Privatizing L.A.’s Parking Assets

The Los Angeles Times reviews the Mayor’s proposal to privatize parking assets in Los Angeles:

Supporters of the idea describe it as simple good management. “The question for Los Angeles is, should the city be in the parking garage business?” said Dana Levenson, Chicago’s former chief financial officer who oversaw the city’s parking garage and toll road leases. “A city should be in the school business, the police business, the fire business and the sanitation business. Not parking garages and toll roads.”

Levenson, now head of North American infrastructure banking for the Royal Bank of Scotland, said that by shedding parking meters and garages, Chicago officials were able to improve city’s finances, pay off debt and spend tens of millions of dollars on social programs and parks. The city also socked away hundreds of millions of dollars in reserves, which generate interest to help replace the revenue from meters and garages.

If L.A. chooses to privatize garages and meters, the biggest challenge for the mayor and council will be to resist the temptation to spend it all to adjust the current year’s budget, pay salaries or fund special projects, said Steve Steckler, chairman of Infrastructure Management Group Inc. in Bethesda, Md. A good chunk should be squirreled away in an interest-bearing reserve account, he said.

“We like to tell cities to take a little up front and take a little more over time,” Steckler said. “They’re not very good at that. We’re typically asked, ‘What’s the point, my term ends in three years?'”

Building on this theme, I discussed fiscally responsible ways that California officials can treat large upfront payments from asset sale/lease deals in this recent post. Whether a parking system or a state fairground, the underlying principle should be the same: fiscally responsible policymakers should invest the proceeds for the long term, not spend the windfall in a one-time splurge.

Also, this piece of the article caught my eye:

But to make [the Chicago parking concessionaire’s] investment profitable, those companies raised meter rates to $3.50 an hour in choice spots earlier this year, triggering a driver uprising that left meters mangled by tire irons and coin slots filled with Super Glue.

Some Los Angeles City Council members, who will begin considering the mayor’s plan Monday, are skeptical of the Chicago experiment. A year ago, the council approved a rate increase for L.A.’s 41,000 meters — the first in two decades.

This is inaccurate. The decision to raise parking meter rates in Chicago was made by local elected officials, not the concessionaire. In fact, as I discuss here, responsibility for rate setting always remains with the City under the Chicago parking meter lease. It would presumably be no different in Los Angeles, where officials have already raised rates recently.

If L.A. officials decide that they’d want to hold meter rates flat as part of a privatization deal, that’s a policy decision they can make. If they want to let rates index to inflation every 1-5 years to increase the potential upfront payment from a lease, that’s a policy decision they can make. If they want to eschew upfront payments altogether (hypothetically, as this doesn’t appear to be the case) and instead structure a lease around an annual payment/revenue sharing system, that’s a policy decision they can make. Not to beat a dead horse, but the main point here is that policymakers decide what parameters they want to include in structuring the deal, and then they take that proposal to the market. Different decisions–like meter rates over the life of a lease–will involve policy trade offs, and these issues are decided in the public policy arena. In effect, the private sector ultimately bids on the package that government decides it’s comfortable with in these deals.

In addition, the article above paints a fairly dim view of Chicago’s experience thus far in parking meter privatization (the deal is five months old), but as I discuss here and here, the Chicago story is much more nuanced than it may appear at first glance. For more on the merits of parking meter privatization, see here.