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Wed, Jun

City Stiffs Vendors to Finance Budget Deficits

LA WATCHDOG

LA WATCHDOG - As a result of the City Council and Mayor knowingly entering into budget busting labor agreements with the City’s politically powerful labor unions, the City is looking at the rivers of red ink over the next four years.  This has resulted in the City scrounging for ways to find cash, even if it means resorting to short-term measures that have negative long-term implications. 

The City has an unstated policy of not paying its vendors in a timely fashion.  Instead of paying an invoice when it is due in 30 days, the City has taken its sweet time, sometimes as long as six months.  

The Department of Water and Power has been a victim of the City’s slow pay policy.  According to a March report by the Office of Public Accountability, DWP had $130 million of past due receivables from the City, of which over $90 million was over 120 days past due. If that was a commercial account, the Department would have turned off the lights and stopped the flow of water.   

This is unacceptable as it is the equivalent of another tax on Ratepayers.  

At the same time, the City’s upcoming budget has projected receiving over $700 million from DWP and its Ratepayers through the Electric Users Tax and the Power Revenue Transfer Fee. 

There are other examples where the City and its many departments have failed to pay their bills on a timely basis, passing up early pay discounts where the implied rate of return exceeds 30%.  Overall, the City has probably “saved” several hundred million dollars at the expense of not only of large organizations such as DWP and its Ratepayers, but many small businesses and nonprofit organizations such as the LA Conservation Corps.   

There has been so much kickback from vendors about the City’s failure to pay its bills on a timely basis that Councilman Bob Blumenfield, the Chair of the Budget and Finance Committee, made a motion in January of 2023 to investigate this mess.  As part of the process, the City Controller issued a report in November calling for an “overhaul of the City’s systems and processes for handling invoices.” 

The current system of each department handling its own invoices on a timely manner is plagued by a shortage of qualified personnel, a system that will only be made worse by the elimination of vacant positions.  The lack of qualified personnel will also have an impact on the Controller’s office which is responsible for cutting the check, further delaying timely payment.  

The Controller’s report has called for a number of changes, including the introduction of new systems, a centralized database, greater transparency, and adequate skilled staffing.  Needless to say, this will take time and will require a level of expertise beyond the City’s capabilities.  In the meantime, the City needs to properly staff its payables function with well trained personnel. 

The Controller, with the blessing and financial support of the Mayor and City Council, needs to develop a system where the City’s vendors are paid on a timely basis and where the City can take advantage of early payment discounts. 

(Jack Humphreville writes LA Watchdog for CityWatch. He is the President of the DWP Advocacy Committee, the Budget and DWP representative for the Greater Wilshire Neighborhood Council, and a Neighborhood Council Budget Advocate.  He can be reached at:  [email protected].) 

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