Desperate to solve the budget crisis, the guys in charge are scheming to privatize parking meters to borrow cash
by Gregory B. Hladky
April 07, 2010
For state or local politicians sloshing around in their recessionary deficit cesspools, it has an almost irresistible appeal.
In return for millions (or billions) of up-front cash, you sell or lease out some public asset or revenue stream to a private company. Suddenly, without infuriating voters with more taxes or deeper spending cuts, you’ve found a way out of that stinking fiscal shit hole.
Of course, there’s always a price. Almost always a very big price. But the lovely part for the pols who partake of these “securitization” deals today is they’re likely to be long gone by the time the bill comes due.
New Haven, for example, is turning over its parking operations to a private company for a fast $50 million. The parking company will pull in an estimated $120 million over the next 25 years from the city’s 2,738 parking meters. In other words, the city will lose out on something like $70 million over that timespan in order to get some quick cash. (That kind of math isn’t dissuading Hartford, which is now sniffing around a similar parking deal.)
Up at the State Capitol, lawmakers are looking at a $1.3 billion securitization scheme, involving 10 years’ worth of revenue from legalizing keno and several clean energy and conservation funds financed using consumer dollars. Fiscal experts estimate it would cost the state something like $1.7 billion to do the deal, the amount of money the state could expect over that decade if it legalized keno and kept all that money and all the revenue expected to come in from those energy funds.
These kinds of numbers are making people uneasy, but those queasy sensations seldom seem to convince them to go for unpleasant alternatives like massive tax increases or savage public-worker layoffs.
“I have very ambivalent feelings about this,” admits New Haven Mayor John DeStefano. “Under normal circumstances, I wouldn’t do this.”
State Rep. Toni Walker, a member of the legislature’s Appropriations Committee, rolls her eyes when asked what else the state could do to find the huge chunk of money it needs to balance next year’s budget.
“$1.3 billion is just not on the horizon,” she says. “I don’t know what we’re going to do.”
The General Assembly may have left itself no other politically acceptable choice. When Democratic lawmakers passed a new two-year state budget last August, that $1.3 billion from securitizing stuff was included in order to make the whole thing balance. Now, in the middle of an election year, they either go with one of these schemes or do something fiscally responsible (and horribly unpopular), like giant tax hikes or slashing spending or thousands of state layoffs.
In addition to the long-term cost, the state could face another fiscal risk by legalizing keno: This form of gambling could jeopardize the hundreds of millions of dollars the state gets every year from tribal casino gambling. The Mashantucket Pequots and the Mohegans give the state 25 percent of their slot profits in return for exclusive rights to casino-style gambling in Connecticut — a deal that state-sponsored keno might violate.
Don’t think Connecticut is alone in this securitization mania.
Arizona is looking at sale-leasebacks of many state buildings, including the Arizona State Capitol. The plan would allow the state to sell the buildings, then lease them for 20 years, then buy the buildings back. California is heading down the same desperate path.
Chicago leased its 36,000 parking meters in 2009 to an investment group led by Morgan Stanley. The city got $1.2 billion up front on the 75-year arrangement. A study by Chicago’s inspector general concluded the city will lose out on an estimated $974 million over the period of the deal, additional money the city would have received if it kept all the parking and raised rates as the new operators intend.
“It’s come to the fore across the country because of the economic situation,” says David B. Panagore, chief operating officer for the city of Hartford.
DeStefano argues that his New Haven parking deal is “a prudent thing” for the city at a time when the state is mired in deficits and unable or unwilling to provide the kind of help the cities need during a recession.
He says New Haven might be able to survive the next couple of years without mortgaging future revenue “if we could get our hands untied from behind our backs.” DeStefano is referring to the state’s refusal to allow things like regional or municipal sales taxes or new rules for dealing with public employee unions.
According to the mayor, it comes down to a choice between this parking deal or suffering a “slow-down in very positive growth” because of debilitating tax increases or service cuts.
The New Haven parking scheme would leave enforcement, parking rates and fines in the hands of the city, DeStefano says. He also hopes to generate some new parking cash for the city by installing new parking meters that would be outside this current arrangement.
Hartford is still trying to figure out exactly what it’s going to do. Panagore believes any money a parking securitization plan brings in had better do more than merely plug holes in the city budget.
Panagore says the key is finding an answer to the question of “How do you turn this into a long-term benefit?”
The difficulty, Panagore acknowledges, is that cities like Hartford are caught in a recessionary trap of sinking revenue and shrinking or stagnant state aid. “Our maneuver room keeps shrinking,” he says.
David Carson is the former CEO of People’s Bank and also a former member of the Hartford Parking Authority board. He doesn’t believe there is an upside to these securitization deals, except for the politicians in office right now.
“It’s a quick fix for today’s politicians without any long-term benefit,” he says flatly. “I don’t think this kind of financial arbitrage solves any problems. You do it in order to get out of today’s hole. The question is, what are you going to do tomorrow?”