Privatized Parking a Win-Win in Indianapolis

Critics of the privatization of municipal parking assets often point to Chicago’s pioneering-albeit unpopular-implementation of it’s 75-year, $1.1 billion parking meter system lease as a warning that such deals will result in cities giving up parking-related revenues over the duration of the deal, effectively trading a long-term revenue stream for upfront cash. However, Indianapolis’s experience with parking privatization tells a far different story, one that illustrates that these are not cookie-cutter transactions, but rather customizable contracts that can-and should-be tailored to each community’s context and policy goals.

Earlier this month, Indianapolis Mayor Greg Ballard’s administration released revenue figures showing that its 2011 privatization of city parking meters has significantly increased net revenues to the city after the third full year of implementation. This is because the deal was structured that way from the beginning as a way to generate a dedicated revenue stream for city infrastructure improvements.

As opposed to Chicago’s lump-sum upfront payment, Indianapolis’s 50-year concession (lease) of nearly 3,700 city parking meters saw the concessionaire-ParkIndy, a consortium composed of Xerox and local partners Denison Global Parking and Evens Time-pay the city $20 million up front and an estimated $300-600 million share of ongoing revenues over the 50-year lease term. Further, the deal involves a two-tiered revenue share where the city receives a 30% share of revenues up to a certain dollar threshold, and then a 60% shared of revenues beyond that. In other words, the more revenue the system generates, the greater the share that the city receives.

In practice, the deal appears to be a win-win for both the concessionaire and the city. As shown in the table below, in 2010-the last year of direct city operation of the meters-the city saw net parking meter revenues of just over $339,000, representing just under 16% of the total meter revenue of $2.15 million. In 2013, after the third full year under concession management, the city received just shy of $3.1 million in net revenues, almost half of the total meter revenue of $6.1 million. This represents an over 804% increase in net revenues to the city since privatization began in 2011. [The full benefits are even greater, since the city shed responsibility for making capital investments into the parking meter system over the 50-year life of the deal; the concessionaire is required to update the meter technology every decade on its own dime.]

Indianapolis Parking Meter Revenues, 2010-2013

What’s even more interesting is what is driving the increased system revenues. I asked ParkIndy representatives how much of the increase in total parking meter revenues could be attributed to changes to rates and modified hours of operation and was surprised to find out that these were relatively minor factors in comparison to major operational efficiencies and management innovations.

As shown above, the annual revenues per metered space have increased from $519 in 2010 (before privatization) to $2,817 in 2013. Breaking down the difference ($2,298):

• Rate increases and changes to the hours of operation only account for approximately 20% of the increased revenues.
• The bulk of the increase in revenues-43%-is attributable to improved meter operability and time limit optimization. Under city operation, a significant number of meters were broken, and it took days, or even weeks, to fix them. Under private operation, 99.8% of the meters are operable at any given time, and those meters that do break are repaired within hours. Further, the city adopted recommendations by ParkIndy to expand the amount of meter time a customer could purchase. Customers can now purchase larger blocks of time at night and on Saturdays downtown (and anytime in underutilized areas outside of downtown), making the system more convenient for users.
• Another 23% of the increase is due to more customers parking legally because of the new meter technology and the concessionaire’s use of data analytics and predictive enforcement (essentially, using historical data trends to drive enforcement activities, as opposed to “gotcha” enforcement).
• The remaining 14% of the increased per-meter revenue can be attributed to implementation of pay-by-phone apps, as well as improved permitting and meter bagging (and removal) procedures.

Altogether, the data thus far from Indianapolis suggest two broad takeaways. First, the commonly heard objection to parking privatizations-that they require governments to give up control of long-term revenue streams for short-term financial gain-is a myth. While it’s true that both Chicago and Ohio State University have structured parking privatization agreements to generate upfront payments, these were policy decisions. Indianapolis proves that an alternative structure based on revenue sharing is equally viable, and may, in fact, be preferable in many situations.

Second, Indianapolis’ experience suggests that while rate increases and expanded hours of operation will certainly have an impact on revenue enhancement, efficiency and operational improvements to parking systems can potentially have a much bigger impact to the bottom line. Policymakers considering similar transactions in the future should understand that future revenues are not all about rates and hours, and in fact they may have more flexibility than previously thought to pursue politically acceptable rate escalation limits and other operating controls without making a huge dent in the bottom line.

In announcing the third-year revenue numbers, Mayor Ballard noted that “[f]or the third consecutive year, Indy residents are seeing the benefits of ParkIndy. […] In addition to providing drivers more and easier ways to pay and park, ParkIndy provides revenue for the City to fund needed construction and development projects.” An additional benefit not cited by Ballard is that Indianapolis has also delivered a win-win partnership that can serve as a model for other cities with regard to how to structure parking transactions that improve functionality and customer service, improve revenues and ensure a long-term alignment of interests between the public and private sectors.

Leonard Gilroy is director of government reform at Reason Foundation and is the editor of the Privatization & Government Reform Newsletter, available here. This article was featured in the March 2014 edition of the newsletter.