Privatize Parking Garages

Downtown Ann Arbor
The Ann Arbor Downtown Development Authority outsources management of this Ann Arbor parking structure at the corner of 4th and Washington to the private sector.

Parking space in many cities is a scarce commodity. This often tempts cities into the parking garage business, with city governments using their powers of condemnation, zoning and taxation to acquire land and to build and operate quasimonopoly parking facilities.

Of Michigan’s 20 largest cities, eight own their own parking garages. Three cities — Ann Arbor, Detroit and Pontiac — contract with private vendors for management of their garages. In Flint, the city owns its garage, but contracts with its downtown development authority to manage it. Grand Rapids, Lansing, Dearborn and Saginaw all operate their own garages.

In the name of efficient government, municipalities should sell their garages outright. Municipal leaders may view city-owned parking garages as cash cows — and indeed, many are — but to point to the garages’ income as a reason to own them is a red herring. City governments are supposed to provide public services, not make profits.

There is nothing essential to a parking garage that requires government intervention. Parking is a business that can be run quite effectively by the private sector. And in fact, cities will realize a number of benefits from selling a garage: onetime revenues from the sale, which can be used to pay debt or shore up unfunded liabilities; annual income in the form of property taxes paid by the privately owned garage; and generally improved services to parking consumers, as the private profit motive spurs superior customer service. In cases where city parking garages lose money, selling the garage will also remove a recurring operating liability from the city’s books.

It is expensive for municipal government to enter the parking garage business. Building a garage requires contruction debt that must be paid down over many years. The government’s parking business can also crowd out private investment in parking services or in other, potentially more valuable uses of the land. Such private investment would not just provide additional tax revenue for the city, but produce economic benefits for its citizens.

Short of selling their parking garages, cities should at least outsource their parking management. In 1990, the Mackinac Center for Public Policy recommended garage privatization to the city of Ann Arbor. After study and review, Ann Arbor contracted the management of its three lots and seven garages to National Garages Inc. The contract has since been rebid, and Ann Arbor again opted for private management.

Parking space is a necessary component of a modern market economy. It is not, however, a necessary component of government — especially when it is a service that the private sector provides so well.

James M. Hohman is a research assistant with the Mackinac Center for Public Policy.