I had two extremely cogent comments to my post below about the Pittsburgh deal.
First – from a reader in San Francisco:
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)
And then from Nostradamus
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.
I hope that Nostradamus can fortell the future as well as his famous namesake. That’s the problem, at least for me. Sure Pittsburgh might have gotten a good deal, and have tons of money, but is it good public policy. They have made decisions now, in their agreement with the successful bidder, that binds them to rules that may be to the city’s detriment in thirty or forty years.
As for improving inefficiencies, In the private sector, operators know that whenever they take over a location, the revenue will increase. It does most every time. It’s the nature of our business. New management brings new people who bring new ideas and things get better. They don’t necessarily stay better, but they do get better. I would like to see a well run municipal system withstand an audit by a parking auditor, not a local CPA. With all the issues we have seen in municipal parking operations, in New York, DC, San Francisco, Los Angeles, and yes, even Pittsburgh and the difficulties they have collecting parking ticket revenue and collecting the parking tax, I would suggest that having a professional parking operator come in would show an increase in revenue. Sure did in Chicago.
JVH
2 Responses
On the issue of “who can manage better” (public sector or private sector), let’s recognize that this is not about the “people” who manage these portfolio – it is about the “environment” they operate in. Public sector has storages full of rules, regulations and SOPs that dictate how changes are brought to reality. They must conduct community meetings and public hearings before major changes are implemented (such as fees, fares and parking rate increases). They must plan such issues with the election dates in mind! Although there could be other hindrances in private sector, they do not face series of tall speed bumps every few feet.
More often than not, bright, visionary and savvy professionals from private sector perform absolutely miserably when they join public sector and try to replicate their same successful formulae. Same person, different environment. If a surgery costs $10,000 in USA, and costs only $500 in another country, that’s not because our doctors and surgeons are dull and incapable. It’s just the environment they operate in.
I certainly agree that municipal operations have a different set of rules. However I don’t agree that running a garage is any different whether it is owned by a city or a private entity. Money must be collected, tickets accounted for, monthlies invoiced and collected, stats run, and the facility must be marketed.
Management is management, whether in the public or private sector.
That is the part of the operation I referred to with my “inefficiencies” comment above. The audit done by one of the (unsuccessful) bidders in Pittsburgh found glaring issues with some of the garages currently being run by the PPA, at least according to the auditor who did the review. It would seem that LAZ and CO knew this and factored it into their bid.
Its not a case of “change” that is the issue, is how well run the existing operation is. JVH