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CAR CARRION – April 14, 1999

San Francisco Bay Guardian
April 14, 1999

CAR CARRION

How City Tow hauls bundles of money out of San Francisco – while nobody at city hall is watching. A special investigative report.

By Bob Porterfield, Savannah Blackwell, and Tali Woodward

Record keeping is so decentralized and disorganized that even city auditors, who examined City Tow activities last year, found that accurate information on company operations was difficult, if not impossible, to obtain. The audit report noted that DPT took City Tow’s word for everything and made only halfhearted, if any, attempts at independent verification.

DPT officials, the audit report noted, are relying “more heavily on the contractor’s accuracy and goodwill than seems appropriate or prudent.”

DPT officials say the city can’t access City Tow’s computer system, which is more sophisticated than the city’s. But the auditors’ findings and other available public records suggest the alarming lack of appropriate oversight is not so much due to technological incompatibility as it is to the outright failure of DPT to aggressively enforce the contract.

“The city is getting screwed out of this,” Chris Mastoras, a tow truck operator and former City Tow subcontractor, told us. “They [City Tow] know where all the pennies go. Nobody’s watching the store.”

John A. Banner, City Tow’s general manager, declined to discuss company finances. In a brief telephone interview last week he told us that financials records are “internal, secret information.” Banner said any face-to-face interview concerning the subject of money would be a mutual waste of time. He did not respond to detailed questions sent to him by fax and certified mail.

DPT towing contract supervisor Steve Bell declined to comment on the department’s management of the contract. He referred us to DPT director Stuart Sunshine, who did not respond to repeated requests for an interview.

But here’s what we know: according to the city’s contract, San Francisco gets $15.03 for every tow (except for the roughly 1,000 courtesy tows). And the city gets an additional $30 “administrative fee” for every car that is reclaimed from the tow yard.

So for fiscal year 1997 (the only period for which figures are available), the city should have received about $2.49 million from City Tow. But according to the city audit, City Tow paid the city only $2.38 million that year – a shortfall of more than $100,000.

That could be a huge underestimate: Some, or many, of the roughly 8,200 stolen and recovered cars and accident-damaged cars may have been reclaimed from the tow yard, and the city should be receiving $30 for each of them. But there are no records of how many of those cars were reclaimed.

Further, City Tow may be badly underreporting the number of cars it actually tows. In one month chosen at random by the city auditors, the company failed to report some 1,500 tows – a fact it later blamed on an accounting error. That mistake alone would have cost the city at least $24,000 had it not been discovered – almost two years later.

Handwritten notes

The controller’s audit underscored several deficiencies in DPT’s ability to properly manage its towing contract, and it identified the cause as the “lack of sufficient and accessible data.” In most cases auditors found no independent review of City Tow’s mathematics.

One example of the city’s hands-off management style involved administrative fees collected by City Tow from vehicle owners on behalf of the city amounting to some $1.4 million in F.Y. 1997.

“City Tow calculates what it thinks it owes to the city from its own records and DPT relies on that data,” auditors reported. Supporting documents sometimes total 100 pages and frequently contain many handwritten notations or adjustments that DPT doesn’t bother to review. Auditors discovered that DPT doesn’t require any explanation for the adjustments and that City Tow doesn’t voluntarily provide the information.

There’s plenty of other information City Tow doesn’t supply to the city, voluntarily or otherwise – not because it doesn’t exist but because DPT doesn’t demand that it be provided.

Despite contract requirements that City Tow submit detailed “monthly activity reports” that include “without limitation” such basic information as vehicle identification number, license plate number, registered owner, tow response time, date, vehicle release time, and amount of fees and changes, as well as information concerning disposition of unclaimed vehicles. DPT has permitted City Tow to supply rudimentary records merely listing categories and numbers of vehicles – minimal information making it difficult for the city to know exactly what it is owed.

“That’s partly the fault of DPT and partly the fault of City Tow,” said Karen McVey, an associate performance auditor who participated in the City Tow examination. Part of the problem with the activity reports is DPT never gave City Tow a format for detailing what information it wanted.

The most accurate method for assessing City Tow’s performance and determining its precise revenue is the annual audited financial report required by the contract. But DPT has never enforced this requirement with any diligence. The 1996 report was a year late. The 1997 report was submitted months after the deadline and produced only after a demand from the city controller, who should have received it automatically.

Public access to these documents, however, has been blocked by the City Attorney’s Office. Bay Guardian requests for access to them under the California Public Records Act have been refused. City officials claim the audits contain “proprietary information” and “trade secrets” exempt from public disclosure – despite the fact that the annual audits are required solely as a means of assessing City Tow’s activities and performance under a public contract.

The Bay Guardian filed a lawsuit in San Francisco Superior Court April 14 seeking access to the records (see “Bay Guardian sues city,” page 19).

The Gravy Train

How City Tow climbed aboard the San Francisco gravy train is a typical story of local politics-as-usual.

During the mid-1980s, then-mayor Dianne Feinstein faced a crisis of cars littering the city. The old towing contractor had stopped towing cars reliably, and Bayview Auto Wreckers, where most of the junkers ended up, had gone out of business.

“There were cars all over the streets, cars being towed off and left on the streets, and Feinstein’s freaking,” political consultant Jack Davis, who represented the only company to bid against City Tow in 1994, told us.

Pick-Your-Part learned of the opportunity and with the help of lawyer (and then-assemblymember) John Burton, a deal was quickly worked out with DPT. Burton received more than $10,000 a year from the company.

“The city put a bad deal together, with absolutely nothing, no franchise fee, no piece of the towing contract,” Davis said.

Others involved in the local towing business remember the City Tow deal being quickly consummated with Feinstein’s active involvement.

Pick-Your-Part is a huge auto-wrecking conglomerate that has at least 14 salvage yards scattered across the state that charge a small admission to mechanics and car buffs, who pick the auto parts they need and pay on the way out. Among the company’s holdings is a junkyard in Sun Valley that’s touted as the world’s largest. Another salvage yard is in Hayward.

Owners Glenn C. McElroy, 61, and his son Christopher, 38, also control used car lots and other automotive related businesses.

What makes the San Francisco contract so valuable is the fact that Pick-Your-Part is a state Department of Motor Vehicles-licensed auto dismantler. The company is authorized to strip, shred, crush, or sell motor vehicles and the component parts it recovers – and the city provides unlimited feedstock.

“The towing contract becomes a source of lots and lots of dollars that have nothing to do with towing. If you harness all of the components together, it becomes an extremely lucrative business,” Davis said.

“They’re a junkyard, not a tow service,” Peter Kohler, a former City Tow subcontractor now towing for other government agencies, told us.

Pick-Your-Part recognized this and developed an effective strategy of using local independent subcontractors. By providing just a few trucks of its own and selecting 12 companies to help rid the city of unwanted and illegally parked motor vehicles, City Tow harvested gigantic rewards at virtually no risk. Subcontractors were paid a flat $50 tow rate for doing most of the work, and City Tow took everything else.

“They [City Tow] were so excited with the money. They’d hit the jackpot,” Kohler said.

But in 1993 City Tow’s free lunch was threatened when the contract came up for renewal and the city decided to put out competitive bids. Almost a dozen companies initially expressed interest, but only two ultimately submitted proposals – City Tow and San Francisco Towing and Recycling, a hastily assembled group represented by Davis.

City Tow’s control of the subcontractors was a major handicap for Davis’s clients. That, coupled with a growing reticence about bidding against City Tow at all, led them ultimately to lowball their bid. City Tow offered to pay the city $15.03 for each vehicle towed: San Francisco Towing bid $7.50.

Davis is certain City Tow would have received another free ride if his clients hadn’t expressed interest in the contract. “We forced the whole issue. The City Tow operator was furious. He said to me, ‘You’ve just cost my company in excess of $1 million a year.’”

A former city official who requested anonymity confirmed that if Davis’s clients had not bid, the city would have been “hard-pressed” to demand any revenue from City Tow.

On the surface, towing and storage fees would appear to provide the lion’s share of City Tow income. The company collects a minimum flat rate of $100.50 in tow charges for every vehicle reclaimed by its owner along with storage charges if the automobile isn’t retrieved within four hours. Daily storage rates range from $23 to $50 or more depending on vehicle size and how many spaces it occupies. For those who fail to reclaim their vehicle within the first 24 hours, there’s an additional $17.25 charge for moving the auto from City Tow’s Seventh Street intake lot to Pier 70. Of course, if City Tow is able to keep a vehicle for more than three days, a lien fee of $70 is tacked on as well.

At minimum, owners reclaiming vehicles within four hours of being towed can expect to pay $130, including the city’s $30 administrative fee but not counting parking or other traffic citations owed. Those waiting two days to reclaim their vehicle with pay $200 or more.

On average, a vehicle reclaimed after 4 hours but within 24 hours of being towed generates about $73 for City Tow. Of the minimum $155.50 payment required for the car to be released, a $15.03 contract fee and a $30 administrative fee goes to the city. A $37.50 payment goes to the subcontractor.

A hint of what subcontractors can earn came in a 1995 lawsuit filed by Mastoras seeking damages after City Tow terminated his subcontract for failing to meet a minor requirement. Mastoras won an arbitration ruling granting recovery of all damages, but City Tow and the City Attorney’s Office appealed, and the award was overturned in Superior Court on technicalities.

According to court documents, Mastoras claimed the termination cost him a net income of $202,216 in 1994 and an additional $383,321 during the remainder of the contract term.

San Francisco has the highest fees for towing and storage of any major California city, yet auditors discovered the city was collecting less revenue than other municipalities.

For example, towing contractors in Los Angeles pay franchise fees totaling 7 percent of their gross revenues and charge vehicle owners a tax on storage fees. San Diego requires set payments regardless of tows to ensure a guaranteed stream of revenue, and San Jose collects half the storage fees on forfeitures and certain impounds.

On the Hook

Competition among subcontractors to get their hooks on an errant automobile has resulted in continuing complaints from vehicle owners that tow truck drivers step over the line in search of fees. The official and unofficial complaints are legion: vehicles are being towed from restricted zones before parking is prohibited; cars are towed without the proper authorization from police or DPT officers; tow trucks cruise the streets looking for any tow they can get away with.

Joshua Morrison of San Francisco had his car snatched from the Haight April 2 just five minutes after parking restrictions became effective. “I panicked, thought it was stolen,” he told us. “It should have been moved by 7 a.m. I got there at 7:05.”

“I know I was parked legally,” John Gibson, whose Ford Bronco was towed from Fremont and Howard two weeks ago, told us. “It makes you wonder if someone’s on the take”

The same day, another motorist complained that her vehicle was towed from Sutter and Grant Streets before parking restrictions even took effect. “The car was picked up at 3:42 pm. I was there at 3:47,” said the elderly Mill Valley resident who declined to identify herself. “It was a metered spot, and I have a handicap card.”

Many disabled drivers complain that their vehicles are removed from handicapped parking spaces despite the display of the distinctive blue-and-white placards. More often than not those complaints fall on deaf, or rude, ears.

“Hey, these people aren’t AAA [American Automobile Association] Mr. Nice Guy,” Kohler noted.

Few of those waiting in line have any understanding of the process that’s snared them. That’s partly because City Tow seemingly ignores some of its contract responsibilities.

When Bay Guardian reporters visited City Tow’s office April 2 they couldn’t find a copy of the towing contract, the identity of City Tow’s insurance carrier, or any information explaining the procedure for selling cars at auction. All of that is specifically required by the contract.

City Tow does post signs informing its victims that they may make suggestions regarding service to the habitually unavailable Stuart Sunshine and that they’re legally entitled to protest the towing by calling or going to DPT’s offices.

Missing Property

Once a car gets towed, City Tow has an automatic lien on the vehicle – but not on the contents. Under state law, what’s in the car belongs to the owner. But some say City Tow runs afoul of those rules.

City Tow employees told us that all towed vehicles are opened with a “slimjim,” a tool commonly used by car thieves to facilitate movement and storage of the towed autos.

Personal property occasionally disappears.

Marie Tang of San Francisco found her 1986 Chevy van towed from a handicapped spot on Main Street at Harrison. She told us here placard was hanging from the rearview mirror in clear sight. When her van was reclaimed a few hours later, she found her wallet containing $100 in cash, credit cards and driver’s license were missing. She filed a police report and intends to protest the tow.

“This makes me so upset,” Tang said. “They should know that handicapped people have problems getting around, and coming down here is a real inconvenience.”

In 1995 Mark Rivera of San Pedro had his car towed from a fire lane. According to a report filed with police and DPT, when he reclaimed the vehicle, Rivera reported $2,000 in cash missing from a hiding place under the driver’s seat.

Yung Ning Chang of San Francisco reported in 1997 that a $300 pair of eyeglasses was missing from the vehicle that Chang had parked near Civic Center.

In a complaint to DPT, Chang said that City Tow said that “since I had no proof they were even in my car” there was nothing that could be done.

“Not only was my car towed,” Chang said in a Sept. 23 statement to DPT, “but my eyeglasses were stolen by a dishonest employee at the City Tow, and I felt that was the worst violation of all.”

Sometimes, the whole vehicle disappears. Jesus Oliva of San Francisco claimed to DPT that his BMW was improperly towed from Randolph and Head Streets in December 1996. Although DPT ultimately ruled the car was wrongfully removed and awarded a total refund of charges, the car had been sold at auction nearly two months before h is DPT hearing.

Another area in which City Tow has raised concerns involves providing vehicle owners access to their property.

A Sacramento business owner who asked not to be identified told us that in 1996 his BMW was towed from a residential neighborhood when he missed a 6 a.m. deadline. The vehicle contained his briefcase and wallet. When the car was finally located at Pier 70, the motorist asked to retrieve his wallet to pay for his car’s release.

City Tow employees refused, our source said, telling him that “everything in your car is ours.” Ultimately, after he went through hours of being bounced from one location to the next, the car was finally released – with the contents intact.

The California Vehicle Code provides in no uncertain language that towing companies have no claim on the contents of a towed automobile and cannot deprive owners of access.

But assessing the volume and type of claims against City Tow for missing property or towing damage is virtually impossible because City Tow does not submit the required information to DPT, a practice receiving marked criticism from city auditors.

Motorists who do file lawsuits are met by a phalanx of City Tow lawyers and an accommodating city attorney who doesn’t seem to mind spending thousands of taxpayers dollars stalling claims in an already overburdened court system.

Banner told us that at City Tow, unclaimed personal property is donated to charity, sent to the “thrift shop” in Hayward – a flea market operation run in conjunction with the salvage yard – or thrown away.

San Francisco Superior Court records suggest a fourth method of disposal – City Tow’s employees.

Documents filed in connection with a 1998 lawsuit over the firing of a 59-year-old City Tow impound-lot car cleaner in 1995 paint a confusing picture of what happens to property left in motor vehicles.

City Tow alleged the man was fired for “removing personal items” from Pier 70, where he was engaged in cleaning out vehicles.

A company supervisor claimed in a sworn affidavit that the employee was upset about frequently being denied permission to take property removed from vehicles. One incident cited in the affidavit involved a pair of binoculars reported missing by a car owner after the employee had conducted an inventory of the contents. Another involved the employee allegedly spending “a whole day collecting pennies from the floor of a car” he was cleaning. “This guy kept three lockers full of stuff from cars,” the supervisor said.

Banner, in his own sworn affidavit, said that when a vehicle and its contents are sold, everything becomes the property of Pick-Your-Part. Despite what he recently told us, he informed the court that employees do get a shot at the goods. “With respect to the contents, some of the property is sold to thrift stores, some is sold to employees, some is given to employees, and some is discarded.”

“When the city impounds a vehicle, the police officer inventories the vehicle’s contents,” Banner said. “Pick-Your-Part likewise conducts its own inventory of the contents. If the vehicle owner claims that a particular item was in the car, and that item is listed on an inventory, Pick-Your-Part becomes liable if it’s not in the car when it’s retrieved.”

Banner did not detail what happens in cases in which the two inventories don’t coincide or if something happens to be overlooked. There was also no explanation of the process by which police and City Tow inventories are reconciled.

Removal of property by City Tow employees is cataloged in written “authorization forms” signed by supervisors. Among several forms included as part of the court record were authorizations for removal of property such as “Realistic house radio” and “Cantonese bottle full of pennies.”

The lawsuit was dismissed last year. Court records don’t reflect a settlement, if any.

Going, going, Gone

By far the murkiest – and potentially most controversial – aspect of the city towing contract is the ultimate sale and other disposal of abandoned or unclaimed vehicles. It’s these “lien sales” and the disposal of parts from towed cars that may well provide City Tow and its parent, Pick-Your-Part, with their juiciest revenues. Conducted every Wednesday at Pier 70, the auctions are estimated to generate tens of thousands of dollars a year for City Tow, with virtually none of the money going to the city. In fact, under the current contract the only income San Francisco derives from lien sales is the amount owed on any outstanding parking tickets against the vehicle – if enough money is generated from the sale to cover City Tow’s fees first. The city doesn’t even receive its administrative fee, because vehicles sold at lien sales or scrapped have not technically been released.

Disposal of seized motor vehicles is an obscure world governed by reams of fine print and complex legalese and is almost solely the province of state DMV officials. City Tow has mastered the delicate art of navigating this labyrinth and, some industry observers suggest, has profited handsomely by doing so.

City Tow’s Banner is adamant that all activities relating to auto disposal are handled strictly according to the letter of the law. “We fill out and send in all the required paperwork,” he told us.

Revenue figures provided to city auditors didn’t include income generated by lien sales to City Tow’s parent corporation or other revenues associated with disposal activities.

Despite contract requirements for reporting such information the only public glimpse of what goes on behind the scenes at Pier 70 was included in the F.Y. 1997 audit report. During that period City Tow told auditors about 11,640 vehicles were sold with approximately 5,122 going to Pick-Your-Part’s Hayward salvage yard. About ?????? vehicles were sold to the public, and an estimated ????? were sold as scrap metal.

Since the current contract permits Pick-Your-Part to TK without Tk restriction on abandoned vehicles sold . city officials are in the dark when it comes to revenue generated at Pier 70.

Once a vehicle is towed, City Tow automatically obtains a lien against the automobile – a legal interest in the vehicle to secure payment of towing, storage, and other charges. After a period of time that varies from 15 to 45 days and sometimes longer – a period when City Tow must take strictly defined actions to locate the owner of a vehicle – it can be sold or otherwise disposed of by the lien holder.

Prior to a public or other sale City Tow is required to submit detailed paperwork to DMV. Similar requirements apply to vehicles that are crushed and sold as scrap. What can and cannot be stripped and scrapped depends on the value of the vehicle. How that value is determined leaves considerable room for maneuvering.

Again, regulatory oversight is spotty. DMV spokesperson Bill Gengler says his agency can only trace vehicles supposedly sold or scrapped by vehicle identification or license number. DMV does not have a system for monitoring disposal activities of a specific company. Like San Francisco, the state of California relies on what Pick-Your-Part tells it. It’s impossible to absolutely determine what’s being sold to whom and for how much.

City auditors didn’t even try to delve into that one. “We were interested in looking at that but didn’t have the expertise to evaluate whether the city is getting what it’s owed on the auctions,” auditor McVey said. “That’s a separate audit in itself.”

Finding fault

Last September the City Controller’s Office released a virtually unpublicized report detailing the findings of an examination of operations at City Tow during the period of July 1, 1996, through June 30, 1997. Here are some of the major findings:

Problem:

Department of Parking and Traffic data collection is limited and decentralized; DPT relies too heavily on City Tow for information; DPT provides minimal contract oversight.

Solution:

  • Require monthly reports
  • Pursue more aggressive contract management
  • Demand understandable supporting documentation
  • Structure new contract for easier monitoring of performance and revenues

Problem:

Inadequate controls on issuing of waivers; city doesn’t properly review City Tow waiver reimbursement requests; traffic citation payments processed by City Tow are not accurately tracked.

Solution:

  • Develop procedures to verify waivers
  • Educate city attorney’s staff on need to review reimbursement requests
  • Clarify waiver fees in new contract
  • Establish method for verifying traffic citation payments

Problem:

Some shortcomings in City Tow performance under contract; City Tow’s complaint process decentralized and inaccessible; City Tow does not provide DPT with information on monetary claims against it as required

Solution:

  • Conduct periodic audits of towing contract
  • Require more tow truck operator accountability
  • Facilitate and centralize complaint process
  • Enforce requirement for regular reports on complaints and claims

Problem:

Little information available or provided by City Tow concerning its vehicle lien sales

Solution:

  • Have lien sales process analyzed
  • Simplify contractor’s revenue structure
  • Include financial incentives and realistic penalties
  • Require fees on lien sales

Summary:

To improve the city’s towing operation and increase revenues to the city, the contract should be rebid, contract oversight should be prioritized, and controls over key processes should be implemented.

Shortchanged:

Cars towed in fiscal year 1997: 68,598

“Courtesy” tows (estimated): 1,091

Total subject to $15.03 fee: 67,507

Total revenue the city was owed: $1,014,630

Total cars towed for illegal parking: 59,298

Percentage reclaims (estimated): 83

Total estimated cars reclaimed: 49,217

At $30 per car reclaimed, amount city was owed: $1,476,510

Total amount city owed for towing and fees: $2,491,140

Amount city paid by City Tow: $2,375,538

Amount city lost: $115,602

Source: city audit figures and DPT reports

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