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.
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.
“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.
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:
- The city expects to increase its share of costs to upgrade the Interstate 101-Zanker Road interchange from $1.5 million to $7.1 million.
- 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