Toronto public parking and the upcoming municipal election

Toronto Councillor Karen Stintz mentions the possibility of monetizing Toronto Parking in a BOT guest blog, today:

While talk about selling any one particular asset is premature and distracting, it is not premature to figure out how we might be able to do it. … For example, consider the Toronto Parking Authority (TPA). Currently, the TPA provides low-cost parking to residents and returns modest revenues to the City. The strategic objective of the TPA is to consolidate land and in some instances, sell it off for development purposes. In its current form, there is no reason that the city needs to manage this asset. However, the TPA has the potential to become a vital component in the green agenda if parking lots can also be used as filling stations for electric cars. Suddenly, the public interest is very different from our original thinking.

The subject of selling, or more likely leasing, City assets is critical and not at all premature. There are many pros and cons. There are many ways to make errors. And we clearly need to manage debt.

There are two key criteria: The first is that the use of proceeds must replace value lost with even greater new value gained. Today at the board of trade, Dana Levenson from the Royal Bank of Scotland described several asset sales made by the City of Chicago as returning great value to the citizens of that city and others that performed less well. Toronto Council members should closely study those lessons.

The second is that the assets under consideration need to be correctly valued. And here I am concerned that Toronto’s public parking garages, lots and street meters are very likely to be critically undervalued.

An article in the National Post on Monday Jan 18th included a very short mention of the possibility of monetizing an operating contract for these Toronto Parking Authority assets. To quote from the article “The city's wholly owned parking operations generate about $55-million in profit every year. …anywhere from $200-million to $500-million could be made if the operating contract was monetized…’. You will recognize the text-book “7-times revenue” equation for valuation.

When Chicago monetized its public parking a short while back, the new operator almost immediately raised prices, extended hours and turned a poorly-managed city asset into a far more efficient money generator for its shareholders. This tells me that in the City’s (Chicago’s) hands that asset was underperforming and by extension was underpriced when monetized.

Toronto’s public parking assets are worth much more than $200-500 million both to Toronto’s bottom line and to our city’s livability, if left in the city’s hands and re-priced to market value – i.e., prices made variable, raised to achieve Shoup’s 15% vacancy, hours extended to 70% vacancy, and priced parking deployed far more broadly (which also reduces congestion).

If our City currently generates $55M net as the Post article claims, then the City’s gross revenue would be on the order of 150-160M given that municipal parking operations (when they are as badly underpriced as they are in Toronto) consume between 60% to 70% of revenue. If pricing were doubled (which is likely a minimum needed for the effects listed), and the operator kept hours and enforcement methods the same, the operating profit would be more like $210M – a far cry from 55M. Suddenly the asset would be worth between 800M and $2B, using the same multipliers as the Post implies, since the new revenue all go to Toronto’s bottom line. If hours and areas were extended, valuation further increases dramatically. Your idea of charging electric vehicles adds yet more to the livability equation.

But without Councillor courage, we are better to monetize the asset for the immediate financial relief and let the new operator raise prices to market value and charge electric vehicles in order to make our city more livable.

But what a shame that we ‘poor voting members of the public’ might not share in that new revenue. Any such ‘poor voter’ who thinks he or she will continue to get “low-cost parking” after monetization, as you correctly describe this gift to our motorists, is fiddling while our City burns.

Fix parking pricing and you fix a lot of other things with it.