Taxing lesson: Parking bids can be tricky business

Running a parking garage in San Francisco can be such a lucrative business it’s no wonder some people will go to great lengths for the opportunity.

Like Turkey — the country, not the holiday bird.

And that will help explain how The City is still short about $7 million right now, while tangled bureaucracies try to figure out how, in a cash-and-carry business, so much of the cash gets carried out.

Two weeks ago, the California Department of Transportation, which owns a number of big parking lots in San Francisco, decided to seek bids for four of its garages. The bids were put out on an “emergency basis” because the operators of those lots mysteriously pulled out, according to Caltrans officials. Potential operators had just four days to submit minimum bids to run the garages — including the 185,000-square-foot lot at the Transbay Terminal, for which Caltrans is asking a minimum of $90,000 per month.

The main problem with this scenario is that Caltrans only requires that the operators be licensed for public parking, a low threshold that is one of the reasons the current operators of the lots have reportedly gone out of business. The garages previously were run by U.S. Parking Inc., a company that gave new meaning to the term “under-regulated.”

Under-regulated, but not unnoticed.

City officials have long been debating how to rein in parking garage operators who have allegedly been skimming millions off the books in the cash-heavy industry. So, when Caltrans suddenly put the garages up for lease to the highest bidders, the move grabbed some attention.

As I reported earlier this year, The City filed a lawsuit against U.S. Parking after a random audit of the company found that it failed to pay nearly $9 million in parking taxes, of which about half was the assessment and the rest fraud penalties and interest.

The company asked for a new hearing on the matter in hopes of a reduction in the penalties, and the judgment was lowered to $6.79 million — of which U.S. Parking President Cihat Esrefoglu was found personally liable for $5.2 million.

The company filed a lawsuit against The City trying to get out of paying the delinquent tax, using the argument that if it was forced to pay, it would be bankrupt.

And from the looks of things, it would appear the company wasn’t bluffing.

The remaining operators of U.S. Parking apparently walked away from their leases, which is why Caltrans decided to initiate the emergency bid process. Sources told me that Esrefoglu departed to his native Turkey about six months ago, leaving The City with a legal judgment but no way to collect. And the Caltrans lots could once again go to high bidders who haven’t been properly screened.

“We want to have the assurance that the accounting and record-keeping have improved to see that we’re getting the proper amount of income tax due to The City,” Treasurer Jose Cisneros told me. “But there are no rules in place to tell property owners what kind of checks they need to do on the operators they bring in.”

At a time when San Francisco is facing another massive deficit, you’d think various government agencies could work together to solve this problem. But you’d be wrong.

San Francisco has more than 600 garages, but only has the capacity to perform about 25 audits each year. And those numbers will explain why industry experts say most big cities lose tens of millions of dollars annually in unreported parking taxes. The editor of Parking Today, an industry trade publication based in Los Angeles, told me that five years ago it was estimated that San Francisco was losing between $35 million to $50 million annually. The figures may vary slightly today, but most people would agree that this annual loss is a problem.

It’s understandable that Caltrans would want to get people in quickly to manage the lots; it is certainly not going to leave the garages empty. But you might want to have higher standards than a parking certificate, a truckload of cash and a requirement that there are enough spaces for state motor pool vehicles.

 

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