned in the financial crisis, it’s that Wall Street is populated
with sharks. And if you’re swimming with sharks, you need good
protection – like setting another shark to watch. That’s why I
recommended an independent analysis. That’s exactly what Pittsburgh
has done. Their city council voted to do have someone else check
Morgan Stanley’s math:

Ms. Hairston’s advice for council to take an active role came a day
after the body’s preliminary vote for an outside valuation of parking
authority assets.

Representatives of Morgan Stanley, Mr. Ravenstahl’s financial
advisers, had discouraged the outside review, saying it could scare
away investors. Morgan Stanley’s infrastructure investment group also
is the leading investor in Chicago Parking Meters LLC, the consortium
that received Chicago’s on-street parking lease.

On Thursday, with council members still fuming about the financiers’
efforts to shut down their inquiry, Ms. Hairston told them they had
every right to demand a third-party study.

Despite Morgan Stanley’s warnings, bidders showed up in droves to
Pittsburgh.

Interestingly, even Pittsburgh’s mayor doesn’t want to lease the
meters:

Ravenstahl has said privatization is necessary to bolster Pittsburgh’s
underfunded pension system. “Let’s be clear: The mayor doesn’t want to
do this,” said mayoral spokeswoman Joanna Doven.

Pittsburgh’s pension fund is in awful shape. As the Pittsburgh City
Paper reports: “That fund is in sad shape: It has only 30 cents of
every dollar it will need to pay the pensions promised to city workers
upon retirement. What’s more, the state legislature has given
Pittsburgh until New Year’s Eve to raise the total to 50 cents. If the
city fails, the state will take the pension over — and demand an extra
$30 million from the city each year. That, warned Ravenstahl,
translates into a 24 percent property-tax hike. Or a 44 percent hike
in wage tax. Or laying off 400 cops.” That’s called being between a
rock and a hard place.

There are also indications that the market for public assets may not
be as robust as the city thinks. At the same time the Chicago leased
its parking meters, it attempted to privatize Midway airport. That
transaction failed because the winner bidder was unable to secure
financing. Perhaps there is still money to invest, but only on
particularly lucrative deals.

Conclusion
Again, I am very supportive of the modernization aspects of the
mayor’s plan. But the privatization transaction should not be
undertaken. There has to be a better way to make it happen. I believe
the Council and the public are now aware of the material issues, and
the right debates are going to happen, hopefully with the right
outcome. I again applaud the mayor for seeking creative solutions to
addressing long deferred problems, but this deal is not the right
answer for the city.




Indianapolis parking meter lease draws heat
Some council members and merchants voice their worries over 50-year
deal

By Jon Murray
Posted: September 14, 2010
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Mayor Greg Ballard's proposal to lease Indianapolis' parking meters
for 50 years would break new ground by requiring the companies that
run them to channel a large share of revenue to the city each year.
But the first-of-its-kind Indianapolis proposal already is meeting
resistance in the City-County Council and in parts of the Downtown and
Broad Ripple business communities. Some merchants are concerned that
increasing metered parking rates during a recession will drive away
customers.

Council leaders have delayed a vote until at least next month -- and,
for now, council President Ryan Vaughn says he is unsure Ballard has
enough votes.
The difficulty follows Ballard's win on another big proposal involving
city assets. He garnered the council's support in July to sell the
city's water and sewer systems to the nonprofit Citizens Energy Group,
a deal awaiting regulatory approval.
But some of Ballard's fellow Republicans in the council's majority are
among those who are not yet sold on the parking plan.
The deal would net the city a $35 million paymentupfront and an
ongoing share of revenue -- estimated by vendor Dallas-based ACS at as
much as $400 million over the life of the 50-year contract, though the
city's advisers more conservatively estimate the city's portion at
$233 million.
Drivers who park on the street Downtown and in Broad Ripple would pay
as much as double the current 75-cent hourly rate within two years and
for extended hours, including on Saturdays. But the rates would change
only after meters are upgraded to accept credit cards or cash.
The mayor's office and ACS say their partnership sidesteps the all-or-
nothing approach of Chicago's much-maligned private lease of parking
meters. That 75-year lease increased rates -- inflaming Chicago
drivers -- and garnered $1.1 billion upfront, with no ongoing
proceeds, in a deal that some say is lining the vendor's pockets.
Robert Lutz, the Republican chairman of the council's Rules and Public
Policy Committee, which is reviewing the Indianapolis proposal, said
he wants to make sure the city won't be "held hostage" by the vendor
for decades to come.
Indianapolis Parking Meter Lease Is a Danger to Downtown
Posted: 21 Sep 2010 11:03 AM PDT

Image via The Expired Meter
Indy Star Op-Ed

This is my op-ed from the Sunday, September 19, 2010 Indianapolis
Star.
Mayor Greg Ballard should be applauded for seeking ways to repair the
city’s crumbling infrastructure without raising taxes. His water
company transaction was a great, creative deal that lowered costs,
maintained local control, and generated badly needed funds for capital
improvements. But the proposed parking meter privatization is a bad
deal, and one that puts the future of Downtown and Broad Ripple at
risk.
Modernizing meters and bringing rates in line with the market are good
ideas. But while the city did learn some important lessons from the
now infamous Chicago parking meter disaster, there are still too many
things in common, making this a danger to Downtown.
Whoever drafted the Indianapolis agreement used Chicago’s contract as
a template — a contract notorious for being one-sided in favor of the
vendor. So while the financial structure is different, most of the
contract is word for word identical. That contract was set up for a
deal that involved a $1.1 billion up front lump sum, where obviously
the vendor needs strong protections. But in Indy’s case, the city is
only getting a small amount of the deal upfront, so these are
completely inappropriate.
Most critically, the deal will be almost impossible to terminate for
50 years — even if the city gives back the money. The vendor would
have to default, such as by filing bankruptcy, which is not likely. If
this deal is ever no longer in the public interest, there is no way
out.
The contract also lists penalties if the city ever removes a meter,
reduces rates, or even temporarily bags meters in almost all cases.
Bagging fees can even be higher than if the meters were occupied 100
percent of the time — these have to be paid by the city even during
road construction projects. If the city adds meters, raises rates or
extends hours, the vendor automatically gets that upside while the
change fees protect it from downsize risk. It’s heads the vendor wins,
tails the public loses.
If the city builds a parking garage in Broad Ripple as planned, it is
actually required to implement resident only permit parking, meaning
anyone who drives to Broad Ripple will have to pay up. The list goes
on.
Because the quantity, rates and locations of meters are all set in the
contract, and the city has to pay hefty penalties to change them, the
city has effectively frozen parking policy for 50 years. It cannot
replace meters with electric car charging stations, or lower rates on
Mass Ave if business starts to suffer, or implement any change at all
that doesn’t make the vendor richer. Not without paying fees a broke
city can’t afford.
Indianapolis has the best Downtown of any city its size in the country
today because of 35 years of innovation, such as taking lanes away
from cars and giving them to people as part of the world class Indy
Cultural Trail. This deal puts future innovation at risk.
The city is selling a property right interest — a de facto 50-year
ground lease — on its public streets, which is to say, in the most
important component of the city’s public space.
This also appears to be a bad financial deal. Unlike the Indiana Toll
Road, which had never earned a nickel in the 50 years the state owned
it, parking meters are profitable today. With rates increasing, longer
hours, contract penalties and efficiency gains from modern technology,
it is easy to see this going up even higher for the vendor.
While the state took a money-losing Toll Road and converted it into
$3.9 billion, the city is taking a profitable asset and giving away
more than half the future value for a mere $45 million ($35 million in
an upfront payment and $10 million for new parking meters).
This deal is really a high interest loan. The city is borrowing $45
million from the vendor and paying back hundreds of millions of
dollars in interest over the next 50 years. This is the civic
equivalent of taking out a 50-year payday loan.
The city’s plan for modernization, rate rationalization, and
infrastructure improvements is sound. But I urge the city to cancel
this contract and find another way such as revenue bonds to make it
happen.
Meter Miscellany

The Star has another article on the parking meter lease today. A
couple points are worth noting:
1. ACS is now saying it will create 200 jobs in Indianapolis. This is
not in the lease contract anywhere, but in some side agreement. The
meter lease contract, like most corporate deals, has a clause that
says, “This Agreement constitutes the entire agreement between the
Parties pertaining to the subject matter hereof and supersedes all
prior agreements, negotiations, discussions and understandings,
written or oral, between the Parties.” In short, if it’s not in the
contract, it doesn’t count. The only reason – the only reason – to put
a jobs pledge in a separate “letter of agreement” is to render it
unenforceable. Even if it magically were, the jobs only have to be
around for seven years – a far cry from the 50 they expect the people
of Indianapolis to commit to – and the fine for not creating a job is
less than the penalty the city would have to pay for removing just one
meter. That’s right, those jobs are worth less than a parking meter
each even in the unlikely event the agreement is enforceable. In
short, this agreement is basically worthless and clearly just a
gimmick to try to salvage a deal pretty much everyone recognizes is
bad for the city.
Update: Paul Ogden further deconstructs the ACS-City agreement
regarding the jobs.
2. ACS claims it will only earn a 10-15% return on its initial
investment. Xerox’s cost of capital is higher than 10%. If they only
earned 10%, the deal would represent an economic loss to Xerox’s
shareholders, so I’m very skeptical of these figures. I find it
interesting how eager ACS is to tell us up front how little they
expect to make while simultaneously making it impossible to find out
how much they actually will make. There’s no way ACS would have signed
a deal at that low a return. It’s also worth noting that in Chicago,
and now in Pittsburgh, where ACS participated in a true bidding
procedure for selecting the vendor, they lost. They are only winning
in places like Indianapolis where there was a no-bid RFQ process. This
shows I believe that they are more protective of their profit margins
than their spokesman might suggest.
Parking Meter Media Roundup

In roughly chronological order from newest to oldest.
Indy Star: Is meter lease a good deal for Indianapolis?
Aaron M. Renn: Proposed deal would be wrong move for the city – my op-
ed on the Star’s site
Michael Huber: Plan would generate more revenue, efficiency
IBJ: City’s parking deal similar to much-maligned Chicago pact –
subscription, but well worth picking up the hard copy to read
IBJ Editorial: City’s parking plan needs work
Indy Star Editorial: Take more time on meter verdict
Indy Star: Indianapolis parking lease draws heat
Amos Brown/Indianapolis Recorder: Ballard’s parking deal: payday loan
from a bad check cashing store
David Hoppe/Nuvo: The parking meter gambit: raising rates or is it
taxes?
Urbanophile: Indianapolis parking meters – the city’s response
IBJ: Downtown merchants want parking plan revoked
Urbanophile: Indy’s “Son of Chicago” Parking Meter Lease to Be a
Disaster for City
IBJ: City vendor may get $1.2B from parking privatization deal
Urbanophile: Parking meters and the perils of privatization
My appearance on Amos Brown’s radio show is here. Huber and I debated
the deal on Abdul’s radio show, but I don’t think it is online.
There is significant coverage in the Indy blogosphere too lengthy to
list here, but check out Ogden on Politics, Indiana Barrister,
Indianapolis Times, Had Enough Indy?, Sheila Kennedy, Indy Student and
last but not leastAdvance Indiana. Indy has a great political
blogosphere. These folks are opinionated to be sure, but also do a lot
of original research and break stories.

http://www.ibj.com/critics-of-parking-proposal-question-500000-penalty/PARAMS/article/22532

[Jim Garrettson]

Indianapolis Parking Meters Update

Today I’d like to highlight another provision of the contract that is
bad news. This is the “Adverse Action” clause (Section 14). This is a
sort of catch all that says if the city ever does anything that has a
material adverse affect on the vendor, they are entitled to have it
remedied. If not, the vendor has the option to terminate the agreement
and the city has to pay them the fair market value of the remainder of
the concession agreement as determined by an independent party.
However, there is a floor built into the contract that protects the
vendor from the price going down.
From the Urbanophile:


What’s interesting about this is that there are some explicit
scenarios called out that would trigger this (though the contract
doesn’t limit it to these). One is if the state of Indiana implements
a parking tax. How could the city possibly agree to a huge potential
termination fee that is contingent on what another government agency
not in their control does? Admittedly, they are only liable for 50% of
the damages in this scenario, but it is a risk.

Second, if the city removes more than 30% of the meters, then it is
considered an adverse action. So beyond just the compensation the city
has to pay to remove meters, it could be on the hook for a large
termination fee if it ever wants to remove a significant number of
meters. This further restricts flexibility.

Lastly, I should note that former Mayor Bill Hudnut spoke out against
the parking meter lease.

[Jim Garrettson]

http://www.indystar.com/article/20101014/LOCAL18/10140404/Ballard-set-to-shorten-lease-term-for-parking-meters?odyssey=tab|topnews|text|News