Nashville Paused Its Private Parking Deal, But the Problems Remain
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Commentary

Nashville Paused Its Private Parking Deal, But the Problems Remain

Facing political pressure, Nashville Mayor David Briley pulled a proposed $325 million deal with LAZ Parking to expand, finance, operate, and upgrade the city’s street parking.

Facing political pressure during a reelection campaign, Nashville Mayor David Briley pulled a proposed $325 million deal with LAZ Parking to expand, finance, operate, and upgrade the city’s street parking after he had introduced the proposal earlier in the year as a way to plug a budget shortfall.

The parking issue has been fueling his political opponents, with Councilman John Cooper, for example, citing the proposed parking deal as the final straw influencing his decision to enter the mayoral race, according to WSMV TV.

While parts of the push to get the LAZ parking deal approved might warrant valid criticism, any plan to expand and/or upgrade the city’s parking would include a flurry of added capital and operating costs that dedicated parking companies are likely better equipped to handle than the city.

In addition to replacing Nashville’s mostly coin-operated meters with machines accepting electronic payments, the deal called for nearly doubling the city’s metered spaces to roughly 4,000. The private operators would’ve collected revenues and enforced fines, and been responsible for capital and labor costs associated with any expansions and upgrades of metered spaces.

In addition to a $34 million upfront payment from the private operator to Nashville, the city stood to collect a sum of $72 million in annual payments over the life of the 30-year agreement and 50 percent of revenues collected for roughly the first half of the contract, after which the city would’ve received 90 percent of revenues until the contract’s completion. 

Critics of parking privatization deals usually cite Chicago’s 2008 parking meter lease as an example of the “worst practices” in long-term public-private parking deals. But while Chicago’s situation had problems, critics tend to either overstate or misattribute them to the private operator.

Chicago’s parking rates rose substantially after entering the lease (and more steeply than Nashville’s proposal, creating many problems for old coin-operated meters), but Chicago retained rate-setting authority. Neither the operator nor the lease agreement deserves scrutiny for parking rates that the city set itself. The operator did underestimate the resources needed for broken meter repair initially, but within months were repairing meters within half the time the public sector had previously averaged. 

Chicago’s meter replacement occurred even more impressively. While the city successfully installed 198 upgraded meters in the five years prior to the agreement, within six months of the lease, the private operator had already installed 1,357 meters, in addition to replacing the already outdated upgraded meters the city installed. 

Citing a value of over $2.1 billion over the 75-year lease span, other critics, including the city’s inspector general (OIG), called out the $1.2 billion Chicago received upfront as a lowball figure. But this reveals a misunderstanding of public infrastructure accounting. In order to arrive at such a high figure, the valuator assumes running a parking operation for 75 years comes with very little risk, but parking operations face many risks: collections, fuel prices, competing parking garages and lots, equipment repair, transit options, and changes in transportation technology among them. The $2.1 billion figure assumes steady and predictable demand with little-to-no unexpected risks for three-fourths of a century—as if parking operations exist in some full-demand steady-state vacuum.

Former Chicago Chief Financial OfficerGene Safford called the $1.2 billion the city received “on the high side of our projections,” which were based on a more reasonable assessment of risk. Critics of the deal continue to lament the revenues that Chicago doesn’t receive, but the choice to take a larger upfront payment in exchange for ceding revenues over the long-term rests at the feet of the elected leaders who chose to enter a deal structured accordingly.

In terms of finances, the Nashville deal more closely resembled Indianapolis. Instead of taking a large sum upfront, Indianapolis chose to structure its lease to provide consistent, guaranteed revenues throughout the life of the agreement, and to split revenues in excess of specified amounts. Net revenues for the city rose significantly by the deal’s third year, representing an 804 percent increase over 2010’s in-house net revenues, with over half of the increase attributable to a combination of improved operability and ease of payment. On a per-space basis, annual revenues increased from $519 to $2,817 over the same span. And while the deal has failed to meet revenue projections, the city is still taking in an average of $3.7 million per year from its 30 percent share, nearly double the $2.1 million in total (i.e. before costs) revenues the city raised in 2010, prior to privatization.

When it revisits the parking issue, Nashville could bow to political pressure and choose to minimize private-sector involvement by relying on traditional procurement to acquire upgraded meters. But rejecting what could become a sensible, long-term private-sector proposal would likely cost the city millions. In addition to having to finance expansions and related expenses going forward on an already tight city budget, retaining all revenue and enforcement risk means the city would face greater financial volatility in its operations. 

In addition to financing expansions, Nashville would be responsible for maintenance, repair, and replacement of all existing meters, putting its finances on even shakier ground. By transferring or sharing these financial risks—e.g., capital improvements, collections, enforcement, expansion, maintenance—to a private partner and receiving guaranteed payments, Nashville’s finances could become more predictable and sustainable. 

By retaining decision-making power over expansion, policy, and rate-setting, Metro can continue to exercise significant control over street parking, while bringing much-needed improvements to its operations that the city would struggle to implement itself. If residents want parking to remain free on Sunday, for example, it can. Rate increases can occur as Nashville’s Metro Council allows them to, as would’ve been structured in the recently rejected deal. If residents want to prevent metered parking in certain areas, their representatives on the Metro Council can work to prevent it. 

The bottom line is that long-term leases for parking, water, and other public infrastructure typically include provisions designed to protect the public interest by retaining public oversight over revenue setting, whether by controlling rate increases, amending fine schedules, limiting enforcement, expansion, or other rules. These controls are built directly into long-term lease agreements. They set the schedule unambiguously in advance, reflecting obviously that any restrictions or controls on rates and fees will necessarily involve tradeoffs in terms of future revenue generation.

Critics may be right to point out the LAZ proposal was rushed, but its terms appeared capable of putting Nashville’s street parking on a predictable budgetary track over its lifespan while upgrading operations to better reflect modern technology.

Looking long term, if Nashville desires improvements and expansion to its street parking systems and equipment, transferring its less predictable financial risks to a private partner is likely to remain the best path forward for the city and taxpayers.

Austill Stuart is a policy analyst at Reason Foundation, a non-profit think tank advancing free minds and free markets.