The Crux of the Matter

As Indianapolis prepares to enter into a 50 year contract with ACS, under which it will hand over management of this asset–and an estimated 1.25 billion dollars that would otherwise come to the City during that period–I thought I’d share an observation from my son, made in response to a letter from the Mayor’s office to City Council members, defending the proposal against criticisms. I think he gets to the heart of the matter.

“Having scanned the administration’s response to the analysis of the non-partisan Public Interest Research Group (PIRG), and particularly the Administration’s view that it is leveraging a “non-core asset” (parking meters), it finally struck me why the Mayor continues to press this deal to give so much money, and particularly control, to ACS.  Ultimately, there is one glaring analytical flaw, which is really at the heart of the City’s analysis: The Administration fundamentally doesn’t understand the “value” and “purpose” of the asset it is selling. This leads to a fundamental error in the financial terms and structure of the deal and explains why the city is willing to give away so much in the deal.

The Administration’s ignorance of the true value of the parking meter assets is evident in its label of parking infrastructure as “non-core assets.”  From a revenue raising perspective, they are right in a very limited sense: the city hasn’t used parking meters as a “core” revenue raising tool.  But as Aaron Renn has forcefully argued, parking meters and control of rights-of-way are NOT, first and foremost, revenue raising tools/powers, but instead are central or “core” to a city’s ability to plan and control its use of public space and, ultimately, to control and encourage economic development. The Administration’s analysis actually ignores the “core value” of parking meter assets to the city: that is, control over parking meters gives the city control over how it manages development, transportation, land-use, etc.  And by ignoring this “core value,” or by failing to see the value in it, the Administration is failing to properly value the asset…. Or to fully understand and protect those other rights and benefits that are tied to control of its rights of way.  (It’s kind of like a landowner selling a plot of land that he thinks is barren or only useful on the surface, when there are mineral/oil rights below ground that he is giving up without receiving value.) It’s the City’s ignorance of the true value of the asset that is leading it to agree to terms that it should never agree to.

As some councillors have observed in their very well-stated remarks, the City is not simply striking a very bad deal – it is striking a deal that future councils and future administrations will be effectively unable to undo and will have to live with for decades… As Bill Hudnut observed a few weeks ago in an interview with WTHR, there is no need for the city to give up so much revenue or control.

There are other flaws in the analysis forwarded by Mr. Cochran to City Councillors, but perhaps the most telling one is that they apparently don’t understand the true value of the asset they are selling and so, as day follows night, they have incorrectly valued it and placed inappropriate restrictions on it’s future use.”

1 Comment

  1. The city of Indianapolis is preparing to release our parking meters for 50 years. We urge everyone to write to the City-County Council and if possible to attend the City-County Council meeting on Monday night (November 15, 7 PM in the Public Assembly Room).

    We at GIfC strongly oppose this contract and want to share with you the reasons we came to this decision.

    We will not discuss potential conflicts of interest within the Mayor’s office or on the City-County Council, nor the general reputation of the vendor, ACS. We will point out that this vendor was responsible for the troubled and failed attempt to privatize the state’s Medicaid system. We will note the evidence from their contract in Washington DC. The Washington DC City Auditor documented overpayments, lack of cost savings, and almost 7000 improperly issued parking tickets. Meter complaints increased by over 900%.

    We will also point out that ACS as a company, refuses to allow the city to look at its books to see if they are being honest with us their calculations and estimates. We don’t feel comfortable dealing with a corporation that uses the claim of proprietary information to hide their operating practices.

    When the original contract was presented many people question the 50-year term of the lease. The mere idea of leasing any public asset for 50 years displays incredible hubris. No one can accurately predict the needs and wants the city 10 years from now let alone for the next 50 years. We will in essence be putting a straitjacket on all future city County Council’s condemning the next generation of Indianapolis citizens to the encumbrance of a contract they never saw, negotiated, or signed.

    Although the Mayor claims that the new version of the contract will allow cancellation after every decade, a simple look at the penalties that would be imposed show that they are so high as to make this an unrealistic option. Additionally, while I haven’t seen this stated elsewhere, Ogden on Politics ( states that the contract prohibits the city from borrowing money to pay off ACS’s termination fee.

    Furthermore, the contract contains other provisions such as forcing the residents of Broad Ripple to pay for parking permits if the city finally builds a parking structure to alleviate the overcrowded parking situation that currently exists.

    The overall impression one is given after reading the terms of this contract is that the city is trying desperately to be rid of an unwanted, worthless asset. The city’s administration is about to give away a valuable public asset under very unfavorable terms.

    We don’t have to follow this path. Minneapolis has recently begun to upgrade their parking meter system and they are solving their problems without using an outside contractor Minneapolis is paying a mere $8000 for each meter that covers one side of each street. They were able to purchase just 46 parking meters to cover 450 parking spaces. Based on those estimates, Indianapolis would need to purchase just 400 parking meters. At $8000 per meter this comes to a grand total of $3.2 million to replace all of our parking meters.

    As an exercise, we used the online calculator provided by the meter supply firm, POM. Estimating 75% occupancy for eight hours and five days a week, with no increase in parking rates, the calculator estimated the meters would be paid for in less than a year.
    This does not include the income from parking enforcement fines.

    This administration was elected on the promise that they wouldn’t overtax the citizens of Indianapolis. Somehow, they seem to have no problem with raising “fees” and letting a private corporation take a large share of that revenue.

    This deal was poorly designed, poorly negotiated, and is totally unnecessary. The city would be much better off following the path taken by Minneapolis and keeping control of parking on public streets.

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