The Metropolitan Transportation Commission must keep trimming costs of its new regional government center to reduce risk to toll-payers and taxpayers.
The agency used toll money in 2011 to buy a downtown San Francisco office building and continues proceeding with reconstruction plans so it can share the space with the Association of Bay Area Governments, Bay Area Air Quality Management District and perhaps the San Francisco Bay Conservation and Development Commission.
Meanwhile, the project price tag has increased 29 percent, from $167 million to $215 million, even after recent cost-cutting. The building is much bigger than needed and the deal relies on outside tenants to cover much of the expense. Thus the plan's success, and the speed with which the toll money will be repaid, depends on San Francisco's long-term office lease rates.
Unfortunately, changes to the building rehab design left less space available for leasing than first planned. Seismic safety improvements increased more than tenfold to $11 million, and MTC staff late last year added $15 million for furniture, fixtures and equipment that inexplicably was omitted from original estimates.
The commission once claimed this was a secure deal that would easily pay for itself. But, after a critical state audit last summer, MTC adopted new accounting methods and now shows this isn't the slam-dunk investment originally promoted.
The latest financial projections, prepared for Wednesday's commission meeting, reveal that after the public agencies and commercial tenants make initial contributions, the net loan from toll money, originally estimated at $109 million, will actually be about $141 million. Unless highly optimistic assumptions are used, cash flows will fall short of repaying the toll funds by $2.2 million to $55.7 million (in today's dollars) over 30 years.
That actually understates the public cost. MTC is considering loaning the air district up to $29 million of additional toll money to fund its buy-in costs. And MTC plans to divert another $3 million of state and federal transportation funds to ABAG so it can cover its share.
Commission staff dismisses this as a small amount compared to much larger sums of toll and other transportation money that flow through the agency. That misses the point.
In 2004, voters approved Regional Measure 2, which increased tolls to pay for transportation projects. In 2007 and 2010, MTC, in its concurrent role as the Bay Area Toll Authority, increased tolls again to pay for cost overruns on the new Bay Bridge and seismic upgrades to others. Voters did not approve increasing tolls, nor did the Legislature give MTC authority to do so again, to speculate on real estate.
The deal may be too far along to apply the brakes. But the commission should reduce the space for public agencies, sell off much of the building once reconstruction is completed, and hold down costs in the meantime.
Perhaps it could even reuse furniture it already owns.