The Pittsburgh City Council is poised next week to reject a $451.6 million offer for its parking system that would, if completed, raise revenue needed to ward off a state takeover of the city’s pension system, which is only 30% funded.
A consortium including LAZ Parking and JPMorgan Asset Management last month extended the highest bid, $451.6 million, to the city. The group would operate and maintain Pittsburgh’s 11 parking garages and 9,000 metered spaces for 50 years. LAZ Parking is also involved in Chicago’s 2009 parking-meter privatization deal.
The city received three concession bids from potential operators. All of those bids will expire on Nov. 1.
The council, in a preliminary vote Wednesday, rejected the long-term lease agreement. A final vote on the matter is scheduled Tuesday. The parking-lease initiative involves four bills, with three of those bills gaining one initial vote in the affirmative, seven against, and one abstention. The final bill got one initial vote in the affirmative, six against, and two abstentions.
Council President Darlene Harris, who voted against the 50-year lease plan, did not respond to a request for comment.
Mayor Luke Ravenstahl is pushing for the long-term lease plan. It would direct $200 million of the up-front payment to Pittsburgh’s pension system. That would raise the funding level to 53% and prevent the state from stepping in and taking over oversight of the city’s pension system. Under Pennsylvania Act 44 of 2009, the state will take over any municipal pension system that has a funding level below 50% at the end of 2010.
A state takeover would increase Pittsburgh’s minimum annual pension contributions by $30 million, according to Ravenstahl’s administration. The increase would reflect the state’s use of a lower assumed rate of return for pension-fund investments. The mayor’s proposed fiscal 2011 budget for the fiscal year beginning Jan. 1 is $453.4 million, including $133 million for pension contribution, health care, and worker compensation costs.
The Pittsburgh Parking Authority has $105 million of outstanding parking revenue bonds that would need to be paid down if the city were to lease its parking system to a private entity.
City Controller Michael Lamb has an alternative to the long-term parking privatization. Under his plan, the authority would increase parking fees and then sell about $220 million of bonds, using the proceeds to buy parking assets from the city, Lamb said. The city would then use the funds raised from the sale to the authority to boost its retirement fund to at least a 50% funding level.
The city-owned parking assets include one parking garage, five surface lots, and all of Pittsburgh’s metered parking. The 50-year lease plan includes both city-owned and authority-owned parking assets.
Ravenstahl spokeswoman Joanna Dovan said that once the details of Lamb’s plan are laid out and compared with the long-term lease agreement, the mayor’s plan will pass the council. She said that issuing more debt is not the best way to address the pension issue.
“The details of [the controller’s] bond plan have not been released, although really, it’s crunch time,” Dovan said. “We’re confident that when any reasonable person, including a council member, looks at three options — state takeover, the mayor’s plan, or the bond plan — then they will do what’s right for the city. … It’s going to come down to the math and the math needs to be put on the table. We’re confident that the mayor’s plan is the best plan.”
Conversely, Lamb said parking fees would be smaller under his plan compared to the consortium agreement.
“The rate increases would be significantly less — less than half of what the increases are under the lease deal,” the controller said.
He also pointed out that the long-term lease deal includes a non-compete clause which would limit the city’s ability to build more parking facilities, and that the Parking Authority has aided the city with community development projects, something a private company may not be as keen to do.
Lamb’s proposal would need approval from both the City Council and the Parking Authority. It may be difficult to gain the authority’s approval, since Scott Kunka, Ravenstahl’s finance director, is chairman of its board. Kunka has been at the center of crafting the 50-year parking-lease deal.
“If the mayor doesn’t like the idea, if he doesn’t want to do it, then it’s not going anywhere,” Lamb said. “So that’s really going to be up to him to decide. The problem right now is that it’s really the only option on the table because council is dead-set against the lease proposal.”
Pittsburgh currently is operating under Pennsylvania’s distressed municipalities program, called Act 47. The city has about $650 million of outstanding debt, including $180 million of taxable pension bonds that it sold in 1998. Those bonds are noncallable and carry interest rates of 6.25% to 6.6%, according to the preliminary official statement. Final maturity for the pension bonds is 2024.
Standard & Poor’s and Fitch Ratings rate Pittsburgh BBB and A, respectively. Moody’s Investors Service rates it A1.