Many of the improvements we seek as a city — housing that everyone can afford, streets where everyone can safely walk or bike, doing our part to avoid the consequences of climate change, and having the financial ability to improve our neighborhoods to meet inevitable change — touch in some way on the topic of street parking. But anyone who has followed the recent history of parking in San Diego knows there are problems. One approach is to just ignore the issue and assume the way things are is the way things will always be. But it’s clear that isn’t working. If we want to move forward as a city, we need to have an honest and open conversation about parking policy.
This started out as a single post that blossomed into multiple topics. Although I hope to delve into each, this post is focused on the history of parking in San Diego, how we got to where we are today, and the problems with this approach. This post is a lot more wonky than my past posts, but I think it’s worth spending some time on figuring out how we got to where we are so we can figure out where we can go. As a caveat, these are just my personal opinions based on the research I could complete by scouring the city’s online archives. Any real analysis should be done by the experts at the city. As discussed below, I’m simply arguing it’s time for that analysis.
The History of Street Parking in San Diego
With the rise of automobiles, cities began to install parking meters in the late 1930s. As with all changes in the public realm, this led to lawsuits, including one here in San Diego. In a decision upholding their use as a proper governmental function, the local court explained that “regulation of parking and control of traffic may well justify a fee system intended and calculated to hasten the departure of parked vehicles in congested areas, as well as to defray the cost of installation and supervision.” In other words, the meters weren’t charging for parking simply to pay for parking meters; they were intended to make it too costly for people to park their cars indefinitely in crowded areas. Charging for parking turned out to be the best way to ensure there is always parking available.
Despite their legality, one issue persisted: how should we characterize the revenue collected from parking meters? Given California’s initiative system, our constitution is riddled with convoluted rules regarding how money is collected by our state and municipalities, usually in the form of taxes. A “tax” can be loosely defined as a charge imposed by the government on people, property, and companies with the express purpose of generating revenue to fund government services. The most obvious example is the sales tax: we all pay a certain percentage of tax on most purchases of goods, which is then used by the government for any use it wants. That tax revenue goes into something called the “general fund,” which means it can be spent on anything. This is all generalizing a bit and ignores the details, but governments, both state and local, have the power to tax.
But a lot of people don’t like taxes and passed initiatives to constrain their use. Given some of these constitutional restrictions on tax collection, cities also increasingly collect money in the form of “fees,” which are charged in connection with a particular service with the intent to simply cover the cost of providing that service. Instead of raising taxes to pay to provide the service for free, the government imposes a fee. A common example is a building permit fee: if a resident applies for a permit, the city will charge a fee to cover the cost of processing that permit. Courts have explained that these fees are permissible, so long as the amount of the fee is closely related to the actual cost of processing. If the city charges more than the cost, it becomes a tax. There is a third category, “assessments,” that are like fees but tied to property ownership and used to provide a specific benefit to the person paying.
At first glance, parking meter charges don’t appear to fall into any of these categories. They are not charged in connection with property ownership, so they are certainly not assessments. Meters aren’t intended to only raise revenue (which would be a tax) or to cover the cost of the meters (making it a fee). As that early court explained, one of the main purposes of parking meters is simply to ensure that cars don’t sit for too long in crowded areas. They also aren’t “imposed” in the normal sense: no one is forced to pay for parking meters, we voluntarily choose to do so. If you don’t want to pay the meter, you can find an unmetered spot or park in a private parking lot. Finally, unlike taxes, the person paying the meter gets something of value directly in return.
For a long time, the city agreed that parking meter revenue shouldn’t be analyzed in the same way we think of taxes and fees. This legal interpretation led to direct outcomes. When asked in 1997 whether there were any problems with the way the city collected parking meter revenue after changes in the state constitution arising from the recently-passed Prop 218, City Attorney Casey Gwinn assured the city that “Because [parking meter revenue] is in no way “property- related,” it is not a fee, charge or assessment within the reach of Proposition 218. Further, because it is a fee imposed only on persons who voluntarily use the parking space that is metered, and only for the specified time chosen by the person using it, the charge is not a “tax” within Proposition 218.”
But then things began to change. The nation’s foremost “parking guru,” Donald Shoup, discussed the evolution of parking meter revenues in San Diego in his book, The High Cost of Free Parking. As Shoup explained, before 1997, the city operated parking meters in the city and funneled the revenue straight into the General Fund. Although the city intended that the money should be spent on parking-related issues, the allocation to the General Fund means the money mixed with other revenue collected by the city and could be used for any purpose: more parking meters, street repairs, police salaries, libraries, parks…anything. Shoup explains that, starting in 1997, the city responded to complaints from businesses that it wasn’t fair that parking meter revenue could be spent outside of the area where it was collected. The city manager explained the problem to the council: downtown was still in a downswing, unable to compete with suburban shopping malls with plentiful parking. To address these complaints, the city allowed for the formation of parking districts and directed 45 percent of the meter revenue back to the district to be governed by a local board, originally intended to be a business improvement district. Under the original city council policy governing these districts, they were directed to spend the revenue “to address parking supply and mobility issues.” As Shoup explained in the excerpt linked above, the districts started off being quite broad in scope, spending money on pedestrian improvements, street trees, and wayfinding signs.
In 2004, the first revisions to the city’s parking policies were adopted, leading to only slight changes to the official council policy. Over time, however, it became obvious to many that the parking districts were not functioning properly. Parking districts were cursed with a problem rarely seen in government: too much money and too few projects to spend it on. Although the idea of districts made sense, the process was flawed: by funneling revenue into special accounts controlled by groups only loosely affiliated with the city, the revenue sat largely unused. Because the revenue wasn’t being used, there was little interest in adding meters or otherwise improving their functionality.
In 2009, facing a budget shortfall, the city faced increased scrutiny of the revenue sitting unused in the Parking District’s coffers. A San Diego County Grand Jury report found that one group, the Uptown Parking District, spent three times as much on salaries and other overhead than on actual projects. The report reasoned that the money could be better used by the city for other purposes and recommended scrapping the districts and redirecting the parking meter revenue into the city’s General Fund.
The city’s response to the Grand Jury report resulted in an important new determination. In a memo by the City Attorney, the city for the first time concluded that the state constitution limited the ways in which the funds could be spent. Whereas the 1997 memo concluded the charges were neither taxes nor fees, the new 2009 memo concluded that parking meter revenue was a “regulatory fee” that could be spent only on “the control of traffic which may affect or be affected by the parking of vehicles in designated parking meter zones.” If the revenue was used for other purposes, the memo warned the meter fees would morph into a special tax.
Based on this City Attorney memo, the Mayor and City Council responded to the Grand Jury report by explaining that it was legally impossible to redirect the parking meter revenue to the General Fund without converting the revenue into a special tax that had to be approved by the voters. Since that 2009 memo, the City Attorney has repeatedly applied the same analysis over the years to find additional restrictions on how the revenue could be spent to ensure the meter charges remained a “regulatory fee” rather than a “special tax.”
Unsurprisingly, the problem was not solved. The new legal determination led to even stricter spending rules. As the problem festered, a 2014 Performance Audit found fault with how the groups were managed. The audit and other concerns led to then-councilmember Todd Gloria’s reforms to try to unlock the revenue sitting in the Community Parking Districts. In 2014, when the issue was last at the forefront of city politics, the downtown parking district was sitting on $11.3 million and the Uptown parking district had $5.8 million in reserves. Todd Gloria led a push to reform the city policy on how the money could be spent, claiming on passage of the reforms that “[t]he changes approved today will make it easier to implement parking solutions with available parking meter revenue.”
Now, four years later, the downtown district has nearly $15.7 million in reserves and the Uptown district has $6.6 million in reserves. The problem is getting worse, not better. Despite his best efforts, Gloria’s reforms didn’t go far enough. A 2017 KPBS report on the parking districts included complaints by the parking district boards that the money was piling up because of the restrictions on its use. The problem continues to this day.
Even when the parking districts actually manage to spend money, it’s often spent inefficiently on projects that are not priorities. Parking districts often pay for “wayfinding” signs to help direct cars to their location. While there is nothing wrong with helping drivers navigate, it certainly doesn’t seem like our most pressing need in the age of smartphones. Downtown, the parking meter revenue is used in part to pay for a free shuttle known as FRED, which may also expand to Hillcrest. Again, there is nothing inherently wrong with a free shuttle. But it turns out that this free shuttle is incredibly inefficient and is the most expensive way to provide “transit” in our city. The restrictions on revenue use lead to waste and spending on low-priority uses.
It’s easy to view this as a legal problem with no solution. However, the KPBS report hints at an apparent contradiction: San Diego’s legal problems with parking meter revenue, supposedly arising from the state constitution, are not shared by other cities in California governed by the same constitution.
In Sacramento, parking meter revenue is being used to fund a new downtown NBA basketball arena. In Oceanside, the city uses the revenue to fix up its pier and build and maintain public restrooms. In Pasadena, the revenue is used to widen sidewalks, plant trees, fix up old storefronts, and provide for security and cleaning services. Redwood City does the same, using the revenue to clean up sidewalks and add improvements. The obvious question arises: why are these other California cities not restricted by the state constitution in the same way that San Diego thinks it is?
Is There a Better Way to Treat Parking Meter Revenue?
Is it possible that San Diego is the only city in California that has correctly interpreted the state Constitution and these other cities are running unconstitutional rackets? Sure, but I’m skeptical. If for no other reason, it’s suspicious that the city hasn’t addressed some major legal developments directly impacting the issue of regulatory fees.
Remember, as discussed above: since 2009, the city characterizes parking meter charges as “regulatory fees” that must be reasonably related to the cost of providing traffic control in the city. As the city explains, if the fee exceeds the costs of providing traffic control, then it turns into a tax because the charge isn’t aimed at recouping expenses. Two recent legal developments shed light on the topic.
A recent California Supreme Court case discussed a similar situation that shows how the normal tax/fee distinction doesn’t apply to the use of government property. That case, Jacks v. City of Santa Barbara, involved something called a franchise fee, which the City of Santa Barbara charged the local electric utility in exchange for use of the public right of way to deliver electricity to residents. In exchange for this limited use of city streets, the city charged the utility a flat fee that was added to customers’ bills.
Some homeowners challenged this fee in court, arguing it was a tax that could only be imposed if approved by voters or, to be a permissible fee, had to be limited to the city’s costs to provide the property for use. The Supreme Court rejected this either/or distinction. Instead, the Court explained that fees to use government property are not like fees to use government services. Unlike a fee to compensate the government for the cost of providing a service, a fee to use government property does not have to bear any relationship to the cost to the government to provide that property for use. Instead, the Court stated that “a fee paid for an interest in government property is compensation for the use or purchase of a government asset rather than compensation for a cost. Consequently, the revenue generated by the fee is available for whatever purposes the government chooses rather than tied to a public cost. The aspect of the transaction that distinguishes the charge from a tax is the receipt of value in exchange for the payment.” But to avoid converting the fee into a tax, the Court cautioned that “fees imposed in exchange for a property interest must bear a reasonable relationship to the value received from the government.”
This distinction between fees for public services and fees for use of public property makes obvious sense in a slightly different context: If a city sells a piece of land to a developer, the city can obviously charge the buyer for the market price of the land. Indeed, this process is currently playing out with the city’s sale of the Qualcomm Stadium site to SDSU. No one is suggesting that the city can only charge SDSU a price that is related to the cost of listing the property for sale. And this rule doesn’t have to be limited to a complete transfer of property. Almost directly on point to the issue concerning parking meters, the City of San Diego itself realizes it can charge market rates for parking to fund park beautification projects so long as the parking spots are found in a garage owned by the city rather than on the side of a street owned by the city. In the end, it sure seems like a distinction without a difference.
Although a franchise fee is entirely different than parking meter charges, they bear important similarities: both are charges by the government for use of a public street right of way. As the Supreme Court explained, that charge does not have to be tied to the cost of providing the public street to avoid becoming a tax: so long as the charge is based on the actual value of the use of the property, the city can then use the revenue for “whatever the government chooses.” The City Attorney has never reevaluated its opinion about parking meters in light of this decision.
This court case is only the first development in the law surrounding regulatory fees that arose since the City Attorney last considered the issue. The court in the Jacks decision also pointed to a landmark constitutional reform passed by the voters in 2010, known as Proposition 26. The initiative arose in direct response to the rise in regulatory fees, which the proponents labeled “hidden taxes.”
Prop. 26 aimed to severely restrict the permissible regulatory fees. For the first time, Prop 26 directly defined taxes as broadly as possible, including “any levy, charge, or exaction of any kind imposed by a local government” unless it fell within one of seven limited exceptions. If the charge didn’t fall within one of these exceptions, Prop. 26 said it’s a tax that has to be approved by the voters.
Before even considering the exceptions, it’s worth noting that an important and well-respected organization, the League of California Cities, offered advice to cities regarding the word “imposed” in the definition of tax found in Prop. 26. As the League explained, it’s important to first consider whether the charge is even “imposed” by a city. If not, this whole conversation is largely irrelevant because the charge wouldn’t be a tax or a fee. To determine whether a charge is imposed, the League advised cities to focus on whether the charge is in connection with a service the city is statutorily obligated to provide and for which the city is the exclusive provider, or instead whether the service is provided by the city in competition with private enterprises and the charge amount is established by a voluntary negotiation between unrelated parties. If the charge falls into the latter category, the League suggests the charge is not a tax or fee at all. The city has no obligation to provide street parking and does so in competition with private parking lots and does not force anyone to use metered parking. In that sense, it does not seem meter charges are “imposed,” and don’t need to be analyzed as taxes. This conclusion mirrors the San Diego City Attorney’s analysis back in 1997 that concluded meter charges are neither fees nor taxes.
Even assuming the parking meter fees are “imposed,” it’s not clear they qualify as taxes considering the exceptions under Prop. 26. Of the exceptions that relate to the discussion here, most fit the idea of “regulatory fees” discussed above and involves fees for services that must bear a reasonable relation of the actual costs. One exception, however, does not require any relationship between the fee charged and the cost of providing the service in question. This exception applies to “A charge imposed for entrance to or use of local government property, or the purchase, rental, or lease of local government property.”
Although it’s never been analyzed by the city attorney, it seems quite possible that a parking meter fee can be construed as a charge imposed for the “use of local government property.” Combining the definitions found in Proposition 26 with the Supreme Court’s decision in Jacks, which cited this same exception, it’s obvious the issue of regulatory fees has changed a lot since the City Attorney’s last analysis. Perhaps it’s time to revisit the issue.
Why Does This Matter?
The ability to set parking meter rates to reflect the market value for the use of the space and then to use that revenue for any purpose would create an important new revenue stream. Right now, the charge for street parking has nothing to do with the actual value of that parking space. It’s common knowledge that on-street parking is generally cheaper than off-street parking in a lot that charges for parking. If we started to charge market prices for parking, we would not only increase revenue, but it’s possible that we could use that revenue for anything we choose. Seeing actual benefits from charging for street parking will also bolster public support for more parking meters, which will further our city’s attempts to shift away from automobiles toward active transportation and transit.
Freeing up the funds for other uses also undermines the need for special parking districts that waste funds on overhead costs and get nothing done. Even if we want to keep the revenue in the immediate area, the city has established processes for prioritizing capital projects in specific neighborhoods, usually with input from community planning groups. Why add extra levels of bureaucracy if the result is a waste of funds?
Given the continuing problems with parking districts, the topic is worthy of being revisited under the current state of law and with a comparative analysis of other cities in California. If we can free up the funds, it will allow us to invest in our neighborhoods and reconsider how we implement street parking. I’ll be addressing some of those issues in a future post. But for now, all I am asking for is a fresh look at the issue by the experts at the city. Let’s find out what’s possible.