transport.tamu.edu OSU Parking Privatization Overview Texas A&M University Transportation Services

transport.tamu.edu What does OSU say they have done? Privatized parking and “sold” an asset with the following results: – Outsourced operations to a private vendor creating efficiencies. – Received a substantial up front payment in cash (483 million) in return for this 50 year revenue stream plus increases. – Invested the up front payment in an endowment that will hopefully average a 9% ROI annually over this term to fund various initiatives.

transport.tamu.edu Why has this never been done before? The reluctance to tax faculty, staff and students for non parking items. Turnover is what makes parking profitable. In a permitted environment profit per space is much lower in comparison and sales are difficult to increase. A campus environment provides a distinct group of customers in close proximity. The revenue stream is already there, all steps taken to make this possible could have been done internally. There are cheaper sources of funds.

transport.tamu.edu What is really happening? Giving vendor a defined revenue stream with specific increases over a 50 year term. Proceeds received at the beginning of the contract. Vendor has ability to ensure revenue stream, OSU can continue to make decisions on lots & garages etc. At end of agreement, vendor walks away, OSU is returned revenue stream and full control of parking assets. This is a LOAN!

transport.tamu.edu OSU Financials as a Glance What makes this possible?

transport.tamu.edu What makes this attractive to investor? Moving 8 million in Transit costs elsewhere Moving 9.5 million in debt service elsewhere Absorbing parking functions the vendor does not want (Traffic Control, Event Coordination, Communications) Freeing up approximately 18 million in revenue without related costs Outsourcing is not the driver of this deal

transport.tamu.edu If it’s a loan, what’s OSU’s rate? We know the revenue given up first year is 28 million annually. We know the increases that are allowed. We know the expenses taken on by the vendor are 9.8 million. Original proceeds 483 million. Without cuts to service effective rate is 16.5%. With a 10 % cut in service effective rate is 16.9%.

transport.tamu.edu Is this the whole picture of cost? What about the funds to pay off debt? Wouldn’t they be earning something otherwise? What about having to find other sources of revenue to fund Transit? Won’t this be growing due to the rising parking fees? What about services the vendor does not want? Where does that money come from? The cost of this transaction is much more than the loan interest…. What about potential chargebacks?

transport.tamu.edu What Concessions is OSU to make for $483,000,000? Borrowing money at 17% to invest at 9% Accept a demand based model for construction. Increases of 5.5% each year for ten years and 4% or inflation after that for the rest of the term, 40 years on all charges; fines, visitor parking and permit prices. The University agrees to pay the company back for any lost revenue due to university actions. OSU cannot eliminate more than 2200 spaces without being charged.

transport.tamu.edu How does the economy impact this deal? Some economists are predicting another wall street meltdown in the next few years and a period of high inflation. OSU’s endowment is vulnerable to wall street slides. Parking revenue is relatively stable. Salaries rarely keep up with inflation, yet the vendor will be able to increase prices up to the inflation rate. What happens to OSU if values and earnings in the endowment fall, yet rates rise according to high inflation while employee salaries remain static due an economic downturn?

transport.tamu.edu Current TS Plan Service to remained focused on supporting the University $1.5 – $3 million spent on capital repairs and maintenance annually, $628k paid in annual TAMU assessments, $885k paid annually for Welborn Road Passageway debt Construct a garage of 1500 space in 2016 (for convenience) Construct a garage of 1500 space in 2024 (for convenience) No rate increases forecast until 2024 and 2025 and those will only be 2% Inflationary increases will be needed in out years beginning 2028 of 3% Minimum required reserves always maintained. Operate at break even - there is no additional value unless changes are made to service and rates