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PIRG Report Distorts Proposed Indy Parking Meter Lease

PIRG report ignores facts, offers litany of myths and errors on proposed lease

Leonard Gilroy
November 9, 2010

This fall, Indianapolis Mayor Greg Ballard announced the winning bidder for a 50-year lease of nearly 3,700 city parking meters in the City's downtown and Broad Ripple areas. If ultimately approved, a team comprised of Affiliated Computer Services (ACS) and its local partners Denison Global Parking and Evens Time will take over responsibility for meter system operations, maintenance and capital investment, in exchange paying the city $20 million upfront and a $600 million share of ongoing revenues over the 50-year lease term to be dedicated to citywide infrastructure improvements. Given the budget pinch that state and local governments are facing these days, the proposed parking meter lease offers Indianapolis officials a tremendous opportunity to leverage a non-core asset to help the City do more with less in tough fiscal times.

With the policy discussion now moving to the City-County Council, the reliably anti-privatization U.S. Public Interest Research Group (PIRG) has entered the conversation, distributing a memorandum to elected officials and select media full of conceptual mistakes, inaccuracies, and false information designed to cast doubt on the proposed lease. Though PIRG has not posted the memorandum on its own website, local blog Had Enough Indy? helpfully reproduces the entire PIRG memo here.

PIRG's memo is riddled with myths and blatant falsehoods, several of which are outlined below:

Leasing Assets

Myth: "Unlike ordinary outsourcing to private companies, these deals provide elected officials with upfront cash that is borrowed against the higher fees they agree to charge citizens in future decades."

Fact: The proposed parking meter concession eschews a large upfront cash payment in favor of a small upfront payment and shared revenues with the city over the life of the lease, ensuring a strong shared interest in the financial success of the system by both the public and private partners. The $20 million upfront payment would be used for infrastructure improvements in the downtown and Broad Ripple areas, as would the estimated $600 million in shared revenues the city would collect over the 50-year lease term. Further, the concessionaire would take on all of the operating, maintenance and capital costs currently borne by the city today, as well as a complete system overhaul that will require approximately $7-10 million in capital expenditures by the concessionaire. Overall, the proposed lease will remove significant costs from the city's books while increasing revenues available for citywide capital improvements.

Maintenance and Asset Condition

Myth: "ACS would feel almost no competitive pressure to perform well to renew its contract. Moreover, toward the end of fifty years the private operators will have less and less incentive to properly maintain and invest in the facilities."

Fact: PIRG gets it wrong on both counts. First, like any rational company, ACS has an inherent pressure to perform well if it wants to continue to win government contracts across the country. In a competitive marketplace like infrastructure with many experienced and quality vendors, prior performance on other contracts is one of the criteria by which public officials select qualified bidders.If ACS or any other infrastructure operator wants to continue to win new contracts tomorrow, it demands that they perform well on their contracts today.

Second, PIRG's assertions regarding asset maintenance could not be further from the truth. On a practical level, Section 16.4 (pgs 88-89) of the concession agreement makes proper maintenance a contractual responsibility.At the end of the lease, ACS would be required to return to the City a parking system "in good order, condition and repair (reasonable wear and tear excepted)."The parking system must meet the contracted operating standards and be free and clear of all encumbrances.

And at a more fundamental level, why would ACS let the asset deteriorate if the whole point is to attract customers to use it? It's obviously in ACS' best interest to keep the parking meter system in good working order, as Indianapolis drivers have many other parking options besides city meters. If meters aren't working the company will not be able to generate revenue, and poor service would alienate potential future customers. Further, broken and failing meters cost the company more money than properly maintained meters. Despite PIRG's attempt, it's difficult to envision a scenario in which skimping on maintenance and investment would do anything other than hurt a vendor's bottom line.

Parking Rates

Myth: The concessionaire "would have the authority to raise rates nearly 1,000-percent over the course of a fifty year lease. This means an hourly rate increase from $0.75 per hour to about $7.50 per hour." Elsewhere, the PIRG memo likens new meter fees to "a new tax."

Fact: PIRG makes several distortions here. First, it is absolutely false to claim that the concessionaire "would have the authority to raise rates," as the concession agreement explicitly preserves the City-County Council's exclusive rate setting authority. The concessionaire would not be authorized to unilaterally raise hourly parking rates under the lease; they could only adjust rates if the City-County Council approves it first.

Second, the current $0.75 hourly meter rate would rise to $1.50 over a two-year period under the lease. For the remainder of the term, all rate changes would require City-County Council approval, and any future rate increases would be capped and could not exceed the rate of inflation. Hence, PIRG's statement is not only speculative, but its math is entirely misleading. The "1,000 percent increase" figure is the maximum hourly parking rate that could possibly be charged if the City-County Council were to approve a steady flow of maximum rate increases over the 50-year lease term, a dubious prospect when one considers that the Council has left the current $0.75 per hour rate unchanged for 35 years.

Further, the sensationalistic PIRG estimates fail to account for the fact that just because one can charge a maximum doesn't mean that it will maximize revenues or otherwise make good business sense to do so. For example, if parking meters are left underutilized in a given area, then it's a strong signal that lowering the hourly rate may increase demand, and the concessionaire has already shared its intent to reduce rates in areas with underutilized meters.

Last, comparing metered parking fees to a tax demonstrates PIRG's failure to grasp the policy reasons for metered parking. Meters can be a vital component of traffic management that, through internalizing economic decisions, create turnover and availability, improve mobility and access to businesses, reduce urban congestion and mitigate pollution. Using the proposed lease to put in place a modern parking meter system—both in terms of pricing and technology—would give Indianapolis officials a far better ability to achieve these goals.

Control of the System

Myth: "In response to virtually any action taken by the city that might reduce the parking system's revenues or divert drivers to other locations, the city could be forced pay compensation to ACS. [...]The city would be forced to pay for a day's worth of meter revenue even if the meter is only blocked for four hours."

Fact: False—PIRG takes the exception and tries to make it the rule. Parades, street fairs, road repairs and the like would not require the City to compensate ACS, as PIRG erroneously contends. Under the proposed lease, the City has tremendous flexibility to make changes to the metered parking system without incurring any penalties or fees. For instance, the City can without penalty:

Further, a range of current parades and events (Super Bowl, 500 Festival, etc.) are specifically accounted for in Schedule 10 of the lease, and it also includes provisions for how to handle future events not yet devised.

The current proposal achieves a sensible balance between preserving the City's control of the parking meter system while offering the concessionaire some legal protection against major City actions in the future that could have significant, adverse revenue impacts.

Myth: The City must pay the concessionaire compensation "that would...exceed the amount that the meter could collect if it was occupied for every minute of the long operating day."

Fact: PIRG is again mistaken. In the rare situation that the City needed to shut down meters beyond the parameters outlined above, the compensation formula specified in the lease would only require reimbursement of a percentage (40 to 70%) of that meter’s actual revenue. For example, if the City permanently removed 205 meters and failed to replace them in year 2 or beyond, the concessionaire would only receive compensation for a portion of the previous year’s revenues from those 5 meters over and above the 200-meter exemption limit. The same calculation would hold in year 1 but would be based on average meter revenues by zone, since the city cannot currently track per-meter revenues. The concessionaire will spend the first year collecting the baseline data systemwide to allow it to isolate specific revenues by individual parking meter.

Also it's important to reiterate that the situations in which compensation would come into play are extremely limited under the terms of the lease. Any meter can be shuttered for 19 days without triggering compensation, allowing plenty of latitude for special events, maintenance projects and the like, and if for some reason City officials needed more latitude to undertake a given project or event, they have the ability under the lease to take up to 200 meters out of operation entirely, whether on a temporary or permanent basis.

Future Financial Risk

Myth: The proposed lease requires "the city to pay compensation...to shift...risks to the public."

Fact: There are substantial risks associated with the operation and value of the meter system that would be transferred from the city to the concessionaire in the lease—not the other way around, as PIRG falsely implies. The proposed agreement shifts nearly every financial risk (including appropriation risk) to the concessionaire, who would be responsible for all personnel and workforce costs; inflation and other cost increases; capital expenditures; property, equipment and technology costs; and revenue shortfalls. Other risks transferred to the concessionaire include system utilization risk, long-term operational risk and other risks associated with the potential for changes in population, economic activity, technology, public transit usage, fuel costs and numerous other factors that affect the long-term economic value of the system.

Vendor

Myth: "When Chicago and Pittsburgh were considering exploring privatization of their parking systems, they opted against ACS."

Fact: PIRG makes a blatantly false assertion here. Neither Chicago nor Pittsburgh "opted against ACS"—in fact, just the opposite. ACS was short-listed in the parking meter lease procurements in both Chicago and Pittsburgh—meaning the cities deemed them a qualified vendor authorized to bid—but ACS chose not to bid on either deal. A concessionaire cannot be rejected if they do not bid in the first place. By suggesting otherwise, PIRG appears to be making it "personal" in an attempt to undermine ACS's reputation as a major national parking operator with dozens of contracts and decades of experience.

Myth: "After Indiana contracted with ACS to manage the state's social service eligibility review and claims processing, the state decided to cancel the ten-year contract [...] Governor Daniels brought the privatized functions back in-house after losses that some estimate may have reached $500 million to the taxpayers of Indiana."

Fact: PIRG paints a false picture of FSSA privatization. First, Gov. Daniels did not bring the privatized FSSA functions back in house. In deciding to revamp—but not abandon—the privatization/modernization project, the State terminated the prime contractor, IBM, but subcontractor ACS was asked to continue working on the project. ACS' contract with the State of Indiana was not cancelled; in fact, ACS now works directly for FSSA. ACS was not the cause of the problems with the state's welfare modernization program, as PIRG attempts to imply, nor has the company been involved in any litigation in this regard.


Thoughtful third-party analyses can and should play an important role in public policy discourse, but unfortunately in this case, PIRG's memorandum on the proposed parking lease fails to illuminate anything other than the organization's zeal to demonize privatization, obfuscate real policy issues, and distract policymakers from the important discussion at hand. Given the memo's reckless reliance on errors and falsehoods, Indianapolis officials should seriously think twice before buying any of the snake oil that PIRG is peddling.

Leonard Gilroy is Director of Government Reform at Reason Foundation.


Leonard Gilroy is Director of Government Reform


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