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HomeMy WebLinkAbout6/7/2022 Item 6a, Horn - Staff Correspondence (2) Council Agenda Correspondence DATE: June 3, 2022 TO: Mayor and Council FROM: Matt Horn, Director of Public Works Gaven Hussey, Parking Program Manager VIA: Derek Johnson, City Manager SUBJECT: Staff Agenda Correspondence Item 6.a - ADOPTION OF THE FISCAL YEAR 2022-23 SUPPLEMENTAL BUDGET Question: What is the Purpose of this Council Correspondence ? The purpose of this correspondence is to respond to questions and comments provided by Downtown SLO and Council in preparation for the Parking Fund review at the June 7, 2022, Council Meeting, Agenda item 6a, Adoption of the Fiscal Year 2022-23 Supplemental Budget. Question: How does the Parking Program Work in SLO? The City’s Parking Program is an enterprise fund (See General Plan Policy 13.1.2), which means it is a “business” that is self -funded and not reliant on the City’s General Fund. It does not receive revenues from taxes or revenues as its operations, maintenance, improvements, and staffing are all funded by rates and in -lieu fees. Question: Why is staff recommending to Council that it raise parking rates now? New rates are being proposed to have a healthy parking fund and enough capital to finance and build the new Cultural Arts Parking Structure . The application for debt financin g must be submitted by December 2022 (based on current construction schedule) and the fund must be “healthy” to secure the debt. Basically, Proof of ability to cover annual debt service MUST be in place by time of loan application submittal. Question: Why is the Cultural Arts Parking Structure Needed? It is needed to address existing and future parking demands. As described and illustrated in the vision document, the City’s Downtown Concept Plan, the downtown is planned to be the cultural hub of the City with adequate off -street structured parking that facilitates a pedestrian friendly , mixed-use, cultural, historic, artistic, and business center. The Cultural Arts District Parking Structure is needed to support existing and new parking demand s as imagined in the Downtown Concept Plan and will support parking needs of an increased arts district and the future home of the SLO Rep Theatre as well as additional housing with the liner building. Question: What Role did the Parking Fund Play in the Pandemic? Cultural Arts District Memorandum #2 Page 2 With the March 2020 shutdown due to the COVID-19 pandemic, the Parking Fund directly supported local businesses. Specifically, it did not collect over $4 million in revenue (over a two-year period) because of the immediate need to support downtown businesses. This support included f ree parking, the parklet program, and deferred rate increases which have resulted in less funding for the construction of the Cultural Art District Parking Structure and for ongoing maintenance and repairs to existing parking infrastructure. Question: So, the Parking Fund has lost revenues while costs are going up at an unprecedented rate ? Yes. Although the Parking Fund has been preparing for the fourth parking structure for many years by collecting parking rates and fees and saving up $13.9 million for this project (“working capital”), the revenue losses are amplified by cost increases and increasing interest rates . A “triple whammy”. Question: Why Has the Cost of the Cultural Arts Parking Structure Gone Up and What is the cost? As with all construction (a global trend) the estimated costs for the new structure have gone up significantly (currently estimated on June 3, 2022, to be $53 million, but the actual cost will only be known after the project is bid and still could go up ) – something that all sectors of the economy are experiencing with construction projects. Monthly, it continues to rise. Since the most recent estimate by the design team, costs have gone up by 11.8% or $4.7 million as the construction price index has been escalating due to the cost of money going up, the cost of materials going up, and labor shortages. Furthermore, complex projects in a historic district that require sign ificant excavations require significant construction contingencies for unknown unknowns. Question: Is the Parking Structure being paid for with a loan or cash? Both. The Parking Fund will be paying for Phases 1a and 1b (power line relocations and site clearing and demolition) of the project with the cash reserves it has created for this project (working capital), and it must seek debt financing for Phase 2 (actual construction of the structure). Question: What is required to receive debt finance proceeds for Phase 2 the actual construction? A healthy fund that has a balanced budget and a revenue to expenditures ratio of 130% or larger each year. Because the Fund has lost revenues to support the economic stability of downtown for several years, along with inflation, and rising construction costs , the fund is falling short of meeting its debt service ratio coverage making it difficult to secure financing withou t “corrections” to this ratio. To meet the required debt service ratio the Parking Fund must increase its revenues in 2023. The Parking Fund must also have , by policy, a fund reserve of 20% of operating expenditures to pay for emergency issues. Question: What are the proposed revenue increases? Elimination of free hour in the Parking Structures (previously approved by Council) beginning July 1st, 2022. Expansion of paid parking in Upper Monterey and the Railroad Square parking lots (previously approved by Council). Another proposed on-street rate increases as follows in Table P6 from the budget. Cultural Arts District Memorandum #2 Page 3 Proposed Parking Hourly Rates Current Parking Rate Effective Jan 2, 2023 Effective July 1, 2023 Effective July 1, 2025 1 On-Street and Lots 2 Tier 1 (Super Core) $ 2.00 $ 2.00 $ 4.00 $ 5.00 3 Tier 2 (Core) $ 1.75 $ 2.00 $ 4.00 $ 5.00 4 Tier 3 (Outlying Areas) $ 1.25 $ 1.50 $ 3.00 $ 3.00 5 Parking Structure s 6 Hourly $ 1.50 $ 1.50 $ 3.00 $ 3.00 Question: What were the City’s previously forecasted rate increases vs the rates that are proposed now? Prior to receiving the most recent projections for lost revenues, construction costs, and interest rates, staff had projected a 78% increase to on -street paid parking in FY 2023 and a 33% increase again FY 2025. Off street paid parking was projected to 33% increase FY 2023, with no increases beyond. Previous forecasted fees are shown in the table below . The parking rates that are requested to be changed from the forecasted amounts are shown in bold and the current requested rate is in parenthesis after the previously forecasted rate. Previously Forecasted Parking Hourly Rates Current Parking Rate Effective Jan 2, 2023 Effective July 1, 2023 Effective July 1, 2025 1 On-Street and Lots 2 Tier 1 (Super Core) $ 2.00 $ 2.00 $ 4.00 $ 5.00 3 Tier 2 (Core) $ 1.75 $ 2.00 $ 4.00 $ 5.00 4 Tier 3 (Outlying Areas) $ 1.25 $ 1.50 $ 2.50 ($ 3.00) $ 3.00 5 Parking Structures 6 Hourly $ 1.50 $ 2.00 ($ 1.50) $ 2.00 ($ 3.00) $ 2.00 ($ 3.00) Cultural Arts District Memorandum #2 Page 4 Question: What is the impact of not implementing the previously approved elimination of 60 minutes of free parking in the parking structure? At current parking structure rates, that is lost revenues upwards of $700,000. After July 1, 2023 assuming new parking structure rates are adopted, the lost revenue is estimated at $1.4M. As noted above the Parking Fund needs added revenues to pay for the new parking structure so another revenue source would ne ed to be found. Question: How would the Parking Fund balance its budget with the loss of $700,000 in revenues if it were to keep an hour free in the Parking Structures ? Simply, increase other revenues and or reduce operational costs. Notably operational cost reductions will have impacts to the cleanliness and safety of the structures and reduce the ability of the program to continue to modernize and improve customer service. For example , the following changes would result in more revenues and lowered ope rational costs (and service provided). 1. Reduce Safety Expenditures. Eliminate the annual $238,000 contribution of Parking Funds that pay for two police officers that focus efforts on the safety and security of the downtown core . 2. Reduce Contract Services focused on security and cleanliness. Reduce service contracts which includes parking structure security and landscaping services for a total savings of $178,000 per year. 3. Increase Rates. With the operational savings noted in numbers one and two above (a total of $416,000) rates would have to be increased beyond what has been proposed to achieve an additional $284,000 revenues. For instance , this would equate to a $5/hour rate in Tiers 1 and 2 effective in FY2023-24. 4. ARPA Funding. Consider using a portion of the existing appropriated (i.e. Prado Road Bridge) or proposed appropriations (i.e. Affordable Housing, Broadband) to offset revenue loss from 60 minutes of unpaid parking. The elimination of the free hour of parking, previously approved, was included in the Parking Fund forecast because the alternative s have ramifications which would negatively impact the safety, security and cleanline ss of parking facilities and impact downtown businesses in excess of parking rate increases proposed. It has been suggested that other jurisdictions such as Santa Barbara provide the first 60 -75 minutes “free”. The facts are that in many instances of “free” parking, a Business Improvement District is subsidizes these costs. It is also important to state that the parking garages in Santa Barbara were financed and built with Redevelopment Funds and hence the capital costs are not largely incorporated into the overall rate structure. Question: Why don’t you implement surge pricing instead? Currently the program is modernizing operations to allow for surge -based pricing and to be more customer friendly. Staff’s research of other agencies that have implemented surge -based pricing indicates a nominal revenue increase. Adopting these rates now does not preclude other rate changes in the future such as surge pricing as long as the city produces the equivalent level of revenue. Question: Why don’t you have the General Fund or ARPA pay for this? Cultural Arts District Memorandum #2 Page 5 Both the forecasted General Fund and ARPA fund revenues for the next several years have been previously programmed to other projects and services by previous budget actions. If the Parking Fund were to be subsidized by the General Fund or ARPA funds an expenditure (either staffing or a project) must be eliminated or reduced in scale . For instance , if $8.7M were allocated to the Parking Fund to offset cost increases and revenue loss of the Parking Fund that would mean that the City could not construct the Prado Creek Bridge Project, which in turn would mean that the City would lose approximately $6M in grant funds that are programmed to that proje ct. Most of the transportation projects that are being funded are the City’s “fair share” under AB 1600 and are the majority are related to mitigation measures or meeting General Plan policies. If unfunded, it could have a domino effect of impacting the City’s obligations under AB 1600, General Plan Policies, etc. Other program areas in the General Fund could also be reduce d to cover this cost. Depending on the area of reduction, it would mean adjustments to levels of service for safety, security, maintenance , and/or recreational benefits instead of parking users paying for parking facilities. Question: What is the cost of each parklet, o r put another way how much revenue is lost from each parklet and how many are there, and what is the total annual cost to the parking fund at this time ? Parking revenue lost per parklet varies based on location the parklet occupies. This can range between $3,500 - $7,500 based on location and meter rate . Currently there are 50 spaces occupied by parklets and an additional 16 spaces that have been transitioned to passenger loading zones. The total annual lost revenue at this time is estimated at $264,000 a year. Question: Has the Downtown “recovered”, how do sales taxes revenues which are a proxy for economic activity compared to pre-pandemic periods? The following graphs show the sales tax rates for the Downtown geographic area. T he graphs show that through 2021, sales taxes as a proxy for overall economic activity have recovered to pre -pandemic levels. 1st quarter 2022 sales tax levels are 26% above previous pre -pandemic levels (Q1 2019). Hotel Occupancy levels have nearly returned to pre -pandemic levels after accounting for a nearly 12% increase in the number of rooms. Average Daily Rates have risen significantly upward as demand for the “SLO” experience has soared which suggests elasticity in terms of overall demand. Domestic tourism is at 107% of pre -pandemic levels in the Downtown. Once international tourism returns, Staff will be monitoring the impact on both room rates and sales tax. Cultural Arts District Memorandum #2 Page 6 Question: I heard this would be cheaper if the Cultural Arts Parking Structure were a private sector project, should the city have someone else build this? The State of California and the City of San Luis Obispo’s Charter regulate how City projects can be delivered. If the new parking structure is built using City funds, which is the current plan, or if the new parking structure is built on City owned property, which it will be , then the project must follow State and local requirements. This process includes hiring qualified professionals to develop the plans , publicly bidding the project to all contractors that wish to build the project and award ing a construction contract to the lowest responsive bid submitted by a responsible contractor (as defined by State law). All City construction projects pay prevailing wage as this is a state requirement. In all practicality, there is no pathway for the private sector to build the parking structure on that site . Even if the City were to sell the property to a private entity to build a parking structure, the property must be offered for affordable housing first with no guarantee that a parking structure would be built after someone takes possession of it . The City’s newest parking structure is the 919 Palm Parking Structure. This structure was built by a private party and purchased by the City in 2005-06 (per an approved Guaranteed Maximum Price contract that was part of a larger Public Private partnership in Downto wn). The 919 Palm Parking Structure has 192 public parking spaces, and the one level of the structure is devoted to office space . The project cost was approximately $17.5M of which $10.2M was apportioned to the parking fund for the public parking and the remainder for office space paid for by the General Fund . The cost per privately constructed parking space was $53,125. For reference, using cost of construction escalation factors as published by the California Department of General Services to calculate what those cost would be in today’s dollars indicate that these parking spaces would cost $108,160 in today’s dollars for private construction work and if we $- $200,000 $400,000 $600,000 $800,000 2016 2017 2018 2019 2020 2021 Downtown Area: Quarterly Q1 Q2 Q3 Q4 $- $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000 2016 2017 2018 2019 2020 2021 Downtown Area: Annual Cultural Arts District Memorandum #2 Page 7 project those costs into the future similar to the Cultural Arts District Parking Struct ure the cost would roughly be $130,873. The Cultural Arts District Parking Structure is estimated to cost $53.3M when the project is released for bid next year. This is an estimate and market forces will drive the actual cos t, even with best efforts to project costs in a volatile construction environment. The Cultural Arts District Parking Structure will have 403 parking spaces which equates to roughly $132,258. These per space costs are full costs that incorporate the indirect benefits for preparing the site ready for affordable housing and SLO Rep Site construction. Comparing parking structure project s and adjusting for past and future construction cost is not an apples- to-apples comparison or an exact science much like comparing other parking structure projects to the Cultural Arts District Parking Structure . Comparing private and public construction is not a similar comparison either in that both processes bring value to the community. Private construction has fewer regulatory burdens to comply with and is not required to pay prevailing wage . Public construction projects complete projects for the community, need to comply with regulatory requirements, and typically provide more pay and compensation for the workers tha t build those projects. Question: How does changing parking rates fund the new Cultural Arts District Parking Structure? Adjusting parking rates ensures the Parking Fund can meet the current and projected debt requirements and continue with ongoing safety, operational, and infrastructure improvements. In order to accomplish this, parking revenue must be increased $5 million in 2023 and an additional $1 million in 2025. The anticipated annual debt service for the construction loan is anticipated to be $3.7 million a year and the Parking Fund cannot obtain the debt funding or support the debt service payments in addition to the operational costs of maintaining existing facilities. The charts below show the composition of revenue increases by parking rate type. On street parking revenue makeup, the largest amount of new revenues followed by implementation of charging for the first hour of parking in the parking structures. Parking structure rate increases continue to be an important component of the funding plan and the expansion of paid parking on Monterey Street provides the lowest value amount of revenue. Question: What is driving the increase revenue needs for the Cultural Arts District Parking Structure? 50% 22% 25% 3% 2023 On Street Off Stret 60 min PS Expansion 56%19% 22% 3% 2025 On Street Off Street 60 min PS Expansion Cultural Arts District Memorandum #2 Page 8 The three primary factors for the increased cost of the Cultural Arts District Parking Structure are lost revenue, increased construction costs, and inflation. As previously discussed , the parking fund deferred revenue in the amount of over $4 million during the pandemic. This requires the Parking Fund to take on $4 million more in debt. As of the writing of this memo, the cost of construction increases further raise costs by another $4.7 million (and growing monthly). Finally, and the largest factor in cost at the writing of the memo, is inflation. With rising interest rates , the cost of debt services is projected to increase from 3% to 5%, this results in an increase over the 30-year life of the debt of approximately $23.2million. Question: What are you doing to address people who don’t pay when the structures are not staffed? Staff estimates approximately $60,000 - $75,000 annually in lost revenues from uncaptured parking transaction due to staffing shortages. Primarily these impacts occur durin g later evening hours. Currently structure operations align with on-street paid parking hours with the exception of charging for overnight parking. With the implementation of gateless parking at the structures currently planned for Fall 2023 the issue caused by limited staffing will be eliminated as there will be automated processes in place. Question: If more people park further out where there is not a parking district what will that impact be? If downtown customers and employees opt to park beyond paid parking , as many currently do , staff expect the adjacent residential areas to consider forming parking districts. Many of the areas that could see additional impacts to parking have already approached Parking Services pre -pandemic to form districts. Question: How is the Parking Fund managed operationally and what i s it doing to provide customer service and communications? Parking Services focuses on providing a safe and convenient parking experience. In recent years the program has worked to modernize operations. This modernization provides additional payment options 72% 15% 13% Increased Cost for CADPS Inflation Increased Construction Cost Lost Revenue Cultural Arts District Memorandum #2 Page 9 that customers can utilize. Further planned improvements such as gateless parking at the structures and virtual permits will provide options that the Program has not been able to offer due to limitations with technology. Question: What is the communications plan about these increases? As noted above, the majority of the rate increases would occur in 2023. Staff have developed key messaging around the proposed rate increases and begun outreach with community partners. JPW Communications was contracted to assist with additional messaging and outreach. Staff have also reached out to local media outlets to provide information on the necessity of the rate increases and the benefit the Cultural Arts District Parking Structure will serve to the community. Print and social media will be used over the next several years to communicate rate changes, holiday offerings, and technological improvements to parking systems in addition to staff completing direct outreach with community partners, local businesses, and local media. As parking services is critically important to the downtown core, sta ff is aware that the Downtown SLO Parking and Access Committee is coming back into service and staff will be regularly attending these meetings to support and inform this committee’s work. Question: What are the actuals/projections of revenue for this fiscal yea r-to-date? Are parking revenues over or under budget? In this document, we see the actuals from last year, but not revenues this year - to-date. The table below shows the Revised budget for FY2022 that was adopted as part of the Mid -Year budget review in February 2022. The Year to Date (YTD) column shows revenue collected through the end of March 2022 and the Projected End of Year (EOY) is what staff anticipates will be collected by the end of the FY 2022. Question: How much has been brought in from parking fees since the 6-9 pm enforcement hours have been implemented? PARKING FUND LONG-TERM FORECAST ACTUAL REVISED YTD PROJECTED EOY BUDGET 2020-21 2021-22 2021-22 2021-22 2022-23 REVENUES Service Charges Parking Meter Revenues 1,265,085 1,940,900 1,580,900 2,050,900 2,268,500 Parking Structure Collections 347,873 835,300 687,600 892,000 2,030,950 Long-Term Parking Revenues 483,346 547,800 584,100 757,800 844,900 Lease Revenues 497,879 459,200 439,800 479,800 487,800 Parking In-Lieu Fees 10,691 20,600 500 700 20,600 Total Services Charges 2,604,874 3,803,800 3,292,900 4,181,200 5,652,800 Fines & Forfeitures 718,173 717,800 804,700 1,043,900 793,500 Interest on Investment 3,559 75,600 - - 62,000 Other Revenues 22,000 14,100 3,200 4,300 25,000 TOTAL REVENUES 3,348,606 4,611,300 4,100,800 5,229,400 6,533,300 Cultural Arts District Memorandum #2 Page 10 Hourly parking fees collected between 6pm to 9pm total $225,100 as of June 1, 2022. The collected amount is gross and does not reflect charges applied by the vendor or merchant processing fe es. Citation revenue from expansion of enforcement hours to 9pm is $123,285. This amount is gross and does not reflect State and County surcharges transferred by the City for each citation issued. Question: Is there a breakdown of how much revenue incentiv e programs are bringing? (i.e ., how much is collected in 10-hour permits, how much from PROX cards, chaser tickets, etc.) Incentive Program Revenue (July 1, 2021 to May 31, 2022) 10-hour meter permits $247,800 Proxcard $261,400 Chaser tickets $47,500 Question: What are the fines and forfeitures YTD? We work closely with Parking Services on Thursday night, and we have observed a dramatic uptick in ticketing and towing before the Farmers’ Market. We have also heard anecdotal reports that confusion around kiosk adoption/app utilization has led to tickets. Are those numbers coming in as expected or above? Paid citation revenue through the end of May is $1.15M. This amount is gross and does not include State and County surcharges transferred by the city for each citation paid. Surcharges this fiscal year equate to approximately $324,600. Net revenue, so far, is approximately $828,100 which is more than the revised budget amount adopted at Mid -Year in February 2022. The delay in hiring additional enforcement staff has resulted in an increase in citation issuance since Mid -Year budget adoption. Citation issuance resulting from confusion with kiosk operations are being addressed through the citation review process and are not reflected in the budget or in revenue collected. Most citations as a result of customers transitioning to the new system have been largely waived if requested. Question: Will the revenue coming in from the new paid parking areas (upper Monterey and Railroad Square) be put toward the Downtown Parking Fund and assist with the shortfall needed for the bond to be issued? Or will those revenues be kept separately to attend to improvements and maintenance in those areas? All revenue collected from new paid parking areas will be deposited into the Parking Enterprise Fund and can be used for the purchase, installation, maintenance, repair, payment, and related expenses to the operation of the City’s parking assets and infrastructure. Question: In this document, there is an assumption that parking revenue will return to pre -pandemic levels. How can we assume parking revenue to return to pre -pandemic l evels when rates will increase, and incentives will go away? Last year when the decision was made to remove the first hour free in the structures, this was also under the assumption that parking utilization would return to normal levels, and they have not. We also assumed that we would be in a different stage of recovery, not in another COVID surge. Parking revenues have rebounded post -COVID pandemic quicker than originally anticipated when the 2021-23 Financial Plan was adopted. Parking revenue trends indicate strong recovery from the pandemic. Cultural Arts District Memorandum #2 Page 11 On-street paid parking hours has increased 4% compared to FY 2018-19 after accounting for the expansion of enforcement hours from 6p m to 9pm. Question: What is the overall utilization of the structures if it has not returned to pre -pandemic levels? The parking structure utilization between 9am to 9pm is approximately 58-65% with a 90% utilization rate during Farmer’s Market. This is consistent with pre -COVID pandemic levels of utilization for the parking structures. On-street utilization in the downtown core is higher, about 4% higher, than pre -COVID pandemic levels. On-street parking utilization is tracked differently than parking structure s and is measured by paid hours. Question: How much of the structures are used for City employee parking versus customer/public parking? Are city employees required to pay for parking? There are 88 Proxcards issued to City employees all of which are paid to the Parking Fund by the General Fund or an Enterprise Fun d. Other employees not issued Proxcards park in designated lots not owned or managed by the Parking Fund.