A Letter to the Mayor

urgent-ltr-box-rpn1The following letter from Pittsburgh City Councilman Bill Peduto was delivered to Mayor Ravenstahl yesterday and was also presented to the ICA at yesterday’s meeting. it was written in response to the Mayor’s letter last week.

March 31, 2011

Mayor Luke Ravenstahl
5th Floor, City-County Building
414 Grant Street
Pittsburgh, PA 15219

Dear Mayor Ravenstahl:

Thank you for your interest in Council’s parking plan. Please see below for the answers to your specific questions.

Meters

Will there be any modernization of the meter system when the rates are raised and the hours of enforcement extended?

The Pittsburgh Parking Authority is already modernizing their meter system. We applaud them in their effort. Existing machines should be recalibrated by current Parking Authority staff. The analysis of Pittsburgh’s parking assets by the Finance Scholars Group took into account that meters would need to be modernized (exhibit IV-B.8) All calculations include sufficient funds to do needed modernization, including immediate modernization of Downtown and Oakland (exhibit IV-B.10). The need for meter modernization is immediate in areas where the rates are significantly increased, and “pay stations” are literally needed in order to pay the rate (because the meters cannot accept the increased coinage.)

Is it City Council’s intent that meter installation be added to the City’s capital plan or to the PPA’s capital plan?

The Parking Authority already has meter line items in their budget that can cover the necessary pay station installation for on-street parking. The Finance Scholars Group study estimates that necessary meter upgrades will cost approximately $747,000 in 2011, and decreasing to $300,000 or less the next ten years (FSG exhibit IV-B.10).

In addition to the FSG findings, the Controller was able to identify additional sources of funds for the PPA’s capital plan. The Parking Authority currently has $3,209,587 of expendable capital funds, and another $17,576,044 of unrestricted net assets.

What is the expected cost of the additional 922 meters?

These are 922 additional spaces, not 922 additional meters. With multi-meter space technology, the Parking Authority can install less than 922 meters. Operating expenses of the new spaces can be found in the FSG report in exhibit IV-B.9. It is estimated that the additional operating expenses for those new spaces will be $158,750 annually – while revenue from those new spaces will total $907,943 next year, increasing to over one million dollars by 2015.

The Parking Authority is aware of the costs of installation of meters, but unfortunately, due to the lack of information provided to the Finance Scholars Group (FSG) consultants during the course of the study, the numbers provided by the consultants are estimates, and not actual costs. According to FSG’s research, the physical multi-space meters (also known as “pay and display stations” or “pay stations”) can cost $5,000 each. Other cities have installed these pay stations for under $8,000, labor included. Our consultants estimated that complete purchase and installation of each machine would cost approximately $15,000. These machines can also be outfitted with advertising, further defraying costs of the machine.

What is the expected date by which these meters will be installed?

As soon as possible. Council sees no reason to wait to install these meters. The approved budget only relies on a $1.3 million dollars increase in the Pittsburgh Parking Authority PILOT. This means we will only be receiving an increased PILOT payment in the fourth quarter of 2011, giving the Parking Authority ample time to install the new meters and make the necessary adjustments to existing meters.

However, the Parking Authority can realize much more than an additional $1.3 million dollars by implementing the recommended changes.

Where will these meters be installed?

Please see the studies and reports by the Desman group (page 42), the concession agreements (schedule 10, pages 1 through 7), JP Morgan, Morgan Stanley, Scott Balice, LAZ Parking, and any other information your office prepared on this matter.

What is Council’s proposal for the new terms of the Cooperation Agreement? What is the proposed revenue share? Is it still 6.5% for the City and 93.5% for the PPA, or something different? Please provide a clear financial analysis proving the amount of revenue that the meter rates increases can generate and be transferred to the City. This analysis should include any operating, maintenance, and labor costs resulting from the rate increases.

This action is no longer necessary for the implementation of Council’s budget. If your office can increase the amount of funds the City receives through the co-operating agreement that would be acceptable.

The Cooperation Agreement has to do with the amount of meter revenue coming to the City. Council attempted to change this in order to dedicate meter revenue directly to the pension fund. However, for a number of reasons this was not feasible. As such, the attempt was abandoned and the co-op agreement no longer needs to be amended.

What does need to be amended is the Payment in Lieu of Taxes (PILOT) agreement with the PPA. This currently gives the City $1.3 million dollars, which is loosely based on the real estate tax we would be paid if they paid real estate taxes. This needs to increase to $2.6 million this year, and $9.3 million dollars in 2012 and beyond in order to cover the hole in the City’s budget from diverting parking tax revenue to the pension.

Garages

Has City Council considered the need for significant capital repair in their revenue calculations? 

The Parking Authority currently has a capital improvement needs plan that was relayed to, and included in the FSG study (exhibit IV-A.10). This means that Council’s study is based on the needs of the Pittsburgh Parking Authority, and not the Parking Authority’s actual budget, which was much lower. In other words, Finance Scholars Group used the Parking Authority’s “wish list” rather than their budget. This also exemplifies the ongoing need for the Parking Authority to increase revenue. Opportunities for increasing revenue goes beyond raising rates and should include market based revenue opportunities, including advertising, etc. By not increasing rates in the past, the Authority allowed many of its facilities to fall into disrepair.

What is Council’s proposed schedule for garage replacement or rehabilitation? What is Council’s proposed source of funds for the garage replacement or rehabilitation?

Prior to the privatization proposal, the Parking Authority did not have any plans for any garage replacement. However, the proposed 2010 concession agreement proposed garage replacement in 2017. In 2017, there will be less than 10 years left on current PPA bond payments. At that time, debt service can be restructured, and any needed replacements can be financed with tax exempt bonds.

The exact costs of garage replacement are detailed in the Tim Haas engineering study on page 65. City Council was not provided a copy of this study. They estimate that the Smithfield/Liberty garage will cost $17,577,226 to replace, the 3rd Avenue garage will cost $30,049,222 to replace, and the 9th and Penn garage will cost $15,485,988 to replace.

FSG instead used numbers provided from the Parking Authority (exhibit IV-A.9). They estimated that the 9th and Penn garage would cost $15,854,674 to replace, the Ft Duquesne garage would cost $29,164,121 to replace, and the Smithfield Liberty garage would cost $18,893,279 to replace. Opportunities may also be available to sell one or more of these properties, as long as long term revenue projections are met.

What are the new garage rates?

The Board of Directors of the Parking Authority must set the rates for the garages. Attached are rates from the Council-Controller plan which may be used as a starting point for the purpose of the discussion, and for the purpose of the Parking Authority working as a partner with the City of Pittsburgh to protect the financial health of our city, workforce, and residents. Less than a third of the garage spaces downtown are owned by the Parking Authority. The proposed rates suggest the Parking Authority adjust its pricing closer to downtown garages, i.e. “market rate.”

As you can see in the attached document, the rates at both parking meters and garages that were proposed in the City Council plan are lower than the rates you proposed in your privatization effort. In fact, in no locations does City Council propose rate increases greater than you proposed and in some areas the Council proposal is 67% less than the rate increases you proposed.

When will the new garage rates go into effect?

Council has no control of when the new rates go into effect. The new rates will go into effect as soon as the Board of Directors of the Pittsburgh Parking Authority votes to put them into effect. Of course, the sooner you implement the increased rates, the more money the Authority will realize. City Council passed a parking plan at the end of the year. It is now a quarter of the way through they year and no action has been taken by your administration. The sooner the Board of Directors of the Pittsburgh Parking Authority meets and begins to address these issues, the better off the taxpayers of our City will be.

Provide a clear financial analysis proving the amount of revenue that the garage rates increases can generate and be transferred to the City. This analysis should include any operating, maintenance, and labor costs resulting from the rate increases.

The suggested garage rate increases would yield free cash flow in the amount of approximately $2,120,000 in 2011 increasing to approximately $8 Million annually by 2015. The detail can be found in the Finance Scholars Group study as amended to accommodate the lower rates suggested by the Controller-Council plan (EXHIBIT IV-A.1). Other supporting documentation can be found in the Desman meter study, the Desman garage study, the Scott Balice study, the LAZ study, the Morgan Stanley study, the JP Morgan study, the concession agreements, the Tim Haas engineering study, the P4 Partners study, the Parking Authority budget, and any other studies that your office did on the matter.

All members of City Council worked tirelessly during the past year to avert a state takeover of our pension system, a goal you publicly stated that you supported. This was done by dedicating a funding stream from the parking tax to the pension fund.

In order to reach the 50% funded level, City Council transferred $45 million dollars from the debt-pension trust fund to the pension fund. The City also irrevocably dedicated $13,376,000 from the Parking Tax to the pension fund every year. This increases to $26,752,000 a year in 2018, when the City’s debt payment drops by $18.6 million. In order cover this year’s budget gap, City Council transferred $12,076,000 from the fund balance to the 2011 budget and increased the Parking Authority PILOT payment by $1.3 to $2.6 million in 2011. The Parking Authority PILOT increases to $9.3 million in 2012 and beyond. The rates for garages and meters outlined in the City Council plan will result in an additional $9.8 million in additional annual revenue for the Parking Authority by next year, which more than covers the increased PILOT payment. By 2015, the Parking Authority will be receiving an additional $18 million in new revenue, which is much more than the additional $8 million in PILOT payments. This will also result in an additional $900,000 in parking tax revenue for the City.

As you can see from the brief overview, the City’s budget is sound and all the money that was approved by City Council, the Oversight Board, and Act 47 Coordinator for the 2011 Capital Budget is there. Council’s plan was endorsed by the City Controller, approved by the Intergovernmental Cooperation Authority, and supported by the Act 47 team. As this letter clearly outlines, there are actions that now must be taken by your administration and the Parking Authority in order to continue to avert state takeover and also avoid unnecessary tax increases or reductions in services. However, if your administration continues to delay the implementation of this plan, Council cannot be held responsible for the reduction in City services and the increases in taxes that you would need to implement.

Sincerely,

William Peduto

Cc: President and All Members, Pittsburgh City Council
Chair and All Members, Intergovernmental Cooperation Authority
Act 47 Coordinators
City Controller Michael Lamb
Finance Director Scott Kunka

 

 

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This entry was posted on Friday, April 1st, 2011 at 1:36 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

3 Responses to “A Letter to the Mayor”

  1. "emmett" greg smith Says:

    April 1st, 2011 at 11:29 pm

    Apparentely, “Stonewall” Ravenstahl will do anything to throw a wrench into the hard work of council. This arrogance should be confronted with a concerted effort to oust this small child. Please sign me up for door to door canvassing to get this problem resolved. The citizenry needs to be activated.
    What about the library funding? Hopefully the new financial accounting system will leave no room for prevaricating by Dunce Kunka and Stonewall Ravenstahl.
    emmett

  2. Jack Ochs Says:

    April 2nd, 2011 at 2:52 pm

    The pension fund needs a dedicated, long term source of revenues. This is true, regardless of whether the City continues to operate the fund, or whether its administration is taken over by the State. Indeed, there are no advantages to city taxpayers to having the pension funds administered by the City.

    The Mayor was clearly willing to see increased parking rates on property controlled by the City and the Parking Authority used to fund pension obligations. So, he should not object to Council’s plan to dedicate monies from increased parking rates to meet these same obligations.

    Council was wise in rejecting the Mayor’s plan. That plan would provide a lump sum injection of monies into the pension fund. But it would also divert a portion of the lease receipts to other, unspecified purposes. This would leave the city with a large unfunded obligation and no dedicated source for funding it. The City’s past history with one time injections of monies into its pension fund has shown that this is not a long-term solution. In 1996 and 1998 the City issued $269 million in bonds in order to partially fund its pension liabilities. Yet, the percentage of unfunded obligations continually fell subsequent to this injection of funds because the City’s elected officials continued to find it politically more expedient to ignore these obligations and spend available monies elsewhere. If the Mayor didn’t want to follow a similar, politically expedient, but short-sighted path, his plan would have committed all monies raised by the intended lease to the pension fund. That he did not do so is a red flag.

    Higher, market-based parking rates make sense. Much of the demand for city public services comes from the presence of non-residents who are employed within the city limits. They pay no earned income tax to the city. Increasingly, they work for non-profits which pay no property taxes. Higher parking rates in places like Downtown, Oakland and the Northside may well cause owners of commercial real estate to lower their rental rates in order to maintain occupancy levels. But, they are major beneficiaries of police, fire and other services provided by the city and should be bearing a larger portion of the burden of paying for these services than they do under the current system of taxation.

  3. james burnham Says:

    May 15th, 2011 at 3:05 pm

    Jack Ochs makes a very good case for using increased parking authority revenues to restore the pension fund to better health.

    He also makes the equally important point that there are no genuine advantages to having the City administer the plan, given its sorry record in managing both benefits and funding.

    Most recent case in point: the “liquification” of plan assets in the final quarter of 2010 to avoid any losses which might upset the effort to avoid having the State take over the plan probably cost the plan about $20 million since the S&P 500 rose 21% between September 1 and the end of the year and the yield on cash must have been well under 1%.

    I would have thought that the primary concern of the Pension Board was supposed to be the welfare of current and future retirees. Given over 25 years of near-sighted politics on the part of both City Council and the Mayor’s Office, a State takeover would provide substantially more reassurance to this vulnerable group than continuing existing arrangements.

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