Cost of towing deal is re-examined

0 Comments | Oakland Tribune, May 27, 2003 | by Robert Gammon, STAFF WRITER

OAKLAND -- As the city auditor continues his legal effort to pry open the books of Oakland's towing contractor, A&B Auto, the city manager is examining whether it makes financial sense to extend A&B's no-bid contract again.

Citing Oakland's severe budgetary shortfall, City Manager Robert Bobb said his staff is taking a look at extending A&B's contract in exchange for the city receiving a larger chunk of Oakland's lucrative towing proceeds.

"We're looking at ways to generate additional money, considering our budget situation," Bobb said. "It's a treasure hunt."

But City Auditor Roland Smith warned that extending A&B's contract without putting it out to bid makes little sense at a time when his office is in court battling to complete the first-ever city audit of A&B and towing practices in Oakland.

A&B, which is owned by politically-connected millionaire, Bill Taylor, has held the city's monopoly towing contract for more than three decades. Each time A&B's contract has come close to expiring since 1980, the City Council has extended it without putting it out to bid. A&B's current contract is set to expire in 2005.

A&B tows and stores more than 27,000 vehicles a year at the city's request, including cars parked illegally on city streets and vehicles impounded by police for being in "sideshows."

"What if the city rushes into another contract (with A&B) only to find out later that the city auditor discovered the contract was not prudently awarded?" Smith said.

The controversy swirling around A&B's contract could amount to millions of dollars in untapped revenues for the city. It also may have wide ranging effects on the city auditor's ability to do what he sees as an integral part of his job -- determining whether Oakland is getting the most bang for its buck when entering into public contracts with private companies.

In the case of A&B, public records reveal that as Oakland cuts vital services around the city to make up a $34 million budget shortfall, it's getting short-changed on its towing contract.

A profitable aspect of the towing business is selling cars that are never picked up by their owners. Oftentimes, car owners do not claim their towed vehicles because they cannot afford the towing and storage fees, which can easily eclipse $2,000.

Towing companies auction un-

claimed cars in a process known as a lien sale. State law only allows towing companies to keep proceeds from lien sales equal to their towing and storage charges. Revenues beyond that first go to the city to pay off parking tickets and other fines attached to each car. The rest goes to the state Department of Motor Vehicles.

In Oakland, more than 70 percent of towed cars are not claimed, according to A&B. That means A&B each year sells about 20,000 vehicles towed under its contract with the city, potentially generating millions of dollars annually for the company.

The Oakland Tribune has learned as result of recent California Public Records Act requests that Oakland apparently has shared in none of those revenues. Oakland -- unlike other large cities -- has no record in the past 10 years of ever receiving lien sale proceeds from A&B, according to the police department and the city Controller's Office.

Smith said in recent days his office during its audit of A&B, which began in 1999, also has been unable to find any record of A&B paying Oakland proceeds from lien sales.

That means hundreds of thousands, perhaps millions of dollars in parking and other fines levied by Oakland on towed cars are not paid each year, leaving the city without a potentially significant source of revenue.

In addition, a Public Records Act request found the DMV has records of only four instances in the past 10 years of A&B sharing legally required lien sale proceeds with the state, totaling just $13,330.05.

Taylor's attorney George King was out of town and unavailable for comment. Taylor said in a 2001 interview the vast majority of cars he tows and stores do not generate enough money in lien sales to pay off what's owed to him in storage and tow fees. As result, there's nothing left to share with the city or the state, he said.

But if true, that may have more to do with how A&B conducts its car auctions.

A&B has lien sales daily unlike towing contractors in other cities who conduct them once a week. As a result, car buyers must go to A&B's East Oakland storage yard every day to find out what's on sale. In other cities, buyers show up on auction day and bid against each other.

Auctions in other cities often attract dozens of competing buyers at the same time, driving up prices. That doesn't happen in Oakland.

Also, A&B's practices appear to take advantage of a loophole in state law that says a car only has to be auctioned for one day.

If no buyer shows up at A&B on the day a car goes on sale, or if no one bids on it, then A&B takes ownership of that car. A&B can then sell the car later and does not have to share the proceeds with the city or the state.

Because A&B does not conduct true auctions, many cars likely are not purchased on the day they go on sale, A&B's competitors say. As a result, A&B is allowed under the law to pocket all of the profits when it finally does sell the car.