$50 Million Bond Deal in Works to Finance Park Garage

By Carol Dimmick

With time running out and facing a multi-million dollar deficit, the city of San Francisco is negotiating a deal with Music Concourse Community Partnership (MCCP) that would turn over ownership of a $50 million garage to be built under the Music Concourse in Golden Gate Park for 30 years to MCCP in exchange for financing the project.

For the past two years, the City has failed to attract the remaining $14 million in private donations it needs to break ground on an 800-space garage that voters approved when they passed Proposition J in 1998. The underground parking garage envisioned in Prop. J was originally expected to cost $40 million, but current cost projections put the figure at just over $50 million.

Two years ago, when an economic downturn stopped the flow of private donations $14 million short of the $50 million mark, the City asked MCCP, a private philanthropic non-profit corporation, to look at alternative ways to raise the remaining money for the garage. The board of directors of MCCP includes prominent businessman Warren Hellman, considered by many to be the moving force behind Prop. J, and several trustees of the M.H. de Young Memorial Museum and the California Academy of Sciences. Hellman and other board members of MCCP were also on the board of directors of the San Francisco Foundation, the original non-profit that raised $36 million in private donations for the project.

According to Richard Young, CEO of MCCP, MCCP will use the $36 million in donations to back a private offering of $50 million in tax-free revenue bonds to finance the project. In return, MCCP would assume liability for the debt for which it would hold title to the garage as collateral for 30 years under a ground lease agreement which is being worked out with the city attorney.

At the end of 30 years, the garage would be "gifted" back to the City. As part of the deal, MCCP will oversee the day-to-day operation of the garage for the life of the ground lease.

Revenues from the garage will be used to pay down the debt under terms that will be included in the lease agreement. Richard Young, CEO of MCCP, explained that several possible scenarios were discussed for raising the funds, including a bond offering for the $14 million shortfall, but a decision was recently made to fund the entire $50 million.

According to Young, the $36 million in donations would be held in reserve "to pay down the debt," and make the bond offering "more attractive to investors." "Using donors' funds gives the donors a higher comfort level and enhances the sale of the bonds," Young said.

Board Member Asks if Deal Violates Intention of Prop. J
But some aspects of the pending arrangement are raising questions among members of the Golden Gate Park Concourse Authority (GGPCA), the public body empowered to design, construct, operate and maintain the underground parking facility on behalf of the City.

John Rizzo, a board member on the GGPCA, is concerned the City may be giving up too much control over the project. Rizzo argues that when voters passed Prop. J, which gave the City the authority to build the garage with private donations, this is not what they had in mind.

"It is giving up some public control and oversight to a private organization. I thought the Concourse Authority was going to be doing this," Rizzo said.

Mike Ellzey, executive director of GGPCA, acknowledged in a recent interview that giving up day-to-day control over the garage is a departure from what voters envisioned when they passed Proposition J.

"We are clearly responsible under Proposition J for the operation of that facility, but there will be a different level of control until the indebtedness is paid," Ellzey said. Elzey explained that the City will have significant input on critical issues concerning the operation of the garage, including approval of parking rates and hours of operation. "The accountability will remain with us," Ellzey said.

Revenue Projections in Walker Report Questioned
A financial analysis of the garage project received by the City in early March is under attack for failing to include crucial information concerning expense projections, which critics say could have a significant impact on revenue projections.

According to a "Parking Demand and Financial Analysis Update" prepared by Walker Parking Consultants, the City can expect to receive, on average, $1.9 million a year in revenue from the garage over the life of the 30-year lease.

However, for the first three years of operation the garage is expected to lose more than $400,000 a year and revenue projections contained in the report are based on a variety of assumptions that critics claim are overly optimistic and fail to include significant operating expenses.

"I question whether they can pay back the note in 30 years, I think that is extremely optimistic," said Chris Duderstadt, a member of the Alliance for Golden Gate Park, an organization that was formed to fight the garage.

Some of the expenses missing from the report are expected to be significant, including the amount it will costs to service the debt, MCCP's operational expenses and expenses for big ticket items, like insurance for the project and major maintenance costs.

"It seems awfully late not to have these numbers. I am going to ask for them," Rizzo said.

Young acknowledged that only estimates for some of those items are available, but he said that the details should be available soon. According to Young, debt service on the $50 million will amount to about 3 percent or $1.5 million annually over the length of the lease. Young also acknowledges that MCCP will have to pay legal fees, prepare audits and reports, pay taxes and pay its legal advisors like any other organization with financial responsibility. He gave a "rough estimate" of $150,000 a year for "operational" expenditures.

Although no figures were available for major maintenance costs, Young indicated that a major reserve fund would be necessary to cover what he indicated would be a "substantial amount." He also said insurance costs would be "substantial."

According to Young, at the end of 30 years the City will realize a $137.8 million "value" from the deal, which includes $25.5 million in parking revenue over the 30-year life of the lease.

"A project of this magnitude is necessary to keep the museum and the academy in the park. The future of Golden Gate Park is undergoing a revision and parking is central to this birth," Young said.

On June 5 the project is scheduled to come before the SF Planning Commission, where certification for the environmental component of the project is expected. The project is slated to go to the SF Board of Supervisors for approval July 8.