Consulting firm Harvey M. Rose Associates estimates that Santa Clara didn’t bill the 49ers for $114,000 in stadium-related work.
That’s the bottom line on the nearly yearlong $200,000 “Comprehensive Audit of Stadium Authority Finances,” that arrived at City Hall on Monday—eight months overdue. The findings are almost 75 percent less than HRM, in its draft report, said was owed.
HRM also found that the Stadium Authority—the Santa Clara City Council—failed to “establish effective contract management procedures,” “had no record of receiving or approving” numerous documents for the last three years and “lacks controls and procedures to verify the accuracy of parking fees remitted during NFL events.”
The review was conducted to evaluate Santa Clara’s compliance with the terms of Measure J, the voter-approved ballot measure that approved the construction of Levi’s Stadium and the financing for it.
Specifically, the review was directed to the question of whether the City had billed the 49ers Stadium Company (StadCo) for all the stadium-related work done by City employees, especially that of public safety employees.
However, the $114,000 number was obscured in confusing and extraneous discussion. For example, in the report summary HRM says that there are $229,000 in unbilled and un-reimbursed employee hours, and puts that number at the top of a four-item chart.
But it’s followed by an explanation that $115,000 of that total has been already billed and reimbursed, leaving $114,000 that may be reimbursable. The language can lead some to believe that the amount owed is the total of $229,000 plus $114,000.
The third of the four items HRM claims to have “found” is $718,000 in “unpaid parking fees,” which the City has billed for golf course parking and the 49ers are disputing.
The disagreement is over whether the City’s charge of $600,000 ($120,000 a month) for seven days of golf course parking between March and July 2016 is a reasonable minimum use fee under the parking agreements signed in January 2014. The dispute was known and wasn’t something discovered by this review, as Acting City Finance Director Angela Kraetch noted in her written remarks about the draft report published in June.
HRM also continues to assert that $890,000 of construction budget expenditures related to the stadium opening weren’t approved by the Stadium Authority Board. Yet, these expenses were part of the Stadium Authority’s budget and were approved by the City Council, Kraetch noted in June.
Those expenses should have been charged to stadium operations instead of the construction fund, says HRM. However, if the expenses were charged differently, the total debt on the stadium construction would be lower. This, in turn, would reduce the Facilities Rent paid to the City for the next 30 years, because that is based largely on the cost of the outstanding debt.
HRM also states that the Stadium Authority “has no record of receiving or approving during the audit period” an annual financial statement of Stadium operations “prepared by a third party, qualified certified public accountant.”
Conversely, the Stadium Authority’s audited financial statements for 2013 through 2016—prepared by the KPMG, an international consulting firm and CPA—can be found on the City website on the Stadium Authority page under “Financial Statements.” These were presented and accepted at the Sept. 24, 2013, Sept. 30, 2014 and Sept. 25, 2015 City Council.
Mayor Lisa Gillmor championed the audit and has been active in promoting what she frames as a populist opposition against a billionaire football team. She is now saying that the Council needs to conduct another review.
Indeed, HRM’s report included an opening for a return engagement. “City staff identified additional time on stadium work that was potentially unreimbursed, but City records did not allow for estimating the time and cost of those reported activities as part of this audit.”
Potential Unfavorable Outcome for City
After all this financial dredging, one possible outcome is that Santa Clara may owe the 49ers money—that’s because of the previously mentioned parking dispute.
The City is billing StadCo for what it claims is lost golf course revenue for seven days when Levi’s Stadium used the course for parking from March to July 2016. The five months are an extension of the initial two-year parking agreement that expired Feb. 29, 2016 and was continued month-to-month until the golf course parking was dropped because it was no longer needed.
In the course of reviewing this claim, StadCo CFO Scott Sabatino wrote in a Nov. 10, 2016 letter to the City, its analysis showed that not only does the math for the disputed seven parking days not add up, StadCo says that the analysis of the contract terms show it overpaid $1 million for golf course parking.
The contract says the monthly charge “shall be equitably adjusted by City and StadCo” to reflect the City’s expected reduction in net income from the golf course that can be attributed to Stadium parking, using the corresponding month of 2013 as benchmark.
During the 2012-2013 fiscal year the golf course’s gross revenue was $2.8 million and netted $98,000 to the general fund. In 2014-2015, gross revenues were $2.2 million, netting the City’s general fund $78,000. In 2015-2016 gross revenue dropped to $1.7 million, with $2.4 million in costs. The 49ers contend that five months of stadium parking wasn’t solely accountable for the drop in revenue.
“As a sign of our continuing good faith,” Sabatino wrote, “we paid more than $1 million based on your calculation…However the extraordinary amount the City has now claimed ….has caused us to re-examine the agreement and our position. We have undertaken a detailed analysis of golf course operations …[that] indicates StadCo has already overpaid by more than $1 million.”
This dispute is not currently under litigation.
The Measure J final audit is on the Stadium Authority’s Thursday, Aug. 24 meeting agenda. The audit it available on the City’s website
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Outstanding and well researched article. Thank you!