Monetization Rises From The Grave

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by Paul Bass | Aug 27, 2010 10:53 am

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

Posted to: City Hall, City Budget

Thomas MacMillan Photo Jorge Perez had a burrito for lunch at Zinc the other day. Also on the menu: the not-yet-dead idea of selling 25 years worth of city parking revenues for a quick $50 million.

The last time Perez had encountered the deal, the DeStefano administration and an Ohio company making a killing on deals with desperate governments tried to get him and his fellow aldermen to approve it as part of what would become a new $471.6 million city budget. The aldermen rejected the idea. Critics called it a quick-fix taxpayer rip-off that would saddle the city with millions of dollars in lost revenues for decades to come.

Less than two months into the fiscal year, City Hall and the Ohio company, Gates Group Capital Partners, have revived the idea of getting a new version of the deal passed, perhaps in a modified form, perhaps as soon as during this fiscal year.

“Monetization has never been off the table,” Mayor John DeStefano said in an interview.

Getting “Understood”

Gates has hired attorney Steve Mednick, a former alderman, to help current aldermen “understand” the deal better.

Perez bumped into Mednick on his way to City Hall. Mednick invited him to lunch to meet with a Gates representative. Perez said yes—and made sure to pay for his own lunch.

The representative didn’t so much “push” Perez to support the deal as to suggest that “last time you guys didn’t have enough time to look at it. ... This is similar to a bonding issue.”

Perez, who represents the Hill on the Board of Aldermen, said he didn’t make any commitments to support a new version of the deal. He listened.

“I am open to listening so I can make an informed decision,” Perez said. “I’ve never been open to mortgaging the city for that many years. I was open to hearing what they had to say last time. I didn’t like what the proposal was last time. I am open to an alternative financing proposal. I’m willing to meet with anybody who has ideas.”

Mednick noted that the DeStefano administration had chosen Gates in a request-for-proposals competition to come up with the monetization plan to be submitted to the aldermen. He also noted that the new city budget includes an amorphous category of $8 million in savings to be discovered through “innovation-based budgeting.” If a gap materializes during the fiscal year, proposals for closing the gap will be on the table.

So Gates wanted to hold meetings with individual aldermen “to discuss the particulars of the deal that was negotiated” in case it comes up again.

“This is what they do for a living,” Mednick said of Gates. “They would like to be able to do the deal. They wanted to make sure the aldermen have complete information when it’s officially considered, if it’s considered.”

New Haven is one of scores of cities and states across the country looking at selling public assets—buildings, bridges, highways, or in this case parking revenue—to firms that pay millions of dollars up front to help governments close budget deficits, then collect far more money over following decades and sometimes have control over public policy.

A front-page Wall Street Journal story Monday named New Haven as an example of the trend. By giving up long-term, recurring income streams in exchange for lump-sum payments to plug one-time budget gaps,” the article stated, the governments have taken on roles “akin to individuals using their retirement plans to pay for immediate needs, instead of planning for the future.”

It cited Chicago’s decision to let Morgan Stanley run its metered parking spaces for 75 years. That city was shorted $1 billion, according to an inspector general report.

Advocates of the monetization plans say they give cities need money to avoid damaging tax hikes or service cuts, which can further damage government’s long-term ability to pay for itself. The New Haven deal was also different from the Chicago deal in that New Haven didn’t plan to sell the actual parking meters. Mayor DeStefano has called his plan an imperfect remedy needed in tough economic times.

Click here and here for background stories with different sides of the debate.

Sweetening The Pot

Paul Bass Photo If he revives the proposed deal, Mayor John DeStefano said this week, he plans to respond to the concerns aldermen raised this spring.

He compared the deal to two previous budget-gap-closers his administration negotiated in the past. In one, the city sold tax liens for up-front money that enabled it launch a citywide school rebuilding program that leveraged more than $1 billion from the state. In the second, it sold the local sewer authority to a new regional quasi-public entity.

In both cases, aldermen who approved the deal saw a tangible policy benefit, DeStefano noted. He said he’s working on adding such a tangible benefit into this deal.

He said one such benefit might be using up front cash to enable city government to close down costly employee retirement plans—or discontinue them for new employees—by forming a new plan. The mayor anticipates that an upcoming revaluation of the city’s pension plans will reveal a new liability.

This idea was the subject of a staff meeting in the mayor’s office nine days before the new budget even took effect. In a June 21 emailed “summary of mayor’s meeting,” Joe Clerkin of the city budget office wrote, “The Mayor seems very hot to trot on closing CERF [the City Employees Retirement Fund] and somehow arranging for proceeds from the monetization to help him do so.”

Alderman Perez, a banker who carries influence in financial discussions on the board, is also concerned about underfunded pensions. He, too, sees an opportunity for using pension funds as a possible vehicle to help close an upcoming budget gap. His idea: Follow the lead (and learn from the experience) of cities like Hamden and West Haven, where the pension funds floated bonds to make up the gap.

Perez was asked if that would raise the same concern as a monetization deal—paying more money over time in order to get less money up front. The difference, he said, may be that communities are finding they can earn more interest on the up-front money than they end up paying on the bonds in these deals. “We’re waiting to see some analysis” from the city budget office, he said.

DeStefano called this “a good discussion to have.” It will continue.

Comments

posted by: East Rocker on August 27, 2010 11:03am

It’s nice that these issues are finally being explored at the beginning of the fiscal year so that an intelligent discussion can be had rather than trying to ram things through the board in the last month or two of the year with the new budget. This should be how things are always done.

posted by: Dollar Sign on August 27, 2010 11:22am

Is there something to understand beyond an 8% loan, outside of bonding limit?

posted by: streever on August 27, 2010 11:45am

Again, if you need a loan, go to the bank and take on out.

Do not sell off city assets for short-term gains that prop up the current politicians while harming the citizens long-term.

Maybe this deal is going to be different, but I’m skeptical, and I hope the alders are too. When I appeared before the board to speak out against monetization last time, I asked if anyone in the room knew the consequences of failing to pay back the loan or paying it back late—no one did fully understand the penalties we’d face.

If we have learned anything from the failure of Greece and other nations and the success of Germany, let it be that austerity in hard times is not the worst choice, and that complicated book-keeping is bad book-keeping.

posted by: Doyens on August 27, 2010 11:45am

You can change the color of the lipstick all you want, wrap it up in bows, and put on a wig. In the morning, it is still a pig and you’re sorry you took her home.

The mayor’s financial mismanagement of this city knows no bounds and this is the latest incarnation. He will be long gone, resting in the warm bosom of his $100K retirement package by the time the effects of this deal hit taxpayers like a ton of bricks. For those of us who will still be here, it will erode even further, the structural integrity of the budget and will create even more pressure on property taxes, not less. Why? Because at the end of the day, spending has not been cut, but revenues used to pay for those expenditures under this plan, will now going to Cleveland for up front money that will not last 25 years.

If Jorge Perez or any other alder backs this lame plan, it will add another chapter in New Haven’s brinkmanship with bankruptcy and aldermanic abdication of their responsibility to be fiduciaries to the people they allegedly represent. I wonder if Perez would even think of taking this deal to his own bank?

Whether it’s a virtual club zone or any other initiative, DeStefano’s plans NEVER sets priorities and funds them. He’d rather borrow the money or tax people more than re-order what the city spends to pay for what he says the city needs to do. Since 2002, the city’s debt service has doubled and it now consumes more than $60 million a year.

posted by: streever on August 27, 2010 11:48am

Still on the previous deal: unless the terms of this one change dramatically, we are getting VERY little money per year over what we’d get already if we simply followed Elicker’s suggestion to phase-in parking costs that respond to demand.

On-street parking takes up a vast amount of space in this city and is both poorly priced and poorly used. Before we start selling our rights away, let’s hold these proposals up against innovative parking plans being used in other modern cities, instead of trying to follow the Chicago model that we so successfully replicate in our crony-filled local government.

posted by: Townie on August 27, 2010 12:00pm

The citizens of this city own those parking rights, we should make our voice heard about the issue. I am sure there are a few short-term benefits to the idea, but the disadvantages far outweigh them.
Why is it that this mayor is always looking for ways to increase revenue, but he never has any good ideas on how to cut costs?

posted by: Threefifths on August 27, 2010 12:17pm

posted by: streever on August 27, 2010 11:45am

We we should learn from them is that they have a system of proportional representation not the crooked two party system that you support and that got us in the mess we are into today.

posted by: robn on August 27, 2010 12:39pm

“Monetization has never been off the table,” Mayor John DeStefano said in an interview.

Yes it is Mr Mayor. New haven citizens are no longer willing to pass on bad decision making (such as tolerating bloated managemen, overuse of bonding, deferral of pension payments) to future generations.

posted by: robn on August 27, 2010 12:51pm

3/5,

so you’re saying that because Greece has proportional representation, that’s worked out OK for them? You’re saying that New haven’s problems are worse than Greece?

C’mon man.

posted by: streever on August 27, 2010 1:38pm

3/5th,
You’re crazy, man.

posted by: kevin on August 27, 2010 2:21pm

Three-fifths, Greece as well as Germany has proportional voting and a multi-party system http://en.wikipedia.org/wiki/Elections_in_Greece

posted by: FacChec on August 27, 2010 2:28pm

What’s so difficult for ... to understand about this re-designed dog and pony…. smoke and mirrors deal,which is tied to the Voodoo IBB $8 million in savings??

The above link and below reference to the article says it all…

..“A front-page Wall Street Journal story Monday named New Haven as an example of the trend. By giving up long-term, recurring income streams in exchange for lump-sum payments to plug one-time budget gaps,” the article stated, the governments have taken on roles “akin to individuals using their retirement plans to pay for immediate needs, instead of planning for the future.”

Perez, who sits on the Board of Finance, should read the most recent(June 2010 financial report, which states on page five under the category revenue….

..Traffic and parking/meter receipts:

Budgeted 4M.. receipts to date $4,113,754= 113,754 over budget.

In order for Perez and others to better understand this deal… He will have to ask Gates why they are so interested in dealing for an enterprise which is currently making 113K per/yr.

posted by: Jack Deas on August 27, 2010 3:13pm

Dispite any objection, Destefano and his cronies with continue to sell out the tax payers of New Haven. Stand up New Haveners

posted by: Alphonse Credenza on August 27, 2010 4:12pm

The better plan:

Cut services. Fire staff. Reduce benefits. Lessen government reach. Lower taxes. The government will need and use less of our money that way.

posted by: Bill Saunders on August 27, 2010 6:45pm

Here’s the funny math check…..

1) There are 2600 parking meters in the City of New Haven.
2) These meters generate approximately $4M in annual revenue.
3) These Meters operate approximately 300 days/year.
4) Therefore, each meter generates approx. $5.15 per day ($1518/yr)
(does that daily number seem low to anyone?????)
5) Gates was offering $50 million for $120million worth of revenue.
( a 42% discount rate)

Therefore, private citizens, could, in theory, sponsor a meter for $632 annually, and realize $886 in profit. (140% return on investment)

Can I sponsor a couple of these meters….. Times are tough, man.
I’ll even cut the discount rate in half!!!!!

posted by: Threefifths on August 27, 2010 8:37pm

posted by: robn on August 27, 2010 12:51pm
3/5,

so you’re saying that because Greece has proportional representation, that’s worked out OK for them? You’re saying that New haven’s problems are worse than Greece?

C’mon man.

I never said that New haven’s problems are worse than Greece.New Haven is a city,Greece is a country.Now if you want to talk about the United States which is a country like Greece,Than yes I would say that there are some big problems.In fact this state as a whole is one of the most expense states to live in. You need to wake up and look around you.

posted by: streever on August 27, 2010 1:38pm

3/5th,
You’re crazy, man

And a whole lot other people must be two. Did you know Dude that most of the american people want to do away with the two party system.

Most Americans Say Our Two-Party System Is Broken: So How Do We Fix It?
By: Jon Walker Saturday May 15, 2010 9:00 am

http://elections.firedoglake.com/2010/05/15/most-americans-say-our-two-party-system-is-broken-so-how-do-we-fix-it/

But I forgot since King John hooked you up on zone and planing you got your bone dude!!!

posted by: anon on August 27, 2010 9:57pm

No, no, no. Don’t make such a stupid deal!!!

posted by: Call it What it is on August 28, 2010 10:27am

This boondoggle should be referred to as the “Parking Payday Loan”, because that’s exactly what it is.

posted by: streever on August 28, 2010 11:00am

I haven’t verified Bill’s math, but that sounds like a great deal. Sign me up for a bunch of meters. I’ll get together a few friends and we will sponsor a ton of them.

posted by: monetization = your taxes double on August 28, 2010 12:15pm

Even the Wall Street Journal, which most certainly loves structured finance (not in and of itself bad), can’t abide by monetization. This is a BAD DEAL akin to you choosing an 8.6% mortgage when your other choice is a 4% mortgage. The city IS prohibited to sell bonds for a tax shortfall (rather than a specific purpose); it’s prohibited because it’s a really bad idea for the city, as you are well aware JDS! This toxic short-term “magic” long-term financial crisis for New Haven taxpayers, which you are shilling for will NOT get you votes, we will ensure that.

Here’s the opening of that article in the Wall Street Journal, by the way. It all but calls monetization stupid government:
Cities and states across the nation are selling and leasing everything from airports to zoos—a fire sale that could help plug budget holes now but worsen their financial woes over the long run. California is looking to shed state office buildings. Milwaukee has proposed selling its water supply; in Chicago and New Haven, Conn., it’s parking meters. In Louisiana and Georgia, airports are up for grabs.

New Haven taxpayers: please show up at these meetings if you want to protect yourself from future doubling of your tax bill, the schedules can be found here:
http://www.cityofnewhaven.com/aldermen/LegistarCalendar.asp

We have to destroy this monetization zombie. If the zombie is JDS’s plan for our future, then we have to destroy his chances at re-election.

posted by: robn on August 28, 2010 1:39pm

3/5

It would be a lot easier to understand your postings if you would use quotation marks to bracket others words, and then clearly attribute the quotes.

posted by: Pedro Soto on August 28, 2010 3:16pm

This monetization deal as currently structured is a terrible deal for the city, and one that - and this I believe is its most unforgivable offense - saddles the next 20 years citizens with a long-term burden and unavailable reliable income stream.

As I’ve said before, this is as if Mayor Daniels had signed a deal in his term as mayor that we’d just now be getting out of. Could we have afforded 20 years of schoolbuilding being stuck with something like this?

I am all about maximizing and diversifying income streams. Restructuring the pension seems like an especially promising activity.

I also am wondering why the city is not implementing any furlough days to help pay for the shortfall. The state and many corporations are doing this, why not here?

I’m all for the innovation based budgeting as well if the city manages to streamline and lower its operating costs. The city also needs to start signaling early that the next round of union negotiations are not going to be the sweetheart deals that they got last time.

Also- while this is going to cost money in the short term, it will really help the city in the long run- the city really needs to look at implementing incentives for city employees to live in the city. 70% of our employees live outside of the city. That’s an amazing statistic.
While we start to push towards regionalization of public services, saving money for everyone, we also need to get some sort of homeownership program set up, so that we are more competitive with outlying communities, and so that these well paying jobs pay back into the city via taxes.

posted by: westvillelocal on August 29, 2010 3:45pm

Heres what we are going to get. Its a bad deal.

From the magazine. The Week

Morgan Stanley reaps parking-meter bonanza
In 2008, Chicago sold its future parking revenue to Morgan Stanley for $1.15 billion.
posted on August 12, 2010, at 4:18 PM

Drivers fumed when parking-meter fees in Chicago’s central business district rose recently from $3 to $4.25 an hour, said Darrell Preston in Bloomberg.com. Worse, the parking fees don’t even fatten the city’s coffers. Instead, they’re enriching Wall Street investment bank Morgan Stanley, thanks to the city’s 2008 deal to sell its future parking revenue to Morgan Stanley for $1.15 billion. City officials predicted at the time that Morgan Stanley would net $4 billion to $5 billion by the time the contract expired, in 2084.

Make that $11.6 billion, Morgan Stanley said this week. The firm has increased revenue by raising fees, increasing the hours during which meter use is required, and squeezing extra meters onto city blocks. Another fee increase, to $6.25 per hour, is coming in 2013.

posted by: Threefifths on August 30, 2010 1:39pm

posted by: robn on August 28, 2010 1:39pm
3/5

It would be a lot easier to understand your postings if you would use quotation marks to bracket others words, and then clearly attribute the quotes.

Even if I did what you are saying,You still would not understand.But as I tell every one else,You don’t have to read my post.

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