SAN FRANCISCO — Los Angeles is kicking around a plan to lease city-owned garages to a public-private partnership to raise cash that could help close a budget gap and defease outstanding bonds.
The city is soliciting for bids to set up a P3 that would lease nine parking garages and raise more than the $53 million in revenue that has already been included in the current fiscal year’s budget.
Debt manager Natalie Brill said the city currently has two parking-system revenue bond series totaling $94 million that would be defeased as part of the P3 proposal.
The city is also trying to scrape together money to close the potential budget hole left if the P3 plan fails and to help with the expected large deficit for the next fiscal year. Without a P3 agreement, the city’s current year-end deficit would hit $62.7 million, according to a memo sent to the mayor and council from the city’s chief legislative analyst and city administrative officer.
“The magnitude of this loss cannot be understated,” the memo said. The city started the year with a $490 million deficit and faces an estimated $350 million deficit next fiscal year.
The City Council voted to proceed with a request for proposals for the public-private partnership plan on Wednesday.
Then, on Friday, council members voted to offset to the possible loss of the parking garage lease revenue by around $18 million and sought further information on more fiscal alternatives by Jan. 30.
Monique Earl, budget and finance deputy for council member Bernard Parks, who presented the motion Friday, said the alternative plan — which includes structural budget changes such as further furloughs for city workers — is important for tackling the deficit, regardless of the P3 agreement.
“The [alternative] plan has to happen whether we get the P3 or not,” Earl said.
Officials expect to bring final bids for the P3 to the City Council by March.
City administrative officer Miguel Santana told council members during the meeting Friday that it is important this year to take extra care to shore up city finances because of the potential for a weak municipal bond market.
“Our ability to borrow, which we have to do even during good years, is going to become more and more challenging and so the reserve fund becomes that much more critical,” Santana said. “Worst-case scenario is that we end the year having to eliminate the reserve fund.”
According to the memo, the city’s management of the garages has resulted in a “financial burden and liability.”
“The P3 for the city’s parking structures offers the most immediate and cost-effective option for maximizing the value of these structures in a manner that will ensure these facilities remain operational for the next fifty years,” the memo released Jan. 5 said. “Additionally, the P3 transaction will eliminate the city’s ongoing debt obligation on all city-owned parking structures.”
Santana and chief legislative analyst Gerry Miller said in the memo that they would be back before the council this week with estimates on how much the city would make on the P3 deal.
Santana and Miller said that they would only recommend the deal if projected profits would be much higher than the budgeted $53.2 million to help cover future shortfalls.
“In total, the city would need approximately $250 million to be used for the current year budget, to defease the outstanding debt on the parking assets, and increase the reserve fund,” the memo said.