Parking adviser gets cut of deal

The financial group that advised the Harrisburg Parking Authority on the proposed $215 million lease of its parking facilities is a stakeholder in the deal.

RBC Capital Markets would be paid a "success fee" of $4.3 million if the lease goes through. If a deal of $200 million or more is approved, RBC makes 2 percent, according to a copy of the firm's contract that the Business Journal obtained from the parking authority. If a lease valued under $200 million is secured, the company makes 1.5 percent. The contract suggests that RBC would walk away empty-handed if no deal is struck. RBC Capital Markets is a unit of the Royal Bank of Canada, based in Toronto.

Harrisburg Mayor Stephen R. Reed and the authority want to lease 11 of the authority's parking facilities and more than 1,200 parking meters to a private company for 75 years. The deal is one of the largest and most important in Harrisburg's history, city officials said.

Industry observers said success fees were typical in these deals. Still, Reed acknowledged the relationship with RBC raises questions about the consultant's objectivity. RBC is the only consulting firm the authority hired to work on the proposal, Reed said. The mayor welcomed an independent financial audit of the deal, which City Council members have vowed to conduct.

"It's the only way we are going to know if it's a good deal for the city," council Vice President Dan Miller said. "When people who are giving their expert opinion are being paid by the deal, they can't give objective advice."

The contract said it was RBC's job to manage the bid process, evaluate proposals, help pick a winner and close a lease. RBC representatives did not respond to requests for comment.

Success fees like the one RBC is earning seem to be the standard in public-private partnerships of this sort, said Roy Kienitz, who is managing the proposed lease of the Pennsylvania Turnpike for Gov. Ed Rendell. The system ensures that the consultants do their best to bid up the price, Kienitz said. The success-fee model also means a government pays nothing if it decides to walk away from the deal, he said.

Still, RBC got an unusually good deal, said Rod Johnson, president of Philadelphia-based Fairmount Capital Advisors Inc., which advises local governments on financial matters. It would be more typical for a consultant to earn 1.5 percent of the first $200 million and 2 percent of anything over that base amount, he said. In contrast, RBC is earning 2 percent of the total contract value if it's over $200 million.

The state's financial adviser is taking a much smaller cut on the turnpike deal. New York-based Morgan Stanley will make one-eighth of 1 percent if a deal goes through, Kienitz said. The financial adviser that helped Indiana lease its toll road made about half a percent, he said. The cut generally shrinks as the deal size grows because the amount of work required is fairly consistent, Kienitz said.

The state appears to have used a different negotiation process than the city. The state negotiated with potential bidders to iron out terms all of them had to accept before naming a price, Kienitz said. That ensured the state could compare apples to apples, he said. Meanwhile, the city received bids with widely varying terms and prices from three companies, according to a summary of the bids prepared by RBC. The bid by Harrisburg Parking Partners was the highest. Morgan Stanley and a company identified as Capital Source placed bids for $147 million and $195 million, respectively.

The city is still reeling from the botched $84 million retrofit of its incinerator, which buried a separate authority that ran the project in about $300 million of debt. This deal needs to be studied at length, especially in light of the incinerator situation, Miller said.

"Voting is a long time away," Miller said of the parking proposal. "In the whole incinerator deal we never had our own attorney. We never had our own financial people. I don't want us to make the same mistake."