SACRAMENTO -- The Metropolitan Transportation Commission's use of $180 million in bridge toll money to buy a downtown San Francisco office building was likely legal but exposes taxpayers to unknown financial risk, concluded the state's top auditor.

The Bay Area agency's 30-year cash flow projections "had some shortcomings," State Auditor Elaine Howle wrote in her analysis released Tuesday. "Toll payers may not be fully repaid as originally claimed by the transportation commission."

Nonetheless, the commission's purchase of the 8-story office building as a multiagency regional government center appears to be within its legal authority as the state-created Bay Area Toll Authority, Howle concluded. Established by the legislature in 2003, the authority manages the toll proceeds of the Bay Area's seven state-owned bridges.

The auditor examined the commission's action at the request of Senate Transportation and Housing Committee Chairman Mark DeSaulnier, D-Concord, a vocal critic of the real estate deal that he characterized as unacceptable real estate speculation with toll-payer dollars.

"I thought the auditor's report was very well done, although I don't agree with everything in it," DeSaulnier said. "I still believe the purchase was illegal and I would never have supported the past increases in tolls if I had known this is how the commission was going to spend the money."

If legislators feel the agency has overstepped, the state auditor suggested they amend the state law and more narrowly define the allowed uses of the money.

The senator said he will hold a hearing on the audit later this year and may introduce a bill next year to do just that.

DeSaulnier's primary beef is with the commission's use of toll money to buy a building twice as large as it needs, and rely on the rental income to repay the bridge toll fund.

While the decision appears legal, the agency failed to discount the value of future cash flows to today's dollars and its subsequent rehabilitation plan significantly reduced the amount of available rental space, Howle concluded.

Commission staff projected the rental cash would cover the purchase price and generate an additional $40 million over 30 years.

Using the adjusted assumptions, the auditor calculated rental income could fall short of repaying the toll fund by as much as $53.7 million over the next three decades.

The more pessimistic predictions should have been presented to the 19 voting commissioners during the deliberation process, the auditor wrote.

San Francisco rental prices and occupancy rates would have to deteriorate substantially to meet the auditor's worst-case scenario, countered MTC spokesman Randy Rentschler.

"The auditor's calculations show the building will make money even if the market conditions remain exactly the same as they are today," Rentschler said. "We simply disagree with the auditor's methodology."

The commission bought the former U.S. Postal Service building at 390 Main St. in late 2011 as part of a plan to co-locate its planning and toll management operations with other regional agencies.

Elected and business leaders in the East Bay opposed the purchase, which was one of five sites under consideration. The others were rejected for location, price or both.

Today, however, the commission only has one confirmed government partner. The Bay Area Air Quality Management District has signed a lease with an option to buy space.

The San Francisco Bay Area Conservation and Development Commission had planned to move into the building when its lease expires. But Gov. Jerry Brown has mandated that all state agencies must rent available state-owned offices. The agency is seeking dispensation but the outcome is uncertain.

The Association of Bay Area Governments, which shares an Oakland office with the transportation commission, rejected the San Francisco location as inconvenient and too far from a BART station. But it is now rethinking its position.

In the meantime, the new building is being remodeled and the commission plans to relocate from its Oakland headquarters in 2013.

Contact Lisa Vorderbrueggen at 925-945-4773, Twitter/lvorderbrueggen or facebook.com/lvorderbrueggen.

California State Auditor's report on MTC building purchase
http://www.bsa.ca.gov/reports/summary/2011-127.
Read the MTC's response at http://www.mtc.ca.gov/news/press_releases/rel579.htm.