Wednesday, September 29, 2010

Indy Deserves Better

Last night I attended the City-County Council Rules committee for the budget presentation portion. I thought I'd stay to hear the latest information regarding the proposed parking meter deal. Bad idea. Deputy Mayor Michael Huber and Bond Bank Executive Director Deron Kintner were spinning so hard, its a wonder they didn't drill a hole in the floor and fall through.

Let me back up a bit, run through some of the more frustrating spins, then offer some common sense.

You can view this performance for yourself by visiting the Channel 16 archives for the Rules Committee (click here) and clicking on the "Video" link for Sep 28, 2010. They have a quick link to that portion - Prop 229. Urbanophile blogger, Aaron Renn, was up first, at time stamp 20:00. Huber and Kintner first appear at time stamp 58:00.

The proposed 50 year lease of our parking meters to ACS (prop 229; proposed lease agreement) calls for an investment by ACS to update the meters, a $35 million up front payment to the City, and shared revenue stream for the 50 years. The cost of replacing some, if not all, of the current meters with new technology has been estimated at $8-10 million. The IBJ estimates that the City would receive $400 million over the course of the lease, but ACS would collect as much as $1.2 billion (yes billion). Simple math translates that to $8 million per year to the city and up to $24 million a year to ACS. The City would double parking rates immediately, and tie future increases to the cost of living. In addition, the City intends to increase the number of meters immediately by 100-130.

Renn made his points clearly, with an easy to follow flow of logic. There was a quality back and forth with the Councillors. All was well for the viewing public who hoped to gather concrete information with which to assess the proposed plan.

Huber's presentation was difficult in so many aspects. I got the impression that he had certain phrases, certain 'winning' points, toward which he felt compelled to steer his statements. Such phrases and 'winning' points would include "be flexible and adapt to change", never agree that there is a 'penalty' of any kind in the agreement, "we haven't raised parking rates in 35 years", "many of our parking meters are occupied by folks from out of town", "we become less reliant on property taxes", the only alternative to the ACS deal is nothing at all, and only compare the revenue stream from the ACS deal to what we currently get. All of these are debatable points, to say the least. But, Huber seemed drawn to them as his exclusive library for last night's discussion.

The 'penalty' point got quite a bit of time, so let's follow that one in a bit of depth. In his amazing blog entry on this proposed deal ("Indy's 'Son of Chicago' Parking Meter Lease to Be a Disaster for City"), Renn made this point:

7. The vendor automatically gets the right to any new meters, but the city has to pay to remove any meters. In the Chicago deal, the city has to negotiate with the existing vendor for new meters outside the existing concession area, but is free to take its business elsewhere if the vendor won’t match what a competitor would offer. In Indy, any new meters are automatically enrolled in the new deal. (Section 7.7) I didn’t see where this was limited to the four specified zones, so it might in fact apply to any meter in the city.

However, if the city removes a meter, they have to pay a meter removal fee. In the first year, this is $15,400 per meter in Zone 1. I didn’t see any provision for offsetting adds and removes, meaning if the city adds three meters and removes one, the vendor gets the three new ones automatically and the city is still on the hook to pay for the one they removed. What’s more, the city is also on the hook for any lost parking ticket revenue the vendor would have gotten off that space too.


Looking at schedule 4,"Methodology for Calculating Certain Concessionaire Compensation" (page 132 of the pdf), one finds a complex looking formula for calculating the compensation due ACS if a parking meter is permanently removed. But it boils down to adding the expected future revenue from the meter over the remainder of the lease to the expected future revenue from parking tickets at that meter over the remainder of the lease. The cost of that meter and its installation by ACS is not included in the calculation. The fraction of the $35 million up front fee to be paid by ACS to the City which can be attributed to that meter, is not included in the calculation. It is all based upon future revenues expected for that meter. This is what Councillor Joanne Sanders and others are calling a 'penalty' for the removal. This is money that the City would owe to ACS to compensate them for the removal of the meter.

But, Huber could not say that out loud. Instead he claimed over and over that it wasn't a penalty. According to Huber, the compensation is reimbursing ACS for the purchase and installation of that meter -- besides, the city would not hand ACS a check, they would deduct it from the City's portion of the revenue -- therefore it is not a penalty. What gibberish. The compensation formula is NOT derived from reimbursement for funds already spent. And despite the tortured logic, it is still a loss to the City. Then he takes things further and says we would be giving up that revenue anyway, if the City didn't do the deal with ACS, covered the costs itself, and then pulled a meter off the streets. NO. There is a difference between not getting future revenue, and paying somebody else the amount of that future revenue. And if Michael Huber really doesn't know that, then maybe he shouldn't be the Deputy Mayor for Economic Development.

Perhaps worse, was the handling of an alternative approach to this deal with ACS. The only alternatives offered were to do nothing at all, or to float a bond to cover the upgrade and installation of the meters. Bond Bank Executive Director, Deron Kintner, took the bonding issue on. He mentioned a number of reasons why this would not be a good idea. He said that the city now employs 6 people to tend the meters, but we'd have to increase that number 10 fold if we undertook the meter expansion and upgrade ourselves.

But what really got me were the numbers he popped on the screen to demonstrate that the City would take in more money through the ACS deal than if the City made all the improvements itself. (see slide 8 of the presentation).

The cost of the meters is $8-10 million to ACS, but the City would, for reasons inconceivable to me, have to float a bond for $25 million. Kintner compared this figure with the proposed $35 million up front fee.

Then he looked at the net present value of the ongoing cash flow. He never described what was considered in deriving that figure. The number is too low to account for a full 50 years of revenues to the city, unless a high rate inflation were assumed. He said that the net present value of the cash flow in the ACS agreement is $32 million, but only $29.8 million if the City goes it alone.

But, lets look at the revenue stream itself. The IBJ estimates that the deal could give the City as much as $400 million over 50 years. That comes to $8 million a year. Their estimate of up to $1.2 billion in revenue to ACS is $24 million a year. If you add those two numbers, you come up with $32 million a year, on average, for the entire cash flow. But, ACS is keeping the lion's share of that money.

If instead, all the money came to the City, even after you subtract $3 million a year for the bond payment and $4 million a year for operations, the City would net $25 million per year, or $1.25 billion over the 50 years. Subtract a $10 million technology upgrade every 10 years, doubled if you floated 10 year bonds to be paid back with interest, the City would still net $1.1 billion over the 50 years. That is equivalent to $22 million per year. Again, better than the average $8 million per year the City would get through the ACS deal.

And while Kintner explains on his slide that it does not include the benefit of ACS moving 200 jobs to Indy, he ignores the fact that just moments before, he estimated the City would generate 600 jobs if it bonded the cost of meter upgrades and ran the system itself.

All of this adds up to a dizzying amount of spin - just to get this deal signed. Indy deserves better than what it got last night from Huber and Kintner.

As for the meter issue itself. Why doesn't the Council review and deny the MDC-CIB interlocal agreement that will send $8 million of property tax revenues from the consolidated downtown TIF to the Pacers, and make it clear to the Mayor and the MDC that it would support $8 million from that TIF being spent on parking meter upgrades. They could then double the parking fees, provide for annual increases to the fees based on the cost of living, and add the 100-130 additional meters contemplated with the ACS deal. The City would then stand to pull in an average of $32 million a year in revenue that it does not have to share with ACS. It can then afford the added $4 million a year in operating costs for a net of $28 million a year on average, for a total of $1.4 billion over 50 years. This is the most flexible and adaptable approach to the issue of how to generate more money from the parking meters. Not the ACS deal.

6 comments:

Indy Student said...

It's been several months since I last attended a council meeting, and last night reminded me why.

Short of being paid to attend (And I guarantee that the four or so Ice Miller lawyers billed the city for 3-5 hours or however long it lasted even though only one did any actual speaking, to the best of my knowledge), there's no way a citizen can sit through three hours of this bull for a small amount of public comment at the very end. And by then, most of the councilors have stopped paying attention and the attendees might not be all that alert for having sat for the majority of the previous hours.

I'll still do my civic duty and write my council representatives and tell them how I feel, but these committee meetings are a waste of time for normal folks like you and me, Pat.

Advance Indiana said...
This comment has been removed by the author.
Paul K. Ogden said...

And let's not forget, we're not allowed to look at the ACS's numbers. We have to use their numbers and their calculations.

Oh, and the 200 job promise is a hoot. This is a promise outside of the contract (which has an incorporation clause) with no consideration. It's not legally enforceable.

Plus they never say in that letter promising the 200 jobs, that they are going to be full-time jobs or what the salaries are going to be. The Mayor tried to claim that they will average $50K a year, apparently by taking the average of the upper and lower estimated salaries ACS say might be coming to Indy. It's all a farce.

It is stunning that they're still trying to push this deal through. It is not only a horrible deal, it's a disaster politically for Republicans. Yet they are asking Council Rs to fall on the sword so a politically connected contractor can make a bunch of money.

Advance Indiana said...

Did you guys catch Ryan Vaughn's explanation to the disabled woman who asked why he wasn't recusing himself? He said this matter was just too important to his constituents not to vote on it, notwithstanding his law firm's long-time representation of ACS. Even Vaughn has been registered to lobby for ACS at the state level. He insisted he and his law firm had nothing to do with this contract. Yeah, right.

Anonymous said...

ENFORCEMENT PROCEEDINGS - SEC Charges Affiliated Computer Services, Inc. With Stock Options Backdating and False Disclosures: "The SEC's complaint, filed in federal district court in Washington, D.C., alleges that from 1995 to 2006, ACS engaged in a fraudulent and deceptive scheme to provide executives and other employees with undisclosed compensation."

Above is a part of a recent investigation into ACS.

Seriously folks let's get real.
Public officials are supposed to be trustees of the commonweal, not political
buccaneers seeking their own private gain. But sometimes, in what economists call a
principal-agent problem, those trustees forsake that obligation and misuse the power
delegated to them in ways that advance their personal interests rather than those of the
public.
Corruption distorts the allocation of resources toward projects that
can generate illicit payoffs. Besides the undesirable efficiency consequences arising
from this distortion, the effect is likely to aggravate social inequalities, because the poor and powerless suffer, by definition, a comparative disadvantage in securing special favors.
If the $500,000 has to be paid if the City-County Council will not vote for the ACS deal. Pay ACS's political blackmail scheme and get them out of town. Like all the other commentaries together with articles I've been reading have showed, ACS is not the kind of corporation we want in our town. Political blackmail, special interests, conflict of interests, WHERES THE FBI? WHERES THE FEDS?
Has anyone ever read ACS Ethical Standards they try to impose on their employees at the welfare office. Their employees aren't allowed to accept even a Christmas card. Yet the CEO's and Directors of this company have done just that.
ACS is a shameful, unethical, disgraceful hypocrite, not to mention the so called "leaders" of Indianapolis for creating this mess.
What an embarrassment to our city.

Anonymous said...

ENFORCEMENT PROCEEDINGS - SEC Charges Affiliated Computer Services, Inc. With Stock Options Backdating and False Disclosures: "The SEC's complaint, filed in federal district court in Washington, D.C., alleges that from 1995 to 2006, ACS engaged in a fraudulent and deceptive scheme to provide executives and other employees with undisclosed compensation."

Above is a part of a recent investigation into ACS.

Seriously folks let's get real.
Public officials are supposed to be trustees of the commonweal, not political
buccaneers seeking their own private gain. But sometimes, in what economists call a
principal-agent problem, those trustees forsake that obligation and misuse the power
delegated to them in ways that advance their personal interests rather than those of the
public.
Corruption distorts the allocation of resources toward projects that
can generate illicit payoffs. Besides the undesirable efficiency consequences arising
from this distortion, the effect is likely to aggravate social inequalities, because the poor and powerless suffer, by definition, a comparative disadvantage in securing special favors.
If the $500,000 has to be paid if the City-County Council will not vote for the ACS deal. Pay ACS's political blackmail scheme and get them out of town. Like all the other commentaries together with articles I've been reading have showed, ACS is not the kind of corporation we want in our town. Political blackmail, special interests, conflict of interests, WHERES THE FBI? WHERES THE FEDS?
Has anyone ever read ACS Ethical Standards they try to impose on their employees at the welfare office. Their employees aren't allowed to accept even a Christmas card. Yet the CEO's and Directors of this company have done just that.
ACS is a shameful, unethical, disgraceful hypocrite, not to mention the so called "leaders" of Indianapolis for creating this mess.
What an embarrassment to our city.