LA WATCHDOG

LA WATCHDOG--The four Garcetti appointed trustees of the Board of Administration of the Los Angeles City Employees’ Retirement System (“LACERS”) have demonstrated that they have placed their personal interests ahead of those of the almost 43,000 members who are dependent on LACERS for their retirement benefits.

LA WATCHDOG--On April 20, slightly less than seven months from now, Mayor Eric Garcetti will submit his proposed budget for the fiscal year beginning July 1, 2018 to the City Council for its consideration.  While the Budget and Finance Committee will hold hearings over the following weeks, the budget is already a done deal, having been negotiated behind closed doors between the Mayor and City Council with input from the leaders of the City’s unions. 

LA WATCHDOG--On September 13, Controller Ron Galperin released a first ever Report Card for our Department of Recreation and Parks. It was based on interviews by consultants with over 3,700 park using Angelenos and onsite reviews of 40 of our 95 community parks.  (Photo above: Los Angeles Controller Ron Galperin announces Rec & Parks Report Card.) 

Overall, these 40 community parks received a grade of B (an 86) based on the equal weighting of 12 measurements.  But this hides the fact that many Angelenos are concerned about their safety in the parks (46%) and the poorly maintained bathrooms (37%), especially in three of the five surveyed areas. 

Of the 40 parks that were surveyed, 16 (40%) received a D on the restroom maintenance.  But that percentage leaped to 57% (16 of the 28 parks) for the East San Fernando Valley, Metropolitan, and South LA / Harbor Areas.  On the other hand, the West San Fernando and Westside Areas had no failing restrooms and had an overall of grade of a B on restrooms. 

One the underlying reasons for the lack of safety and the foul restrooms is that the Department’s budget has been decimated by City Hall. 

Under the City’s “full cost recovery” program that was instituted in 2010 by Mayor Villaraigosa and then City Council President Eric Garcetti, $410 million has been diverted from the operating budget of the Department of Recreation and Parks.  

This year alone, Recreation & Parks is being hit up for $71 million, including $25 million for utilities (water and power), $2 million for refuse collection, and $44 million for “General Fund Reimbursement” to cover pension contributions, human resource benefits, and other related expenses. This represents 38% of the charter mandated appropriation of $186 million.  

As a result, the Department’s headcount has been reduced by almost a third, resulting in less maintenance and even fewer programs and activities. 

But the “full cost recovery” program does not apply to any City department other than the Library, whose appropriations, like those of Recreation and Parks, are mandated by the City Charter.  However, in 2011, 63% of the voters approved Measure L which increased the Library’s charter mandated appropriation by 71%.

LA WATCHDOG--On Thursday, Amazon announced that it was opening a search for second headquarters city (HQ2) in North America and was requesting proposals from interested state/province, county, and city governments by October 19.   

LA WATCHDOG--The rollout of the City’s Commercial Waste Exclusive Franchise System has caused sticker shock to many businesses, multi-family buildings, and homeowner associations as they have been bushwhacked by rates that in “many instances ….. have doubled, tripled, and even quadrupled, with the inclusion of new fee assessments that did not exist under the previous private hauler agreements” according to a letter sent by Councilmember Mike Bonin to Councilwoman Nury Martinez, the Chair of the Energy, Climate Change, and Environmental Justice Committee of the Los Angeles City Council. 

LA WATCHDOG--It is not government’s obligation to provide services, but to see that they are provided. – New York Governor Mario Cuomo 

LA WATCHDOG--Mayor Eric Garcetti and the four other members of the Executive Employee Relations Committee (Council members Wesson, Englander, Krekorian, and Koretz) are negotiating new contracts with the Coalition of City Unions and the Police Protective League.  The current agreements expire on June 30, 2018. 

LA WATCHDOG--As part of LA’s Clean Energy Future program, Mayor Eric Garcetti and the Los Angeles City Council and its Energy, Climate Change, and Environmental Justice Committee (formerly known as the Energy and Environment Committee) have called for the Department of Water and Power to study and develop a plan for DWP to generate 100% of its power requirements from renewable energy resources. 

LA WATCHDOG--President Trump is threatening to trash the 23 year old North American Free Trade Agreement (“NAFTA”) because he is bent out of shape by our $63 billion trade deficit with Mexico. But that would be a huge error and not in the best interests of the United States and Southern California. 

LA WATCHDOG--Our streets are some of the worst in the country, hardly worthy of a world class city that will be hosting the 2028 Olympics.  Yet the repair and maintenance of our 28,000 lane miles of residential and arterial streets is not a priority for City Hall.  

Over the last two years, Mayor Eric Garcetti and the Budget and Finance Chair Paul Krekorian have cut the funding from the General Fund to the Pavement Preservation Program by over 50% (from $52.3 million to $25.5 million).  At the same time, General Fund revenues have increased by $435 million. 

Underlying the budget cut for the Pavement Preservation Program is the ever growing expenditures for personnel, ranging from increases in salaries; pension contributions; health, dental, and other benefits; workers’ compensation benefits; and police overtime. 

For this year alone, the $213 million increase in personnel expenditures exceeded the growth in General Fund revenues by $10 million.  This shortfall results in a “service insolvency,” where the City is able to pay its bills (primarily salaries and benefits), but basic services are neglected or “crowded out.”  These services include the maintenance of our streets, sidewalks, parks, urban forest, and the rest of the City’s infrastructure as well as desperately needed investments in computer technology and management information systems.  

Overall, the budget for the Pavement Preservation Program has been cut 17% over the past two years, from $157 million to $131 million.  Sources of revenue other than the General Fund ($25 million) have remained stable, including the Special Gas Tax ($65 million), local return revenues from the Metro related sales taxes ($32 million from Measure R and Proposition C),and the Street Damage Restoration Fee ($9 million).  

The City claims that this cut in the Pavement Preservation Program will not result in a lower level of service.  Through “operational efficiencies and cost effective methods of implementation,” the City will be able to repair 2,400 miles of streets, up from 2,200 in in 2015.  

The Pavement Preservation Program is designed to maintain the condition of our streets in their current average poor condition.  But it does not address the 8,200 miles of failed D and F streets that are in need of very expensive resurfacing or reconstruction.  

The ticket to repair and maintain our failed streets is estimated to be in the range of $3 to $4 billion over the next fifteen to twenty years.  This will require a tax increase of about $250 million a year.  This is the equivalent of a 5% increase in our property taxes, a half cent increase in our sales tax to 10%, or a parcel tax of $320.  

There are ways to eliminate or mitigate this general tax increase.  

The City could allocate a greater share of the $250 million in Local Return revenue from the Metro related sales tax, especially those related to Measure R (2008) and Measure M (2016) to our failed streets.  The same for the local return of an estimated $100 million from the State’s new $5.2 billion a year gas and vehicle tax.  The City could also be more aggressive in collecting the Street Damage Restoration Fee as was recommended by Controller Ron Galperin.  

The City could also allocate a portion of its increased budget revenues to our failed streets.  Over the next four years, revenues are projected to increase by $650 million.  

Alternatively, we would benefit from outsourcing the repair and maintenance of our streets to independent contractors who would not be burdened by the City’s overly restrictive work rules.  They are probably more efficient than the poorly managed Bureau of Street Services that was panned in Controller Galperin’s 2014 audit. 

Before the City considers another massive tax increase, it needs to not only develop a detailed operational plan for the repair and maintenance of our 28,000 miles of streets, but also a comprehensive financial plan for the City that considers alternative sources of financing and eliminates the “service insolvency” that adversely impacts our quality of life.  

Over the last year, Angelenos have been hit with $1.6 billion in new taxes.  This includes our share of the tax increases implemented by the Metro and the County (40%) and the State (10%).  This is the equivalent a 30% increase in our property taxes or a 2½ cent increase in our sales tax. 

Can we afford to be hit with another massive tax by the City? 

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

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LA WATCHDOG--On Tuesday, Los Angeles City Council President Herb Wesson made a motion to look into the feasibility of creating the “Bank of Los Angeles” with a vision statement of “financing the building of affordable housing,” making loans to “small business entrepreneurs,” and accommodating the cannabis industry and its banking requirements.

LA WATCHDOG--In an Op-Ed column Tax Land, Not Development last week in the Los Angeles Times, three professors at the UCLA Luskin School of Public Affairs have proposed a “flat tax of $3 per day on every parcel in the City” to fund affordable housing in the City of Los Angeles.  This “small land tax” would replace the proposed linkage fee on new residential and commercial development that would raise “only” $100 million a year, an amount that the three professors deem insufficient to solve the City’s housing problem. 

LA WATCHDOG--In his second inaugural speech that would make any upwardly mobile politician proud, Mayor Eric Garcetti took credit for the City’s economic recovery and promised us a glorious and prosperous future. But he was short on the details.  

LA WATCHDOG--At the All Star break, our Los Angeles Dodgers have the best record (.678) in Major League Baseball, having won 61 games and losing only 29. Over the past month, they have notched 24 wins and only 4 losses, a winning percentage of an impressive 85.7%  This streak included three game sweeps against the then first place Colorado Rockies and Arizona Diamondbacks, allowing the Bums to open a 7½ game lead over the second place Diamondbacks in the National League West. 

LA WATCHDOG--One of the most frustrating things about driving in the City of Los Angeles is when a clueless or inconsiderate driver is unable to make it through the intersection before the light turns red, creating a gridlocked intersection.  This results in even more congestion on our City’s already clogged streets, safety issues for both drivers (just ask Venus Williams) and pedestrians, increased pollution, and a bevy of frustrated drivers, many of whom express their displeasure by laying on their horns and making not so polite gestures with their hands and fingers. 

LA WATCHDOG--On Monday afternoon of June 19, 2017, the Board of Water and Power Commissioners sent us a notice that they were holding a Special Meeting on the following day, Tuesday, June 20, at 11:30 in the morning, to approve the new contract between the Department of Water and Power and the IBEW, its domineering union that is led by campaign funding Union Bo$$ Brian d’Arcy.

LA WATCHDOG-- “There probably is more managerial ignorance on pension costs than any other cost item of remotely similar magnitude. And, as will become so expensively clear to citizens in future decades, there has been even greater electorate ignorance of governmental pension costs.”  Warren Buffett (photo above), Berkshire Hathaway, 1975. 

LA WATCHDOG--At a hastily called special meeting on Tuesday, the politically appointed Board of Water and Power Commissioners approved, with very little discussion, a new five year labor agreement between our Department of Water and Power and the IBEW, the union that represents over 90% of DWP’s employees. 

UNDER THE RADAR--At 12:56 on Monday afternoon, June 19, 2017, we were notified by email that the politically appointed Board of Water and Power Commissioners will hold a Special Meeting on Tuesday, June 20, 2017 at 11:30 in the morning to approve a resolution authorizing Approval of Amendments to the Memoranda of Understanding for ten bargaining units represented by IBEW Union Bo$$ d’Arcy for the term October 1, 2017 through September 30, 2022. 

LA WATCHDOG--Operationally, the Alameda Corridor has been a huge success. 

LA WATCHDOG--Why has Councilmember Paul Krekorian, the Chair of the Budget and Finance Committee of the Los Angeles City Council, refused to address the massive unfunded pension liability of the City’s two pensions funds and the ever increasing annual required pension contributions that will devour the City’s budget and adversely impact the quality of life of future Angelenos?

LA WATCHDOG--On Wednesday, the City Council approved, behind closed doors, a Settlement Agreement involving a class action lawsuit against the City of Los Angeles and the Department of Water and Power that alleged that the City had illegally collected over $1.8 billion in Transfer Fees from DWP and its Ratepayers subsequent to the approval of Proposition 26 (The Supermajority Vote to Pass New Fees and Taxes) in November of 2010.  

The plaintiffs also requested that the Transfer Fee be eliminated since it was not approved by the voters. 

But once again, we are getting the shaft. 

Under the terms of the settlement, DWP will place $52 million into a Settlement Fund.  But at the end of the day, only $40 million will be available to the Ratepayers as the ambulance chasing lawyers who “represented the best interests” of the Ratepayers will be paid at least $10 million from the Settlement Fund. 

The Net Settlement Fund of $40 million represents a meager 2.2% of the $1.8 billion that Ratepayers forked over to our profligate City to fund ever increasing salaries and pension contributions.   

For the average household that uses 500 kilowatt hours a month, the total refund is whopping $10.  This compares to $460 that the average Ratepayer forked over to DWP to finance the Transfer Fee over the past seven years. 

LA WATCHDOG--Our cash strapped City is “exploring the implementation” of a Child Savings Account program for each public school kindergarten student who lives in the City of Los Angeles.  This program would cost $2.7 million a year as $50 will allocated to each of the 44,000 (charter and non-charter) kindergarten students in the Los Angeles Unified School District.  This amount includes matching funds for the 25% of the families who make an additional contributions, but does not include the 11,000 LAUSD students who do not live in the City. 

LA WATCHDOG--On Thursday, the Los Angeles City Council approved a “fiscally responsible” budget for the upcoming fiscal year beginning July 1, 2017 despite what they claimed were “challenging” economic times. But despite all the self-congratulatory speeches, the City’s budget is a train wreck as pension denier Paul Krekorian, the Chair of the Budget and Finance Committee, City Council President Herb Wesson, and Mayor Eric Garcetti continue to kick the budget can down our lunar cratered streets. 

LA WATCHDOG--The second most dangerous place in the City of Los Angeles is when you stand between cash and the City’s General Fund, even if the source of this revenue adversely impacts our neighborhoods and quality of life.  

This is the case with the City’s 14% Transient Occupancy Tax (the “hotel tax”) that is collected by Airbnb and other short term rental web sites (collectively, “Airbnb”) from their hosts who illegally rent their rooms, apartments, and houses for less than 30 days. 

We are not talking chump change for this recently discovered gold mine.  

For the fiscal year ending June 30, 2017, the City budgeted revenue of $5.8 million from Airbnb, up from zero in the previous year.  But lo and behold, the revised estimate is a whopping $27.5 million, a $21.7 million bump that aroused the financial wizards that occupy City Hall.  And for the upcoming fiscal year beginning July 1, 2017, the City is projecting a haul of $33.7 million, a 23% increase from the revised estimate. 

This implies that Airbnb hosts had revenues of $240 million, which, in turn, produced over $30 million of revenue for Airbnb. 

While Airbnb, its hosts, and the City each have a vested interest in maximizing revenue, this financial goal may run counter to the wishes of many Angelenos who believe that the in-and-out flow of transients disturbs their neighborhoods and compromises their safety, quality of life, and quiet enjoyment of their neighborhoods and apartment complexes.    

The hotel industry is also opposed to Airbnb because it represents a competitive threat, diverting revenue from their hotels by offering a low-cost alternative for tourists and the business community. 

The unions that represent hotel employees are also bent out of shape as they believe that the diversion of revenue from hotels will result in fewer union jobs and lower dues revenue to cover their overhead.  

The affordable housing and tenants’ rights advocates are also opposed to Airbnb because selected landlords are converting apartments to short-term rentals, depleting the supply and causing already high rents to increase.  This may force many displaced and already rent burdened tenants into even more over-crowded apartments or onto the harsh streets of LA.       

The budgeted revenue assumes that there will be no change in the existing policy. But the City Administrative Officer estimated that if the Airbnb hosts were limited to one property and if the annual number of nights booked is capped at 180, then revenue would drop from 46%, from $33.7 million to $18.2 million, a swing of $15.5 million.  

Several organizations such as Keep Neighborhoods First are proposing a 60-day cap that they argue will allow for true home sharing and preserve affordable housing by limiting the incentive for landlords to enter the short term rental market. But this cap may further reduce revenues for the City. 

The Planning and Land Use Management Committee chaired by Jose Huizar is expected to consider the Home Sharing Ordinance that will pit the financial interests of the City and Airbnb and its hosts against quality of life interests of homeowners and apartment renters, the hotel industry and their unions, and rent burdened tenants and their advocates.  

More than likely, the money grubbing Mayor and City Council will put on a show and express their concerns, but the result will be that the Garcetti and the City Council will sell us out and go with the dough.  

As a side note, overall revenues from the hotel tax are projected to increase by almost 7% to $282 million.  This represents almost 5% of General Fund revenue.  But this revenue estimate may be optimistic as international visitors, who spend more than twice as much as domestic tourists, may be turned off by the Trump Effect and the strong dollar. 

By the way, the most dangerous place in Los Angeles is when you are between the campaign war chests of our Elected Elite and cash campaign contributions from real estate developers, leaders of the City’s unions, and other self-serving ring kissers such as Airbnb.

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

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LA WATCHDOG--On Tuesday, May 2, the 90-minute presentation, Back to Work to Fix LA, by the Coalition of LA City Unions to the Budget and Finance Committee of the Los Angeles City Council was not a discussion of the financial implications of achieving the goal of hiring 5,000 new civilian workers.  Rather, it is a follow up to the goals delineated in the “historic” 2015-18 labor contract and an outline of union demands for the upcoming labor negotiations for the contract that expires on June 30, 2018. 

While the goals of restoring public services, creating good jobs for Angelenos, and ensuring public safety are all laudable goals, how will the City be able to afford increasing the size of its civilian work force to 36,000 employees, the level before the City was hit by the Great Recession, from the current level of 31,000 workers? 

The Four-Year Budget Outlook that was prepared by the City Administrative Officer is projecting a budget deficit of $104 million for the year that begins on June 30, 2018 and a cumulative four-year deficit of almost $300 million.  

These shortfalls do not take into consideration an estimated $100 million increase in the annual required contribution to the City’s two pension plans associated with the lowering of the investment rate assumption to 7¼% from the overly optimistic rate of 7½%. 

[The projected rate of return for the City’s two pension plans is 6.2%, the rate of return projected by CalPERS, the country’s largest pension plan.  This implies that the annual required contributions based on the 7¼% assumption will short change the pension plans and result in an even greater unfunded pension liability.] 

Nor does the Outlook account for any increase is salaries and benefits that will come from a new labor contract with the civilian unions. This will probably add $50 to $75 million a year to the deficit. 

These extra cash expenses will increase the annual budget gap to $250 million in 2018-19 and the four-year cumulative deficit to almost $1.2 billion.  And this does not include any salary increases for the Police Department. 

The obvious conclusion is that the City cannot afford any raises to say nothing about expanding the size of its work force. 

There has also been no discussion about the efficiency (or inefficiency) of the City’s work force.  To the contrary, the civilian unions are trying to develop a monopoly over city services and contracts by making outsourcing even more difficult, even if independent contractors are more efficient. 

But it seems as if City Hall has not gotten the message from former New York Governor Mario Cuomo who said, “It’s not government’s obligation to provide services, but to see that they are provided.” 

This is not to say that you lay off City workers.  But a little “managed competition” between city work crews and private contractors will give us a better understanding of how efficiently(or inefficiently) our money is being spent. 

Despite the $1.2 billion increase in General Fund revenues, the spendthrifts that occupy City Hall have managed to perpetuate the Structural Deficit where the growth in labor costs exceeds the growth in tax revenues.  

While it may be difficult, Mayor Eric Garcetti, the Paul Krekorian (photo above) led Budget and Finance Committee, and the rest of the members of the Herb Wesson City Council must develop the political will to say NO to the demands of the campaign funding union leaders. 

We cannot afford any more budget busting contracts.

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

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LA WATCHDOG--While the City’s General Fund revenues have increased by $1.24 billion (27%) over the last five years, why is the cash balance of City’s Reserve Fund projected to be $21 million below the policy goal of $289 million, an amount equal to 5% of General Fund revenue of $5.8 billion? 

But more to the point, why are the combined balances of the Reserve Fund and the Budget Stabilization Fund $215 million short of the $578 million policy goal (equal to 10% of General Fund revenue) recommended by the City Administrative Officer?  

Over the years, the CAO has been a broken record, stressing that the City maintain healthy and growing reserves because they are an important component supporting the City’s high investment grade bond ratings.  This is especially true given the City’s Structural Deficit (where the growth in personnel costs exceed the increases in revenues), the City’s massive unfunded pension and deferred maintenance liabilities, and the volatility of the Southern California economy. 

Underlying this deficit in the City’s reserves is the fact that City Hall has raided the Reserve Fund for $213 million over the last three years.  This is despite healthy increases in revenues.  As a result, the cash balance is projected to be $268 million on June 30, 2018, only 4.6% of General Fund revenue, the lowest level in years.  

But this estimate may be on the high side because the Reserve Fund may have to cover budget shortfalls for this fiscal year caused by lower than expected revenues and higher than anticipated legal settlements.  There may also be budget shortfalls for the upcoming fiscal year because of continuing legal liabilities that may exceed the projected budget of only $109 million.

City Hall was unable to divert funds from the Reserve Fund for the upcoming fiscal year because the cupboard was bare.  But that did not stop the financial wizards from diverting $75 million from the $95 million Budget Stabilization Fund. 

The City has funded the Budget Stabilization Fund with excess revenues from seven economy sensitive taxes: Property Taxes, Utilities Users’ Tax, Business Tax, Sales Tax, Transit Occupancy Tax, Documentary Transfer Tax, and Parking Users’ Tax.  Revenues are considered excess when they are more than 3.4% above the prior year’s budgeted revenues. 

But rather than devote the $75 million of excess revenues to the rainy day funds, City Hall allocated this cash to the Capital Improvement Expenditure Program, claiming these funds were devoted to one time capital expenditures.  But the Capital Improvement Expenditure Program is an integral part of every annual budget, not a bunch of one off expenditures as City Hall would like us to believe. 

In years of plenty, prudent stewards of our money would put excess cash into reserves so that we will have adequate resources when the lean years are upon us.  But the grasshoppers who occupy City Hall have not learned this basic lesson of life and finance as they continue their spendoholic ways and ignore the realities of our volatile Southern California economy. 

City Hall will more than likely issue $60 million of Judgment Obligation Bonds to help shore up the Reserve Fund.  But this is only an interim, ill conceived, debt financed maneuver. The real question is whether Mayor Garcetti, Budget and Finance Chair Paul Krekorian, and the rest of the Herb Wesson led City Council have the political will to do the right thing and sock away enough cash so we can endure the down economy. 

The odds say no way. 

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

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Mayor Eric Garcetti and the City Council have convinced themselves that the proposed 2017-18 budget is a “fiscally responsible spending plan” that supports the Mayor’s Back to Basics priority goals of a safe, prosperous, livable, sustainable, and well run city looking to fulfill its destiny as a world class city. 

But the Los Angeles Times does not buy into Garcetti’s overly optimistic rhetoric, stating in an editorial that “the Mayor and the City Council need to GET REAL on the City’s finances” if they want LA to be a “progressive, transformed city.” 

[Los Angeles Times Editorial: Despite a surge in revenue, L.A. is still feeling the budget crunch] 

Underlying the Times’ reasoning is that although City revenues have increased by $1.2 billion since Garcetti became mayor, the “City is still stuck with an ongoing $200 million Structural Deficit” that requires “all kinds of budget gymnastics” to balance the budget, resulting in even more reductions in essential services to Angelenos. 

The Times also pointed out numerous budget vulnerabilities, ranging from fewer federal dollars, the legality of the $242 million Transfer Fee from the Department of Water and Power, more expensive labor contracts, significantly higher pension contributions, and another budget busting recession. 

Unfortunately for the next generations of Angelenos, Garcetti and the City Council are focused only on the present and have their heads in the sand when it comes to any discussion about the City’s financial future.  And understandably so as they will be long gone when the spaghetti and meatballs hit the fan. 

The City’s Four Year Budget Outlook anticipates a budget gap next year (2018-19) of $104 million and a cumulative budget gap of almost $300 million. But this does not include the impact of new labor contracts, increased contributions to its two pension plans, or any comprehensive plan to repair and maintain our lunar cratered streets, broken sidewalks, and the rest of our deteriorating infrastructure. 

Over the next four years, the City is expected to negotiate new labor contracts with the police, firefighters, and civilian unions that will cost an estimated $200 million a year by the end of the fourth year. 

If the City adopted a comprehensive plan to repair and maintain our streets and sidewalks, this $4 billion program will cost an estimated $250 million a year.  Alternatively, the City could continue to neglect our streets, but the ultimate cost would be considerably more than $4 billion.  

This does not include money needed for the City’s parks, urban forest, street lights, buildings and facilities, or its antiquated computer systems.  

The City is also underfunding its two pension plans as it is relying on an overly optimistic investment rate assumption of 7.5%, rather than 6.5% as recommended by knowledgeable investors, including Warren Buffett of Berkshire Hathaway fame and fortune. But if the City used the more realistic rate of 6.5%, the City’s annual required contribution would increase by an estimated $400 million.  

Overall, these three adjustments would increase the annual deficit to over $800 million while the four-year cumulative deficit balloon to $3.4 billion. 

While some of these deficits may be offset by new sources of revenues such as the pot tax, a billboard tax, revenue resulting from the new gas tax, and the linkage fee, there is still a considerable gap that needs to be addressed. 

The Mayor and the City Council will ignore these findings.  After all, these financial wizards are the smartest people in the room.  But this is where the Los Angeles Times comes to our rescue by demanding that we have an open and transparent discussion about the City’s budget and its future obligations that have been ignored for years.  

For the sake of the next generations of Angelenos, it is time for the Mayor and the members of the City Council to GET REAL about the city’s precarious finances. 

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

LA WATCHDOG--On Monday, April 17, the Board of Public Works approved a Memorandum of Understanding between the Bureau of Sanitation and Discovery Cube Los Angeles to “develop, promote, and assist with Sanitation’s educational events and programs for a term of three years at a cost not to exceed $3 million.”  This includes increasing the awareness of the City’s environmental programs and services and promoting environmental stewardship for the next generation of Angelenos.  

But this deal is accompanied by an unpleasant aroma because of the controversial “investment” in 2013 of $7.5 million in the Discovery Cube by Sanitation and the Department of Water and Power and the failure of the Board members to analyze the economics and efficiency of this $3 million transaction. 

The Discovery Cube has a spotted history.  

In 2003, then City Council President Alex Padilla (now California’s Secretary of State) hatched an ill-conceived plan to move the Children’s Museum to the Hansen Dam complex, an out of the way location 22 miles north of City Hall.  By 2013, the City’s mismanagement resulted in a $22 million “architectural eyesore” that needed an additional $21 million to design and build the exhibits. And if the City failed to open the museum, it would be on the hook to repay $18 million to other governmental entities.    

As part of its reorganization plan, the City entered into a long-term management contract with Discovery Cube Orange County, a successful operator of a strategically located science oriented museum in Santa Ana. 

The City Council also decided to hit up Sanitation for $3.6 million by raiding the Sewer and Solid Waste Recovery funds that are financed by the fees that are part of our DWP bill. In addition, DWP and its Ratepayers were fleeced for $3.9 million, for a total of $7.5 million. 

While the City Council justified the heist of our money by saying that our children would benefit from this “world-class education center” and environmentally oriented museum, this investment was the responsibility of the Department of Recreation and Parks and the City’s General Fund, not the DWP and Sanitation Ratepayers. 

Of course, in their haste to approve this new contract, none of this history was discussed by the Board members when it approved this $3 million contract that once again involved the inappropriate use of our money. 

Nor did the Board members discuss the services to be performed under this open-ended contract that did not have a specific work plan or a specific list of projects.  But more to the point, they did not examine the capabilities of the Discovery Cube and its ability to deliver cost effective services to Sanitation, especially when compared to other advertising mediums or venues.  

Nor did the Board members consider the financial condition of the Discovery Cube and whether it is generating enough cash to cover its $5.4 million operating budget.  More than likely, the museum is not hitting its financial projections and is running short of cash.  This places the City in an awkward position which is why the Mayor and the City Council are putting the arm on Sanitation and its Ratepayers to fund the operational shortfall of this poorly located facility. 

But once again, this financial obligation belongs with Rec & Parks and the General Fund, not the Sanitation Ratepayers. 

The Mayor, the City Council, and the Board of Public Works will not have second thoughts about sticking it to Sanitation’s Ratepayers.  But this will confirm why we cannot trust them to be responsible stewards of our money. 

But this is nothing. Just wait until we see the games they are playing with the Budget.  Hearings begin on Wednesday at 1 PM at City Hall.  Bring your hip boots.

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

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LA WATCHDOG--We are still ploughing through the more than 1,800 pages of budget material that was dropped on us this afternoon, trying to figure out what games the City is playing to finance this year’s budget deficit and how it proposes to close the $245 million budget gap for the upcoming fiscal year beginning July 1, 2017. 

However, based on the City’s General Fund Budget Outlook, our Back to Basics City is having a difficult time living within its means as the cumulative budget deficit over the next four years is expected to be almost $300 million despite a $675 million increase in revenues. 

For the fiscal year ending June 30, 2022, the last full year of Mayor Eric Garcetti’s second term, the City is projecting a surplus of $10 million, a pittance considering that over his nine years in office, revenues are expected to increase by $1.9 billion, or 42%. 

This modest surplus of $10 million is pure fiction.  It does reflect the real world.  

The Budget Outlook does not take into consideration any new labor contracts for the police, firefighters, and civilian workers.  This will cost the City at least $200 million a year more than projected.

The annual required contribution to the City’s two underfunded pension plans are understated as it is unlikely that the return on invested assets will meet the assumed rate of return of 7.5%, an overly optimistic rate per investment professionals such as Warren Buffett of Berkshire Hathaway fame and fortune.

The City may also follow the example of CalPERS (California Public Employees Retirement System), the country’s largest pension plan, by lowering its investment rate assumption. This would add hundreds of millions to the annual required contribution. 

The City is also not addressing the deferred maintenance on its streets, sidewalks, parks, trees, building and facilities, and the rest of its deteriorating infrastructure. The deferred maintenance ticket has been estimated to be north of $10 billion a year. 

If the City were to have a comprehensive plan to repair and maintain our streets and sidewalks, it would require at least another $100 to $200 million a year.  

The City also needs to strengthen the Reserve Fund to an amount equal to 10% of General Fund revenues, a level recommended by the City Administrative Officer.  The $100 million Budget Stabilization Fund would also be included in the rainy-day fund calculation.  This will require an investment of $250 million over the next five years. 

This additional investment in the Reserve Fund will benefit from the issuance of $60 million of Judgment Obligation Bonds, a done deal given the City’s desperate need for cash. 

In his State of the City address, Mayor Eric Garcetti said that “our work will not be measured by what we do for ourselves today.  It will be remembered for what we leave behind for our children and grandchildren.” 

Despite all the fine rhetoric and lofty goals, we are doing a “disservice” to the next generations of Angelenos as we will leave them with a broken system and tens of billions in liabilities that will devour their future as they will pay for the sins of the past. 

Back to Basics means that the City of Los Angeles must learn to Live Within Its Means. 

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

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