Many municipalities are always wondering what is the best strategy to partner with the private sector (i.e. developers, operators and investment firms) to assist with either the development or management of parking. They are asking themselves “How can I leverage the private sector to help fund a garage”, “Does it make sense to hire a private operator”, or “Should we just let a private company run our parking system”. These are not always easy questions to answer and a variety of options and issues need to be considered.

In determining how relationships and partnerships can be forged between the public and private sector it is essential to first introduce the variety of partnerships available, which include:

• Supporting a privately owned and managed off-street parking system,
• Partnering with a developer to help finance a public parking facility, and
• Contract with a private operator to manage/operate a public parking system.

Each of these options have their pros and cons and are not appropriate or even doable in every community. There are a number of issues to consider to determine which strategy will be successful in addressing the goals of the community.

Supporting a Privately Owned and Managed Off-Street Parking System

If you’re a community where the private sector owns all or a majority of the off-street parking system it is probably because the economic landscape allows parking to be a profitable venture.  If it is profitable, a municipality may simply allow the private sector handle the development and management of parking facilities. However, even without direct ownership/control of the off-street parking system, municipalities can implement policies, programs, and strategies to help insure that the private sector parking system is effectively serving its users, supporting economic development, and meeting the goals of the community. These policies and programs, include:

• Parking Zoning Requirements,
• Parking Design Guidelines,
• Shared Parking Programs,
• Validation Program,
• Parking Tax,
• Subsidy Program for Specific Users,
• Partnering/Investing in Support Infrastructure and Signage,
• Residential Permit Parking Programs,
• On-Street Parking Management, and
• Payment-In-Lieu of Program (PILOP).

These strategies/programs may not reflect a direct partnership with the private sector, but they will impact the affordability, profitability, design, utilization, management/operation and funding of parking in your community. Some of the strategies listed above are related to the amount of parking that should be provided for developments, the geometrics and layout of spaces or landscaping. A shared parking program can help benefit developers to give them the opportunity to get a variance on the amount of parking that needs to be built, but also achieve possible TDM and TOD goals of the community. A validation program can help foster business in urban centers. A municipality can also provide marketing and wayfinding signage or real-time parking availability information to create a more convenient and cohesive system that is simple for the user. The implementation of on-street parking restrictions, enforcement periods, parking rates, and residential permit programs all can progress community goals and can impact the private sector. Finally, a payment-in-lieu of program is a strategy to allow the private sector a variance on constructing parking by paying into a general fund, usually per space. These funds are typically applied toward parking, but can be used for other programs. Each one of these policies and programs should be designed to further the goals of the community and allow parking to continue to be a profitable venture.

Public Private Partnership

You may be like many communities around the world that have a parking lot or lots in your urban center that are owned by the municipality and do a great service of providing public parking to the area, but truthfully have so much more economic potential as a residential building, hotel, retail space, etc. The first question is whether the parking in this facility is needed to continue to support the existing and future parking demand for the community. If that parking is essential than any future development should replace the existing parking and provide adequate parking to support the developments own needs. The next question is how to get this attractive parcel of land or lot developed by partnering with the private sector. 

A public-private partnership deal should benefit both the community and the developer. The community goals of a public-private partnership is to generate economic development, create a financially feasible project, enhance the vibrancy of the urban center, make the best use of a land parcel, and support the public parking demand. Three potential public-private partnership strategies include:

• Partnering with a developer,
• Financing the parking facility for a private project, and
• Selling the development rights.

If we are talking about a parking lot, the municipality could simply provide the land free of charge to the developer as long as they replace the existing parking spaces. If a developer is having difficulty financing a project and the municipality recognizes the need for additional public parking in the area of the development, then the municipality could provide the equity for the public parking portion of the development. This additional equity could allow the developer to obtain adequate financing for the project.  A municipality could also sell the ground rights of a parking lot where the developer would receive a ground lease and development rights. Again it would be the responsibility of the developer to replace the public parking. The developer should be asked to pay a one-time development impact fee and annual ground lease equal to the gross income of the existing lot. The developer would keep the future parking revenue and an agreement could be formed regarding the future rates and hours of operation. These type of deals are easier to form in growing communities with a profitable parking market, but it is not impossible in a more economically depressed community.   

Contracting with a Private Operator

A municipality may find that operating and enforcing a parking system is laborious, difficult, or poorly managed, and they are considering hiring a private operator. A private operator can be contracted through either a management contract or concessionaire agreement.

Management Contract

With a management contract the private operator is paid a monthly fixed fee, a percentage of gross parking revenues, or a combination of both, and the operator is reimbursed for all costs incurred in the operation of the system.  It gives the owning entity complete control over staffing levels, validation policies, parking rates, and customer service policies. The parking operator provides the owner with a detailed monthly report package showing operating statistics, revenue summaries, expenditure summaries, budget variance reports, etc. It is the responsibility of the owner to audit the system on an annual basis as a means of oversight. The parking operator should handle all customer service issues and report these issues to the owner’s entity.

There are pros and cons associated with hiring a private operator through a management contract to handle either the parking operations or enforcement. One main positive associated with hiring a private operator is that they potentially bring with them national experience and a specialized breadth of knowledge regarding parking management. The municipality doesn’t need to hire and manage staff, which can become a large cost down the line for pensions. There is also the potential that a private operator can increase net revenues by operating the system more efficiently.

However, there are also cons associated with a private operator. There is typically a greater upfront cost to hire a private operator versus operating the system in-house. The municipality is still required to provide some oversight regarding the management and terms of the contract. An annual audit of the system is suggested. Also, a municipality loses some control over the management of the system, which especially depends on the type of contract implemented.

A private operator can only do so much to improve the management/operation of a parking system. It is still the responsibility of the municipality to provide the vision, direction and planning of the parking system regarding parking policies, capital investments, and improvements/upgrades.  However, if the municipality wants to almost completely wash their hands clean of being involved with managing/operating the parking system they could enter into a concession agreement.

Concession Agreement

A concession agreement has received some bad press, mostly associated with the Chicago meters deal. However, it is not necessarily a poor option. A concession agreement involves the extensive lease of the system for a defined period of time in exchange for a lump sum, a guaranteed fixed fee and/or a guaranteed percentage of revenues, or a combination. With a concession agreement the private operator assumes full responsibility for all aspects of the operation, including all expenses. A concession agreement is formed between the owner and the concessionaire, which outlines all the policies, rate increases, responsibilities, organizational structure, etc. It is not an easy contract to create because it requires good foresight to prevent any issues down the line.

The concessionaire provides all labor and services for the complete operation of the system. With this type of agreement a minimal amount of time is required by the owner’s staff regarding the day-to-day operation. However, the owning entity should stay in communication with the operator to help insure that the level of service expected is being provided. For administrative purposes this is an easy agreement to provide oversight, since only the gross revenues need to be audited. All operational expenses remain the responsibility of the concessionaire, and are thus not a concern of the owning entity.

The main pros is that the owner receives an upfront payment to address other needs. Capital repairs and investments to upgrade the system are now the responsibility of the Concessionaire, which can free up a lot of money for other services. Also, the public sector is no longer responsible for operating the system and can concentrate on other, possibly more important, core services.

However, the cons include the potential of losing some of the current staff, a public relations backlash, and being tied to a concession agreement that is not always perfect in addressing all future issues. A concession agreement is not the right out sale of the parking assets, but is a long term leased that has defined stipulations. It is the responsibility of the municipality to oversee that the concessionaire is properly following and meeting the guidelines stated in the concession agreement.

What Strategy Makes the Most Sense?

As stated earlier, there are a number of issues and pros/cons associated with each partnership option. It is not necessarily an easy decision to navigate, but there are common issues to consider. The table below provides some direction regarding which strategy option makes the most sense for a municipality in helping to achieve the goals of the community.  This is a very simplified tool that provides some direction, but, in actuality, there are such a multitude of unique issues that each community needs to analyze in making the most beneficial decision.