Wheels of Fire

By Olin Ericksen
Staff Writer

October 14 -- Whether cart operators on the Third Street Promenade got a raw deal under their new master lease is a controversy that keeps on rolling.

Amid allegations of abuse made by disgruntled street vendors, the City Council Tuesday called for an investigation of Provenzano Resources Inc. (PRI), the new management company that leases the rolling carts that dot the popular retail walk street.

In the meantime, the council also instructed staff to work with the vendors -- many whose leases end Friday -- so that they can continue business on a month-to-month basis as they sell off the rest of their merchandise.

During the council meeting, several long-time cart operators leveled accusations that PRI had refused to renew their leases in retaliation for speaking out against fee increases and forced changes in their product lines.

Representatives of PRI -- which signed a 10-year master lease in June with the City and Bayside District Corporation to oversee the lucrative program -- deny the accusations, saying they were following the terms of the contract that the City helped draft.

The vendors, said PRI officials, were simply unhappy over the higher fees and didn't want to make changes in their displays and products. Company officials contend the changes are necessary to make the 16-year-old program more "vibrant" and profitable.

While council members said there is no firm evidence that there was any wrongdoing by PRI and admitted there may be little they can do now the contract is signed, the testimony was enough for members on the dais to vote unanimously for the inquiry.

"I think I've heard enough tonight to give me a great deal of concern," said Council member Ken Genser, who made the motion asking City staff and attorneys to "look into any possible violations."

"Although there's been many allegations of retaliatory actions, I don't think one can come to a firm conclusion from what was said," he added.

Allegations ranged from the company refusing to take interviews with existing cart operators to reversing course on one who had already received approval and written out a check.

"I sent a FedEx (with my check) and (PRI) told me, 'I'm tired of you going behind my back to the City Council,'" said Dan Gannon, who operates three carts on the Promenade.

Expressing concern over the terms of the contract -- which some council members and vendors argued should have given "preference" to vendors already on the retail strip -- the council also voted unanimously to take a look at what the City can do.

"I would also like to explore at least if PRI has honored the terms of the contract... and what options we have such as canceling the contract or to seek some kind of corrective action," said Genser.

Since June, PRI officials said they offered a new six-month lease to eight of the 16 operators currently doing business, and that five had accepted. As a result, eight operators, -- representing 13 carts on the Promenade -- will have to close up shop.

On average, PRI officials estimate that the carts haul in between $16,000 and $20,000 in total sales every month.

The street vendors have complained for several weeks that proposed rental increases, combined with a jump in fees to help better display the merchandise, known as a “merchandise fee,” is too much to bear.

"The terms of the lease were so terrible that no one can afford to sign up a new lease under those terms," said Doron Meidan, who for the past seven years has sold such products as toys and perfume from the two carts he manages on the Promenade. "They'll be able to get higher rents, but they'll drive us all out."

On average, PRI representatives estimate the rent will increase from around $2,000 to $2,400 and the merchandise fee will go up from $1,800 to $2,400 -- reasonable increases, the company contends, that would still allow vendors to make a profit.

The council asked staff to study how profitable the program would actually be for vendors and to make sure that they can actually recover the considerable start-up costs of some $11,000 over the six-month lease.

Council member Bobby Shriver suggested the study would rule out any possibility that PRI could be "churning" operators, a practice where master lease holders set terms so high that an operator cannot possibly make a return on the lease.

In addition to paying more, vendors said they believed PRI had an obligation to give "preference" to those who already had leases, under terms laid out in a Request for Proposal to the City, a precursor to the new contract.

"PRI was to give preferential treatment to vendors existing at the Promenade and we don't believe it was given," said Meidan. "Most of the people didn't even get an interview."

Yet PRI officials and some on City staff who helped draft the proposal said they had a different take on what preferential treatment meant.

According to staff, PRI was to invite existing vendors for advance interviews and accept their product selection if it met the standards.

"So what we were trying to do is upgrade and make this a more distinct program with unique products and the existing operators didn't offer it," said PRI employee Debra Lote, who along with one of the company's founders, Ross Provenzano, spoke at the meeting.

PRI met with the current vendors to discuss what the company wanted two weeks before interviewing new applicants, Lote said.

"When they returned the applications, it was exactly for what they have now, which is not what we were looking for," said Lote.

However, some council members felt PRI should have worked more closely with existing vendors to help them determine what product lines they should offer.

"My concern here is that a seemingly large number of people who were existing independent cart operators are not part of your program," said Council member Kevin McKeown.

McKeown said he was concerned that the Bayside District Corporation and PRI may be trying to provide a more up-scale product line at the expense of business owners who, for years, have worked in Santa Monica.

Despite the allegations, Ross Provenzano -- who with his wife started the vending cart management company 39 years ago -- said he empathizes with the vendors, but adhered to the contract with the City.

"I'm sensitive to the small business person," Provenzano said, "but we followed the letter of the Request for Proposal."