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IU may hit jackpot by leasing parking in Bloomington, Indy

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Indiana University is considering leasing its parking assets in Bloomington and Indianapolis, similar to a deal that generated $483 million for The Ohio State University.

IU is about two weeks away from issuing a request for proposals on a lease that would last 30 to 50 years, Chief Financial Officer Neil Theobald said.

neil theobald Theobald

“We’re constantly monitoring different options,” Theobald said. “I’m very close friends with the CFO at Ohio State. They’re freeing resources they can invest in their academic mission.”

Many cities, including Indianapolis, have used long-term leases to cash in on parking assets, but Ohio State this year became the first in higher education.

The university turned over about 36,000 parking spaces and $30 million in annual revenue to two firms, Australia-based QIC Global Infrastructure and Connecticut-based LAZ Parking, for a 50-year term and the large up-front payment.

Students protested the deal because they’ll be subject to annual rate hikes, but university officials defended it because it means they can hire faculty and expand research in a time of state budget cuts.

IU’s parking operations might be worth less than Ohio State’s because there aren’t as many spaces in a downtown setting.

IUPUI has nearly 25,000 spaces that generated $17.1 million in fees and fines last fiscal year, which ended June 30.

The average value of a parking space on the downtown Indianapolis campus is more than twice that of Bloomington, which has 21,000 spaces and generated about $6 million last year.

That’s because rates are higher, reflecting higher real estate costs in Indianapolis, and there are more visitors creating frequent turnover, IU spokesman Mark Land said.

IU doesn’t have any specific plans for the money it receives, but Theobald said it could go to student aid, hiring more professors or carrying out campus master plans.

He said parking is “quite an efficient operation right now,” with the revenue covering all maintenance and debt-service costs.

Theobald said he hopes to head off controversy by involving staff members, faculty and students. Representatives from both campuses were appointed to a committee that’s been meeting for about six weeks, he said.

The names of those committee members weren’t available, and it’s not clear how much information has filtered down to the campuses, where classes started Aug. 20.

Lee Stone, president of the IUPUI staff council, said he hadn’t heard anything about university plans to lease its parking facilities.

Faculty council member Joan Kowolik, a professor in the IU School of Dentistry, said she knew the topic had come up and expects the faculty will seek more information when they meet next month.

IUPUI’s long-term plans call for more parking garages. If privatization can help finance that, Kowolik thinks it’s worth considering.

“It’s impossible at this point to find a parking space, unless you’re in here before eight in the morning,” she said.

The situation can lead to poor service for the public, she said. One of her students was an hour late to see a patient with a 9 a.m. appointment because she couldn’t find parking, Kowolik said.

The university’s parking plans could be lucrative to a for-profit operator. As in most long-term leases, the university would have to reimburse the contractor for lost revenue when parking spaces are taken out of service, Theobald said.

That’s inevitable under IUPUI’s master plan, which anticipates 4,621 spaces would be displaced by new and expanded buildings.

parking-factbox.gifThe contractor would have another money-making opportunity when the university replaces the lost parking and creates even more spaces than exist now. IU’s agreement would give the for-profit operator the right of first refusal on building new parking facilities, Theobald said.

IUPUI’s master plan suggests adding seven more garages, plus surface parking for a net gain of 6,374 spaces.

A long-term lease could be worth hundreds of millions up front, but Theobald said he would recommend setting aside some portion of that money in an endowment to cover future lost-revenue payments to the concessionaire.

Most privatization contracts include “adverse action” clauses, where the government pays the contractor for policy changes that decrease revenue, said Ellen Dannin, a Penn State law professor who studies infrastructure privatization.

Dannin believes the adverse-action provisions are part of what makes the deals so appealing to the private sector.

Private operators also gain a tax advantage by assuming responsibility for assets over a term that’s longer than the useful life, Dannin said. That’s why so many contracts are written for 50 years or more, she said. Once a firm has exhausted its tax advantage, after 10 to 15 years, it can transfer the lease to another company, she said.

Dannin is a critic of privatization because she says the contracts tie the hands of future generations. A city that wanted to shift to public transportation, for example, would have to pay a parking contractor for that policy change.

Under its master plan, IUPUI would become a less car-centric place. Leasing the parking facilities would not deter the university from carrying out those plans, Theobald said. Rather, some of the money could be spent making the needed changes, he said.

IUPUI’s master plan calls for converting West Michigan and West New York streets into two-way thoroughfares with center medians; transforming Vermont Street into a pedestrian-oriented urban setting; adding retail at the street level of parking garages and relocating parking away from the center of campus.

The decision on parking privatization rests with Indiana University’s board of trustees, and at least one of the nine members favors the idea. William H. Strong, a Purdue University alum and vice chairman at Morgan Stanley in Chicago, asked IU administrators to look into privatization because of Ohio State’s example, Land said.

Theobald said he was already working on it when Strong made the suggestion at a trustees meeting this year. Although Morgan Stanley would be one of IU’s four underwriters on the deal, Theobald said Strong has not been “in any way involved in the process.”•

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  • OSU no deal to copy
    While OSU has gotten a great deal of press over the deal they cut for 483 million on their parking revenues, the truth behind the spin is that this was one of the biggest mistakes made in higher ed finance in US History. Namely because their deal is not a sale, its a loan. By calling it a sale, they were able to avoid the scrutiny of their long term rate being compared to the earnings rate on their endowment. In a sale, the market determines price not whether you are earning more than you are paying over the 50 year term. If you take the known numbers, 28 million rev, expense taken on by LAZ 9.8 and increases over time 5.5% first 10 yrs, 4% every year after or inflation. You can easily come up with the rate. Something between 16 and 17 % while their endowment is generously projected to average 9%. Why isn't it a sale? Well OSU gets everything back at the end of 50 years, LAZ walks away. During this time if OSU does ANYTHING that can be tied to lost revenue for LAZ, they can be charged for it. Add bus service, lower student population, put in bike programs etc. FOR 50 YEARS. We might not even be driving cars then. How many houses have you sold where 49 years from now, the buyer can bill you for some level of disatisfaction with the sale? Not many. As permit prices go up, faculty staff and students will look for alternatives to driving. Other than walking, which ones will require no action by the university? None that I can think of, placing themselves in a chargback situation. To add to this blunder, in order to make it happen they had to take the 10 million in annual debt service, and 8 million in transit costs to be paid for elsewhere. Essentially this is like taking out a loan on a credit card at 17 % putting it in a passbook savings for 9, taking a 2nd job to pay for your car loan you now can't afford and calling all this a good idea. Of course, we don't want to talk about Morgan Stanleys 4 million commission to do this deal and administration's connection to that same corporate. But consider this, OSU's perfect storm. What happens when the economists predictions come true and we run 50% inflation with another wallstreet downturn bigger than 2008? Rates go up 50%, earnings on that endowment cave, how do you pay for transit with growing demand... This is another case of the corporate world taking advantage of idiotic public policy. Unfortunately on the backs of faculty, staff and students who deserve better from a public institution.
  • Greed
    Filthy, evil, slimmy, greedy, pigs. Not helpful at all.
  • Free Money?
    If someone came and offered you a certain amount of money now, and in exchange all you had to do was continue working 40 hours per week and give them your paycheck every two weeks for the next 40 years, would that sound like a good idea? Who do you think would get the better end of that deal?
  • Not surprised
    In a time when many business and individuals are struggling, I see two institutions flourishing and raising costs: Universities and Hospitals (not insurance). I find it hypocritical how Universities teach the "99%" Occupy mentality while at the same time being the worst offender of "greed". The parking rates I pay at IUPUI are outrageous as it is, and to add insult to injury, you are not guaranteed a spot. I understand the supply/demand aspects - however I also understand Student-University relationships. For the amount of money paid to IUPUI for all other items, the parking situation should be reasonable. To make things even worse, their parking police are.... insanely unreasonable and generally unhelpful. I am not against the privatization idea, so long as it results in better management and reduced pricing. Don't take the gained revenue and spend it on other unrelated nonsense... put it back into the parking situation by way of cutting costs. That's what I want.
  • money money money
    nice another price increase for parking that is gone by 8am....i'll be parking in the hood on indiana ave....broken windows for all....how much of an increase i'm hearing $10 for staff a month...how about increacing my pay that much first.... signed, looking for new job
  • huh...
    The first thing that comes to my mind is how much $ Mr. Theobald will be making off this sweetheart deal. I mean besides his 20+% raise he got this year.

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