Wednesday, September 8, 2010

ACS Used Disastrous Chicago Parking Contract As a Template for Indianapolis Parking Proposal

I strongly suspected ACS and not the City wrote the parking contract, especially when I saw the City accidentally left two references to "Xerox" in the middle of a the contract proposal which did not otherwise have any company names. It turns out it is true - and that the Indianapolis ACS contract was copied off the disastrous Chicago parking contract. (Not sure why Ice Miller is being paid nearly a half million dollars in legal fees when the Indianapolis ACS parking contract is merely a cut and paste of the one used in Chicago.) The Urbanophile does an excellent analysis of the two contracts. I would urge people to read the entire blog post, not just the findings I post below.

Here is the Urbanophile's findings:

1. This is the Chicago parking meter lease.The city has said this deal is very different from Chicago’s notorious parking meter lease. But what they didn’t tell you is that not only is this very much like Chicago’s, it’s literally the exact same contract. That’s right, Indy took the Chicago contract, did a Save As, and tweaked it. Check for yourself. Indy’s deal is here and Chicago’s is here. Given that Chicago’s deal is famously one-sided, this is mind-boggling. I estimate that the majority of the two contracts are word for word identical. This tidbit – “the foregoing sentence shall be interpreted and applied in a manner most favorable to the Concessionaire” – gives you a flavor of how the thing goes. And where Indy’s differs, it is often even worse. I never would have believed that possible.

2. The city has no right to terminate the agreement. The contract for this 50 year deal explicitly states: “The City hereby acknowledges and agrees that it may only terminate this Agreement in accordance with the express terms hereof and shall not, in any event, have the right to terminate this Agreement for convenience.” (Section 16.1). The city can only terminate the deal if the vendor defaults, which is virtually impossible. In a deal like Chicago’s meter lease or the Toll Road, where the only payment the government gets is a lump sum up front fee, perhaps there’s some logic in not allowing the deal to be terminated. But with a very modest $35 million up front fee (compared to a deal value of over $1 billion) and with a needed up front investment of only $7 million (according to the city), it’s unconscionable to not have the right to terminate. The citizens of Indianapolis with be irrevocably locked into a terrible deal for more than a generation – and for very little upfront cash.

3. Penalties are often higher than the actual meter value. One aspect of the Chicago deal that was heavily criticized is that when the city shuts down meters, it has to pay a penalty that assumes the meters were fully occupied at all times, regardless of how much they are normally occupied. Believe it or not, Indy even upped the game here. In two out of the four zones, the penalty for closing the meter is more than if the meter is 100% occupied. The closure fee is $15 for Zone 2 & 3, increasing with inflation. But fully increased rate for Zone 2 is $1 an hour for 13 hours a day – you do the math. It’s only $1 an hour for 11 hours a day in Zone 3. Those meters are literally worth more to the vendor bagged than they could ever be operational. These penalties have to be paid regardless of the actual average utilization of those meters. The penalty for the other two zones ($20) is just shy of the theoretical maximum, but still way too high. (See Definitions, “Temporary Closure Fee” and Schedule 5).

4. The vendor gets the rights to collect parking ticket revenue and sell advertising and naming rights. In the Chicago deal, the city gets all of the money for tickets, and retains all the rights and money for advertising and naming rights for itself. In the Indy deal, the vendor gets these rights, though the city has to approve the specifics of advertising. What is an advertising concession for thousands of locations downtown worth? It could easily be more than the meters themselves. This should have been bid to major outdoor advertising firms in an open process to maximize city revenue, not thrown into the parking meter deal, assuming festooning downtown with ads is something you want to do in the first place.

5. Residential permit parking is coming to Broad Ripple. The city says it plans to use the meter proceeds to build a new garage in Broad Ripple. Broad Ripple is Zone 4, and the contract says, “In the event the City builds a public parking garage in Zone 4 during the Term, the City will agree to institute a Residential Permit program for non-metered parking spaces in and around Zone 4 to be administered by the Concessionaire on terms mutually agreeable to the Parties.” Did you know that? The city is contractually obligating itself to specific permit parking policies in that neighborhood. Now perhaps permit parking’s not a terrible idea, but isn’t it something that should be vetted through the normal political process? And be subject to change over time, not locked in for 50 years?

Outside of Broad Ripple, the city has actually limited its ability to establish residential permit parking zones. Per the contract: “The City reserves the right to designate certain on-street parking that are not Metered Parking Spaces as residential parking requiring a Residential Permit, provided that such designation does not materially effect the Metered Parking System in the surrounding area.” How nice of the vendor to agree to this. If it does affect the vendor, they are entitled to compensation. Also, if the city does establish permit parking, the vendor gets to run that too – including getting the revenue from parking tickets.

6. The vendor even gets revenue from tickets written by IPD or other city agents. The vendor has the right to write tickets on the system, but the city also has the rights. And even if the city writes the tickets, the vendor still gets the money: “The Concessionaire shall have the exclusive right to collect and retain all Parking Violation Revenue during the Term in accordance with Enforcement Policies and Procedures, regardless of whether such Parking Violation Revenue resulted from Parking Enforcement conducted by the Enforcement Operator or the City’s designated law enforcement officers.”

The city retains the cost of adjudicating parking tickets, however. It does get to judge the validity of tickets, but disturbingly, the contract actually specifies the judicial outcomes it expects: “The City shall remain responsible for the adjudication related to the Parking Enforcement; provided that such adjudication shall be consistent with the historical practices of the City, including a consistent level of parking tickets that are dismissed or appealed.”

Incredibly, the city even owes money to the vendor if the public starts appealing tickets at a rate more than 30% more than currently, regardless of whether the appeals have merit or not (Section 7.8). It’s considered a “Compensation Event.”

Add this up and what it means is the vendor can write tickets, gets to have the revenue counted to it (minus the revenue share), and if the vendor just starts writing bogus tickets to inflate its own revenues, and the public protests them, the vendor gets even more money. That’s right, the vendor can literally print money for itself simply by writing as many tickets as it feels like.

Another hugely risky item. One other change from the Chicago deal is that the city is agreeing to indemnify the vendor against any court ruling that the vendor can’t write tickets or collect parking ticket revenue (Section 12.2). Someone is challenging the Chicago lease by saying that since the city transferred the meters by bill of sale (just like Indy), it’s a private business now and the city’s police powers can’t be used to enforce parking rules for the benefit of a private company. I believe this is still being litigated. I’m not sure what the law would be in Indiana, but if similar claims were raised and ended up being successful, the city could be on the hook for possibly hundreds of millions of dollars.

7. The vendor automatically gets the right to any new meters, but the city has to pay to remove any meters. In the Chicago deal, the city has to negotiate with the existing vendor for new meters outside the existing concession area, but is free to take its business elsewhere if the vendor won’t match what a competitor would offer. In Indy, any new meters are automatically enrolled in the new deal. (Section 7.7) I didn’t see where this was limited to the four specified zones, so it might in fact apply to any meter in the city.

However, if the city removes a meter, they have to pay a meter removal fee. In the first year, this is $15,400 per meter in Zone 1. I didn’t see any provision for offsetting adds and removes, meaning if the city adds three meters and removes one, the vendor gets the three new ones automatically and the city is still on the hook to pay for the one they removed. What’s more, the city is also on the hook for any lost parking ticket revenue the vendor would have gotten off that space too.

To show how one-sided this deal is, if the city adds more than 10% new meters, the vendor actually has the right to reject them. That doesn’t mean that the city can take its business elsewhere though. Rather, it puts them into a special category where the vendor runs them, but the city is responsible for the costs of setting them up (Section 7.7). That hardly sounds like what we’ve been told that all the risk is outsourced. By the way, Chicago has these types of meters too, but the vendor is only entitled to a 15% management fee for them, whereas in the Indy deal, they get a full revenue share.

8. Temporary closure policies are worse than Chicago’s. There’s a cost associated with closing meters for more than a very small temporary closure allowance. The Indianapolis closure allowance is worse than Chicago’s. In Chicago’s system, closures of six hours or more are treated as an entire day while those less than six hours are ignored. In Indy, anything greater than four hours is treated as a full day closure. In Chicago, Central Business District meters can be closed under the contract for up to 8% of the days without penalty. In Indy it is only 6% (see Definitions, “Temporary Closure Allowance”).

9. Will festival and events organizers see new fees? Section 7.6 says, “the Concessionaire shall charge, collect and retain the applicable Temporary Closure Fee from any Person (other than the City), in advance, in respect of any Temporary Closure requested by such Person.” What this sounds like to me is that if anyone other than the city wants to shut down meters, they’ve got to pay the vendor, and pay in advance. Does this mean anyone who wants to hold a festival or event downtown – even on a Saturday, since meters need to be fed then under the new contract – will have to pay this parking fee? And since the city has a revenue share, is this a stealth tax on those events? It’s not clear to me, but the contract explicitly says valet parking operators have to pay up.

10. Even the city has to pay to use the spots. As part of this program, all city issued parking placards are cancelled (Section 3.19). Now clearly this program has been abused in the past, but it seems legitimate that city vehicles on official business should be able to park on the city’s own streets for free. But I couldn’t find any provision of the deal that allows city owned vehicles to be parked in these spots for free even on city business, other than emergency response vehicles during an actual emergency. The contract does talk about an “employee parking program”, but the city or the employees will be paying for it. This is even more revenue for the vendor.

I could go on and on, but these are the highlights and should establish pretty clearly how bad this contract is for the city. It’s one of the worst I’ve ever seen. Even the Force Majeure clause is one way and only provides an out for the vendor, not the city


Downtown Indy said...

One-sided contracts, as prevalent in Indy politics as graft is in Chicago politics.

Oh, wait, that's a poor analogy. we do graft as well as anyone.

guy77money said...

I am thinking we let the contractors do it better!

Jon said...

Who is running this town the three Stooges? The taxpayers are stuck with 2 million in legal fees for a cut and paste version of a boiler plate contract. A contract that gives all of the rights and benefits to the contractor, lasts fifty years, a contract whose revenue isn't subject to audit and a contract that can't be terminated. Maybe the FBI is investigating the wrong city agency.


WOW! Good reporting, Paul. Thanks!

Paul K. Ogden said...

HFFT, please thank Urbanaphile. My post here is a cut and paste of some of his excellent orgiinal work.

Cato said...

Man, I would have billed the City no more than $5K for the drafting and research.

Too bad for the taxpayers the City doesn't put legal services up for competitive bid.