Can Meter Deal Save The Budget?

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by Paul Bass and Allan Appel | Mar 10, 2010 2:34 pm

(21) Comments | Commenting has been closed | E-mail the Author

Posted to: City Hall, City Budget

Paul Bass Photo When New Haven passes a new budget, Lequane Gormany should still be retrieving quarters from parking meters. Where those quarters end up has become a big question.

The DeStefano administration wants to hand over 25 years worth of meter revenue—worth an estimated $120 million—to a Mayfield, Ohio firm called Gates Capital Partners in return for a quick up-front $50 million to spend over five years.

Mayor John DeStefano calls the unorthodox measure a needed solution in economic hard-times. The deal will enable the city to pass a $476 million budget that avoids laying off city workers like Lequane Gormany (pictured at work on Orange Street) and make progress on improving schools, creating jobs, and keeping streets safe.

The proposed parking meter plan—called a “monetization” deal—has drawn skepticism since DeStefano unveiled his proposed 2010-11 budget on March 1. The budget, which takes effect July 1, needs Board of Aldermen approval.

The plan got its first aldermanic public hearing Tuesday night—and the parking meter deal emerged as a central target of criticism. A prominent citizen watchdog, David Cameron, portrayed the proposed deal as a shaky “mortgage” that could cost the city in the long run. An influential, pro-City Hall alderman, Finance Committee Chair Yusuf Shah, said he’s “concerned” about the lack of details publicly available about the deal, which is still being negotiated. He and Cameron agreed the public needs more answers before such a plan goes through.

Extraordinary Times, Extraordinary Measures

DeStefano offered some of those answers, and his broader reasons for plunging into the murky waters of revenue-stream sales, in an interview in his office.

He said he expects to close the deal within the next three weeks. City budget chief Larry Rusconi is heading the negotiations.

“I wouldn’t look at monetization in the abstract. You have to put it into the context of the extraordinary times we find ourselves in,” the mayor said: declining state aid, successive years of city layoffs and service cuts, the worst recession since the Great Depression.

“Rather than hunkering down and slicing the quality of the public goods we offer here,” he wants to see the city “continue to grow,” he said. The city has launched an ambitious school reform drive; it has been hiring cops. Stopping those plans would hurt the city more in the long term, he argued.

Or as he put it at an unrelated press conference Tuesday, “I don’t believe you move forward by going backwards. New Haven has come too far.”

Under the parking meter deal, Gates Capital would pay the city $50 million right now in return for a guaranteed portion of the money collected from parking meters through the 2035-36 fiscal year. The exact amount is still under negotiation, but that portion will probably add up to around $120 million, based on calculating the up-front $50 million’s long-term value, DeStefano said.

New Haven would use that $50 million to help it get through the next four or five years, including avoiding layoffs, other budget cuts, or further tax hikes this year. The $50 million would go into a “Property Tax Stabilization Fund” controlled by City Hall’s finance department. The city would draw between $10 and $12 million a year from that fund, depending on how much state aid it loses, among other factors, DeStefano said.

That gives the city needed short-term cash. The fear is that it could then put the city in a deeper hole the following 20 years when its parking meter revenue flows to Ohio.

DeStefano said he’s working on a way to keep some of that money flowing into city coffers—by increasing how much revenue collectors like Lequane Gormany find in the meters each day.

The city would keep any money it collects beyond the amount it will promise to pay Gates each year under the deal, DeStefano said. He said the city now collects about $4 million a year from parking meters. The city plans to boost that amount first by raising hourly street parking rates from $1.25 to $1.50.

Also, the city plans to replace parking meters with automated machines that other cities have been turning to. The box-like metal kiosks get spread out along blocks that have public spaces. They operate like ATMs. You put in the money; then you get a paper slip you place on your windshield for the amount of time you plan to park. When you leave, there’s no “meter” left with time on it. So the next parker doesn’t get any free time. And the city collects more revenue. (New Haven experimented with the machines on Whitney Avenue in 2006. Click here to read about that.)

In this recession, cities and states have increasingly turned to these deals, selling revenue streams to investors, to plug budget holes. Ratings agencies have frowned on the practice; Moody’s Investor Services, for instance, recently scored the state for relying heavily on such sales. (Read about that here.) In the most notorious case, Chicago sold 75 years worth of parking meter revenue for $1.2 billion. Read about that disaster here.

DeStefano said he was mindful of those perils in pursuing this plan.

The city originally put out a request for proposals in 2008 for a parking monetization deal. It considered leasing its parking garages, among other larger abdication of assets. In the end, it settled on this narrower sale of a single revenue stream; unlike Chicago, the city won’t give up control of setting or collecting parking fees.

DeStefano said the city also consulted with its outside financial advisers, PFM Group of Philadelphia. He said the advice was that the deal, which affects only a small portion of the budget, won’t harm the city’s credit rating. The city has not yet notified ratings agencies about the pending deal, but will soon, DeStefano said.

He also noted that New Haven is resisting taking a far riskier budget-plugging step that cities like Hartford, West Haven, Bridgeport, and East Haven are pursuing: tapping into the city’s fund balance, aka the “rainy day fund.” That’s money left over from previous years that government keep in reserve for emergencies. The city has $17 million in that fund, and wants to preserve it, DeStefano said.

The Greece Of Parking Meters?

Speakers at the sparsely attended budget hearing Tuesday night before the aldermanic Finance Committee didn’t talk about those details of the parking revenue deal. But they did talk about the deal—and about how they need more details.

Yale political science professor David Cameron (pictured) urged the committee to learn more about the deal before acting. For instance, he asked: What are the year-to-year amounts the city will pay Gates? And how can one accurately project parking meter income?

“It’s like an off the books loan. A mortgage” backed by insufficient information, Cameron argued. “I’m concerned that to the extent it falls short, there will be a deficit.”

Cameron has been an active participant in public debates about the city budget and public safety. He was appointed to a “blue ribbon” panel to review the budget in 2008. He made a suggestion, eventually adopted, to delay some school construction work.

Tuesday night he was one of only a handful of people who showed up to address the aldermen.

“I’m concerned that to the extent it falls short, there will be a deficit.”

“Twenty-five years!” declared Cameron.

“Greece was giving away revenue streams of the future [too],” he said. “That’s what got Greece in trouble too, not parking meters, but airport revenues.”

“If I were in your shoes, I would want more information. I don’t think there’s enough information to make a decision,” he cautioned the aldermen.

“I appreciate David Cameron. It’s congruent with what I feel,” committee Chairman Shah said later. “I’m not saying the city doesn’t have a good plan. But we need to be cautious, and in particular with that proposal.”

Shah added that Aldermen Roland Lemar and Jorge Perez suggested that the committee obtain documentation “on cities currently using this [monetization plan]. We can look at that and get a forecast for New Haven.”

Comments

posted by: Our Town on March 10, 2010 2:50pm

Okay, this is a good idea�take area residents money and send it to where, Chicago? That will help our economy. John will sell our souls to keep putting up school fortresses. Yes it�s good to keep necessary city services funded. It is not necessary to keep putting up monuments to King John (or should we now refer to him as Pharaoh John?) at the taxpayers expense.

posted by: Scot on March 10, 2010 4:13pm

This is simply living beyond your means. It is akin to a household using their credit card to pay their bills rather than cutting down their spending. The programs the mayor wants to spend money on are all good programs (education, police, etc) but if the money isn’t there, we shouldn’t be spending it. If we can’t pay our bills now WITH the meter revenue how will we pay our bills 5 yrs from now when we no longer have that revenue? We are just digging ourselves in a hole by doing this.

I think its much smarter to cut or freeze some spending now to balance the budget, and work on ways to increase revenue and/or wait for the economy to pick up a bit, and then we can add back that spending when we can afford it.

posted by: roger huzendubel on March 10, 2010 4:17pm

This is a bad idea. i work in finance and believe me if I had $50 million I would give it to new haven for 25 years of parking revenue I would in a heartbeat. We are essentially pawning long term income to stop a short term (hopefully) problem. Connecticut has securitized their lotto and many other government agencys have securitized future cash flow as well. It is hedge funds taking the other side of these transactions. Do you think theyre doing it to help New Haven? theyre not they know they can make a killing off of new haven budget problems. They might have been educated at Yale too!!!

posted by: HewNaven?? on March 10, 2010 4:46pm

Unlike others, who see no end to the current paradigm of unlimited economic growth and irresponsible energy usage, I see an alternative model on the horizon.

I applaud the Mayor for duping these greedy suckers. In 5 years, when the price of oil is unaffordable, and no one drives anymore, there will be no parking revenue! The joke is on this company, Gates Capital! They’ll go broke trying to collect from empty meters. They’d be better off investing in bicycles or walking shoes.

Cheers to the Mayor for accurately predicting a car-free future!!

posted by: Old School on March 10, 2010 5:41pm

Has the mayor come around full circle to the days of Brancati and Breen?

This one stinks. Let’s start with the round number, and the lack of a third party analysis of what 25 years of parking money is actually worth. Tell me why $50 million? Why not $52.3 or $61.7 million? Was this just thrown together in a back-room deal? How about letting some finance majors calculate a fair range of present value?

Also, will Gates start getting the parking moneys in year one? If so, this translates into 20 years of revenues in exchange for just $25 million. (Gates would be giving us just a net $5 million over those first five years. Then getting back $100 million over the next twenty!)

if the City wants to borrow $25-50 million over the next five years, this is not the way to go. Gates will be getting north of 15% a year of this scandalous loan. Is this what DDe-Stefanowants to be remembered for?

posted by: RSmtih on March 10, 2010 8:09pm

First things first, Yusef Shah…. on behalf of the Board of Aldermen, he should hire an outside expert to conduct a financial analysis of this deal for the Board of Alderman. You can’t trust JD or Rusconi to give you an impartial analysis. They’ll be long gone while everyone else lives with this crappy deal. If the Board goes for this, next year he’ll do the same with the parking lots, then the parks, then who knows what else. Don’t just vote NO—Vote HELL NO!

posted by: Charlie O'Keefe on March 10, 2010 9:53pm

The parking meter deal will be in the budget. DeStefano needs money to pay damages in the Ricci case. The $50 million is being put in a rainy day fund. Guess what, taxpayers, its going to be the storm of the century. Tax payers cannot afford a 9% to 15% hike in property tax. When will the tea party people wake up to whats really going down here.

posted by: streever on March 11, 2010 8:38am

It is ridiculous that the mayor is willing to throw away 70 million in a one-time deal to close budget holes, as he stated that “this time” there were no “one-time sales” to close the gap.

This is an inappropriate use of city resources.

Over time, revenues increase, not decrease: does the 120$ million projection take this into account? Perhaps revenues would be more over the next 25 years.

To sell off city assets AND raise the taxes while refusing to spend any of the rainy day fund just seems very wrong. I know that it’s important to have a good bond rate, but it’s also important to keep citizens here.

Many people in my ward are faced with no other options than selling their home into a bad economy with low housing prices.

In good conscience I can’t abide by this type of decision-making.

I still see no city response on Jeffrey Kerekes excellent 66$ million in budget ideas. While I strongly disagree with some of the suggestions in it (cutting police hiring, cutting investment in arts), I just as strongly agree with at least 15 million of it, and have a neutral position on the rest.

I’d like to see a detailed and articulate response from the mayor’s office on Kerekes suggestions, which took an inordinate investment of a citizens time.

With no axe to grind and no bias, Jeffrey compiled this list to help everyone in New Haven—including the Mayor and City Hall—and I think it is worthy of an appropriate written response, explaining and detailing the steps the city will take to follow-through on some of his advice.

posted by: Resident John on March 11, 2010 9:40am

HewNaven?? you’ve got it all wrong buddy. If the cost of oil is unaffordable and there is no parking revenue the city still has to send it’s payments to Ohio.

This is a shell game. The company could give two craps where New Haven gets the money.

This is a loan. The mayor is borrowing from the future so he can spend the money today. We need to hear from the Mayor one simple fact. What is our mortgage rate? How can they vote on a loan when they don’t know the interest rate?

posted by: Tim on March 11, 2010 10:08am

There is no way this deal will work for New Haven. One, we are getting basically a one time band-aid for long term budget issues. Why not pursue lay-offs, or cut funding to some programs? This happens in the private sector. This doesnt fix the issue of, lets spend money now and worry about where to get it later. New Haven needs to act like a normal household. If you spend more than you bring in, you need to make cuts.

posted by: streever on March 11, 2010 11:12am

Right on, Resident.
“This is a loan. The mayor is borrowing from the future so he can spend the money today.”

My biggest problem with it is his speeches say, “this year we didn’t sell off one-time assets to plug holes”

posted by: HewNaven?? on March 11, 2010 11:54am

Thanks, Resident John. I misread that. You’re right, this is a horrible deal. With the inevitable decline of a cheap and reliable oil supply, New Haven will be the ones getting screwed from lost parking revenue, not Gates Capital. If this plan goes through, our only hope is to steadily raise on-street parking rates to offset the loss, or include a clause in the contract that states:

“In the event of a global energy crisis or economic collapse, the City of New Haven will not be responsible for regular payments.”

posted by: asdf on March 11, 2010 12:35pm

I agree with Cameron, what is needed is more information. At first blush, it looks like a bad deal for New Haven in the long term (why else would the company do it?), but it is impossible to say without all the information. An independent audit of the actual costs and projected loss of revenue should be done. As part of this, one would have to consider the impact of the alternatives as well. How much would layoffs or other budget cuts impact the local economy? How much would the loss of revenue in the future prevent the city from hiring new employees or undertaking job creating endeavors?

I hate to be cynical, but this seems like punting the budgetary problems to a future administration.

posted by: Q on March 11, 2010 1:11pm

asdf, that’s EXACTLY what they are doing. And not just to a future administration, to perhaps the next 4 or 5! NH wouldn’t get out of this deal until 2035! That’s just nuts!! I’m sorry, but we have to cut city services and find other sources of revenues. This looks like one of the worst financial schemes in decades. Let’s give our parking meter revenue for the next 25 YEARS to get through the next five. Ugh.

posted by: robn on March 11, 2010 7:12pm

Given that the avg stock market returns in the 90s were double digit, its interesting to see a suggested return on investment of 3.5%. Oh how the mighty markets have fallen.

Nevertheless, there should be an upset max built into the contract so the city doesn’t get gouged.

posted by: East Rockette on March 12, 2010 10:27pm

Hmm. So if this parking-money deal is so profitable, why are we on the small-beer end of it?

If we were thinking purely in mercenary terms, wouldn’t we dig into the budget for $50 mil in savings (see Jeffrey K’s suggestions) and then use THAT money to buy parking concessions off some other suffering city that’s slightly more desperate than we are? Then we’d be raking it in for 25 years, right?

NB Tongue firmly in cheek - I think this is a crazy idea, no matter who’s doing it to whom. What next, consolidating and selling off the next 25 years of library fines??

posted by: kumbaya on March 13, 2010 10:20am

HewHaven—are you sure the company will lose if there are no parking meters in the future? They may well (and should, from their perspective) have some minimum revenue guarantee written into the deal, in which case it becomes a big contingent liability sitting on the city’s books.

In particular, it is worth asking whether the city is obliged to continue to charge for something like the current number of parking meters downtown in the future?

At present, downtown parking spots are configured for “regular sized” cars, but it is easy to imagine that the make-up of the “vehicle fleet” would change dramatically in the course of the contract—e.g. to many more small sub-sub-compacts (Smart cars and smaller) whose use the city might want to incentivize with free parking. Alternatively, what about plugin hybrids with curbside charging (which would pay for power, but not for the space?), more efficient bus and transit systems, larger sections of car-free pedestrian space, or greater use of Segway style machines, or just old-fashioned bikes??

In a sense, 25 years is not a HUGE time—cars 25 years ago were not radically different from those of today. On the other hand, there is currently a great deal of evolutionary pressure on both transport and energy use patterns, so we can expect rapid change of the next couple of decades—especially in a city which is looking for a sustaininable future—and we can’t tell where that will take us.

I know this will be commercially sensitive, but does the contract with this firm give the city the flexibility it would need to construct an appropriate mix of downtown transit system two decades from now—and does it guarantee a revenue stream in return for the payment up front??

This may not be called a loan, but it certainly looks like one, and it strikes me as an incredibly bad idea.

posted by: HewNaven?? on March 13, 2010 11:36am

THanks, Kumbaya. REsident John also pointed out the error of my logic.

You’re both right. I misread the terms initially. This is a horrible deal. It is basically a 25-year loan at high interest. Are we that desperate? THere’s gotta be a better way to come up with $50M.

posted by: Stuffedbread on March 14, 2010 1:45pm

OK.. What else does the city have to sell. Humm the streets, then maybe put advertising on the sides of firetrucks to create revenue. This has got to stop. Stop mortgaging the future of New Haven, get some fiscal responsibility and cut spending, tighten the belt like most families have. Enough is enough!

posted by: needcash on March 15, 2010 7:45am

Johnny.. I can give you $50 today if you want to pay me $20.00/year for the next 20 years. Come on! its a good deal for new haven!

Maybe city hall can stop giving away land and keep it on the tax lists. that would bring in some cash.

posted by: streever on March 15, 2010 9:57am

Good point kumbaya:
will the city retain any flexibility in allocating parking in the future? that’s another very good question that city hall has not answered.

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