In 1993 the Budget Analyst conducted a comprehensive performance audit of the City-Owned Parking Garages which contained 35 recommendations. As part of this current performance audit of the Department of Parking and Traffic, we reviewed the current status of findings and recommendations contained in the Budget Analyst"s 1993 performance audit. Those findings and recommendations which we determined are still relevant to the operations of the parking garages today are described in this section, along with new recommendations.

Overview

There are currently eighteen City-owned parking garages in San Francisco. The facilities provided a total of approximately 14,600 parking spaces. In FY 1997-98, gross receipts totaled approximately $51.8 million, including Parking Tax revenues of $9.3 million and Gross Receipts Tax revenues of $4.3 million, and garage revenues of $38.2 million. Expenses to operate the garages were approximately $15.9 million and $4.6 million was deposited into the garages leased to non-profit corporations" capital accounts, therefore net City income from the parking garages was $31.3 million. Of the $31.3 million, MUNI received $7.7 million, DPT received $3.4 million, the Recreation and Park Department received $6.6 million, and $13.6 million was deposited in the City"s General Fund.

Between FY 1994-95 and FY 1997-98 overall gross receipts at the parking garages have increased by 33 percent, while the proportion of overall expenses has declined from approximately 40 percent to 31 percent of total gross receipts. Table 7.1 on the following page compares the increase in gross receipts by parking facility for those garages which were in operation in both FY 1994-95 and FY 1997-98. Table 7.1 Comparison of Selected City-Owned Parking Garages Gross Receipts, FY 1994-95 and FY 1997-98  

The City contracts directly with the operators of 13 of the 18 parking facilities and leases five of them to non-profit corporations. The organizational structure of the City"s parking facilities is complex, and differs for each facility depending upon how construction was financed, which City department held title to the property on which the facility was built, and when the facility was built.

The garages leased to non-profit corporations are headed by boards of directors, typically composed of business owners from the area surrounding the garage. Each of the non-profit corporations was formed to issue revenue bonds to finance the construction of the parking garages. Because the non-profit corporation bonds are tax exempt, their interest rates were reasonably comparable to rates for tax exempt government bonds. Thus the cost to debt finance the construction of the garages was almost as cost effective as if the City had issued bonds directly. However, the revenue bonds did not limit the credit of or become direct obligations of the City.

The respective non-profit corporations contract with a parking operator to provide staff and other services for operation of the garage. For these services, the non-profit corporation pays the operating company a fixed management fee in addition to reimbursement for all operating expenses. The Parking and Traffic Commission reviews the non-profit corporations" annual garage operation budget proposals, and makes budget recommendations to the Controller who has the authority to approve the budgets. The Commission also makes recommendations to the Board of Supervisors regarding individual garage rates and hours of operation.

The direct operation garages involve fewer individuals and agencies. First, there is no non-profit corporate intermediary between the City and the garage operating company. Instead, DPT contracts directly with the operating companies. Second, all operators for the direct operation garages, with one exception, provide garage operations at a fixed rate instead of on a fee plus operating expense reimbursement basis. In other words, the operating company is responsible for paying operating expenses, and its total contractual compensation is presumed to cover expenses and profit. For this reason, the direct operation garages do not submit budgets or reimbursement requests to the Controller for approval.

Accomplishments

Recommendations from the 1993 Performance Audit that have been implemented by the Parking and Traffic Commission, DPT, and non-profit garage corporations, as well as other accomplishments since the prior audit was conducted, include the following:

• DPT has revised the Moscone Center and Polk-Bush management contracts to require annual revenue audits;
• The Parking and Traffic Commission has adopted a resolution establishing a policy of bidding non-profit corporations" garage operator contracts at least every five years;
• DPT has begun to include detailed maintenance and other performance specifications in all new operator agreements;
• DPT has arranged for the scheduled repayment of $538,832 in back payments and a $500,000 construction loan from Portsmouth Plaza Corporation;
• DPT and the non-profit corporations have implemented recommendations concerning agreements with attorneys and legal fees;
• DPT has established a 180-day parking garage trial rate in order to measure the effects of changes in fees on garage revenue and usage;
• DPT is moving forward to improve the marketing of City-owned garages by recently securing a gift of $140,000 gift from several nonprofit garage corporations which will be used by the Off-Street Parking Division to hire a consultant to conduct a garage marketing study and prepare a marketing plan for all of the facilities;
• DPT has hired an assistant director as well as a management assistant to maintain and manage all City-owned garages and parking lots; and
• DPT has moved forward with (a) making improvements and renovations to the Union Square and St. Mary"s Square Garages; (b) construction of a new North Beach garage; (c) exploring the development of new garages in the Tenderloin and Fillmore neighborhoods; and (d) expansion of other existing facilities.

Direct Operation Garages

The City oversees thirteen direct operation parking facilities through competitive bidding of operator contracts and compliance monitoring. Today, leases govern three of the direct operation garages. The garage operators that lease these garages make a monthly rental payment to the City based on a percentage of gross monthly revenues, subject to a minimum rent amount. The remaining ten garages are run according to a management-type operator contracts. The garage operators deposit all daily revenues in a City revenue account. The operators are paid by the City at the end of each month. Some operator contracts base the operator payment on a percentage of gross monthly revenues. Others provide the operator with a flat monthly fee, potentially supplemented by a percentage of gross excess revenues, if revenues reach a target level. Table 7.2 on shows the current status of the direct operation parking facilities. Table 7.2 Direct Operation Parking Facilities

Conversion of Leases to Management-Type Operator Contracts

At the time of the 1993 Audit, as leases with garage operators expired, the City was in the process of converting all of the direct operation garages from leases to management-type operator contracts. The main disadvantage of a lease, from the standpoint of the City, is that it confers a right of possession on the operations company. If an operator refuses to turn over a garage after notification that the City has found it in default of some provision of the lease, the City would have to file a court action to retain possession of the garage. With a management-type operator contract, the operator could be removed after a 30-day notice period, without the need for expensive legal action. Although an operator has never been forcibly removed, the City Attorney"s Office has advised that potential legal costs alone warrant a transition to management-type operator contracts.

Another advantage of the management-type operator contract is improved revenue control. Under a such a contract, daily revenues are deposited in a City revenue account, under the supervision of the Department Parking and Traffic and the Department of Real Estate. Under a lease, operators deposit daily revenues in their own accounts, and pay the City at the end of the month.

At the time of the 1993 Audit, DPT advised that all leases upon expiration would be converted to management-type operator contracts. Two garages (Lombard Street and Performing Arts Garage) have been converted since that time. However, as shown in Table 7.2 above, the remaining leased garages (Golden Gateway, Mission-Bartlett, and Union Square) have been operating on a month-to-month basis since their leases expired in 1996 and have not yet been converted to management-type operator contracts.

DPT advises that the three remaining leases have not been converted to management-type operator contracts because they have been unable to devote the staff time required to competitively bid the contracts due to limited staff and competing priorities. The Budget Analyst believes that in order to ensure that the City is obtaining the best possible service and rates, these leases should be converted to management-type operator contracts and competitively bid immediately.

Inclusion of Detailed Performance Specifications in Operator Contracts

In the 1993 Audit, we recommended that operator contracts should be based on a percentage of gross revenue, rather than a fixed fee, when legally and financially feasible. In order to discourage operators from cutting services in order to increase profits, we recommended that detailed performance specifications, with penalty clauses, should be included in all operator contracts. Such specifications could include those covering garage personnel, security, maintenance and signage.

Since the 1993 Audit was performed, DPT has begun including detailed maintenance schedules in all of its new operator contracts. DPT has also made some progress in including in its new operator contracts specification of other key aspects of garage operations such as security, staff training, facility signage, and guidelines for the number of entry and exit lanes open at peak and non-peak hours. Most recently, an Invitation to Bid for the Civic Center Garage operator contract included a minimum staff schedule, quantified staff salaries and duties. This more detailed Invitation to Bid was released after a prior bid process produced unsatisfactory bids and all bids were rejected. Specification of such details and the inclusion of penalty clauses for non-compliance in operator contracts provide DPT contract monitors with more effective ways to maintain standards of service in the garages. As operator contracts expire, DPT should continue to work to include more detailed performance specifications in each new operator contract.

Garages Leased to Non-Profit Corporations

The City currently leases five garages to non-profit corporations (see Table 7.3). The City entered into long term leases with the non-profit garage corporations at the time the corporations were formed. Over the years, the leases have been revised when a garage issued new bonds to finance expansion, or when a garage retired the debt from its original bond financing. The leases specify that the City can set and change parking rates and garage operating hours at any time, as long as the rates will produce enough revenues to make payments on outstanding debt, cover reserve requirements and to reimburse the operators for their budgeted operating expenses.

The non-profit corporations contract with professional garage operators for day-to-day management and operation of the garages. Members of their boards of directors include local business leaders who, in many cases, take an active interest in garage performance and serve as the City"s on-site quality assurance inspectors for the garages they control. Board members informally spot-check garage cleanliness, waiting lines and other matters.

Table 7.3 lists the garages leased to non-profit corporations, their operators (with whom the non-profit corporation contracts for day-to-day management and operations), and the annual fee paid to each operator. Table 7.3 Operators of Garages Leased to Non-Profit Corporations (All operators are under month-to-month agreements)