1 -Addressing Pittsburghs Financial Needs- Parking System Monetization.

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1 -Addressing Pittsburgh’s Financial Needs- Parking System Monetization

Transcript of 1 -Addressing Pittsburghs Financial Needs- Parking System Monetization.

Page 1: 1 -Addressing Pittsburghs Financial Needs- Parking System Monetization.

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-Addressing Pittsburgh’s Financial Needs-

Parking System Monetization

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I. Pittsburgh’s Key Financial ObjectivesII. Monetization--Deliberative and Transparent

ProcessIII. Concession Agreement that meets Community

NeedsIV. Proposed Schedule

-Addressing Pittsburgh’s Financial Needs-Parking System Monetization

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Successful Parking Transaction Will Complete Pittsburgh’s 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

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Headcount cut by 25%; 1,000 less employees

0

500

1000

1500

2000

2500

3000

3500

4000

4500

2002 2010

Police Fire DPW Other

4,225 employees in 2002

3,154 employees in 2010

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Reducing Debt

$913

$683

$500

$550

$600

$650

$700

$750

$800

$850

$900

$950

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Mil

lio

ns

Outstanding Principal

Debt Principal has been reduced by 25% since 2000

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Pension Fund Status – 1st Quarter

2010

$697 million or

70%

$293 million or

30%

Pension Assets

Unfunded Liability

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Pension Fund Status –where it needs to be by

12/31/2010

$495 million or

50%

$495 million or

50%

Pension Assets

Unfunded Liability

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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

Take-Over ScenarioPMRS Plan

Year City Calculated

2011 76,210,000$ 2012 76,578,000$ 2013 76,947,000$ 2014 77,282,000$ 2015 77,605,000$ 2016 77,920,000$ 2017 78,238,000$ 2018 78,535,000$ 2019 78,843,000$ 2020 79,151,000$ 2021 79,445,000$ 2022 79,727,000$ 2023 80,035,000$ 2024 80,379,000$ 2025 80,754,000$ 2026 81,143,000$ 2027 81,558,000$ 2028 81,983,000$ 2029 82,444,000$ 2030 82,912,000$

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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

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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

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Detail of Pittsburgh Pension Funding Plan

“The PMRS review of the city’s 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

YearAccrued Actuarial

LiabilityMarket Value

Assets Tabular Smoothing Extra Contribution

Tabula

MMO

Minimum Municipal

Obligation Plus Additional Payment Funding Ratio

2010 $1,013 $260 $335 $200 $57 33%2011 $1,035 $472 $544 $0 $65 53%2012 $1,055 $507 $573 $0 $60 54%2013 $1,077 $539 $599 $0 $60 56%2014 $1,100 $571 $626 $0 $60 57%2015 $1,124 $604 $652 $0 $60 58%2016 $1,147 $637 $678 $0 $60 59%2017 $1,171 $669 $704 $5 $60 60%2018 $1,194 $706 $734 $5 $60 61%2019 $1,216 $743 $764 $5 $60 63%2020 $1,237 $779 $792 $5 $60 64%2021 $1,258 $814 $819 $5 $60 65%2022 $1,276 $847 $845 $5 $60 66%2023 $1,293 $880 $872 $5 $60 68%2024 $1,310 $913 $904 $5 $60 70%2025 $1,326 $946 $937 $5 $60 71%2026 $1,342 $980 $971 $5 $60 73%2027 $1,359 $1,015 $1,006 $5 $60 75%2028 $1,375 $1,052 $1,042 $5 $60 76%2029 $1,392 $1,089 $1,079 $5 $60 78%2030 $1,409 $1,129 $1,118 $5 $60 80%2031 $1,427 $1,170 $1,159 $5 $72 82%2032 $1,447 $1,226 $1,215 $5 $72 85%2033 $1,467 $1,286 $1,274 $5 $73 88%2034 $1,489 $1,351 $1,338 $5 $74 91%2035 $1,513 $1,420 $1,407 $5 $74 94%2036 $1,538 $1,495 $1,481 $5 $75 97%2037 $1,566 $1,576 $1,561 $0 $76 101%

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II. Deliberative and Transparent Process

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Due Diligence Process—first 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

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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 LLPK&L Gates LLP

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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.

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The Parking Advisory Committee was tasked with addressing community concerns on the proposed Public Private Partnership (P3)

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IV. Concession Agreement that meets Community Needs

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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 Authority’s Continuation

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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 City’s pension fund which is vital to the long-term health of the City’s economy.

Concession Agreement

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Award of any concession contract must result from an open and transparent process.

TransparencyAdvisory 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 City’s commitment to a transparent and objective process.

Concession Agreement

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No longer than 50-year agreement term.

Term of the ConcessionAdvisory Committee

Principle

Both draft concession agreements are for 50 years. This will maximize the value to the City.

Concession Agreement

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Parking rates going forward must be consistent with market factors and regional inflation.

Parking RatesAdvisory 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

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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 Greyhound’s temp station at Second Ave, there was an increase in rates at Second Ave; and a decrease of rates at First Ave garage)

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Public Versus Private Rates--Today

9.00

12.00

17.78

15.40

16.45 16.25

15.11

12.00

16.50

8.75

12.75

9.75

13.75

9.75

6.00

9.75

12.7512.64

0

5

10

15

20

Ft. Duquesne& 6th Street

Ninth & Penn MellonSquare

Wood Allies Third Avenue Oliver First Avenue SecondAvenue

ForbesSemple

29.6% 23.1

%

29.3%

29.0%

57.9%

100.0%

83.3%

27.5%

72.7%

$

Public Private

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Summary of Rate Increases—All Day Parking at Garages

As of January 1,

Current 2011 2012 2013 2014 2015

Third Avenue 12.75 16.00 17.00 19.00 21.00 22.00

Ninth & Penn 9.75 12.00 13.00 15.00 17.00 19.00

Smithfield Liberty 13.75 16.00 17.00 19.00 21.00 22.00

Ft Duquesne & Sixth 9.75 12.00 13.00 15.00 17.00 19.00

Mellon Square 13.75 18.00 19.00 21.00 23.00 24.00

Wood Allies 9.75 12.00 13.00 15.00 17.00 19.00

Oliver 13.75 16.00 17.00 19.00 21.00 22.00

First Avenue 8.75 11.00 12.00 14.00 16.00 18.00

Second Avenue Plaza 6.00 8.00 9.00 10.00 10.00 12.00

Grant St. Transp. Center 8.00 13.00 14.00 15.00 16.00 17.00

Forbes-Semple 9.00 10.00 11.00 13.00 15.00 16.00

Shadyside 9.00 10.00 10.00 12.50 12.50 15.00

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Summary of Proposed Rate Schedule--MetersLocation Current April 1, 2011 January 1, 2012 January 1, 2013 January 1, 2014 January 1, 2015

Downtown 2.00 2.50 3.00 3.50 4.00 4.50

Oakland - Zone 4 (1) 0.70 1.00 1.50 2.00 2.50 3.00

Oakland - Zones 1, 2 0.50 1.00 1.50 2.00 2.50 3.00

Shadyside 0.50 1.00 1.50 2.00 2.50 3.00

Strip District 0.50 1.00 1.50 2.00 2.50 3.00

North Shore 0.50 1.00 1.50 2.00 2.50 3.00

Oakland - Zone 3 0.50 0.75 1.00 1.25 1.50 2.00

South Side 0.50 0.75 1.00 1.25 1.50 2.00

Squirrel Hill 0.50 0.75 1.00 1.25 1.50 2.00

Bloomfield / Garfield 0.50 0.75 1.00 1.25 1.50 2.00

North Side 0.50 0.75 1.00 1.25 1.50 2.00

Uptown 0.50 0.75 1.00 1.25 1.50 2.00

Brookline 0.50 0.75 1.00 1.25 1.50 2.00

Mount Washington 0.50 0.75 1.00 1.25 1.50 2.00

East Liberty 0.50 0.50 0.75 0.75 1.00 1.00

Lawrenceville 0.50 0.50 0.75 0.75 1.00 1.00

Mellon Park Area 0.50 0.50 0.75 0.75 1.00 1.00

Carrick 0.50 0.50 0.75 0.75 1.00 1.00

Beechview 0.50 0.50 0.75 0.75 1.00 1.00

Allentown 0.50 0.50 0.75 0.75 1.00 1.00

West End 0.50 0.50 0.75 0.75 1.00 1.00

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Sufficient number of spaces should be designated for public parking to encourage economic development downtown and in neighborhood business districts.

Public ParkingAdvisory 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

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Employees must be offered employment with either the concessionaire, Parking Authority or the City. Labor agreements must be upheld under Concession.

Employees and LaborAdvisory 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

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Concession Agreements must include flexibility for future City economic development plans and objectives.

Economic DevelopmentAdvisory 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

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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 doesn’t 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

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The Parking Authority should remain in existence to oversee the concessionaire.

Parking Authority’s Continuation

Advisory Committee Principle

The Parking Authority will remain in existence; oversee the operations of the concessionaire; and monitor the concessionaire’s compliance with the agreements.

Concession Agreement

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IV. Prospective Schedule

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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

S M T W T F S S M T W T F S S M T W T F S S M T W T F S S M T W T F S 1 2 3 4 5 1 2 3 1 2 3 4 5 6 7 1 2 3 4 1 2 3 4 5 6

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June 2010June 2010 July 2010July 2010 August 2010August 2010 September 2010September 2010 November 2010November 2010