The City of Annapolis is going to decide on Monday whether to enter into a Public Private Partnership (P3) to rebuild the Hillman Parking Garage downtown and do the City Dock Project. The parking garage is self explanatory and the City Dock project is ostensibly an effort to mitigate flooding which has increased significantly, and make the space along the waterfront more pedestrian friendly, adding additional park space, and removing most of the parking by relocating it to the new Hillman Garage.

First a disclosure: I was/am a member of the City Dock Action Committee and participated in many meetings that lead up to the consensus plan. I think this is a terrific plan and would really improve a fantastic asset that is part of what makes Annapolis what it is. And it’s a shame that the best views in the city are a parking lot. That plan is located here if you are curious as to the conceptual design of the City Dock. While I offered input mostly on transportation issues and was an approving member of the Hillman Garage project on the Planning Commission, I have no other personal stake in the effort other than as a city tax payer who wants to see a better use of this space.

Since AMRP was selected by the city to do these projects (for which I had no input), I have been asking for the details of the P3 because I wanted to look at it through a Strong Towns lens. I was initially skeptical that there was enough revenue from the garage to service the debt to build a new one never mind provide additional money for the City Dock project and was concerned that the city would be holding the bag if things went south. Fortunately most of the details were released and discussed in the two videos below which answered enough of the questions I had to allow me to form a conclusion. Additionally, after I had finished and submitted my written testimony to the City Council (below the videos) they released an overview with a few more details, but they do not substantially change what I wrote.

In addition, I have been have Strong Towns like discussions with others about the projects. So I have been giving this a lot of thought and finally put together my thoughts in writing and submitted them to the City Council as written testimony for the resolution R-9-22 which would (if passed) show support for the city entering into this partnership. As I like to do, I post my written comments on this blog as a record of what I was thinking and what I said. This keeps me honest and prevents revisionist history in the future. Eventually, I will come back and revisit this to see how I did.

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Dear City Council Members-

I am writing to show my support for R-9-22, the Hillman Garage/City Dock Public Private Partnership (aka a P3). As you may know, I have been asking a lot of questions informally and formally about the details of the proposed partnership with AMRP in order to form a conclusion about whether the city should enter into such an agreement. Until last week I was rather disappointed not to be privy to enough detail to form such a conclusion. However, with the recent public information and the long Finance Committee meeting, I am now reasonably comfortable with the parameters of the proposed agreement.

There are two key insights that underpin this conclusion. First is that both projects must be done. We can all debate how much parking we actually need downtown and frankly whether a parking garage is the best use of perhaps the most valuable land in the city, but I think any reasonable person would agree Hillman Garage is needed, so it must be rebuilt. If that were the only necessary project, I think the choice of city financing v. a P3 might be a little less clear. However, the flood mitigation of City Dock is also a necessary project at least in its most basic form for resilience, so ultimately the P3 option is the only viable choice to get both completed in a realistic timeframe. Second, the hallmark of a good P3 is when both the risks and the benefits are shared equally between the public and private entities. With the recently discussed information I believe this is the case.

Any large infrastructure project whether public or private carries some amount of risk. Not only due to the assumptions that go into the financing and construction costs but also – and perhaps more importantly – related to the intended outcome of the projects. “Silver bullet” projects that are intended to completely remake an area, such as those in the ill fated urban renewal era where swaths of the city were bulldozed and rebuilt according to the planning dogma of the day, are extremely risky because no one can predict whether that dogma has lasting value. While large in scale for a city the size of Annapolis, fortunately both projects at hand are not really “silver bullet” or ”transformative” projects in this sense because they build on existing capabilities and strengths of the city. Sure, there is a fair bit of glitter on the designs, especially the conceptual designs of City Dock, but regardless of what amenity level is in the end implemented and when, they enhance the area. They are logical incremental steps for the city and the P3 will allow them to proceed in an expedient manner with the lowest risk possible.

Here is my summary of the key benefits/risks to the city of the P3:

Benefits

• The one time concession payment is used to fund the first part of the City Dock project at less cost/risk than the city borrowing money because there are no dedicated revenue sources for revenue bonds and would require general obligation bonds.
• The risk on garage financing is assumed by AMRP. While I am not privy to the details of the garage revenue assumptions (and still am a little dubious about them and will remain so unless convinced otherwise by the details) I am less worried now that the city will have a catastrophic choice to make if revenues are substantially below projections (ie another pandemic-like circumstance occurs).
• The city’s future borrowing posture is not affected, which leaves room for borrowing money for a true “black swan” event in the future.
• The city does not manage the garage construction. City staff have enough other important day to day tasks to manage and this will not distract them from that core business.
• AMRP has “skin in the game” to manage the construction well. If I learned anything from my contracting experience in the federal government, it is that “skin in the game” is the best way to incentivize good management of projects.

Risks

• If revenues do not meet projections, the yearly concession payment may not appear. This will leave the city liable for funds for the transit system. That would have to then come out of general funds at taxpayer expense.
• Overall costs are slightly higher over 30 years.
• Part of the additional cost is both financial and opportunity. If city vehicles and employees park in a different garage there will be an opportunity cost to the city (lost revenue from spaces taken up in Gotts or Knighton). And, if residents who get free 2hr parking in Hillman or in residential zones no longer have that subsidy there may be backlash. Something hard to quantify but we know exists (essentially a political problem).
• Loss of new on-street parking revenue (formerly free 2 hr parking in residential zones) in the downtown area as we learned will be added to revenue stream for AMRP.
• Control over parking policy (ie rates). It is still not clear to me who and how rates are set in parking facilities covered under the P3.
• I am very concerned with the ability of Premium and SP+ to work together as a seamless unit. As discussed at the Finance Committee meeting, this is a subtlety that is lost on the public and they really don’t care who responsible for those tasks, they just want them to be done well. Consider the incentives of either company to work well together (especially SP+), and this sets up friction that puts seamless implementation at risk. While we have the ability to modify the SP+ contract, what effect will that have on their “skin in the game”? I hope there is significant thought being given to this in the background to mitigate this potential issue.

A few more editorial comments

• Using the new revenue stream (formerly free 2 hr parking in residential zones) to fund infrastructure projects in the immediate area regardless of whether they are public, private or P3 is a long overdue concept. This is called land value capture (please look it up and read up on it) and is a concept that needs to be used more so the city does not enrich certain land owners with improvements in project areas. I hope the city will embrace this idea for other improvement projects in the future. See the comment above about skin in the game.
• The predicted cost per space of $48k for Hillman is realistic. The typical accepted cost for below ground parking per spot is $50k and given the constraints of the location, I think this will end up with similar construction challenges.