As more communities work to make lively downtowns, more are facing the question of: “Where are we going to put the cars?” Whether there’s a need to move parking areas off valuable redevelopment sites, a desire to put more parking near key commercial areas, or just a long-standing lack of convenient spaces, communities are dealing with increasing and shifting demand. Below, we describe different ways a community can finance additional parking—whether that’s simple surface lots or complex parking structures.
Just saying the phrase “public-private partnerships” is enough to give some people chills—either because they love them, or they hate them. We find many partnership proposals lack clear public upside, but nonetheless, partnerships can make sense for parking facilities.
Partnerships can work well for parking projects because they can work in both directions. For example, a private developer can build a deck that is supported, at least in part, by a local government’s promise to use (and pay for) some of the spaces in the deck. This essentially guaranteed revenue stream can make it easier for the developer to secure its own financing. On the flip side, a local government might obtain promises from private entities for the use of spaces in developing its own plans for a parking facility. These arrangements have a host of their own complications, but they can be worthwhile to work through to assist in developing a needed parking facility.
Special obligation bonds in the downtown
Special obligation bonds are a type of revenue bond where the local government promises to the lender that it will use a designated set of non-local tax revenues to repay a loan. These “non-local tax revenues” can include, for example, enterprise revenues (including parking revenues, but also water and sewer system revenues), locally collected fees, and State-shared revenues. For a city or town, this pledge can also include sales tax revenues (because cities and towns don’t set sales tax rates).
Special obligation bonds can be a great tool to finance a variety of projects in downtown areas, including parking facilities. We think more folks should consider special obligation bonds when that’s an available technique. For a longer article on using special obligation bonds for downtown improvements, please see our blog post here.
Installment financing under Section 160A-20 is now the most widely used type of financing for North Carolina local governments. Under this statute, the local government pledges collateral to the lender to secure the repayment.
Securing installment financing is an easy process that can be completed in as little as 75 to 90 days (assuming your project is ready for construction). Often, lenders will limit these financings to a 15-year term. In addition, some lenders may shy away from financing parking projects as they can be viewed as not particularly essential to the government’s functions, and surface lots may be viewed in the same (negative) light as a raw land financing. On the other hand, if you have an installment financing planned for a different project, it’s usually easy to add money to the package for another project, which can be a good strategy in securing money for parking improvements.
Revenue bonds are secured by a promise to use the net revenues of some public enterprise to the payment of the loan. We don’t often see these used for parking facilities – they are more common for water and sewer utilities — primarily because most government parking systems don’t make steady profits. But it’s an available approach and it has been used for parking.
Our statutes for revenue bonds allow a locality to put all its facilities into a single pooled parking enterprise and use the combined net revenues to secure a loan. They also would allow a government to combine the parking enterprise with another enterprise – such as the water and sewer utility – and use the strength of the other enterprise to help support a loan for the weaker enterprise. Whether that’s a good idea (especially if you don’t have a way to make the parking side self-sufficient) is another question, of course.
For a general overview of revenue bonds (from the water and sewer perspective, but still helpful if you’re new to the idea), here’s a related blog post.
General obligation bonds
General obligation bonds pledge the unit’s taxing power to provide for loan repayment. Because this is such a significant pledge, North Carolina law generally requires that these bonds be approved by a vote of the people (this requirement does not apply to any of the other techniques we’ve described). And while voters may be reluctant to approve bonds for parking, this undertaking may be more palatable when the parking costs are part of a larger plan presented to the voters for “downtown improvements,” or something similar.
Some general obligation bonds don’t need voter approval. These are known as “two-thirds bonds,” and can be used for parking projects. If you’re not familiar with two-thirds bonds, please see our blog post here.
When approved, general obligation bonds provide low-cost financing, and 20-year financing is readily available (that’s not always the case for the other techniques). There’s no need to pledge any physical collateral, and once approved, the legal process if a simple one. Some of the policies of our Local Government Commission, however, make issuing general obligation bonds a relatively expensive process for projects costing under $5 million or so.
Special assessment revenue bonds and tax increment financing
A relatively new statute allows local governments to recover the full cost of the project (including the interest on any borrowed money) from the benefitted property owners and to extend the assessment period to match the financing term (as compared to using special assessment receipts to repay loans incurred by some other tool). Specifically, Article 10A of Chapter 160A of the Statutes allows a local government to borrow money and pledge to the repayment amounts received from special assessments levied against the benefitted property, with no promise to use other government funds (there’s similar authority for counties in Chapter 153A). Because the statute was adopted recently, only a few projects have been done this way, and the LGC approval process is more detailed.
An important procedural step in using this type of financing is obtaining consent of the assessed property owners: a majority by parcels, and two-thirds by assessed value (among the parcels to be assessed). Thus, this financing tool will be most useful when there are a limited number of owners. For example, when a developer owns the whole tract that will be assessed to pay for the parking deck, then this developer can give the consent for all parcels.
We’ve worked as bond counsel on two of the three North Carolina special assessment revenue bond projects we are aware of. Here’s a blog post about the success of the first one ever.
A parking deck may be the quintessential project for tax increment financing (“TIF,” or “project development financing” as it’s called in our statutes). In a TIF, the local government promises to use taxes derived from the appreciation of property in a defined area to repay a loan. Although the process of using TIF is more complicated that this description might suggest, we think that TIF has (unfairly) gotten a bad name in North Carolina. Nonetheless, while TIF is a perfectly respectable tool for the right project, many localities have had success – and an easier process – with using synthetic TIFs for public improvements that are designed to help support private economic development. Here’s a post on that process.
Of course, the best approach for your community will depend on your local conditions, needs and resources. Many localities use a combination of tools. And, this post is about how to borrow money for these projects, so we haven’t talked about pay-as-you-go financing, using taxes in a municipal service districts to pay for parking, or obtaining grant funding from outside sources.
As we consider our parking needs, we must think about how they relate to our urban development goals. With the growing desire for walkable communities many localities are beginning to rethink their approach to parking entirely – the idea here is that the point of land use regulation and urban design is to create a vibrant, sustainable environment, and not only to make it easy to park. Here’s an article from The Economist that tackles this dilemma of having both too much, and too little, parking in downtowns. And here’s an article about how getting rid of minimum parking requirements can help spur economic activity in a downtown.
Please see our disclaimer, click here for more information about our public finance practice, and contact us if you want to talk about financing for parking lots or decks, or anything else we can help you with.