Parking memo

7/28/2019 Parking memo

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citvotCINCINNATI

For Your Information July 15, 2013To: Mayor and Members of CouncilFrom : Milton Dohoney, Jr., City ManagerSubject Walker Parking and Port Authority MemosAttached are two memos for your information. One is from Walke r Parking, one of theCitys consultants on the Parking Modern ization and Lease, and one is the PortAuthoritys response to the points made by Walker Consulting.It is important to no te that the memo authored by Walker came from the ir position aspart of the Citys Parking team. Th e mem o was au thored in response to meetings theCity ha d with them in which the team was discussing positioning the City for the bestdeaL It was part of our due diligence.The Information that Walker used was from an early point In time; the deal wassubsequently negotiated from that point to improve the deal. For exam ple, the profitmargin used was based on different parking deals in other cities that are not the sameas ou rs. As we know, the Cincinnati model is un ique In many ways .ThIs Is just one Instance that illustra tes that the Port Is doing a professional job as ourpartner in Independently eva luating the form and substance of the transaction. The Portis add ing value to deal beyond where the City and its consultants handed off the deal tothem in March. The Port is continuing its due diligence, as is the City.


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Curp, JohnFrom: Laura N. Brunner [lbrunner@cincinnatiport orgjSent: Friday, July 12, 2013 7:30 PMTo: Curp, JohnSubject: Response to Walker letterAttachments: image.jpeg, ATT00001,txt Walker memo.pdf; City response letter,docxJohn,Please -Find a response to the letter we received today. We look -Forward to discussing th isith you in more deta il next week. Do not hesitate to call me i-F you lik e over the weekend.


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Sent via EMail

July 12, 2013

John Curp, Esq.City SolicitorCity of Cincinnati, Ohio801 Plum Street, Room 214Cincinnati, Ohio 45202

Dear John,

The Port Authority has worked alongside City Administration for months on the implementation of theparking lease transaction. Throughout this process the Port Authority has endeavored to understandthe City s goals for the modernized parking system and create conditions under which these goals canbe met principally in the areas of financial performance, asset management, and community andcustomer service.

As part of our current work to finalize the parking lease and modernization plan, the Port Authoritysdue diligence team comprised of internal staff, executive leadership, select members of the Board ofDirectors, and advisers with extensive expertise in financial modeling and bond deals has andcontinues to spend considerable time performing a comprehensive financial review of the deal. Thisteam also is knowledgeable about the contract negotiations between the Port Authority and the parkingsystem asset manager and operators that were selected by the City in February/March 2013 as part ofthe ParkCincy team.This letter is in response to the June 20, 2013, memo to the City Administration from Walker ParkingConsultants regarding their outstanding questions and concerns regarding the financial model backingthe parking lease. We appreciate that assertions in the Walker memo are not an accurate portrayal ofthe City s position, and City Administration last week assured us that the memo is actually counter tohow the City views this deal. Nevertheless, the Port Authority believes that the inaccuracies containedwithin a document forwarded by a key City consultant are such that they merit our quick response.

Debt Model Drives DecisionsIt is important to keep in mind that Walkers comments refer to the assumptions made in a financialmodel. The purpose of the model is to help the City, the Port Authority, and the ParkCincy teamdevelop a common set of assumptions that can be used to determine the size of the upfront payment tothe City as well as the amount of the note payment. The actual revenues and expenses will undoubtedlydiffer from the model.


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Gross Revenue AnjjyjsSince Walker has raised the issue of gross revenue, however, we find it necessary to point out the flawsin the memo.Firs t, Walker claims that the City operates the on-street parking system for approximately $2.05 millionannually (including its $350,000 contract with Hamilton County). However, this number significantlyunderstates the true cost of the City. The $1.7 million comes from the On-Street Parking program in theEnterprise Parking Fund. The program includes direct costs of the system only meter repair, metercollection, and non-police enforcement. It does not to include any portion of the $555,550 in theParking - Business Services program of the Parking Enterprise Fund nor any of the approximately$150,000 from the general fund in Finance / Treasury for Parking Revenue Services nor any of theestimated $78,500 in City overhead associated with the on-street program. (There may be otherindirect costs associated with the on-street program as well, but these were identifiable from the Citysbudget documents).Even if only 50% of the Finance and Business Services costs were allocated to the on-street system, thetotal cost to the City to operate the on-street program today would be approximately $2.5 million. Thisadjustment alone would cut the Citys operating margin from the stated 71% to 64%.The Walker memo also references its analysis often on-street parking operations. While the average ofthese City may be 71% (the Port Authority was not provided with any backup to support this number), itis our understanding from Walker that the cities actually had a wide range with several having operatingmargins consistent with the proposed Xerox margin and the true City margin. Also, if the City ofCincinnati is any indication, operating margins for city-run systems likely understate the true costs to runthe system as overhead charges for human resources, IT, and finance are often understated orunallocated.

Xerox Management FeeWalker maintains that the management fee for the on-street operator is too high, in light of what theoff-street operator stands to make. This is another inaccurate comparison. The on-street system willrequire a much larger workforce and larger scope of management services than the off-street system. Itis important to note that contract negotiations with both operators are under way and not finalized.

Broadband and Wireless Communications ChargesWalker provided an estimated monthly charge of $5.75 per meter. This is based on using the standardIPS installed software which provides regular updates to the main system.In addition to this, Xerox installs its own software on the meters. This software allows for continuoustwo way communication between the meter and the overall system. Given the significantly increasedlevel of communication and the ability and need to communicate two ways, the estimated costs are


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higher. Once again, this higher level of data collection, and the higher level of customer service thatresults from this information, is a key differentiator of Xerox.

Projections for Fixed Assets and Equipment MaintenanceOnce again, these are conservative assumptions in a model. The Port Authority will certainly notauthorize the disbursement of funds without fu lly understanding the costs. The details behind theseitems are subject to the ongoing negotiations between the Port Authority and Xerox. They will also besubject to the annual capital and operating budget, as appropriate, and the submission ofdisbursements requests from Xerox through the asset manager to the Port Authority for payment.

Declines in Gross Margins Over the Lease TermThe currently modeled decline in the gross margin in the later years of the Lease is a function of theassumptions the City selected during its negotiations with the ParkCincy team. In the model, expensesare assumed to grow at 3% per year after the initial phase-in period. This assumption was chosen by theCity. In contrast, revenues grow at less than 3% annually for two reasons:(1) Enforcement revenues grow at less than 3% because the amount of the parkingtickets flattens out when it hits the current state cap of $100; and,(2) Meter and garage revenue grows in chunks because rates increase in 25 centincrements as opposed to a straight line.Since the City chose assumptions underwhich expenses would grow faster than revenues, it should notbe surprised that the gross margin declines over time.

Math ErrorThis error was previously shared with the underwriter and has been corrected. There is no impact in theupfront payment to the City as a result of this error. There may be an impact to the ongoing notepayments to the City, but the Port Authority is working with the underwriter to mitigate the impact.Consistent with the Citys stated priority, in no year is the annual note payment to the City expected tofall below $3 million.

Parking Meter CapExWhile the Port Authority appreciates the data on the other, unnamed, City that purchased meters at$507.50 per meter, we believe this is not a relevant comparison. This IPS direct price is stated to includethe purchase of the meter, shipping, and installation, training, and commissioning. The memo does notspecify whether the installation costs assumes that just the meter head is being installed (similar towhen the City installed IPS meters downtown on the existing bases) or whether other parts of the meterare also being upgraded.


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The Xerox estimate of $592.80 includes not just the purchase and installation of the IPS parking meterhead, but the other installation related items included in Xerox proposal designed to significantlyimprove the City s street architecture and system operations including: Meter pole refinishing, straightening, installation, including concrete, sealant, and cleaner; Other necessary parts including batteries, locks and keys, meter covers, and meter stickers; Asset tracking, logistics tracking, and warehousing;Old technology removal and site cleanup; Installation of the Xerox software to allow the meter to have two-way communication withthe Xerox IT system; Quality control testing.

Many of these items are part of the value add that Xerox offers and that were key differentiators ofthe Xerox proposal and, presumably, part of the reason the City selected Xerox.

Parking Structure I Off-Street CapExThe current numbers in the model are from a previous report that Walker performed for the City. TheCity made this information available to prospective bidders in the data room. The Port Authority andthe ParkCincy team have consistently indicated their intention to hire an independent third-partystructural engineering firm to conduct an engineering study. In fact, this was a specific area of concernraised by the Port Authority Board when it approved the lease in March.It has always been understood that the updated information from that study would replace theplaceholder numbers from the old Walker study and that these changes might impact the amount of theupfront payment and the note. I am confident that the City, if not its consultant, was aware of this planand process. In fact, the City commented upon the draft RFP for the independent engineering workprior to its release in mid-June. Responses to the RFP have been received and we expect the contract tobe awarded as soon as it can be negotiated.

Parking Access and Revenue Contro System (PARCS) and Garage Sweeper CapExThese suggestions were provided to Guggenheim some time ago and appropriate adjustments weremade in the working model. These represent very small dollars and do not impact the upfront paymentto the City . There may be a small ongoing impact to the annual note payment, but these changes do notimpact the expectation of the note payment meeting or exceeding $3 million in each year of the term.We trust that this letter will serve to clarify the inaccuracies in the Walker memo so that the public willhave accurate facts. Please feel free to contact me with any questions or concerns.Thank you,Laura N. BrunnerPresident / CEO


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MEMORANDUMCOMMENTS RE: PARKCINCY MODEL

tjWALKERPAt*NO CONSULTANtS

PAGF 1 flf 6

DALE:

COMPANY:

June 20, 2013Sam StephensCity of Cincinnati

660 Lust 7510 SIreel, Suite 210Indianopohs, IN 46250Offic. . :317.8426890Fax: 311.577.6500www.walkerparking .com

Odis JonesHARD COPY:FROM:PROJECT NAME:PROJECT NUMBER:SUBJECT:

NoJohn DorseitCity of Cincinnati Parking P313-306510Comments Re: ParkCincy Model V. Mar 12 2013 vIG

As discussed earlier today and on previous occasions with City of Cincinnati and Publicinancial Management representatives, we are forwarding the following written description ofalkers outstanding concerns and questions regarding the referenced. The following is aummary of items, in order of priority and in some cases, approximate impact on the netresent value of the transaction, that have been identified for further evaluation anddjustment:Summary of Recommended Changes to ParkCincy Financial Model

Summary Description of Item Recommendation and Impact1. Projected Erosion of On-Street Margin onGross Revenues We are looking to findways to reduce the on-street operafingexpense budget, a budget projected toincrease by more than 257% tram thecurrent level.2. Math error. Meter Phase-In Cashflows,cell G22. We understand this error hasbeen corrected: awaiting updatedmodel showing this correction.

3. Parking Access and Revenue ControlSystem CAPEX. Inconsistent informationneeds reconciliation.4. Parking Meter CAPEX. Projected metercosts exceed Walkers experience.5. Parking Structure CAPEX. The figures thatWalker previously provided areplaceholders and need to be updated.

Reduce on-street operating budget by $1.5to $3 million annually, depending on backupprovided. A $1 .5 to $3.0 million annualreduction in OPEX increases NPV to City by$29 to $59 million, respectively.Error mistakenly inflates on-street revenues by$641,000 in Year 3 and compounds ihrougheach of years 4-30, adjusting for inflation.Error does not impact upfront payment, butreduces the Citys NPV by$12+ million.Reconcile PARCS CAPEX Possible increaseof $145,000 to CAPEX budget in 201 3-2015.Reduces NPV by $1 .7 million.Reduce parking meter CAPEX based on$507.50/meter vs. $592.80 figure. Savingsexceeds $400,000 about every eight years.Recommend that these figures be revisedwith additional study by a third party.

6. Garage Sweeper Costs. Recommend replacement every ten years.Impact on NPV is less than $100,000.


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MEMORANDUM WALKEROMMENTS RE: PARKCINCY MODEL PAKNOC0NSUL1NTSPAGE 3 OF 6The following table shows a projected reduction in the on-street margin on gross revenuesnder ParkCincys model.ParkCincy Projected Margin on Gross Revenues

2014 2018 2023 2028 2033 2043n-Street RevenuesM8ters $ 5,269,822 $ 7,931,386 $ 9,998723 $ 11,438,664 $ 12,750,829 $ 17,530,282arking Tickets 4,316,598 7,777,640 9,016,417 10,347,910 1 1,336,353 11,336,353ubtotal $ 9,586,420 $ 15,709,027 $ 19,015,140 $ 21,786,574 $ 24,087,182 $ 28,866,635n-Street Expenses $ 5,282,500 $ 6,018000 $ 6,980,340 $ 8,092,127 $ 9,380,993 $ 12,601,271et Operating Income $ 4,303,920 $ 9,691,027 $ 12,034,800 $ 13,694,447 $ 14,706,189 $ 16,259,365argin on Gross Revenues 45% 62% 63% 63% 61% 56%Source: ParkCincy and Walker Parking Consultants

The following are some specific examples of where we believe the on-street operatingxpense projections are excessive:1. The $627,063 management fee in 2013 is 14.6% of projected net operating income andubstantially higher than Denisons proposed 1.3% management fee as a percentagef net operating income for parking garages, Xeroxs management fee is also 1603%igher in 2013 than Denisons parking garages management tee. Walker evaluatedwo other municipalities that recently contracted with a third-party commercial parkingperator to run their on-street operations. Management fees as a percentage of netperating income ranged from 2.1% to 2.3% of net operating income. (These wereoth selected for study without bias.)

2. In 2013 dollars, our experience is that broadband and wireless communication chargesre $5.75 per meter each month and the cost of handhelds is $50 per month for eachf 20 handhelds. We recommend that these figures be used instead of the $1 1 monthlyharge per meter projected by ParkCincy.3. Projections for fixed assets and equipment maintenance, computer resources,pplications, and handheld systems support, operating expense and supplies, and costeimbursable expenses appear to be high and no backup is included in the model tovaluate the details and reasonableness of these figures.

The following are some questions that we request ParkCincy to answer:1. Will ParkCincy provide additional written backup regarding its projected on-streetperating expenses? (Unlike a pure monetization transaction, this is the Port/Citysudget so there should be transparency.)2. Why are margins projected to erode over the 30-year period?3. Why are projected on-street margins less than what the City was able to achieve overach of the last five years considering that the private sector is not obligated to paynion wages and benefits?4. Why are projected on-street margins less than what the City was able to achieve overach of the last five years, considering that the private sector is not obligated to pay


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MEMORANDUM WALKERCOMMENTS RE: PARKCINCY MODEL P,RX tNGCONStJ[TAt415PAGE 4 OF 6

union wages and benefits, and approximately half of the growth in parkingnforcement income is projected to come from cilation rote increases, and almostone-third of the growth in parking meter income is projected to come from meter rateincreases and the elimination of grace periods? (The parking citations rate increases,eter rate increases, and elimination at grace periods, all policy decisions made by theity, ore expec ted to have a significant impact on growing gross revenues withoutncreasing operating expenses, which argues for the margin on gross revenuesncreasing, not decreasing.)5. Why are on-street labor costs alone projected to exceed the Citys historical total on-treet operating expenses once ParkCincy takes over? What types of staff are includedn the projections, how many FTEs of each type of staff ore included, and what are theourly wages/annual salaries and benefits of each position? Please rationalize far eachtaff type, why these additional staff are needed, stating responsibilities and expectedutcomes.

MATH ERRORIn the Meter Phase-In Cashflows worksheet provided by ParkCincy, there is a math error in Cell22. This error reduces NPV to the City by over $12 million. The 8.74% annual growth factor isistakenly raised to the second power, meaning that two years of growth are factored intohe product, instead of one. This overstates revenues by more than $641,000 in 2016 and thisrror compounds throughout the remainder of the projection period.After this error is removed from the model, the margin on gross revenues decreases, furtherxpanding the gap between the industry norm and the ParkCincy proposal. The followingable restates on-street revenues, expenses, net operating income, and margin on grossevenues, after correcting the math error described within the previous parograh. Theargins decreased by two percentage points after 2016.Revised ParkCincy Projected Margin on Gross Revenues

2014 2018 2023 2028 2033 2043n-Street RevenuesMeters $ 5,269,822 $ 7,296,239 $ 9,198.023 $ 10,522,652 $ 11,729,739 $ 16,126,453arking Tickets 4,316,598 7,777.640 9,016,417 10,347,910 11,336,353 11,336,353ubtotal $ 9,586,420 $ 15,073.879 $ 18,214,440 $ 20,870,563 $ 23,066,092 $ 27,462,806n-Street Expenses $ 5,282,500 $ 6,018.000 $ 6,980.340 $ 8,092,127 $ 9,380,993 $ 12,607,271et Operating Income $ 4,303,920 $ 9,055,879 $ 11.234,099 $ 12.778,435 $ 13,685.099 $ 14,855.535argin on Gross Revenues 45% 60% 62% 61% 59% 54%arch 1Z 2013 Margin 45% 62% 63% 63% 61% 56%eduction 0% -2% -2% -2% -2% -2%Source: Parkcincy and Walker Parking Consultants


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MEMORANDUM WALKERCOMMENTS RE: PARKCINCY MODEL PAR nNGCONSU TANTSPAGE 5 OF 6PARKING METER CAPEXIn 2013 dollars, we know of a U.S. city tha t recently bid a 1,500-space meter system. PS, themanufacturer of the parking meters, submitted a price of $507.50 per meter which includes acost of $475 per meter (>1,000); $7.50/meter for shipping; and $25/meter for installation,training, and commissioning. We do not recommend purchasing a warranty. Therefore, werecommend that the $507.50/meter be budgeted instead of the $592.80/meter proposed byParkCincy.OFF-STREET CAPEXRevised CAPEX figures are needed to replace Walkers temporary placeholder figuresprovided in a January 22, 2013 memorandum to the City. These figures were based on a 2009Walker limited condition appraisal which was updated in 2013. In this correspondence withthe City, Walker stated, Please note that this memorandum, including the 30-year figuresprovided herein, is based on many assumptions and has significant limitations. The actualexpenditures will vary from those shown herein and in some cases, the actual expenditurescould vary materially from the budgeted figures shown herein. Subsequent, more detailedstudy, including additional levels of testing and a more rigorous analysis, is recommended.This further study remains to be completed and the results of this study are expected togenerate figures to be used instead of the ones provided by Walker. The impact of replacingthese off-street CAPEX figures is unknown.PARCS CAPEXOn 2/20/13 Denison supplied Walker with a CAPEX budget for parking access and revenuecontrol (PARCS) equipment and this budget totaled $999,165. Years 1, 2, and 3 (Row 133 ofthe models Consolidated Summary Cashflows worksheet) total $854,165. Therefore, theamount shown in fhe memo exceeds the amount shown in the model by $145,000. This needsto be reconciled. Until the lower figure can be confirmed as the correct figure, we suggestbudgeting the higher figure of $999,165. Following are the figures that Denison most recentlyprovided:PARCS CAPEX Provided by Denison

jnciIiy___ Item Amount Yearg4yy__ $25,000 2013Broadway New Parking Equipment $214,445 2014Fountain Sq South Monitoring Equipment $25Q 2013Fountain Sq South New Parking Equipment $232,238 2014Garfield Monitoring Equipment $25,000 2013Garfield New Parking Equipment $225,327 2015Gramercy Monitoring Equipment 2013Gramercy New Parking Equipment $182,155 2015Third & Butler Lot New Parking Equipment $45,000 2014TOTAL $999,165Source: Den ison Park ing


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MEMORANDUM -Si WALKERCOMMENTS RE: PARKCINCY MODEL PARKINGCONSUIT ANTSPAGE 6 OF 6Additional PARCS CAPEX dollars should be add ed every 7-10 years. The model shows only oneinvestment over the projection period. This is unrealistic as the equipment will requirereplacement every 7-10 years.GARAGE SWEEPER CAPEXGarage sweeper costs are shown in the model in Years 2 and 3 but not repea ted. It is notreasonab le to assume equipment will last the remainder of the pro jection period without areplacement. We recommend showing rep lacement of this equ ipment eve ry ten years andadding dollars to the CAPEX budget. These dollars should be adjusted for inflation in out years.

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