Running parking garages is not a core function of government, so Baltimore Mayor Rawlings-Blake’s plan to sell off city-owned garages would be an encouraging step toward shedding non-essential city assets and investing in more important priorities for the city’s residents and long-term fiscal health.
The mayor proposes selling four downtown city-owned garages to generate between $40 million to $60 million in net proceeds (after paying off $24 million in garage debt) that would be used to make improvements to city recreation centers. Many privately owned garages and lots already serve the downtown area, and there’s no reason the city should be trying to compete with them. The mayor’s plan would not see the city exit the garage business entirely, but it’s at least a promising start.
The garages in question have already been contracted out to a private operator, so full privatization would effectively complete a process already started. And it would bring a major benefit of transferring responsibility for future facility maintenance and upgrades to a private owner instead of putting taxpayers on the hook for these investments. Over the span of a few decades, this could amount to millions in avoided city debt or tax revenue expenditures.
It’s worth pointing out that “privatization” can refer to a wide range of activities, and the mayor’s plan differs significantly from privatization initiatives enacted elsewhere in recent years. For example, Chicago, Indianapolis and Ohio State University have all entered into privatization agreements that involve long-term leases – not outright sales, as the mayor is proposing – of government-owned parking garages and/or parking meter systems.
The deals inked by Indianapolis and Ohio State University have been very successful thus far, generating major new revenues these entities have used to invest in city infrastructure and a long-term academic endowment, respectively. Chicago’s 75-year parking meter lease has been far more controversial, in large part because city officials spent much of the $1.1 billion proceeds to close budget deficits to avoid the more difficult work of cutting spending and streamlining government.
But in the end, these lease deals bear little resemblance to the mayor’s plan. In a lease spanning several decades the government doesn’t relinquish ownership of the asset, which brings a host of complex policy considerations covering such things as rate and quality controls and asset condition and maintenance.
By comparison, Baltimore’s plan is relatively straightforward – sell the garages outright, with some limits on how long they must remain garages until the properties could be converted to other uses.
Still, if there’s one lesson Baltimore could learn from Chicago, it’s that it matters how the proceeds from a privatization – whether sale or lease – are spent. For example, with Chicago’s major pension funding crisis, it would have been wiser for city leaders to use their privatization proceeds to help shore up underfunded pensions instead of using it to temporarily paper over structural budget deficits.
Despite Baltimore’s commendable recent reforms that will help it stop digging pension problems deeper, the city still faces hundreds of millions of dollars in unfunded pension liabilities. While investing privatization proceeds in recreation centers would certainly bring quality-of-life benefits, policymakers should consider whether that’s a better long-term investment for taxpayers than paying down unfunded pension liabilities. Alternatively, officials could use the current plan as a springboard for additional sales or leases of city assets to help shore up underfunded pension plans. Paying down those debts now will free up significant money in the future.
Overall, Mayor Rawlings-Blake should be commended for taking a creative look at selling non-essential assets in order to better address residents’ needs. With significant economic challenges still facing cities like Baltimore in the coming decades, it’s critical to focus on priorities. Operating parking garages isn’t one of them.
Leonard Gilroy is director of government reform at Reason Foundation, and Christopher Summers is president of the Maryland Public Policy Institute. This article was originally published by The Baltimore Sun on August 11, 2014.