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-Addressing Pittsburgh’s Financial Needs- Parking System Monetization

-Addressing Pittsburgh’s Financial Needs- Parking System Monetization. Pittsburgh’s Key Financial Objectives Monetization--Deliberative and Transparent Process Concession Agreement that meets Community Needs Proposed Schedule .

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-Addressing Pittsburgh’s Financial Needs- Parking System Monetization

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  1. -Addressing Pittsburgh’s Financial Needs- Parking System Monetization

  2. Pittsburgh’s Key Financial Objectives Monetization--Deliberative and Transparent Process Concession Agreement that meets Community Needs Proposed Schedule -Addressing Pittsburgh’s Financial Needs-Parking System Monetization

  3. Successful Parking Transaction Will Complete Pittsburgh’s Key Financial Objectives • Controlling labor expenses (addressed) • Number of employees has been reduced by 25% since 2002 • Consolidated health program has generated significant cost avoidance • Workers’ Compensation costs continue to decline • Reduction of debt (addressed) • The City has dramatically reduced its outstanding debt principal • No debt issued in this Administration • Debt management has enabled a Pay-as-you-go Capital Budget • Pension funding status • Reduced assumed rate of return to 8%, voluntarily increasing annual payment • Reduced term to 30 years, further increasing annual payment • City needs to bring funding to 50% by the end of 2010 or pension will be taken over by Commonwealth of Pennsylvania with serious financial ramifications 3

  4. Headcount cut by 25%; 1,000 less employees 4,225 employees in 2002 3,154 employees in 2010

  5. Reducing Debt

  6. Pension Fund Status – 1st Quarter 2010 Pension Assets Unfunded Liability

  7. Pension Fund Status –where it needs to be by 12/31/2010 Pension Assets Unfunded Liability

  8. Implications of Unfunded Mandate • Act 44 of 2009 mandates State takeover if pension not 50% funded • Charge the City for all administrative costs—Estimated to be more than $2 M per year. • Take all assets and sell at market: will result in sale of some assets at less than book value. • Provides no protections from benefit increases. Still subject to Act 111 binding arbitration. • No indication as to how or when funding status would get to acceptable level. • Increase MMO by approximately $30 Million more than legally required with no consideration of how the City will pay it. *Based on current 2007 valuation 2011 MMO subject to change due to new valuation .

  9. Impact of $30 M on City • If the City has to pay an additional $30 M per year to the pension fund: • Property Tax increase of 24% OR • Wage Tax increase of 44% OR • Reduce Police Force by 400 Officers

  10. Parking Transaction Avoids Unfunded Mandate • With anticipated transaction proceeds, pension will be at 50% funded by year end. • This cash infusion + an increased annual pension payment via regional revenue reform= 100% funded Pension

  11. Detail of Pittsburgh Pension Funding Plan “The PMRS review of the city’s proposal allows us to state that we find the proposal to be in large measure valid based upon the underlying assumptions used to construct the funding model.”—James B. Allen, Secretary Pennsylvania Municipal Retirement System , 9/4/2009

  12. II. Deliberative and Transparent Process

  13. Due Diligence Process—first proposed in January 2009 • Leading public-private partnership expert conducted an independent feasibility study of the Infrastructure Transaction –May 2009 • Developed a valuation model to determine the major drivers (e.g., rates, term, labor, capital needs, etc.) –September 2009 • Evaluated alternative monetization scenarios (e.g., issuing additional revenue bonds) to generate a sizable upfront payment • Reviewed precedent transactions in Chicago and other cities to learn from their experiences • Finding was that despite the impact of the economic crisis, there is significant private investor demand and debt financing available for a potential parking transaction • Based on feasibility study, decision was made to proceed, top team of experts retained, and formed Advisory Committee –January 2010

  14. Pittsburgh Has Hired a Team of Public Private Partnership Experts to Ensure Process Success • Sell-Side Advisor: Morgan Stanley • Financial Advisor: Scott Balice Strategies • Parking Consultant: Desman Associates • Legal Advisors: Katten Muchin Rosenman LLP K&L Gates LLP

  15. Parking Advisory Committee The Parking Advisory Committee was tasked with addressing community concerns on the proposed Public Private Partnership (P3) • On January 8, 2010, City announced the formation of an advisory committee to help steer the process for the proposed concession of the City's parking assets • Members included Parking Authority leadership, Organized Labor, Three Members of City Council, Large and Small Business Owners, High Profile Civic Leaders • Members looked at how the proposed transaction will affect the financial stability of the City. The Parking Advisory Committee unanimously adopted guiding principles to protect and benefit the neighborhood and business communities. 15

  16. IV. Concession Agreement that meets Community Needs

  17. Concession Agreement follows all of the Advisory Committee Guiding Principles

  18. Retention of Public Ownership Advisory Committee Principle Ownership must remain with Authority/City, and transaction should aim to maximize economic health of the City. Concession Agreement The City/Authority retains ownership of and key reserve powers over the parking assets through a lease (not a sale) to a private investor. The proceeds of the transaction will be used to fund the City’s pension fund which is vital to the long-term health of the City’s economy.

  19. Transparency Advisory Committee Principle Award of any concession contract must result from an open and transparent process. Concession Agreement The award of the concession agreement will be based upon a public procurement process with request for proposals. Award will be based on the best and final offer received. The issuance of the draft concession agreements to the public (which has not been done in precedent transactions) demonstrates the City’s commitment to a transparent and objective process.

  20. Term of the Concession Advisory Committee Principle No longer than 50-year agreement term. Concession Agreement Both draft concession agreements are for 50 years. This will maximize the value to the City.

  21. Parking Rates Advisory Committee Principle Parking rates going forward must be consistent with market factors and regional inflation. Concession Agreement The City maintains control over the parking rates at garages and meters (both on- and off-street) providing for an increase to market rates gradually over a five-year period and then limited to an annual adjustment in line with inflation.

  22. Rates have not changed in many years • On street meter rates have not increased since 1995 • Off street meter rates have not increased since 2004 • Garage rates have not increased since 2004; most rates were decreased in 2008 reflecting the parking tax decrease (in 2005 to accommodate Greyhound’s temp station at Second Ave, there was an increase in rates at Second Ave; and a decrease of rates at First Ave garage)

  23. Public Versus Private Rates--Today $ 29.3% 29.0% 27.5% 57.9% 83.3% 72.7% 29.6% 23.1% 100.0% Public Private 23 23

  24. Summary of Rate Increases—All Day Parking at Garages

  25. Summary of Proposed Rate Schedule--Meters

  26. Public Parking Advisory Committee Principle Sufficient number of spaces should be designated for public parking to encourage economic development downtown and in neighborhood business districts. Concession Agreement Transient parking requirements are set at 45% in each parking facility and 50% of aggregate spaces; no more than 30% of spaces in any parking facility may be leased to any related group. This provision ensures that transient parkers will have adequate access to each of the parking facilities.

  27. Employees and Labor Advisory Committee Principle Employees must be offered employment with either the concessionaire, Parking Authority or the City. Labor agreements must be upheld under Concession. Concession Agreement Employees are protected. Concessionaire agrees to be bound by existing collective bargaining agreements for remaining term. Any Authority employee not retained by the concessionaire will be offered employment with the City.

  28. Economic Development Advisory Committee Principle Concession Agreements must include flexibility for future City economic development plans and objectives. Concession Agreement The terms of the Concession agreements provide for future economic development in the City, including the downtown area by allowing for construction of additional garages and additional metered spaces, if needed.

  29. Operations and Maintenance Advisory Committee Principle Private operator must comply with detailed operating and maintenance standards that maintain certain levels of services Concession Agreement The City will transfer the future risk of escalating labor costs, capital expense, and parking demand to the concessionaire. In addition the concessionaire agrees to adhere to strict standards for maintenance and operation including cleaning system facilities, installing/ repairing equipment, and providing security. The concession agreements require the concessionaire to substantially replace three aging downtown garages over the first 15 years of the concession and to fund customer service improvements. These are costs that the City doesn’t have the resources to fund. This is a substantial liability that the City would transfer to the investor. Three garages– Fort Duquesne and Sixth, Ninth and Penn, and Smithfield/Liberty will be replaced or substantially rehabilitated.

  30. Parking Authority’s Continuation Advisory Committee Principle The Parking Authority should remain in existence to oversee the concessionaire. Concession Agreement The Parking Authority will remain in existence; oversee the operations of the concessionaire; and monitor the concessionaire’s compliance with the agreements.

  31. IV. Prospective Schedule

  32. The City is focused on reaching transaction close by November 2010 June 2010 July 2010 August 2010 September 2010 November 2010 • August 2010 • Release final Request for Proposals and Concession Agreements • September 2010 • Receive proposals • Receive best and final offer • Review proposals with City Council • City Council votes on final proposal, related issues by Sept. 15 • November 2010 • Close transaction • June 2010 • Distribution of Draft Concession Agreements • July 2010 • Meet with City Council Members • Opportunity for Public Hearings • Finalize Concession Agreements • Review Agreements with City Council 32 32

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