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San Diego city auditor Eduardo Luna is out with a report challenging the prevailing wisdom of basing so many city workers downtown and building an expensive new city hall to hold them all, long a pet project of ex-mayor Jerry Sanders and downtown real estate interests, including U-T San Diego owner Douglas Manchester, who reportedly made overtures to Sanders to move the city to Manchester's proposed Navy Broadway complex.
In an audit of the city's Real Estate Assets Department released today, Luna calls for conducting "a market and financial analysis for the City Administration and City Council to reduce leased office space and move a portion of the City’s workforce out of downtown to less expensive office space."
According to the document, "Leases for more than 530 thousand square feet of downtown office space in three buildings will expire soon, and the City has a good opportunity to save on rent since the commercial real estate market currently favors tenants." The audit goes on to say that "the upcoming expiration of the City’s leases for three downtown office buildings should be understood within the context of the public debate about the construction of a new city hall."
"Given the inefficiency of current leased facilities and the generally higher costs of leasing in the downtown area," the audit says, "the City may want to give consideration to reducing the concentration of City workers in the downtown area."
"Office space in the downtown area costs up to 20 percent more than similar space in some other areas of the City," according to Luna's report, but little study has been given the matter.
"We note that none of the reports that the City commissioned or prepared to evaluate its facilities needs or to present alternatives for constructing a new city hall evaluated the impact of relocating a portion of City employees outside the downtown area.
"Rather, their unstated premise was that the existing City workforce in downtown would remain in place."
The auditors added that current city officials have been resistant to considering any other options.
"We raised the issue of moving a portion of City employees from downtown to other areas in the city," the report says, "and staffers cautioned that such a move would have implications for downtown redevelopment and an economic impact on downtown businesses.
"They also noted that most City employees located downtown utilize public transit, a claim that we were not able to substantiate.
"The City may well have legitimate policy reasons for maintaining a sizeable presence in downtown. However, the City Administration and City Council should be fully informed of the fiscal impact of such a choice on the City’s budget and of the availability of other alternatives."
The audit is also critical of city productivity targets, noting that the real estate department, "has established annual goals for each division and reported on its accomplishments, but that these goals generally provided vague targets that could not be readily measured.
"For example, the Asset Management Division reported completing 402 job assignments of various kinds in fiscal year 2009. However, absent any contextual information on workload levels or comparisons to prior year achievements, it is difficult to tell whether this level of activity is indicative of good productivity or not.
"The Asset Management Division also listed 14 notable accomplishments, including the completion of a Request for Proposals to select six qualified operators for kayak concessions at La Jolla Shores. However, the Portfolio Management Plan does not explain why these accomplishments are notable, and the reasons are not readily discernible to stakeholders."
Luna's report also calls out the confused state of the city's management of real estate leases it hands out to non-profit organizations, many of which represent a potent lobbying force at city hall.
"While there are good public policy reasons for the City to subsidize rents for many nonprofit groups, the City nonetheless incurs costs for providing free rent in addition to the forgone lease income. Examples of such costs are the staff time required to prepare and service leases and the regular maintenance and upkeep costs for facilities (other than capital improvement costs). However, none of these costs are currently being tracked, reported, or recovered."
In their response to the audit's findings, city real estate officials said they "partially agreed" with Luna's findings regarding downtown office space.
"Currently, most of the City’s employees who occupy office space are located downtown. Maintaining them in their current location has a dual advantage of proximity to City Council and public transportation. While the buildings that the City currently occupies are inefficiently configured, their efficiency can be improved significantly by constructing tenant improvements that reflect the City’s new office space standards. Ultimately, a financial analysis that takes into account the total cost of occupancy will advise the City’s decision makers where to house its staff."
"We disagree with the statement in the Report that “...READ has not made much progress in improving the utilization efficiency of leased downtown office space...” Despite the City being locked into long term lease contracts that have created the inefficiencies referenced by the Auditor, READ has managed to lower the City’s yearly rent budget from $14 million to $12.2 million (approximately 13% savings)."
Regarding productivity monitoring, the response said, "The City has an very diverse real estate portfolio. It is the diversity of the portfolio and the uniqueness of the transactions that make meaningful performance standards virtually impossible."
As to reform of non-profit leasing policies, the officials say, "a task force consisting of members of City Council, the Mayor’s staff, prominent member of the non-profit community and other stake holders" should be formed "to address the myriad of issues surrounding this and formulate recommendations that meets the needs of all of the concerned parties."
Image: Navy Broadway complex
San Diego city auditor Eduardo Luna is out with a report challenging the prevailing wisdom of basing so many city workers downtown and building an expensive new city hall to hold them all, long a pet project of ex-mayor Jerry Sanders and downtown real estate interests, including U-T San Diego owner Douglas Manchester, who reportedly made overtures to Sanders to move the city to Manchester's proposed Navy Broadway complex.
In an audit of the city's Real Estate Assets Department released today, Luna calls for conducting "a market and financial analysis for the City Administration and City Council to reduce leased office space and move a portion of the City’s workforce out of downtown to less expensive office space."
According to the document, "Leases for more than 530 thousand square feet of downtown office space in three buildings will expire soon, and the City has a good opportunity to save on rent since the commercial real estate market currently favors tenants." The audit goes on to say that "the upcoming expiration of the City’s leases for three downtown office buildings should be understood within the context of the public debate about the construction of a new city hall."
"Given the inefficiency of current leased facilities and the generally higher costs of leasing in the downtown area," the audit says, "the City may want to give consideration to reducing the concentration of City workers in the downtown area."
"Office space in the downtown area costs up to 20 percent more than similar space in some other areas of the City," according to Luna's report, but little study has been given the matter.
"We note that none of the reports that the City commissioned or prepared to evaluate its facilities needs or to present alternatives for constructing a new city hall evaluated the impact of relocating a portion of City employees outside the downtown area.
"Rather, their unstated premise was that the existing City workforce in downtown would remain in place."
The auditors added that current city officials have been resistant to considering any other options.
"We raised the issue of moving a portion of City employees from downtown to other areas in the city," the report says, "and staffers cautioned that such a move would have implications for downtown redevelopment and an economic impact on downtown businesses.
"They also noted that most City employees located downtown utilize public transit, a claim that we were not able to substantiate.
"The City may well have legitimate policy reasons for maintaining a sizeable presence in downtown. However, the City Administration and City Council should be fully informed of the fiscal impact of such a choice on the City’s budget and of the availability of other alternatives."
The audit is also critical of city productivity targets, noting that the real estate department, "has established annual goals for each division and reported on its accomplishments, but that these goals generally provided vague targets that could not be readily measured.
"For example, the Asset Management Division reported completing 402 job assignments of various kinds in fiscal year 2009. However, absent any contextual information on workload levels or comparisons to prior year achievements, it is difficult to tell whether this level of activity is indicative of good productivity or not.
"The Asset Management Division also listed 14 notable accomplishments, including the completion of a Request for Proposals to select six qualified operators for kayak concessions at La Jolla Shores. However, the Portfolio Management Plan does not explain why these accomplishments are notable, and the reasons are not readily discernible to stakeholders."
Luna's report also calls out the confused state of the city's management of real estate leases it hands out to non-profit organizations, many of which represent a potent lobbying force at city hall.
"While there are good public policy reasons for the City to subsidize rents for many nonprofit groups, the City nonetheless incurs costs for providing free rent in addition to the forgone lease income. Examples of such costs are the staff time required to prepare and service leases and the regular maintenance and upkeep costs for facilities (other than capital improvement costs). However, none of these costs are currently being tracked, reported, or recovered."
In their response to the audit's findings, city real estate officials said they "partially agreed" with Luna's findings regarding downtown office space.
"Currently, most of the City’s employees who occupy office space are located downtown. Maintaining them in their current location has a dual advantage of proximity to City Council and public transportation. While the buildings that the City currently occupies are inefficiently configured, their efficiency can be improved significantly by constructing tenant improvements that reflect the City’s new office space standards. Ultimately, a financial analysis that takes into account the total cost of occupancy will advise the City’s decision makers where to house its staff."
"We disagree with the statement in the Report that “...READ has not made much progress in improving the utilization efficiency of leased downtown office space...” Despite the City being locked into long term lease contracts that have created the inefficiencies referenced by the Auditor, READ has managed to lower the City’s yearly rent budget from $14 million to $12.2 million (approximately 13% savings)."
Regarding productivity monitoring, the response said, "The City has an very diverse real estate portfolio. It is the diversity of the portfolio and the uniqueness of the transactions that make meaningful performance standards virtually impossible."
As to reform of non-profit leasing policies, the officials say, "a task force consisting of members of City Council, the Mayor’s staff, prominent member of the non-profit community and other stake holders" should be formed "to address the myriad of issues surrounding this and formulate recommendations that meets the needs of all of the concerned parties."
Image: Navy Broadway complex