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SR-417-005 (9) .. . i1r'-00s: . II-A JUN 2 3 1987 C/ED:EDD:PC:JPM:pw council Meeting: June 23, 1987 Santa Monica, California TO: Mayor and City Council FROM: City staff SUBJECT: Recommendation for Approval in concept Installation of Parking Meters in the Parking Structures and the Reduction of Maintenance Fee for the Downtown the Mall INTRODUCTION This staff report reconunends that the city council approve in concept the purChase and installation of parking meters in the downtown parking structures, and a concomitant reduction in the Mall Maintenance Fee, which is used for operation and maintenance of the parking structures and the common areas within the Third street Mall and Downtown Maintenance District. BACKGROUND At its August 19, 1986 meeting, the city council adopted Ordinance 1382 (CCS) establishing an annual Mall Maintenance Fee which is levied against all holders of business licenses in the Third Street Mall and Downtown Maintenance District (District). The purpose of the Maintenance Fee is to pay for a portion of the costs of operating, maintaining and repairing the public parking structures and common areas in the District. The ordinance established the Maintenance Fee at five times the City'S Business License Tax or $15,000, annually adjusted by the Consumer Price Index (CPI), whichever is less. It should be noted that this - 1 - I/.A JON 2 3 1987 . . Maintenance Fee is separate from the assessment charges which were also established by the City Council in August of 1986. Those charges, which are levied against property owners, are necessary to service the debt on the Certificates of Participation issued to raise capital for District improvements and are not recommended for modification. In its review and approval of these actions, the City council requested that staff evaluate the equity of the formula for determining the Maintenance Fee. This report relates staff 1 s efforts to work with the constituent groups in the District and the Third street Development Corporation (TSDC) to evaluate the Fee level and consider opportunities for lowering the Fee and assuring that the Fee does not present a barrier to the economic health of businesses on the Mall. It was also a goal of these parties to ensure that any change in the Fee did not create a greater burden on the General Fund for the support of Mall operations. TO pursue this evaluation, the TSDC organized a representative group of District property owners, merchants, professional office tenants and the Chamber of Commerce to form a Joint conuni ttee. staff met on numerous occasions with the Committee to review revenues and expenses generated in the District to determine a fair and equitable level for the Maintenance Fee. The result was a new methodology which includes attributing all revenues generated in the District, such as from the leases in the parking structures, parking permits, parking meters, Mall common area leases and parking structure retail spaces, to the District I s - 2 - / . . credit. The methodology also attributes all unique District costs as the District's responsibility I such as the budget for the TSDC and all operation, maintenance and extra security costs (parking structure guards). The costs of standard city services such as routine pOlice, fire and street maintenance are not included, nor are standard citywide revenues such as sales tax and parking violation fines. It was also agreed that the fair share contribution of certain businesses located in the District which do not hold business licenses (and therefore don't pay the Fee) , such as social service agencies, should be the responsibility of the City I not the balance of the District businesses. These non-paying businesses were found to represent approximately 17% of the District, both in terms of square footage and estimated unrealized revenue. The purpose of the methodology is to establish the basis for a self-sufficient District, where the General Fund or citywide contribution to the District would be diminished over time. This methodology was found to be acceptable to both staff and the Joint Committee as fair and administratively manageable. city Subsidy To District The use of this cost accounting methodology made it clear that the Maintenance Fee as currently constituted does not come close to actually covering costs, as it should if the District is to meet its goal of self-sufficiency. The City is currently subsidizing the District's operating deficit from the General Fund by approximately $436,000 annually. - 3 - . . As demonstrated by the fallowing table the projected FY 1987-88 expenses for the District are estimated to be $1,649,660. Revenues from existing permits, leases, common area/parking structure retail spaces are expected to total only $489,437. Consequently, the Oistrict's operating deficit prior to collecting the Maintenance Fee is projected to be $1,160,223. with the current five times business license tax Maintenance Fee, the remaining operating deficit, or city subsidy, is approximately $436,158. If the Maintenance Fee is reduced as requested to three times business license tax, with a $0.10 per square foot or $15,000 maximum levy, the remaining operating deficit, or City subsidy, is approximately $772,600. Third street Mall Maintenance District Projected operating Schedule FY 1987-88 Expenses Parking Structure O&M $ 760,140 Mall O&M 234,508 Security 284,508 TSDC Budget 330,715 structure 6 Retail Amortization 39,400 $ 1,649,660 Revenue Permits $ 288,700 Leases 80,065 Outdoor dining 8,900 Structure 5 Retail (1/87 - 6/87 ) 37,257 Structure 6 Retail 74,515 $ 489,437 Balance: Deficit without Maintenance Fee or New Revenue Source $ ,1,160,223 As demonstrated above, any reduction of the Maintenance Fee without a new source af revenue, or decrease in expenses, would increase the city's already considerable subsidy. - 4 - . . Alternative Expense Reductions The only identified expense not fixed by a binding agreement is the maintenance of the six parking structures. The City's General Services Department conducted an informal solicitation of private firms to replace the existing City parking structure maintenance staff . without considering contract administration costs, the cost savings estimated from franchising this work to the private sector was less than 3%. The Mall improvement program's construction activity over the next two years further complicates awarding a maintenance contract to a private sector firm due to fluctuating need for maintenance service. Therefore, consideration of private contracting does not appear warranted at this time, especially in light of the construction period upcoming in the District. However, staff will continue to work with the TSDC to ensure that the quantity and scope of maintenance service is appropriate. Alternative Revenue Sources Many sources of revenue were explored by the Joint Committee and City staff and included additional leasing opportunities, advertising revenue, levy of additional taxes or fees, Redevelopment funds, state and federal grants, gifts and endowments, surcharges, recurring event, parking structure operators and parking meters. Leasing opportunities exist, or can be created for limited retail uses within ground floor spaces of parking structures and common areas of the Mall. Approximately 15,000 sq. ft. is either built, or soon to be under construction, and is already included in the District's revenue - 5 - . . projection. Addition of substantive new space is limited by legal covenants and market demand. Advertising revenue potential from kiosks, bus and park benches and billboards would generate very limited income while creating conflicting design quandaries. Consideration of an additional tax levy or fee imposition is impractical since it either merely compounds the burden from which the District members are seeking relief or results in the case of certain special taxes which could cause the Ci ty to exceed its revenue limitation established under Proposition IV, more commonly known as the Gann Initiative. Use of Redevelopment funds were considered, however, state law prohibits use of such funds in non-designated Redevelopment Project Areas except for certain restricted social or public capital purposes. wi th the exception of the federal Community Development Block Grant program, most state and federal grants and programs are designed to assist one-time only capital investment in specially defined distressed areas. Even special demonstration programs from the U.S. Department of Housing and Urban Development, U.S. Economic Development Administration, U.S. Small Business Administration and state of California Department of Commerce are specifically structured not to fund ordinary operation and maintenance expenses. The same general principle prevails for donors of gifts: contributions are generally earmarked for specific capital projects or items. The limited occasion of endowments for ordinary operation and maintenance expenses generally occurs for social service or cultural organizations. Surcharges or permit fees for recurring events within the - 6 - . . District were considered for special activities such as film company use of the Mall, performances by entertainment groups, sidewalk sales by merchants, craft fairs by home cottage businesses etc. However, while these events reflect the District's promotional efforts, they cannot be construed as generating more than nominal fees. The remaining potential revenue sources of operators and meters recogni ze the parking structures as the only viable District asset which could generate sufficient funds on an equitable basis. Parking Operators versus Meters Currently, 1,434 of 2,740 parking spaces in the six parking structures within the District are unencumbered by leases or permits and are available for meters. An additional 300 parking spaces have been proposed for Parking structure #5 and should be under construction in the fall and available for use beginning in January of 1988. The Mall specific Plan discussed the need to al ter the provision of the current unattended, three-hour free parking and suggested that operators be seriously considered to better control the facility and offer a source of revenue for District purposes. The staff explored the concept of an operator parking system and found a number of significant problems that would likely outweigh any potential benefit accruing to the District. The economic return for these particular type of structures was found to be minimal. According to the National Parking Association, most parking facilities having operator management consists of 350 or - 7 - . . more spaces (three of the City's structures have less than 255 spaces available). Fewer spaces diminish the economic return to the operator. In addition, free one-to-two hour parking, without validation, is customarily not feasible in a revenue-producing facility. An average hourly rate of $0.50 per space is generally necessary to cover overhead for operator management and maintenance expense. Val ida tion was deemed an extraordinary burden on the predominately small merchants and not viewed favorably as an offset to free parking. An analysis of operator parking was conducted with a free two-hour provision for these six structures. The projection actually results in operator expenses exceeding revenue by $100,000 and enlarging the District f s annual operating deficit. Operator parking without free parking vlould result in approximately $560,000 of net new revenue to the District, exclusive of substantial operator equipment amortization. The physical configuration of the six parking structures is inadequate to properly facilitate the modifications for the required parking equipment and traffic cirCUlation. Vehicle entry is hampered by insufficient storage depth because of the placement of the gated coupon dispensers. Automobiles could queue onto the sidewalk area and street, impeding traffic at peak times. Exiting would be confined to one exit lane for the public and a separate exit for monthly permit parkers. This cannot be accomplished without substantial capital improvements and may still result in less than satisfactory traffic circulation and safety. - 8 - . . Parking Meters represent an effective and efficient revenue source which can be implemented with minimal disruption. The installation and use of parking meters is projected to result in substantial new revenues to the district. Assuming installation by october I, 1987 of 1,434 parking meters and 300 additional meters by January I, 1988, the meters, at a rate of $0.25 per hour J are projected to generate approximately $490,200 in FY 1987-88 and $693,600 in FY 1.988-89 ( the first stabilized year for meter revenue) before amortizing the $736,950 capital cost. The suggested hourly rate will be the lowest parking meter rates in the downtown area (street meters are $. 35/hour) and substantially below the $0.50 per half-hour rates commonly found in private downtown Santa Monica parking lots. Time limits of the parking meters would be stratified to range from 1. hour maximum period on the lower floors to ten hour parking on the top floors. specifically, the Joint Committee has recommended the following allocation of meters, to be operational 7 days per week from 8:00 a.m. to 6:00 p.m. - 9 - e . ALLOCATION OF METERS o One hour parking 10% These meters would be on levels and become the means of easy access for the short-term is currently forced to use level. the street preserving parker who the upper o Four hour parking 50% These meters would be in the lower levels and provide longer-term convenient parking for shoppers, restaurant patrons, and day-time movie goers, and so forth. o Ten hour parking 40% These meters would be on the upper levels and provide the opportunity for all day parkers who do not need or may not have permanent parking permits. This should relieve the more convenient spaces on the lower level from being taken by early arriving employees by offering an incentive to these particular users to have unrestricted long-term parking without the need to move the vehicle several times in one day to avoid the mandatory short-term time limit. For added convenience, the one and four hour meters will accept nickels, dimes and quarters. The 10-hour meters will accept dimes and quarters. consistent with the general reaction to on-street meters, proponents of meters within parking structures assert that the meters encourage a desired turnover of patrons and clients and moves long-term parkers, such as employees, to more appropriate spaces further from the core of the commercial building area {i. e. upper floors}. Several other jurisdictions inclUding the - 10 - . . Cities of San Francisco, Monterey and White Plains, New York successfully utilize meters in parking structures. The city of San Francisco utilizes meters in all parking structures of less than 350 spaces. These structures are typically found in neighborhood commercial districts which experience repeated use by the same patrons. The city of Monterey f s metered parking structures are successfully utilized in tourist areas and accommodate visitors not usually acclimated or prepared to encounter meters. White Plains, New York probably represents the most analogous situation to Santa Monica. Having several existing parking structures located in the White Plains Central Business District, extensive consideration was given to converting their structures to an operator system. However 1 inadequate structure configuration existed to accommodate the necessary adaptation to an operator system. Instead, the White Plains structures all utilize parking meters. Favorable public reaction to parking meters in White Plains is attributed to clear signage, and fair and consistent enforcement. Each jurisdiction is unique and results from meter use cannot necessarily be duplicated elsewhere, however, it is important to note that each of the four sample cities serviced a different client group and still experience success with meters within parking structures. Meters are rela ti vely easy to install and require few additional modifications to the parking structures other than signage. The projected operating revenues assume that meters will be installed in 1,434 parking spaces by October 1, 1987, and that an additional 300 parking meters will be - 11 - . . installed by January, 1988. projected gross revenue to be derived from the meters for Fiscal Year 1987-88, assuming installations in October 1987, and January 1988, is estimated at $490,200. This assumes a meter rate of $0.25 per hour and that each meter generates about $400 annually. The concept of installing parking meters with a concurrent reduction in the Maintenance Fee as outlined in this report has received the support of the Third street Development corporation and the Joint commi ttee it formed, the Mall Merchants Association, the Property Owners Association, and the Chamber of Commerce. In addition, a meeting was held on April 22, 1987, in the Mall District where all interested parties were advised of the Joint committee's recommendation. Over 700 businesses, tenants and property owners received leaflets advertising the meeting which occurred at Step-up on Second Street's facility. Approximately 50 people attended the meeting, almost all of whom expressed support for the concept of meters. Reduction of Maintenance Fee The new source of revenue represented by parking meters creates the opportunity to lower the Maintenance Fee without increasing the City subsidy to the District. In fact, the new revenues permit a reduction in both the city's subsidy to District operations and the Fee. The recommended modification to the Maintenance Fee is as follows: EXISTING FEE PROPOSED FEE o Maximum 5x Business License Tax not to exceed $15,000 o Maximum 3x Business License Tax or $15,000 or $.IO/sq. - 12 - . . (or the adjusted amount in- creased by the CPI). ft./mo., adjusted annually by the cpr, whichever is less, On-site parking credit o The purpose of the square foot limitation is to resolve a significant problem occurring with office leasing. Some office tenants must pay significant fees due to the city I s business license tax rate for professionals, but often occupy very small square footage areas. The resul t is a "penal tyll for these tenants for locating in the District. For a tenant in this category occupying 1,000 square feet, the resultant additional "rent" per square foot (the common way for office tenants to view space) is $1.25 per month ($15 per year), which is a significant additional cost, and places the District at a competitive disadvantage in leasing space in a tight leasing market. Thus the $.10 per square foot per month cap would provide assurance to potential tenants that their effective rent for office space would not exceed this amount. This square foot cap would be effective on a request basis only, with applicants having the burden to demonstrate to the City that they qualify for a Fee reduction. This is because the city does not keep records on lease spaces with buildings (and they change frequently as well). Applicants requesting a reduction will be required to submit a copy of their lease and other documentation as to the amount of gross square feet they are leasing. The Department of community and Economic Development, in conjunction with the Finance Department, will work with tenants and building owners on an individual basis to determine eligibility and appropriate reductions in Fees. It is anticipated that - 13 - . . approximately 30 requests for reduction will be submitted for the City's consideration. One other discrepancy of the Maintenance Fee will also be remedied. Unlike the assessment charges, the existing Fee does not provide for a credit for businesses that generally provide parking on-site, including private validation parking. It is proposed that the revised Maintenance Fee provide a credit similar to that of the assessment district when the following conditions are met: parking is within a 300 foot radius; parking is provided free to the public: parking is available on a non-preferential basis to all users: and, the fee-payer seeking the credit controls the use of the entire parking facility (only one fee-payer would be able to claim a credit for a gi ven parking facility, not multiple tenants of a building). If all of these conditions exist, the business will be eligible for a percentage credit determined by dividing the amount of parking provided by the amount required by the zoning code. The proposed reduction in the fee and credits will result in a loss of approximately $336,465 from this revenue source in FY 1987-88 compared with the estimated revenue that would have been generated in FY 1987-88 using the current fee mUltiplier of 5 times the business license tax. This loss in revenue is less than the projected new revenue which will be generated from the meters. The meters are projected to generate about $490J200 in FY 1987-88 and $693,600 in FY 1988-89 (the first stabilized year for meter revenue) and annually thereafter. Thus the gap of District revenues versus costs is made smaller. And because net - 14 - . . revenues to the city are increased, the city subsidy is reduced and the District moves closer to self-sufficiency in operations. Because the proposed fee does not achieve the goal of self-sufficiency, the "shortfall" will be recorded and accumulated over subsequent years. As revenues from the District increase through more and healthier businesses paying the Maintenance Fee, the accumulated "debt" will be amortized. After that occurs, the Fee should be reduced below the 3x rate to the level necessary to cover costs. Eventually, if non-fee revenues from the District increase substantially the Fee may be eliminated entirely. Because it is difficult to predict the point at which revenues will exceed costs to permit lowering the Maintenance Fee below the proposed rate of 3x the business license tax, staff will monitor the situation on an annual basis and return to Council with a recommendation for a reduction in the Maintenance Fee when appropriate. T~ming of Meters and Fee Reduction The Maintenance Fee for each fiscal year is collected through quarterly installments. It is recommended that the payment be lowered from the 5x rate to the 3x rate commencing the second quarter of Fiscal Year 1987-88, which should coincide with the installation of the meters. However, for ease of collection, it is recommended that these different quarterly rates be averaged to enable the payment of four equal installments during the year. This averages out to a 3.5x rate for the upcoming fiscal year, dropping to 3x in subsequent years. In this manner the Fee can be determined in advance and revenues estimated for the fiscal - 15 - . . year. Reducing the Fee rate during the first quarter of the fiscal year, before the meters are installed, would result in a reduction in revenues to the city without the offsetting increase from the parking meters. Therefore, the goal is to have the reduction in the Fee occur at approximately the same time as the installation of the meters. If there is a significant delay in the schedule to install the meters, a concomitant change in the schedule to reduce the Maintenance Fee will be recommended. Coastal Commission Approval The installation of parking meters will require an administrative approval from the Coastal Commission, which Commission staff has stated should be routine and without difficulty. Upon approval of the reconunendation to install meters, staff will submit an application to obtain this approval. CEQA Compliance This project has been determined to be categorically exempt under the California Environmental Quality Act (CEQA) under Class 1 for installation of parking meters in an existing facility. Installation of parking meters in the existing public parking structures will not alter the number or location of existing parking resources in the downtown area. While parking in the structures is currently free, the low charges and convenience associated with metered parking are unlikely to affect either demand for or location of parking. The EIR on the Third Street Mall Specific Plan (SCH No. 86043001) examined the effects of attendant-operated paid parking in the structures and found it - 16 - . . would not have any significant effects. A parking meter system is expected to have less extensive effects than attendant-operated parking. BUDGET/FISCAL IMPACT The capital cost of the purchase and installation of all the necessary parking meters is $736,950. Projected parking meter revenue to the city in FY 1987-88 will be $490,200 and $693,600 in FY 1988-89 assuming that 1,434 meters are installed by October 1, 1987 and an additional 300 meters are installed by January 1, 1988. Projected Maintenance Fee revenue will be $387,600 in FY 19B7-88 and $344,200 in FY 1988-89 assuming the Maintenance Fee is reduced as outlined in this report. Thus, the net benefit to the City as a result of these actions, assuming a straight five-year amortization of the $736,950 capital costs for meter purchase and installation, will be $22,550 in FY 1987-88 and $157,000 in FY 1988-89 when meter revenue is fully realized. As revenues from the Fee and other sources increase, this benefit will increase until the city f s "subsidy" level for the District operation and maintenance costs stabilizes at 17% of total costs. RECOMMENDATION It is respectfully recommended that the City council: 1. Approve in concept the purchase and installation of parking meters in the downtown parking structures and a concomitant reduction of the Mall Maintenance Fee; - 17 - . . 2. Direct the city Attorney to prepare an ordinance to place the downtown parking structures wi thin a Parking Meter District to permit meters to be installed no later than October 1, 1987: 3. Direct the City Attorney to prepare an Ordinance or Resolution as appropriate to reduce the Mall Maintenance Fee levied against all holders of business licenses in the Third street Mall and Downtown Maintenance District as outlined in this report to become effective by October 1, 1987. Prepared by: Peg Curran, Director Community and Economic Development Department Jeffrey P. Mathieu1 Manager Economic Development Oivision Community and Economic Development Department ccadfee4 - 18 -