CHICAGO — A month after winning city and county approval to sell its water and sewer system, Indianapolis stands poised to enter into a 50-year lease of its parking meters in exchange for cash and a piece of the annual parking revenue.
It’s the latest effort by Mayor Greg Ballard to raise money for infrastructure projects without raising property taxes.
The Indianapolis-Marion County City-County Council on July 28 approved Ballard’s proposal to sell the city’s water and sewer system to a nonprofit utility in a $2 billion cash-and-debt transaction. The deal now awaits review by Indiana state regulators.
The city plans to use the cash from that deal as well as bonds backed by future water revenues to finance infrastructure improvements.
Like with the water and sewer deal, the Ballard administration spent years crafting the parking privatization proposal. It issued a request for information from private companies in 2008, generating 16 responses, from which it selected Affiliated Computer Services Inc., a Dallas-based parking technology company recently purchased by Xerox.
The board of the Indianapolis Department of Public Works unanimously approved the plan Monday.
A City Council committee held a hearing on the parking proposal Monday evening, but delayed taking a vote for a few weeks.
“We’re looking for ways to fund infrastructure without being so reliant on property taxes,” Michael Huber, the deputy mayor for economic development, told the council’s committee on rules and public policy at the hearing Monday. “That’s been the charge from Mayor Ballard from day one.”
Morgan Stanley is the city’s financial adviser on the deal. Ice Miller LLP is counsel. The city has no outstanding tax-exempt debt backed by parking meter revenue and so will be not retiring any debt as part of the issue. The proposal also includes a 10-year management contract of the city’s parking garages and lots.
The lease deal would hand control of 3,669 city-owned meters to Affiliated Computer Services for 50 years in exchange for $35 million in two up-front payments and a slice of annual parking revenue going forward.
ACS would also spend $41 million to upgrade the meters.
“By going out 50 years, we got some of the best infrastructure funds in the world interested, and significantly drove up the value to the city,” Huber said. “We feel good about 50 years with the shared revenues, as that gives us the incentive to hold the contractor accountable.”
Under the agreement, Indianapolis would receive 20% of the first $8.4 million of annual revenue and 55% of all revenue after that. Revenue includes funds from parking meters and violations.
The revenue-sharing feature distinguishes the deal from Chicago’s precedent-setting parking meter lease and similar proposals under consideration in Pittsburgh and Los Angeles.
Chicago’s $1.15 billion 75-year deal lease of its system to a group led by a division of Morgan Stanley has faced much scrutiny and criticism since Mayor Richard Daley won City Council approval last year. Operational problems with newly installed meters raised the public’s ire, and were followed by questions over whether the city received a large enough payment to warrant entering into such a long-term lease. The city has also relied heavily on reserves set up with proceeds of the deal to cover budget deficits instead of putting the money to a more long-term use.
Indianapolis officials tout the revenue-sharing feature as giving the city ongoing access to a revenue stream as well as incentive to make sure ACS is running the system efficiently.
But the feature also leaves the city exposed, a Chicago-based investment banker said.
“What Chicago said was, 'We’re de-risking ourselves from this business,’ ” said Dana Levenson, Chicago’s former chief financial officer and now head of infrastructure banking at the Royal Bank of Scotland. “With a revenue-sharing agreement, first of all, it most likely lowers the amount of up-front payment. And number two, the city remains basically in the parking business.”
Levenson added that the revenue-sharing feature “is very unusual, but not necessarily bad as long as the attendant risks to the deal are known to the city as lessor.”
Huber said the revenue-sharing agreement assuaged concerns that the city would give up control and revenue for 50 years.
“I know bankers have that point of view — that Chicago got the money up front and gave all the risk to the concessionaire,” he said in an interview Tuesday. “But the community stakeholders we talked to did not like the notion that the city would forgo 49 years of parking revenue, and wondered what incentive the city would have to hold the concessionaire accountable if it monetized all the revenue.
“I feel we struck a healthy balance and have a significant revenue stream in place for the life of the contract,” Huber said. “It’s a good balance for Indianapolis.”
The agreement allows rate and hour increases as well as an increase in the number of meters.
Officials said the city has netted only around $800,000 annually over the last 10 years from the meter system.
“The parking meters have not been a critical asset for the city. They’ve never generated enough turnover or net income for the city to make a difference to basic infrastructure,” Huber said. “This deal would give us $35 million on an asset that nets us less than $800,000 a year, as well as $40 million in upgrades.”
He added that the city considered issuing bonds backed by the parking revenue to finance capital improvements, but realized it would first have to create a new bond-issuing authority.
“That entity would not have a long history of high returns, and potential investors would see it only netting $800,000 a year,” Huber said.
ACS, which will partner with two local firms to operate the parking system, maintains parking management contracts with 25 municipalities. The Indianapolis deal would mark its first long-term lease, according to a spokesman.
“It’s the first deal like this for us and it’s very innovative,” said Chris Gilligan, manager of corporate communications.
A private company purchased by Xerox in January, ACS has refused to reveal its financial projections or many details on the transaction.
A company executive told local media that the firm hopes for a 10% annual return on its investment, or $7.5 million a year and a profit of $300 million, according to local reports.
At least one council member at Monday’s committee meeting chastised an ACS spokesman for withholding the information, saying the council should know when the firm expects to start to see a return on its investment. The council is expected to vote on the proposal at its Sept. 20 meeting.
Meanwhile, the Indianapolis Airport Authority is considering privatizing its parking system. The authority issued a request for interest from private companies to manage its system earlier this year.
