It was legal for the Metropolitan Transportation Commission to use $180 million in bridge toll money to buy an office building in downtown San Francisco but the transaction exposes toll payers to undisclosed financial risk, an audit concluded today.
California State Auditor Elaine Howle said in a 51-page report that legal counsel advised her that a court likely would decide that the costs for acquiring a former U.S. Postal Service building at 390 Main St. in San Francisco for the MTC and its staff “are direct costs that can be paid from gross annual revenues” from the seven state-owned bridges in the Bay Area.
However, Howle said the MTC, which is the transportation coordinating and financing agency for the nine-county Bay Area, “could have done more to clearly articulate to both their board and the public the financial risks” of the building purchase, which was completed last October after several years of planning and meetings.
Howle said the MTC didn’t discount the value of future cash flows to today’s tax dollars and her analysis indicates that cash flows could fall short of repaying contributed toll revenues by $30 million.
The MTC has been located at 101 Eighth St. in Oakland, across the street from the Lake Merritt BART station, for more than 40 years but announced several years ago that it wanted to move to a new location because it has grown and needs more space.
Several other regional government agencies, including the Bay Area Air Quality Management District, the Association of Bay Area Governments and the Bay Conservation and Development Commission, joined the MTC in searching for a building that could accommodate all of their space needs.
The air district plans to join the MTC when it moves into the building at 390 Main St. in San Francisco in the fall of 2013 but the other agencies haven’t yet made a final decision.
Howle said the MTC and the air district both had “valid reasons” for wanting the move.
She said the MTC needs sufficient room for growth over the long term and the air district faced having to spend between $12 million and $30 million to fix its aging headquarters at 939 Ellis St. in San Francisco.
Howle warned that the MTC’s risk of being unable to repay all of the toll revenues increased in May when it announced plans to convert 101,000 square feet of the 390 Main St. building into an atrium and building support space that will reduce the rentable space available to generate income.
She said that unless the three most optimistic combinations of rental and occupancy rates are used, cash flows will fall short of repaying contributed toll revenues by between $1.5 million and $53.7 million over 30 years.
Adrienne Tissier, a San Mateo County Supervisor who chairs the MTC’s board, said in a statement, “We are pleased that the state auditor confirmed that this action was within our legal authority. We retained outside legal counsel and followed their advice scrupulously throughout the entire process.”
Board vice chair Amy Worth, representing the cities of Contra Costa County, said, “We appreciate the audit recognized that the commission listened to the public and took meaningful steps to respond to comments.
Worth said that after the board withdrew from its initial purchase agreement it took a 60-day “cooling off period” to re-evaluate all aspects of the decision before we decided to proceed with buying the building.
MTC officials said they don’t fully agree with the methodology of the financial analysis that’s included in Howle’s report.
Howle said if the state Legislature believes state law provides the toll authority with too much discretion over its use of toll revenues, it should amend the law to more narrowly define how toll revenues that are not immediately needed for bridge maintenance or debt service may be spent or invested.
She said the Legislature might consider imposing specific limitations or prohibitions on the use of toll revenues to acquire real estate for administrative or investment purposes.
Jeff Shuttleworth, Bay City News