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1 -Addressing Pittsburghs Financial Needs- Parking System Monetization.

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Presentation on theme: "1 -Addressing Pittsburghs Financial Needs- Parking System Monetization."— Presentation transcript:

1 1 -Addressing Pittsburghs Financial Needs- Parking System Monetization

2 2 I. Pittsburghs Key Financial Objectives II. Monetization--Deliberative and Transparent Process III. Concession Agreement that meets Community Needs IV. Proposed Schedule -Addressing Pittsburghs Financial Needs- Parking System Monetization

3 3 Successful Parking Transaction Will Complete Pittsburghs Key Financial Objectives 1. Controlling labor expenses (addressed) Number of employees has been reduced by 25% since 2002 Consolidated health program has generated significant cost avoidance Workers Compensation costs continue to decline 2. Reduction of debt (addressed) The City has dramatically reduced its outstanding debt principal No debt issued in this Administration Debt management has enabled a Pay-as-you-go Capital Budget 3. Pension funding status Reduced assumed rate of return to 8%, voluntarily increasing annual payment Reduced term to 30 years, further increasing annual payment City needs to bring funding to 50% by the end of 2010 or pension will be taken over by Commonwealth of Pennsylvania with serious financial ramifications 3

4 4 Headcount cut by 25%; 1,000 less employees 4,225 employees in 2002 3,154 employees in 2010

5 5 Reducing Debt

6 6 Pension Fund Status – 1 st Quarter 2010 Pension Assets Unfunded Liability

7 7 Pension Fund Status – where it needs to be by 12/31/2010 Pension Assets Unfunded Liability

8 8 Implications of Unfunded Mandate Act 44 of 2009 mandates State takeover if pension not 50% funded Charge the City for all administrative costs Estimated to be more than $2 M per year. Take all assets and sell at market: will result in sale of some assets at less than book value. Provides no protections from benefit increases. Still subject to Act 111 binding arbitration. No indication as to how or when funding status would get to acceptable level. Increase MMO by approximately $30 Million more than legally required with no consideration of how the City will pay it.. *Based on current 2007 valuation 2011 MMO subject to change due to new valuation

9 9 Impact of $30 M on City If the City has to pay an additional $30 M per year to the pension fund: Property Tax increase of 24% OR Wage Tax increase of 44% OR Reduce Police Force by 400 Officers

10 10 Parking Transaction Avoids Unfunded Mandate With anticipated transaction proceeds, pension will be at 50% funded by year end. This cash infusion + an increased annual pension payment via regional revenue reform= 100% funded Pension

11 11 Detail of Pittsburgh Pension Funding Plan The PMRS review of the citys proposal allows us to state that we find the proposal to be in large measure valid based upon the underlying assumptions used to construct the funding model.James B. Allen, Secretary Pennsylvania Municipal Retirement System, 9/4/2009

12 12 II. Deliberative and Transparent Process

13 13 Due Diligence Processfirst proposed in January 2009 Leading public-private partnership expert conducted an independent feasibility study of the Infrastructure Transaction –May 2009 Developed a valuation model to determine the major drivers (e.g., rates, term, labor, capital needs, etc.) –September 2009 Evaluated alternative monetization scenarios (e.g., issuing additional revenue bonds) to generate a sizable upfront payment Reviewed precedent transactions in Chicago and other cities to learn from their experiences Finding was that despite the impact of the economic crisis, there is significant private investor demand and debt financing available for a potential parking transaction Based on feasibility study, decision was made to proceed, top team of experts retained, and formed Advisory Committee –January 2010

14 14 Pittsburgh Has Hired a Team of Public Private Partnership Experts to Ensure Process Success Sell-Side Advisor: Morgan Stanley Financial Advisor: Scott Balice Strategies Parking Consultant: Desman Associates Legal Advisors: Katten Muchin Rosenman LLP K&L Gates LLP

15 15 Parking Advisory Committee On January 8, 2010, City announced the formation of an advisory committee to help steer the process for the proposed concession of the City's parking assets Members included Parking Authority leadership, Organized Labor, Three Members of City Council, Large and Small Business Owners, High Profile Civic Leaders Members looked at how the proposed transaction will affect the financial stability of the City. The Parking Advisory Committee unanimously adopted guiding principles to protect and benefit the neighborhood and business communities. 15 The Parking Advisory Committee was tasked with addressing community concerns on the proposed Public Private Partnership (P3)

16 16 IV. Concession Agreement that meets Community Needs

17 17 Concession Agreement follows all of the Advisory Committee Guiding Principles Retention of Public Ownership Transparency Term of the Concession Parking Rates Public Parking Employees and Labor Economic Development Operations and Maintenance Parking Authoritys Continuation

18 18 Ownership must remain with Authority/City, and transaction should aim to maximize economic health of the City. Retention of Public Ownership Advisory Committee Principle The City/Authority retains ownership of and key reserve powers over the parking assets through a lease (not a sale) to a private investor. The proceeds of the transaction will be used to fund the Citys pension fund which is vital to the long-term health of the Citys economy. Concession Agreement

19 19 Award of any concession contract must result from an open and transparent process. Transparency Advisory Committee Principle The award of the concession agreement will be based upon a public procurement process with request for proposals. Award will be based on the best and final offer received. The issuance of the draft concession agreements to the public (which has not been done in precedent transactions) demonstrates the Citys commitment to a transparent and objective process. Concession Agreement

20 20 No longer than 50-year agreement term. Term of the Concession Advisory Committee Principle Both draft concession agreements are for 50 years. This will maximize the value to the City. Concession Agreement

21 21 Parking rates going forward must be consistent with market factors and regional inflation. Parking Rates Advisory Committee Principle The City maintains control over the parking rates at garages and meters (both on- and off-street) providing for an increase to market rates gradually over a five-year period and then limited to an annual adjustment in line with inflation. Concession Agreement

22 22 Rates have not changed in many years On street meter rates have not increased since 1995 Off street meter rates have not increased since 2004 Garage rates have not increased since 2004; most rates were decreased in 2008 reflecting the parking tax decrease (in 2005 to accommodate Greyhounds temp station at Second Ave, there was an increase in rates at Second Ave; and a decrease of rates at First Ave garage)

23 23 Public Versus Private Rates--Today 29.6% 23.1% 29.3% 29.0% 57.9% 100.0% 83.3% 27.5% 72.7% $ PublicPrivate

24 24 Summary of Rate IncreasesAll Day Parking at Garages

25 25 Summary of Proposed Rate Schedule-- Meters LocationCurrentApril 1, 2011January 1, 2012January 1, 2013January 1, 2014January 1, 2015 Downtown2.002.503.003.504.004.50 Oakland - Zone 4 (1) 0.701.001.502.002.503.00 Oakland - Zones 1, 20.501.001.502.002.503.00 Shadyside0.501.001.502.002.503.00 Strip District0.501.001.502.002.503.00 North Shore0.501.001.502.002.503.00 Oakland - Zone 30.500.751.001.251.502.00 South Side0.500.751.001.251.502.00 Squirrel Hill0.500.751.001.251.502.00 Bloomfield / Garfield0.500.751.001.251.502.00 North Side0.500.751.001.251.502.00 Uptown0.500.751.001.251.502.00 Brookline0.500.751.001.251.502.00 Mount Washington0.500.751.001.251.502.00 East Liberty0.50 0.75 1.00 Lawrenceville0.50 0.75 1.00 Mellon Park Area0.50 0.75 1.00 Carrick0.50 0.75 1.00 Beechview0.50 0.75 1.00 Allentown0.50 0.75 1.00 West End0.50 0.75 1.00

26 26 Sufficient number of spaces should be designated for public parking to encourage economic development downtown and in neighborhood business districts. Public Parking Advisory Committee Principle Transient parking requirements are set at 45% in each parking facility and 50% of aggregate spaces; no more than 30% of spaces in any parking facility may be leased to any related group. This provision ensures that transient parkers will have adequate access to each of the parking facilities. Concession Agreement

27 27 Employees must be offered employment with either the concessionaire, Parking Authority or the City. Labor agreements must be upheld under Concession. Employees and Labor Advisory Committee Principle Employees are protected. Concessionaire agrees to be bound by existing collective bargaining agreements for remaining term. Any Authority employee not retained by the concessionaire will be offered employment with the City. Concession Agreement

28 28 Concession Agreements must include flexibility for future City economic development plans and objectives. Economic Development Advisory Committee Principle The terms of the Concession agreements provide for future economic development in the City, including the downtown area by allowing for construction of additional garages and additional metered spaces, if needed. Concession Agreement

29 29 Private operator must comply with detailed operating and maintenance standards that maintain certain levels of services Operations and Maintenance Advisory Committee Principle The City will transfer the future risk of escalating labor costs, capital expense, and parking demand to the concessionaire. In addition the concessionaire agrees to adhere to strict standards for maintenance and operation including cleaning system facilities, installing/ repairing equipment, and providing security. The concession agreements require the concessionaire to substantially replace three aging downtown garages over the first 15 years of the concession and to fund customer service improvements. These are costs that the City doesnt have the resources to fund. This is a substantial liability that the City would transfer to the investor. Three garages– Fort Duquesne and Sixth, Ninth and Penn, and Smithfield/Liberty will be replaced or substantially rehabilitated. Concession Agreement

30 30 The Parking Authority should remain in existence to oversee the concessionaire. Parking Authoritys Continuation Advisory Committee Principle The Parking Authority will remain in existence; oversee the operations of the concessionaire; and monitor the concessionaires compliance with the agreements. Concession Agreement

31 31 IV. Prospective Schedule

32 32 The City is focused on reaching transaction close by November 2010 June 2010 Distribution of Draft Concession Agreements July 2010 Meet with City Council Members Opportunity for Public Hearings Finalize Concession Agreements Review Agreements with City Council August 2010 Release final Request for Proposals and Concession Agreements September 2010 Receive proposals Receive best and final offer Review proposals with City Council City Council votes on final proposal, related issues by Sept. 15 November 2010 Close transaction June 2010July 2010August 2010September 2010November 2010

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