Loading...

City Council Pays for Needless Study By Not Doing Its Homework 

Thursday, Apr 7 2011
Comments

It's not often that the L.A. City Council is praised for setting fire to $2 million of other people's money. But that's more or less what happened in February, when the council precipitously killed a deal to lease out nine city parking garages.

The decision to pull the plug was cheered by opponents, who argued the deal was a short-term solution to a long-term budget problem. But there is more to this story, newly uncovered facts that no one has reason to celebrate. Documents that were kept secret during negotiations over the deal but have since been released under the Public Records Act shed new light on what went on behind the scenes.

Effectively, the council squandered $2 million by hiring consultants and lawyers without doing political due diligence to see if the deal would fly with constituents. When opposition later emerged, that $2 million worth of work was tossed out.

Related Stories

  • Quake Shocker 7

    In ex - City Councilman Hal Bernson's day, Los Angeles was a leader in preparing for the Big One, the 7 magnitude or greater earthquake that geologists say is inevitable and overdue - and will be unleashed upon Los Angeles by the San Andreas, Hollywood, Puente Hills, Santa Monica or...
  • Mayoral F-Bomb 11

    Mayor Eric Garcetti is a fairly mild-mannered mayor. Despite his hipster tendencies (he's a fan of superstar DJ Steve Aoki), the guy certainly has a more conservative personal reputation than, say, former Mayor Antonio Villaraigosa, who was caught on-camera partying in Baja with Charlie Sheen. See also: Here's the 411 on...
  • Eric Garcetti's First Budget Shows That Changes Come Slowly to L.A. City Hall 3

    Mayor Eric Garcetti's budget for next year has been called a "status quo" plan. There were some tweaks from his predecessor's last budget, including, most notably, a plan to hire 50 new officers to write parking tickets. But even incremental change is difficult at L.A. City Hall. The plan drew criticism,...
  • Video Spoofs Sorry State of L.A.'s Sidewalks 5

    A new video spoofing the sad state of L.A.'s sidewalks has hit YouTube, and already it has been tweeted out to the followers of Mayor Eric Garcetti. Garcetti said, "love this video parody." The clip shows a number of young people tripping and falling as a result of cracked and...
  • L.A.'s Failed Streets: City Hall Wonks Seek Sales Tax Hike on Residents 6

    More and more, the streets of Los Angeles have been looking positively post-apocalyptic, lined as they are with deep gashes and potholes large enough to raise a family of ducks in comfort. Not to worry though, City Hall is here to help. And by help, we mean that they want...

Public-private partnerships have been commonplace in Australia and Europe for years, and recently infrastructure investors have worked to break into the U.S. market. With the recession, local governments also have shown an interest in leasing nonessential assets to raise quick cash.

In 2009, urged on by Mayor Antonio Villaraigosa, the L.A. City Council voted to hire a consultant to explore a 50-year lease of the city's parking garages. The deal would bring in money to address the city's cash crunch, while turning the garages over to professional operators who would upgrade them and automate the payment systems.

The consultant was tasked with assessing the garages, surveying the parking rates in surrounding private lots and estimating how much the city should get.

What the consultant did not do — because it wasn't the consultant's job — was gauge the level of public support for privatization. Staying in touch with constituents is the council's job, and it didn't do it.

"What's troubling is that they would proceed without involving or consulting with the local community first," says Leron Gubler, president of the Hollywood Chamber of Commerce. "It would have helped if they had contacted us earlier for some input or feedback."

If they had, they would have learned that local business groups were extremely worried about losing discounted parking at public garages.

The city subsidizes parking at its garages in Hollywood and Westwood. Under a lease, that subsidy would end. A private operator could jack up rates to market levels, which were based on the city-funded study. Merchants feared that would hurt business.

If the council had done that outreach, it could have decided up front whether to kill the deal or go forward in spite of opposition. Instead, it spent $2 million investigating the legal and financial feasibility of the deal without any idea of its political feasibility.

In August 2010, the council opened it up for bids. A dozen bidders would have to spend hundreds of thousands of dollars each evaluating the deal. Among a long list of other questions, one bidder asked: "Will the council really vote for this deal? Due diligence is expensive and a lot of work."

The answer from Miguel Santana, the city administrative officer, seems naive in retrospect: "The City Council and the mayor have shown their commitment to pursue a public/private partnership for the operation of the city's garages. ... All proposals that are financially and operationally beneficial to the city will be seriously considered."

At about the same time, business associations in Westwood and Hollywood were mobilizing against the deal. In December, representatives of the Hollywood business community sat down with their councilman, Eric Garcetti, and gave him an earful.

"He really did listen to the angst we were feeling about losing affordable parking," says Kerry Morrison, executive director of the Hollywood Property Owners Alliance.

"He definitely got it," says Steve Sann, chair of the Westwood Village Business Association. "It was a very potent, one-two knockout punch, hearing it from Westwood and Hollywood. ... Eric said, 'I've never loved this deal.' "

In January, the council met for several hours in closed session with Santana. The discussions were kept secret at the time, but newly released records show that the council made two major revisions to placate Westwood and Hollywood businesses.

The first was a cut in the rates. At the Hollywood & Highland garage, the original lease agreement would have allowed rates to rise from $3 per hour to $9.60 per hour over five years. Under the revised plan, the hourly rate was limited to $4 per hour, or $2 per hour with validation. The maximum rate for Cirque du Soleil events originally was set to rise from $10 to $30. It was capped at $15.

At the Broxton lot in Westwood, the city had planned to phase out free parking and charge $4.80 per hour by the fifth year of the contract. Under the revised plan, drivers would be charged just $1 per hour with validation.

The second major change was in the "noncompetition" zone around each garage. Under the original deal, the city agreed not to build any new garages within an eighth of a mile of the leased garages. That way, private operators would be assured they would not have to compete with below-market rates. In the revision, the council removed Hollywood Boulevard from the noncompetition zone, preserving the city's right to build garages there.

There was one other provision. The council wanted to know if the revised deal could bring in $230 million. It's not clear why it chose that figure, but it was effectively a poison pill. With the new restrictions, there was no chance that bids would go that high.

In February, Santana announced that the bidders had rejected the deal. But the bidders' written responses, since made public, show that several still were interested in getting a deal done.

The two most serious bidders — Morgan Stanley Infrastructure Partners and CIM/LAZ — were reluctant to put a hard number on the revised proposal. CIM/LAZ would say only that it "yields an up-front value substantially below $230 million."

But both wanted to keep talking. Interestingly, neither expressed any concern over the new rates. Both did have a problem with the revised noncompetition zone, and with other issues that were not part of the public debate, such as possessory interest tax and potential parking-tax increases.

Santana wanted to keep talking, too. He planned to go into closed session and determine whether the council would back off on any of its restrictions.

But it didn't get that far. Instead, the council voted unanimously to scrap the deal. "This is a terrible idea," Councilman Tony Cardenas said. "We should just kill it once and for all."

That's a defensible position. But the time to take such a stand would have been before Cardenas and the other council members voted to hire consultants and lawyers to investigate the concept.

Before voting to kill the deal, Garcetti says he had only supported exploring the idea to see if it made financial sense. But in the end, the council's decision was not based on any of the consultant work. It was based on a shift in the political winds.

Perhaps a deal could have been done for $200 million or more, with the reduced rates and a modified noncompetition zone. Perhaps not. After two years and $2 million, the council didn't bother to find out.

"I thought the policy objective was to maximize the value of the asset," Santana says. "It's not clear to me what the specific reason was for not moving forward. ... We never had an opportunity to discuss it."

Reach the writer at gmaddaus@laweekly.com

Related Content

Now Trending

Los Angeles Concert Tickets

Slideshows

  • 21st Annual Classic Cars "Cruise Night" in Glendale
    On Saturday, spectators of all ages were out in multitudes on a beautiful summer night in Glendale to celebrate the 21st annual Cruise Night. Brand Boulevard, one of the main streets through downtown Glendale, was closed to traffic and lined with over 250 classic, pre-1979 cars. There was plenty of food to be had and many of the businesses on Brand stayed open late for the festivities The evening ended with fireworks and a 50th anniversary concert from The Kingsmen, who performed their ultimate party hit, "Louie, Louie." All photos by Jared Cowan.
  • The World Cup Celebrated And Mourned By Angelenos
    The World Cup has taken Los Angeles by storm. With viewings beginning at 9 a.m., soccer fans have congregated at some of the best bars in the city including The Village Idiot, Goal, The Parlour on Melrose, Big Wang's and more. Whether they're cheering for their native country, favorite players or mourning the USA's loss, Angelenos have paid close attention to the Cup, showing that soccer is becoming more than a fad. All photos by Daniel Kohn.
  • La Brea Tar Pits "Pit 91" Re-Opening
    Starting June 28th, The Page Museum once again proudly unveils the museum's Observation Pit, which originally opened in 1952 but has spent most of the last half century closed. Now visitors can get an up-close look at Pit 91, which is currently under excavation. The La Brea Tar Pits, home of the Page Museum, is one of the world's most famous ice age fossil locations, known for range of fossils from saber-toothed cats and mammoths to microscopic plants, seeds and insects. The new "Excavator Tour" is free with museum admission if purchased online at tarpits.org . All photos by Nanette Gonzales.