When Public-Private Partnerships Are a Bad Idea

They can bring big benefits, but only when combined with fiscal responsibility.
by | March 13, 2013 AT 5:00 PM

State and local governments generally have been slow to reap all the potential benefits of prudent public-private partnerships. Part of the reason is political: Heavily unionized workforces pose a serious obstacle to contracting out services governments deliver. But labor isn't the only hurdle governments face when trying to negotiate with the private sector: Cities and states too often are already in dire straits before embracing the PPP option.

In Cincinnati, which faces a $35 million budget gap next year, controversy is currently raging over a proposal to contract out the management of the city's parking meters and garages. Under the plan, the city would lease its parking assets to the Port of Cincinnati Development Authority, which would partner with four private companies to operate the meters for 30 years and the garages for 50 years.

Cincinnati would get a $92 million upfront payment and annual installments estimated at $3 million. Part of the upfront money would be used to address next year's deficit, but most would go to develop a downtown high-rise, a bike trail and a new highway interchange.

The plan is on hold for the time being. After the city council approved it by a 5-4 vote, a Hamilton County judge issued a temporary restraining order to prevent the deal from moving forward. A hearing on the order is scheduled for this Friday.

Parking-lease deals have been controversial since 2008, when Chicago received an upfront payment of $1.15 billion to lease 36,000 city parking meters for 75 years. Since then, parking rates have skyrocketed and Mayor Rahm Emanuel has criticized the deal made by his predecessor, Richard Daley.

A dispute over lost revenue from street closings during city events and free parking for the handicapped has landed the city and its parking contractor in arbitration. New York City, Los Angeles and Pittsburgh recently scrapped plans to pursue similar lease deals.

Cincinnati Mayor Mark Mallory's administration says it has learned from Chicago's mistakes. Neighborhood parking rates would immediately go up by 75 cents, but the city would get technology upgrades including software to help drivers find empty parking spaces and allow them to use their smartphones to add time to meters. After the upgrades are in place, downtown would see rate increases of 25 cents every three years, and neighborhood rates would increase by the same amount every six years.

But the fine print includes language that allows the pricing cap to be bypassed by a unanimous vote from a five-person advisory committee and the approval of both the city manager and the Port Authority, both of whom would appoint the advisory committee's members.

With the city council deadlocked over the proposal before its narrow vote to approve it, council member Laurie Quivlan asked the $64,000 question: How will Cincinnati deal with future budget deficits? Although the administration's response persuaded Quivlan to vote for the parking plan, it was none too reassuring. The mayor said $25 million of the $92 million payment would be used to address next year's deficit. But that would still leave a $10 million hole--and what about future years?

Another hint that Cincinnati might be desperate to get its hands on the money was the addition of an emergency clause to the ordinance. Although not uncommon, the clause would mean the cash could be in city coffers by late June and prohibit opponents from trying to overturn the lease deal via referendum.

Cincinnati's parking-lease issue once again highlights just how important it is for governments to make fiscal stability a top priority. A city in desperate need of cash is hardly well positioned to negotiate the best public-private-partnership deal. Sadly, governments that aren't desperate don't pursue them often enough.