The Los Angeles City Council’s vote two weeks ago to move forward with a plan to lease out nine city-owned parking garages to private-sector operators for 50 years is a poor decision that will ultimately cause long-term damage to the city.

We are sacrificing control over an important asset in order to acquire a lump-sum payment that helps the city only with its immediate financial hardship. The anticipated payment of $53 million that the city is so focused on only addresses the challenges of the current 2010-11 fiscal year. It does nothing to address the projected shortfall of the next fiscal year, estimated to be close to $350 million. Furthermore, it does nothing to address the general budgetary issues the city faces. To plug a gap that will return in less than a year and lose control of assets for 50 years is incredibly shortsighted and myopic. It once again reflects the city’s inability to make the truly hard choices necessary to fix the structural financial issues that are affecting Los Angeles.

The city is clearly underestimating the impact the lease deal will have on the businesses in the neighborhoods. Miguel Santana, the city administrative officer, stated in the Jan. 3 issue of the Business Journal: “No parking lot operator is going to charge rates that leave the lots half-empty. They will charge rates that keep the garages competitive with surrounding parking lots and find other ways to recoup their investment.” His statement is economically naive. He suggests that a parking operator is focused on empty stalls. The truth is that any operator of real estate space is focused on total revenue and the bottom line.

Theoretically, if the new operators achieve 10 percent higher revenue on 5 percent fewer customers they would be satisfied, but every merchant in the surrounding area would feel the impact of those fewer customers. Merchant sales would decline, hurting sales tax collected by the city and county. Ultimately, property tax revenue several years down the line could decline as the value of the real estate assets is impacted. In many of these areas surrounding the parking lots, there is no alternative source of reasonable parking. The proposed parking lot operators do not economically have the best interests of their immediate neighbors in mind. They view the leases as an investment, not a public service, and their goal, which is not unreasonable, is to maximize the return to their investors.

The results of other cities pursuing privatizing should be kept in mind. While Chicago did reap a lump sum in the amount of $1.15 billion, the ensuing changes have infuriated citizenry. More importantly, out of the lump sum, only $75 million remains and Chicago still faces considerable fiscal hardship. The lessons from Chicago are being heeded in other cities; Pittsburgh recently rejected a proposal to outsource its parking.

Broader context

Furthermore, any decision related to the lots needs to be evaluated within the context of the transportation issues of the city at large. We are a car-driven culture. Parking is a necessary component of that, and at present we do not have a sufficient alternative in means of public transport to suggest people can adapt to the situation differently. The issue of parking, both here and in other facets (the increased use of restricted parking zones) needs to be addressed in a thoughtful coherent fashion as part of the larger urban planning issues that Los Angeles faces.

To simply address this as an issue of revenue is a failure by the city to recognize broader issues. The City Council has the responsibility to balance the immediate fiscal need with long-term planning and vision. Losing control of this parking, a critical component of any urban planning, is a mistake, particularly for a period of time that extends decades.

The city bandies about the concept of a 50-year lease without realizing what 50 years of loss of control really means. To put that in perspective, imagine if the city made this decision in 1961. Who would have foreseen major urban planning changes such as the construction of the Metro, the 1984 Olympics, the blight and subsequent revitalization of Hollywood or the creation of Century City? The next 50 years will undoubtedly bring further changes and the city must have a full arsenal of tools to address the future and its unknown challenges.

I believe the city should re-evaluate its core services and focus on privatizing certain components. There is no doubt that certain services can be provided faster, better and more cost-effectively, achieving the desired fiscal benefits for the city while improving overall service. But to select the parking lots, a key component of urban planning, is to surrender an asset that will have a lasting impact on the city’s ability to plan in the future, all in the name of a few pennies that have already been effectively spent.

Christopher Hill is a real estate investor and consultant in Beverly Hills.