Scranton, Pa., has chosen 501(c)(3) nonprofit National Development Council to own its parking garages and meters under a public-private partnership lease agreement designed to eliminate most related city-guaranteed debt, end receivership of the local parking authority and improve the unrated city’s reputation in the capital markets.
The NDC team includes underwriter Citigroup. ABM Parking Services will operate the garages, should the transaction close.
While officials are still negotiating pricing terms of the proposed 40-year concession, they said in a late Thursday conference call that the up-front payment will comfortably exceed the $20 million recommended by the Pennsylvania Economy League, the city’s coordinator under the Act 47 workout program for distressed communities.
Under the concession, Scranton, the 77,000-population seat of Lackawanna County in northeast Pennsylvania, will retain ownership of both the meters and five parking garages, which have a combined 2,659 spaces.
The other finalist, a Piper Jaffray group, withdrew.
Monetizing the parking system represents Scranton’s latest step toward credibility in the bond markets. The city is on the hook for roughly $50 million in guarantees for Scranton Parking Authority debt, for which it pays about $3 million annually. In addition, receivership has forced high trustee and other professional costs upon the city.
In 2012, a series of defaults amid a squabble between the City Council and former Mayor Chris Doherty forced court-appointed receivership of the authority.
“The credit markets don’t look at that favorably,” said William Courtright, the city’s mayor since January 2014.
The Scranton Parking Authority defaulted on loans issued by Pennstar Bank and Landmark Community Bank 2009 and 2011, respectively, and on a $1 million bond payment in June 2012 when the council would not release the funds. The council voted two weeks later to restore funds for that bond payment, but the damage was done. Shunned by the capital markets at the time, Scranton, lacking cash, paid municipal employees the federal minimum wage for two weeks.
NDC and Citigroup intend to sell bonds to cover most of the debt in the P3 transaction. Scranton expects to sell about $3 million of general obligation bonds to cover some stranded debt.
“Citigroup is very well-known for being able to underwrite a challenged credit,” said Scott Shearer, a managing director at the city’s financial advisor, Public Financial Management Inc. “For multiple reasons, we’re happy to have Citigroup on board.”
The council, which must approve the transaction, will consider it next month. Courtright, who has striven to improve relations between the mayor's office and the council, said he has kept council president Robert McGoff in the loop.
According to Shearer, the deal represents good news for a distressed city that has labored under Act 47 since 1992 and is struggling with a large local unfunded pension liability. State Auditor General Eugene DePasquale said the city's pension fund could go bankrupt in two years.
“At Scranton, we have a great story with a variety of credits, underwriters and investors, and what the city is doing with credit enhancements and expenditure reductions,” said Shearer.
By entering into the 40-year lease, Scranton expects to redirect between $1.2 million and $3 million annually in the short term for essential city needs and possibly much more long term.
Scranton’s parking assets will require at least $2 million in capital needs over four years just for basic upkeep. The total would spike to $15 million were the city to fully repair its garages during that time.
In 2020, the parking authority would need to implement a large parking garage capital plan that would add a further $1 million to $3 million of new annual debt.
