When the Metropolitan Transportation Commission last year approved plans to purchase and refurbish a San Francisco office building, we warned it was misusing public bridge toll money for risky real estate speculation.
The commission planned to share the building with three other regional agencies, the Association of Bay Area Governments, Bay Area Air Quality Management District and the San Francisco Bay Conservation and Development Commission.
But the building space was nearly three times what the four agencies combined currently occupy. To make the $180 million deal pencil out, MTC assumed it would lease out a majority of the building to other tenants. With the lease income and contributions from the three public agencies, MTC claimed it would recover the bridge toll money in 30 years.
Staff members provided financial analysis to the commission and the public that suggested this was a secure deal. But now, about a year later, before any of the agencies have moved in, we see that the forecasts were wrong.
The state auditor in a report last summer questioned the agency's accounting methods, chastised it for failing to disclose the risk and revealed that the chief financial officer withheld from the commission his own calculation showing the agency would not be able to repay the bridge toll money as promised.
The auditor concluded that if proper accounting methods had been applied to the commission staff's assumptions last year, the calculations would have shown a $30 million shortfall.
By the time the audit was released, the situation had grown worse. Because of redesigns, the building will have less square footage than first thought. That's less space for leasing and recouping costs. Consequently, the auditor concluded, unless highly optimistic assumptions are used, cash flows will fall short of repaying the toll revenues by $1.5 million to $53.7 million over 30 years.
It's actually much worse: Since the audit came out, MTC has revealed new costs that increase the price tag by 21 percent. Seismic safety improvements have increased from $1 million to $11 million. Tenant improvements went from $25 million to $36 million. Clearly, commission staff failed to perform due diligence before the purchase. Then $15 million for predictable costs for furniture, fixtures and equipment was suddenly added in. It's inexcusable that those numbers weren't included in the original projections.
The commission must present complete, up-to-date and honest numbers to the public. The auditor has spelled out proper accounting methods that should be followed.
Because of the commission, we're stuck with this building, and this misappropriation of toll revenues. MTC must find ways to recoup the costs, starting with a serious analysis of why the agencies need so much space. It's time to look at leasing more of the building, or selling off some of it.
Finally, staff members must be held accountable, starting with Chief Financial Officer Brian Mayhew and Executive Director Steve Heminger. The public has been deceived. This empire-building scheme has gone too far.