They call it their “gold in the gutter” — the pennies, dollars and millions the City Council is using to paper over the massive budget deficits they created without actually reducing spending.
As the Council gets closure on its latest edition of phony budget-writing today, or perhaps Tuesday, the biggest nugget they are counting on is the $53 million in a lump sum payment from leasing 10 city-owned parking structures to a private company for 50 years.
That’s a lot less than the upwards of $150 million the mayor was looking for a year ago but you can be sure that the mayor’s and council’s vast army of P.R. spinners will put a smiley face on this back room deal that will make someone very rich even richer.
To maximize revenue, the 10 parking lots are being put up for lease as a package with the revenue earmarked for the general fund to avoid layoffs — and there in lies the problem.
The Department of Recreation and Parks like libraries and other services provided to the general public is under assault from city officials whose only goal is to protect city jobs, not public services. They already have eliminated 4,000 jobs that provide basic services through early retirement, vacant job eliminations and transfers to special funds and they want to avoid actual layoffs anyway they can.
But that isn’t proving so easy to do.
Under the City Charter, the Pershing Square lot is owned by Rec and Parks which gets all the profits from it — roughly $2 million a year now despite the city’s utterly poor management of parking facilities and its high costs for salaries and benefits which are estimated at 50 percent higher than a private operator’s, according to a consultant’s report.
Back in January, the City Administrative Office and Chief Legislative Analyst offered a detailed analysis of the parking structure proposal, including this passage on the Pershing Square issue:
RAP states that Pershing Square generates approximately $2 million annually that is used to
support RAP programs, including $500,000 transferred annually to the General Fund in
support of various Citywide programs. The City Attorney has concluded that RAP is entitled to
the “net proceeds” ascribed to this asset through a concession, where “net proceeds” are
gross revenues less expenditures for operation and maintenance. To determine RAP’s proper share of the rent derived from a lease for all 10 of the parking structures, RAP and the City must estimate and agree upon the amount of the rent attributable to Pershing Square. The City Attorney has advised that various factors are relevant to this rent allocation, including, but not limited to, the historical revenue and expense numbers for all of the structures. In general, the working group believes that a private operator will generate more value from the Pershing Square garage, and this additional value should be available to support RAP operations within the funding requirements of the City Charter.
I added the emphasis because the problem lies in the determination of revenue to the parks if it’s included in the package, an issue the mayor who had demonstrated so little respect for the rule of law would like to ignore.
According to an email from the City Attorney’s Office, the mayor wants to know “why the (Rec and Parks) Board of Commissioners could not agree to receive payment from
the General Fund during the 50 year term of the lease (e.g., $2 million
per year for 50 years).”
“It was explained that monies received from revenues earned by the
department are required by Charter Section 593 (c) to be placed in the
RAP fund, and that more specifically pursuant to Charter Section 596 (a)
(5), proceeds from leasing the subsurface space for operation of a
public parking structure ‘shall be paid into the Recreation and Parks
Fund.’ The Charter is clear and does not provide a basis for the Board
or anyone else to waive its requirements. The Charter can only be
changed by an amendment approved by the voters.”
Under the Charter, Pershing Square gets specific protections because it was deeded to Rec and Parks specifically to provide funding to it. Rec and Parks also gets a piece of the city’s property tax revenue which provides most of its funding.
In theory, those funds are safe even as Rec and Parks is getting hit with a $25 million bill for water and power and reduced general fund support. But theories are cheap and city officials are looking for even more, thus the attempt to raid the Pershing Square revenue.
The City Attorney’s Office advised the mayor and others that raiding that money likely would lead to a taxpayer lawsuit.
“We also advised that the potential consequences of violating the Charter
are that an action for declaratory relief and injunction could be
brought by any taxpayer. The likely result of such a lawsuit would be
that payment to the RAP Fund would be compelled, with interest, and
attorney’s fees and costs would have to be paid by the City’s General
Fund,” the email said.
“If an arrangement that would violate the Charter is included in
the lease, the City Attorney would not be able to approve the lease. If
an arrangement that would violate the Charter is included in a public
report to the Board of Recreation and Park Commissioners or any other
City body, the City Attorney would be compelled to comment on the
So that leaves the parking deal up in the air — something City Council members are set to ignore by including the $53 million in next year’s budget.
They will undoubtedly try to get around the City Charter by allocating a portion of the $53 million to Rec and Parks but will it be a fair allocation?
Pershing Square is the most profitable city parking structure with the two that are larger — Cinerama Dome and Hollywood & Highland — both losing money hard as that might be to believe.
It is the plum in the deal. Private operators would almost certainly raise the daily rate of $15.40, even double it, and sharply cut operational costs, much as they will do to all the other lots.
City Hall has the option of continuing to operate Pershing Square and the other parking lots but that would take investment and skilled management and lower cost structures. But it wouldn’t provide all that upfront cash now in exchange for future revenue.
The city could lease Pershing Square separately, leaving the revenue stream with Rec & Parks but that wouldn’t avoid having to lay off city workers since the leasing of the nine other structures wouldn’t generate nearly as much to the general fund.
Call it the Pershing Square Dilemma, just one example of the many problems city officials are facing because they are incapable of facing the budget crisis head-on.