Pennsylvania Capital’s Receiver Plans Parking Deal for Debt
The receiver appointed by Pennsylvania to mend Harrisburg’s finances plans to submit a proposal this month to lease the capital city’s parking system to pay creditors and restore solvency.
The deal, which relies on tax-exempt financing, is key to the recovery plan from William B. Lynch. He said in a telephone interview that he plans to ask a state judge to approve his blueprint for solving the $350 million debt burden of the community of 50,000. Pennsylvania took over the city’s fiscal affairs in 2011 after local officials failed to solve the debt crisis.
Turning over municipal parking systems to private operators has sparked opposition in cities such as Cincinnati, Ohio, which is fighting a court order that blocked a lease with partners including Guggenheim Partners LLC, the prospective underwriter of the Harrisburg deal.
“An absolutely essential part of this is that we create an opportunity for the city to have some kind of a chance at a stable, predictable financial future,” Lynch said from Harrisburg. “We’re not going to conclude this without making it possible for the city to achieve this future.”
Under the proposal, the Pennsylvania Economic Development Financing Authority, a state financing program, would take over garages and lots in a long-term lease from the Harrisburg Parking Authority, the municipal agency that owns them.
Chicago-based Standard Parking Corp. (STAN) would run the city’s 8,991 spaces, according to Lynch. AEW Capital Management LP, a Boston-based real-estate management company, would manage the properties, and both would receive fixed fees, Lynch said.
The state financing authority would sell tax-exempt bonds against the revenue, underwritten by Guggenheim. Lynch said proceeds of the issue would retire about $110 million in parking debt and pay city creditors -- surrounding Dauphin County and bond insurer Assured Guaranty Municipal Corp., a unit of Hamilton, Bermuda-based Assured Guaranty Ltd. (AGO)
“Asset sales will be an important component of the city’s recovery plan,” Ashweeta Durani, an Assured spokeswoman, said in an e-mail. The company anticipates “a recovery plan that both addresses the city’s fiscal needs and respects the rights of creditors.”
In addition, a fund would be established for retiree health benefits for city workers, Lynch said. The city’s unfunded liability for other post-employment benefits was $177.8 million as of 2010, according to an audit released in December. He is also working on a multiyear contract with the state to pay for parking spots for its employees.
Lynch said the Harrisburg proposal is “far better” than a deal in Chicago, whose 75-year, $1.15 billion parking lease with a Morgan Stanley-led partnership may have cost the city $9.58 billion through 2084, according to a 2011 document filed by Chicago Parking Meters LLP.
Harrisburg will get more money from the operations by having a share of the profits, Lynch said.
Lynch declined to give an estimated value of the system, and said negotiations continue.
Demand for the parking debt has risen this year. Harrisburg Parking Authority bonds due in May 2026 traded May 6 at an average yield of 5.77 percent, or 3.68 percentage points over benchmark debt, data compiled by Bloomberg show. On Jan. 7, the obligations traded at a yield of 6.5 percent, for a spread of 4.35 percentage points.
The city owes about $350 million -- nearly seven times its general-fund budget -- on fees and debt tied to a project to overhaul and expand a waste-to-energy plant that doesn’t generate enough to cover the burden. The county and insurer made the payments the city skipped.
Lynch is also working on a deal to sell the incinerator to Lancaster County Solid Waste Management Authority that would retire debt and pay creditors.
Lynch said his plan would also include savings from union contracts.
“It’s a pretty good solution, what we proposed for everybody, or at least it’s as good as it’s going to get,” Lynch said. “It’s going to take some cooperation and goodwill from a lot of people.”
Municipal parking deals have numbered just one to two a year since 2010, said David Cummins, managing director of the Parking Solutions unit of Xerox Corp. (XRX) in Washington. Xerox provides parking services in 30 U.S. cities, including Indianapolis, and about 100 municipalities in the U.K.
Cummins, who isn’t involved in Harrisburg, said a model in which ownership of the asset remains public and in which the city receives profits -- as is being proposed in Harrisburg -- “would have a lot of appeal to cities.”
Using tax-exempt financing for parking transactions was a first when proposed for Cincinnati’s lease of its parking system to the Port of Greater Cincinnati Development Authority, Cummins said. Guggenheim would underwrite the sale of tax-free debt issued by the Cincinnati agency, and Xerox would operate the parking system.
In March, an Ohio judge ruled the city’s plan must be put to a referendum, a decision being appealed by municipal officials.
Thomas Mulligan, who works in New York for Sitrick & Co. and is a spokesman for Guggenheim, declined to comment. Guggenheim has headquarters in Chicago and New York.
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