Monetization Rises From The Grave

Jorge Perez had a burrito for lunch at Zinc the other day. Also on the menu: the not-yet-dead idea of selling 25 years worth of city parking revenues for a quick $50 million.

The last time Perez had encountered the deal, the DeStefano administration and an Ohio company making a killing on deals with desperate governments tried to get him and his fellow aldermen to approve it as part of what would become a new $471.6 million city budget. The aldermen rejected the idea. Critics called it a quick-fix taxpayer rip-off that would saddle the city with millions of dollars in lost revenues for decades to come.

Less than two months into the fiscal year, City Hall and the Ohio company, Gates Group Capital Partners, have revived the idea of getting a new version of the deal passed, perhaps in a modified form, perhaps as soon as during this fiscal year.

“Monetization has never been off the table,” Mayor John DeStefano said in an interview.

Getting ​“Understood”

Gates has hired attorney Steve Mednick, a former alderman, to help current aldermen ​“understand” the deal better.

Perez bumped into Mednick on his way to City Hall. Mednick invited him to lunch to meet with a Gates representative. Perez said yes — and made sure to pay for his own lunch.

The representative didn’t so much ​“push” Perez to support the deal as to suggest that ​“last time you guys didn’t have enough time to look at it. … This is similar to a bonding issue.”

Perez, who represents the Hill on the Board of Aldermen, said he didn’t make any commitments to support a new version of the deal. He listened.

“I am open to listening so I can make an informed decision,” Perez said. ​“I’ve never been open to mortgaging the city for that many years. I was open to hearing what they had to say last time. I didn’t like what the proposal was last time. I am open to an alternative financing proposal. I’m willing to meet with anybody who has ideas.”

Mednick noted that the DeStefano administration had chosen Gates in a request-for-proposals competition to come up with the monetization plan to be submitted to the aldermen. He also noted that the new city budget includes an amorphous category of $8 million in savings to be discovered through ​“innovation-based budgeting.” If a gap materializes during the fiscal year, proposals for closing the gap will be on the table.

So Gates wanted to hold meetings with individual aldermen ​“to discuss the particulars of the deal that was negotiated” in case it comes up again.

“This is what they do for a living,” Mednick said of Gates. ​“They would like to be able to do the deal. They wanted to make sure the aldermen have complete information when it’s officially considered, if it’s considered.”

New Haven is one of scores of cities and states across the country looking at selling public assets — buildings, bridges, highways, or in this case parking revenue — to firms that pay millions of dollars up front to help governments close budget deficits, then collect far more money over following decades and sometimes have control over public policy.

A front-page Wall Street Journal story Monday named New Haven as an example of the trend. By giving up long-term, recurring income streams in exchange for lump-sum payments to plug one-time budget gaps,” the article stated, the governments have taken on roles ​“akin to individuals using their retirement plans to pay for immediate needs, instead of planning for the future.”

It cited Chicago’s decision to let Morgan Stanley run its metered parking spaces for 75 years. That city was shorted $1 billion, according to an inspector general report.

Advocates of the monetization plans say they give cities need money to avoid damaging tax hikes or service cuts, which can further damage government’s long-term ability to pay for itself. The New Haven deal was also different from the Chicago deal in that New Haven didn’t plan to sell the actual parking meters. Mayor DeStefano has called his plan an imperfect remedy needed in tough economic times.

Click here and here for background stories with different sides of the debate.

Sweetening The Pot

If he revives the proposed deal, Mayor John DeStefano said this week, he plans to respond to the concerns aldermen raised this spring.

He compared the deal to two previous budget-gap-closers his administration negotiated in the past. In one, the city sold tax liens for up-front money that enabled it launch a citywide school rebuilding program that leveraged more than $1 billion from the state. In the second, it sold the local sewer authority to a new regional quasi-public entity.

In both cases, aldermen who approved the deal saw a tangible policy benefit, DeStefano noted. He said he’s working on adding such a tangible benefit into this deal.

He said one such benefit might be using up front cash to enable city government to close down costly employee retirement plans — or discontinue them for new employees — by forming a new plan. The mayor anticipates that an upcoming revaluation of the city’s pension plans will reveal a new liability.

This idea was the subject of a staff meeting in the mayor’s office nine days before the new budget even took effect. In a June 21 emailed ​“summary of mayor’s meeting,” Joe Clerkin of the city budget office wrote, ​“The Mayor seems very hot to trot on closing CERF [the City Employees Retirement Fund] and somehow arranging for proceeds from the monetization to help him do so.”

Alderman Perez, a banker who carries influence in financial discussions on the board, is also concerned about underfunded pensions. He, too, sees an opportunity for using pension funds as a possible vehicle to help close an upcoming budget gap. His idea: Follow the lead (and learn from the experience) of cities like Hamden and West Haven, where the pension funds floated bonds to make up the gap.

Perez was asked if that would raise the same concern as a monetization deal — paying more money over time in order to get less money up front. The difference, he said, may be that communities are finding they can earn more interest on the up-front money than they end up paying on the bonds in these deals. ​“We’re waiting to see some analysis” from the city budget office, he said.

DeStefano called this ​“a good discussion to have.” It will continue.