Poor’s considers reliance on local companies that
may have leased or guaranteed revenues on a cer-
tain number of parking spaces. If a proposed
expansion, or a startup garage or system, relies on
projected demand, then Standard & Poor’s requires
a thorough demand study. Typically performed by
a parking consultant, a demand study will examine
competition for parking and attempt to forecast
parking volumes and rate increases. Standard &
Poor’s will examine the forecast’s assumptions
regarding the rate of “ramp-up” growth following
the opening of the parking facility and its assump-
tions regarding the rate at which the market will
bear increases in parking rates. An operating
reserve fund to cover possible shortfalls in forecast-
ed revenue, in addition to any debt service reserve
funds, may be viewed positively.Competition
Competition may severely restrict a parking facility’s
ability to raise rates. Standard & Poor’s studies the
number and occupancy levels of competing facilities,
their proximity and rates, and anticipated new facili-
ties. Some cities’ systems have a significant competi-
tive edge over private parking because of the
lower-cost, tax-exempt financing available to them.
A municipality may retain great rate-setting flexibili-
ty if it owns almost all of the downtown parking and
there is no available mass transit; such a competitive
position is considered a significant credit strength.
Highly rated systems will often have prepared mar-
ket studies that document their competitive position,
including relative price, space, and availability data.Management
Management is assessed primarily by the feasibility
of its expansion plans, the extent of annual main-
tenance, and its track record of rate adjustments.
For municipal parking entities, the effectiveness of
operational oversight can also be a rating consider-
ation. Substantial bond-financed expansion beyond
the system’s existing parking spaces—especially for
the purposes of economic development—may be
considered imprudent and speculative because of
the uncertainty of attracting the level of demand
needed to meet higher debt service. The ability and
willingness of management and oversight bodies to
approve and raise rates is also very important, as
demonstrated by timely historical increases. In this
respect, insulation from normal political processes
is considered a strength, and weight is given to
management or governance structures that have
the unilateral ability to increase rates. Proper man-
agement of and reinvestment in the facilities is also
very important to Standard & Poor’s. If only one
or two garages support debt service, regular ongo-
ing maintenance is essential, especially in climateswith weather conditions that can reduce a struc-
ture’s estimated useful life. A structural failure for
a small system could be disastrous. Standard &
Poor’s will look to ongoing maintenance and rein-
vestment in parking facilities.
Insurance is helpful and sometimes essential for
small systems, including, if appropriate, business
interruption insurance, property and casualty
insurance, and coverage for other applicable and
insurable risks. Standard & Poor’s has engaged
consultants to assess the risk of eight natural haz-
ards, such as earthquakes, for each county in the
nation. For California, seismic evaluations of each
zip code have been performed. If a single-site
garage is located in an area with a greater than
5% risk of 50% or more destruction before final
bond maturity, special natural hazard insurance or
building procedures are required for a rating of
‘BBB’ or higher.Legal Provisions
Legal provisions vary in importance with the
unique characteristics of each bond issue. A com-
mon question is whether a gross revenue pledge is
viewed differently from a net revenue pledge. In
general, parking enterprises are evaluated on a net
revenue basis, regardless of the pledge of revenue.
This is because, in most circumstances, a parking
facility’s rate structure—and therefore its competi-
tive position and revenue-generating ability—
reflects the full cost of operating the facility,
including the capital and operating components.
However, covenants to pay operations from another
source (e.g., a city’s general fund) can provide some
enhancement to the rating. A covenant to maintain
rates at sufficient levels to allow at least 1.00x debt
service coverage by net revenue is considered a fun-
damental element in a viable, long-term parking
enterprise. Most rate covenants range from 1.25x-
1.50x debt service requirements. Additional bonds
tests that include only historical revenues are
notably stronger than tests that allow consideration
of projected revenue. A debt service reserve fully
funded from bond proceeds provides liquidity and
is an important rating consideration for issuers with
low debt service coverage. Such reserves are also
important for issuers with potentially volatile rev-
enue streams, such as start-up projects, which require
a ramp-up period for new facilities to attain self-
supporting status. A flow of funds that ensures
funding of operating and capital maintenance
accounts before transfers to a city’s general fund
is also viewed as important to the long-term via-
bility of a parking enterprise. Covenants that pro-
hibit the elimination of more than a certain
percentage of total system spaces also provide a
measure of security.■Transportation152 Standard & Poor’s Public Finance Criteria 2007