Commentary: A Cafe of two Cities

April, 2003

It was the best of times, it was the worse to times. Well, I don't think Dickens had parking in mind when he began his tome about Paris and London in 1775. However two cities in California are taking different approaches to solving a taxing problem. Can either be right?
San Francisco and Los Angeles are grappling with the issue of collecting a tax on parking. The way they are attempting to "render unto Caesar that which is Caesar's" is quite different, and has different supporters.
As you have read in these pages over the past year, San Francisco has a city ordinance that requires the parking operators to install revenue control equipment that has been approved by the city. This equipment is to keep track of revenues so the city can collect the appropriate amount of tax.
The basis for the ordinance was a number of complaints from citizens that they were being ripped off by unscrupulous operators (Can it be possible?) and by the concern by some in the city that the parking revenues were way below what they should be based on "under reporting" by the operators. The operators are fighting this tooth and nail (see this month's Letter to the Editor.)
Not to be undone, the sprawling California metropolis to the south has begun to travel down a similar path, but with a decidedly different approach. L.A. has gone out to bid for a company to come in and "find" the missing tax dollars. Modeling its request on what is being done in Miami, the city has asked groups (consultants, accounting firms, etc.) to present a proposal under which the bidder would become an investigative arm of the city. It would have its employees seek out and audit garage operations that it felt were underpaying its taxes. If malfeasance was found, the consulting group would get a piece of the action. The beauty of this is that the city gets its increased revenue without having to put out any front money. This approach was actually originally proposed to the city by the lobbyist for the Parking Association of California, a group of California parking operators.
HUH? In San Francisco the operators are against the ordinance; in L.A. they are for it. At least one of the companies in San Francisco opposing the ordinance is the SAME company that is a functionary in the Parking Association of California. How could they be on one side in S.F. and the other in L.A.? Therein lies the tale.
The parking operators all agree that revenues should be collected and taxes paid. There is no question about that. It's just a matter of how. In S.F. it is to be through high-tech means controlled by the city. In L.A., through a slow, laborious, process of discovery, auditing and review. The City of San Francisco is being watched carefully across the country. If the ordinance succeeds, it will be used as a model for cities nationwide.
Industry wags tell me that the main reason that the operators put a bug in an ear in the City of Angels was so they would move down the "auditing" path and keep the city from becoming too interested in the S.F. approach.
I know many of these people personally and they are NOT bad people. They are honest businesspeople who are trying to do the right thing, in both cases. They pay a lot of taxes and will pay the total amount on every penny due. The problem in L.A. is that a number of smaller operators, mostly one-site companies, simply don't pay their taxes and thus can undercut the legitimate operators and make a killing at the expense of those who play by the rules. So, ensuring everyone pays taxes is a good thing. However, I've been told that a company with 20 auditors would take over five years to audit all the 2,200 garages in L.A. They would have to focus on the obvious abusers, because that's where the quick money is and that's how they will get paid. But, as soon as one audit was done, what would stop the offending garage from simply going right back to its old practices (especially when they know that the auditors won't reach them again for years)?
In San Francisco, every garage, surface lot and structure will be controlled by the new equipment. Every garage and operator will fall under the watchful eye of the city. Now the city has projected that upwards of 25 percent of the parking revenue isn't being collected. This may be an exaggeration, but what if it is not?
How could an operator, any operator, go to the owner of the facility they operate and have it proven that they have not been collecting 25 percent of the revenue for the past how many years? What could they say? What would be the result?
It's the industry's secret. A lot of money isn't collected in garages every day for a lot of reasons. They include simple mismanagement, malfeasance and even collusion on the part of the parkers. We are talking about daily revenue as well as contract parker revenue. And we all know it.
Certainly there are garages that run like well-oiled machines, that collect every penny, that pay every cent of tax due. All operators have these garages. But the others also exist. They are endemic to our parking system.
Remember, except in garages that are leases where the operators have a vested interest in collecting every cent (it's their money, after all), operators are asked to run multi-million dollar operations and to do it as the lowest bidder. Asset managers strive to push the operator's fee down while constantly asking for more and better service. In the end, quality has to suffer -- and income along with it.
An operator would much rather deal with an auditor, particularly one picked by the city, than a high-tech gizmo that costs big bucks and requires high-tech personnel to run them. Of course they have that staff, but not in every garage. They have it in the places that are willing to pay the freight. Not on every surface lot and small garage.
So it will be interesting to see who prevails -- the operators or the city. We will track this tale of two cities, and hope for the best of times.