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Thursday, May 23, 2013

Pier 39 Audit Reveals Port Shortchanged $44 in Rent -- Total -- Over Three Years

Posted By on Thu, May 23, 2013 at 11:30 AM

click to enlarge For $44, you could get around five of these soups in a bread bowl... - J. WOHLETZ
  • J. Wohletz
  • For $44, you could get around five of these soups in a bread bowl...

Sometimes a title really does say it all. For a city controller's performance audit of Pier 39 released yesterday, that's certainly the case:

Pier 39 Underpaid Its Rent by $44 Because It Did Not Report Subtenant Rent Underpayments for December 29, 2008, Through December 25, 2011

This 18-page document is prepared by the controller in concert with outside consultant KPMG. It contains a detailed rebuttal from Pier 39 and a five-point response from Pier 39's landlord, the Port of San Francisco. Per the controller's office, it required 112 hours of staff time to complete. And, in pinpoint detail, it reveals that $2,393 in gross receipts from several of Pier 39's "over 100 subtenants and concessionaires" went unreported. Since Pier 39 pays the Port a percentage of its revenue -- determined by a not-at-all-complex eight-tier system -- the audit claims the Port is owed $44 for the three-year period.

During that time Pier 39 reported $81.4 million in gross revenues and paid $7.97 million in rent to the Port.

"What you have to understand on these audits is they are compliance audits. So they are very -- how do I say this -- we look at whether you are complying explicitly with whatever your contract is," says Tonia Lediju, the director of city audits. Analyses like this, she continues, are mandatory -- there is no trigger. "The point is not the significance of the dollar amount but 'are you following the terms of the contract?'"

Per the controller's office, the answer to that question is "no." Per Pier 39, the answer is "yes." Lawyers and financial people get involved. And that's how you get an 18-page report arguing over $44.

The Byzantine system in which Pier 39 derives rents and subsequently metes out its share to the Port is reminiscent of the mind-blowing permutations trotted out at the tail end of each NFL football season explaining what complicated series of interlocking events must take place for each team to make the playoffs.

The Port is owed $500,000 each year in base rent. And then it gets interesting: 

Pier 39 pays 8 percent of the first $10 million in gross revenue; 9 percent of the next million dollars; 10 percent of the next 2 million dollars; 11 percent of the next 2 million dollars; and 50 percent of the next $763,000.

It then pays 12 percent of any additional gross revenues (anything upwards of $15,763,000.01). It also surrenders 7 percent of tour boat and sponsorship revenues and 30 percent of cellular site revenues.

Per the audit, several sublessees failed to report the aforementioned $2,393 to Pier 39, which in turn, didn't report these gross receipts to the Port. When you run that total through the system noted above, you get $44 in unpaid rent. "The Tenant did not comply with Section III.2.D of the Lease Agreement as they did not report all gross receipts to the Port," finds the audit.

Pier 39 Vice President and Controller Elinor Heller disagrees. In a three-page letter, she claims that the Pier is only required to report gross receipts it actually received -- and "by its very nature underpayments of rent are not received by Pier 39 and thus not reportable."

The Port, meanwhile, saw no need for "additional follow-up action" on most of the items brought up in the audit. As far as collecting the 44 bucks, however, its response notes "The Port will follow-up to confirm that Pier 39 completed its review of the past subtenant audits, billed subtenants for any rental payment deficiencies due Per 39 and reported, or will report shortly, any additional collection of such payment deficiencies in a subsequent report of Pier 39 gross receipts to the Port."

So they're getting the $44, it would seem. Will Pier 39 pay in quarters? "I don't think they will," says Lediju.

Let us hope. Incidentally, assuming a 40-hour work week, the auditor overseeing this report earned about $47 an hour. Multiply by 112 and you get $5,301.

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About The Author

Joe Eskenazi

Joe Eskenazi

Joe Eskenazi was born in San Francisco, raised in the Bay Area, and attended U.C. Berkeley. He never left. "Your humble narrator" was a staff writer and columnist for SF Weekly from 2007 to 2015. He resides in the Excelsior with his wife, 4.3 miles from his birthplace and 5,474 from hers.


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