San Jose Could Lose $744K in Annual Revenue by Offering Tow Companies Big Breaks in Fees

With a growing number of people living out of RVs on San Jose streets, the city has seen an uptick in calls to tow them. But companies licensed to take care of city-generated tows are claiming financial hardship, citing the unsanitary condition of the RVs and an inability to recoup costs.

One contractor, City Towing, stopped paying the city almost exactly a year ago, racking up about $256,000 in delinquent fees and interest while asking for a rate reduction to make up for lost profits. The remaining five city-hired tow operators supported City Towing’s plea, which prompted the city to propose fee cuts that could reduce city revenue by as much as $744,000 a year.

The City Council on Tuesday will vote on whether to approve the deal, which would still require City Towing to gradually pay back the amount it has withheld since last year.

That a company could renege on its contract and get a de facto raise came as a shock to Art Amirkhas, owner of Morris & Sons Towing, a company that is not part of the city’s tow rotation. Amirkhas said that City Towing should have anticipated higher RV disposal costs and labor rates along with declines in scrap metal prices and lien sales.

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Source: City of San Jose

“They are costs Morris certainly accounts for, and I am confident that if Morris were serving on the city rotation, we would be able to do so efficiently and maintain a profitable business model under the city’s set terms without declaring any hardship or committing similar breach,” he wrote in a letter to the council. “Perhaps the problem isn’t the increased costs cited by City Towing, but the management of the businesses with whom the city is contracted.”

Amirkhas said he’s troubled that the city is poised to take a huge loss to its general fund instead of looking for contractors who can meet the existing terms of the agreement.

The city’s finance and code enforcement divisions recommend reducing the fee from $80 to $59 per tow and knocking the cost to contractors down by another $464,000 for credits to make up for lost profits. Staff also proposes reducing the contractually required security deposit from $25,000 to $5,000 per operator.

According to the city, about 76 percent of towed vehicles go unclaimed and must be sold off or scrapped by tow companies. Unclaimed vehicles are usually lien sold at auction or junked at the tow company’s expense.

Source: City of San Jose

Source: City of San Jose

From 2013 to last year, the number of tows rose by 24 percent as overall revenues stagnated. From 2012 to 2016, the city saw a 400-plus increase in the number of RV tows. Meanwhile, the city’s living wage policy bumped up labor rates by 13 percent from 2015, and 37 percent from 2013.

“Staff concurs that current market conditions affecting operations are impacting profitability for the operators,” according to a memo from city Finance Director Julia Cooper and Interim Planning, Building and Code Enforcement Director Rosalynn Hughey. “As a result, staff proposes an alternate compensation model using data and information provided by the operators that evaluates revenues, labor costs, reimbursed costs for cleaning and disposing of ‘junk’ tows, and other lost revenues.”

Cooper and Hughey also suggest having an auditor evaluate the program next year.

More from the San Jose City Council agenda for October 31, 2017:

  • San Jose plans to apply for several FEMA grants to prepare for future floods and help recover from the one that inflicted $100 million in damage this past February. If the city secures the federal funding, it plans to pay for new floodwater pumps and slope stabilization along Coyote Creek.

WHAT: City Council meets
WHEN: 1:30pm Tuesday
WHERE: City Hall, 200 E. Santa Clara St., San Jose
INFO: City Clerk, 408.535.1260

Jennifer Wadsworth is a staff writer for San Jose Inside and Metro Newspaper. Email tips to jenniferw@metronews.com or follow her on Twitter at @jennwadsworth.

8 Comments

  1. This is ludicrous. These are contracts that the tow companies entered into. If they can’t fulfill their obligations then they are in breech of contract. Why should the tax payer be on the hook? We need to hold our city council accountable if they let these companies off the hook. Period.

    Find a company that will do the job as contracted!

  2. The mayor and council stick it to the taxpayers yet again by caving in to demands of the tow operators. What a spineless bunch, who routinely ignore their duty to the taxpayers in favor of propping up the profits of inefficient businesses. Yet the morons of this town keep re-electing them.

  3. “Perhaps the problem isn’t the increased costs cited by City Towing, but the management of the businesses with whom the city is contracted.”

    Perfectly stated reason why the City Council should not forgive these tow companies and their poor business acumen! Councilman Rocha, please do not allow these complacent City reps from Finance and Code Enforcement to waive these significant fees, and instead give this Morris operator or anyone else the opportunity to at least replace City Tow and any other tow company requesting unwarranted financial relief on this “unforeseen hardship”. It’s surprising that Code Enforcement and Finance easily acquiesce rather than hold these business people accountable. The City needs to do better.

    This request to forgive this debt and contract does not pass any smell test. The citizenry, and the General Fund, deserve everything this contract dictates. Any other deviation from this expectation will be reminiscent of Chuck Reed’s disregard for contract law and will likely result in more cost to the city in the form of punitive damages which will be awarded to any tow company successfully challenging this proposed remedy. This default by City Tow is an obvious prima facia breech of the contract. Failing to hold them accountable while holding other contracted services accountable reeks of impropriety. Please do the right thing.

  4. This is an interesting note: “Meanwhile, the city’s living wage policy bumped up labor costs by 13 percent from 2015, and 37 percent from 2013.” So, it just three years, labor costs soared 37% due to a CITY policy. Then we give them relief on fees and people cry foul? Once again, this is a case of government causing a problem that it then needs to solve – much like what , in large part, drives the housing crisis in California.

  5. Sound’s like the fate of “Tiny House”. Perhaps we should line them up along Coyote Creek and the Guadalupe River to
    keep low lying areas from flooding again, and the homeless will have a place to stay.

  6. A+ Journalism – who checked these figures? I hope City Tow sues you guys for Libel, it would serve you right. It must be nice for Morris and Son’s to sit back and criticize a contract they have little to no understanding or knowledge. Pretty easy as a private property tower – you have the LUXURY of declining Motorhomes and other junk vehicles you don’t want. Continue Cherry-picking the ones you know will get picked up quickly. AND pay ZERO fee to the City of San Jose. Anyone that attended the council meeting and actually listened would still understand only a fraction of it. Who do you think tows the cars that are abandoned sitting across your street for the last 2 months? Who do you think tows the Motorhomes full of human waste. Anyone have a clue how much one of those cost to dispose? City contractors pay a fee on EACH TOW no matter what they are. Ask yourself it THAT is fair? Fair would be ZERO fee for the junk that it towed – because it is GARBAGE. They store it for 30-45 days in order to make it available for owners to come and get their personal belongings – and people come back several times during that period. City contractors have absorbed the cost without an adequate change to this contract for well over 10 years. It wasn’t for lack of trying. Private property towers – are you sure you want this? You have NO idea.

    • Bigtow, I’m assuming you have some experience in the field and dealing with the City? Perhaps you work for City Tow, Alongi Brothers or Matos? I have issues with your words. Morris and Sons absolutely have the LUXURY of cherry picking and declining BECAUSE they didn’t get the contract to tow for the City. City Tow and Matos did. If they got the contract then they should be held to the contract that they signed and forced to take the smelly motor homes and abandoned cars.

      I have not seen the contract nor do I know where to see the contract. Maybe you can provide that since Jennifer failed to provide a link. If the tow companies didn’t like the agreement then why did they agree to in April? (Rocha’s Memo says, “In April, the City renewed its City-Generated Towing Services Agreement with it’s contracted two companies.”)

      Everything you complain about is well known facts. You stated that the nearly unchanged contract has been around for over 10 years. If the tow company knew of the costs then why be part of the contract. Sounds like Morris and Sons are the smart ones.

      My questions?
      When was the last contract signed?
      Who signed it?
      How long are the contracts?
      What is a Private property tower and why cant they bid for the contract?

  7. This is what I think is going on. For over ten years there has a been a buddy system going on with the City and tow companies. A rubber stamp type of contract bidding. Now times are changing and due to the homelessness and high rents we are seeing a lot more motorhomes.

    SOLUTION!
    I say open the bidding up for an exclusive motorhome towing contract. If there are no takers then sweeten the pot by offering a city owned lot that can be used as a motorhome tow yard.

    City Tow will still be responsible for the contract that they have and the money that they owe.

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