In August 2010, Indianapolis Mayor Greg Ballard announced the winning bidder for a 50-year concession (lease) of nearly 3,700 city parking meters in the downtown and Broad Ripple areas. Under the concession, ParkIndy—a team composed of Xerox-subsidiary Affiliated Computer Services (ACS) and its local partners Denison Global Parking and Evens Time—have taken over responsibility for meter system operations, maintenance and capital investment, in exchange paying the city $20 million up front and an estimated $300-600 million share of ongoing revenues over the 50-year lease term. The city council approved the deal the following November, and the concessionaire took over parking meter operations in March 2011.
In accordance with state law, all city revenues generated from the parking meter concession will be dedicated to street, sidewalk and other infrastructure improvements in the metered portions of the downtown and Broad Ripple areas, effectively allowing the Ballard administration to stretch its existing $500 million infrastructure repair program even further.
In June 2012, Reason Foundation's Director of Government Reform Leonard Gilroy interviewed Indianapolis Deputy Mayor for Economic Development Michael Huber on the first year results of the parking meter concession from the city's vantage point.
Leonard Gilroy, Reason Foundation: Can you clarify the first-year parking revenue picture from the city’s vantage point, and where it falls with regard to the city’s expectations? A March 2012 Indianapolis Star article suggested that the city received less revenue than expected in the first year of the parking concession. However, the article also cites a sixteenfold net increase in parking-related revenues to the city from 2010—the final year of city-run parking operation—to 2011 when private management began ($87,000 in net parking revenues to the city in 2010 vs. $1.4 million in 2011). From the Mayor’s standpoint, are things on track with the parking meter concession?
Michael Huber, Deputy Mayor for Economic Development, City of Indianapolis, Indiana: Overall, we’re very happy with the first-year revenues, given that we upgraded an old system and successfully implemented a modern, electronic system within less than a year. Mayor Ballard’s first priority was customer convenience, not revenue. We wanted to ensure a smooth transition of the metered parking system, including an improvement in the equipment and customer convenience.
Also, we would remind people that the ParkIndy team provided revenue projections that suggested the city might earn as much as $600 million over the course of the 50 year program. The city’s own estimates were more conservative, closer to $300 million. We always anticipated that the transition year revenues would not be as high as future years, due to the expected timing for planned hourly rate increases, the addition of metered parking on Saturdays, and the extension of the metered hours during each day (7am to 9pm). We consider it a significant achievement that our net financial performance in the first year of the contract exceeded the net financial performance of the years prior to the transition.
Gilroy: The Star article cited a total, first-year revenue to the city of $1.4 million, roughly 30% less than a city projection of $2.1 million. Can you explain that projection?
Huber: While it’s true that prior to 2011, we did estimate that 2011 revenue would be about $2.1 million, we knew there would be a number of “moving targets,” mostly related to construction, beyond our control or our vendor’s control. 2011 was a great year for urban development in Indianapolis, including downtown Indianapolis, so we considered this a good problem to have. The extensive construction on the Indianapolis Cultural Trail, the improvements of Georgia Street for the Super Bowl, and many other necessary long-term improvements to our infrastructure blocked sections of the metered parking system for significant amounts of time. In addition, the 2011 winter brought more snow and ice than we anticipated, reducing for a time the number of parked cars in downtown.
However, from a taxpayer perspective, it is important to note that because of the revenue-sharing structure in our contract, the gap between the revenue projection and the actual net revenue does not create a shortfall in the City-County’s general fund or operating budget. We think this is very positive.
Taking these factors into account, the overall revenue for the metered parking system was lower than projected, but not as a result of the concession agreement or due to the performance of the concessionaire vendor. Total revenues did grow each quarter, especially after new technology was implemented and metered rates increased.
Gilroy: Were there any transitional issues or city investment decisions in the first year that may have affected first-year parking revenues, perhaps leading to a different revenue growth trajectory than initially expected?
Huber: All large, complex transitions have challenges, but the City-County worked closely with ParkIndy to minimize the impact of growing pains during the transition year for this program.
As an example, the city chose to retain a parking meter maintenance team beyond the deadline established within the contract. This decision was made to maintain a high level of customer service while ParkIndy ramped up their installation and maintenance teams. In return, ParkIndy reimbursed the City-County for the salary and benefit costs related to the maintenance personnel. This is an example of the City-County and ParkIndy working together to make the transition successful for all sides.
As another example, the City-County chose not to approve metered rate increases until the technology had been upgraded in each zone. In other words, we did not allow our vendor to increase the hourly rate of a given parking space until credit or debit cards could be used by a customer parking in that particular space. While this delayed the increase to revenue, it also ensured that the motorists were not paying more until the system was in better condition and therefore “worth” more.
Gilroy: Analyzing current annual operating revenues can provide one lens to view the benefits of a parking system concession, but there are also associated one-time and long-term financial and other benefits, such as upfront payments, a concessionaire’s capital investment over a lease term, etc. Taking operating revenues aside for a moment, can you break down what other benefits the city has seen (and expects to see) from this parking concession?
Huber: One benefit that has not been reported as much by local media is that we’ve shifted all of the taxpayers’ operating risk and the costs of new equipment to the vendor. Prior to the concession agreement, the City-County’s metered parking equipment was generally old and in poor condition, which cost the city money and man hours. ParkIndy made a significant investment in new meters and pay stations that not only improved the aesthetics of the system but also provided new functionality such as accepting credit cards.
While our concession agreement with ParkIndy provides confidentiality for their actual costs, it is safe to assume that the vendor spent millions of dollars to install the 1,350 new single-head meters and over 300 pay stations within the first year. ParkIndy has also installed over 600 sensors and support equipment that will allow motorists to find available spaces through the use of an online or smart-phone application. The City-County was not in a financial position to make this kind of investment, whereas ParkIndy will repeat that equipment refresh every ten to twelve years during the contract term. This will ensure that moving forward Indianapolis will always be in a position to provide the consumers with the best possible experience as technology advances.
ParkIndy also provided an upfront payment of $20 million. This upfront payment allowed the City-County to commit roughly $6.4 million to the construction of a long promised Broad Ripple Parking Garage and another $5.9 million in other infrastructure investments before the first dollar of parking revenue was collected.
Gilroy: Overall, how are Indianapolis taxpayers and drivers benefitting from the parking lease? Could the city have committed to the same level of operation, same level of investment without turning to the private sector?
Huber: One of the key goals of this program was to increase the convenience for citizens and visitors. In the upgraded system, motorists have the choice to pay with coin, credit card, debit card or even with a phone or online application. Initial trend data shows that in the busiest section of the metered parking area, over half of the monthly transactions are now credit card payments. In just the first full month of having pay-by-phone functionality, thousands of pay-by-phone transactions were made. Leading to a better experience because motorists now know when there meters is about to expire and can add additional time from a meeting or if they are having dinner without worrying that they may get a ticket.
In addition to this flexibility in how to pay, motorists will benefit from having a higher level of meter reliability. Newer meters break less often than the older legacy meters did, and the new meters utilize a wireless network to provide operational data to a centralized maintenance department that can dispatch repair crews much faster than the City was able to in the older system. Often when the city was in charge of repairing meters they would be broke for days or weeks leading to lost revenues and poor customer experiences.
The concessionaire’s new Parker mobile application also allows motorists to find available parking spaces using sensors and support equipment that ParkIndy has installed.
It is difficult to imagine how the city could have made all of the technical upgrades and process improvements in the metered parking system given the state of municipal budgets, not just in Indianapolis but everywhere. In addition, the concession agreement provided an initial $20 million upfront payment that has allowed the city to fund projects that would otherwise have been delayed, or would not have happened at all.
Gilroy: What has Indianapolis realized in terms of operational efficiency, productivity, and, most importantly, customer convenience?
Huber: Clearly, the quality of equipment within the metered parking system is much higher now than prior to the concession agreement. All legacy meters were removed during the transition year, and the new solar powered meters are more attractive as well as easier to maintain. Because each meter and pay station uses a wireless network to communicate with a central maintenance function, malfunctioning equipment can be quickly identified and repair crews can be dispatched much quicker than in the previous system.
It’s true that we receive occasional complaints and concerns regarding the new pay stations, both in terms of convenience and ease of use. The good news is that we receive fewer of these complaints with each passing month. The city has worked with ParkIndy to ease the adoption of this new technology, and ParkIndy has invested in additional training and support services for those who have not used this type of technology in the past.
Now that ParkIndy has made the technology improvements, the city will begin receiving detailed trend data that will show total system and individual space utilization. This type of data was simply not available prior to the concession agreement, and it will be used by the city to make decisions about where to add new meters, where to remove metered parking, and when to change metered parking rates. Operational data from ParkIndy will also be used to ensure consistently high customer service performance throughout the life of the contract.
Gilroy: What are you seeing for Year 2 thus far? Do you see revenue growth accelerating as the transition progresses?
Huber: The most significant monthly revenue growth came as a result of the updated technology and the changes to rates/times for the metered parking system. The new meters and pay station equipment installed by ParkIndy allows motorists to pay by coin, credit card, debit card, and by phone. Initial trend data suggests that motorists using credit or debit cards tend to buy larger blocks of time, due to the convenience.
In addition, more and more people are downloading the smart phone app that allows people to add minutes electronically. These factors, in addition to the new hours (7am – 9pm, including Saturdays) and the increased hourly rates provided significant increases to total revenue in 2011.
Preliminary figures for January and February 2012 indicate steady revenues to start the first quarter. The monthly revenue in 2012 is more than double the monthly revenue for the previous year, but that is largely due to the timing of new technology, new rates and new hours during the transition year. In addition, it is anticipated that the metered areas will have substantially less construction in 2012 than we did in 2011. We will not have true “apples to apples” comparison for the monthly revenue figures until later in 2012, possibly 2013.
As we think long-term, the Mayor considers this partnership to be a successful one thus far. Although no implementation of a new system is ever perfectly executed, the contract provides that both the City’s and ParkIndy’s interests are aligned. As long as we do a thorough job managing the contract, we’ll continue to enjoy the benefits of improved technology, better data on who is parking where and when, improved customer convenience, and more revenue for infrastructure improvements.
Michael Huber is currently serving as Deputy Mayor for Economic Development under Indianapolis, Indiana Mayor Greg Ballard. Prior to joining the Ballard administration, Michael served at the State of Indiana as Deputy Commissioner for the Department of Administration under Governor Mitch Daniels. Prior to working in the public sector, Michael worked in management consulting. He has an MBA from the Kelley School of Business (Indiana University) and an undergraduate degree from Northwestern University.
Other articles in Reason Foundation's Innovators in Action 2012 series are available online here.