Tow Operator Says SB City Council Is Trading Campaign Cash For Franchises

The unseemly underbelly of municipal governance is due to loom into sharp focus next week at the San Bernardino City Council meeting when a local business owner will challenge the standards that municipality’s elected officials use in awarding city franchises. One issue that business owner will seek to raise is the degree to which the provision of campaign donations to the city’s ultimate echelon of decision-makers is skewering the city’s governmental and managerial processes.
For eighteen years, Manny Acosta has been attempting to convince officials with the City of San Bernardino to grant the company his father founded in 1978, Pepe’s Towing, a position on the police department’s towing rotation. Upon being assigned a position on the towing rotation, a company becomes eligible to engage in what is sometimes referred to as “involuntary tow services,” i.e., the towing of vehicles the police department deems needed for removal either because they are blocking a public thoroughfare, disabled, have been involved in collisions, were used in the commission of a crime or were being driven by a suspect or individual at the time of an arrest. The opportunity to provide such a service represents a means of revenue to towing companies, which in large measure draw their revenue from “voluntary tows,” i.e., ones requested by the vehicles’ legal owners. After making involuntary tows, the tow companies assess the vehicles’ owners a towing fee together with a vehicle storage/impound charge, which must be satisfied by the owner in order to recover his/her vehicle.
In 2008, the City of San Bernardino established a tow service policy codified in a franchise agreement that provided for one tow company per 35,000 people in the city. Thus, the city franchised six tow carriers. In 2011, the city’s existing franchise agreement with those six tow companies was extended five years. In 2016, those six carriers were extended for another five-year term.
Pepe’s Towing, which has grown into an operation functioning out of eight Inland Empire locations utilizing light, medium, heavy and extremely heavy capacity equipment, serves 24 law enforcement agencies including the Highway Patrol and the sheriff’s departments in San Bernardino and Riverside Counties. But the company has made no headway with the City of San Bernardino in getting on its towing rotation.
In April 2016, through its attorney, former San Bernardino City Attorney James Penman, Pepe’s towing redoubled its effort that it be added to the City of San Bernardino’s rotation. The city nevertheless bypassed the company. According to an August 23, 2017 letter from Penman to San Bernardino City Manager Andrea Travis-Miller, in 2016 then-City Manager Mark Scott and Police Chief Jerrod Berguan had recommended that Pepe’s be added to the towing rotation.
“We are informed that those recommendations were rejected by the city council,” Penman said.
According to Penman, Pepe’s Towing, because of the fuller line of towing equipment it possesses, is better equipped to meet the city’s needs than any of the other franchised towing companies.
“For many years, and on numerous occasions, the San Bernardino Police Department has contacted Pepe’s for assistance and has utilized Pepe’s services because other tow companies on the San Bernardino Police Department’s tow rotation list were, and precisely are, unable to meet the towing needs of the San Bernardino Police Department,” Penman wrote.
Additionally, Penman asserted, the ownership of three of the franchised tow companies had changed, giving the city the option of removing them from the rotation and replacing them with Pepe’s Towing or other qualified operators.
“Pepe’s further alleges that up to three of the current tow carriers, specifically City Towing, Hayes Towing, and Wilson Towing, were allegedly sold since they first contracted with the city and if so, they were, are, and have been out of compliance with Section 15, assignment, of their current tow service agreements unless the specific requirements of Section 15 were complied with in each instance,” Penman wrote. Accordingly, Penman maintained, “Said tow companies or company should currently be under suspension, and if not should be suspended forthwith. Section 17 c authorizes this city to immediately suspend any towing carrier ‘who has engaged in conduct constituting a flagrant violation of the agreement for tow services.’ It should be apparent that a failure to notify the city of a change in ownership pursuant to Section 15 constitutes a flagrant violation of the agreement, and should trigger the suspension(s) provided for in Section 17 c of the agreement.”
According to Penman, at least some of the franchised tow companies are in violation of other elements of the franchise agreement and the city has made no effort to redress those violations or remove the companies that are out of compliance with the franchise agreement from the rotation.
Specifically, according to Penman, “Pepe’s further alleges the city is also in violation of certain State and Federal laws pertaining to the prevention of the discharge of oil, solvents and other chemicals into the soil, and subsequently into the groundwater; this is because the city continues to permit certain tow companies, listed on the rotation list, to park towed and other vehicles on unimproved surfaces.”
In a letter dated February 24, 2017 to City Councilman John Valdivia, who is the chairman of the city’s legislative review committee, and then-City Manager Mark Scott, Penman wrote, “none of the current tow companies listed on the city’s tow rotation list are in compliance with the contracts most recently approved by the mayor and the common council of the City of San Bernardino in April of 2011.”
According to Penman, the city has failed and is continuing to fail to live up to its own standards and regulations regarding tow companies to be franchised, looking the other way when its franchisees have not met the standard the city has set. Simultaneously, he charged, city officials continue to spurn Pepe’s Towing’s application, even though that company meets the city’s specified standards.
According to Penman, “Pepe’s Towing alleges that only Big Z Towing and possibly Hayes Towing have the equipment necessary to tow Class B, medium, vehicles. Therefore, the remaining four tow carriers are allegedly in violation of Section 3 a, 5 j and 6 b of the tow services agreement.” Penman also maintained, “Pepe’s Towing alleges that none of the six tow carriers have the equipment necessary to tow all Class C heavy (big rig) vehicles. Therefore, all six tow carriers are allegedly in violation of Section 3 a, 5 j and 6 b of the tow services agreement. Pepe’s Towing alleges that none of the six tow carriers have sufficient space to store 200 vehicles on paved surfaces impenetrable to certain liquids, allegedly in violation of Sections 3 a and 5 a of the agreement.”
At least some of the city’s current franchised tow service providers are not equipped, Penman said, to preserve the towed vehicles and their contents in a secure circumstance that will prevent potential evidence to be used in criminal proceedings from being tampered with. “Pepe’s Towing alleges that not all of the six tow carriers have the ability to provided ‘indoor’ space that is sufficiently secure to store evidence for vehicles impounded by the San Bernardino Police Department,” Penman’s February 24, 2017 letter states. “Lack of said secure indoor storage for evidence is in violation of Sections 3 a and 5 b of the agreement.”
Pepe’s Towing, through Penman, last year followed a strategy of holding back on filing for a writ of mandamus to require the city to enforce the conditions of the agreement, which strategy anticipated that the city would undertake inspections of Pepe’s Towing’s allegations of lack of compliance on the part of the franchised tow companies. Since that time, with the city council’s reiterated rejection of Pepe’s Towing’s request to be put on the rotation, Pepe’s Towing has appealed that rejection, and numerous hearings on the appeal have been scheduled before the city council, only to be postponed.
Penman decried what he called the city’s “perpetuation of a monopoly in favor of privileged parties by assuring their continued placement on the San Bernardino Police Department’s tow rotation list.”
Penman’s letter writing campaign and the substance of the company’s appeal have softened no soap with the city, which has used the city attorney’s office, the same outfit that Penman once headed, to propound the view that the city’s franchised tow companies are in compliance with the franchise agreement contracts and that the city is entirely within its authority to restrict the number of tow companies on the police department’s tow rotation to the present six.
In a letter to Penman dated October 19, 2017, Chief Assistant City Attorney Jolena Grider wrote, “It is the city’s intention to open up the tow rotation to all qualified carriers at the expiration of the [current franchise] term in 2021. Although the city appreciates that your client, Pepe’s Towing, has been attempting to be added to the tow rotation, there has not been any openings on the list to allow the addition of a new carrier. The tow agreement allows for the assignment of the agreement to another entity that purchases the tow carrier’s business. This does not create an opening and require the city to open the position to any other carrier. While we understand that Pepe’s feels that it has been damaged, it is the city’s position that Pepe’s has no legal right to be added to the tow rotation list. If a position opens up prior to 2021, Pepe’s and all other qualified carriers will have the opportunity to submit an application for the position.”
An increasingly impatient Acosta has until now abided by Penman’s counsel and advice that they give city staff time to digest the substance of the appeal, do its own research and pass the information up the chain of municipal authority to the city council. In that way, Penman hoped the circumstance would be allowed to percolate so that the city council was given an opportunity to reflect on the fuller implication of the issues raised by the appeal. He advised that Acosta take no action which might offend the city council, which has the ultimate decision-making authority in the case. Recently, however, Acosta has come to the conclusion that his inability to get his company onto the towing rotation is not a technical or legal one but rather a function of the politics on the city council, as several of its members have received contributions to their political war chests from most, if not all of the franchised tow service operators. Valdivia, who is running for mayor this year, in particular has received over $20,000 from the towing service franchisees. The generosity the tow truck companies have demonstrated to the council, Acosta has concluded, leaves them collectively unwilling to undo the status quo. Accordingly, Acosta has signaled his willingness to take his effort to gain a place on the towing rotation to the next level. He has insisted that Penman grant the city no further postponement of the hearing on the appeal. He is ready to couple that with an information dissemination campaign. And, he indicated, he has the will to work to unseat as many of the city council members up for election in November as he can to forge a new attitude on the council.
“I have spent the last 18 years attempting to have it so Pepe’s Towing is able to provide towing services for the City of San Bernardino,” Acosta said. “The San Bernardino Police Department currently uses six tow companies, most for nearly 20 years without competition. Those companies are significantly lacking the facilities and quality of service required to comply with their contracts. In fact, Pepe’s is regularly called by the city to provide services the existing tow operators cannot provide.”
Acosta said the city and the towing companies bankrolling their political campaigns are not playing by the Marquis of Queensbury’s rules.
“In 2011, the city placed an additional barrier to competition by requiring all new tow applicants comply with a 65,000-square foot storage facility requirement,” Acosta said. “This requirement was not applied to the existing six tow companies. In fact, none of the current six companies have such space. With this unfair additional requirement, new tow operators will likely be priced out of the market. It would appear the requirement was intended to discourage competition and protect the existing six tow companies. Shutting out competition hurts the residents of San Bernardino. It keeps prices high and quality of service low. It creates the worst possible outcome for the city and consumers. Hopefully the mayor and city council will avoid the appearance of corruption and support a level playing field for competing firms.”
Four months ago, the city council signaled that it might make an accommodation with Pepe’s Towing, voting on March 7, 2018 to pass a resolution which authorized the city manager to initiate action to establish an additional tow carrier to the tow service agreement based on population density. The tow service agreement allows for one carrier per 35,000 residents. The City of San Bernardino population has grown to 216,239 as of 2016. Thus, allowing a seventh carrier is possible under the March resolution.
Difficulty for Pepe’s Towing ensued, however, when after it submitted an application, the San Bernardino Police Department traffic unit conducted an inspection at the Pepe’s Towing facility on March 27 and 28, 2018, determining the lot size was 39,834 square feet, some 25,166 square feet below the requirement. In April the city made further inquiries with Acosta over that issue, and he indicated his company would seek a secondary lot to meet the requirement. On April 13, 2018 Pepe’s Towing informed the city it had not obtained a secondary location. On April 16, the city mailed Pepe’s Towing a disqualification letter and provided five days to reply. On April 20, 2018, Police Captain Paul Williams received a call from Pepe’s Towing regarding a secondary lot on Waterman Avenue and a possible location on East 9th Street. The police department conducted an inspection at the lot on East 9th Street and found the lot size added to the main location was within the city’s requirements. On May 21, however, Pepe’s Towing informed the city that it was unable to obtain use of the secondary lot. Nearly three weeks previously, on May 1, 2018, the city was served with a notice of second amended appeal by Pepe’s Towing, pursuant to Municipal Code Section 2.64. The second amended appeal cited the previous refusals by the city manager and/or city attorney to investigate the allegations submitted by Pepe’s Towing last October that the other franchised carriers are out of compliance.
At present, it is city staff’s position that Pepe’s Towing “did not meet the requirements of the request for proposal” and the criteria outlined in the 2011 towing service agreement, the consideration that none of the current franchised tow service providers meet the same requirement notwithstanding. “Pepe’s Towing did not meet the requirements of the request for proposals and the towing service agreement (minimum 65,000 square foot of outside storage space) and failed to obtain a second lot to meet the requirement,” a report to the city council prepared for next week’s meeting by City Manager Andrea Travis-Miller, Police Chief Jarrod Berguan and Captain Paul Williams states.
Of significance is that the recommendation given to the city council in that report does not call on the council to deny Pepe’s Towing’s request to be allowed onto the towing rotation, though it does not ask the council to grant the request either.
“Review and consider all evidence presented at the public hearing and the information provided in this report as presented at the hearing and either grant or deny the Pepe’ Towing Services appeal,” the recommendation reads.
Councilman Fred Shorett today indicated he did not personally believe that a seventh carrier should be added to the rotation until the city’s population reaches 245,000. “I know that earlier this year I voted with the rest of the council in favor of adding a seventh carrier,” he said. “I regret that vote. I believe we set the ratio of 35,000 residents to one carrier for a reason. I don’t think we should add another carrier until we have population to match that ratio. Adding new carriers should be done only when we don’t diminish, we don’t reduce, the number of tows the tow companies are experiencing on a yearly or monthly basis. Six carriers at 35,000 population apiece is 210,000. We’re slightly above that in terms of population now. I don’t think we should add another carrier until we equal out at the seven times 35,000 level. The next increment is 245,000.”
Absent the city reaching the 245,000 population threshold, the only condition upon which Pepe’s Towing should be permitted onto the towing rotation, Shorett said, is if one of the current tow operators drops out or is disqualified.
“Being limited right now to six carriers is a separate issue from whether the carriers we have are compliant or not,” he said. “I think they are, but if someone has something to show they are not, then let’s see it. I think they should all be in compliance. If it turns out they are not, then we should give them a reasonable amount of time to come into compliance, and if they don’t, then we drop them from the list. I will not support adding another carrier to the list, a seventh carrier, unless one of the six drops out. We signed onto these contracts with these six carriers years ago. We guaranteed they would have so much work, so many tows, that would come from this contract, and they had to go out and invest in equipment and trucks and so forth. If we divide up that pie into one more slice, we cut the number of tows they will get and that will cut into their profit margin, maybe even make it unprofitable for them. A deal is a deal, and we have to live by the deal we made.”
Queried about the disparity between the requirement of having 65,000 square feet of outside storage space imposed on new applicants seeking admission onto the towing rotation and no such requirement for the current franchisees, Shorett sought to justify that discrepancy by saying that advantage for the existing carriers on the tow rotation had been “grandfathered” in. “We change criteria all the time,” he said. “If you get approval or are awarded a contract this year, next year the standard might change. You live up to the terms you were approved under. Future approvals might be different.”
With regard to Pepe Towing’s assertions that the franchised tow service companies are out of compliance, Shorett said, “That is something that is monitored by staff. As far as I know, every one of them is in compliance. Show me where the city allowed any one of them on the rotation who was not in compliance. Every one of them was in compliance when we approved the agreement. If they have fallen out of compliance, then someone should look into that. That isn’t my job. That’s a job for code enforcement, the city manager, the police department. If they are out of compliance and that is brought to our [the city council’s] attention we will take that up then and vote on that.”
Shorett sought to allay concern that the city council was trading favorable treatment for the franchised tow service providers in exchange for campaign donations.
“Anyone can look at our [Form] 460s [i.e., the campaign finance documents California’s elected officials must fill out] and see what money we are getting for our campaigns and who is giving it to us,” Shorett said. “I’m not hiding anything. I got, I think, $500 from Hayes and from Danny’s. I got $2,500 from Wilson. I also got money from Jason Desjardins; $2,500, I believe. I have been supportive of them. But if they fall out of compliance, they are gone. I don’t care if they’ve given me $25,000. I have never promised anyone anything for that money. I tell everyone, “If you like the way I govern, then donate to my campaign. I have turned money down when it was coming from someone who had some issue or project coming up and it wouldn’t have looked right. I have never asked for a certain amount of money from anyone. In all of my votes I try to do what is logical and fair. I am not commenting on all of my colleagues’ actions and motivations, except to say not everyone uses the same rationale that I do. I think [Councilman] Jim [Mulvihill] and [Councilwoman] Virginia [Marquez] are good people, honest people, doing what they think is best. I don’t think they are there to make money for themselves or collect campaign donations. I think Mayor [Carey] Davis lives up to the same standard. If someone gives me money, there are no guarantees. If you think you are buying my vote for $2,500, you should save your money because my vote is not for sale. You can’t buy my vote. I have made votes over the years that prove that. I have voted against my biggest backers, or at least some of them. I ask people to support me if they think I am doing a good job, and me doing a good job is why they should support me. But doing a good job does not include selling my vote.”
Acosta said the way the council votes next Wednesday will guide his immediate action and what he will do over the next four months, including seeking reform through the ballot box. “After nearly 20 years of patiently seeking an opportunity to fairly compete, enough is enough,” he said. “In response, we will appeal the city’s decision to deny our application based solely upon the unfair additional property requirement. Pepe’s invites other small business owners victimized by the city’s unfair business practices to join the effort and bring positive change to the mayor and city council. Now is the time to do the right thing. Those who refuse must go.”
-Mark Gutglueck

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