Friday, September 18, 2009

Airport Board Considers Privatizing Parking, Shuttle Services

The Indianapolis Business Journal reported today that the Indianapolis Airport Authority Board considered today at its monthly meeting the possible privatization of the Airport's parking garage and shuttle service. The IBJ reports:

The Indianapolis Airport Authority agreed at its monthly meeting this morning to explore turning over management of the airport’s parking operations to an outside company.

Using a private operator for parking could bring in between $350 million to $500 million in additional revenue over the length of a 50-year lease for the cash-strapped Indianapolis International Airport, authority spokeswoman Susan Sullivan said. Sullivan emphasized that estimate was “very preliminary.”

The airport is facing a budget shortfall because of fewer flights as well as higher costs from the new, $1.1 billion Weir Cook terminal that opened last year. The airport now pays a mortgage on the terminal of about $40 million a year.

“Even if we issue requests for information, there is no commitment to act on them,” Sullivan said. “This is not something we would enter into lightly.”

Fewer than 15 percent of the nation’s midsize airports manage their own parking operations, she said.

The airport has 100 employees dedicated to parking services. Any privatization agreement would need to ensure the workers kept their jobs, Sullivan said. Parking fees account for about 50 percent of the airport’s $76 million in non-airline revenue. Total annual revenue at the airport is expected to be $127 million in 2010.

The authority voted last month to raise airport parking rates Sept. 1. Garage parking rose from $16 to $18; long-term parking from $11 to $12 and economy-lot parking from $7 to $9. Express valet parking also rose, from $18 to $20.

Bottom line is that the Airport Board overbuilt and is now scrambling to find the resources to cover CIB-type operating deficits that loom in the future. To close the inevitable gap, the Airport Board is looking at using the long term (50 years) privatization contracts to generate substantial upfront revenue.

This is something I have preached about before. To work, privatization has to be about instilling market competition into the delivery of services. Handing a company a long term contract to provide a service not only does not instill competition, it creates a government-sanctioned monopoly. Insulated from market competition by the long-term privatization contract, the service provided by these monopolies inevitably declines.

You have additional problems with privatization. The privatization of services has unfortunately become a cash cow for politicians seeking to shake down private businesses for contributions. Not coincidentally, big political contributors win the lion's share of government contracts.

A related problems is that politicians, greased with campaign contributions, generally have no interest in properly overseeing and enforcing privatization contracts won by a major campaign donor. Vendors have little to fear about intervention from the public sector should the services they provide prove to be subpar or they violate the terms of their contracts. Generally it takes incredibly severe contractual problems, like what happened with FSSA, before politicians will intervene.

Privatization can be done the right way and done the wrong way. Handing out a 50 year contract to provide parking and shuttle services at the airport is definitely the wrong way.


Blog Admin said...

Paul, a bit off topic, but I read over at Wikipedia that IndyGo experimented with privatizing the bus system and it was reversed fairly quickly in the 90s. Do you have any details on that? Is it the typical failing of privatization where the service drops drastically, but in the case of IndyGo, people actually complained about it?

Gary R. Welsh said...

Paul, The airport used to be privatized. BAA operated it and did a good job. Lacy Johnson became board president and started demanding that BAA's local director hire his political cronies and give contracts to them. When he refused to play ball, Johnson got BAA to fire him. The fired manager brought a lawsuit laying out the dirty details. Luck always seems to be on Johnson's side. The fired managed died of cancer before he could get his day in court. The truth got swept under the rug like everything else that is corrupt in this town. BAA got fed up and decided the contract wasn't worth it. Johnson did not want BAA in charge when the new airport came on line. Recall that Johnson engineered the hotel deal for his political cronies. I know the Ballard administration called off that deal so I don't know where it stands, but Johnson and Ice Miller are still essentially in charge. Clark, the new CEO, was hired because Johnson demanded and got a black appointed to the spot. I see Clark has already successfully fired most of the other managers to consolidate his power.

Hoosier in the Heartland said...

A 50-year contract for parking? Who can even envision what will be parked 50 years from now!

(Think of what an airport parking lot looked like 50 years ago, then compare it with today.)

The offered length of the contract is absurd on its face. Kind of like the toll road lease....

Downtown Indy said...

That's my problem with it, too. They sign them up for 2-3 generations in these leasing deal. That's way too long.

A lot of the parcels of land downtown were leased for 99 years of so to various entities and this has stymied the development of the area. That's a prime reason so many of the old buildings sat vacant for close to 50 years.

The banks simply would not readily lend money for building or rehabbing on leased property, because the landowner owns whatever is erected on their land.

(and that's not made-up stuff, it's straight from the mouth of a former president of Indy's Building Owner and Manager's Association.)

Paul K. Ogden said...

IS, I have no details on the IndyGo privatization.

Citizen Kane said...

Speaking of government sanctioned monopolies (their special powers make them monopolies) - everyone just needs to remind themselves of Fannie Mae and Freddie Mac to see what happens.

Privatization has to be complete and permanent, that is, government is no longer involved in the service because the service is not a legitimate government function. Anything else eventually, if not initially, becomes a tool used to provide political favors and corruption.

Our national airport system is another entity that does not function on any appropriate business model since all capitol improvements (runways, etc). are funded by taxpayers via the federal government.

The new terminal was a boondoggle from day one and will continue to be an albatross around the neck of the airport - and, again, I don't want to hear any excuses from them or anyone else about the unexpected downturn in the economy. It was expected by anyway with any common sense who wasn't focused on getting rich quick.

By by the way -see this link - grab your vomit bag first.