Call us local government enthusiasts: we like when light is shined on the black box that is City Hall. Then we learn how past policy decisions shape today’s challenges and potentially constrain opportunities tomorrow. In City Council’s budget session on Monday [mp3], we gained a clear picture about how the decision to offer two hours of free parking in city garages not only “drained” (the Treasurer’s term) our general fund of $16 million, but put us on on the hook for almost $5 million more every year. The ‘high cost of free parking’ indeed!
Oh, how feel-good policy decisions like ‘free parking for everyone’ can have deep and long-lasting effect on the city budget. At least that was the message from Treasurer Elliot Finkel who presented to Council the view of the Citizen Budget Review Committee. Formed five years ago to “promote transparency” and to make recommendations concerning city services and capital projects from the budgetary perspective, the committee represents a real step toward open government in Beverly Hills. And it sounds a note of alarm when it comes to parking policy.
Free Parking: Today’s Gift on Tomorrow’s Dime
Unlike Bell, California, say, or City of Los Angeles or any other place where sleight-of-hand is accepted practice in municipal finance, here in Beverly Hills it’s all in plain view: past operating and capital improvement program budgets, proposed budgets, Council priorities, employee salaries (new!), and city expenditures are all posted. Often a close reading of the Council agenda will reward the curious.
The problem is that while our ledgers are relatively open, the complicated process of funding city government is not easily reduced to a summary. For an illustration we need look no further than our parking operations program, which includes resident-limited permit operations, street meters and our public parking garages (of which we have more than twenty). It is easily one of the city’s more complex programs and a close second to outsized public benefits as a cause of fiscal angst for City Hall.
That’s because our general fund is obligated to pay that $5 million annually into it to offset a shortfall expected to approach about $40 million over the next eight years or so. For those who want to a ‘bottom line’ take on that problem, good luck to you. The arcana of the accountant’s glossary is a barrier to the layman. Which is what councilmembers found while spending a couple of hours of quality time to understand it and its implication for the city budget. Pop quiz: does the ‘depreciation’ line item add or subtract to the bottom line? Trick question: both.
Were it only as simple as doing the math of garage receipts minus operations costs. Though parking operations breaks even on an annual basis, receipts won’t cover the investments needed – $15 million next year – for debt service, maintenance, and anticipated new construction. And the year after that too.
The hard truth is that we’re only collecting enough money to cover the our parking services when we give it away for free while the debt on yesterday’s garage construction, the cost of today’s maintenance, and the investment necessary tomorrow simply taps us out. And then some. Where’s Donald Shoup when you need him?
Making Sense of Parking: Budgeting 201
Here’s where we move from Accounting 101 to the real-world accounting of municipal finance: there’s not one ledger for public parking operations but several. On the incoming side, there are permit parking receipts, meter receipts, and public parking garages receipts, including monthly leases. On the outgoing side, there are contracted employees, outsourced functions (we lose 20% of our meter receipts – $1 million – to payment processors annually) and of course capital improvements.
When several years ago City Council created a sort of a shell company (called the Parking Authority) to own and operate all but two of our public garages, it added complexity. But it’s really simple, you see, because the Authority pays the city for staffing and maintenance and the city provides the labor. That leaves zero net. So the Parking Authority reaches into the general fund for a $5 million subsidy on a projected yearly basis to cover everything beyond operations.
Can We Yoke This Beast? Calling Donald Shoup!
City Council asked all of the right questions about how to rein in that Parking Authority subsidy. What about efficiencies in staffing and contracting, say? Inefficiencies have been wrung out of operations during the last few years of budget crisis, yet we’re still saddled with the debt service (and cost overruns) of recent projects – the 3rd Street garage, the Montage garage (under Beverly Canon Gardens), and our newest structure under Annenberg – a $40 million contribution to that project. All cost more than projected and we’ll be paying those bondholders for a long time.
What about extracting more from parking concessions? The city often leases space in city-owned structures like our parking garages. Unfortunately for the ledger, past Councils gave rent breaks, including most recently to upmarket Bouchon restaurant, which rents retail space in a Parking Authority-owned structure adjacent to the Montage. Just this month, in fact, our planning staff proposed a low-cost parking lease-deal in that garage to benefit a restaurant. So not much wiggle room given these constraints.
Then there’s the impact of our two-hour free parking policy. Here’s where we come to the high cost of free parking. Treasurer Elliot Finkel practically begged Council for a gut-check:
“Sixteen million dollars has been drained from the General Fund since 2007 for the parking authority and we’re facing $15 million in General Fund revenues for general maintenance and repairs through 2017-18,” Finkel said. “This does not include any new parking facilities for South Beverly, Robertson Boulevard, or the Southeast” (future garage construction anticipated by the city). He said that the $5.4 million annually folded into the authority receipts from our parking meters receipts are “funds that could go to any other priorities.” And for good measure, Finkel added, “Two-hour free parking has been a fiscal disaster.”
When City Council cuts that $5 million check to the Parking Authority from the general fund each year, in effect we sacrifice city services to cover the $4–6 million in parking that we simply give away. (How conveniently that math works!) When Council adopted that policy in 2007, the rationale was to make Beverly Hills more attractive to businesses. “To keep us competitive,” as the Council said. But when we backfill the hole blasted in our budget, don’t we forfeit other opportunities that could make us competitive?
And one area where we don’t compromise is marketing. To attract and retain businesses our Chamber of Commerce received $240,000 this past fiscal year for a ‘business retention’ program, up from $180,000 the prior year. We also spent $5 million to market the BH brand with about half of that going directly to the Convention and Visitors Bureau to promote our hospitality sector. Other monies went for various business incentives or to build first-class structures to attract them.
But what about the lifestyle investments we see other cities making? Street improvements to make cycling safer. Bicycle racks to make bike parking easier. And a raft of measures from targeted promotions to organized events to highlight the latent spending power of the riding community, those of us who travel by other means than motorcars and like to shop local.
Long Beach pioneered it. They’ve got a bicycle-friendly business program, a ‘bike Saturdays’ series of rides, and they’re inaugurating a bike share program to allow residents and visitors to move around the city and patronize local shops organized across six bike-friendly business districts. Beverly Hills have none of them. Soon, Santa Monica, City of Los Angeles, and West Hollywood all will have them.
Our Small Business Task Force simply couldn’t recognize the opportunity, though. What we need is a mobility coordinator who can work with the Transportation division, our CVB, and the Chamber to get these off the ground. Why not start with a piece of that five million bucks annually that we throw at parking garages? That might help our suffering 2nd tier business corridors stay competitive.
Instead we spend that money on public parking garages that should be revenue-generating anyway. City of Los Angeles public parking structures are viewed as the city’s cash cow, for example; just a couple of years ago councilmembers there proposed to sell off to a private consortium their operations for enough money to solve the city’s budget problems. (They chose not to.) The promise to investors? Parking there is under-priced and can generate much fatter margins.
Here the taxpayers seem to be the cash cow delivering every day to support our parking operations, not the other way around. As Treasurer Finkel said of his committee, “Our understanding is that the Parking Authority was established to be self-sufficient and to promote retail spending but we believe that it is doing neither.”
Finkel offered some back-of-the-envelope figures: since two-hour free parking was adopted in November of 2007, business tax receipts are up 9%; property tax revenues are up 28%; the occupancy tax is up 10% but sales tax revenues are down 2%. Finkel also said that the policy constrained supply. Parking lots are “the first and last thing many visitors see” he said, noting that when visitors see no space is available then they may choose not to shop at all.
How can sales tax collections be down but parking demand is up? Is the policy failing, or is the data more signal than noise? We can’t be sure because when the policy was adopted, you see, there was no study, no review period defined, nor a sunset provision added. (It’s not even clear that there were formal policy objectives.) Finkel recommended we finally undertake that study.
Shoup Has it Right: The High Cost of Free Parking
The Council presentation recalled Donald Shoup’s High Cost of Free Parking [our review] wherein he recommended that cities limit the supply of parking and price it properly to encourage modes of mobility other than driving. You know, to gain the foot traffic for the shops without paying to warehouse the cars on the streets and in our public garages (where space is too expensive to under-price).
City Council spent a significant portion of budget session #2 discussing what to do about the situation but never once did Shoup’s ideas come up. Yet it’s not like we haven’t heard them. He came to our Traffic and Parking Commission in person, with book in hand, to underscore his findings. And Beverly Hills itself even made an appearance in his book – and not as a positive case study. Hello!
We’ve already bailed out our Council-created Parking Authority with $16 million from the general fund to date, and we’re projecting to keep bailing it out to the tune of nearly $5 million a year, every year, through 2020-21. Let’s take this moment to reassess what kind of mobility future we want for Beverly Hills.
Interested in learning more about our Parking Authority or the impact of our parking policy on the city budget? Have a look at last year’s summary powerpoint or line-item ledger. Or listen to budget session #2 on demand. Want a refresher class in Accounting 101? Then tune in to budget session #3 follow-up for the full case study. Bean-counters won’t be disappointed.
Answer to the trick question: depreciation reflects the real cost of constructing a parking structure. It is capitalized at the outset as an investment that delivers the service over the lifespan of the structure but appears as a positive line item on a scheduled basis to reflect the benefit that the asset continues to deliver. We welcome your help in making the concept intuitive!