The final bid for the lease of the parking operations for Pittsburgh came in substantially higher than the Mayor expected. Mayor Ravenstahl had hoped for $330 million to cover the shortfall in the city’s pension fund plus pay off the parking system’s debts. The bid came in at $452 Million. Of course the immediate question for the city is how to spend the extra $110 million.
The surviving bidders, LAZ and Swedish Private Equity firm EQT Partners were within 10% of each other last week and were asked for a best and final. It was reported that they were nearly $80 million higher than the third bidder, Carlyle Infrastructure Group. The best and final came in $40 million more than LAZ’s original bid.
Of course, this now needs to be approved by the city council and unlike Chicago, a number of city council members are not excited about the deal. The mayor may have to solve a few political issues to get the contract closed.
For more detailed information go here and here.
I wish all the best to JP Morgan and LAZ, however I still wonder at the wisdom of long term leasing of city’s assets to pay off mistakes made in the past. All of Chicago’s money is gone after less than a year, and most of Pittsburgh’s is spoken for.
JVH
5 Responses
Funding a pension liability with the proceeds is an appropriate long term use of the up-front payment. The extra 122 million (glad JVH isn’t my accountant!) should likewise be used to shore up long term obligations. When you factor in the replacement costs for the three oldest garages, the cost for a new on-street parking system and let’s not forget the city’s divestiture of all of those salaries and benefits for 50 years, the true value of the deal for Pittsburgh is well over 600 million.
It appears that Pittsburgh took the best aspects of both Chicago leases and prudent steps to avoid the Chicago mistakes. There is also something to be said for the Pittsburgh Parking Authority who for decades managed to do quite a lot with a little; hamstrung by a limited budget and a mandate to provide parking at the lowest possible cost and still remain solvent (no Executive Director making over 300K here). The premise that the value in a concession comes from improving on inefficiencies is a disservice to well-run municipal systems. I would suggest that there is as much value, if not more, to a stable well run asset with a proven track record of cash flows and steady growth. After all, those are the same aspects that mitigate risk and provide lenders and equity with the confidence to bid, and bid to a higher number.
What would the final bids for Chicago’s assets have been if those assets had been managed competently from the start? Why are they up in arms in the windy city? I believe that it has to do with pride. It’s easier on the ego to rationalize and say that there was a rip-off due to behind the scene shenanigans than it is to admit you sold what could have been a Picasso at the yard sale for five bucks.
Nostradamus makes a good point that PPA was well-run, so I hope LAZ takes a look at the people and the infrastructure – if it ain’t broke, don’t fix it.
I do agree that selling off public asset is not a smart approach. In Pittsburg’s case, I believe they followed a much better process, higher scrutiny than Chicago and far better community and elected official outreach. Whether it was a good decision for them or not should be left to the Mayor and the City Council since they represent their citizens. One good outcome of Chicago’s debacle is that other cities learned a lot from everything that did not work in Chicago, and are now undertaking a different approach than the windy city did.
(These are my personal views and does not represent City and County of San Francisco’s position on P3)
As long as they’re paying for the mistakes and making an effort to correct it, it’s fine by me.
“…selling off public asset is not a smart approach.” I agree. And I also agree that as long as they are taking steps to solve or correct the situation, it would be ok.