FINAL REPORTS &
RECOMMENDATIONS
RE: BUSINESS & ECONOMIC DEVELOPMENT and COLLECTIONS & EFFICIENCIES
EIGHT REPORTS OF THE CITY OF LOS ANGELES AD HOC COMMISSION ON REVENUE EFFICIENCY
Ron Galperin, Chair Hon. Cindy Miscikowski, Vice Chair Mark Ames, Commissioner David Farrar, Commissioner Michael Gagan, Commissioner Cheryl Parisi, Commissioner Brandon Shamim, Commissioner
www.core.lacity.org March 2012
COMMISSIONERS
Ron Galperin (Chair) concurrently serves as President of the L.A. City Quality & Productivity Commission and as a member of L.A. County’s Quality & Productivity Commission. He is Vice President of the Bel Air-Beverly Crest Neighborhood Council, a member of the United Way / L.A. Area Chamber of Commerce Homelessness Task Force, and former Chair of the L.A. Jewish Federation’s anti-hunger initiative. Mr. Galperin is an attorney, business owner, Cantor and the author of hundreds of articles for The L.A. Times, L.A. Business Journal and other local and national publications. (Councilmember Garcetti appointee)
Hon. Cindy Miscikowski (Vice Chair) represented the 11th District on the Los Angeles City Council from 1997 through 2005. Previously, she was an aide to Councilman Marvin Braude and the Executive Director of the Skirball Cultural Center. She is currently the President of the Board of Harbor Commissioners, overseeing the Port of Los Angeles. (Mayor Villaraigosa appointee)
Mark Ames is a private investor. From 1993 through June 2007, he worked for Lehman Brothers where he was a Managing Director in the Fixed Income Division, working both in New York and London. During his time at Lehman, Mr. Ames ran various businesses within Fixed Income and has extensive experience in finance, corporate credit and securitization. He was a member of the Global Fixed Income Operating Committee and the European Fixed Income Operating Committee. Mr. Ames has a BA in Economics from Princeton University. (Mayor Villaraigosa appointee)
David Farrar served of counsel at Linebarger, Goggan, Blair & Sampson, LLP, a law firm which specializes in collecting government receivables. In 1998, Mr. Farrar served as a member of Los Angeles County's Economy and Efficiency Commission. He has also served as Chairman of the Los Angeles Community Redevelopment Commission as well as an appointee to the Board of the Metropolitan Water District of Southern California. (Councilmember Koretz appointee)
Michael Gagan is the founder of Kindel Gagan, a public affairs consulting firm. He has previously served as Chief Deputy State Treasurer under Jess Unruh and as Chief Deputy Secretary of State under March Fong Eu. While working for Treasurer Unruh, Mr. Gagan served on thirty-five financing boards and commissions as well as the governing boards of CalPERS and STRS. (Councilmember Parks appointee)
Cheryl Parisi is the Executive Director of AFSCME District Council 36. Ms. Parisi also chairs the Coalition of L.A. City Unions comprised of six unions representing 22,000 City employees. The Coalition is the voice of L.A. City workers championing quality City services for L.A.’s diverse communities. (Councilmember Garcetti appointee)
Brandon Shamim is the President and CEO of Beacon Management Group and Chairman of the Small Business Council for the Greater Los Angeles Area Chamber of Commerce. He served as a U.S. Department of Commerce director, worked at a national public policy think tank and is a professor at UC Riverside's Institute for Global Business Management. (Controller Greuel appointee)
EXECUTIVE SUMMARY OF REPORTS
PROJECTED REVENUE & SAVINGS IMPACTS
he City of Los Angeles Ad-Hoc Commission on Revenue Efficiency (CORE) was formed in the spring of 2010 to evaluate and recommend improvements in collections, billing and new revenues. Comprised of Tseven volunteer Commissioners, CORE issued its Blueprint for Reform of City Collections in the fall of 2010, identifying potential revenues and savings of up to $100 million annually. The Commission has concluded its second and final phase of work with eight comprehensive reports – four focused on Business & Economic Development and another four on Collections & Efficiencies. These eight reports identify and detail the potential for additional combined revenues and savings of $100 million annually – with opportunities for up to $350 million* in such additional revenues and savings annually:
BUSINESS & ECONOMIC DEVELOPMENT:
1. Promoting Local Procurement and Business Preference Review: Dollars & Jobs Lost by the City in Contracts with non-L.A. Businesses for Goods & Services – Proposals to generate more business opportunities and sales tax revenues for the City. CORE estimates the potential for combined revenues and savings of at least $10 - $15 million annually – with significant opportunities for in excess of $100 million annually. (Jobs & Business Development) **
2. Survey of City Departments & Bureaus: Strategies to Foster Efficiencies & Innovations – CORE’s survey of all City departments and bureaus for their best new revenue and savings ideas. This report summarizes the responses, highlights the ideas and offers ways to encourage and support more entrepreneurial initiatives. CORE estimates the potential for combined revenues and savings of approximately $25 million annually – with significant opportunities for in excess of $100 million annually. (Budget & Finance / Audits & Governmental Efficiency)
3. Assessing Business-Related Police Permits & Fees – Opportunities to streamline and simplify the currently 59 distinct police permits for local businesses. CORE estimates the potential for combined revenues and savings of approximately $1 - $5 million annually. (Jobs & Business Development / Public Safety)
4. Failure to Manage City Properties Leased to Non-Profits: Time for Accountability – Evaluation of the more than 100 City-owned properties occupied rent-free. CORE estimates the potential for combined revenues and savings of at least $1 - $5 million annually. (Information Technology & General Services / Budget & Finance / Arts, Parks, Health & Aging) COLLECTIONS & EFFICIENCIES:
5. Lost in the Parking Lot: Stopping Rogue Parking Operators from Stealing Our Tax Dollars – Options for reform of collections, ordinances, etc. CORE estimates the potential for combined revenues and savings of $20 - $30 million annually. (Audits & Governmental Efficiency / Budget & Finance)
6. Managing Our Money: Intergovernmental Revenue Sources – Strategies to monitor & maximize City revenues from (a) real property, business personal property, documentary transfer and sales taxes, and (b) court fees/fines. CORE estimates the potential for combined revenues and savings of $40 - $100 million annually. (Budget & Finance)
7. Improving Collection of Unpaid Parking Tickets: Rental Cars & New Technologies -Recommendations to improve collections on parking tickets issued to rented vehicles and use of new technologies. CORE estimates the potential for combined revenues and savings of $3 - $10 million annually. (Budget & Finance / Transportation)
8. Follow-up to C.O.R.E.’s Blueprint for Reform of City Collections -- Status report on implementation of C.O.R.E.’s Oct. 2010 Blueprint and Accompanying Recommendations Tracker. Per the Blueprint, CORE estimates the potential for combined revenues and savings of $10 - $25 million in the coming fiscal year, and within three years, as much as $100 million or more annually. (Budget & Finance / Audits & Governmental Efficiency)
Ad Hoc Commission on Revenue Efficiency
Ron Galperin, Chair Hon. Cindy Miscikowski, Vice Chair Mark Ames, Commissioner David Farrar, Commissioner Michael Gagan, Commissioner March 2012 Cheryl Parisi, Commissioner Brandon Shamim, Commissioner Website: http://core.lacity.org/
* Each report describes the enquiries, assumptions and conditions upon which evaluation of estimates of potential revenues and savings are necessarily based. ** City Council Committee(s) to which reports might be assigned, and/or with interests in the respective subject matters thereof.
March 22, 2012
The Honorable Antonio Villaraigosa, Mayor The Honorable Wendy Greuel, City Controller The Honorable Carmen Trutanich, City Attorney Honorable Members of the City Council
FINAL REPORTS & SUMMARY OF WORK
The City of Los Angeles Ad-Hoc Hoc Commission on Revenue Efficiency (CORE) is pleased to report that it has completed its work and herewith submits its Final Reports and
Summary of Work.
A. EIGHT FINAL REPORTS
In the fall of 2010, CORE completed its first phase of work in issuing the Commission’s Blueprint for Reform of City Collections -- identifying potential revenues and savings of up to $100 million annually. As of January 2012, the Commission has concluded its second and final phase of work with eight comprehensive reports – four focused on Business & Economic Development and another four on Collections & Efficiencies. These eight reports identify and detail the potential for additional combined revenues and savings of $100 annually – with opportunities for up to $350 million1 in such additional revenues and savings annually.
Attached hereto is a 1-page Summary of Reports & Projected Revenue & Savings Impacts. Copies of all eight Final Reports, Appendices and the Blueprint – along with copies of archived Commission Agendas, Minutes and background and research documents and reports are all available on the Commission’s website: www.core.lacity.org. Each of the Final Reports have also been individually transmitted through the City Clerk and distributed to the City offices, Department(s) and Council Committee(s) listed, respectively, in each of the individual Reports.
1 Each report describes the enquiries, assumptions and conditions upon which evaluation of estimates of potential revenues and savings are necessarily based.
Letter re Final Reports & Summary of Work
March 22, 2012 Page 1 of 5 Pages
In brief, the eight Reports encompass:
BUSINESS & ECONOMIC DEVELOPMENT:
1. Promoting Local Procurement and Business Preference Review: Dollars & Jobs Lost by the City in Contracts with non-L.A. Businesses for Goods & Services.
2. Survey of City Departments & Bureaus: Strategies to Foster Efficiencies & Innovations.
3. Assessing Business-Related Police Permits & Fees.
4. Failure to Manage City Properties Leased to Non-Profits: Time for Accountability.
COLLECTIONS & EFFICIENCIES:
5. Lost in the Parking Lot: Stopping Rogue Parking Operators from Stealing Our Tax Dollars.
6. Managing Our Money: Intergovernmental Revenue Sources.
7. Improving Collection of Unpaid Parking Tickets: Rental Cars & New Technologies.
8. Follow-up to C.O.R.E.’s Blueprint for Reform of City Collections.
B. THE COMMISSION AND ITS WORK
C.O.R.E. was created by the City Council in 2010 to evaluate and recommend improvements in collections, billing and revenue and efficiency enhancements. (Council File No. 09-2560). Since the Spring of 2010, our seven-member Commission, appointed by five of the City’s elected officials, has conducted more than 45 public meetings. The Commission met with, and received reports from, various City departments, including representatives from offices of the Mayor, City Attorney, City Controller, Council offices, City Administrative Officer, Chief Legislative Analyst, Office of Finance, Animal Services, Police Commission, Transportation, Bureau of Sanitation, LAHD, Building and Safety, LAFD, and others. CORE has also received input from consultants to the City, the Coalition of L.A. City Unions, businesses, business associations, members of the public, and independent entities that specialize in the areas of revenue collections and accounts receivable management and Neighborhood Council budget representatives. The Commission also met with representatives of the County of Los Angeles and Commissioners individually conducted extensive research and inquiries to bolster the work of the Commission.
Letter re Final Reports & Summary of Work
March 22, 2012 Page 2 of 5 Pages
C. BLUEPRINT FOR REFORM OF CITY COLLECTIONS
In its first phase of work, CORE issued its Blueprint for Reform of City Collections in the fall of 2010 -- and presented said Report to Council on May 3, 2011 (10-0225). The Blueprint details 65 specific recommendations, including CORE’s recommendation of an Inspector General for Revenue & Collections. Further, the Blueprint offers a comprehensive roadmap for reform of billing and collections activities, and the potential for the City to realize revenues and savings of $10 - $25 million in the coming fiscal year, and within three years, as much as $100 million or more annually.
Some of the Blueprint’s recommendations have been implemented, or partially implemented, others have not. CORE’s Final Report No. 8: Follow Up to CORE’s Blueprint for Reform of City Collection – and Accompanying Recommendations Tracker – follows which of our Commission’s Recommendations we believe have been implemented, partially implemented or are still awaiting implementation. Our Commission urges that implementation of the Recommendations should remain a priority to generate much-needed revenues and savings for the City.
D. INSPECTOR GENERAL
Central to CORE’s recommendation was the creation of a post of Inspector General for Revenue & Collections. Pursuant to the City Council’s approval of such a position, the City advertised therefor in August 2011, and again in the fall of 2011. To date, the position remains unfilled. It continues to be CORE’s very strong recommendation that the City create this post for a 1-2 year period to independently report on, and aid in, the implementation of, the City’s Collection Guidelines, the Controller’s recommendations and the recommendations of CORE’s Blueprint. As we stated in the Blueprint: Reports, audits, Mayoral directives, Council directives and Collection Guidelines have proven to be insufficient by themselves in bringing about reform of collections.
CORE recommends that the IG be assigned to focus on several distinct pools of collections where the City can achieve significant and timely results. And, as detailed CORE’s Final Report No. 8: Follow Up to CORE’s Blueprint, if the IG focuses on these areas – even without achieving a thorough overhaul of collections – we believe the IG will have been a great success. Specifically:
• Emergency Medical Services (EMS) billings; • Parking citations; and • Parking (occupancy) tax.
The Commission encourages and looks forward to an IG beginning work forthwith in order to carry forth our recommendations and assure their implementation and success.
Letter re Final Reports & Summary of Work
March 22, 2012 Page 3 of 5 Pages
E. THANK YOU
The Commissioners would like to express our gratitude for the assistance of myriad individuals in and out of City government, and for the honor and privilege of being of service to the people of the City of Los Angeles. And, we also thank each of the City officials who had a role in appointing the members of CORE. A list of Acknowledgements is also attached hereto.
While the Commission’s formal work is hereby concluded, each of the Commissioners intends to remain available and on-call to further assist in any way. The Commission is grateful for the opportunity to be of service, and we look forward to your consideration of this Report.
Respectfully submitted,
Commission on Revenue Efficiency
Ron Galperin, Chair Hon. Cindy Miscikowski, Vice Chair Mark Ames, Commissioner David Farrar, Commissioner Michael Gagan, Commissioner Cheryl Parisi, Commissioner Brandon Shamim, Commissioner
Attachments / Enclosures
CC: Arts, Parks, Health & Aging Committee Audits and Governmental Efficiency Committee Budget and Finance Committee Information Technology and General Services Committee Public Safety Committee Jobs & Business Development Committee Transportation Committee
Neil Guglielmo, Deputy Mayor, Budget & Financial Policy
Listed Acknowledgements
Contacts:
Ron Galperin, Chair Ad Hoc Commission on Revenue Efficiency [email protected]
Jon Dearing, Analyst Office of Chief Legislative Analyst [email protected]
Website:
http://core.lacity.org/
Letter re Final Reports & Summary of Work
March 22, 2012 Page 4 of 5 Pages
ACKNOWLEDGEMENTS
The Commission would like to express its appreciation and thanks to the following:
• Appointing officials. The Commissioners are grateful to the elected officials who honored us with appointments to the Commission on Revenue Efficiency:
o Hon. Mayor Antonio Villaraigosa; o Hon. Controller Wendy Greuel; o Hon. Councilmember and former Council President Eric Garcetti, who introduced the Council Motion wherein CORE was created; o Hon. Councilmember and Budget & Finance Committee Chair Bernard Parks; o Hon. Councilmember and former Audits & Governmental Committee Chair Paul Koretz; Additional thanks to each of their staff.
• City Attorney’s Office:
o City Attorney Carmen Trutanich o Beverly Cook, Supervising Attorney, Finance Section
• City Administrative Officer Miguel Santana
• Office of Finance:
o Antoinette D. Christovale, Director of Finance / City Treasurer o Ed Cabrera, Assistant Director o Jeff Whitmore, Revenue Manager, Revenue Management Division o Todd Bouey, Senior Mgmt. Analyst II, Centralized Accounts Receivable Reporting
• Chief Legislative Analyst. We thank the CLA for all of its ongoing staff assistance. We particularly wish to thank:
o Jon Dearing, Legislative Analyst –our outstanding staff person for the Commission o John Wickham, Legislative Analyst
• Police Commission:
o Richard Tefank, Executive Director, LAPD Board of Commissioners
• City Departments and offices that have appeared before the Commission:
o Animal Services Department o Department of Transportation o Bureau of Sanitation o Housing Department o Department of Building and Safety o Fire Department
• Los Angeles Parking Association:
o Robert Hindle, Chairman. V.P. of Parking Concepts Inc. o Ken Spiker, Ken Spiker & Associates, Inc., Association Executive Director.
• Los Angeles County Assessor: Hon. John R. Noguez • Neighborhood Council stakeholders and budget representatives. • Members of the public for valuable input. • Coalition of L.A. City Workers. • Outside consultants and others.
Letter re Final Reports & Summary of Work
March 22, 2012 Page 5 of 5 Pages
Report Re: PROMOTING LOCAL PROCUREMENT & BUSINESS PREFERENCE REVIEW
DOLLARS & JOBS LOST BY THE CITY IN CONTRACTS WITH NON- L.A. BUSINESSES FOR GOODS & SERVICES ______
TO: The Honorable Antonio Villaraigosa, Mayor The Honorable Wendy Greuel, City Controller The Honorable Carmen Trutanich, City Attorney Honorable Members of the City Council
DATE: March 2012
I. Summary
THE PROBLEM – The City of Los Angeles has long ignored its own pronouncements to buy local – spending billions of dollars each year nearly everywhere but in L.A. As a result, Los Angeles has missed the opportunity to support local businesses and to create local jobs. It has denied itself millions of dollars in tax revenues each year.
THE SOLUTIONS – In recognition of the serious problems, the City Council in October adopted an 8% local business preference to try to begin to address the problems of inequality in procurement. As Council considers next steps, this report details the inquiries and findings of the Commission on Revenue Efficiency (C.O.R.E.) about the City’s procurement of goods and services from businesses outside of Los Angeles – and our specific recommended solutions. These include more outreach to local businesses, streamlining the procurement and contracting process, simplifying bid packages, revising the definition of what a “lowest responsible bidder” means and a more strategic use of cooperative purchasing alliances.
C.O.R.E. also offers its analysis of the City’s just-adopted Ordinance to establish an 8% Local Business Preference Program, along with what the Commission recommends as clarifications and follow-ups – including proposals for a possible City Charter amendment to more clearly authorize City business preferences.
C.O.R.E. Report Re: Promoting Local Procurement & Business Preference Review
March 2012 Page 1 of 30 pages
The Ad Hoc Commission on Revenue Efficiency (C.O.R.E.) has examined approximately $1 billion in Los Angeles City contracts for goods and services over recent six-month periods. Disturbingly, the Commission found that Los Angeles City businesses accounted for less than 8% of these contracts. Worse yet: In a nine-month period, three departments bought $60 million in vehicles – none were purchased from dealers located in the City of Los Angeles.
With its procurements, the City of Los Angeles is generating business and jobs outside the City and millions of dollars in tax revenues to jurisdictions other than itself. And, while the City rightly encourages its residents to “Shop LA,” the City itself is shopping elsewhere. The City reportedly spends just 16% of more than $1 billion in General Fund procurement dollarsi on businesses in the City, and, it appears, an even lesser percentage for purchases by its Proprietary Departments: the Los Angeles Department of Water & Power, Los Angeles World Airports and the Port of Los Angeles.
The City Council’s charge to C.O.R.E. (Council File No 09-2560) was to evaluate and recommend improvements in billing, collections and compliance – and in the area of new revenues. Our seven-member Commission can think of few better and more important ways to generate new City revenues than to encourage, support and buy from local businesses – and to create more local jobs. And, with some plain old common sense, the City of L.A. can help our businesses, create jobs and achieve millions of dollars in new City revenues annually -- merely by resolving to focus more of the money it already spends on purchase and service contracts into local businesses. Finally, we can further help our businesses, residents and our own City Treasury by working to encourage the County of L.A. and other local public agencies, to award the many billions they already spend annually to local businesses.ii
Imagine all that money now going elsewhere staying in the City – to maintain vital City services.
C.O.R.E. Report Re: Promoting Local Procurement
January 2012 Page 2 of 30 pages
TABLE OF CONTENTS
I. SUMMARY – Page 1
II. LEGAL BACKGROUND & ISSUES OF CONCERN – Page 5
1. L.A. CITY CODE & CHARTER PROVISIONS RE COMPETITIVE BIDS AND PROPOSALS – Newly Enacted Preference Ordinance: Questions & Issues 2. LOCAL BID PREFERENCES – AND FEDERAL & STATE LAWS 3. LOCAL HIRING PREFERENCES GENERALLY 4. L.A. CITY CONTRACTS AWARDED TO SMALL BUSINESSES AND BUSINESSES OWNED BY MINORITIES, WOMEN AND DISABLED VETERANS
III. LOCAL BUSINESS PREFERENCE PROGRAM – Page 8
1. 2011 ORDINANCE RE 8% LOCAL PREFERENCE INITIATIVE -- and notable provisions
2. C.O.R.E.’s ANALYSIS OF THE 8% LOCAL PREFERENCE – AND NECESSARY NEXT STEPS
A. 8% Local Preference – the Favorable B. 8% Local Preference – the Limitations C. On Balance D. Moving Forward – and Necessary Next Steps
IV. RECOMMENDATIONS – Page 12
V. BACKGROUND: SCOPE OF L.A.’S CONTRACTING WITH NON-L.A. BUSINESSES – Page 16
1. CONTRACTS BY PROPRIETARY DEPTS. WITH NON-L.A. COMPANIES FOR GOODS 2. CONTRACTS BY PROPRIETARY DEPTS. WITH NON-LOS ANGELES COMPANIES FOR PERSONAL SERVICES AND CONSTRUCTION 3. FLEET PURCHASES BY THE CITY 4. PURCHASE ORDERS PLACED THROUGH GSD FOR NON-PROPRIETARY DEPARTMENTS
C.O.R.E. Report Re: Promoting Local Procurement & Business Preference Review
March 2012 Page 3 of 30 pages
VI. REVENUE IMPACTS – Page 18
1. SALES TAX
A. L.A.’s Sales Tax Revenues B. L.A.’s Sales (and Use) Tax Expenses 2. LOST BUSINESSES & JOBS
3. LOST BUSINESS TAX REVENUES
4. OTHER LOST REVENUES
ENDNOTES – Page 21
APPENDICES – Page 23
Appendix A – C.O.R.E.’s REVIEW AND ANALYSIS OF U.S.C. REPORT(S) ON LOCAL VENDOR PREFERENCES FOR CITY CONTRACTS
1. FOUR VERSIONS OF THE U.S.C. REPORT
2. QUESTIONS AND CONCERNS RE THE U.S.C. REPORT(S)
Appendix B – L.A. COUNTY / CITY SALES AND USE TAX RATE
Appendix C – SURVEY OF SELECTED LOCAL PREFERENCE PROGRAMS
C.O.R.E. Report Re: Promoting Local Procurement & Business Preference Review
March 2012 Page 4 of 30 pages
II. Legal Background & Issues of Concern
The scope of actions, incentives, preferences and other options that may be available to the City to achieve more local sourcing of goods and services is subject to various federal, state and local laws. Some of the more notable legal considerations are outlined below for informational purposes, and to serve as background information for C.O.R.E.’s Recommendations section. The application and interpretation of these laws is, of course, the purview of the City Attorney’s Office and of legal counsel to the City.
1. L.A. CITY CODE & CHARTER PROVISIONS RE COMPETITIVE BIDS AND PROPOSALS – Newly Enacted Preference Ordinance: Questions & Issues
The L.A. City Charter (Vol. 1, Article III, Sec. 371) requires that most contracts be competitively bid and awarded to the lowest responsive and responsible bidder. There are, however, certain exceptions:
A. LOS ANGELES CITY CHARTER -- (Vol. 1, Article III, Sec. 371) references two types of competitive procurement/contracting methods: “Competitive Bidding” and “Competitive Sealed Proposals”:
(a) “Competitive Bidding. Contracts shall be let to the lowest responsive and responsible bidder….. Notwithstanding the provision of this subsection requiring award to the lowest responsive and responsible bidder, a bid preference can be allowed in the letting of contracts for California or Los Angeles County firms, and the bid specifications can provide for a domestic content and recycled content requirement. The extent and nature of the bid preference, domestic content and recycled content requirement and any standards, definitions and policies for their implementation shall be provided by ordinance.”
(b) “Competitive Sealed Proposals. As an alternative to an award pursuant to open and competitive bidding, a contract can be let pursuant to a competitive sealed proposal method, in accordance with criteria established by ordinance adopted by at least a two- thirds vote of the Council.”
(e) “Exceptions. The restrictions of this section shall not apply to: … (8) Contracts for cooperative arrangement with other governmental agencies for the utilization of the purchasing contracts and professional, scientific, expert or technical services contracts of those agencies and any implementing agreements, even though the contracts and implementing agreements were not entered into through a competitive bid process.”
Questions and Issues -- The language of the Charter creates some uncertainty. While C.O.R.E. does not seek to opine on the laws of the City of Los Angeles, or the interpretation thereof, we note the following:
County vs. City preference: There is a permissible bid preference for letting of contracts for “Los Angeles County Firms” – and the “extent and nature of the bid preference … and any standards, definitions and policies for their implementation shall be provided by ordinance.” Does this mean that the current City Charter could be interpreted to allow a “City” preference by Ordinance? Or, (as the Office of the City Attorney has opined to the Council) that the City may create a preference only for County firms and not specifically for City firms – unless the Charter is amended?
C.O.R.E. Report Re: Promoting Local Procurement & Business Preference Review
March 2012 Page 5 of 30 pages Preference permitted for both “Competitive Bidding” and “Competitive Sealed Proposals”?: The local preference authorized in Subsection “(a) Competitive Bidding”, is defined as a “bid preference” – and arguably applies only to bids – and not to proposals. The distinction between these two contracting methods is further underscored by the fact that Subsection “(b) Competitive Sealed Proposals” describes such proposals “as an alternative” to bidding.
A careful reading of the authority granted in the Charter to create a “bid preference” might reasonably be interpreted to apply only to “Competitive Bidding” and not to “Competitive Sealed Proposals”. Furthermore, the L.A. Administrative Code (as detailed below) states that “Section 371(a) of the City Charter authorizes bid preferences …” (emphasis added). Accordingly, insofar as the City’s just adopted Local Business Preference Ordinance would apply the preference both to “Bidding” and to “Proposals” – one is left to wonder whether the Ordinance might at a future date be deemed to be in conflict with the City Charter.
NOTE: In response to a query from C.O.R.E., the Office of the City Attorney related to C.O.R.E. that its reading of the provision related to bid preferences is not limited to 371(a). Given the fact that the matter is perhaps less than optimally clear, it may be an appropriate matter for further inquiry and/or for clarification as part of a possible Charter Amendment.
Cooperative Purchase Agreements -- Another exception to competitive bids is in Sec. 10.15, Par. 8, which exempts from competitive bidding: “Contracts for cooperative arrangement with other governmental agencies for the utilization of the purchasing contracts and professional, scientific, expert or technical services contracts of those agencies and any implementing agreements, even though the contracts and implementing agreements were not entered into through a competitive bid process.”
B. LOS ANGELES ADMINISTRATIVE CODE -- (L.A. Admin Code, Div. 10, Chapter 1, Article 9, Sec. 10.35), entitled “Bid Preference Based on Location of Firm”. states:
“Section 371(a) of the City Charter authorizes bid preferences based on the geographical location of a bidder. Only the Council shall grant such preference and no preference shall be granted other than for the award of the contracts for the automated refuse collection containers. The Council, in determining the particular geographical area, be it within the State of California or County of Los Angeles, or any sub-area thereof, in which a business needs to be located, or agree to locate, in order to qualify for a bid preference, shall state the reason for such determination. The Council shall further determine the nature and extent of such preference. The adoption of this section shall be deemed authorization for any action by the City Council granting such preference. What constitutes the locating of a business within the geographical area, as to the award of a particular contract, shall also be determined by the City Council.”
Questions and Issues -- The language of the Admin. Code also would seem to create some confusion:
This section of the Admin Code would, curiously, seem to limit the authority of the Council in the granting of preferences pursuant to Sec. 371(a) to none “other than for the award of the contracts for the automated refuse collection containers.” If this were to be the case, the new Ordinance may need to be supplemented or amended to strike from the Admin Code the language that seemingly limits preference(s) to “contracts for the automated refuse collection containers”.
C.O.R.E. Report Re: Promoting Local Procurement & Business Preference Review
March 2012 Page 6 of 30 pages NOTE: In response to a query from C.O.R.E., the Office of the City Attorney related to C.O.R.E. that it would have been optimal to simultaneously amend the above provision of the Admin Code (or to strike the provisions related to refuse containers). Notwithstanding, the City Attorney’s Office believes the new Local Business Preference Ordinance would de facto supersede Sec. 10.35. Again, given the fact that the matter is perhaps less than optimally clear, it may be an appropriate matter for further inquiry and/or for clarification as part of a follow-up “clean up” ordinance.
2. LOCAL BID PREFERENCES – AND FEDERAL & STATE LAWS
There exist limitations on how and when local bid preferences may be implemented. These limitations stem, in large part, from other laws meant to make sure government gets the best deal it can on contracts, to help avoid favoritism in government contracting and to comply with the “Commerce Clause” of the U.S. Constitution – which is interpreted to forbid most restraints on open and free commerce by, between and within jurisdictions in the U.S.iii
The City may also have limited rights or abilities to mandate local bid preferences for Proprietary Department expenditures that use non-City funds – such as airline or passenger fees, tidelands revenues, etc.
For those expenditures for which the City may be able to apply certain local bid preferences, the manner and extent to which the City may grant these preferences is subject to the City’s own ordinances and Charter, to California statutes (including the California Public Contract Code), and to Federal codes and case law. Improperly drafted and/or overbroad local preferences are vulnerable to being struck down by the courts. (See analysis of a proposed Fresno ordinance)iv A Memorandum (opposing local preferences per se) of the Municipal Research and Services Center of Washington State also delineates various practical and legal issues governmental entities should consider.
3. LOCAL HIRING PREFERENCES GENERALLY
Local hiring preferences have become increasingly popular among cities and other jurisdictions. Where a City may consider a local employment preference, the policy, ordinance, or resolution establishing the preference should generally be worded to reflect a legitimate interest of the City, such as encouraging local industry, reducing local unemployment, or enhancing the local tax base. Municipal counsel generally advises that said preference(s) should target qualified unemployed resident workers -- such as workers that have signed up for unemployment assistance -- rather than targeting all residents, regardless of their qualifications or employment status. It is also generally considered advisable that local preferences establish a goal rather than a quota – especially in local hiring preferences.
4. L.A. CITY CONTRACTS AWARDED TO SMALL BUSINESSES AND BUSINESSES OWNED BY MINORITIES, WOMEN AND DISABLED VETERANS
The City of Los Angeles has established programs and policies intended to encourage and assist small businesses and businesses owned by minorities, women and disabled veterans. Most recently, on January 11th, 2011 the Mayor signed Executive Directive 14 which established the Business Inclusion Program. This program’s purpose is to increase the number of City contracts awarded to such small businesses and businesses owned by minorities, women and disabled veterans. The Mayor has set department goals for small and disabled veteran business procurement as well as anticipated minority and women business participation levels. Each department is allowed to experiment and create methods to reach these goals on a quarterly
C.O.R.E. Report Re: Promoting Local Procurement & Business Preference Review
March 2012 Page 7 of 30 pages basis and general managers are held accountable to ensure that the goals outlined are met. There is also an advisory committee – and quarterly Compliance Reports are being posted on the City’s website. The method and process outlined in the Mayor’s program would be an excellent paradigm to extend to encouraging local procurement generally.
Per the webpages of the Mayor’s Los Angeles Works initiative, the Business Inclusion Program requires that all City Departments use the Los Angeles Business Assistance Virtual Network (BAVN). This network allows businesses to identify themselves as either being a certified small business, certified minority owned business, or a certified disabled veteran business. Again, C.O.R.E. recommends something similar for all local business.
III. Local Business Preference Program
1. 2011 ORDINANCE RE 8% LOCAL PREFERENCE INITIATIVE
On October 14, 2011, the L.A. City Council approved an Ordinance prepared by the Office of the City Attorney to create an “8% Local Preference Initiative”. (CF: 11-1673).
The origin of this new Ordinance was in September 2010. Then, the Mayor along with Council Members Krekorian and Parks announced support for an “8% Local Preference Initiative”, and issued a Press Release related to the initiative. In October 2010, a Motion was introduced in Council. Thereafter, on Nov. 4, 2010, the Council considered and approved establishing a local business preference ordinance to grant an 8% preference incentive to qualified local businesses that submit competitive bids or respond to an RFP. (CF 10-2414-S1).1 The intended preference incentive was to be in addition to existing programs for small and minority-owned businesses.
The new Ordinance approved by the Council amends the L.A. Administrative Code to establish a local business preference program for procurement of goods equipment and services when the contract involves an expenditure exceeding $150,000.
Among the notable provisions:
i. The preference shall apply to all Los Angeles County businesses. (Accordingly, the preference would not be limited to City of Los Angeles businesses – based on interpretation of the L.A. City Charter’s language permitting preferences for Los Angeles County firms (See Sec. II.5 hereinabove). ii. Awarding authorities in the City would be required to apply an 8% bid preference in the form of additional points to the final score of proposals from qualified Local Businesses. iii. Awarding authorities in the City would be required to apply a preference (based on a sliding scale of 1% to 5%) to a bid or proposal where – notwithstanding that contractor does not qualify as a Local Business – a local subcontractor will perform work on the contract. iv. The maximum preference shall not exceed $1 million. v. Shall apply only to contracts that involve expenditures entirely within the City’s control – and shall not apply to contracts that involve expenditure of funds not entirely in the City’s control – such as state and federal grant funds. vi. The Ordinance shall not apply to Proprietary and certain other agencies and expenditures, including the Dept. of Water & Power, Los Angeles World Airports and the Port of L.A. “The Draft Local Business Preference Order strongly encourages the Proprietary Departments, the Dept. of Recreation & Parks, the Library Dept. and the Community Redevelopment Agency to adopt a local preference program consistent with the ordinance.”
C.O.R.E. Report Re: Promoting Local Procurement & Business Preference Review
March 2012 Page 8 of 30 pages vii. A qualified Local Business must satisfy all of the following criteria: A. The business occupies work space within the County. B. The business must submit proof to the City demonstrating that the business is in compliance with all applicable laws. C. The business must submit proof to the City demonstrating one of the following:
(1) The business must demonstrate that at least 50 of full-time employees of the business perform work within the boundaries of the County at least 60 percent of their total, regular hours worked on an annual basis, or; (2) The business must demonstrate that at least half of the fulltime employees of the business work within the boundaries of the County at minimum of 60 percent of their total, regular hours worked on an annual basis; or (3) The business must demonstrate that it is headquartered in the County. For purposes of this Article, the term "headquartered" shall mean that the business physically conducts and manages all of its operations from a location in the County.
2. C.O.R.E.’s ANALYSIS OF THE 8% LOCAL PREFERENCE – AND NECESSARY NEXT STEPS
As detailed in this report, an abysmally low percentage of L.A. City contracts for goods and services are entered into with L.A. businesses. Many local businesses are struggling – and the fact that our City looks everywhere for goods and services seems only to add insult to injury. The City must do everything it can to better support local businesses – for the sake of our businesses, for the sake of local jobs and for the sake of the City’s own financial well being, which depends on a strong economy and the revenues that follow therefrom.
Supporters of an 8% local business preference see it as a great way to retain and attract local business – and to generate more revenues for the City. Critics of an 8% local business preference raise philosophical questions about interfering with the free market, and concerns about the City potentially paying more than it otherwise needs to for goods and services.
Both the supporters and the critics of local preferences generally – and of the City’s new Ordinance specifically -- have salient points. Yet both may also be overstated. Moreover, calculating the costs and benefits of an 8% preference inevitably entails much guesswork. Below we summarize the favorable and potential limitations of the 8% preference – and, on balance, the benefits that may be realized. C.O.R.E. also offers our perspective on ways to minimize the downsides and to maximize the benefits of a preference. The Commission also recommends pairing the local preference with our Recommendations in Sec. IV. And, most critically, C.O.R.E. recommends clarifying and resolving the legal issues and impediments to a comprehensive “City” preference – if, need be, by Charter amendment placed before the voters of Los Angeles.
A. 8% Local Preference – the Favorable:
i. The scope of the new Ordinance is limited – The City Attorney’s Office added into its draft of the now-approved Ordinance (see Sec. III.1, above) several limiting provisions that supplement the Council’s original Motion. In the opinion of C.O.R.E., these limitations –
C.O.R.E. Report Re: Promoting Local Procurement & Business Preference Review
March 2012 Page 9 of 30 pages including an overall dollar limit on the preference – are, taken together, thoughtful and appropriate. ii. We need to “level the playing field” -- We are already operating in something less than a free market. As detailed in Appendix “C”, and in the City Attorney’s report to the Council, many other local governments have local preference ordinances that serve to support their local businesses – placing L.A. businesses at a disadvantage in many of those other jurisdictions. This fact, coupled with the acknowledged higher costs of doing business in L.A., suggest that local preferences can serve to simply “level the playing field” for our local businesses. iii. We need to try something new -- The City has in place certain incentives to assist and encourage contracting with, and purchasing from small businesses and businesses owned by minorities, women and disabled veterans. While these are very important programs, they have, unfortunately, not succeeded in helping our City focus a substantial percentage of its contracting locally. We need to do more.
B. 8% Local Preference – the Limitations:
C.O.R.E. would be remiss if we did not also point to some of the potential limitations to an 8% local preference (separate and apart from the issues and concerns detailed in our discussion of the Charter and Admin Code, above):
i. The scope of the Ordinance is limited – Just as this fact serves as “pro” argument for the local preference; it can also serve as a limitation in that it will not apply to Proprietary departments of the City or expenditures that involve certain grants. With the City spending more on outside goods and services through its Proprietaries than through the General Fund, the ultimate benefit of the Ordinance will be limited. That said, the Proprietaries can and should be encouraged to follow suit.
ii. The Ordinance would help L.A. County competitors to L.A. City businesses -- The new Ordinance creates a local incentive for Los Angeles County businesses, not specifically Los Angeles City businesses. This means that a Burbank company would benefit equally from the initiative as a City of Los Angeles business. Take as an example the recent $60 million in vehicle purchases by the City’s Proprietary departments (See into to this Report, and Sec. V.7, and Endnote viii below). While shockingly none of the purchased were from L.A. City dealers, more than half of the purchases were from L.A. County dealers in Alhambra and West Covina. Imagine if we had provided them with an 8% bid preference on the multiple bids they won. It would have potentially needlessly cost the City millions of dollars.
iii. Is an 8% local preference really revenue-neutral? / Problems with underlying Report(s) -- Among the justifications underlying the Council’s November 2010 Motion for an 8% preference, and the resultant Ordinance, was a July 2010 report by Professor Charles Swenson from U.S.C.’s Marshall School of Business, entitled: "The Potential Impact to Los Angeles of Local Vendor Preferences for City Contracts". The U.S.C. Report predicted the City would likely recoup the added costs associated with an 8% bid preference, and likely make money in the form of other new revenues. Unfortunately, at the time the Motion was adopted – and through today – there has been no independent analysis of the numbers in the U.S.C. Report. Neither the CAO nor the CLA had completed a financial analysis.
C.O.R.E. Report Re: Promoting Local Procurement & Business Preference Review
March 2012 Page 10 of 30 pages Furthermore, C.O.R.E.’s analysis (Specifically detailed in Appendix “A”, below), suggests that the projections are questionable. As detailed in Appendix “A”, C.O.R.E. has serious questions about the assumptions and projections in the U.S.C. Report – including questions about (a) assuming a 2X multiplier for each dollar spent by the City within the City, (b) the report’s gross receipts tax assumptions, (c) accounting for the economic impact of businesses that may not be located in L.A. but doing businesses here nonetheless, and (d) avoiding “bid inflation”. Adding to C.O.R.E.’s concerns is the fact that that the U.S.C. Report has been repeatedly revised each time problems about it have been brought to the fore. (Again, see Appendix “A”).
Accordingly, after much discussion, the Commission cannot say with confidence that an 8% local bid preference would be revenue-neutral. Accordingly, it will be for the decision- makers in the City to determine other balancing benefits to an 8% local preference.
iv. No empirical evidence of effectiveness of the a local preference – Even the above- referenced U.S.C. Report states: “For cities which have local bidding preferences, there is no empirical evidence as to 1: how often a local bidder wins; 2. When the local firm wins, if the price is inflated beyond the price offered by a non-local vendor; and 3. When the non-local bidder wins, how much the City gains in terms of more competitive pricing resulting from the bidder preference option.” (See Appendix “A”, Sec. 1.C.).
C. On balance:
The consensus among the Commissioners of C.O.R.E. is that local bid preferences can, in fact, be helpful. Is 8% the right number – and will it be revenue neutral? These are questions that are difficult to answer with certainty given the numbers we have seen. As the Commission has also noted in the “pro” and “con” sections above, the likely limited scope of the application of the preferences will be both an advantage in limiting potential downsides for the City, and a disadvantage in limiting potential upsides. That said, every governmental initiative inevitably involves some pros and some cons. And there are inevitably ancillary benefits to supporting our local businesses.
D. Moving Forward – and Necessary Next Steps:
When the Council voted to approve the new Local Preference Ordinance, there was general acknowledgement by the Council and by the Office of the Mayor that it was not a perfect Ordinance – perhaps there’s no such thing. And while there was consensus that a “County” preference was less desirable than a “City” preference, the Council approved the Ordinance drafted by the Office of the City Attorney – with a request by the Council for recommendations to address this shortcoming – along with others.
Accordingly (as detailed in Sec. IV. of this report, below), C.O.R.E.’s offers its Recommendations for immediate clarifications of questions related to the new Ordinance, for moving forward and for what we believe are necessary next steps.
C.O.R.E. Report Re: Promoting Local Procurement & Business Preference Review
March 2012 Page 11 of 30 pages IV. Recommendations
The Commission offers below its recommendations for actions we believe can be immediately achieved and impactful in boosting local business, jobs and revenues for the City. In brief, the Commission believes a little bit of common sense by procurement officers and decision makers in the City could go a long way.
C.O.R.E. recommends:
LOCAL VENDOR PREFERENCES AND LOCAL BUSINESS PREFERENCE PROGRAM FOLLOW-UPS
1. C.O.R.E. recommends the following clarifications and follow-ups to the City’s just-adopted 8% Local Business Preference:
a. Clarifying accord of the Ordinance with the Charter and Admin. Code.
i. Application of New Ordinance to Competitive Sealed Proposals: Is application of a preference to “Competitive Sealed Proposals” possibly in conflict with the Charter? As detailed in the paragraphs, above, entitled: “Questions and Issues” (Sec. II.1.A & B), the authority granted under the Charter for a local preference could be read to relate only to Sec. 371(a) of the Charter: “Competitive Bidding” – and not to Sec. 371(b) - “Competitive Sealed Proposals”. C.O.R.E. recommends requesting the Office of the City Attorney to memorialize its construction of the Charter extending the bid preference of Sec. 371(a) to Sec. 371(b).
ii. Potentially Limiting Language in the Admin. Code: Again, as detailed in the paragraphs, above, entitled: “Questions and Issues” (Sec. II.1.A & B), C.O.R.E. recommends clarifying whether the language of the Admin. Code (L.A. Admin Code, Div. 10, Chapter 1, Article 9, Sec. 10.35) may need to be amended to avoid conflicting with the new Ordinance. Referencing Charter Sec. 371(a), the Admin Code perplexingly states “no preference shall be granted other than for the award of the contracts for the automated refuse collection containers.” Even if provisions of Sec. 10.35 that are in conflict with the new Ordinance are deemed to be superseded by the new Ordinance, leaving the conflicted language of 10.35 in place is less than optimal.
b. Seeking further guidance as to whether the Charter could reasonably be interpreted to allow a “City” preference to be adopted by Ordinance. While the City Attorney has opined that such a City preference would require a Charter amendment, and while C.O.R.E. has the highest regard and respect for the judiciousness of said office, C.O.R.E. recommends further inquiry into this interpretation of the current Charter.
c. Possible Charter Amendment – If, in fact, the current City Charter is interpreted to mean only L.A. “County” and not L.A. “City” preferences are permissible, C.O.R.E. recommends that a Charter amendment be drafted and presented to the voters as early as practicable. Recommended components:
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March 2012 Page 12 of 30 pages
i. Language specifically authorizing L.A. “City” preferences. ii. Language to make clear the Council’s authority to adopt preferences under Sec. 371(a), (b) and other sections, as may be appropriate. iii. Revisions of various other definitions and requirements in Charter Sec. 371. iv. Language that might in some way either authorize a preference that could be imposed upon the City’s proprietary departments – or, if that would not be legally permissible, perhaps some language re minimal steps the departments must take to reach out to local bidders. (It may be possible to accomplish the latter through an Ordinance instead of through an amendment to the Charter).
GATHERING THE FACTS:
2. That the Council request that the Department of General Services (GSD), with the Chief Administrative Officer (CAO) and the Chief Legislative Analyst (CLA), prepare and present a report to detail:
a. Annual expenditures for taxable goods by the City and each of its Departments, including information about where these goods are being purchased, general categories of such goods, and a breakdown of sales and use taxes paid on those purchases. C.O.R.E. believes that there is significant potential to boost the amounts of sales tax back the City receives for its purchases. By way of illustration, the City may place an order for office supplies from Staples in L.A. or through, for example, La Mirada. This can make a difference in which jurisdiction gets the sales tax.
b. The type and amount of purchases made through cooperative purchase agreements with other government entities.
c. Possible recommendations to update purchasing guidelines to achieve a higher percentage of City contracts entered into, and with, L.A. City businesses. (Note: C.O.R.E. recommends target and/or goals as distinguished from quotas).
3. That the Council instruct the Office of Finance to report on Business Taxes paid by all L.A. City vendors. Said report to include a breakdown of said tax paid by vendors located both in and out of the City of Los Angeles. Roughly 66,000 businesses based outside of Los Angeles paid a total of $38 million in gross receipts taxes in 2010 – for all business conducted within the City of L.A. These businesses, however, only represented less than 15% of the total businesses paying such taxes, and they paid less than 10% of the total business tax revenues realized by the City of Los Angeles in that year. These numbers lead the Commission to wonder whether the City is adequately tracking and billing those businesses outside of L.A. who are doing business in the City – including those who are City vendors. These businesses should, if they are not already, be required to obtain and maintain a business license, and to pay all applicable business tax for all business conducted by said businesses within the City, prior to – and during the term of -- any business conducted with the City.
4. That the Council requests a presentation from the Mayor’s ShopLA Team. This team has been working to encourage more local purchasing, and the information and methods gathered by the Team have valuable application to City purchasing.
C.O.R.E. Report Re: Promoting Local Procurement & Business Preference Review
March 2012 Page 13 of 30 pages IDENTIFYING, RECRUITING & ENCOURAGING LOCAL BIDDERS
5. Council instruct the Department of General Services (GSD) and all City Departments that purchase goods and services to implement a policy to identify and recruit local bidders. GSD and City Departments would be required to independently ascertain whether or not there are appropriate local bidders for contracts exceeding a given threshold (say $50,000). If such local bidders exist, there should be an assertive policy of reaching out to them. The stage at which such identification of, and outreach to, local bidders would occur should be early on in the procurement and contracting process.
6. Council instruct the Department of General Services (GSD) and the contract and procurement divisions of the City’s Proprietary Departments to report on their efforts and initiatives to improve outreach to local businesses – and to encourage and assist in their submission of bids for City contracts. Further, GSD should report on any coordinated outreach efforts with the Mayor’s Business Team, and also report on what type of coordination may exist with departments that do substantial amounts of purchasing and contracting independently of GSD.
7. Council instruct the Department of General Services (GSD) and the contract and procurement divisions of the City’s Proprietary Departments to report on recommendations for simplification and streamlining of bid packages. The longer and more complicated the bid packages have become, the more difficult it has become for businesses to bid.
8. Council instruct the Department of General Services (GSD), in coordination with the Office of the Mayor, to compile, maintain, update and distribute quarterly reports on the dollar amounts and percentages of contracts awarded to local business by General Fund Departments, Proprietary Departments and Enterprise Departments (such as the Bureau of Sanitation) – and on the effectiveness of the Local Preference Initiative.*
* NOTE: C.O.R.E. recommends a paradigm similar to that created pursuant to the Mayor’s January 11, 2011 Executive Directive 14, establishing the Business Inclusion Program. (See Sec. II.8, above). Included in said paradigm are an advisory committee and quarterly Compliance Reports posted on the City’s website. The Los Angeles Business Assistance Virtual Network (BAVN) also allows businesses to identify themselves as being certified in advance.
9. Consolidate all information about bidding and local business preferences and programs in one place. Currently, there is information on BAVN, on an outdated webpage of the Mayor’s Business Team, on the webpages of the Mayor’s Los Angeles Works initiative, and other locations. C.O.R.E. recommends “one-stop-shopping”.
COOPERATIVE PURCHASING ALLIANCESv
10. That the Council instruct the Department of General Services (GSD) to report on the percentage of purchases currently made through cooperative purchasing alliances. The City of L.A. is a party to several cooperative and multi-jurisdictional purchasing agreements, whereby the City buys certain goods at prices negotiated by the cooperative. The government purchasing alliance, U.S. Communities, is one such example.
C.O.R.E. Report Re: Promoting Local Procurement & Business Preference Review
March 2012 Page 14 of 30 pages We must note the irony that while all other bids must follow competitive bidding procedures in the City, the use of purchasing alliances essentially bypasses the complexities of the City’s own system – potentially creating a two-tier system.
One way to increase business generated for local vendors is to make sure that L.A. companies are actively engaged in providing goods and services through such cooperatives. The City might also consider creating its own cooperative.
NOTE: the City of L.A. is a registered agency with U.S. Communities Government Purchasing Alliance -- more than 44,000 registered public agencies utilize U.S. Communities government cooperative contracts to procure more than 1 billion dollars in products and services annually.
11. That the Council and Mayor work with officials of Los Angeles County, the Los Angeles County Metropolitan Transportation Authority (Metro), the Los Angeles Unified School District (LAUSD) and other major local agencies to encourage their implementation of comprehensive local procurement strategies. The County of Los Angeles alone issued more than $5 billion in purchase orders and contracts for goods and services in FY 2010-2011. In July of 2011, the County’s Board of Supervisors approved an 8% local preference for County goods and services contracts. (11-3343). This update to the County Code will only apply to select small businesses, which make up a small portion of overall County contracts. If the City can get the County and others to buy more locally, the City will be a substantial and direct beneficiary in jobs and in local business and sales tax revenues.
TAKING SALES TAX IMPACTS INTO CONSIDERATION
12. That the Council request that the City Attorney prepare the draft of an ordinance amending the definition of “lowest responsible bidder” in the City’s Code(s). C.O.R.E. recommends including a provision whereby the term takes into consideration the sales tax the City would receive back (“tax back”) for purchases it makes from businesses in the City vs. businesses outside the City (approximately 1%). (See Appendix “A”). (See also Endnote ix for additional information, resources and caveats re the 1%).
Taken together, C.O.R.E. believes we can correct the current contracting imbalance – to the benefit of the City, its businesses and its residents.
C.O.R.E. Report Re: Promoting Local Procurement & Business Preference Review
March 2012 Page 15 of 30 pages V. Background: Scope of L.A.’s Contracting With Non-L.A. Businesses
While contracting with non-Los Angeles-based businesses does not necessarily mean that all the money and businesses associated with a particular contract accrue outside the City (see Endnote vii), a significant number of such non-local contracts means overall less business and money staying locally.
Both the City itself, and the June 2010 U.S.C. Report, have previously reported that the City was spending in excess of $1 billion annually on contracts with outside vendors -- of which only $180 million (16%) was spent on City-based firms. Billions more are being spent by the City’s Proprietary Departments: L.A. Dept. of Water & Power, L.A. World Airports and the Port of L.A. The June 2010 U.S.C. Report also found that 32% of state and local governments surveyed had some sort of local procurement preference – while L.A. did not.
More recently, as noted above, C.O.R.E. has examined approximately $1 billion in L.A. City contracts for goods and services over recent six-month periods. L.A. City businesses accounted for less than 8% of these contracts.
Specifically, C.O.R.E. found:
1. CONTRACTS BY PROPRIETARY DEPTS. WITH NON-L.A. COMPANIES FOR GOODS
A mere 2% of nearly $322 million in goods procured by three proprietary City departments over recent six-month periods were purchased from City of Los Angeles businesses. C.O.R.E. examined a total of 67 contractsvi awarded by these departments: 49 by L.A. Dept. of Water & Power (from July 1 – Dec. 31, 2010), 11 by Los Angeles World Airports and 7 by the Port of L.A. (both from Jan. 1 – June 30, 2011). 41% of the contracts were awarded to companies located in other states. In each case, the purchases were subject to sales tax payable by the City – to other jurisdictions.
28 bids valued at $132,047,450.00 were awarded to companies located in other states (40% of the winning bids, 41% of the dollar value). Four valued at $18,819,983.00 were awarded to companies located in other countries (6% of the winning bids, 6% of the dollar value). 33 valued at $164,529,434.00 were awarded to companies located in California jurisdictions outside of the City of Los Angeles (47% of the winning bids, 51% of the dollar value). Five bids valued at just $6,578,585.00 were awarded to companies located within the City. (7% of the winning bids, 2% of the dollar value).
2. CONTRACTS BY PROPRIETARY DEPTS. WITH NON-LOS ANGELES COMPANIES FOR PERSONAL SERVICES AND CONSTRUCTION
A mere 11.5% of more than $632 million in professional service and construction contracts examined by C.O.R.E. were awarded to City of Los Angeles businesses. Of the 71 contracts studied by the Commission by L.A. Dept. of Water &
C.O.R.E. Report Re: Promoting Local Procurement & Business Preference Review
March 2012 Page 16 of 30 pages Power, L.A. World Airports and the Port of L.A., 67.3% of the dollars were spent with companies located in other states -- a total of 71 such contracts valued at $632,129,195 were awarded.vii
17 contracts valued at $425,258,621 were awarded to companies located in other states (24% of the contracts, 67.3% of the dollar value). Nine contracts valued at $4,113,701 were awarded to companies located in other countries (12.7% of the contracts, .06% of the dollar value). 33 valued at $120,615,930 were awarded to companies located in California jurisdictions outside the City (46.5% of the contracts, 19% of the dollar value). One contract valued at $9,500,000 was awarded to the US Army Corps of Engineers (1.4% of the contracts, 1.5% of the dollar value). Eleven contracts valued at $72,640,943 were awarded to companies located in the City of Los Angeles (15.5% of the contracts, 11.5% of the dollar value).
(Note: Certain contracts by their nature require contracting abroad – such as Port contracts with foreign trading agents.)
3. FLEET PURCHASES BY THE CITY
Worse yet, zero percent of more than $60 million in vehicles purchased by proprietary departments since July 2010 were purchased from City of Los Angeles dealers.viii A total of eight bids were awarded by LADWP and the Port of LA for various vehicles. Roughly $6 million in sales tax was paid by the City of L.A. for these purchases – largely to the benefit of the state and seven other local jurisdictions. At least $600,000 of the tax (about 1% of the purchases) would have come back to the City (for the benefit of its general fund) had the purchases been made within the City. Instead, other cities such as Costa Mesa, Fontana and Sacramento now have more money to repave their streets and maintain their police and fire departments. (See Endnote viii and ix for additional information, resources and caveats re the 1%).
4. PURCHASE ORDERS PLACED THROUGH GSD FOR NON-PROPRIETARY DEPARTMENTS:
Purchase orders using vendors within City & County January 1, 2011 to June 30, 2011 Source: City of L.A. GSD # of PO's $ Amount LA City only 11,322 $22,229,626.87 LA County (outside of City) 18,115 $67,580,870.69 Total LA County 29,437 $89,810,497.56 Total Purchases made (irrespective of Vendor Location): 45,416 $190,607,636.17
C.O.R.E. Report Re: Promoting Local Procurement & Business Preference Review
March 2012 Page 17 of 30 pages VI. Revenue Impacts
The City of L.A. expends billions of dollars annually through its contracts for myriad goods and services. With better procurement practices, the City will realize enhanced sales tax revenues, lower sales tax expenses – along with the multiplier effect of more businesses, jobs and various other tax and permit revenues. For every $100 million in taxable purchases the City itself makes, we have the opportunity to achieve more than $1 million in sales tax revenues back to the City. Moreover, if the City merely increased its sales tax revenues per capita to the average for all other cities in L.A. County, the City could generate another $61 million in additional annual general fund revenues – just from sales tax. And, getting other local agencies to buy local would have a significant impact in and of itself. Applying an exact dollar estimate to all of the benefits of local purchasing is an inexact science. Notwithstanding, with more emphasis on local procurement by the City, CORE estimates the potential for combined revenues and savings of at least $10 - $15 million annually – with significant opportunities for in excess of $100 million annually.
1. SALES TAX
Sales tax is both a substantial revenue source and a substantial expense for the City of Los Angeles.
A. L.A.’s Sales Tax Revenues:
Sales tax revenue constitutes the 5th largest source of General Fund revenue for the City of L.A. – totaling roughly $300 million annually. Currently, however, L.A. is a net exporter of sales tax revenues to outlying municipalities. In fact, L.A. ranks 16th out of 17 contiguous cities in per capita sales tax revenue generation – and 8th among California’s 10 largest cities. (Per CA State Board of Equalization annual reports). While the City of L.A.’s population makes up approximately 40% of L.A. County’s nearly 10 million residents, taxable sales in the City of L.A. make up just under 30% of taxable sales in L.A. County ($39.3 billion in the City vs. $131.9 billion Countywide in 2008). The City of L.A.’s lagging taxable sales results in significantly reduced sales tax revenues per capita for the City – which has been realizing annual sales tax revenues per capita, 21% lower than the average for other cities in L.A. County, and 35% lower for other cities in California. If the City merely increased its sales tax revenues per capita to the average for all other cities in L.A. County, the City could realize another $61 million in additional annual general fund revenues. Increasing L.A.’s sales tax revenues per capita to just ½ of the County cities average would yield more than $30 million per year for the City of L.A. Thus, a concerted effort to increase consumer and business purchases will yield vital dollars for the City’s General Fund, as would a concerted effort by City government to buy goods and services from City businesses.
C.O.R.E. Report Re: Promoting Local Procurement & Business Preference Review
March 2012 Page 18 of 30 pages B. L.A.’s Sales (and Use) Tax Expenses:
The City of Los Angeles pays sales tax on nearly every good it purchases in California (As of July 1, 2011, the rate in most parts of the County is 8.75%). For purchases outside of California, an equivalent use tax is due and payable. This translates into well over $100 million in sales (or use) tax paid by the City each year for its purchases. Generally, for purchases made in the City of L.A., 1% of the purchase price (or about 11% of the sales tax paid) is distributed to L.A. for the benefit of its General Fund. The City also benefits from another 1.5% of the purchase price (or about 29% of the sales tax paid) that goes to the County for transportation (including Measure R money). See Appendix “A” for a breakdown.
Purchases made by the City from businesses in other California jurisdictions typically mean the other jurisdictions – and not L.A. – benefit. Purchases made out of state are subject to “use tax” (equivalent to the sales tax) that must typically be paid by the purchaser. While a portion of the use tax paid by the City comes back to us, it is not as beneficial to the City as if the purchase had been made from a business located here. It must be noted that the rules for distribution, allocation, sharing and countywide pooling of sales tax revenues are very complex. Moreover, the distribution of the City’s and/or County’s share of sales tax can depend on many factors, including where the good is purchased, where it is delivered, the location of the seller, the location of the buyer, whether the seller has multiple business locations, and what type of good is being sold. (See Endnote ix for additional information and resources).ix Interestingly, the purchasing power of Proprietary Departments might be viewed as a way to generate sales tax revenue for the City’s General Fund. The Proprietaries use non-General Fund money to buy taxable goods; any sales tax generated by purchases from businesses located in the City accrues to the benefit of the General Fund. Unfortunately, the departments rarely purchase taxable goods from businesses located in the City, which means that the City’s General Fund does not receive the local share of sales taxes on the vast majority of purchases made by the departments. Instead, again, the local share in most instances goes to other jurisdictions.
2. LOST BUSINESSES & JOBS
Different reports may have different numbers – but one thing is clear: Local purchasing boosts businesses and jobs. The failure to do so costs businesses and jobs.
3. LOST BUSINESS TAX REVENUES
When the City of L.A. contracts with non-city businesses for goods and services, those non- city businesses are required to pay local business tax on the gross receipts they realize from doing business in the city. However, enforcement and collection of the gross receipts tax is often less effective with non-L.A.-based businesses. (The Commission recommends that evidence of a City Business Tax Certificate be provided either at the time of bid or before contract execution.) Moreover, by failing to buy in L.A., we lose all or part of the local “multiplier effect” – and the concomitant business taxes that would have resulted therefrom.
4. OTHER LOST REVENUES
When the City contracts for goods and services within the City, local businesses prosper in a multitude of ways. Among other things: they make improvements and expand their business locations – which results in increased L.A. Dept. of Building & Safety permitting fees; expanding businesses mean more property tax revenues for the City of L.A.; and as local businesses buy more equipment, machinery and supplies, they pay more Personal Property Tax Assessments to the County -- a portion of which is shared with the City.
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Respectfully submitted,
Ad Hoc Commission on Revenue Efficiency
Ron Galperin, Chair Hon. Cindy Miscikowski, Vice Chair Mark Ames, Commissioner David Farrar, Commissioner Michael Gagan, Commissioner Cheryl Parisi, Commissioner Brandon Shamim, Commissioner
CC: Budget & Finance Committee Jobs & Business Development Committee Information Technology and General Services Committee Miguel A. Santana, City Administrative Officer Gerry F. Miller, Chief Legislative Analyst Antoinette Christovale, Director, Office of Finance Neil Guglielmo, Deputy Mayor, Budget & Financial Policy Tony Royster, General Manager, Department of General Services
Contacts:
Ron Galperin, Chair Jon Dearing, Analyst Ad Hoc Commission on Revenue Efficiency Office of Chief Legislative Analyst [email protected] [email protected]
Website:
http://C.O.R.E..lacity.org/
+ The Commission would like to specially acknowledge and thank Commissioner Michael Gagan for contributing his outstanding research to this report, along with Patrick Lantz, an Associate at Kindel Gagan.
C.O.R.E. Report Re: Promoting Local Procurement & Business Preference Review
March 2012 Page 20 of 30 pages ENDNOTES
i The City of L.A. purchases in excess of $400 million annually through its Supply Management System. This number does not reflect purchases made outside of the SMS system, including those made by Proprietary Departments such the L.A. Dept. of Water & Power, World Airports and the Port of L.A., nor does it include capital improvements. ii C.O.R.E.’s Chair simultaneously serves on the County of L.A. Quality & Productivity Commission. In said capacity, he is currently working on a motion that would be introduced by members of the Board of Supervisors to request report-backs to the BOS re the County’s purchases, percentages of local purchases, and distributions of sales and use tax paid by the County and its Departments. iii Per the U.S. Constitution, Article I, Section 8, Clause 3: “[The Congress shall have Power] To regulate Commerce with foreign Nations, and among the several States, and with the Indian tribes …” This clause was intended, and is interpreted to preclude states (and other government entities and jurisdictions in the U.S.) from discriminating against one another. Thereafter, in response to rapid industrial development and an increasingly interdependent national economy, Congress enacted the Interstate Commerce Act in 1887 and the Sherman Antitrust Act in 1890. iv Note: The analysis of the proposed Fresno ordinance by the Assoc. of General Contractors is the association’s analysis – and not necessarily accepted universally or in whole. v Multi-Jurisdictional Purchasing Alliances & Associations:
U.S. Communities Government Purchasing Alliance: www.uscommunities.org National Council of Public Procurement & Contracting: www.goncppc.org Western States Contracting Alliance: www.aboutwsca.org California Association of Public Procurement Officials, Inc. (formerly California Association of Purchasing Officers, Inc.): www.cappo.org National Association of State Procurement Officials: www.naspo.org Los Angeles Metro Public Purchasing Agents’ Cooperative: www.lamppac.org vi The $321,975,452.00 in contracts were based on competitive low-bid awards. Not included were purchases made under previously-approved purchase orders or purchases made under the respective General Managers’ authority. vii While there may be sales tax components embedded in these contracts, no effort was made to determine what those components might be. It is also acknowledged that much of the work under these contracts will be undertaken within the City. viii Below are 6 months of fleet purchases by the City on which the City paid sales taxes. The local share of the sales tax went in the amounts listed to the non-L.A. jurisdictions:
LADWP Product Cost Dealer Location
5/11 234 pickups $ 6,732,789.00 Alhambra 678 pickups 21,359,896.00 West Covina 102 rough terrain vehicles 3,877,849.00 Alhambra 8/10 2-axle stake bed trucks 5,762,954.00 Fontana 2-axle dump trucks 1,398,482.00 Alhambra 2-axle dump trucks 16,022,084.00 Fontana 9/10 160 ¾-ton pickups 4,848,970.00 Sacramento
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PORT OF L.A.
3/11 11 Ford Escape Hybrids $368,902.00 Costa Mesa
Sales Amount Local Sales Tax Share
Fontana $21,785,038.00 $217,850.00 West Covina 21,359,896.00 213,359.00 Alhambra 12,009,120.00 120,091.00 Sacramento 4,848,970.00 48,490.00 Costa Mesa 368,902.00 3,689.00
Total: $60,371,926.00 $603,719.00
ix Sales Tax Rates and Allocations:
Under the Bradley-Burns Uniform Local Sales and Use Tax Law, most retail sales are deemed to occur at the retailer’s place of business in this state where the sale is negotiated. (Exceptions may include certain auctioneers, vending machine operators, and construction contractors). If the retailer has more than one place of business in this state, the sale is deemed to occur at the location where the principal negotiations take place. Generally, the combined 1 percent state and local sales tax portion of the statewide 7.25 percent sales and use tax is allocated to the jurisdiction where the retailer’s place of business is located, and the local use tax is generally allocated through the countywide pool where the property is used.
District taxes are additional transactions (sales) and use taxes imposed within special tax districts. For purposes of distributing the district tax, the tax generally follows the merchandise. That is, the tax is distributed to the district where the goods are delivered (and presumably used). District tax distributions are, therefore, affected by the definition of place of sale, which relies on several factors that also determine if district tax is applicable.
CA Board of Equalization Regulation 1823.4, Place of Delivery of Tangible Personal Property-Generally, provides an exemption for the purposes of the use tax, not the transactions (sales) tax. A retailer may be relieved of the obligation to collect the use tax (for sales other than vehicles, aircraft, and vessels) imposed by a district when you ship or deliver merchandise (tangible personal property) outside of that district to a purchaser's principal residence address or principal business address.
Under a Board of Equalization resolution adopted in 1994, an installing construction contractor or subcontractor may elect to obtain a sub-permit for the job site of a contract valued at $5,000,000 or more. As such, construction sites can be deemed a point of sale, and local jurisdictions have the opportunity to receive the local tax on materials consumed and fixtures furnished by the contractor directly, rather than through the countywide pooling process.
Motor Vehicles:
The tax rate applicable to certain “commercial vehicles” depends on the location where they are used. For the purposes of Regulation 1823.5, “commercial vehicle” means a vehicle required to be registered under the Vehicle Code, used or maintained for the transportation of persons for hire, compensation, or profit or designed, used, or maintained primarily for the transportation of property. Passenger vehicles which are not used for the transportation of persons for hire, compensation, or profit are not commercial vehicles.
The place of use determines the tax rate regardless of the location of the property when it is first purchased. See publication 44, Tax Tips for District Taxes, and BOE Publication No. 34, Motor Vehicle Dealers. Note: “motor vehicle” means a passenger vehicle (designed to carry no more than ten people, including the driver) such as an automobile, minivan, or sport-utility vehicle. The term also includes light-duty pickup trucks (payload capacity under one ton). Different rules apply to other vehicles.
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APPENDIX “A”
C.O.R.E.’s REVIEW AND ANALYSIS OF U.S.C. REPORT(S) ON LOCAL VENDOR PREFERENCES FOR CITY CONTRACTS
Among the justifications underlying the Council’s November 2010 Motion for an 8% preference – and the resulting Ordinance approved October 14, 2011 -- was a July 2010 report by Professor Charles Swenson from U.S.C.’s Marshall School of Business, entitled: "The Potential Impact to Los Angeles of Local Vendor Preferences for City Contracts". The July 2010 U.S.C. Report stated that a very broad 8% local preference would likely be of no net cost to the City.
As detailed below, C.O.R.E. has serious questions about the assumptions and projections in the 2010 U.S.C. Report, along with the three subsequent revisions thereto. These include questions about (a) assuming a 2X multiplier for each dollar spent by the City within the City, (b) the report’s gross receipts tax assumptions, (c) accounting for the economic impact of businesses that may not be located in L.A. but doing businesses here nonetheless, and (d) avoiding “bid inflation”.
1. FOUR VERSIONS OF THE U.S.C. REPORT
A. June 2010 Report -- (Ver. 1.0)
Among the justifications underlying the new L.A. Ordinance was a July 2010 report by Professor Charles Swenson from U.S.C.’s Marshall School of Business, entitled: "The Potential Impact to Los Angeles of Local Vendor Preferences for City Contracts" (the “U.S.C. Report Ver. 1.0”). Most notably, the U.S.C. Report Ver. 1.0 estimated that for each $1 million in locally awarded bids, the City would “be better off by approximately 10 jobs” and “at a preference rate of 8%, the City should make money on local preference.” iv
B. September 7, 2011 Report – (Ver. 2.0)
Based on C.O.R.E.’s questions and concerns posed to the author of the U.S.C. Report, the author issued a revised report Sept. 7, 2011 (the “U.S.C. Report Ver. 2.0). The new report states that: “This paper should be viewed as a replacement to the July 2010 paper.”
While the U.S.C. Report Ver. 1.0 stated that “at a preference rate of 8%, the City should make money on local preference”, the U.S.C. Report Ver. 2.0 is more qualified in its predictions and uses a preference rate of 5% as the basis for its conclusion that “such preferences can potentially increase City of Los Angeles jobs at no cost to the City.” The report estimates that adding together the sales and other tax gains from contracting locally could bring “the estimated total revenue effect to roughly 5%.”
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This second Report further qualified its predictions:
“A local bidding preference of 5% for City of Los Angeles contracts would appear to be beneficial to the City in terms of increased local employment at potentially no net cost to the City. However, this conclusion should be moderated by two factors. First, there is a recommendation that the City’s business tax be repealed over time. Should this occur, any potential increased revenues from local bidders winning a contract, calculated above, would be reduced. Second, the City should consider methods to ensure that firms which represent themselves as Los Angeles companies do in fact have a real presence in the City. This would help obviate situations where non locally-based firms set up “shell” companies in the City in order to receive preference points. Finally, while increased awarding of contracts to Los Angeles based firms would certainly increase City revenues, it should be noted that even non-locally based firms which win contracts still pay City taxes, although these taxes would certainly be much higher if these companies were in Los Angeles.”
C. September 18, 2011 Report – (Ver. 2.1)
On September 18, 2011, the author of the U.S.C. Report issued a subsequent revision of the report: (U.S.C. Report Ver. 2.1). Said version seeks to offer calculations where a 5% local vendor bidding preference might be beneficial to the City. The new report also includes a significant caveat:
“For cities which have local bidding preferences, there is no empirical evidence as to 1: how often a local bidder wins; 2. When the local firm wins, if the price is inflated beyond the price offered by a non-local vendor; and 3. When the non-local bidder wins, how much the City gains in terms of more competitive pricing resulting from the bidder preference option.”
This third Report repeated the same qualification of its predictions as the second version (see above) – except, now the author again was predicting based on 8% vs. 5%.
D. September 20, 2011 Report – (Ver. 2.1b)
On September 20, 2011, the author of the U.S.C. Report issued a subsequent revision of the report: (U.S.C. Report Ver. 2.1b). Said revision was, according to the author, reflecting comments received by the author from Mayor’s Office. Said fourth version did not contain significant changes from the third version – nor, however, did it address many of the same concerns about the accuracy of the numbers and predictions outlined by C.O.R.E., and detailed hereinbelow:
2. QUESTIONS AND CONCERNS RE THE U.S.C. REPORT(S)
C.O.R.E.’s specific (and ongoing) questions and concerns regarding the U.S.C. Report(s) are as follows:
A. Direct cost(s) to City –
i. Initial Report -- The initial U.S.C. Report’s calculations and projections are based on a supposed example where a non-local bidder bids $990,000 while the local bidder bids $1 million. In this example, awarding the contract locally with an up to 8% local preference has a direct cost differential to the City of only 1%, or $10,000.
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Problem: The Report uses an example where the direct cost to the City is just 1%. With an 8% local bid preference, however, there could be up to an 8% or $80,000 direct cost differential for the City. While an 8% local preference will not always mean an 8% price differential, what's the basis for only a 1% differential, and how would the projections be impacted if the actual differential exceeds 1%?
ii. Subsequent Reports -- In the 3 subsequent versions of the Report, the author offers calculations and projections as follows:
a. The author offers a supposed example of a contract where the local bidder cannot bid below $100,000 and still make a profit. Without a preference, a non-local competitor would (the author predicts) win with a bid of $99,000. With a 5% preference rule, the author of the U.S.C. report reasons, the competing national firm would be forced to bid below $95,000 to win the bid. The author then assumes the non-local bidder would bid $94,000 – and the City would be better off by $5,000 even if the non-local bidder wins ($99,000 - $94,000).
Problem: It is the opinion of C.O.R.E. that these numbers are nothing but sheer and utter conjecture.
b. The author offers a second supposed example where a non-local bidder bids $990,000 while the local bidder bids $1 million. In this example, awarding the contract locally with up to a 5% local preference again has a direct cost differential to the City of only 1%.
Problem: As with the initial version of the Report, this is an example where the direct cost to the City is just 1%. With a 5% local bid preference, however, there could be up to a 5% or $50,000 direct cost differential for the City. While a 5% local preference will not always mean a 5% price differential, what's the basis for only a 1% differential, and how would the projections be impacted if the actual differential exceeds 1%?
B. Multiplier effect –
i. Initial Report -- The initial U.S.C. Report’s calculations and projections are based on what are known as “Type II” Multipliers – which the author states “average about 2” in California. Therefrom, the author assumes an X2 local multiplier effect for projected additional local business activity (and local revenues) generated when the City gets its goods and services locally.
Problem: There seems to be no such multiplier effect figured into the report projections for non-local contracts. It would be helpful to know how the following would inevitably change the projections in the reports:
a) The multiplier effect can vary significantly depending on the goods/services contracted for, and depending on many other variables. More detailed information would be very useful. b) Many non-local contracts still may have some sort of local multiplier effect. (For example, a non-local consulting firm may have local subcontractors, or tile purchased out of L.A. would still require local handling and installation).
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ii. Subsequent Reports -- In the 3 subsequent versions of the Report, the author projects an additional 1.147 cents in revenues to the City from a local contract (from all sources other than business tax). The author further estimates another 2.25 cents in sales tax from resulting employment. Adding in other factors, the author concludes the City would get a revenue gain of 3.92 cents for each dollar of local contracting – plus another 1 cents (or 1%) – approaching a total of 5%. Again based thereupon, the author postulates a 5% local preference might be of potentially no cost to the City.
Problem: Same as for the Initial Report.
C. Gross Receipts Tax –
i. Initial Report -- The initial U.S.C. Report’s calculations and projections appear to be based on a tax rate of .4%* for local businesses contracted to provide goods/services to the City, with none calculated for non-local businesses. This is also the underlying basis for the X2 multiplier effect calculated when the City contracts with local businesses.
Problem: The following factors would inevitably change the projections in the Initial U.S.C. Report:
a) Non-local businesses are required to pay local Gross Receipts Tax on revenues generated from work in L.A. b) Only one of nine businesses tax categories in L.A. pay in excess of .356%, and most pay under .2% (See table). There are also various exemptions where a business may pay no tax. Basing projections on a .4% tax could result in very different estimates of the benefits of local contracting. c) If the Gross Receipts tax is cut or phased out the estimates could be quite different.
ii. Subsequent Reports -- In the 3 subsequent versions of the Report, the author uses an average gross receipts tax rate of .0022.
Problem: As above for the initial Report, and there is no explanation for either rate or for why the 2010 and 2011 reports use different rates.
D. “Bid inflation” and competition –
Problem: How might the calculations and projections take into account certain unintended consequences that could increase the costs to the City of goods and services it procures? Specifically:
i. Competition could decrease, causing “bid inflation”, when non-local bidders opt to not bid because they determine that they cannot afford to compete with an 8% local bid preference. This could particularly chase away non-local bids for goods/services from businesses with low profit margins.
Qiao,Y., Thai, K., and L. Cummings (2009). “State and Local Procurement Preferences: A Survey”. Journal of Public Procurement (9): 371-410: The survey indicated that local governments believed prices on average slightly increased due to bid preferences. (It is important to note that respondents were asked about price inflation due to all types of preferences (gender, ethnicity, disabled, etc) and not just local preferences).
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ii. Non-local businesses currently providing goods/services to the City may find a local partner to submit future bids in excess of what the City is currently paying. If the local partner now gets the award based on an up to 8% preference, one of the main beneficiaries could very well be the non-local business now partnered with the local one. There are some anecdotal reports that some non-local businesses are looking into just such a strategy in anticipation of a new City local preference ordinance.
E. Reverse auctions – This process is becoming an increasingly popular method of getting the best deal on goods and services. While this issue was not addressed in the July 2010 U.S.C. Report, its author added references thereto in subsequent versions of the Report. It remains somewhat unclear, however, how a local business preference would impact the effectiveness of employing reverse auctions.
F. Mitigating considerations – Each of the questions/issues hereinabove could adversely impact the City if a local preference of 8% (or some other percentage) turns out to be more expensive to the City’s budget than the benefits therefrom. However, certain other calculations and projections might positively impact the cost/benefit analysis. The following are not currently included in the calculations and projections, but may be worthy of consideration:
i. For purchases of goods, the City pays sales tax. Approximately 1% of the purchase price comes back to the City for purchases made locally, plus additional benefits from that portion of the sales tax that goes to local transportation, law enforcement, etc.; ii. When local businesses realize more revenues, they make improvements and expand their places of business – which results in increased L.A. Dept. of Building & Safety permitting fees; iii. Expanding businesses mean more property tax revenues for the City of L.A.; and iv. As local businesses buy more equipment, machinery and supplies, they pay more Personal Property Tax Assessments to the County -- a portion of which is shared with the City.
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APPENDIX “B” L.A. County / City Sales and Use Tax Rate: (tax rate):
The City of Los Angeles pays sales tax on nearly every good it purchases (As of July 1, 2011, L.A. County’s rate is 8.75%). This likely translates into well over $100 million in sales tax paid by the City each year for its purchases. Generally, for purchases made in the City of L.A., 1% of the purchase price (or about 11% of the sales tax paid) is distributed to L.A. for the benefit of its General Fund. The City also benefits from another 1.5% of the purchase price (or about 29% of the sales tax paid) that goes to the County for transportation (including Measure R money).
Rate Jurisdiction Purpose Authority 3.6875% State Goes to State's General Fund Revenue and Taxation Code Sections 6051, 6201 0.25% State Goes to State's General Fund Revenue and Taxation Code Sections 6051.3, 6201.3 (Inoperative 1/1/01 – 12/31/01) 0.25% State Goes to State's Fiscal Recovery Fund, Revenue and Taxation Code to pay off Economic Recovery Bonds Sections 6051.5, 6201.5 (2004) (Operative 7/1/04) 0.50% State Goes to Local Public Safety Fund to Section 35, Article XIII, State support local criminal justice activities Constitution (1993) 0.50% State Goes to Local Revenue Fund to Revenue and Taxation Code support local health and social Sections 6051.2, 6201.2 services programs (1991 Realignment) 1.0625 State Goes to Local Revenue Fund 2011 Revenue and Taxation Code Sections 6051.15 and 6201.15 1.00% Local 0.25% Goes to county transportation Revenue and Taxation Code funds Section 7203.1 (Operative 0.75% Goes to city and county 7/1/04) operations Subtotal: 7.25% State/Local Total Statewide Base Sales and Use Tax Rate L.A. County Add-on: 1.50% Local Add-on For transportation (including 0.50% for Measure R) Total: 8.75% State/Local Total Statewide Base Sales and Use Tax Rate – and L.A. County local add- on
SOURCE: http://www.boe.ca.gov/news/sp111500att.htm
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Appendix “C” Survey * of Selected Local Preference Programs
Local Business Preferences Nationwide
See: Long Island Indexiv*
City of Anaheim
Local Preference - Vendors located within Anaheim city limits are given a 1% pricing allowance when calculating the lowest responsive bid due to the ultimate receipt by the City of a proportionate return of sales tax.
City of Burbank
City Code Sec. Section 2-2-122 J - Purchasing Code: Based on “payment of local sales or use taxes that will accrue to the City,” Burbank has a 1% local preference for taxable purchases, related to determining the lowest responsible bidder.
City of Calabasas
Title III, Chapter 3.4 of Calabasas Muni Code – Awards of Contracts to Businesses Located in the City: “The City shall give preference to businesses located in the City (“local businesses”) when the difference between the bids from Calabasas businesses and those outside the City is less than the current sales tax benefit the City would receive from local sales tax and the local business will be able to provide goods or services which are equal in quality…” (See: http://www.cityofcalabasas.com/pdf/agendas/council/2010/042810/item3-staff-report.pdf).
City of Camarillo
City Code, Subsection 6 – Vendor Relations: “When feasible to do so, vendors within the City of Camarillo should be utilized for supplies, services and equipment.”
City of Cerritos
City Code Sec. 3.20.065 – Granting Local Business Preference: “A local business which responds to a bid solicitation by the City of Cerritos for the purchase of equipment, supplies or services required for public use shall be granted a credit of 1% of its submitted bid in the city’s determination of lowest and most responsible bidder.”
City of Downey
Municipal Code Sec. 2910 – Local Vendor Preference: (a) For the purpose of calculating the lowest responsible bidder, vendors whose business or sales office or place of manufacture is located in the
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City of Downey shall be given a (3%) percent credit in their bid in order to reflect the advantages that accrue to the City by the award of a bid to a local vendor. (b) This section will apply only to purchases of greater than an amount established by City Council resolution.
City of Long Beach
Municipal Code Sec. 2.84.030 – A bid from a Long Beach vendor for furnishing materials, equipment, supplies and non-professional services shall be reduced by 10%. In no case shall the maximum preference under this section exceed $10,000 for any bid.
City of San Diego
So-called bid discounts of up to 5% and up to a maximum of $50,000 for qualified Small Local Business Enterprises and Emerging Local Business Enterprises.
City of San Jose
Bids for goods and services from businesses located in Santa Clara County will now be viewed more favorably than non-local competitors while still including factors such as cost and experience. Small businesses with 35 or fewer employees will also benefit. For bids on goods, local businesses will have a 2.5% cost advantage and small, local companies a 5% cost advantage. In reviewing services provided through a request for proposal process local businesses will receive a 5% point advantage and small, local companies a 10% point advantage.
City of Thousand Oaks
Municipal Code Article 5, Chapter 10, Title 3 – Purchasing: Bid Evaluation Procedures: “Quality and service being equal, a local preference of five (5%) percent but not more than Five Thousand and no/100th *($5,000.00) Dollars shall be given to local vendors….” http://www.toaks.org/civica/filebank/blobdload.asp?BlobID=20638
* C.O.R.E. thanks the ShopLA Team of the Mayor’s Office for its assistance in compiling comparison information.
** The Long Island Index was compiled by prepared based on data compiled by the Center for Governmental Research (CGR). New York State research was based on telephone interviews with purchasing agents and/or public works staff. A Lexis search engine review was conducted to identify all state statutes referring to public bidding and preferences. (See http://www.longislandindex.org/).
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Report Re: Survey of City Departments & Bureaus: - Strategies to Foster Efficiencies & Innovations ______
TO: The Honorable Antonio Villaraigosa, Mayor The Honorable Wendy Greuel, City Controller The Honorable Carmen Trutanich, City Attorney Honorable Members of the City Council
DATE: March 2012
I. Summary
The City’s budget challenges have presented a new reality for City government and maintaining City services. C.O.R.E. was charged with examining ways to enhance both revenue and efficiency in City departments. To that end, C.O.R.E. undertook a survey of 21 City departments, bureaus and offices to better understand the areas where additional revenue or efficiency options may exist, and also identify the efforts that City departments have initiated and achieved.
C.O.R.E. posed five questions to each of the Departments, including inquiries of their proposals for new and enhanced revenues, for new and enhanced savings, whether they have a Joint Labor Management Committee – as is encouraged by the City’s Charter. Attached as Appendix “A” hereto is a Summary Sheet of all responses; attached as Appendix “B” is a list of the 115 revenue-generation and cost-savings ideas presented by the Departments to C.O.R.E. Some of the ideas presented by the Departments are new, some aren’t. Moreover, some ideas are stronger, or more impactful, than others. Yet, C.O.R.E. recommends that the City examine each of the ideas, prioritize them, and undertake the ones deemed most do-able and meaningful. As detailed below, C.O.R.E. also recommends that a similar survey be conducted annually.
Perhaps even more important than the 115 ideas we have compiled herein are the lessons we believe that can be drawn from the responses in developing strategies to foster efficiencies and innovations in City government. To that end, our Commission draws particular attention herein to the strategies employed by the City’s Bureau of Sanitation. Every Department, of course, has its strengths and its challenges. Moreover some Departments have more opportunities to be entrepreneurial than do others. It is worth noting, however, that the Bureau of Sanitation’s ideas constituted nearly 23% of the ideas received from the 20 out of 21 departments, bureaus and offices that responded to our survey. In numerous meetings with the Bureau we were impressed by the culture of entrepreneurialism and the fostering of creative ideas.
Among the factors C.O.R.E. identified as fostering efficiencies and innovations were an effective Joint Labor-Management Committee, a strategic plan, good management, teamwork, use of a management and ideas matrix, worker recognition – and institutionalized ways to solicit, incubate, develop and implement ideas to increase revenues and effect operational efficiencies.
II. Recommendations
C.O.R.E. recommends that:
1. All departments be required to fully put in place:
a. A joint labor-management committee or similar process borrowing, if appropriate to the size and mission of the department, from the template of the Bureau of Sanitation. b. A robust strategic planning process modeled, if appropriate to the department, on the template of the Bureau of Sanitation. c. A “Scorecard Matrix” to keep track of good ideas – and to keep them on track. d. Meaningful programs for acknowledging employees in a conspicuous way for ideas they introduce to generate revenue or reduce operational costs. (The City might, under some circumstances, even consider the possibility that as part of effective worker recognition, the City might have bonuses to employees or teams that provide exceptional money making or money-saving ideas. The Commission is, however, cognizant of the potential pitfalls of such a program).
NOTE: Departments that already some of the above in place may want to consider examining the way the Bureau of Sanitation integrates these activities for numerous purposes -- including budget planning, throughout the year.
2. The CAO and CLA consider for inclusion in their respective periodic reports on revenue-generation and cost-savings opportunities for the City the ideas submitted by the departments surveyed.
3. The City develop a training program for departments to establish and conduct joint- labor management committees.
4. The City bolster the resources and work of the City’s Quality & Productivity Commission:
a. Allocate appropriate funds to the Productivity Incentive Revolving Fund (PIRF) to encourage the expansion of demonstrated revenue-generation and cost- savings measures b. Reconstitute the Quality and Productivity Managers Network. The Network provided a way for departments to exchange ideas and programs which have translated to cost savings, greater efficiencies, or increased productivity. c. Charge the QPC with conducting henceforth an annual survey of City departments and bureaus based upon C.O.R.E.’s survey. d. Expand the QPC’s awards program. Recognition of City worker, teams and good ideas are needed now more than ever.
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March 2012 Page 2 of 16 Pages
III. Background
A. C.O.R.E. Survey of City Departments
Beginning in June 2011, the Commission surveyed 21 departments and bureaus and solicited their responses re:
1. New Revenues 2. Cost Savings 3. Joint Labor-Management Partnerships 4. Strategic Plan 5. Rewarding Good Ideas
A copy of the letter soliciting the departments is attached as Appendix “C-1” and a copy of the survey itself is attached as Appendix “C-2”. All except the City Attorney responded.
Departments identified 115 ideas they have to either generate new revenues or effect cost efficiencies. 51 of these are from seven departments that have a joint labor-management committee and all but one of them has a dynamic strategic planning procedure. Interestingly, nearly 23% of all the ideas came from the Bureau of Sanitation – they used nearly every category surveyed from recognizing good ideas to implementing annual strategic plans. (A summary of Survey results is attached as Appendix “A”; and a full list of the 115 ideas is attached as Appendix “B”).
The Commission realizes that the survey itself has limitations. A department could respond that it has a joint labor-management committee, for example, but further examination would find that the committee functioned predominantly as a forum for hearing and resolving grievances rather than as a forum for introducing ideas on how to make or save money for the department. We also realize that some departments who responded that they have a strategic plan do indeed have plans, but they have not been updated in several years and are not genuinely “planning” documents.
B. Strategies to Foster Efficiencies & Innovations – Bureau of Sanitation Case Study
Early in its deliberations, the Commission came to realize that when it comes to innovative ways to make or save money for the City, the Bureau of Sanitation is noteworthy. Not without its challenges, it seeks to develop ways to turn potential environmental liabilities into economic assets -- and seeks to do more with less.
Joint Labor-Management Committee:
An examination of minutes from the Bureau’s joint labor-management committees from January through September 2010 reflect a discussion of 26 ideas to generate new revenue or bring about efficiencies. Some of the revenue-generating ideas are in the process of implementation. A recent report of the City’s Chief Administrative Officer noted that the Bureau has implemented $27 million in operational efficiencies in its Wastewater Division in the past two years.
Section 234 of the City Charter provides that “the City shall encourage joint labor- management partnerships to set goals, encourage agreements, solve problems, create incentives for outstanding individual or team performance and encourage flexibility and innovation.” Best exemplified by the Bureau of Sanitation, the joint labor-management
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committee process, combined with a robust strategic planning process, is a way to institutionalize the introduction, discussion, and ultimate implementation of ideas to generate revenue or reduce operational costs.
Strategic plan:
The Commission also reviewed the Bureau’s strategic planning process and concluded that the use of the joint labor-management committee and strategic planning processes by the Bureau contributed to a thriving culture of entrepreneurship.
Following up on good ideas – the Scorecard Matrix:
One of the things that CORE found to distinguish the Bureau of Sanitation is its use of a “Scorecard Matrix”. The Bureau uses this matrix to track ideas, goals and projects -- along with status and timelines. The Bureau assigns both a “Grade” and a “GPA” to each of the tracked ideas/initiatives/projects. The Bureau also assigns a lead division contact (that it has referred to as the project “owner” to each of the ideas/initiatives/projects. The lead / ”owner” gets the recognition and carries the responsibility for a project’s implementation. (Both a 1-page Sample and a 1-page filled Example of the Bureau’s Scorecard Matrix are attached as Appendix “D”).
C. Conclusions
The combination of joint labor-management committees, dynamic strategic planning procedures, a management-teamwork matrix and programs that recognize employees for good ideas are not simply prudent management practices. They can and do create an institutional process that produces a culture of entrepreneurship. That culture encourages and recognizes the introduction of new ideas and those ideas can and do result in ways to generate or save money for the City without compromising the quality of service the City provides.
In addition to the survey, C.O.R.E. was presented with a few other solutions for enhancing revenue and improving productivity. The Bureau of Street Services presented an overview of the City’s asphalt operations and the two asphalt plants owned and operated by the City. The Bureau discussed the possibility of exploring a way to maximize the output of the City’s two plants and providing asphalt to other jurisdictions and entities in the region. C.O.R.E. recommends this option be explored by policymakers.
IV. Revenue Impact
CORE’s survey yielded 115 ideas from departments and bureaus for revenue generation and cost savings. The ideas are in various stages of exploration or implementation – and some will, inevitably, be better than others. What is most crucial is that the City begin to cultivate a more entrepreneurial and proactive approach in every aspect of its operations and in the potential of putting the City’s vast assets to their best possible uses. By implementing even a few of the 115 ideas presented and by focusing on ongoing money-making and money- saving proposals, CORE estimates the potential for combined revenues and savings of approximately $25 million annually – with significant opportunities for in excess of $100 million annually.
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Respectfully submitted,
Ad Hoc Commission on Revenue Efficiency
Ron Galperin, Chair Hon. Cindy Miscikowski, Vice Chair Mark Ames, Commissioner David Farrar, Commissioner Michael Gagan, Commissioner Cheryl Parisi, Commissioner Brandon Shamim, Commissioner
CC: Audits and Governmental Efficiency Committee Budget and Finance Committee Miguel A. Santana, City Administrative Officer Gerry F. Miller, Chief Legislative Analyst Antoinette Christovale, Director, Office of Finance Neil Guglielmo, Deputy Mayor, Budget & Financial Policy
Contacts:
Ron Galperin, Chair Jon Dearing, Analyst Ad Hoc Commission on Revenue Efficiency Office of Chief Legislative Analyst [email protected] [email protected]
Website:
http://C.O.R.E..lacity.org/
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Appendix “A”
C.O.R.E. Survey of Selected City Departments, Summary Sheet
If no JLMC, is Proposals Proposals Is there a If have JLMC, Employee does it consider there another Have No. of ideas City Department / for new or for new or Joint Labor - recognition revenue or process to strategic presented by Bureau enhanced enhanced Management for good efficiency introduce plan? Dept./Bureau revenues? savings? Committee? ideas? proposals? ideas?
Animal Services Y Y N n/a Y Y Y 10 1 Building & N Y N n/a Y Y Y 0 2 Safety
City Attorney 0 3
City Clerk N N N n/a Y Y Y 0 4 Community Y Y N n/a Y Y Y 2 5 Development Finance / Y Y N n/a Y Y Y 2 6 Treasurer
Fire Y Y Y Y n/a Y Y 2 7 General Y Y Y Y n/a Y Y 5 8 Services
Housing Y Y N n/a Y Y Y 9 9 Information Y Y N n/a Y N Y 14 10 Technology
LA Convention 11 Y Y N n/a Y Y Y 12 Center
Library Y N Y Y n/a N Y 2 12
Personnel N Y Y Y n/a Y N 1 13
Planning Y Y N n/a Y Y Y 5 14
Police N Y Y Y n/a N Y 2 15 Police Commission Y Y N n/a Y Y Y 2 16 Investigation Div. Public Works- Y Y Y Y n/a Y Y 26 17 Sanitation Public Works - Y Y Y Y n/a Y Y 2 18 Engineering Public Works - Y Y Y Y n/a Y Y 3 19 Street Services Recreation & Y Y Y Y n/a Y Y 12 20 Parks 21 Transportation Y Y N n/a N N N 4 TOTAL IDEAS:
TOTALS (Y) 16 18 9 9 10 16 18 115 C.O.R.E. Report Re: Survey of City Departments & Bureaus: Strategies to Foster Efficiencies & Innovations
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Appendix “B”
City Department and Bureau Revenue-Generation and Cost Savings Ideas:
Summer 2011 C.O.R.E. Survey Results
1. Animal Services 1. On-line registration of new dog licenses. 2. Administrative citation program. 3. Increase license fees, create new fees, add penalties. 4. Utilize DWP database for licensing. 5. Create on-line vet portal to reduce processing time for spay/neuter program. 6. Consolidate spay/neuter trust funds. 7. In-house spay/neuter surgery to reduce contracting costs. 8. Determine feasibility of in-house dog licensing to increase revenue. 9. Contract with non-profit organizations to provide marketing assistance. 10. Solicit outside funding to provide marketing assistance.
2. Building & Safety No ideas presented.
3. City Attorney No survey response.
4. City Clerk No ideas presented.
5. Community Development 1. Redesign programs to reduce the number of contracts administered. 2. Improve automated systems.
6. Office of Finance / Treasurer 1. Sale of delinquent accounts receivable. 2. (Consolidation of the Office of Finance and Treasurer, effective August 17, 2011).
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7. Fire Department 1. Institute inspection fees for mid-size and smaller industrial and commercial buildings. 2. Implement 2011 Deployment Plan. 8. Department of General Services 1. Increase customer base at parking facilities by offering specialized incentive programs such as group rates, early bird rates and validation programs. 2. Increase revenue for services provided to proprietary departments such as fleet services to LA World Airports. 3. Continue to install energy and water conservation measures at City facilities to reduce energy and water costs. 4. Use automated equipment to increase productivity in Custodial Services. 5. Increase participation in the Barcode Automation Program to reduce postage costs. 9. Housing 1. Improve accuracy of property data. 2. Application of liens on properties with unpaid bills. 3. Explore new collection practices. 4. Cell phone cost reductions. 5. Consolidate City contracts for property data. 6. Institute on-line payment system. 7. Use temporary staff services for temporary services. 8. Leverage community organizations to enhance service and reduce costs. 9. Consolidate Department contracts to reduce administrative costs.
10. Information Technology Agency 1. Digital Assets advertisement (RFP). 2. Telecom Asset Leasing. 3. City-wide WiFi feasibility report. 4. Satellite TV Franchise Fee. 5. Cable Franchise Auditing Oversight. 6. Los Angeles Business Assistance Virtual Network (LABAVN) users fee. 7. Landline/Telcom Optimization: 8. Cell Phone Optimization. 9. Enterprise Software Licensing Agreements. 10. Multi-sourcing. 11. ITA Space consolidation (reduce external leases). 12. Enterprise Email/Collaboration Software Cloud Solution. 13. Financial Management System (FMS) implementation. 14. Centralized Accounts Receivable Reporting (CARR) project.
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11. Los Angeles Convention Center 1. Market demand parking rates. 2. Improve parking programs to produce additional revenue. 3. Flexible Space rental rates for events that would otherwise not be held at the LACC. 4. Advertising revenue opportunities from web site links, utilization of the facility exterior. 5. Strategic advertising campaigns to create brand recognition. 6. Attract more filming and photo shoots. 7. Identify and pursue grant-based funding opportunities. 8. "LACC's Journey to be Green Turns to Gold” water and energy efficiencies and cost savings. 9. Escalator repair and replacement program to reduce energy costs by 25%-30%. 10. Install Variable Frequency drives (VFDs) for all air handlers to save 50% to 80% on energy. 11. Install Carbon Monoxide (C02) sensors to allow parking exhaust fans to turn on & off based on actual C02 levels to produce energy savings of 30% to 50%. 12. Evaluating options to reduce monthly cell phone service plans.
12. Library 1. Commemorative library card. 2. Pilot an office supply vending machine in one of the busier libraries.
13. Personnel Department 1. Working on the Mayor’s proposal to centralize the City’s Human Resources services.
14. Planning Department 1. Increase planning and land use fees. 2. Generate fee revenue from sign district applications. 3. Partner with sign companies for signage on City properties. 4. Explore the use of part time or contract planning staff. 5. Seeking funding to streamline permitting and land use applications.
15. Police Department 1. Implement the “E-Rotor” program to post certain publications on-line 2. Reduce overtime “time banks”
16. Police Commission, Investigation Division 1. Cost recovery fee for charitable solicitation permit applications 2. Authorize Executive Director on behalf of the Commission to approve Police Permits
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17. Bureau of Sanitation These ideas were extracted from minutes of the Bureau of Sanitation’s Joint Labor-Management Committee meetings (January 2010 through September 2010). 1. Develop Recycling Rewards Program. 2. Tapping the revenue potential of recyclables. 3. Marketing water rights at Green Acres Farm (A 4,688-acre farm near the City of Bakersfield in Kern County. Acquired in 2000, the farm is owned and operated by the City of Los Angeles). 4. Contract with the farm operator at Green Acres to grow pistachios on unused acreage. 5. Central LA Recycling and Transfer Station (CLARTS): Maximize the remaining capacity for revenue; sort materials that come into CLARTS and recycle materials such as plastic, steel and aluminum. 6. Hyperion – Biogas / Digester Capacity: increase the role of the Fats, Oil and Grease (FOG) project. 7. Work with the Solid Resources Division to recycle food waste. 8. Treat additional water at Hyperion to generate revenue. 9. Commercially develop and use Nitrogen Gas produced at Hyperion. 10. Hyperion: Attach a series of Electrical Generating Hydraulics to the 5-mile pipeline. 11. Create a phosphorus product from wastewater at the treatment plants that can be used for fertilizer, as the supply of phosphorus is decreasing and the demand is increasing. 12. Explore revenue opportunities associated with the sequestration of CO2 at the Terminal Island Renewable Energy project. 13. Contract with the City of Malibu on its wastewater treatment plant. 14. Greenwaste: Market a new compost mix. 15. Lopez Canyon -- Mulching Operation: Market compost produced at Lopez Canyon. (in process). 16. Lopez Canyon – use for LADWP green energy generating facility. 17. Lopez Canyon -- site for solar panels. 18. Franchise private haulers to operate in the wasteshed (from 140 haulers to five or six in the multi- family sector). 19. Contract with small outlying cities to pick up their trash. 20. Provide refuse collection at LAUSD. 21. Oversee and pay own liability claims. 22. On-board cameras in waste collection trucks. 23. Scavenger Reduction Task Force. 24. Recover costs from the County for the Safe Center program. 25. Program for replacing warrantable containers (as opposed to City paying for replacements). 26. Working with the Toy District and Fashion District regarding placement of bins and collection.
18. Bureau of Engineering 1. Update cell phone service contract to reduce costs. 2. Salvage and redeploy 19 fleet equipment items.
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19. Bureau of Street Services 1. Deliver Bureau services to other jurisdictions: a. Street resurfacing b. Slurry sealing c. Tree trimming d. Motor sweeping
2. Sell hot asphalt mixes from City’s asphalt plants to other jurisdictions. 3. Retrofit asphalt plants to produce a 50% recycled asphalt mix to generate annual savings of between $5.4 to $10.8 million.
20. Recreation & Parks Department 1. Expand partner relationships to increase financial support for Department programs. 2. Identify and solicit program subsidy support from organizations new to the department. 3. Shift payment for utilities and waste removal to all organizations which have exclusive access to City facilities to run public programs. 4. Implement cost recovery fees for shared utilities and waste removal costs for organizations which provide public programs by sharing City facilities. 5. Solicit major Los Angeles-based retailers with an innovative sponsorship proposition. 6. Develop and charge consistent fees for use of facilities by LAUSD and other schools where a formal written reciprocal agreement is not in place. 7. Implement a “This is YOUR Neighborhood Resource” campaign to inform the public about room and field rental opportunities at recreation centers. 8. Generate revenue by leasing sites at Recreation & Parks facilities for telecommunication equipment (cell towers). 9. Implement water conservation and recycled water programs to reduce consumption and costs. 10. Greater staff efficiencies through landscape maintenance rerouting and clustering of multiple facilities for assignments. 11. Design landscape efficient parks with smart irrigation systems, solar trash cans, self-locking gates, drought tolerant landscaping and artificial turf. 12. Reduction in cell phones and cell phone usage.
21. Department of Transportation 1. Review City’s Vehicle Release Fee for impounded vehicles. 2. Implement an application and recovery fee on special events that reduce parking meter revenue. 3. Increase commercial loading zone and food truck parking revenue. 4. Combine City’s transit services (Commuter Express, Cityride, Dial-A-Ride and selected DASH routes) to create economies of scale, increase competition and reduce City costs by $15 to $20 million over a five-year period.
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Appendix “C-1”
Copy of Survey Letter Sent to City Departments & Bureaus (June 2, 2011)
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Appendix “C-2”
Copy of Survey Form Sent to City Departments & Bureaus (June 2, 2011)
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Appendix “D”
Sample and Example of:
Scorecard Matrix Used by the Bureau of Sanitation to Track Projects / Initiatives
(See attached)
C.O.R.E. Report Re: Survey of City Departments & Bureaus: Strategies to Foster Efficiencies & Innovations
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STRATEGIC PLAN - SECOND QUARTERLY 2011-2012 - BALANCED SCORE BOARD
Date of KRA / Goal / Deliverables & Lead Target Completion % Target Updated 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter GPA Grade Last Measures Div. Date Date Completion Measure Comments Update 7/11 8/11 9/11 10/11 11/11 12/11 1/12 2/12 3/12 4/12 5/12 6/12 Ahead = Status Blue On Target = Status Borderline = Status Missing Target = Status
BOS Overall A GPA #DIV/0! Appendix "D" -- Page 1 of 2 pages 1/17/2012 EXAMPLE: Scorecard Matrix Used by Bureau of Sanitation to Track Projects/Initiatives
STRATEGIC PLAN - SECOND QUARTERLY 2011-2012 - BALANCED SCORE BOARD
Date of KRA / Goal / Deliverables & Lead Target Completion % Target Updated 1 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter GPA Grade Last Measures Div. Date Date Completion Measure Comments Update
2 7/11 8/11 9/11 10/11 11/11 12/11 1/12 2/12 3/12 4/12 5/12 6/12 Ahead = Status Blue 3 On Target = Status 4 Borderline = Status 5 Missing Target = Status Application has 3.a Apply for EPA been submitted. experimental permit to Now, waiting for Submit 24 expand the Terminal RAD 0X 06/30/12 09/30/11 100% 4.25 A+ 01/10/12 USEPA to ask for application Island Renewable any additional Energy (TIRE-II). information or clarifications.
Quarterly report being prepared and will be submitted by January due date to EPA. Met 3.b Quarterly report on Quarterly 25 RAD 0X 0X X X Quarterly 06/30/12 50% 4.00 A 01/10/12 with EPA in December the application status. report done to discuss Permit approval status and conditions for approval.
4. Report on TIRE Complete Total estimated metric tons 13,070 metric 26 project carbon RAD 0X 0X X X Quarterly 06/30/12 50% 4.00 A quarterly 01/10/12 tons CO sequestered sequestration. report to date for the project.
Developing the annual 5. Lead the LA Clean survey with input from Cities Coalition by Complete fleet managers. Work completing a Clean Fuel survey and on the electric vehicle Vehicles survey for DOE infrastructure infrastructure is 27 and an infrastructure map RAD X 03/31/12 03/31/12 75% 4.00 A 01/13/12 map. leading the alternative of LNG facilities. Prepare Complete fuel industry at this annual report for all clean report. time. The research vehicles used by City surrounding LNG fleets. stations is underway.
Appendix "D" -- Page 2 of 2 pages 1/17/2012
Report Re: ASSESSING L.A.’s BUSINESS-RELATED POLICE PERMITS & FEES ______
TO: The Honorable Antonio Villaraigosa, Mayor The Honorable Wendy Greuel, City Controller The Honorable Carmen Trutanich, City Attorney Honorable Members of the City Council
DATE: March 2012
I. Summary
In this Report, C.O.R.E. offers its assessment of business-related police permits and fees in the City of Los Angeles – and the financial and business impacts thereof…
The City of L.A. Office of Finance licenses 430,0001 businesses based, or doing business, in the City, and these businesses are required to renew their licenses annually. Businesses also pay applicable gross receipts taxes to and through the City’s Office of Finance. Somewhat less commonly familiar, however, is the L.A. Police Commission’s Permit Processing Section and its own Business Permit Fee Schedule. The Commission currently has 59 different types of business permits for various businesses – ranging from bowling alleys and antique shops to escort services and firearms vendors (See Appendix “A” attached hereto for the full list).
The City imposes application fees, annual renewal fees and change of address or ownership fees on the various businesses regulated. And most recently this October, the City Council approved extending the fees from 57 to 59 classes of businesses, along with increases to many of these fees for the coming year.2
At the time each of the now-59 classes of businesses came to be regulated, the intent of requiring special permits was to facilitate oversight and to enhance public safety. Having the Police Commission regulate the issuance of licenses for certain types of business is, arguably, often reasonable and necessary. Moreover, in the course of its inquiries, C.O.R.E. has consistently been impressed by the work and professionalism of the Police Commission and, notably, it’s Executive Director.
Government faces the ongoing challenge of balancing the need to reasonably regulate commerce with the responsibility to promote business development – and sometimes, just to get
1 Total number of licenses issued includes multiple licenses which may be issued to one business entity.
2 Notably, as of the date of this Report, the listing of fees on the Police Commission’s website (Appendix “B”) does not correspond to the current list (Appendix “A”). The online version has 57 (vs. 59) permit types – including a $106.00 permit for “Hill Climbing” (listed as no. 25 on the online list of 57). The Police Commission reported to C.O.R.E. that the “hill climbing” permit has been eliminated – but it remains on the list.
out of the way. And, as we know, the costs and complexities of doing business in Los Angeles continue to hamper our local economy, job growth and the City revenues that would be realized with more streamlined and business-friendly regulation.
We have to ask ourselves if today we need to have special permits for bowling alleys, skating rinks, or some of the other businesses we require to have special permits – including what C.O.R.E. was informed is the now-discontinued permit for “hill climbing”. And, we need to take a frank look at the appropriate scope of enforcement of certain businesses in the City – and the law enforcement resources we dedicate to such permitting. Accordingly, C.O.R.E.’s offers its assessment of the current permitting schedule – and the Commission urges the City to undertake a review of the efficacy and necessity of the classes of businesses currently regulated and permitted.
II. Recommendations
C.O.R.E. recommends:
1. That City Council request the Police Commission to present its most recent report on the Business Permit Fee Schedule to the Council’s Jobs & Business Development Committee.3 C.O.R.E. further recommends the Committee consider ways to simplify, prioritize and cut as many of the categories as possible.
2. That an ad-hoc working group be created to (a) examine the Business Permit Fee Schedule, (b) consider possible elimination, consolidation and/or simplification of certain fees and report to the Council and to its Jobs & Business Development Committee on recommendations. C.O.R.E. recommends that said ad-hoc working group be convened with representatives of the Police Commission, the Office of Finance, the Chief Legislative Analyst, the Economic & Business team of the Mayor’s Office and any other appropriate representatives. C.O.R.E. further encourages consultation with representatives of the business community, of the ad-hoc Business Tax Advisory Commission (BTAC) and the Quality & Productivity Commission (QPC) of the City.
III. Background
Per Los Angeles Municipal Code (LAMC) Section 103.12, the Police Commission is responsible for issuing permits for different businesses and activities within the City. The Police Permit Review Panel was introduced in 1992 through changes in the Los Angeles Municipal Code and is a subsidiary of the Board of Police Commissioners. The Permit Review Panel may approve or revoke police permits and review and approve conditions on new and existing police permits.
On April 5, 2011, the Board of Police Commissioners approved its most recent report (dated March 30, 2011) on Commission permits, entitled: “Proposed Amendments to Police Permit Fees, Fees for Special Services and Establishment of a New Special Service Fee for Fiscal Year 2011-2012”.4 On October 21, 2011, said report was presented to the City Council,
3 The report has been previously submitted to the Council and its Public Safety Committee. However, while the fees were examined, C.O.R.E. believes an examination by the Jobs & Business Development Committee would be beneficial. 4 The report describes permits in detail, along with the fees and costs to the City associated therewith. Generally, the period in which permits are valid begin October 1st and are up for renewal by December 31st. Any permit that is renewed after December 31st is charged a re-application fee which is the same as
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along with a September 23, 2011 Memorandum from the Office of the City Administrative Officer recommending adoption of the amendments and fee increases. The Council voted to approve of the recommendations. (CF No. 11-1625). Among other things, the Office of the CAO noted in its Memorandum that many of the police permit fees currently do not fully recover the costs of providing those services.
For 2010, the Police Commission reports 6,399 business permit renewals and 1,217 initial permit requests. C.O.R.E. referred to several sources in looking at the City’s panoply of fees:
(a) The Police Commission’s online Business Permit Fee Schedule5 currently lists 57 categories. (b) The CAO’s Memorandum lists 56 categories (several not corresponding to what is on the website. (c) A report provided by the Police Commission to C.O.R.E. listed 59 permit types (with 2 thereof blank). Again, this list was slightly different than the others. And (d) the Police Commission’s report of March 30 details a total of 70 categories of police permit fees and special services fee, plus the fee for Excessive (and for false) Alarms. Notably, this latter fee represents $6.3 million of the $9.3 million in 2010 revenues from all 71 fees combined.
Quite a number of the categories and fees raise questions about what the City is actually accomplishing. And, we are sure, that many businesses don’t even realize they may be out of compliance. A few examples from the list of 71 categories (and fees):
Antique shop – 34 permit renewals in 2010 and 0 new permit requests. We all know there are well more than 34 antique shops in L.A. – and it’s inconceivable that not even one opened in 2010. It would seem that the very few antique shops that are paying are vastly outnumbered by those that aren’t. Either the City should determine that this is an important type of business to license – and do it right, or not do it at all. Escort and Escort Bureau – For escorts, there were 0 renewals and 0 initial permit requests in 2010. For escort bureaus, there was 1 renewal and 1 initial permit request for 2010. What precisely, then is the point of these permits? Family Billiard Room – 1 renewal and 0 initial permits in 2010. Figure Studio -- 1 renewal and 0 initial permits in 2010. Secondhand Books and Magazine(s) businesses -- 21 renewals and 1 initial permit in 2010. Is policing these businesses necessarily the best use of limited resources? Skating Rink – 3 renewal and 0 initial permits in 2010. Same as above. Auto Park – 884 renewals and 334 initial permits in 2010; total revenues: $223,000. We have very good reason to believe, however, that the number of auto parks may significantly exceed the numbers of those permitted. Moreover, $223,000 doesn’t seem
the initial permit fee. Typically, payment for a Police Permit is made to the Office of Finance; renewals are mailed out by the Office of Finance.
The Permit Processing Section investigates an applicant's qualifications and background. If the applicant meets the requirements and passes the background check, the permit is placed on the Permit Review Panel's calendar to be approved. If there is a reason for denial, the application is forwarded to the Enforcement Section for further investigation. The City Clerk can advise on the City's requirements for specific applications, such as the need for approvals from Building and Safety, Planning or Fire Departments. Requirements are contained in the Municipal Code and Police Commission Board Rules.
5 http://www.lapdonline.org/police_commission/content_basic_view/9139
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like nearly enough to properly watch over permitting for this type of business that has a track record of failures to comply with local laws – including shortchanging the City tens of millions of dollars annually in Parking Occupancy Tax (see C.O.R.E. report October 2011: “Lost in the Parking Lot”). Other – The list of 71 includes categories that are, apparently, not operational including: Photographs, Sale of Audio, Sale of Video and Sale of Training (?). Hill Climbing Permit -- Perhaps the Commission’s “favorite” of all the permit categories is the one for “Hill Climbing” (No. 25 of 57 permits listed on the Police Commission’s on-line Business Permit Fee Schedule (Appendix “B”). Interestingly, this business category is not on the other lists of current permits – not could we find a reference thereto in the Municipal Code – and the Police Commission says it has been discontinued. Nonetheless, as of the date of this Report, the online Schedule clearly indicates an initial fee of $106.
All the aforementioned inevitably leads us to the conclusion that reform is needed.
IV. Revenue Impact
The Police Commission’s recent report details well certain costs directly and indirectly associated with permitting various categories of businesses, but times change. Even as we increase certain fees to achieve so-called full-cost recovery, C.O.R.E. believes it would be valuable to reassess each of the business-related fees. In doing so, we have the opportunity to give a bit more meaning to the oft-repeated mantra of being more business-friendly – and to benefit financially as a City by just getting out of the way.
Increasing compliance for the police permits which have a legitimately specialized or sensitive use will yield more revenues. At the same time, simplifying the process will reduce City overhead costs while encouraging business expansion. CORE estimates the potential for combined revenues and savings of approximately $1 - $5 million annually.
Respectfully submitted,
Ad Hoc Commission on Revenue Efficiency
Ron Galperin, Chair Hon. Cindy Miscikowski, Vice Chair Mark Ames, Commissioner David Farrar, Commissioner Michael Gagan, Commissioner Cheryl Parisi, Commissioner Brandon Shamim, Commissioner
CC: Budget & Finance Committee Public Safety Committee Miguel A. Santana, City Administrative Officer Gerry F. Miller, Chief Legislative Analyst Antoinette Christovale, Director, Office of Finance Neil Guglielmo, Deputy Mayor, Budget & Financial Policy Richard M. Tefank, Executive Director, LAPD Board of Commissioners
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Contacts: Ron Galperin, Chair Jon Dearing, Analyst Ad Hoc Commission on Revenue Efficiency Office of Chief Legislative Analyst [email protected] [email protected]
Website: http://C.O.R.E..lacity.org/
* The Commission would like to specially acknowledge and thank Police Commission Executive Director Richard Tefank for his consistent availability and assistance to C.O.R.E.
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Appendix “A”
Business Permit Fee Schedule
Police Permits are required for the following business activities and professions. Application fees for new permits and for location changes shall be accepted by the City Clerk.
Type of Business Original Annual Police Change of Fee Permit Fee Location Fee 1. Alarm System, Proprietor or $ 30.00 $ 30.00 $ 31.00 Subscriber, other than a mechanical audible alarm system as defined by Section 103.306 of the Code, Protecting a residential building
2. Antique Shop $228.00 $ 76.00 $ 44.00
3. Arcade, Game $595.00 $124.00 $ 91.00
4. Arcade, Picture $540.00 $124.00 $ 90.00
5. Auto Park $154.00 $ 64.00 $ 90.00
6. Auto Rental $166.00 $ 51.00 $ 43.00
7. Bath $154.00 $ 94.00 $ 90.00
8. Bowling Alley $450.00 $ 87.00 $447.00
9. Cafe Entertainment and Shows, $450.00 $100.00 $446.00 Except Live Theatrical Productions in a Theater with a Seating Capacity of 99 Persons or Less
10. Card Club/School $191.00 $100.00 $189.00
11. Carnival $191.00 $ 76.00 $152.00
12. Collectors' Exchange of Antique $250.00 $ 58.00 $ 83.00 Show Promoter
13. Dance Hall $450.00 $100.00 $447.00
14. Dance, One Night-Public $ 58.00 NONE NONE
15. Dance, Teenage-Public $ 45.00 $ 14.00 $ 42.00
16. Dancing Academy $177.00 $ 76.00 $ 43.00
17. Dancing Club $177.00 $ 76.00 $175.00
18. Escort $ 59.00 $ 26.00 $ 43.00
19. Escort Bureau $518.00 $149.00 $ 90.00
20. Family Billiard Room $300.00 $149.00 $298.00
21. Figure Studio $595.00 $124.00 $591.00
22. Firearms, Concealable, Vendor $300.00 $149.00 $298.00
23. Game/Skill/Science $228.00 $ 64.00 $226.00
24. Handbill Distribution $ 69.00 $ 40.00 NONE
25. Hill Climbing $106.00 NONE NONE
C.O.R.E. Report Re: Assessing L.A.’s Business-Related Police Permits & Fees
March 2012 Page 6 of 12 pages
26. Hostess, Dance Hall $595.00 $149.00 $592.00
27. Identification Cards $373.00 $124.00 $ 42.00
28. Junk Collector $129.00 $ 40.00 NONE
29. Junk Dealer $450.00 $ 76.00 $ 44.00
30. Locksmith $154.00 $ 40.00 $ 43.00
31. Massage $395.00 $296.00 $224.00
32. Massage - Off Premises $402.00 $303.00 $230.00
33. Massage Technician $261.00 $ 58.00 NONE
34. Massage Technician - Off Premises $266.00 $ 58.00 NONE
35. Messenger Service $ 81.00 $ 40.00 $ 43.00
36. Motion Picture Show $191.00 $ 64.00 $188.00
37. Parades $125.00 NONE NONE
38. Pawnbroker $496.00 $124.00 $ 44.00
39. Peace Officer Firefighter Org - $140.00 $ 58.00 $ 83.00 Promotor Promotor
40. Peace Officer Firefighter Org - $ 54.00 $ 29.00 $ 39.00 Solicitor
41. Pool Room-Single $300.00 $149.00 $298.00
42. Pool Room $300.00 $149.00 $298.00
43. Private Patrol $300.00 $149.00 $ 43.00
44. Rides Mechanical $130.00 $ 64.00 $128.00
45. Rummage Sale (Annual) $ 59.00 $ 14.00 $ 44.00
46. Sale, Fire, Close-Out and Removal $298.00 $149.00 NONE
47. Secondhand $154.00 $ 64.00 $ 91.00
48. Secondhand (Books/Mags.) $154.00 $ 64.00 $ 91.00
49. Secondhand (General) $154.00 $ 64.00 $ 91.00
50. Secondhand (Jewelry) $154.00 $ 64.00 $ 91.00
51. Shooting Gallery $154.00 $ 64.00 $151.00
52. Skating Rink $300.00 $ 64.00 $298.00
53. Special Officer $ 59.00 $ 26.00 $ 42.00
54. Swap Meet Operator $250.00 $ 58.00 $ 83.00
55. Towing Operation $450.00 $ 76.00 $ 89.00
56. Tow Unit Operator $ 59.00 $ 32.00 $ 43.00
57. Firearm & Ammo $ 91.00 $ 91.00 $ 91.00
58. Ammunition Vendor $672.00 None
59. CyberCafe $153.00 $153.00
As of Oct. 31st http://www.lapdonline.org/police_commission/content_basic_view/9139
C.O.R.E. Report Re: Assessing L.A.’s Business-Related Police Permits & Fees
March 2012 Page 7 of 12 pages
Appendix “B”
Business Permit Fee Ordinance
See attached 4 pages of Ordinance (Pages 9-12 of CORE Report)
C.O.R.E. Report Re: Assessing L.A.’s Business-Related Police Permits & Fees
March 2012 Page 8 of 12 pages
181919 ORDINANCE NO. _
An ordinance amending Sections 44.04, 52.16, 103.12 and 103.206 of the Los Angeles Municipal Code to add an application fee for Charitable Solicitation Information Cards, increase the fees for issuance of News Media Identification Cards and False Alarms, and revise the Police Permit Fee Schedule.
THE PEOPLE OF THE CITY OF LOS ANGELES DO ORDAIN AS FOLLOWS:
Section 1. The first unnumbered paragraph of Section 44.04, of Article 4, Chapter IV of the Los Angeles Municipal Code is amended to read as follows:
No person shall solicit or authorize any other person to solicit any charitable contribution unless a written Notice of Intention to solicit charitable contributions is filed with the Department at least 15 days prior to the beginning of the solicitation on a form furnished by the Department. A Notice of Intention shall be filed for each separate special event. At the option of the person filing the Notice, a Notice related to an ongoing general appeal for charitable contributions may be filed on an annual basis. The Department shall distinguish between special events and activities related to an ongoing general appeal so as to best inform the public of the costs and receipts of the various types of charitable solicitation activities undertaken by the person filing the Notice. If an annual Notice is filed, it shall include a description of the activities planned for the year related to the general appeal of the person filing the Notice, and the person filing the Notice shall file a separate Notice of Intention for any charitable solicitation activity that is not included in the annual Notice. The Notice of Intention shall include the following information and must be accompanied by an information card fee of $42.00.
Sec. 2. Subsection (H) of Section 52.16, of Article 2 of Chapter V of the Los Angeles Municipal Code is amended to read as follows:
H. The fee for issuance of a card shall be $24.00, provided however that no fee shall be charged for the reissuance of such card.
Sec. 3. The Business Permit Fee Schedule of Section 103.12, Division 4, Article 3, Chapter X of the Los Angeles Municipal Code is amended to read as follows:
BUSINESS PERMIT FEE SCHEDULE !\nnual. I,.;nange Or~inal Renewal of Type of Business ee Fee Location I Fee Alarm System, Proprietor or Subscriber, other than a mechanical audible alarm system as defined by Section 103.206 of the Code, Protecting a residential building 34.00 30.00 34.00
1 Ammunition Salesperson 80.00 80.00 None Ammunition Vendor 702.00 151.00 702.00 Antique Shop 272.00 151.00 272.00 Arcade Game 213.00 151.00 213.00 Arcade Picture 221.00 151.00 221.00 Auto Park 323.00 151.00 323.00 Bath/Tannino Salon 491.00 151.00 491.00 Bowline Alley 252.00 151.00 252.00 Cafe Entertainment and Shows, Except Live Theatrical Productions in a Theater with a SealinQ Capacity of 99 Persons of Less 486.00 151.00 486.00 Card Club School 478.00 151.00 478.00 Carnival 166.00 151.00 166.00 Collectors' Exchange or Antique Show 270.00 151.00 270.00 Promoter Cyber Cafe 160.00 151.00 160.00 Dance Hall 424.00 151.00 424.00 Dance, One Niqht Public 315.00 None 315.00 Dance, Teenaqe Public 421.00 None 421.00 Dancinq Academy 248.00 151.00 248.00 Danclnq Club 246.00 151.00 246.00 Escort 347.00 151.00 None Escort Bureau 398.00 151.00 398.00 Family Billiard Room 246.00 151.00 246.00 Figure Studio 243.00 151.00 243.00 Firearms Sales Person 80.00 80.00 None Firearms Vendor 702.00 151.00 702.00 Firefighter Organization Promoter 211.00 151.00 211.00 Firefighter Organization Solicitor 211.00 151.00 211.00 Game, Skills/Science 221.00 151.00 221.00 Hostess, Dance Hall 382.00 151.00 382.00 Junk Collector 168.00 151.00 None Junk Dealer 470.00 151.00 470.00 Key Duplicator 182.00 151.00 182.00 Massaoe Business 813.00 151.00 813.00 Massaqe Business -Off Premises 369.00 151.00 None Massaqe Technician 512.00 169.00 None Massaqe Technician-Off Premises 512.00 169.00 None Motion Picture Show 270.00 151.00 270.00 Parades 300.00 Pawnbroker 361.00 151.00 361.00 Peace Officer Organization Promoter 211.00 151.00 211.00 Peace Officer Orqanlzation Solicitor 211.00 151.00 211.00 Pool Room-Slncle 319.00 151.00 319.00 Pool Room 339.00 151.00 339.00
2 Rides (Mechanical) 213.00 151.00 213.00 Rummaoe Sale (Annual) 46.00 46.00 46.00 Sale, Close-Out 211.00 None 211.00 Sale, Fire 211.00 None 211.00 Secondhand (Auto Parts) 367.00 151.00 367.00 Secondhand (Books/Maqazines) 367.00 151.00 367.00 Secondhand (General) 367.00 151.00 367.00 Secondhand(Jewel~) 367.00 151.00 367.00 Shooting Gallerv 209.00 151.00 209.00 Skatina Rink 264.00 151.00 264.00 Swap Meet Operator 347.00 151.00 347.00 Towina Operation 466.00 151.00 466.00 Tow Unit Operator 411.00 151.00 None
Sec. 4. Paragraph (1) of Subsection (e) of Section 103.206, Division 8, Article 3, Chapter X of the Los Angeles Municipal Code is amended to read as follows:
(1) False Alarm Fees. Alarm System Users shall pay a False Alarm Fee of $151.00 for each False Alarm.
3 Sec. 5 The City Clerk shall certify to the passage of this ordinance and have it published in accordance with Council policy, either in a daily newspaper circulated in the City of Los Angeles or by posting for ten days in three public places in the City of Los Angeles: one copy on the bulletin board located at the Main Street entrance to the Los Angeles City Hall; one copy on the bulletin board located at the Main Street entrance to the Los Angeles City Hall East; and one copy on the bulletin board located at the Temple Street entrance to the Los Angeles County Hall of Records.
I hereby certify that this ordinance wCZ~Rassedby the Council of the City of Los Angeles, at its meeting of Q~T2 1 .
JUNE LAGMA Y, City Clerk
Deputy
Approved OC_T_2_'8_:t_O_W __
Mayor
Approved as to Form and Legality
CARMEN A. TRUTANICH, City Attorney
By ~.::f ~(1fJ Date ~' 1; ;:;2..,011 File No. CF 11-0600' 5P9 (II- 1(,.J.5 ) M:IPGENIPGENIBRIAN SOTTILEIOrdinanceslPolice Permit Fees - 8.25.11.doc 4 Report Re: FAILURE TO MANAGE CITY PROPERTIES LEASED TO NON-PROFITS: - TIME FOR ACCOUNTABILITY ______ TO: The Honorable Antonio Villaraigosa, Mayor The Honorable Wendy Greuel, City Controller The Honorable Carmen Trutanich, City Attorney Honorable Members of the City Council DATE: March 2012 I. Summary There has never been a more important time than now for the City to evaluate its many assets and make sure the public’s assets are being properly managed and put to their best uses. In the case of more than 100 properties owned by the City that are rented to various non- profits at well-below market rates – typically $1 per year – the Commission on Revenue Efficiency (C.O.R.E.) finds the City is failing to track, manage or realize the potential of these valuable properties. In this report, C.O.R.E. recounts a brief history of this issue, the Commission’s assessment of the current state of affairs and our Recommendations for reform. The City’s lack of organization and willingness to oversee these publicly owned assets has been discussed for well more than a decade – but City Hall has, unfortunately, taken little action to remedy the situation. At stake is the potential for millions of dollars annually in rental income, savings in repairs, maintenance and capital improvements, diminished liabilities and legal expenses, reduced management and oversight costs for the City and the potential monies that might be realized from the sale of selected surplus properties. Los Angeles is fortunate to be home to many outstanding non-profits – and their work should be encouraged and assisted by the City wherever possible. The intent of the below-market leases has been to support their work and the community benefits they provide. The problem, however, is that the City’s policies have been inconsistent – and often irresponsible and capricious. Some properties are falling into disrepair; some are apparently uninsured. There is no consistent review for which non-profits get free rent, or of the public benefit the non-profits are to provide. Some of the organizations may, in fact, be engaging in activities that aren’t non-profit. As detailed in the list of properties and non-profits (attached as Appendix “B”), the properties and non-profits run the gamut from modest buildings and small-staff operations to much larger facilities and organizations – including Downtown’s Museum of Contemporary Art (MOCA), L.A. Theater Center, the Gay & Lesbian Center, the Japanese American National Museum and others. Many of the non-profits do exemplary work and might not otherwise continue to do so without a subsidized lease. For some this may not necessarily be the case. C.O.R.E. makes no judgment about the individual non-profits receiving the benefit of below-market leases – nor is the Commission advocating that all below-market leases should be discontinued. We do, however, urge the City to get a handle on these properties and exercise due diligence and oversight. It is time for accountability. II. Recommendations C.O.R.E. Recommends: 1. That the Mayor issue an Executive Order to require accountability of GSD and of the City’s lessees. Said Executive Order should, at a minimum, require: Insurance -- Compliance of all lessees with required and adequate property, hazard and liability insurance policies, procured from insurers meeting commercially standard requirements. Lessees shall furnish proof of appropriate insurance – with the City as a co-insured and a co-payee on all insurance policies. Should any such policies lapse, the insurance companies would be responsible for notifying the City, and the City would have authority to either bill the lessee for any insurance procured by the City, or to initiate eviction of the lessee. Repair and Maintenance -- Appropriate repair and maintenance provisions shall be added to all leases and GSD shall conduct a site visit to each property to determine if repair and maintenance required of the lessees is being performed. If not, appropriate letters and follow-up actions shall be taken – including, possibly, eviction. Tax and Financial Compliance -- All lessees shall furnish annually copies of their tax returns, annual budgets/reports and proof of compliance with IRS 501(c)(3) organization. Any lessees no longer qualifying as non-profits should be immediately evicted. Conforming Leases -- Immediately adopt leases for all lessees that are substantially conforming. Insofar as all but 7 of the leases are month-to-month, there should be little reason that new leases may not be required of the lessees. Affidavits – Lessees shall annually be required to furnish affidavits of compliance with all Lease requirements. 2. That the City Council approve the 2001 and 2010 recommendations, respectively, by the Municipal Facilities Committee (Entitled, “Policy Summary”, see Appendix “A”) and the 2010 Memo from the CLA and CAO (Entitled: “Non-Profit Lease Subsidy and Real Property Sale Policy” (available online at http://clkrep.lacity.org/onlinedocs/2008/08-2762_rpt_cao_4- 16-10.pdf) ) -- and to make these recommendations mandatory lease requirements. 3. That the City Conduct an Independent Portfolio Analysis – Understanding the value of the assets we have is vital to determining what should be done with them. Accordingly, C.O.R.E. recommends a thorough and independent evaluation of the 100-plus properties leased to non-profits. Said evaluation should include: Market values for sales and leases Permitted uses Limitations on uses (per Planning and Zoning, deed restrictions, etc.) Limitations on sales or leases (per deed restrictions or other agreements) Development opportunities Condition of the properties and any clearly evident deferred maintenance, health, safety or compliance issues The costs associated with full evaluations and appraisals could be significant – and would likely vary depending on the property itself. C.O.R.E. recommends that the City develop and issue an RFP/RFQ for the evaluation(s). The City might also consider enlisting the UCLA Ziman Center for Real Estate and/or USC’s Lusk Center for Real Estate to undertake an evaluation of, and report about, the properties as part of a graduate school program. C.O.R.E. Report Re: Failure to Manage City Properties Leased to Non-Profits: Time for Accountability March 2012 Page 2 of 21 pages 4. Evaluate and Implement Consistent Criteria – A stable and predictable set of criteria is necessary in determining what constitutes “public benefit”, whether a given non-profit qualifies for a below-market lease of City property and an assessment of community needs and priorities. As detailed in Sec. III, below, various standards and criteria have been suggested in the past, but there is still no consistent policy. Some non-profits are more clearly providing public benefit than others; some are able to pay market rates, some aren’t; some are maintaining their lease properties, others aren’t. There is no consistency – and no standards. The City also needs to consider how much of the determination of which non- profits are to benefit from below-market leases should be within the sometimes near- exclusive purview of the Councilmember in whose district a particular property is located. Moreover, while most leases have gone month-to-month, there are still apparently some tied to the term of office of particular Councilmembers; this, we believe, is troublesome. A 2010 report of the CAO and the CLA (see Sec. III, below) recommended, among other things, a new application system; we concur. More consistent policies must be implemented. 5. Adopt Los Angeles County Asset Management Strategies – An excellent checklist and paradigm can be found in a study by the Los Angeles County Citizen's Economy and Efficiency Commission (September 1995), entitled: Asset Management Strategies for the Los Angeles County Real Estate Portfolio. It should also be noted that the tracking and management of the City’s properties would likely be greatly assisted with simple “off-the- shelf” software that is used by many real estate management companies and owners. 6. Create a Real Estate Management Advisory Panel – C.O.R.E. recommends that the City of Los Angeles form a real estate management advisory panel similar to The County of Los Angeles Real Estate Management Commission. This five-member group is advisory to the Board of Supervisors and all affected Departments and entities on all matters pertaining to the purchase, sales, leases, exchanges and rentals of real property. 7. Assess City Staffing – The management and rental of City properties involves staff of GSD, the CLA, City Attorney and others. Staffing levels, expertise and interplay need to be assessed and evaluated for efficacy and efficiency. 8. Seek to Generate Supplemental Revenues – C.O.R.E. recommends that the Office of the Mayor, with the City Council and City Controller explore additional and alternative methods of generating revenue through leased city property. Where appropriate, this may include, among other things, supplemental revenues from signage, special event rentals, filming and citing of cellular phone-related installations.1 9. Explore Opportunities for Subvention – Certain uses of rental property may be subvened, i.e. provided with financial assistance or support from another source. For example, the County of Los Angeles is entitled to a Federal subvention (subsidy) for rent associated with certain uses – such as the Department of Children's and Family Services. Interestingly, the rent subsidy is not available if such programs are operated in facilities already owned by the County (only for facilities where the County pays rent). C.O.R.E. recommends that the City of Los Angeles examine both its own property uses, and the uses 1 Crown Castle International, an owner and operator of wireless installations shared by cellular phone carriers, approached the Commission with a cursory analysis of the potential for the setting of such installations on the City owned buildings with non-profit tenants included in the report of Chief Legislative Analyst to the City Council April 16, 2010. Crown conveyed to the Commission that as many as 60 of the properties might be appropriate for consideration as potential sites for installations. Not every property is appropriate, of course, for a whole variety of land use, legal, quality of life and other possible reasons, but some of the sites could be appropriate -- and installations can generate up to $2,800 per month. C.O.R.E. is not advocating on behalf of wireless installations or on behalf of any company – but we offer this as an example, and believe it behooves the City to explore what are various opportunities for enhanced revenues. C.O.R.E. Report Re: Failure to Manage City Properties Leased to Non-Profits: Time for Accountability March 2012 Page 3 of 21 pages of its tenants, which may qualify for subvention. In doing so, the City could mandate that "subvened-rent-uses" are always located in leased facilities and that tenants of the City that qualify for subvention of their rent do, in fact, apply for such subvention assistance – so as to more fully compensate the City for use of the properties occupied by such tenants. 10. Consider Retaining Outside Counsel – For (unlawful detainer) evictions and other actions related to illegal uses, nuisances and or other violations of lease terms. There are attorneys and firms that specialize in UD work – and doing it very quickly and cost-effectively. III. Background The matter of the more than 100 properties owned by the City, which are being rented or leased at below market value, has been a matter of discussions, motions, recommendations, referrals and guidelines for several years now – but very little real action has resulted. On December 11, 2001, the City’s Municipal Facilities Committee2 met to approve a “Policy Summary for Non-Profit Leases in the City of Los Angeles” (the “The Non-Profit Policy”). The Non- Profit Policy listed eleven requirements non-profits would need to meet in order to qualify for occupying City property for less than fair-market rent. The points included submission of an annual report to the City, providing and maintaining liability insurance, payment for utilities, maintenance of property exterior/interior, compliance with various City ordinances and status as a valid 501-C3 non-profit. All leases were to be terminable with 30 days notice by the City and the term of agreement(s) was to coincide with the term of the Councilmember of the district in which the subject property is located. There were no provisions for rent to be paid – and the terms and conditions were rather vague. (See report online at http://clkrep.lacity.org/onlinedocs/2008/08-2762_rpt_cao_4-16-10.pdf) On August 19, 2004, GSD submitted a request to adopt an amended non-profit policy to the City Council. The amended non-profit policy was to supersede the original policy adopted in December 2001. (See CF No. 04-1781: Communication from The Municipal Facilities Committee relative to "Policy Summary for Non-Policy Leases in the City of Los Angeles," also known as "The Non-Profit Policy."). On April 19, 2005, the Council’s Budget & Finance Committee requested GSD to furnish a formal non-profit leasing policy and requested a moratorium on granting any further leases to non-profit organizations until a formal policy is adopted. On November 14, 2005, GSD replied to the Budget & Finance Committee with a letter recommending that a an amended non-profit policy should include language that would allow the City to charge minimal rent ($1.00 per square foot) with a 3% rent increase after the first term to the non-profit organizations. Also included was an option for a re-elected Councilmember to allow a non-profit organization to renew for an additional four year term and requiring the non-profit to assume financial responsibility utilities. At the time, GSD predicted the fiscal impact would be an additional $100,000 to $200,000 per month in revenues for the City. GSD recommended that the City Council adopt the (amended) Non-Profit Policy. The matter was referred to the Information Technology and General Services and Budget and Finance Committees of the Council. Thereafter, nothing seems to have happened and the Council File was deemed terminated June 30, 2008. On October 21, 2008, the Council adopted a Motion introduced October 10, 2008 by Councilmembers Parks and Cardenas (See CF No. 08-2762: “Leased City-Owned Properties / Non-profit organizations”). The Motion stated: “Unfortunately, there have been delays in implementing a more effective policy regarding leases with non-profit agencies. As a result, GSD has been unable to fully monitor the provisions of lease agreements, such as: provision of 2 The Municipal Facilities Committee is currently composed of the City Administrative Officer (Chair), along with the Chief Legislative Analyst and a representative of the Office of the Mayor. C.O.R.E. Report Re: Failure to Manage City Properties Leased to Non-Profits: Time for Accountability March 2012 Page 4 of 21 pages services to the community; utility and maintenance costs for the property; confirmation of non- profit (501 c 3) status; and insurance coverage.” The Motion further stated that “if the City were to lease these properties at the rate of one dollar per square foot per month, that alone could generate revenues to the City of $1 million per month or $12 million annually. Additionally if these properties were sold, even at below market value, the City potentially could net $50 million.” The Motion requested that the City Administrative Officer (CAO) and the Chief Legislative Analyst (CLA), with assistance of the General Services Department (GSD) be instructed to report to the Information Technology and General Services Committee and to the Budget and Finance Committee with a study of all City-owned property leased to non-profit organizations. The CAO, CLA and GSD were further instructed to provide an annual report to the Council and to report with recommendations for instituting a City non-profit lease policy. On April 16, 2010, the CLA and CAO furnished to the Council a memorandum report, entitled: “Non-Profit Lease Subsidy and Real Property Sale Policy” (available online at http://clkrep.lacity.org/onlinedocs/2008/08-2762_rpt_cao_4-16-10.pdf). The memorandum detailed some of the history of the matter, proposed policies and a listing of the subject properties with basic information about the tenants. In many cases, there was no available information on lease terms, insurance, non-profit status, etc. In brief, the listing pointed to the fact that the City has done a very poor job of tracking the properties, the tenants and the leases. The needs for consistency in issuance of subsidies, and in holding non-profits accountable, were recurring themes throughout the memorandum. Further, the memorandum estimated that limiting lease subsidies to 50% of market rent could generate additional revenues of up to $1.5 million annually for the City. On June 1, 2010, CF No. 08-2762 was referred to the Arts, Parks, Health and Aging, Information Technology and Government Affairs and Budget and Finance Committees, with a request for a report-back in 60 days. There was a further Council Motion to request that the City Attorney assist GSD in preparing the lease agreements and that GSD and the City's Land Records Division, Bureau of Engineering o track the number and amount of subsidies for below market rate leases and real property sales by Council District and submit them to the CAO regular status updates in every financial status report. On June 30, 2010, Council approved the Motion (CF No. 10-0773) instructing the CAO and Department of Cultural Affairs (DCA) to form a working group comprised of any relevant departments to draft a Request for Proposals (RFP) to transition 14 City-controlled cultural art facilities to public-private partnerships, while considering the proposed non-profit leasing policy. The Arts, Parks, Health and Aging (APHA) Committee has conducted several public hearings in which Committee members and the public were able to discuss various aspects of the DCA proposed RFP for public-private partnerships of the City's cultural art facilities. It has been made clear through staff reports and the public hearings that certain facilities have unique components that should be considered separately from the Citywide non-profit leasing policy. On December 17, 2010, yet another Motion was introduced. (CF No. 10-0773-S3: “Non- Profit Leasing Policy / City-Owned Buildings / 14 Art Facilities”). The Motion stated that while the APHA Committee continues to consider the DCA RFP, and a non-profit policy for the arts and cultural facilities included in the RFP, the matter of the Citywide non-profit leasing policy should be considered by the Budget and Finance and Information Technology/Government Affairs (ITGA) Committees -- with the exclusion of: (1) the 14 art facilities to be included in the DCARFP; (2) the Los Angeles Fire Department Historical Society; (3) the Los Angeles Police Department Historical Museum; and (4) the African Americans Firefighter's Museum. On September 12, 2011, Council referred item to Information Technology and General Services Committee, pursuant to the Council’s restructuring of its committees (CF No. 11-1529-S1). Other notable Council Files 3. 3 Other Notable Council Files: Audit of Real Property Trust Fund revenues (CF No. 10-0219) and Audit of the Department of General Services' Asset Management Division (CF No. 03-1860). C.O.R.E. Report Re: Failure to Manage City Properties Leased to Non-Profits: Time for Accountability March 2012 Page 5 of 21 pages IV. Revenue Impact A prior review by the CAO and CLA estimated that limiting lease subsidies to 50 percent of market rent could generate additional revenue of up to $1.5 million annually. We believe this is a very conservative estimate – but we also recognize the public benefits realized by making City properties available to certain not-for-profits that might not otherwise be able to operate as they do. That said, even of the City was to continue its practice of these essentially free rentals – but do so in a way that better ensures tenant responsibility, maintenance, insurance and opportunities for subvention – CORE estimates the potential for combined revenues and savings of at least $1 - $5 million annually. Specific projections on revenue impact are difficult with the current lack of information available - but what is at stake is the potential for millions of dollars annually in rental income, savings in repairs, maintenance and capital improvements, diminished liabilities and legal expenses, reduced management and oversight costs for the City and the potential monies that might be realized from the sale of selected surplus properties – with then concomitant property tax revenues. Moreover, there is an opportunity – and an imperative -- to better assure that non- profits that receive special consideration from the City are most benefitting the communities they serve. There’s no better time to act than now. Respectfully submitted, Ad Hoc Commission on Revenue Efficiency Ron Galperin, Chair Hon. Cindy Miscikowski, Vice Chair Mark Ames, Commissioner David Farrar, Commissioner Michael Gagan, Commissioner Cheryl Parisi, Commissioner Brandon Shamim, Commissioner CC: Budget & Finance Committee Information Technology and General Services Committee Arts, Parks, Health & Aging Committee Miguel A. Santana, City Administrative Officer Gerry F. Miller, Chief Legislative Analyst Antoinette Christovale, Director, Office of Finance Neil Guglielmo, Deputy Mayor, Budget & Financial Policy Tony Royster, General Manager, Department of General Services Reginald Byron Jones Sawyer Sr., Director of Asset Management, Department of General Services Contacts: Ron Galperin, Chair Jon Dearing, Analyst Ad Hoc Commission on Revenue Efficiency Office of Chief Legislative Analyst [email protected] [email protected] Website: http://C.O.R.E..lacity.org/ C.O.R.E. Report Re: Failure to Manage City Properties Leased to Non-Profits: Time for Accountability March 2012 Page 6 of 21 pages Appendix “A” 2001 Recommendations of the Municipal Facilities Committee (Page 1 of 2) C.O.R.E. Report Re: Failure to Manage City Properties Leased to Non-Profits: Time for Accountability March 2012 Page 7 of 21 pages Appendix “A” 2001 Recommendations of the Municipal Facilities Committee (Page 2 of 2) C.O.R.E. Report Re: Failure to Manage City Properties Leased to Non-Profits: Time for Accountability March 2012 Page 8 of 21 pages Appendix “B” List of City-Owned Properties Leased to Non-Profits (April 2010) See attached 11 pages of the list (Pages 10-21 of CORE Report) C.O.R.E. Report Re: Failure to Manage City Properties Leased to Non-Profits: Time for Accountability March 2012 Page 9 of 21 pages Report Re: LOST IN THE PARKING LOT: STOPPING ROGUE PARKING OPERATORS FROM STEALING OUR TAX DOLLARS ______ TO: The Honorable Antonio Villaraigosa, Mayor The Honorable Wendy Greuel, City Controller The Honorable Carmen Trutanich, City Attorney Honorable Members of the City Council DATE: March 2012 I. Summary The City of Los Angeles’ Parking Occupancy Tax is a substantial source of general fund revenue for the City -- generating approximately $85 million annually. The POT is the 10% add-on we all pay when parking our vehicles in a commercial lot or structure in the City. But, the City – and nearly every one of us who pay the tax – are being cheated out of tens of millions of dollars each year by rogue parking operators who collect our money and then fail to turn it over to City. This has to stop. The cash nature of the parking industry and the transient method of operation employed by many parking lot and valet parking operators allows for constant fraud and abuse of City policy – resulting in unpaid POT and business taxes. Non-compliance with the City's POT ordinance also creates an uneven playing field for tax scofflaws and leaves the generally law-abiding operators (which generally report a roughly 5% profit margin) at a competitive disadvantage with those wrongfully absconding with another 10%. L.A.’s POT problem has been the subject of various audits, lawsuits, Council Files, investigations, committee hearings, requests for departmental report-backs and press conferences where City officials talk about getting tough. None of these measures have helped much. The good news, however, is that the problems are eminently fixable. The Commission on Revenue Efficiency has intensely studied POT collections throughout 2011. Among the highlights of our recommendations: Requiring parking operators to accept credit and debit cards -- The more parkers are able to use plastic, the less cash collected, and the less opportunities for under-reporting and abuse. Simplifying and streamlining our ordinances and centralizing responsibility for POT collections -- Currently, three City entities have three separate sets of administrative hearing related to parking operators: The Office of Finance (which issues business licenses), the Police Commission (which issues operating permits) and the Office of the City Attorney (which is empowered to seek civil and criminal enforcement of the City’s ordinances). We need to amend our ordinances, empower one entity to take charge, and the City must stop treating POT just like other form of taxes – it isn’t. Operators don’t pay the tax it’s you and I who pay it. The operators are simply fiduciaries whose sole responsibility is to take the tax we paid and send it to the City – and they’re not doing it. Clarity – Shockingly, after nearly a year of studying this matter, it remains a challenge to know with certainty how many lots are in the City, how many parking structures, how many operators are under investigation, how many of those operators are delinquent, and so on. Integration with a new valet ordinance. Better use of new technologies. Enforcement and accountability – It’s too easy for rogue operators to game the system and the City. The City needs to be swift in enforcement -- and not wait three to five years to pursue bad operators long out of business or long-ago stealing our money. II. Recommendations A. HANDLING OF MONEY – Less cash; more plastic The cash nature of the parking business (especially surface lots) allows parking operators to pocket the money everyday drivers pay in parking tax. It’s theft, pure and simple. REVENUE CONTROL EQUIPMENT (RCE): Both the Police Commission and the Office of Finance in their recently completed reports on the parking tax are recommending some form of revenue control equipment. Their views differ: The Police Commission studied both moderately priced handheld devices that accept various payment forms and more expensive fixed machines, gates and pay-in-lane systems. Both the Los Angeles Parking Association and the Police Commission generally recommend requiring all parking operators to have revenue control equipment – but allowing the operators to choose which type. The Office of Finance stated in its report of Oct. 19, 2011 that: “we do not agree that all current and newly permitted Auto Parks install either permanent, portable or handheld RCE (revenue control equipment). More specifically, Finance does not concur with Auto Parks being provided the option of installing portable or handheld RCE in lieu of permanent RCE.” The Office of Finance seems to favor permanent RCE for all operators, but “recommends at a minimum that all non-compliant Auto Park operators be required to install permanent RCE.” The Office of Finance reasons this requirement, would, among other things, serve as a deterrent to non-compliant operators. NOTE: See Endnote No. 1 for more discussion re RCEi. C.O.R.E. has reflected extensively on the matter of RCE. As we see it, the easiest revenues for operators to not report, or to under-report, are cash revenues. The more parkers pay C.O.R.E. Report Re: Lost in the Parking Lot: Stopping Rogue Parking Operators from Stealing Our Tax Dollars March 2012 Page 2 of 15 pages by credit and debit cards, the more an electronic and paper trail will exist. And so, C.O.R.E. believes that the form of RCE is not nearly as important as mandating that all operators must accept credit and debit cards. What equipment they use could be left to the operators. Right now, many people pay cash because Auto Parks (particularly surface lots) do not accept debit and credit cards. If they were required to do so, the number of people opting to pay with plastic will, of its own accord, skyrocket. Admittedly, less cash and more plastic will not necessarily achieve 100% compliance, but it will, we believe, solve a large part of the current problem. Accordingly, C.O.R.E. recommends: 1. Acceptance of credit cards -- That all permitted parking operators and operations in the City be mandated to accept credit and debit cards; there shall be no price differential for parkers who pay by debit, credit, check or cash. 2. Revenue Control Equipment -- The Police Commission shall be authorized to impose a requirement for any given operator out of compliance to use permanent RCE -- such as automated cash machines, electronic gates, and/or pay-in-lanes systems. Insofar as the cost of such equipment can range from $45,000 to $173,000, or more, such a requirement may be imposed on operators deemed seriously out of compliance by the Police Commission. Operators deemed out of compliance (but, perhaps not seriously out of compliance) might be required to use portable RCE that not only accepts various payment types, but also produces receipts. 3. Electronic access to operator data -- All operators shall provide the Office of Finance electronic access to data of credit and debit card transactions – and shall authorize as a condition to permitting, that the Office of Finance have access to such records through the credit and debit card processing companies. B. PROCEDURAL / LEGAL Currently, the City Attorney, Office of Finance and Police Commission each have their own administrative hearing processes related to various aspects of non-compliance by parking operators. C.O.R.E. could be judicious and say this is inadvisable. In fact, though, it’s crazy. The City Attorney has cited existing provisions in the Los Angeles Administrative Code that may enable greater enforcement by the City. Section 103.06.1 addresses the renewal of permits. Section 22.04.1 addresses the failure to pay POT. Section 103.31(a)(10) address denying a permit based on the failure to pay the POT. Unfortunately, the City seems to have been treating parking operators who steal the same due process rights as, for example, businesses allegedly not in compliance with the City’s business tax. There is a big difference between one and the other, however. Accordingly, C.O.R.E. recommends: 4. Designate one party to be finally responsible for parking operator compliance – and all the aspects thereof. When C.O.R.E. first began its inquiries into the matter, the Commission invited representatives of the City Attorney, Office of Finance and Police Commission. It was immediately evident that, at the time, the three entities were not cooperating very well and that each was essentially pointing to the other. One party must be ultimately responsible. 5. Set in place a permanent task force of representatives from the Office of the City Attorney, Police Commission/LAPD and the Office of Finance. Said task force should meet at least quarterly to review and coordinate enforcement of current – C.O.R.E. Report Re: Lost in the Parking Lot: Stopping Rogue Parking Operators from Stealing Our Tax Dollars March 2012 Page 3 of 15 pages and any future – codes, regulations or rules applicable to parking operators, and of valet operators. This coordination, C.O.R.E. believes, will make for better and quicker enforcement of the laws on the books. 6. End the process of up to three entities having administrative hearings. The three City entities currently involved should be afforded certain cross enforcement powers. The paradigm used by the City of Culver City is one we believe worthy of potentially replicatingii. Culver City’s code provides broad authority to the City’s Committee on Permits & Licenses to act swiftly and independently to shut down rogue parking operations. 7. Auditing – Currently, the Police Commission does spot visits, and the City has a private contractor The Parking Network (TPN), which does surveillance/audits. This has not been enough. With so much money not being surrendered to the City, C.O.R.E. believes monies spent on auditing, surveillance, and inspection will be well-spent. Moreover, the Los Angeles Parking Association even recommended to C.O.R.E. that a special fee be imposed upon the parking operators to fully cover the costs of various types of site and financial audits. The City should take them up on their offer. NOTE: The Commission discussed the possibility that in a more ideal world POT might be based on something other than a 10% add-on to parking fees paid by people parking – perhaps even a tax based on parking spaces. Given the 2/3 vote needed for any changes in tax policy, the Commission concluded that fixing the current system was more realistic. 8. Role of the City Attorney a. Civil Cases: C.O.R.E. recommends a fast-track to pursuing civil cases against rogue parking operators. NOTE: The City Attorney’s Office reported to C.O.R.E. that it had pending files representing approximately 40 companies with a staggering 700 parking lots (involving approximately not in compliance with applicable ordinances. pending files related to parking lots. In the spring of 2011, the City Attorney’s Office also reported to the Commission approximately 30 active cases involving multiple lots. This included civil cases and criminal cases (handled by two respectively different divisions of the office). Of the 30 then-pending cases, 7 were being settled and 2 were in bankruptcy court. A multi-million judgment was obtained against Prestige Parking – though such judgments are difficult to collect on. Notably troubling to the Commission was that, according to the City Attorney’s Office, cases for not-compliance with POT generally don’t come to the office until they are at least 3 years old – and many are 5-6 year-old cases. Three sets of administrative hearings by three City entities is not acceptable. Moreover, it makes little sense to afford to parking operators failing to give over the POT to the City the same treatment as given, for example, to businesses allegedly failing to pay business tax. In the case of the latter, the City must appropriately afford certain levels of due process to taxpayers. In the case of the former, however, the parking operator is not the taxpayer per se – the person parking is. The failure of an operator to give over to the City C.O.R.E. Report Re: Lost in the Parking Lot: Stopping Rogue Parking Operators from Stealing Our Tax Dollars March 2012 Page 4 of 15 pages is not just a failure to pay its own taxes – it is a failure to hand over tax already paid by the consumer. b. Criminal cases: C.O.R.E. recommends vigorous and timely prosecutions. The Commission is cognizant of the fact that it is more difficult to prosecute a criminal case than a civil one – and that criminal cases do not result in collections or monetary awards to the City. Notwithstanding, a parking operator’s failure to convey to the City monies already collected from people parking is theft. c. Receivers: Wherever appropriate, the Office of the City Attorney should seek to obtain appointment of a receiver for parking companies severely non- complying. Sometimes, just the threat may be helpful in collecting. C. INTEGRATION WITH VALET ORDINANCE C.O.R.E. recommends that the Council consider ways for certain of the requirements imposed (and to be imposed) upon parking operators be equally imposed upon valet operations. Arguably valet parking operators are subject to the POT, but there is no currently consistent regulatory scheme of parking valets. On July 2011 The City Attorney submitted a Draft Valet Parking Ordinance pursuant to Council File No. 09-0206. As of December 2011, there appears to have been no action on the draft since July 2011. The draft ordinance would require Valets to be permitted. The draft also references compliance with POT, but the application of POT to the valet business remains a gray area. C.O.R.E. believes this should be corrected. There is a wide range of valet operations in the City – and the Commission noted that not all can necessarily be treated the same. There are those operations that are exclusive to a particular lot. Some valets contract with lots in a given area, some serve a specific business and some use primarily street parking. Some valets are commercial operations servicing multiple clients while others are just hired directly by a business owner (such as a restaurant). Some accept validations; others don’t. Some valets are hired on an as-needed basis for parties and events in commercial and residential areas. Finally, some are compensated not by the drivers but by the owners or hosts of an event venue. In nearly all cases, the valet business is very cash-intensive. As a result, it would be very fair to reason that compliance with POT (if applicable) and with business and other taxes is less than ideal. Accordingly, C.O.R.E. recommends: 9. Application of POT to valet parking operations, where appropriate – C.O.R.E. supports adoption of a comprehensive and clear valet parking ordinance. Any such ordinance should clearly identify which types of valet parking operations will, or will not, be subject to POT. Commercial parking lots that offer valet parking (exclusively or optionally), for example, are the types of operations where POT would most appropriately be applicable. In contrast, free valet parking paid for by hosts of a party at their home might, arguably, be among types of operations where POT would least appropriately be applicable. There are, of course, many, arguably, less clear types of valet services. Note: The Commission would not support simultaneously applying POT both for the individual using a valet and for the valet company then taking the same vehicle to a parking structure and paying POT for the use of a space. C.O.R.E. Report Re: Lost in the Parking Lot: Stopping Rogue Parking Operators from Stealing Our Tax Dollars March 2012 Page 5 of 15 pages We also note that the before imposing new requirements, the City would be advised to conduct an inquiry into the likely revenues that might be realized from application of POT to a broader scope of valets vs. the costs of enforcement, collections, etc. 10. Acceptance of credit cards – As with parking lots, requiring certain valet operations to accept credit and debit cards could be a benefit to parkers – and help increase compliance with all sorts of taxes. That said, such a mandate might be more appropriately applied to valets stationed in parking lots and commercial valet operations that service multiple clients vs., for example, a small restaurant that hires one or two people in the evening to park cars. D. ADDITIONAL APPLICATIONS OF POT 11. C.O.R.E. recommends that the Council clarify and define a mandate of the City’s application of POT to the following: a. Validations – Validated parking may be provided in various ways. Commercial property owners may provide free or reduced-fee parking for visitors (typically shoppers). Such validation may be for parking in a lot owned and/or operated by the business owner or owned/or operated by one or more other entities. Commercial tenants may also pre-purchase validations (sometimes in sticker form) that are applied to ticket stubs of a visitor to the tenant. In all these events, the application of POT has been, and is, inconsistent. The City’s ordinances need to clarify the application of POT, where deemed appropriate. b. Monthly parking – While POT is, arguably, supposed to be applied to monthly parking by a parker, the application of POT, again, seems often to be less than optimally consistent. The City’s ordinances should clarify this. c. Lease agreements with free parking – Tenants often negotiate parking as part of their commercial leases. An office tenant, for example, might negotiate for a certain number of spaces in a building as part of the office lease. The application of POT needs to be clarified in order for the City to get its rightful share of POT. Note: In the above example, the lease may, or may not, designate the value of the spaces provided by the landlord to the tenant. Say the lease includes 10 spaces regularly rented for $100 per month. If rented directly to the tenant(s), the gross might be $1,000 per month for the parking operator/owner – with either an additional $100 (10% tax) due to the City (or $90.90 in POT if said sum is already included in the $1,000 per month). However, if the spaces are simply included in the lease, the City will often not realize any POT. E. ALTERNATIVE TECHNOLOGIES Technology has proved to be a dynamic game-changer in every business including parking. New ways of doing business offers new opportunities for the City to track revenue and stay on top of rogue parking operations. Such oversight would have been prohibitively expensive in the past but thanks to flourishing technologies it is now more possible and cost-beneficial. C.O.R.E. Report Re: Lost in the Parking Lot: Stopping Rogue Parking Operators from Stealing Our Tax Dollars March 2012 Page 6 of 15 pages 12. C.O.R.E. recommends that the Council may want to obtain further information about the use of new and emerging technologies for parking and parking tax-related information, including, but not necessary limited to: License Plate Recognition Devices (LPRs): NOTE: The City of Sacramento, through Department of Homeland Security grantsiii installed a high tech system of cameras in coordination with LPRs in a private shopping center to track every vehicle entering their facility. The technology is able to sync with the Sacramento Police Department database, and, according to local reports, also resulted in retrieving 21 stolen vehicles that led to the arrest of 22 individuals. Said technology could be used to better track the amount of traffic entering facilities resulting in a more accurate forecast of revenue. In addition these technologies may work as sanctions against those operators found to be non-compliant. Data access and sharing – This would include methods to have direct access to parking operator financial data and sharing data with the County re properties designated for parking and re business in the County’s databases that are engaged in parking-related operations. Cameras – A requirement that cameras (perhaps with live feed to law enforcement or to a parking auditor of the City) might be imposed as a sanction to those operators who have had audits completed and were short in their POT, or for lots that have operated as non-permitted. Satellite technology – A regular source of disagreement between rogue operators and the City is just how occupied a parking lot has been. Various methods may be employed to monitor parking occupancy at a given lot. One that may merit more research is obtaining satellite photos. Today, photos generated by satellites are more precise than ever, and may provide some historical data for occupancy of certain surface lots during certain times and dates. C.O.R.E. also gave extensive consideration to the following – and we concluded to not recommend any significant changes regarding the following hereinbelow: F. BONDING / LETTERS OF CREDIT There has been much discussion in the City about imposing new and/or additional bonding requirements on parking operators. C.O.R.E. has concluded to not make new and/or additional P.O.T-related bonding requirements one of our recommendations. While the City should not take this option off the table, C.O.R.E. believes the other recommendations outlined herein have the potential to be more effective in ending the theft of the City’s rogue operators. Parking operators in Los Angeles are required to provide a bond to be issued a police permit, with bonds ranging from $50,000 to $500,000 for larger lots. These bonds do not C.O.R.E. Report Re: Lost in the Parking Lot: Stopping Rogue Parking Operators from Stealing Our Tax Dollars March 2012 Page 7 of 15 pages guarantee payment of POT, only damages to vehicles. C.O.R.E. supports continuing this requirement (and, as may be appropriate, increasing the bonding for damages to vehicles. Some in Los Angeles have suggested requiring operators to post bonds or provide letters of credit guaranteeing the City payment of the POT. Some cities have sought this approach, and there is, indeed, an argument to be made that requiring bonding or letters of credit would help drive rogue operators out of business. Notwithstanding, C.O.R.E. is somewhat less that persuaded by calls for bonding. It is less than clear that bond requirement can be used for tax purposes (despite lot operators acting as a third party in collecting the tax). Legitimately operating parking companies represent that they have roughly a 5% profit margin. Bonds might add 3% to their costs of doing business, resulting in higher costs for the consumer. Bonds and letters of credit can take a very long time to collect on – and may involve costly litigation. Moreover, these mechanisms often pay out only after a creditor has exhausted other remedies. Smaller operators could very well be driven out of business if they are unable to obtain bonds or letters of credit. Accordingly, as stated above, C.O.R.E. has concluded to not make new and/or additional P.O.T.-related bonding requirements one of our recommendations. G. HOLDING PROPERTY OWNERS RESPONSIBLE The shell game: One of reasons parking operators often get away with not giving over to the City the parking tax collected from parkers is that the operators get away with it. And one of the ways they have continued to get away with it is by playing a shell game. As soon as one operating entity (typically an LLC) is deemed to be out of compliance, or facing closure, the parking operator simply regroups as a new legal entity. The two sides of owner liability: The Commission gave serious consideration to possible ways to hold not just parking operators responsible for compliance with the POT and other requirements – but to also hold property owners responsible for the conduct of the operators upon their real property. Holding property owners responsible for the misconduct of their tenants is not without precedent. However, it is also not without its complexities. For example, we have laws holding apartment building owners liable if they don’t seek to clamp down of drug-dealing tenants. At the same time, it would seem nearly inconceivable to hold an office building owner liable if an office tenant fails to pay its income taxes. The City of Miami, FL has a notable Parking Facilities Surcharge Ordinance that broadly defines parking operators and specifically holds real property owners responsible and liable for any parking operations upon their properties. The ordinance specifically states: “The intent of this definition is to place the burden for collection of the surcharge on the owner of the facility and not just the entity which operates the facility if different from the owner”. Notably, the Los Angeles Parking Association expressed to C.O.R.E. that it might be receptive to such an ordinance in Los Angeles. Possible paradigms for property owner liability: The Commission considered several ways to possibly hold property owners liable for parking operations conducted upon their properties. Possible paradigms include(d), but are not necessarily limited to, the following: C.O.R.E. Report Re: Lost in the Parking Lot: Stopping Rogue Parking Operators from Stealing Our Tax Dollars March 2012 Page 8 of 15 pages The City could ask to have the right to approve any lease(s) between a property owner and parking operator and require provisions that bind the property owner to the actions of the operator. The City might consider an ordinance holding the property owner responsible for illegal conduct occurring on the owner’s property -- much like landlord liability for drug dealing at a property. The City might consider requiring the recordation of self-enforcing (non-judicial) liens as a pre-condition to permitting a parking operation (given that such permitting is discretionary). Conditional Use Permits -- The City might consider changing or supplementing the current paradigm of requiring a Police Permit for a parking operation to something that would include a Conditional Use Permit. Given that CUPs are tied to the real property, the owner of a property that loses its CUP because of misconduct by an operator will have much more incentive to make sure the operator complies. In that the CUP has value for the property owner, that owner will take a much greater interest in anything and everything that would threaten the CUP – and, thus, the value of the property. Note: While the Commission finds merit in a CUP paradigm, we were also cognizant and concerned of the likely burdens that would be imposed on property owners and businesses in the City. C.O.R.E.’s conclusions on owner liability: Excepting those situations where a property owner may be knowingly and/or actively participating in illegal conduct in concert with a parking operator – and given the complexities and potentially overreaching burdens that might result for many property owners – the Commission is not recommending at this time that the City adopt the paradigms outlined above for holding property owners liable. Notwithstanding, the City such paradigms might be reserved for consideration by the City at a future time. III. Background A. THE CURRENT LEGAL FRAMEWORK: PROCESS OF PERMITTING & ENFORCEMENT The City of Los Angeles has enacted a Parking Occupancy Tax that is imposed for the privilege of occupying space in any parking facility in the City of Los Angeles. Each operator of a parking facility within the City, whether registered or not, must collect the tax from the occupant of the parking space and remit the full amount of the tax to the City on a monthly basis. The Parking Occupancy Tax is set as a percentage of the parking fee and the current applicable tax rate is 10%. The tax must be separately stated on any signage, receipts or other information provided to customers from the amount of the fee charged. If the full amount of the parking fee and tax are not collected, a proportionate share of the tax is deemed under the City’s Parking Occupancy Tax Ordinance to be collected with each parking fee collected and such amount must be remitted to the City. The Los Angeles Municipal Code: Ch. X (Business Regulations), Div. 8 (Trades & Occupations), Sec. 103.202, defines an “Automobile Parking Lot” as “… any lot, C.O.R.E. Report Re: Lost in the Parking Lot: Stopping Rogue Parking Operators from Stealing Our Tax Dollars March 2012 Page 9 of 15 pages contiguous lots, or other parcels of land under single management or control where more than eight motor vehicles are kept stored or parked within or without a building, for a consideration, at any one time.” This section of the Municipal Code also sets forth the permitting requirements therefor. Los Angeles Municipal Code: Ch. II, Article 1.15, Secs. 21.15.1 - 21.15.14, Sets forth the City’s Parking Occupancy Tax Ordinance. Los Angeles Municipal Code: Ch. II, Article 2, Sec. 22.02 sets forth powers to revoke permits and Sec. 22.04.01 further sets forth grounds for suspension or revocation of a permit for a parking operation based on failure to comply with POT requirements. Los Angeles Municipal Code Sec. 22.04.1, which became effective March 7, 2009, authorizes revocations or suspension of police permits for non- payment of taxes. Once the Office of Finance completes an administrative process, it prepares a report and affidavit for the Police Permit Review Paneliv to consider Revocation or Suspension of a permitted lot. The only lots this pertains to, however, are those that have a current permit. Moreover, another (sometimes connected or related) applicant may apply for a new permit. Moreover, new and renewal permits have been granted to companies even being sued by the City for non-payment. A prime example is Police Commission Permit Application List with Recommended Board Actionv (1/25/11) -- granting new permits to Prestige Parking. According to information provided by the Police Commission to C.O.R.E., earlier this year, there were at the time 10 cases provided to the Commission Investigation Division by the Office of Finance. Pursuant thereto, 4 permits were revoked, 2 cases settled by payment, 2 suspended pending payment arrangements made with the Office of Finance, 2 agendized for revocation. Several revocations have been put on hold at the request of the Office of the City Attorney due to civil suits against an operator and/or settlement proceedings. The Business Permit Fee Schedule of the Police Commissionvi provides for original, annual, change of location fees. B. HOW MANY COMMERCIAL LOTS AND STRUCTURES DO WE HAVE? There continues to exist much uncertainty about just how many lots and structures (permitted and unpermitted) we have in the City. As CORE began to ascertain the number of auto parks within the city we found conflicting representations at different times by the Office of Finance and the Police Commission regarding the number of parks, and the number of permitted parks. In January 2010, the Office of Finance reported 2,150 businesses registered as conducting an “Auto Park” businesses (reported as part of a “Request for Proposal for “City Parking Occupancy Tax Discovery & Compliance Program”). In March 2011, the Police Commission indicated to C.O.R.E. that “our data base of permits indicates just under 1,700 permitted parking lots. As to the number of non- permitted lots that for us is difficult to provide since we do not know a lot is being operated until we discover it by on-site inspection or information provided to us by the Office of Finance.” C.O.R.E. Report Re: Lost in the Parking Lot: Stopping Rogue Parking Operators from Stealing Our Tax Dollars March 2012 Page 10 of 15 pages In the first half of 2011, the Office of Finance advised the Police Commission that there were 2,071 auto parks within the City. The Police Commission Investigation Division (CID) investigated and completed a field survey July 2011. The Police Commission related to C.O.R.E. that “the number supplied by (the) Office of Finance is not accurate.” CID found 1,153 validly permitted auto parks. 68 were found to be towing operations and 255 were eliminated as auto parks altogether. Some of those eliminated were found to be Valet Services not requiring an Auto Park permit. As of September 2011, CID reported 595 of the locations did not have permits, but were being checked out as time is available. However, CID reported that as they are checking these locations without permits they are finding that most of them are either valet services or there are simply no lots at the location. CORE conducted its own (admittedly unscientific) based on L.A. County Assessor designated land uses in seven zip codes (90012, 90013, 90014, 90015, 90017, 90021, and 90029). The records identified 115 parking structures and 785 parking lots just in these seven zip codes. We note that designated land use codes may not always accurately reflect current use(s). Moreover, certain structures and lots may be exempt from POT taxes as non-profits or for other reasons. Notwithstanding, our sense is that the City’s numbers of total lots may be less than ideally comprehensive. C. C.O.R.E.’S INQUIRIES C.O.R.E. Conducted numerous meetings and ongoing inquiries into the issues related to the POT. Beginning Nov. 18, 2010, representatives from the Police Commission Investigation Division (CID), Office of Finance, and City Attorney presented an overview to C.O.R.E. of the City’s regulation of parking lot operators, with the primary focus on collection of the Parking Occupancy Tax. C.O.R.E. brought together these three sets of parties responsible for parking operations simultaneously in order to begin to understand and unravel the multiple layers of oversight. In January 2011, the Commission held a follow-up discussion on the Parking Occupancy Tax with representatives from the Los Angeles Parking Association which represents large lot operators in the City. The Association also submitted a letter to C.O.R.E.vii Thereafter, C.O.R.E. began a series of further inquiries and follow ups, culminating in this report. D. COUNCIL FILE(S) Issues related to parking operators, the Parking Occupancy Tax, and compliance therewith, have long been the subject of discussion and Council Files in the City. Among the highlights: Council file No. 09-0177 – Introduced Jan. 27, 2009 re Parking Occupancy Tax. Pursuant thereto, on July 10, 2009, the Council adopted recommendations of the Budget & Finance Committee instructing the Office of Finance and requesting the Police Commission “to report to the Council with recommendations for requiring parking operators to install parking revenue and control equipment at any parking facility found to be not paying or underpaying the Parking Occupancy Tax in order to make auditing and monitoring of compliance less difficult and to enable suspension of repeat offenders from operating as a parking lot until such equipment is installed.” Thereafter, it is unclear as to whether there was any follow up. C.O.R.E. Report Re: Lost in the Parking Lot: Stopping Rogue Parking Operators from Stealing Our Tax Dollars March 2012 Page 11 of 15 pages Council File No. 09-0206 – Introduced Jan. 28, 2009 re Valet Parking Permit Program / Regulation. As noted in Sec. II C. of this report, a Draft Valet Parking Ordinance prepared by the Office of the City Attorney is still pending – with no action thereupon since July 2011. Council File No., 09-1479 – Report of June 16, 2009 from the Office of the CAO and Report of July 2, 2009 from the Budget & Finance Committee relative to a supplemental agreement with The Parking Network, Inc., for the continuation of the Parking Occupancy Tax Discovery Program. Recommendations for Council action were to (1) authorize the Director of Finance, or designee, to execute the supplemental agreement with The Parking Network, Inc., on a month to month basis through December 31, 2009, upon receipt of a current insurance certificate, and (2) to instruct the Office of Finance to report back to the Budget and Finance Committee relative to the Department's efforts to ensure compliance with the City's parking occupancy tax requirements. The report should include the number of parking lots both in and out of compliance with the parking lot permit requirements. Council File No. 11-0595 – Introduced April 27, 2011 re Parking Occupancy Tax Collections. Referred to the Audits and Governmental Efficiency Committee and the Transportation Committee of the Council. Council File No. 11-1470 – Introduced Aug. 19, 2011 re Parking Occupancy Tax Amendment. E. RESOURCES A list of various parking associations, parking companies, periodicals and other resources is hereinbelow in the endnotes to this report.viii IV. Revenue Impacts As reported to CORE, an estimated 25-30% of Parking Occupancy Tax Revenue may be currently underreported due to rogue parking lot operators. With annual POT revenue of $85 million, this translates to an additional $21 - $25 million annually to the City. CORE is cognizant of the fact that achieving 100% compliance may not occur. However, if the City shifts the costs of audits and investigations to the operators – along with more effectively applying the POT (as may be deemed appropriate) to valet operations, leases, validations, etc. – CORE estimates the potential for combined revenues and savings of $20 - $30 million annually. C.O.R.E. Report Re: Lost in the Parking Lot: Stopping Rogue Parking Operators from Stealing Our Tax Dollars March 2012 Page 12 of 15 pages Respectfully submitted, Ad Hoc Commission on Revenue Efficiency Ron Galperin, Chair Hon. Cindy Miscikowski, Vice Chair Mark Ames, Commissioner David Farrar, Commissioner Michael Gagan, Commissioner Cheryl Parisi, Commissioner Brandon Shamim, Commissioner CC: Budget & Finance Committee Audits & Governmental Efficiency Committee Miguel A. Santana, City Administrative Officer Gerry F. Miller, Chief Legislative Analyst Antoinette Christovale, Director, Office of Finance Neil Guglielmo, Deputy Mayor, Budget & Financial Policy Richard M. Tefank, Executive Director, LAPD Board of Commissioners Contacts: Ron Galperin, Chair Ad Hoc Commission on Revenue Efficiency [email protected] Jon Dearing, Analyst Office of Chief Legislative Analyst [email protected] Website: http://core.lacity.org/ C.O.R.E. Report Re: Lost in the Parking Lot: Stopping Rogue Parking Operators from Stealing Our Tax Dollars March 2012 Page 13 of 15 pages ENDNOTES i Revenue Control Equipment (RCE) -- Mandated installation of automated ticket systems have been discussed in prior occasions. The Office of Finance's FY 2008/2009 budget package included the following submitted as a revenue opportunity: "Require a parking operator to install parking revenue and control equipment at any parking facility found to be not paying or underpaying the Parking Occupancy Tax. Due to the cash nature of the parking business, lack of automated equipment (such as ticket dispensers, gates, etc.) makes auditing and monitoring of compliance very difficult. This remedy could be reserved for only repeat offenders with authority to operate being suspended until the equipment is installed for the most serious offenders." As noted in Council file No. 09-0177, the Council, in fact, adopted recommendations of the Budget & Finance Committee (pursuant to a Motion by then-Councilmember Wendy Greuel) re instructing the Office of Finance and requesting the Police Commission “to report to the Council with recommendations for requiring parking operators to install parking revenue and control equipment at any parking facility found to be not paying or underpaying the Parking Occupancy Tax in order to make auditing and monitoring of compliance less difficult and to enable suspension of repeat offenders from operating as a parking lot until such equipment is installed.” ii Culver City Muni Code Sec. 11.01.355: http://www.amlegal.com/nxt/gateway.dll/California/culver/title11businessregulations/chapter110 1generallicensing?f=templates$fn=document- frameset.htm$q=[rank,100%3A[domain%3A[and%3A[stem%3A[and%3Apermits%20and%20lic ensing]]]][sum%3A[stem%3Apermits%20and%20licensing%20]]]$x=server$3.0#LPHit1 iii License plate recognition devices (LPRs) – grants avail from Dept. of Homeland Security. See: http://www.news10.net/news/story.aspx?storyid=66795&catid=2, and http://www.latimes.com/news/local/la-me-santa-monica-parking- 20110123,0,5779844.story?page=1 iv The Police Permit Review Panel is a subsidiary of the Board of Police Commissioners, and is responsible for issuing and overseeing a wide variety of Police Permits for numerous types of businesses – including parking lots and garages. The processing of these permits and the investigation of complaints related to permitted businesses is conducted by Commission Investigation Division, which is headed by a Lieutenant Commanding Officer and staffed by sworn and civilian investigators and clerical staff. v http://www.google.com/url?sa=t&source=web&cd=2&ved=0CBoQFjAB&url=http%3A%2F%2Fwww.lapdpolicecom .lacity.org%2F010511%2FItem%25203_Non%2520Alarm%2520Calendar.pdf&rct=j&q=la%20police%20commissi on%20parking%20lot%20permits&ei=ayJ4Tb- yIpL6swPgoIW5BA&usg=AFQjCNGuIQj3nfTw02XqbME6F3Z0kRXDYA vi http://www.lapdonline.org/police_commission/content_basic_view/9139 vii Per the Los Angeles Parking Association: “The Los Angeles Parking Association, comprised of the leading private parking operators, was formed to represent the common interests of the parking industry. We estimate that our members operate about 70% of the parking lots in Los Angeles and pay 70% of the Parking Occupancy Taxes (POT) to the City of Los Angeles. The City collected POT of about $85 million in FY 2008-09. Due to the fact that some operators were not paying their fair share of POT thus creating an uneven playing field for our members, the Association met with former Controller Laura Chick which resulted in the City retaining an outside auditing firm administered through the Office of Finance. On the permitting side of the equation, the Association worked very closely with the Police Commission staff and the Office of Finance to C.O.R.E. Report Re: Lost in the Parking Lot: Stopping Rogue Parking Operators from Stealing Our Tax Dollars March 2012 Page 14 of 15 pages develop a process that facilitates the Master Permitting of Automobile Parking Lots and same day permitting of additional parking lots which was approved by the City Council in 2009. The process has yet to be fully implemented by the City. When it is, we believe the City will be in a much stronger position to determine the status of permits and payment of the POT with operators.” C.O.R.E. would like to express its appreciation for the suggestions and forthrightness of the L.A. Parking Association and its representatives in presentation(s) to the Commission. viii RESOURCES: http://www.cppaparking.org/ http://www.parking.org/ http://www.southwestparking.org/ http://www.parkingtoday.com/epip.php Automated and Mechanical Parking Association -- www.ampapark.org/ International Parking Institute -- www.parking.org National Parking Association -- www.npapark.org National Valet Parking Association -- www.nvpaonline.com Parking Network -- www.parking-net.com Parking Today Magazine -- www.parkingtoday.com Parking World -- http://www.parkingworld.com C.O.R.E. Report Re: Lost in the Parking Lot: Stopping Rogue Parking Operators from Stealing Our Tax Dollars March 2012 Page 15 of 15 pages Report Re: MANAGING OUR MONEY: - INTERGOVERNMENTAL REVENUE SOURCES ______ TO: The Honorable Antonio Villaraigosa, Mayor The Honorable Wendy Greuel, City Controller The Honorable Carmen Trutanich, City Attorney Honorable Members of the City Council DATE: March 2012 I. Summary The City of Los Angeles receives more than 40% of its annual general fund revenues in the form of “allocations” or “remittances” from federal, state, county and other (inter)governmental sources – such as property, sales, gas, documentary transfer taxes, and vehicle license fees, special funds and grants. As vital as these sources of revenue are, however, the City does not have a definitive and comprehensive internal protocol or process to ensure that the computations of such revenue transfers are in accord with applicable statutes and agreements -- or even to verify the accuracy of the calculations through which the revenues actually received by the City were determined. With roughly $2 billion of the City’s annual $4.7 billion in general fund revenues at stake (FY 09-10), it is vital that the City not just examine what it does receive – but, as importantly, what it should receive. Add section on business personal property and other new recommends… II. Recommendations C.O.R.E. recommends that: 1. The Mayor direct the Office of Finance, in cooperation with the City Controller, and the City Administrative Officer, establish and memorialize internal protocols to insure that the City’s receipt of revenue from federal, state, county and other (inter)governmental sources is in accord with applicable statutes and agreements. The purpose of such protocols shall be to verify the accuracy of the calculations through which revenues due and/or payable to the City have been determined. 2. The Council allocate such additional funds as might be needed for a single party to be responsible for following up on the protocols to be established for verifying and tracking intergovernmental revenues. Such party could be an existing employee of the Office of Finance, the Office of the Controller or of the Office of the CAO. This could also, for an initial period, be assigned to the individual who shall fill the post of Inspector General/Executive Director for Revenue/Efficiency – authorized by the Council this year. 3. The Office of Finance and/or the City Controller conduct spot audits of selected intergovernmental revenues. C.O.R.E. acknowledges that significant resources may be needed to perform comprehensive and ongoing audits of all intergovernmental revenue sources. However, a program of selective spot audits could be very helpful in determining the scope of possible discrepancies between what the City should get from certain intergovernmental sources vs. what that which it is actually receiving. C.O.R.E notes the general distinction between functions of the Office of the Controller (typically focused on what the City pays out), and the Office of Finance (typically focused on what the City takes in). That said, the audits recommended might be undertaken by either of the offices – as they best determine. 4. The Office of Finance and/or the City Controller be authorized to enter into contingency audit contracts with firms that have appropriate qualifications and expertise to find possible discrepancies between what the City should get from certain intergovernmental sources vs. what that which it is actually receiving. Pursuant to such contingency contracts, said vendors would be compensated only in the event that additional revenues are found to be due to the City, and are, in fact, collected. 5. The City Attorney and City Controller verify agreements the City that govern the collection of taxes to ensure they are current, valid, and within the City’s best interests. 6. The Office of Finance be instructed to add to the City’s Business Tax forms information on the Business Personal Property Tax. The form might require the taxpayer to indicate whether the Business Personal Property Tax has been paid. This information and the forms should be made available online. As detailed below, C.O.R.E. believes the “unsecured roll” might be a very significant untapped source of additional funds for the City. III. Background Attached as Appendix “A” hereto, is a listing of the major sources of (inter)governmental revenues collected by others and transferred and/or remitted to the City for the benefit of the general fund. To illustrate just some of the issues and potential for additional revenues, C.O.R.E. highlights the following revenue sources: 1. DOCUMENTARY TRANSFER TAX Documentary Transfer Tax (“DTT”) is one intergovernmental revenue source that the Commission believes is particularly ripe for additional and ongoing scrutiny. At the height of the real estate market five years ago, DTT revenues were in the neighborhood of $200 million annually, constituting the sixth largest source of the City’s general fund revenues. In FY 09-10, C.O.R.E. Report Re: Managing Our Money: Intergovernmental Revenue Sources March 2012 Page 2 of 7 pages these revenues plummeted to roughly $90 million – but as real estate transactions pick up, so do DTT revenues. California Revenue and Taxation (“R&T”) Code Sec. 11911, et. seq. authorizes cities and counties to impose documentary transfer taxes upon deeds, instruments and writings by which an ownership interest in land is transferred. Per R&T Code Sec. 11912, the tax “shall be paid by any person who makes signs or issues any document or instrument subject to the tax, or for whose use or benefit the same is made, signed or issued.” LA County imposes a documentary transfer tax of $1.10 per $1,000.00 of consideration or value of the property conveyed (typically sale price, less liens and encumbrances transferring with the real property). The City of LA imposes a documentary transfer tax of $4.50 per $1,000.00. This aggregates to $5.60 per $1,000.00. Pursuant to a Memorandum between the County and the City, the County is responsible for collecting the DTT and remitting the portion thereof that is due to the City. The City of L.A. has no formal guidelines or procedures to determine whether the City has been shortchanged in DTT revenues (and additional property tax revenues that result from reported changes of real property ownership) – both for transfers by deed and for unrecorded transfers. A. Transfers by Deed: The Los Angeles County Registrar-Recorder / County Clerk collects DTT before recording deeds transferring ownership of real property. While this would seem to be a relatively straightforward process, the sale price for a property – and thus the DTT due – is largely self-reporting by the party submitting the deed for recordation. Also, the amount of DTT paid depends on where the property is located. The rates in L.A. are higher than in other cities in the County, or in unincorporated areas of the County. Mistakes do happen, and when they do, the City is shortchanged. Although the revenue impact cannot be determined without an audit, it should be noted that a recent one time audit of DTT for calendar years 2004-2008 resulted in a demand by the City Controller to the County Recorder for payment of an additional $ 18.7 million ($ 3.4 million/year) which the audit determined was the difference between the amount the City should have received and the amount which the City actually received. Because the County Recorder has denied the City’s claim, legal action is now pending. B. Unrecorded Transfers: Growing numbers of properties (notably commercial properties) are being transferred by changes of ownership in a business entity – not by deed. State and local laws provide that substantial change in ownership within a real estate-owning entity (such as an LLC, partnership, or corporation), is supposed to trigger reassessment and DTT. The LA Recorder, however, has historically lacked the basic information and mechanisms needed to enforce the laws – and the only method to collect the DTT for these transfers is after-the-fact of the property transfers. Although the County Assessor, County Recorder and County Tax Collector are well aware of the issue and are taking steps to identify and assess property which is included in unrecorded transfer, the potential additional City revenue from DTT justify the City’s active participation in this process. 2. Property Taxes: The City’s Property Tax Revenues exceed $ 1.4 billion and constitute about one third of the City’s general fund Revenue. As with the DTT, the City is totally reliant on the County for determination, collection and distribution of the property taxes due the City of Los Angeles and C.O.R.E. Report Re: Managing Our Money: Intergovernmental Revenue Sources March 2012 Page 3 of 7 pages other cities and governmental units within the County. Also, as with DTT, if there is no recorded deed and the property is not reassessed, that means less tax revenue for the County and for the City. The County’s property tax management is complex and involves substantial inter- departmental coordination between the County Assessor (which identifies the property, assesses its value and determines the property tax), the County’s Treasurer Tax Collector (which collects the tax from the taxpayer), and the County’s Auditor-Controller (which allocates the collected taxes to the City and other govermental units which are entitled to receive a portion of the tax revenues). Unsecured Roll. Approximately $ 46 million of the City’s general fund revenue is derived from tax on personal property which is used in a trade or business. The business personal property is difficult to identify and assess, and since the business personal property tax is unsecured, it is difficult to collect without resort to the courts or to some other quasi-judicial remedy. That said, C.O.R.E believes this revenue source is ripe for exploration with greater collaboration between the County Assessor and the Office of Finance to make sure that all businesses are aware of this tax and that the tax is being collected fully. Collaboration between the City and the County. C.O.R.E. has observed that there is high correlation between those business entities which would be subject to the City’s gross receipts tax and those business entities which would be subject to the County’s tax on business personal property, That is, a taxpayer which owes a business personal property tax will more than likely owe a business license tax, and vice versa. When County Assessor John Nougez addressed C.O.R.E, he indicated that his office would enthusiastically support any initiatves to foster greater collaboration between the City’s Office of Finance and the County Assessor. Accordingly, C.O.R.E. recommends that the City’s Office of Finance pursue this opportunity to exchange data and otherwise collaborate with the County regarding businesses within the City which should be paying both of these business taxes. C.O.R.E. strongly recommends that the City have one point person who shall be responsible for coordinating all efforts related to DTT and to Property Tax Assessments and Collection to insure the City gets it fair share of DTT – and property tax revenue which result from unrecorded changes in ownership. 3. SUPERIOR COURT FINES AND OTHER COURT-ORDERED DEBT Approximately 12% of Los Angeles Superior Court (“LASC”) revenue from court-ordered debt collections is allocated to City of Los Angeles, while the rest is dispersed to numerous State and County governmental entities. At a meeting of C.O.R.E. this spring, a representative of the Office of the CAO reported that the City is “essentially flying blind on court fines” and that there is simply “no way to tell” whether the City receives the revenue it is entitled to receive from LASC”). Uncollected revenue from court-ordered debt is substantial. In July 2009, LASC’s portfolio of delinquent and uncollected court-ordered debt exceeded $ 1.4 Billion. By July 2010, this number had grown to $ 1.9 Billion and while accruing at over $ 45 million per month, may exceed $ 2.8 Billion by the end of December 2011. Accordingly, the City’s share of the uncollected revenue would be $ 336 Million ($ 2.8 Billion x 12%). By taking a more proactive role, and by encouraging the Courts to engage in more effective collections, the City might see enhanced revenues, and better assure that it is getting its fair share. At a minimum, the City should demand that the Courts give the City a monthly report with data indicating citations processed by Vehicle Code section, revenue received and data on alternative sentences (e.g. traffic school) imposed by the Courts. C.O.R.E. Report Re: Managing Our Money: Intergovernmental Revenue Sources March 2012 Page 4 of 7 pages 4. SALES AND USE TAX ALLOCATIONS Sales tax-related revenues benefitting the general fund constitute in excess of $300 million annually for the City of Los Angeles. Possible mistakes in allocation by the Board of Equalization can be very costly to the City. There are varied mechanisms for the City to review, audit, and question allocations – among them CA Revenue & Taxation Code Sec.6066.3, which is intended to foster an efficient and effective working relationship in the review, posting, and correction of local tax records. It is our understanding that the Office of Finance is seeking contract approval for an auditor/consultant who could determine the accuracy of these allocations. IV. Revenue Impact With roughly $2 billion of the City’s annual $4.7 billion in general fund revenues derived from intergovernmental sources, City government needs to pay much closer attention to getting its rightful share of these allocations and remittances from federal, state, county and other (inter)governmental sources. CORE has not examined each of these sources, but the Commission has explored the areas of court fees and fines, documentary transfer tax, real property tax and sales and use tax allocations. If the City’s challenge of just DTT revenues related to recorded deeds (2004-2008) is any indication, the potential for additional revenues is significant. We believe these have the potential to yield more revenue for the City. Notably, the City realizes $46 million annually as its share of business personal property collected by the County. Considering that businesses’ compliance with the business personal property tax is widely considered very low, boosting collections on this tax alone could yield tens of millions of dollars annually. Accordingly, CORE estimates the potential for combined revenues and savings of $40 - $100 million annually. Respectfully submitted, Ad Hoc Commission on Revenue Efficiency Ron Galperin, Chair Hon. Cindy Miscikowski, Vice Chair Mark Ames, Commissioner David Farrar, Commissioner Michael Gagan, Commissioner Cheryl Parisi, Commissioner Brandon Shamim, Commissioner C.O.R.E. Report Re: Managing Our Money: Intergovernmental Revenue Sources March 2012 Page 5 of 7 pages CC: Budget & Finance Committee Intergovernmental Relations Committee Miguel A. Santana, City Administrative Officer Gerry F. Miller, Chief Legislative Analyst Antoinette Christovale, Director, Office of Finance Neil Guglielmo, Deputy Mayor, Budget & Financial Policy Contacts: Ron Galperin, Chair Jon Dearing, Analyst Ad Hoc Commission on Revenue Efficiency Office of Chief Legislative Analyst [email protected] [email protected] Website: http://C.O.R.E..lacity.org/ * The Commission would like to specially acknowledge and thank Commissioner David Farrar for contributing his outstanding research to this report. C.O.R.E. Report Re: Managing Our Money: Intergovernmental Revenue Sources March 2012 Page 6 of 7 pages Appendix “A” Major sources of (inter)governmental revenues (Collected by others and transferred and/or remitted to the City) C.O.R.E. Report Re: Managing Our Money: Intergovernmental Revenue Sources March 2012 Page 7 of 7 pages C.O.R.E. Report Re: Managing Our Money: Intergovernmental Revenue Sources March 2012 Page 8 of 7 pages Report Re: IMPROVING COLLECTION OF UNPAID PARKING TICKETS: RENTAL CARS & NEW TECHNOLOGIES ______ TO: The Honorable Antonio Villaraigosa, Mayor The Honorable Wendy Greuel, City Controller The Honorable Carmen Trutanich, City Attorney Honorable Members of the City Council DATE: March 2012 I. Summary The City of L.A. generates approximately $140 million annually in parking citation revenues through the Department of Transportation (“DOT”). However, this can and should be improved. This Report focuses on two notable (and complementary) opportunities to do so -- in collecting parking citations issued on rental cars, and in application of new technologies to make payment of citations easier and quicker. Rentals DOT, and its collection vendor, ACS, anticipate that 2.7% of citations issued by DOT in FY 2011 will be attributable to rental cars – roughly 70,000 out of 2.58 million tickets issued. Nearly 40% of these tickets will remain “open” and largely unpaid, however – lagging significantly behind vehicle collections generally.i Collecting from renters is much tougher than other collections. Moreover, (as detailed in C.O.R.E.’s October 2010 Blueprint for Reform of City Collections (Rec. 60, page 58), and hereinbelow), the CA Vehicle Code provides rental car companies can be released of liability for citations accrued while their vehicles are rented – provided that the companies provide the ticket issuer (LADOT) with the renters’ contact information. As a result, for citations issued over a two- year period by DOT, the category identified as “rentals and miscellaneous” constituted 11.65%, or $22.96 million, of the Department’s “Difficult to Collect” accounts. Were the rental companies instead obligated to pay renter citations and/or charge their renters therefor, the City could realize up to several million dollars annually in reasonably assured revenues. New technologies With a growing number of parking meters now accepting credit card payments for time used, there may be additional benefits if meters can be configured to process citation payments as well. This option could also be explored in conjunction with an "instant discount" in which the payment is reduced by a nominal amount for immediate payment, or payment within 24 hours. Smartphone technology is also transforming how people pay. Smartphones are being used, for example, to text payments that then appear on the account holder’s phone bill. Many merchants are also employing a Quick Response (QR) Code in various forms of printed materials. The QR Code is similar to a bar code and can be scanned and loaded by any smartphone. City parking citations might be printed in the future to include a QR Code that would enable anyone with a smartphone to scan the code with their phone and make an instant payment to the City. An instant discount may also be effective as an incentive for use of the QR Code – which could make collections nearly instantaneous – and possibly avoid some credit card and private vendor collections fees. II. Recommendations C.O.R.E. recommends: 1. That the City Council request the Department of Transportation to submit a report to the Council on its current rental car collection systems and policies. Said report should include a breakdown of rental vehicle types issued citations and any information available regarding the rental locations and companies from which said vehicles were rented. 2. That the City Council request the Department of Transportation, in consultation with its parking citation vendor and with the Office of the City Attorney, submit a report regarding bests practices and ordinances most effective in improving collection on rental car tickets in other cities and counties, both in and California and in other states. Said report should include recommendations for changes in DOT procedures and policies, and possible local ordinance and/or legislative changes. Said report should also include consideration and analysis of the possibility of entering into agreements with rental car companies to collect from their renters the citations issued to said renters – perhaps even with some sort of compensation therefor to the rental companies. 3. That the City Council and Mayor request the Board of Airport Commissioners to report on a possible policy that would obligate rental car companies with airport operations to pay renter citations and/or charge their renters therefor as a condition to renewal of lease agreements, or of re-opened discussions on franchise issues. Further, the Office of the City Attorney should be requested to opine thereon. And, in crafting the appropriate and legally sustainable policy, C.O.R.E. recommends the Board confer with representatives of the rental car companies. 4. That the City Council request the Dept. of Transportation to report about options for new and alternative technologies and payment methods. Said C.O.R.E. Report Re: Improving Collection of Unpaid Parking Tickets March 2012 Page 2 of 6 pages report shall include information about the feasibility and advisability of expanding payment options through use of parking meters and QR Codes. III. Background A substantial number of car rentals in the City of Los Angeles occur at facilities under the purview of the Los Angeles International Airport through franchise agreements approved by the Board of Airport Commissioners. While state law relieves rental car companies of an obligation to pay the citationsii, nothing in the law would appear to prevent the companies from paying a ticket and then billing their customer. In fact, these car companies have information on their lease agreements which gives them (and not the City) the contact information of the rental car driver as well as a contract to enforce payments that are due to them with applicable credit card data and ability to receive full payment reimbursement. The rental car contact could (and, arguably, should) indicate that unpaid parking tickets will be covered by the car company and charged back to the driver whose contract covers the period in which the car was utilized. Thereby, the obligation for (uncollected) parking citations would fall on the entity responsible for these vehicles -- the rental car company which owns and leases them. Insofar as doing business at LAX or other L.A.-area airports is a privilege, the City could realize significant and steady revenue by requiring companies to be ultimately responsible for parking citations issued on their vehicles as a condition for the renewal of contracts to do business at or with the airports.iii The Commission is not in a position to opine on the legal implications of the recommendations herein, but we believe that all options need to be explored. The Commission is also cognizant of the need to work with rental car companies to address concerns they rightfully have – and may have – with liability for rental car tickets. Notably: Rental car companies have complained to the Commission and its Commissioners about the processes of DOT, and that there are instances where the companies timely forward renter information to DOT and are still assessed the ticket, plus fines. In such cases, companies have reported paying under protest to avoid DMV holds – and then having to request refunds from DOT and/or the DMV. Rental car companies report that a significant percentage of rental car tickets are issued on cars rented by problem renters. These include cars wrongfully not returned to the rental company cars rented with stolen IDs or credit cards, and renters whose charges exceed their credit card company limits. While a rental car company my apply certain charges for citations (plus processing or penalty fees) to a renter’s credit card, the company inevitably has to contend with chargebacks – i.e. funds withheld from the rental company by a credit card company when a renter (rightly or wrongly) disputes his/her credit card charge(s). Moreover, renters who do take responsibility for a ticket will sometimes take the position that the rental company should be responsible for any late fees and penalties because the renter did not get timely notice from the company to avoid the additional charges. C.O.R.E. Report Re: Improving Collection of Unpaid Parking Tickets March 2012 Page 3 of 6 pages Representatives from rental car companies have put forth the idea of incentives over penalties in order for the City to increase collections. Rental car companies are required to pay within 30 days but do not face penalties until 90 days. The procedure for rental car companies is to pay tickets upon receipt and bill the amount to its customers. Many car companies wait and incur penalties after the 90 days. If the city were to agree to waive penalties upon payment of the ticket within 60 days it would, according to certain rental car company representatives, increase collections. Incentivizing payment will make paying the fine much easier and cost- effective than passing on data which is both costly to the City and the company. There exist questions of who might be obligated. There are the national companies, but particular local operations may be operated by affiliated or independent franchisees. Requiring rental car companies/operators/franchisees to be responsible for tickets if a vehicle is rented at LAX. IV. Revenue Impact By conditioning new rental car facilities contracts at L.A.’s airports on rental car companies undertaking certain obligations to pay renter citations and/or charge their renters therefor, the City could realize a significantly greater share of the nearly $11.5 million in difficult to collect (and often uncollectible) citations attributable to rental cars.iv Another way to estimate the benefit of the rental car companies being responsible for the tickets of their customers is to consider that 2% of $140 million is, grossly calculated, approximately $2.8 million per year. This amount, going forward as an obligation to pay by large, licensed rental car companies, could become a more reasonably assured amount in future City budget revenue projections. Such a policy change could also be implemented in such a way as to streamline existing DOT procedures to the benefit of the City and of the rental car companies. As for application of new technologies, making it easier and quicker for people to pay their parking tickets will be both a financial benefit to the City and of benefit to the residents, businesses and visitors in Los Angeles. The City generates approximately $140 million in annual revenue from parking citations. Approximately 2.7 percent of citations are attributable to rental cars and approximately 40 percent of such rental car citations go unpaid. CORE estimates additional revenue of approximately $1 - $2 million from better collecting unpaid citations from rental car companies. Additionally, with enhanced technology to facilitate immediate payment for all citations, coupled with implementation of the Commission’s Blueprint recommendations as they relate to parking citations, CORE estimates the potential for combined revenues and savings of $3 - $10 million annually. C.O.R.E. Report Re: Improving Collection of Unpaid Parking Tickets March 2012 Page 4 of 6 pages Respectfully submitted, Ad Hoc Commission on Revenue Efficiency Ron Galperin, Chair Hon. Cindy Miscikowski, Vice Chair Mark Ames, Commissioner David Farrar, Commissioner Michael Gagan, Commissioner Cheryl Parisi, Commissioner Brandon Shamim, Commissioner CC: Budget & Finance Committee Audits & Governmental Efficiency Committee Transportation Committee Miguel A. Santana, City Administrative Officer Gerry F. Miller, Chief Legislative Analyst Antoinette Christovale, Director, Office of Finance Neil Guglielmo, Deputy Mayor, Budget & Financial Policy Jaime de la Vega, General Manager, LADOT Contacts: Ron Galperin, Chair Jon Dearing, Analyst Ad Hoc Commission on Revenue Efficiency Office of Chief Legislative Analyst [email protected] [email protected] Website: http://C.O.R.E..lacity.org/ + The Commission would like to specially acknowledge and thank Vice Chair, the Hon. Cindy Miscikowski for contributing her outstanding research to, and preparation of, this report. C.O.R.E. Report Re: Improving Collection of Unpaid Parking Tickets March 2012 Page 5 of 6 pages ENDNOTES: i ii Standard vehicle rental agreements state that the renter is responsible for all tickets issued to the vehicle while it is rented. Most car rental agreements also have provisions that allow the rental company to charge the renter’s credit card for unpaid parking violations, but this rarely happens. California’s Vehicle Code essentially takes rental companies “off the hook” for parking tickets if they simply furnish the ticketing agency (DOT) with information about the party renting the vehicle at the time a ticket was issued. Moreover, the DMV will not withhold registration renewals of the vehicle for such tickets. Per CA Vehicle Code Div. 3, Chapter 1, Article 6, Sec. 4760(c): “The court or designated processing agency shall issue an abstract or notice of disposition of parking violation to the renter or lessor of a vehicle issued a notice of delinquent parking violation relating to standing or parking if the renter or lessor provides the court or processing agency with the name, address, and driver’s license number of the rentee or lessee at the time of occurrence of the parking violation.” Some rental companies report information about renters to DOT electronically as part of DOT’s voluntary fleet program, others don’t. A DOT representative reported to C.O.R.E. that the voluntary program is not as successful as anticipated. Once DOT does get information about a renter, notices are sent to the renter, but collecting from renters out of L.A. is difficult, especially without the enforcement mechanism inherent in withholding of vehicle registration renewals. iii DOT replied to C.O.R.E.’s recommendation(s) in a letter, dated July 28, 2011, regarding Department responses requested by the Office of Finance as part of its Accounts Receivable Initiatives Department Response Tracker (CF 10-0226). DOT stated that: “ACS implemented a new program to expedite notices to the correct owner since rental car ownership information is dynamic, in that, most rental car companies do not own their vehicles for more than two years. Further ACS is confirming ownership with the DMV as soon as the citation is processed, and also is strictly enforcing the requirement for rental agencies to provide the driver’s license information of the renter within a time frames as required in the CVC. Finally, ACS is also working with the larger rental agencies on a master database repository of their entire nationwide inventory.” iv C.O.R.E. has not conducted a legal analysis regarding any statutory or other limitations, or the extent or manner that an obligation could be undertaken by contract by rental car companies. C.O.R.E. Report Re: Improving Collection of Unpaid Parking Tickets March 2012 Page 6 of 6 pages Report Re: Follow Up to C.O.R.E.’s Blueprint for Reform of City Collection - Accompanying Recommendations Tracker ______ TO: The Honorable Antonio Villaraigosa, Mayor The Honorable Wendy Greuel, City Controller The Honorable Carmen Trutanich, City Attorney Honorable Members of the City Council DATE: March 2012 In the spring of 2010, the Los Angeles City Council created the Ad Hoc Commission on Revenue Efficiency (CORE) at the initiation of Council President Eric Garcetti to evaluate and recommend improvements in collections, billing and new revenues. Comprised of seven volunteer Commissioners, CORE has had more than 25 meetings and hearings to study and develop its Blueprint for Reform of City Collections. The Blueprint In October 2010, CORE released the Blueprint, which contains 65 recommendations applicable to various City departments and offices. The Blueprint offers a comprehensive roadmap for reform of billing and collections activities – and for the City to realize as much as $100 million or more annually in additional net revenues from departments’ non-tax receivables. CORE presented the Blueprint to the Council on May 3, 2011 (CF No. 10-0225). Thereafter, the Council adopted the Blueprint, including its central recommendation: Creation of the post of an Inspector General for Revenue & Efficiency/Collections (the IG). The Commission has received periodic updates from the Office of Finance and other City departments regarding implementation since the report was released. CORE has closely monitored implementation through the development of a tracking matrix for all of the recommendations. (See page 3, below). The City’s Receivables The most recent comprehensive report of the City’s non-tax receivables is dated October 19, 2011 and entitled: “Accounts Receivable Quarterly Report for 4th Follow Up to C.O.R.E.’s Blueprint for Reform of City Collections March 2012 Page 1 of 16 Pages Quarter Fiscal Year 2010/2011.1 This report is a great improvement in the amount and format of information provided over reports previously submitted when CORE began its work. That said, the numbers continue to reflect the fact that key City Departments are still failing to write off old and bad debt – and to get it off the City’s books. Per the 4th Quarter report, the City had nearly $585.8 million in non-tax receivables reported by the (non-proprietary) Departments, less a staggering $454.1 million in allowance(s) for doubtful accounts reported by the Departments – reducing reported net receivables to $131.7 million. Inspector General While some of the recommendations have been implemented, or partially implemented, many have not. Notably, the City has yet to appoint an IG. It was CORE’s very strong recommendation that the City create this post for a 1-2 year period to independently report on, and aid in, the implementation of, the City’s Collection Guidelines, the Controller’s recommendations and the recommendations of CORE’s Blueprint. As we stated in the Blueprint: Reports, audits, Mayoral directives, Council directives and Collection Guidelines have proven to be insufficient by themselves in bringing about reform of collections. The Commission saw – and still sees – the need for the sole and concentrated focus on revenue and collections and the coordination that the IG can bring. The intention of the IG position is not to supplant or usurp or duplicate the authorities of any other City office. The elected and other officials of the City would also continue to exercise their ongoing responsibilities and authorities. The IG, however, will have a vital role in reporting, convening, coordinating – and, most importantly, in achieving results in dollars. To that end, CORE recommends that the IG be assigned to focus on several distinct pools of collections where the City can achieve significant and timely results. If the IG focuses on these areas – even without achieving a thorough overhaul of collections – we believe the IG will have been a great success. Specifically: EMS billings – To make sure the City realizes the most out of the Fire Department’s recently implemented billings and collections contracts. With approximately 100,000 ambulance calls and $ 85 million in annual collections, a 15-20% increase in collections, coupled with other efficiencies, would yield the City $13-$17 million in new revenues annually. This, we believe, is a conservative estimate. Parking Citations – To implement the recommendations in the Blueprint and in CORE’s January 2012 Report on Collection of Unpaid Parking Tickets: Rental Cars & New Technologies. The City currently realizes approximately $140 million in annual revenues from parking citations. We believe that number could be increased by at least 10-20%. That, along with making the process more efficient, could yield the City $14-$30 million in new revenues annually. 1 (See: http://cityclerk.lacity.org/lacityclerkconnect/index.cfm?fa=ccfi.viewrecord&cfnumber=10-0225-S2). Follow Up to C.O.R.E.’s Blueprint for Reform of City Collections March 2012 Page 2 of 16 Pages Parking Tax – To achieve coordination between the currently disparate roles of the Office of Finance, Police Commission and City Attorney as they relate to regulation of parking lot operators and to collection of the Parking Occupancy Tax. As detailed in CORE’s January 2012 Report on Lost in the Parking Lot: Stopping Rogue Parking Operators from Stealing Our Tax Dollars, the City currently realizes approximately $85 million in annual POT revenues. With one person to coordinate reform of the process, along with revised ordinances, we believe the City can realize $20 million or more in additional annual revenues within the next year. The IG position was advertised by the City in August 2011, and again in the fall. To-date, the Commission is not aware that any such appointment has been made. As C.O.R.E. now wraps up its work, the Commission stresses the necessity to now identify and put to work this person to carry forth our recommendations and assure their implementation and success. Tracking Progress on CORE’s Recommendations Office of Finance Tracker -- The Office of Finance’s most recent report with a matrix/tracker for (CORE and other collection) recommendations is dated June 30, 2011, and submitted to the Clerk of the City of August 8, 2011. Entitled: “Accounts Receivable Citywide Improvement Initiatives”, the Office of Finance report includes an Exhibit I of a “Finance Directives Checklist” with status of 75 initiatives and an Exhibit II with a “Departmental Response Tracker” indicating Departmental Reponses submitted to the Office of Finance re 100 Recommendations.2 CORE Tracker -- Attachment “A”, hereto, is the Commission’s own tracker/matrix wherein we assess the progress and status related to each of CORE’s 65 Recommendations. CORE recommends that the City’s policymakers continue to track the progress of the identified departments and offices toward implementation. The Commission encourages the City to fulfill each and every recommendation and we look forward to what will be done. We also want to reiterate that the City’s private collection agencies should be returning uncollected accounts for recommended secondary and tertiary collections. This procedure should be followed by the City and by the County in its collections on behalf of the City – as detailed in C.O.R.E.’s accompanying Report on Intergovernmental Revenue Sources. 2 (See: http://clkrep.lacity.org/onlinedocs/2010/10-0225_rpt_oof_8-8-11.pdf). Follow Up to C.O.R.E.’s Blueprint for Reform of City Collections March 2012 Page 3 of 16 Pages Revenue Impact Implementation is continuing on CORE’s recommendations to strengthen the City’s collections process, institute best practices, centralize reporting and tracking, and increase accountability among departments and elected offices. As we previously detailed in the Blueprint, with implementation of the Commission’s prior Blueprint recommendations, along with prior Controller recommendations regarding collections, CORE estimates the potential for combined revenues and savings of $10 - $25 million in the coming fiscal year, and within three years, as much as $100 million or more annually. In Conclusion The Commissioners would like to express our gratitude for the assistance of myriad individuals in and out of City government, and for the honor and privilege of being of service to the people of the City of Los Angeles. While the Commission’s formal work is hereby concluded, each of the Commissioners intends to remain available and on-call to further assist in any way. Respectfully submitted, Ad Hoc Commission on Revenue Efficiency Ron Galperin, Chair Hon. Cindy Miscikowski, Vice Chair Mark Ames, Commissioner David Farrar, Commissioner Michael Gagan, Commissioner Cheryl Parisi, Commissioner Brandon Shamim, Commissioner CC: Audits and Governmental Efficiency Committee Budget and Finance Committee Miguel A. Santana, City Administrative Officer Gerry F. Miller, Chief Legislative Analyst Antoinette Christovale, Director, Office of Finance Neil Guglielmo, Deputy Mayor, Budget & Financial Policy Contacts: Ron Galperin, Chair Jon Dearing, Analyst Ad Hoc Commission on Revenue Efficiency Office of Chief Legislative Analyst [email protected] [email protected] Website: http://core.lacity.org/ Follow Up to C.O.R.E.’s Blueprint for Reform of City Collections March 2012 Page 4 of 16 Pages Appendix “A” CORE Recommendations Tracker Matrix (See accompanying pages) Follow Up to C.O.R.E.’s Blueprint for Reform of City Collections March 2012 Page 5 of 16 Pages 1/19/2012 CORE Recommendations Tracker Matrix: Status of CORE Recommendations Rec. # Recommendation (Full) Department Status Comments CORE recommends that Finance prepare a memorandum for Council re the next steps it recommends to follow-up and follow-through on the “Feasibility Study: Fully or Mostly 1 Finance Centralization of Billing and Collection Activities”, dated Dec. 21, 2009, by Macias Implemented Gini & O’Connell. The FMS launch was on July 2, 2011. CORE recommends that ITA and Finance take all actions necessary for full and The Accounts receivable reporting smooth launch of the new FMS by July 1, 2011, coupled with implementation of Finance & In Process or module went live by December 12, 2 the accounts receivable module / component by September 30, 2011. Information Discussion 2011. Additional accounts receivable Additionally, it will be vital for the City to fund the future phases of greater Technology Agency systems are continuing to be accounts receivable centralization. integrated by May 2012. CORE recommends that Finance, ITA and the Treasurer prepare and submit a Finance, The IT Oversight Committee is report on the needed funding and projected timeline for implementing a Information In Process or developing a future technologies 3 Citywide on-line payments portal – with multiple ways to pay for accounts and Technology Agency Discussion roadmap. A payments portal will be receivables. & Treasurer considered. CORE recommends implementation of a consistent Citywide ID system for all The IT Oversight Committee is accounts to be used by individuals and companies for their dealings with any and Finance & developing a future technologies In Process or 4 every City department. Finance, ITA and the Treasurer should prepare and Information Discussion roadmap. A citywide ID accounts submit a report on needed funding and a projected timeline for such Technology Agency system will be considered. implementation, along with projected cost savings from such a consistent CORE recommends that the Mayor clarify for the benefit of all department General Managers that instructions by Finance to departments regarding Fully or Mostly 5 revenue, billing and collections shall be treated as Mayoral directives. Finance Mayor Implemented instructions could also be incorporated into future Mayoral directives regarding collections, or used as the basis therefor. CORE recommends that Finance submit proposed ordinance changes to Council While not an ordinance, the Mayor has instruction all departments to that would clarify and strengthen the authorities needed by Finance to ensure In Process or 6 Finance compliance of departments with its instructions – and to provide Finance greater Discussion treat Office of Finance Guidelines as latitude in developing instructions and guidelines it deems efficacious. Mayoral directives. CORE recommends that the Council prioritize staffing and funding for Finance’s The CAO is preparing a report revenue-generating positions and work. relating to item iv. Item iii has been i. Exempt Finance’s revenue-generating positions from employee furloughs and implemented. Items i and iv have not hiring freezes. been implemented. In Process or 7 ii. Allocate funding needed to fully staff Finance’s Revenue Management City Council Discussion Division. iii. Allocate funding needed to fund analysts and clerical staff for the FMS project. iv. Consider a stable and certain funding source for Finance’s collection work – Appendix "D" -- Page 1 of 11 pages 1/19/2012 CORE Recommendations Tracker Matrix: Status of CORE Recommendations CORE recommends that Finance immediately report to the Council’s Budget & The Task Force has convened an Finance Committee regarding the status of creation of this Task Force. CORE In Process or initial meeting and the Office of 8 Finance further recommends that the Committee request each of the members of the Discussion Finance is preparing a report. Revenue Review Collection Task Force to appear before the Committee. CORE recommends that Finance take all necessary steps to reconstitute and Fully or Mostly 9 Finance invigorate its current Revenue Management Committee (the “RMC”). Implemented CORE recommends that the Inspector general (IG) proposed by CORE (See Sec. The Council and Mayor approved the VI.D.) prepare quarterly reports of departments’ compliance and performance to creation of an Inspector General for submit to the Mayor, Controller, City Attorney and the Council: Collections position within the CAO's i. Compliance of departments with each of the criteria in Directive No. 5. office. The position has not been ii. Compliance of departments with all applicable Collection Guidelines. Proposed Inspector In Process or 10 filled. Interviews are underway. iii. Performance of departments with capturing all billable services and fees – General Discussion including full cost recovery. iv. Progress of departments in cultivating new revenue sources. v. Reports to include both details and a simple chart/checklist with summary scores or grades for each department. CORE recommends that the Inspector General (IG) proposed by CORE (See Sec. See comment for Recommendation VI.D.) prepare quarterly reports to submit to the Mayor, Controller, City Attorney 10. and the Council: Proposed Inspector In Process or 11 i. Status of implementation of each of the currently not-implemented and/or General Discussion partially implemented recommendations in the Controller’s 2007 and 2010 Audits. ii. Status of implementation of each of CORE’s recommendations that are CORE recommends that the Mayor, CAO and Council’s Budget & Finance The Mayor's 2012-13 Budget Letter Committee require department General Managers, as part of annual budget to Departments reasserts that Mayor, CAO and requests, to submit a letter attesting their departments compliance with In Process or department managers will be held 12 Council Budget & Directive No. 5 and with all provisions of the Collection Guidelines. Any and all Discussion accountable for compliance with Finance Committee provisions wherein a department is not in compliance shall be detailed by the Executive Directive No. 5 and the General Manager and reviewed as part of the budget process. Collection Guidelines. CORE recommends that, in order to implement a clear management evaluation The Mayor conducts annual GM policy which includes revenue and collection performance criteria, the Mayor, as performance reviews including fiscal Chief Executive should consider development of specific individual performance management. Revenue and guidelines with each General Manager. These guidelines should include goals collection performance are included Fully or Mostly 13 and expectations set respectively by the General Manager and the Mayor and Mayor Implemented and expanding. should be evaluated annually by the Mayor and his executive team with advisory input from the City Council as appropriate to consider the General Manager’s capability and performance in meeting the overall responsibilities of running the individual department. Appendix "D" -- Page 2 of 11 pages 1/19/2012 CORE Recommendations Tracker Matrix: Status of CORE Recommendations CAO response: Per the City Charter, the Budget is developed in CORE recommends that the CAO report to the Mayor and the Council on the coordination with the Mayor’s feasibility of adopting aspects of the County of L.A.’s budgeting paradigm – Office. Revenue targets are Chief wherein department budgets are based, in part, on collections targets. Has Not Be developed in consultation with 14 Administrative Departments that do well can benefit. Departments that fail to meet Implemented Departments and the City Officer expectations are called to account by the County’s CEO and by the Board of Administrative Officer and approved Supervisors. by the Mayor and Council. Any deviations from revenue targets are addressed through the Financial Status Reports to the Mayor and CAO response: Revenues from collection items are considered one CORE recommends that Council create a pilot program with several departments time receipts. The City’s Financial (or a cluster of departments) that would dedicate or earmark a portion of Policies preclude the use of one-time collections to fund the costs of collections and to benefit said departments’ revenues for ongoing expenses. The operations. The paradigm might be that a portion of certain revenues be CAO will be reviewing this proposal Has Not Be 15 apportioned or directed to help fund and support: City Council for compliance with the City’s Implemented i. Collection positions at Finance. current financial policies. ii. The post of Inspector General for Revenue & Collections. iii. Revenue-generating positions in the specific department. It should also be noted that iv. Staffing needs and programs of the specific department. restricting the use of General Fund revenue reduces the revenue available for other priorities. CAO Response: The Adopted Budget sets revenue targets for all City CORE recommends that the Mayor, CAO and Council make department-by- Mayor, CAO and Departments. The CAO Financial department revenue targets (and performance) a fixed part the budget process, In Process or 16 Council Budget & Status Reports to the Mayor and of the regular Financial Status Reports (FSRs) by the CAO, and that these targets Discussion Finance Committee Council will track the revenue be included in all quarterly reports by departments. progress of City Departments. The FSR will highlight performance on meeting targets. CORE recommends that each department implement a recognition program for Fully or Mostly 17 All Departments employees. Implemented CORE recommends the establishment and appointment of an Inspector General See comment to Recommendation for Revenue and Collections to independently report on, and aid in the 10. Mayor & City In Process or 18 implementation of, the City’s Collection Guidelines, the Controller’s Council Discussion recommendations, the recommendations of this Blueprint and other collection reforms. Appendix "D" -- Page 3 of 11 pages 1/19/2012 CORE Recommendations Tracker Matrix: Status of CORE Recommendations CORE recommends replacing the current system of department “referrals” of The Office of Finance indicates that a accounts from one stage of collections to another with a de facto system of more formalized, centralized collection management system is compulsory account transfers, under the supervision of Finance. Rather than In Process or 19 All Departments make referrals a discretionary or recommended act by a department, the Discussion needed before there can be transfer should be compulsory (and, preferably, automatic) – unless there is a compulsory transfers, and has asked specific reason or circumstance to not do so. the IT Oversight Committee to put this item on its radar. CORE recommends that the Current Non-Tax Accounts Receivable Process Flow Has been updated to reflect current In Process or 20 and Timetable of the Collection Guidelines be replaced with CORE’s updated All Departments Discussion practice and will continue to update Recommended Non-Tax Flowchart. as processes evolve. CORE recommends that Finance amend the Collection Guidelines setting forth The Office of Finance is preparing a the process flow for primary collections of accounts of less than $5,000 – as new RFP for collections. The new follows: contract will adjust the transfer i. As noted in Recommendation No. 19, (Sec. VII.A.19), accounts under the period from 12 months to 9 months. current Collection Guidelines that are supposed to be referred by departments Office of Finance Guidelines provide at forty five (45) days of delinquency, shall henceforth be de facto transferred to for department referral within 45 a primary collection agency (unless a department provides a specific reason or Fully or Mostly days of delinquency and OOF has 21 circumstance not to do – to the satisfaction of Finance). Finance Implemented discretion to pull accounts or pools ii. If no payment is received within a nine (9) month period from transfer of an of accounts at will. account to the primary collection agency, the account shall, in consultation with Finance, be automatically transferred to secondary collections (See Recommendation No.22 (Sec. VII.B.22). iii. If partial payment is received within the nine (9) month period, the period for the primary agency to hold the account may be extended up to another three months. CORE recommends that Finance amend the Collection Guidelines to provide for an automatic or compulsory transfer of unpaid accounts from primary to secondary collection vendors as soon as time allotted to primary collection has In Process or 22 Finance expired. Such transfer should be automatic and, at the same time, in Discussion consultation with Finance. Such transfer, we generally believe, should be for a six (6) month period -- except where Finance determines otherwise. CORE recommends that Finance have contracts with at least two private See comment to Recommendation collection agencies with respect to each major type of receivable. Each vendor 19. would initially receive equal referrals and Finance would evaluate and publish Fully or Mostly 23 each vendor’s performance quarterly. Under a rewards-based system for Finance Implemented distributing accounts, the evaluations would be determinative of the volume of accounts assigned in subsequent quarters. Competition is good, and Finance should reward superior performance with additional referrals. Appendix "D" -- Page 4 of 11 pages 1/19/2012 CORE Recommendations Tracker Matrix: Status of CORE Recommendations CORE recommends that the City’s future collection agency-related Requests for Proposals (RFPs) and agreements refocus from low-fee, low-bid contracts to Fully or Mostly 24 performance-based selection and compensation. For aged accounts, vendors Finance Implemented should be provided with significantly enhanced commission(s) in relation to the difficulty and likelihood of collection. CORE recommends specific provisions for collection agency contracts be considered, as follows: i. Competition clauses (See Recommendations 23 and 58). ii. Performance guarantees. iii. Performance bonds. iv. Annual financial statements to monitor vendor’s strength and resources. v. Quarterly meetings between the vendor, Finance and department personnel to review and discuss how to improve everyone’s performance. Fully or Mostly 25 vi. Options for debtors to pay online. Finance Implemented vii. Benchmarks. viii. Preferences for local employment. ix. Incentives to aggressively work the “back end” of account pools. x. Incentives to collect sooner rather than later. xi. Sophisticated and effective skip tracing. xii. Pairing of pools of receivables. Some pools are more attractive to collectors than others. A way to get vendors to undertake a mediocre pool at a good rate is to pair that pool with one that is more attractive. CORE recommends that Finance issue a Request for Proposals (RFP) / Request for Qualifications (RFQ) for evaluation of receivables for sale and for brokers Fully or Mostly 26 Finance specializing in such sales. Council should be presented with the scope of work for Implemented the RFP / RFQ prior to its release. CORE recommends amending the City Administrative Code to make the primary The Office of Finance has developed charge of the Board of Review (BOR) the evaluation of (pools of) accounts an RFP for the valuation and sale of receivable for sale or auction. Currently, the BOR is charged with evaluating debt. Based on initial advice from improbable receivables for write-off. While there are some receivables of clearly the City Attorney, it is likely to be no value that need to evaluated for write-off approval by the BOR, nearly all the Mayor & City In Process or 27 redrafted. Consideration is being rest of the City’s improbable receivables should, more appropriately, be Council Discussion given to raising the threshold for evaluated by the BOR, in consultation with debt sale brokers, for approval for Board of Review write-off from sale or auction. For the bulk of aged receivables, the City would then $5,000 to $50,000. automatically write-off the difference between the amount of the debt and the amount realized in a final sale or auction. CORE recommends that the Mayor and Council direct that accounts uncollected See comment to Recommendation Mayor & City In Process or 28 after secondary collections should be automatically forwarded to the Board of 27. Council Discussion Review for evaluation and recommendation for auction or sale. Appendix "D" -- Page 5 of 11 pages 1/19/2012 CORE Recommendations Tracker Matrix: Status of CORE Recommendations CORE recommends that Finance report on its claims settlement statistics and Fully or Mostly 29 Finance policies to the Council’s Budget & Finance Committee. Implemented CORE recommends that Finance report to the Mayor, Council, CAO and CORE on Fully or Mostly 30 Finance the details and timetable of the forthcoming Offer in Compromise Program. Implemented CORE recommends that the Council expedite and fund the implementation of a Fully or Mostly 31 comprehensive non-tax amnesty program proposed by Finance in its FY 10-11 City Council Implemented budget. CORE recommends that the Council instruct the City Attorney to prepare draft OOF is preparing a process in ordinance(s) necessary to apply consistent fees, penalties, and interest charges conjunction with the City Attorney as well as a report to Council that for all City receivables – except as may be noted as being impermissible. Said In Process or 32 City Council draft should then be sent to each department General Manager, who would Discussion will include instructions to have no more than 30 to days to object. Revised draft ordinance(s) would be departments to work with OOF to submitted to the AGE Committee and to Council for review and approval. review some 150 citywide receivables for application of CORE recommends that Finance prepare a report on the feasibility of increasing In Process or 33 the interest rate and penalties currently applied to delinquent receivables to no Finance Discussion less than the average being charged by other municipalities. CORE recommends that Finance move to aggressively implement the City’s newly adopted administrative lien Ordinance for delinquent taxes. Finance Fully or Mostly 34 Finance should also report on its implementation and the results thereof to the Council’s Implemented Budget & Finance Committee six (6) months after the effective date of the CORE recommends that the City Attorney, in consultation with the CLA, prepare a memorandum regarding the feasibility of requiring parking lot/facility/structure tax agreements to be recorded upon the title to the real In Process or 35 properties whereupon such operations currently exist. Such agreements could City Attorney Discussion serve as an encumbrance upon the real properties to essentially guaranty payment of the parking tax and as a lien that could be foreclosed upon in the event of non-payment (similar to property taxes). CORE recommends that Finance and the City Attorney collaborate to draft a The Office of Finance and the City Finance & City In Process or 36 framework for a Citywide policy dictating the greater use of liens and other Attorney are conferring on this Attorney Discussion encumbrances with recommendations for applications. matter. CORE recommends that Finance and the City Attorney clearly memorialize the The Office of Finance and the City Finance & City In Process or 37 parameters, dollar thresholds and timing of cases transferred to the City Attorney meet bi-weekly on this Attorney Discussion Attorney from Finance or from departments. matter. CORE recommends that the City Attorney outline a proposed framework for Has Not Be 38 City Attorney contingency collection cases. Implemented CORE recommends that Finance report to the Council and the City Attorney Fully or Mostly Review is complete and appropriate 39 Finance regarding departmental compliance with Sec. 4.4 of the Collection Guidelines. Implemented changes being made. Appendix "D" -- Page 6 of 11 pages 1/19/2012 CORE Recommendations Tracker Matrix: Status of CORE Recommendations CORE recommends that Finance and the City Attorney copy the other on The Office of Finance and the City monthly collection reports. Finance should copy the City Attorney on any reports Attorney meet bi-weekly on this related to departmental compliance with the Collection Guidelines and with Finance & City In Process or matter. 40 reports on the status of collections by each department. Similarly, CORE Attorney Discussion recommends that the City Attorney furnish updates regarding all collections and account delinquency cases being handled by the City Attorney. CORE recommends that Finance revise the accounts receivable template used by departments and Finance for reports of quarterly receivables. Fully or Mostly 41 Finance i. Include columns delineating breakdowns of any applied interest, penalties and Implemented late fees. CORE recommends that the Mayor and Council direct City departments and Mayor, Council and Finance have Finance to present accounts for timely write-off in accord with the timelines set instructed and recent activity forth in Collection Guidelines. It is further recommended in the event that suggests departments are preparing Mayor & City In Process or 42 departments fail to timely submit qualifying receivables, certain sums shall be Council Discussion potentially significant amounts for withheld from their budget allocations until such time as there is compliance. write-off; there are no current plans This recommendation will only need to be implemented so long as the current for withholdings. system of referrals exists. CORE recommends that Finance present to Council and the CAO a Memorandum Fully or Mostly 43 regarding the resources needed by Finance to adequately audit the accounts Finance Implemented receivable being reported by departments. CORE recommends that ITA develop and submit an inventory to Council of See comment to Recommendation 2. currently existing and available department and Citywide data pools / databases that could assist in indentifying parties who may owe the City money. Information In Process or 44 Specifically: Instruct ITA and Finance to prepare an inventory of known Technology Agency Discussion databases, with brief descriptions of the data fields in each database, the format / software of each of the databases and the accessibility of the database to other CORE recommends that Finance submit to Council a memorandum identifying Fully or Mostly 45 non-City databases which might be beneficial for the City to have access to for Finance Implemented the purposes of revenue enhancement. Appendix "D" -- Page 7 of 11 pages 1/19/2012 CORE Recommendations Tracker Matrix: Status of CORE Recommendations CORE recommends that Finance, in consultation with the City Attorney, develop a process for departments to access a master list / database of both business tax and non-business tax-related receivables - to verify that a party does not have delinquent accounts with any City department prior to City extending or granting to such party: • Certain services, • Permits, Fully or Mostly 46 Finance • Approvals, Implemented • Contracts, • Employment, or • Commission / board appointment or renewal. Said report should also detail the current impediments, solutions, costs and timeline for implementation of such a master list / database, along with a simple system for departments and City offices to make the required verification(s). CORE recommends that the Mayor and Council instruct the Housing Department and the Department of Building and Safety to cross reference one another’s list Mayor & City In Process or 47 of named delinquent accounts and to withhold issuing permits or providing Council Discussion other department services for parties appearing on either department’s list of delinquent accounts. Finance isn't recommending posting CORE recommends that Finance post the names of top non-tax-delinquent Has Not Be 48 Finance to the internet; it is available to City debtors on the City’s website – subject to City attorney approval. Implemented staff via the intranet. CORE recommends that Finance, in consultation with the Treasurer and ITA, prepare and submit a report on the extent and availability of on-line and auto- Fully or Mostly 49 Finance pay payment options (credit card, e-check, etc.) for various types of collections Implemented by departments and Finance and collection agencies. CORE recommends that Finance identify services and billing types for which City Fully or Mostly 50 Finance departments should, or could, demand advance payment(s) and/or deposits. Implemented CORE recommends that the Treasurer prepare and submit a report on the fees This is being undertaken by Finance currently being paid by the City for various types of credit card and debit card now that the Treasurer function is In Process or 51 transactions – and whether there may be ways to reduce costs to the City. Treasurer Discussion consolidated. Payments for which payors must pay additional fees to use a credit card or to pay online should generally be discouraged. CORE recommends that the Treasurer prepare and submit a report on rejected This is being undertaken by Finance In Process or 52 and returned checks and the disposition thereof. A uniform and full-cost- Treasurer Discussion now that the Treasurer function is recovery bad check charge should be applied. consolidated. CORE recommends that Finance report to Council about possible MOUs and Has Not Be Billing departments have no appetite 53 other arrangements to consolidate billings or assign billing responsibility to Finance Implemented for this recommendation. another department or agency, in or out of the City – DWP, County, BOE, etc. Appendix "D" -- Page 8 of 11 pages 1/19/2012 CORE Recommendations Tracker Matrix: Status of CORE Recommendations CORE recommends LAFD expedite modernization and streamlining both for Field These contracts are executed and Fully or Mostly 54 Data Capture and Emergency Medical Services Billing and Collection – pursuant Fire Department Implemented underway. to the two contracts for LAFD’s outsourcing approved by the Council August 3, CORE recommends that while modernizing the current paradigm of individual The department does not support billings, the City should also pursue negotiated bulk contracts with 3rd party Has Not Be this recommendation. 55 Fire Department payors -such as Medicare, Medi-Cal and private insurers. This could be an Implemented innovative alternative to the current patient-by-patient, bill-by-bill approach. CORE recommends that the City leverage existing relationships and contracts This is a matter for CAO/City Council with health insurers and providers. L.A. has business relationships with some of consideration. Has Not Be 56 the same insurers and providers that reject or slow-pay EMS bills from LAFD. L.A. Fire Department Implemented should assess how to use the contracts it grants to these same companies to the City’s advantage. CORE recommends that DOT recall from ACS severely aged delinquent accounts and transfer them, in consultation with Finance, for assignment to Department of Has Not Be 57 additional/secondary collections by another vendor (with possible inclusion in a Transportation Implemented non-tax amnesty program) or for sale/auction. CORE recommends amendment of Finance’s private collection contracts to make additional/secondary collection attractive to collection vendors. Because collecting aged accounts is considerably more difficult than primary collection, Finance should amend its existing contracts with private collections vendors to Fully or Mostly 58 Finance provide that an enhanced commission (of up to 40%) be paid with respect to Implemented collecting aged and difficult accounts. Working very aged accounts is not attractive to City vendors under the current compensation agreements. (See also Recommendation No. 24). CORE recommends that DOT consult with CORE prior to and during the process The RFP has not been issued. The of issuing an RFP for a (new) vendor contract. Expiration of the existing ACS Department of Has Not Be ACS contract expired in March 2011 59 contract presents the opportunity to assess the strengths and weaknesses of Transportation Implemented and is month to month. current practices and fee structure(s) -- and ways to improve. Appendix "D" -- Page 9 of 11 pages 1/19/2012 CORE Recommendations Tracker Matrix: Status of CORE Recommendations CORE recommends that DOT should develop and present to Council a new strategic program to boost collections on parking tickets issued to rental vehicles. For citations issued between May 2006 and June 2008, the category of “rentals and miscellaneous” constituted 11.65%, or $22.96 million, of DOT’s Difficult to Collect accounts. As detailed below, rental companies can simply provide DOT with renter information and then they are excused from responsibility. If a rental car company does not timely furnish the information, DOT and its vendor may, and should, seek payment from the rental car Department of Has Not Be 60 company. Transportation Implemented The City should also consider using renewal of franchise agreements with rental companies at LAX, or the negotiations to eventually build a central rental car facility at LAX, as leverage to engage these companies in taking more responsibility. We might, for example, request that rental companies maintain a list of renters with unpaid tickets and refuse to rent to them until the tickets are paid. CORE recommends DOT’s swifter repair and replacement of broken meters to DOT reports that 70% of metered improve revenues from both meters and parking citations. According to a recent spaces have been upgraded and Department of Fully or Mostly 61 study conducted for the City, 10-12% of the City’s parking meters were broken or have 99% up-times. By the end of FY Transportation Implemented failed at any given time. This results in a very substantial loss of both parking 2011-12, 93% of metered spaces will meter income and in the ability of traffic officers to issue citations. be upgraded. CORE recommends that DOT amend and supplement its current format for reporting of accounts receivable. Reports of DOT’s receivables are quite misleading. As noted above, because the current AR reporting format does not separate out late fees and penalties, the 15% of parking citations that are due and unpaid disproportionately impact the reported sums due. Moreover, the Department of Fully or Mostly 62 reported sums due do not reflect the sizeable portion of said sums that, if paid, Transportation Implemented would actually be payable to other entities (pursuant to the California Vehicle Code), or to the collection vendor. DOT should thus revise its AR reporting template (in accord with Blueprint Recommendation No. 41), and also create separate report columns to clarify the net amount that would accrue to DOT, after required distributions to other parties. CORE recommends funding for sufficient numbers of citation officers. Parking 100 part-time positions authorized in ticket revenues are being hindered by reductions in the number of traffic officers the 2011-12 Budget. employed by the City to issue citations, coupled with frequent assignment of Mayor & City In Process or 63a officers to traffic control or special events duties – thus reducing the number of Council Discussion citations that can be issued. Maintaining revenue-producing positions in the City must be a priority. Appendix "D" -- Page 10 of 11 pages 1/19/2012 CORE Recommendations Tracker Matrix: Status of CORE Recommendations CORE recommends that DOT present to the Council’s Audits and Governmental DOT reports that the existing Efficiency Committee (AGE) a report on overhead and expenses for parking contract limits specified services to management support services. DOT’s current vendor contract provides for no more than 10% of the actual cost Department of Has Not Be 63b reimbursement of various overhead and expenses, including printing, postage, Transportation Implemented of the service and that at least three certain supplies, document storage, etc. There is also a provision for a mark-up bids and prior approval from DOT is of up to 10% on some of these reimbursements. A report reviewing such required befgore reimbursement overhead and expenses during the period of the contract is advisable. may be made. CORE recommends the Council consider seeking a change in the current DOT has 19 license plate reading definition of a scofflaw in California Vehicle Code -- from a vehicle that has five vehicles in use. The Department says In Process or 63c delinquent and unsatisfied citations to a vehicle that has three delinquent and City Council Discussion it will secure license plate reading unsatisfied citations. Reducing the threshold for scofflaw enforcement would pdas in next Parking Citation serve to increase the City’s overall collection rate, and collection revenues. Collection contract. CORE recommends that DOT consider the feasibility of providing notice to vehicle lienholders of impoundments or impending impoundments. A lienholder may be a vehicle dealer, bank, credit union or acceptance corporation that holds a security interest – and the right to repossess the vehicle in the event that a Department of In Process or 63d borrower of lessee fails to pay as promised. Impoundment of a vehicle for Transportation Discussion multiple unpaid parking tickets can increase both the potential for default by a borrower or lessee – and the costs for lienholders who reclaim a vehicle from impoundment in order to repossess it. Thus, it may merit considering how notices to lienholders might be used to put extra pressure on repeat parking CORE recommends that DOT report to the Council’s Audits and Governmental Efficiency Committee (AGE) on opportunities to reduce margins of error in Department of In Process or 63e issuance of citations. Such citations being issued not just by DOT but also by Transportation Discussion LAPD, the General Services Dept. (GSD) and other City entities. CORE recommends that DOT and its vendor(s) develop an internal policy on Department of In Process or 63f issuance to and reporting as receivable citations issued to homeless and others Transportation Discussion from whom collection is less likely. CORE recommends that DOT report to the Council’s Audits and Governmental Efficiency Committee (AGE) on opportunities for application of new and Department of In Process or 63g improved parking and citation-related technologies. For example, expanding the Transportation Discussion use of license plate scanning and recognition cameras and devices increases both scofflaw identification and citations issued. Audits & Draft report pending release this CORE recommends that the Council’s Audits & Governmental Efficiency Government In Process or month. 64 Committee instruct LAHD to present an overview of its billing and collections Efficiency Discussion practices, status of accounts receivable and utilization of liens. Committee CORE recommends that LAHD propose to the City Council recommended Department of Fully or Mostly An ordinance effecting these 65 Ordinance changes to compress the tiers and timeline of LAHD’s collection Housing Implemented changes was adopted on July 15, process. 2011. Appendix "D" -- Page 11 of 11 pages