LA WATCHDOG
By Jack Humphreville
Chicago’s “taxpayers have been hosed” according to the Chicago Reader. [LINK] And now it looks like it’s LA’s turn if the Mayor has his way.
Chicago residents have ample reason to be upset. Parking rates are more than doubling this year and will go up five times over the next five years, from an average of 47 cents an hour to $2.40 an hour, an increase averaging 38% a year. Rates will be in effect for more hours and there will be more meters and less free parking. And Chicago has been issuing many more parking tickets. All this has resulted in a substantially higher level of vandalism and political turmoil.
In addition, while Chicago netted over $1 billion from the sale / long term lease (after deducting $7 million of fees to politically connected investment banks and law firms), Chicago sold the parking meters at a huge discount, estimated by Chicago Inspector General David Hoffman (now a candidate for the Democrat nomination for US Senate) to be 50%. This resulted in a gift of about $1 billion to an investment group led by Morgan Stanley, a New York City investment bank. (Check out Hoffman’s report.) [LINK]
Parking meter revenues are expected to increase eight (8) times, from $20 million a year to over $160 million in five years. The investors expect to make at least 4 to 5 times on their investment, a compounded rate of return of around 35% per year. A massive home run for the investors, but not so hot for the taxpayers!
Unfortunately for taxpayers, Chicago has squandered a large portion of the proceeds to fund its operating deficit, including most of the funds that were allocated to the reserves for use by future generations. At the same time, Chicago lost the annual parking meter revenues, thereby increasing the operating deficit which, in turn, will require new taxes.
While Mayor Daley defends this transaction, the Aldermen, who were kept in the dark during this less than transparent transaction, are not in agreement, especially since they are taking considerable heat from their constituents. Furthermore, Chicago has lost control of its ability to set rates because of the onerous “True Up” provisions and related financial penalties contained in the sale contract.
As for Los Angeles, the City has retained Chicago based Scott Balice Strategies as its Financial Advisor to assess a potential Public-Private Partnership (“P3”) for the City’s Parking Facilities. Scott Balice is charged with gathering and validating the necessary financial and operating information, preparing projections, valuing the assets, and developing alternatives.
The proceeds from the sale / long term lease of our Parking Facilities will be used to pay operating expenses, such as to build reserves, to pay pension costs, and “to provide dedicated funding to each Council District for improvements” (a bribe, perhaps?). But as we all know, selling capital assets to fund operating expenses is bad financial policy and delays making tough, but necessary decisions to cure the Structural Deficit.
The Controller’s November Status Report pointed out that the City has not developed a broad policy or acknowledged consensus on the general issues related to P3 transactions, including the structure of any transactions, the level of control, and the use of proceeds. As it is, the P3 for the Parking Facilities is just another one of the Mayor’s one off budget gimmicks.
The Controller’s Status Report implies that this is P3 transaction is a done deal.
However, there are other alternatives, such as maintaining the status quo, or maintaining the status quo and making the unpopular decision to raise parking rates, just like any private equity investor like Morgan Stanley would do.
Another alternative that a number of other cities have used successfully is to work with a professional parking management company that would operate the Parking Facilities pursuant to a mutually agreed operating and financial plan. The City would retain control, participate in the future revenues, avoid significant investment banking and legal fees, and limit future legal disputes with private investors who demand exorbitant rates of return.
As the Controller’s Status Report stated, it is important to make sure that process be open and transparent. As such, before embarking on a transaction, before retaining a fee hungry investment bank whose compensation is contingent upon closing a transaction, and before sending out any Request For Qualifications, the City should conduct a thorough review of the Financial Advisor’s report, including the projections, alternatives, and conclusions, which is open to all stakeholders, including the Neighborhood Councils and the press.
As it is, the level of trust is low, especially given the City’s $25 BILLION financial shortfall associated with the projected four year budget deficit, the unfunded pension liabilities, and the deferred maintenance of our infrastructure.
An open and transparent process, including extensive community outreach, related to this controversial, financially questionable P3 transaction is imperative to make sure that the Los Angeles tax payers are not hosed.
(Jack Humphreville is the President of the DWP Advocacy Committee and the Ratepayer Advocate for the Greater Wilshire Neighborhood Council. Humphreville is the publisher of the Recycler -- www.recycler.com . He can be reached at
This email address is being protected from spam bots, you need Javascript enabled to view it
) ◘
CityWatch
Vol 8 Issue 105
Pub: Jan 19, 2010
|
