May 11, 2013 § Leave a comment
Nine participating businesses were supposed to pay 60% of the costs of constructing a municipal garage. They will end up paying between 10% and 20% of the costs. Herndon taxpayers’ share would increase from about 40% to as much as 90%. The question is, “How did this happen?” We discuss two primary factors that led to the increase in the taxpayers’ costs.
1. Validity of the Cost of Structured Parking
First and foremost, even though the Town’s share of the cost of the garage (and, thereby, the size of the subsidy) depends mainly on the cost of structured parking, none of the 17 council-members asked the staff to develop preliminary engineering estimates of the cost of constructing a garage on potential sites in Areas 1 or Area 2 of the Downtown at any time between 1991 and 2009. Nor, did they question the accuracy or validity of the estimates developed by the staff even though they had many opportunities to do so.
In 1991, Mr. Ahmed offered to pay $223,200 for 48 parking spaces in the shared parking program. The offer implied that the cost of structured parking was about $7,750 per space in 1991. It is reasonable to assume that a developer would normally offer the minimum price possible and that actual cost may have been higher. The Town staff accepted Mr. Ahmed’s proffers. In July 1994, however, it asked Mr. Nachman to pay $7,840 per space, which meant that the staff believed that the cost of garaged parking was $13,067/space. None of the council-members questioned the discrepancy between the two estimates, even though one estimate was almost twice as high as the other. By this time however, the Chairman of the Planning Commission, Charlie Allen, the President of the Herndon Chamber of Commerce, and the business community were expressing concerns about the “high fees of participating in the still evolving program.” Mayor Rust took note of the complaints of the business community in one of the council’s meetings, but did not press the issue.
Almost 3 months later in November 1994, the town staff, “based on a model by the Finance Director”, magically created and proposed a substantially lower estimate of $5,445/space. Community Development Director Henry Bibber, Planner Kay Robertson, and Town Manager Robert Stalzar hedged the accuracy of their estimate, by stating, “…it is important to note that the value of the developers’ contribution is based on a model reflecting the very best judgment about future costs associated with the program.” No councilmember questioned the validity of the model or of this new estimate either.
“IN THE FACE OF RESISTANCE FROM SOME IN THE BUSINESS COMMUNITY, THE STAFF SUBSTANTIALLY LOWERED ITS ESTIMATES.”
However, the town staff knew that its 1994 estimate was abnormally low. In 2001, it initiated a concerted effort to revise the estimate, because it was concerned that the town sufficient money would not be collected from several businesses that were expected to buy a large number of spaces from the town. It proposed a figure of $14,700/space, which was based on the actual costs of municipal garages in several jurisdictions including Leesburg, VA and Stanton, VA. Even this figure seemed to be at the low end of the spectrum. For instance, the cost of the garage (not including the cost of land) in Stanton was $18,875/space or about 28.4% higher than the proposed figure. The Town would have to raise and pay an extra $2 to $3million dollars, if the actual figure turned out to be closer to $18,875 rather than $14,700; yet, no council-member questioned the validity or reasonableness of the staff’s recommendation.
As in 1994, downtown businesses strongly resisted the idea of raising the 1994 estimate. Mayor Rick Thoesen postponed the council action on the $14,700 several times. Finally, when the staff could not come up with a lower figure, the 2002 town council, on a motion by Councilmember O’Reilly, voted to postpone the consideration of any new figure indefinitely. None of the councilmembers even proposed to inflate the old estimate by the inflation factor. Doing so would have increased the figure by about 25% to $6,800/space.
The figure of $5445/space remained operational until 2009, when the then Town Council approved the figure of $14,700/space, once again, without any discussion. It had been eight years since the staff first proposed the $14,700/space figure. It should have been revised to reflect the effects of inflation. By this time, however, more than 200 spaces had already been allocated to 9 businesses and the opportunity to collect much higher contributions had been lost. And, the costs had been passed on to the (uninformed) taxpayers. That is how the taxpayers’ share of the program increased substantially.
Notice that the $14,700/space estimate may still be very low. There are reasons to believe that it could be higher than $20,000/space. In that case, the Town’s taxpayers will pay a still higher share of the total costs.
2. Reasonableness of Developer’s Share
In 1994, developers’ share was set at 60%. On the face of it, the 60% figure may appear to be reasonable, but no available record sheds any light on its selection. It may be considered equitable, if the patrons of a business, including its employees, were expected to use 60% of the spaces regularly. The record suggests that neither the 1994 Planning Commission nor its downtown parking committee developed any conceptual framework to guide everyone’s thinking. The record also suggests that none of the council-members made even a single comment about the allocation formula in the 1994-1996 period. In 2001, however, one way in which the Town could raise more money from the business community was to increase the business share of 60% to a higher level. It floated figures of 70% and 80%, but there were no takers. In the absence of established ground rules or a well thought out rationale for allocating costs between the private sector and the government, their suggestions appeared arbitrary and without merit. Businesses were least bit interested in increasing their percentage share of the costs.They argued that the increased percentage share would curb downtown development. None of the councilmembers asked any questions. It appears that it was just convenient for them to go along with the wishes of the businesses. The 60% share is still in effect today.
This blog post may suggest that the pressure by the downtown business community greatly influenced the councilmembers vote, but that is not the whole story. The next blog post will discuss the other factors.
 There are some who claim that it is costly and time consuming to develop costs of structured parking at a site and that the costs vary significantly from site to site. This claim is false. Preliminary but robust estimates can be developed on any site within a matter of a few days at very low cost. To do so is hardly rocket science.
 It should also be noted that, after the promulgation of the policy, the Town staff has asserted that the 1994 estimate was based on the cost of surface parking. However, this assertion does not have merit. First, this would imply that (1) the nine participants have contributed $1.3 million only for creating surface parking, (2) the Town would pay 100% of the cost of a garage and (3) the stated objective of the Shared Parking program was false. Second, it turns out that the cost of surface parking is far greater than the contributions made by the businesses. According to our calculations, the participants have paid only 43% of the costs of the surface parking.
 No one since 2009 has asked or has been asked to participate in the program except Mr. Nachman, who has recently indicated that he would like to buy a few additional spaces. In his appearance before the Council on March 2012, Mr. Nachman asserted that there is a “lock down on downtown development” due to the unavailability of structured parking. He presented no information to show that a significant demand for structured spaces exists in the downtown, especially at the new cost of $14,670/space.