New York City needs Mayor Michael Bloomberg to seek counsel from the billionaire financier Michael Bloomberg. Privatizing some 90,000 parking spaces, an idea the city is considering, could raise billions of dollars to head off looming budget deficits. But other similar deals have sacrificed long-term revenue for short-term relief. Political expediency should take a backseat in the Big Apple. A joint venture would work better.
Quick fixes can be hazardous. Chicago’s Mayor Richard Daley, for example, sold 75 years worth of parking revenue for almost $1.2 billion in 2008. Though the city has retained the right to set rates, annual revenue has nearly quadrupled, to $80 million, mostly under new management, between 2007 and 2011. The arrangement balanced the city’s budget in Daley’s last year in office but has been very unpopular because of the results.
Politicians the world over have been known to try such foolish engineering. Greece relied on a now infamous derivatives deal, using an off-market exchange rate, to satisfy Maastricht criteria to join the euro. The five boroughs of New York risk falling into a similar trap as Bloomberg winds down his third term in office at the end of 2013.
An upfront sale wouldn’t make much sense. But private operators could still help increase revenue not only by raising rates but by using new technology to adjust parking fees based on peak usage times.
A better structure overall, however, would be a partnership. One possibility is for a private company to pay a fixed, but inflation-adjusted, amount for 20 years in return for the right to manage New York’s parking and retain 50 percent of the net revenue. That way, fiscal soundness would be retained and the risks to both sides minimized. The city’s taxpayers would share in future gains from any improvements, management or otherwise.
In this sense, New Yorkers should in theory benefit from the mayor they have. Bloomberg, the savvy businessman and former bond trader, should be able to help design an optimal structure for any parking deal. It is those skills, not textbook political maneuverings of a retiring mayor, that are necessary.
Read more at Reuters Breakingviews.