LA WATCHDOG

LA WATCHDOG--On April 9, 2014, the LA 2020 Commission endorsed a series of actionable recommendations designed to “enhance transparency and accountability in City Hall, put the City on a path to fiscal stability, and renew job creation in Los Angeles.”   

In January of 2015, City Council President Herb Wesson buried the Commission’s report, including the recommendations involving the our City’s finances, its pension plans, the governance of our Department of Water and Power, and the updating of the City’s Community Plans. 

LA 2020 called for the creation of the Office of Transparency and Accountability to oversee our cash strapped City’s finances.  But Paul Krekorian, the chair of the Budget and Finance Committee, tells us that the city’s budget is balanced, despite the fact that there is no plan or money to repair our lunar cratered streets and that the City raided its rainy day Reserve Fund for $150 million despite record tax revenues. 

The Commission also called for the establishment of a “Commission on Retirement Security” to “review the City’s retirement obligations in order to promote an accurate understanding of the facts” and to make “concrete recommendations on how to achieve equilibrium on retirement costs by 2020.”  This is a reasonable suggestion as the City’s two pension plans are underfunded by $13.5 billion (assuming a more realistic investment rate assumption of 6½%), representing a funded ratio of only 71%. 

The city is also underfunding its pension plans by at least $400 million a year by relying on the overly optimistic 7½% investment rate assumption, a rate that Paul Koretz, the chair of the Personnel Committee believes is too low since he is smarter than Warren Buffett who recommended a rate of 6½%. 

This twelve member blue ribbon commission, including IBEW Union Bo$$ Brian d’Arcy, called for the establishment of an independent, professionally staffed Los Angeles Utility Rate Commission that would appoint the General Manager and set rates with the intent of limiting the interference in the operations and finances of DWP by City Hall. To the surprise of no one, Felipe Fuentes, the chair of the Energy and Environment Committee, ignored this reform as the City continues to use DWP and its Ratepayers as an ATM. 

The LA 2020 Commission also called on the City to update its 35 Community Plans every five years.  This would allow residents, businesses, investors, and City Hall to have a clearer understanding of the zoning rules and regulations so that they are not “subject to the whims of special interests, nimbyism, and individual elected officials.”  However, reform has been rejected by Jose Huizar, the chair of the Planning and Land Use Management Committee, as the real estate speculators and developers, their lobbyists and lawyers, contractors, and their cronies has been a major source of campaign cash. 

While Mayor Eric Garcetti and the Herb Wesson (photo right) led City Council will close out 2015 with high fives knowing that they snookered us for yet another year, 2016 has the potential to be very different. 

The City’s finances are under pressure as this year’s budget is already $100 million in the red because of excessive legal settlements.  Next year, the City will have to finance its new labor agreement with the City’s civilian workers that will end up costing us over $100 million beginning in 2017.  Pension contributions will increase as the return on the pension plans’ investment portfolios are significantly below the overly optimistic investment rate assumption of 7½%. 

DWP will be front and center because of the five year, 30%, $1.4 billion increase in our utility rates.  And the pressure for reform has increased as the charter mandated Industrial, Economic, and Administrative - overseen by Controller Ron Galperin, Garcetti, and Wesson - has called for a change in the governance of the inefficient DWP because there are no clear lines of authority.  

Wesson and Garcetti may tell us to buzz off once again.  But the need for our votes in the November election will provide us mushrooms (in the dark covered with manure) with considerable leverage. 

In November, we will have the opportunity to approve the Neighborhood Integrity Initiative that will require the City to do “real planning,” eliminating the right of the local councilmember to “up-zone” gridlocking developments that are inconsistent with our neighborhoods.  This initiative will be opposed by our Elected Elite who are addicted to the campaign cash they receive from the real estate “gang.”    

There will also be several ballot measures to increase our taxes, despite the fact that we are one of the highest taxed states in the country with one of the lowest growth rates.  This includes a new half cent increase in our sales tax to finance transportation projects, of which 25% is returned to the City.  

In March of 2013, 55% of the voters rejected a half cent increase in our sales tax as we did not trust City Hall which refused to reform its finances and Live Within Its Means.  This was in spite of massive campaign contributions by the real estate community to Herb Wesson’s campaign slush fund in support of Proposition A.  

In November, we will be able to send a clear message by voting NO on the proposed tax increases and YES on the Neighborhood Integrity Initiative. 

In 2015, Garcetti, Wesson, and the City Hall gang kicked the can down the road.  In 2016, we can kick them in the can. 

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

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CityWatch

Vol 14 Issue 1

Pub: Jan 1, 2016

LA WATCHDOG--The City is projecting a year-end budget deficit of almost $100 million according to the Second Financial Status Report dated December 4, 2015. 

This shortfall is primarily the result of the City Attorney’s projection that liability claims associated with legal judgements and settlements will soar to $138 million for the year ending June 30, 2016, an $84 million increase from the budgeted $54 million. 

While the specifics of this 155% increase have not been disclosed, “much of the shortfall is attributable to a small number of extremely significant cases arising from incidents or conduct which occurred many years ago.”  More than likely, however, the Los Angeles Police Department is responsible for a good chunk of this increase as the LAPD has been responsible for almost 60% of the $272 million in payouts over the last five years.

But how does the City intend to cover this projected $100 million budget deficit?

One alternative would be to raid the $375 million Reserve Fund.  But this would deplete this rainy day fund to a level of 5% of the $5.4 billion General Fund, an amount $50 million short of the 6% target recommended by the City Administrative Officer and $266 million below the 10% level suggested by many public finance experts.

Besides, in preparing the Budget eight months ago, Mayor Eric Garcetti, the Budget and Finance Committee chaired by Paul Krekorian, and the Herb Wesson led City Council already raided the Reserve Fund for $130 million.

The City also has the option to issue $100 million of Judgment Obligation Bonds to cover this projected deficit.  In City speak, this would “save” the City $100 million.  In reality, this bond offering would be dumping the sins of the past onto a future generation of Angelenos who would be burdened with annual debt service payments of $13 million for the next ten years.

The third (and preferred) alternative would be to allocate the $138 million in liability claims to the responsible departments who would then have to determine how to pay for the messes they created.  This would also have the added benefit of increasing the accountability of the Police Chief and other department managers as they would be responsible for the actions of their employees and the impact on their budgets.

Certain members of the City Council believe the City will be bailed out as revenues will exceed the budgeted General Fund receipts of $5.4 billion. But this opinion may be wishful thinking as budget revenues already represent a hefty 5% increase from the previous year.  Furthermore, revenues through the first four months of the fiscal year are off by $40 million because of lower property tax collections and lower revenues from the City Utility Tax levied on DWP Ratepayers.

This $100 million deficit does not include any real money for the City’s homeless initiatives or any appropriations or reserves related to the havoc from the El Nino storms that are expected to drench California this winter.

The Second Financial Status Report highlights the fact that the City, like many of its businesses and employers, is a victim of California’s legal system that is consistently ranked as the top “Judicial Hellhole” in the country.  This will result in cutbacks to an already tight City budget and should result in calls to reform our civil justice system, a move that will alienate the campaign funding plaintiff’s bar.   

For example, the $84 million hit for liability claims would fund the City’s homeless initiative, repair miles and miles of our lunar cratered streets, or allow the Planning Department to update the City’s outdated Community Plans. 

It also puts the Mayor and the Herb Wesson led City Council on notice that the City does not have the financial flexibility to introduce new initiatives unless it is willing to reallocate revenues, a painful process that will result in significant pushback from the targeted departments, or to outsource operations to more efficient service providers, a move that would cause the City’s unions to go ballistic. 

Over the next four months, the Mayor, the City Council, and the City’s budget mavens will be working on next year’s budget behind closed doors.  How will they cover the $100 million deficit and fund existing programs and new initiatives? How will they pay for higher pension contributions; the repair of streets, sidewalks, and parks; and its new labor contract?

Stay tuned.  2016 is already shaping up to be an interesting year.

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

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CityWatch

Vol 13 Issue 103

Pub: Dec 22, 2015

LA WATCHDOG--In April of 2014, the Los Angeles 2020 Commission recommended the establishment of the Los Angeles Utility Rate Commission to oversee the operations and finances of our Department of Water and Power, determine our utility rates in an objective manner, and appoint the General Manager. 

But this attempt to eliminate or minimize the “political interference” from City Hall, the Mayor, and their cronies never saw the light of day as City Council President Herb Wesson and Energy and Environment Chair Felipe Fuentes buried this recommendation deep in the bowels of City Hall.  

Two other excellent measures posed by Mickey Kantor’s LA 2020 Commission were also deep sixed by Wesson.  These included the formation of an Office of Transparency and Accountability to monitor the finances of our cash strapped City and the establishment of the Commission for Retirement Security to review the City’s seriously underfunded pension plans and to make “concrete recommendations on how to achieve equilibrium on retirement costs by 2020.” 

However, last week, Controller Ron Galperin, in collaboration with the Mayor and City Council, released the charter mandated Industrial, Economic, and Administrative Survey covering DWP that called for, among other things, the reform of the Department’s governance. According to this 581 page report, the current system is plagued by too many cooks in the kitchen, where no one entity is responsible for the Department’s operations and where our all-knowing Elected Elite are second guessing management, developing unrealistic policies and goals, and have no respect for the wallets of the Ratepayers.  This is compounded by the overall lack of transparency, flawed management information systems, unclear lines of authority, and a general distrust of the Department and the City’s meddling politicians.  

Navigant Consulting, the well regarded firm that prepared the IEA Survey, called for a hybrid committee of City Hall insiders to develop a consensus on a solution that would then be placed on the 2017 ballot.  

But this recommendation is flawed because it does not include input from the Ratepayers and the Neighborhood Councils.  

The Ratepayer Advocate and its consultant, Navigant, are also calling for “Performance Reporting” to be included in the ordinance authorizing the increase in our utility rates.  This would require management to provide the Ratepayers Advocate and the Board of Commissioners with periodic reports identifying performance metrics and goals and comparing them to actual results.  This would result in increased transparency, especially if this information was made available to the Ratepayers.  

The Ratepayers Advocate also indicated that the Water System’s proposed five year rate increase of 25% to 30%, or about 5% a year, was “reasonable.” Unfortunately, he found that the rate increase was less than what is needed to repair its aging pipes, valves, and water mains, but this was justifiable because DWP does not currently have the capacity to meet the desired long-run replacement cycle because of constraints on outsourcing and anticipated retirements. 

Navigant’s report indicated that the Department does a good job of keeping the water flowing and the lights on, but that to meet the future operational, organizational, and financial challenges, it is necessary to reform its current system of governance in order to be a dependable and efficient provider of water and power. 

And while this reform has met some resistance by Mayor Garcetti and certain members of the City Council who want to treat Ratepayers as mushrooms (in the dark and topped with manure) and as an ATM, now is the time to address change and bring the Department into the 21^st Century.  With, of course, input from the Ratepayers. 

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

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CityWatch

Vol 13 Issue 101

Pub: Dec 15, 2015

LA WATCHDOG--The new, four year labor agreement covering the City’s civilian workforce is a huge success according to Paul Krekorian, the Chair of the Budget and Finance Committee, and Paul Koretz, the Chair of the Personnel Committee.  

The contract provides for no salary increases for the three year period ending June 25, 2017 and then only a 2% increase in the last year of the contract.  Of course, this is after a budget busting 25% increase that was agreed to by Mayor Villaraigosa and the Eric Garcetti led City Council in 2007.  

The City was also able to modify the automatic salary hikes under the step increase program, resulting in major savings over the next thirty years.  

The City also agreed to establish a Strategic Workforce Development Task Force with the goal of hiring 5,000 new employees by the end of the contract on June 30, 2018.  This would include replacing retiring employees, resulting in a net increase of an estimated 3,000 workers. 

The City also agreed to establish a pension plan (Tier 3) for new civilian employees to replace the previous pension plan (Tier 2) that was unilaterally imposed by the City in 2012.  While the savings related to the new Tier 3 plan are $1.7 billion less over the next thirty years compared to Tier 2, the Tier 3 savings over thirty years compared to the current Tier 1 plan amounts to $5.2 billion. 

[Note: The present value of the $5.2 billion in savings is $1.2 billion.  This is equal to 15% of the unfunded pension liability for the City’s two pension plans of $8 billion assuming a 7.5% investment rate assumption, but only 9% of the $13.5 billion unfunded liability assuming a Warren Buffett’s recommended 6.5% investment rate assumption.] 

The new labor agreement also provides for a settlement agreement between the City and the unions over the acrimonious Tier 2 pension squabble.  

Unfortunately, the City was unable to achieve its goal of having City employees contribute 10% of the cost of their Cadillac healthcare plan. 

While Krekorian and Koretz were bubbling over about the new contract, the lower salary schedule, and the massive savings associated with the new pension tier for newly hired employees, they failed to consider the impact of this labor agreement on the City’s annual budget and its Structural Deficit. 

According to the City Administrative Officer’s budget outlook, the City was projecting a surplus of $36 million for the fiscal year ending June 30, 2019.  But this new contract will eliminate that surplus. 

Over the next four years (Fiscal Years 2017-2020), the CAO was projecting a budget gap of $37 million.  As a result of the new labor agreement, this deficit is estimated to balloon to between $300 and $400 million.  This also assumes the unlikely outcome that there will be no raises or increased benefits for sworn and civilian workers when their contracts expire on June 30, 2018.  

And this does not take into consideration the recent revelation that this year’s City budget is about $100 million in the hole because of larger than expected legal settlements and judgements. 

With these projected deficits, how will the City be able to afford to hire 3,000 new employees?  And this also raises the question whether the City has the management resources and information systems to effectively utilize its work force.  This concern is justified given Controller Ron Galperin’s damning audits of Street Services, Transportation, and Recreation and Parks. 

The City Council is expected to approve this new labor agreement on January 12, 2016. In the meantime, the Herb Wesson led City Council and Mayor Eric Garcetti need to address the impact of this new agreement on the City’s budget and its Structural Deficit.  

The City should also consider implementing two recommendations of the LA 2020 Commission that was established at the urging of Herb Wesson. 

The first is to establish an Office of Transparency and Accountability to oversee the City’s finances.  

The second is to form a Commission for Retirement Security to analyze the City’s pension plans and make “concrete recommendations on how to achieve equilibrium on retirement costs by 2020.”  This would help justify the claims of $16 billion in savings over the next thirty years from this new agreement (an average of over $500 million a year!) as well as shed light on the impact of reducing the investment rate assumption to 6.5% as recommended by Warren Buffett. 

Angelenos deserve to know what the hell is going on with the City’s budget and whether we can afford this new labor contract.  And without transparency, the City’s (and the County’s) efforts to increase our taxes will be met with a resounding NO WAY. 

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

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CityWatch

Vol 13 Issue 100

Pub: Dec 11, 2015

LA WATCHDOG--In early July, our Department of Water and Power proposed $1.4 billion increase in our utility rates over the next five years.  This bump of over 30% is subject to the review and analysis by the Ratepayers Advocate prior to the approval of the politically appointed DWP Board of Commissioners, the Energy and Environment Committee, the City Council, and the Mayor. 

But after five months, we still do not have any report, in large part because the Department has not provided the Ratepayers Advocate and its expert consultants with definitive financial information detailing the rate case.  The City Attorney has also not produced the final ordinance that spells out the very important (as the devil is in) details of this complex rate increase. 

Fred Pickel, the Ratepayers Advocate, and his staff expect to issue their reports on the water rate increase, the power rate increase, and the Department’s compensation polices within the next two weeks, assuming they receive the necessary information from DWP and the City Attorney.  This will begin the political process to approve this unprecedented rate hike which is expected to be finalized by April 1, 2016.  However, the rate increase will be backdated to July 1, 2015, meaning that Ratepayers will be hit with a two year increase during the first year. 

While the Ratepayers Advocate’s report will analyze the proposed rate increases, it will also need to address the transparency of DWP’s operations.  This would involve detailing the Department’s financial relationship with the City and all of its departments, including the Port, Los Angeles International Airport, and Public Works and its Bureau of Sanitation.  

For example, there has been some scuttlebutt from Port employees about the high cost of the power generated by solar panels installed by inefficient DWP work crews. There are also rumors that the Port has failed to pay its DWP bill on a timely basis, meaning that the Ratepayers will have to make up this unacceptable shortfall. 

The report will also need to analyze the DWP’s multibillion dollar utility built solar program and whether it makes sense to outsource this very ambitious endeavor to more efficient, independent contractors.     

The Ratepayers Advocate will also need to review the Department’s involvement with the City’s One Water LA 2040 Plan to ensure that DWP is not getting soaked for very expensive (as in billions) stormwater projects that are the responsibility of the Bureau of Sanitation and other City departments. 

There also needs to be full disclosure on all “pet projects” that are not related to the core mission of the Department as well as all below market leases of DWP property to other City departments and favored nonprofit organizations.  This disclosure also includes “Special City Services” and how these costs are determined, especially as it relates to the massive overhead charges imposed by the City on such services as the inspection of fire hydrants by the Los Angeles Fire Department.    

Interestingly, the Ratepayers Advocate has commissioned a study of DWP’s compensation arrangements, including benefits, compared to other regional utilities.  This analysis, along with the benchmarking efforts of the Department, will be very controversial.  

No study would be complete without the discussion of the legality of the $273 million, 8% Transfer Fee given the recent class action lawsuits.  One interesting suggestion by Richard Moss, a former DWP Commissioner, and Gregory Lippe, a former chairman of the Valley Industry and Commerce Association, is to freeze all payments, including the Transfer and the City Utility Tax, from DWP to the City at its current level of around $650 million and invest the five year, $500 million surplus in DWP’s operations.   

The Ratepayers Advocate and DWP’s management must also outline the Department’s goals over the next five years and determine a process to monitor its progress.  One idea would be for the General Manager to publish a quarterly report within 60 days of the quarter’s end similar to one that is required by a public company.     

Over the last three years, the Ratepayers Advocate has been an excellent investment.  Pickel and his understaffed office have produced strong analytical work.  He has also developed a working relationship with the Department and City Hall which has allowed him to temper the proposed rate increase.  

This positive review is in spite of the unfounded, self-serving claims by the publicity hungry Santa Monica based Consumer Watchdog regarding the settlement of the class action lawsuit involving the botched introduction of the Customer Information System.

The major complaint involving the Ratepayers Advocate is the lack of outreach and his failure to use his position as a bully pulpit to protect our wallets.  On the other hand, it was and is important to preserve his relationship with the Department’s management and the politicians and bureaucrats that occupy City Hall.  

But now is the time for Fred Pickel, the Ratepayers Advocate, and his staff to sound off as they go to bat for the us, the Ratepayers, and our wallets. 

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

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CityWatch

Vol 13 Issue 99

Pub: Dec 8, 2015

LA WATCHDOG--During the last year’s budget hearings, Los Angeles City Council Members Paul Krekorian, the Chair of the Budget and Finance Committee, and Paul Koretz, the Chair of the Personnel Committee, were pushing to increase the investment rate assumption for the City’s two underfunded pension plans to 8%, up from the current level of 7.5%.  

This would have the dual effect of lowering the then $8 billion unfunded pension liability and decreasing the City’s Annual Required Contribution by an estimated $200 million.  This additional cash would allow the City Council to fund the new budget busting labor contract for the City’s 20,000 civilian workers, begin the repair of our lunar crated streets, or pay for new initiatives or pet projects.    

Both Krekorian and Koretz felt that this increase was reasonable since the five year average return was over 13% for both the Los Angeles City Employees’ Retirement System (“LACERS”) and the Los Angeles Fire & Police Pension Plans (“FPP”). In addition, the rate of return for the fiscal year ending June 30, 2014 was a bonkers 18%.

Unfortunately, the following year’s rate of return for the two plans averaged 3.3%, resulting in a $400 million increase in the unfunded pension liability.   

But rather than increasing the investment rate assumption, many well respected investors believe that the investment rate assumption should be lowered to 6.5% (or lower).  This would include the legendary Warren Buffett (photo above) of Berkshire Hathaway whose investment returns over the last 40 years are double those of the Standard & Poor’s 500.

For comparison, corporate pension plans rely on a 4% investment rate assumption according to a recent article by Melody Petersen in our Los Angeles Times. 

The Times also disclosed that the $300 billion California Public Employees’ Retirement System (otherwise known as CalPERS) is reducing its investment rate assumption to 6.5% from 7.5% over the next 20 years, granted more slowly than the more aggressive schedule advocated by Governor Jerry Brown. 

If the investment rate assumption for City’s two pension plans was 6.5%, the unfunded pension liability at June 30, 2015 would increase to $13.5 billion, up from $8 billion, while the funded ratio would decrease to 71% from 80%. 

(On a relatively positive note, LACERS and FPP have been funding their Other Post-Employment Benefits (read medical) since the late 1980’s.  The County and the State have not funded any of these obligations, resulting in unfunded liabilities of $27 billion and $71 billion, respectively).   

The lower rate would also increase the Annual Required Contribution by an estimated 33% to $1.45 billion, a $350 million increase from the current level of $1.1 billion.  The increased contribution would chew up 27% of the General Fund, up from the current level of 20%.  This compares to 10% in 2005 when Antonio Villaraigosa became our mayor. 

The City’s pension plans have generated considerable controversy over the last decade as they have devoured an ever increasing share of the budget, crowding out other pressing needs such as increased public safety; the repair of our streets, sidewalks, and parks; and affordable housing and homelessness.  And even with the new tiers that were established for recently hired sworn and civilian workers, the pension plans will continue to consume a disproportionate chunk of the City’s budget as they rely on the overly optimistic rate of return of 7.5%.  

One of the key recommendations of the LA 2020 Commission was to “establish a Commission on Retirement Security to review the City’s retirement obligations in order to promote an accurate understanding of the facts.”  But this call for action has not seen the light of day as City Council President Herb Wesson, an original sponsor of the LA 2020 Commission and a smiling participant in the press conferences, has buried it deep in the bowels of City Hall. 

Governor Brown, CalPERS, and the $188 billion California State Teachers Retirement System have taken meaningful steps to address the State’s underfunded pension plans and the ever increasing contributions required by state and local governments.  Now is time for the City of Los Angeles to come clean about the facts surrounding its severely underfunded pension plans and develop “concrete recommendations to achieve equilibrium on retirement costs by 2020.”

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

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CityWatch

Vol 13 Issue 94

Pub: Nov 20, 2015

LA WATCHDOG--“The power to rezone is the power to create great wealth and using that power wrongfully is just as bad as stealing public money.” 

This comment by Superior Court Judge Pearce Young in the 1969 sentencing of Los Angeles City Councilman Thomas Shepard on his conviction for bribery in connection with rezoning of land in the San Fernando Valley still appears to be the operative as members of the City Council have no problem granting special favors in return for campaign contributions and other monetary favors. 

Earlier this year, Mayor Eric Garcetti, the Planning and Land Use Management Committee led by Jose Huizar and Mitch Englander, and the Herb Wesson led City Council approved a 27 story luxury high rise in Koreatown.  This political action overturned the unanimous decision of the City Planning Commission to reject this oversized development because it was not compatible with this low rise, densely populated, lower income neighborhood that just happened to be located in Herb Wesson’s Council District. 

This zoning change will provide the Beverly Hills developer, Michael Hakim, with a windfall profit estimated to be in the range of $15 to $20 million.  In return, Hakim will “contribute” $1,000,000 to the City’s Affordable Housing Trust Fund and $250,000 to a Community Benefits Trust Fund, both of which are controlled by Council President Herb Wesson. 

In February of 2013, Wesson orchestrated a $1 a year lease with the Korean American Museum for a 24,540 square foot parking lot on the southwest corner of Vermont and 6^th Street.  This property had been appraised for more than $8 million.  This coincided with several generous contributions to Wesson’s “Yes on Proposition A” slush fund that promoted the permanent half cent increase in our sales tax.  This measure was rejected by 55% of the voters in March of 2013. 

In June of 2015, Wesson introduced a motion that would authorize the Korean American Museum to expand its development from a three story, 45,000 square foot museum to a seven story, 85,000 square foot building consisting of a two story, 28,375 square foot museum and five stories consisting of over 100 market rate apartments. 

While Wesson hailed this as a “creative partnership,” there is an unpleasant aroma surrounding this deal involving a bargain basement long term lease for a very valuable City property to a nonprofit museum that is engaging in a for profit residential development. 

In 2011, just down the street at Vermont and Wilshire, Wesson arranged for $17.5 million in loans from the City and the Community Redevelopment Agency to J.H. Snyder Company, a well-heeled, successful developer, to help finance its $200 million apartment and retail complex.  In less than three years from the date of the loans, Snyder flipped the two towers, pocketing a profit in the range of $75 to $100 million.  This raises the question as to whether these loans were necessary, other to augment Snyder’s return on its equity investment that is estimated to be in excess of 100%.   

Snyder’s strong relationship with Wesson and his reputation as a successful developer allowed him to take over the failed development of the CRA controlled property at 1601 North Vine, strategically located between Sunset and Hollywood Boulevards.  This deal allows Snyder to buy this 18,208 square foot lot that is permitted for an eight story, 124,000 square foot office building for the bargain basement price of $825,000.  This is considerably less than the City’s cost of $6.5 million.  

Of course, it does not hurt Snyder was a generous contributor to the Wesson’s “Yes on Proposition A” slush fund as well as many other local campaigns. 

The power to rezone properties on a spot basis is poor public policy because residents and their neighborhoods are subject to the whims of the City Council who, despite their protests that they are representing our best interests, are heavily influenced by real estate developers, their lawyers and lobbyists, and their wads of cash.  All we need to do is look at the overdevelopment in Hollywood, DTLA, the Westside, and the Valley that is clogging our streets and making our lives miserable.  

The lack of trust in the Herb Wesson led City Council will result in voters approving “The Neighborhood Integrity Initiative,” a proposed ballot measure that will limit the powers of the City Council to spot zone for the benefit of the campaign funding real estate developers.  

More later on this long overdue ballot measure!  

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

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CityWatch

Vol 13 Issue 93

Pub: Nov 17, 2015

LA WATCHDOG--City Council President Herb Wesson likens the Los Angeles’ bid to be the Host City for the 2024 Summer Olympics as the “engagement.  It is not the wedding.  And now it’s time to work on the pre-nup.” 

But it is also reminiscent of the family that decides to have their daughter’s wedding at home to save money, but ends up taking out a third mortgage to finance the wedding and the sprucing up of their house. 

The Los Angeles 2024 Bid Committee and its supporters in City Hall tell us that the Olympics will generate a profit of over $150 million on revenue of almost $5 billion. 

This “conservative” profit projection also includes a contingency fee of $400 million as well as a payment to the City of $200 million to reimburse it for expenses such as police, fire, and traffic control. 

But this projection does not include any funds for over $2 billion of capital expenditures needed to construct the Olympic Village and the International Media Center and to renovate the Memorial Coliseum and other sporting venues. This amount may be short by a $1 to $2 billion as the cost for the Olympic Village may be seriously understated according to Zev Yaroslavsky, the former County Supervisor and City Councilman who is respected for his long record of fiscal responsibility. 

The City will also use the Olympics as a reason to “accelerate” spending on selected infrastructure projects, including extending the Purple Line to Century City and UCLA by 2024 and completing the revitalization of the Los Angeles River, Mayor Garcetti’s pet project. 

While this multibillion dollar construction boom will fuel our local economy, at least temporarily, the City may be on the hook for billions as a result of its agreement to indemnify the International Olympic Committee against any losses. 

For example, if the City was responsible for a $1 billion shortfall, Angelenos would be tagged for $130 million a year for the next ten years.  This would require about a 3% increase in our real estate taxes ($130 for the average home valued at $500,000).  Alternatively, the City could propose to slap us with a parcel tax ($160) or a quarter of a cent increase in our sales tax. 

But why should the Angelenos absorb 100% of the potential losses while 6 million other County residents derive significant benefits from the Olympics?  And why should Angelenos absorb 100% of the risk when any profits would benefit the State’s eight southernmost counties as is the case with LA84 Foundation? And why should the City take on this financial obligation when it cannot eliminate its Structural Deficit, balance its budget, or repair and maintain our lunar cratered streets?  

If the County of Los Angeles were to protect the IOC from a $1 billion loss, Angelenos tax liability would drop by 60%, where the average homeowner’s liability would be decreased to $50, down from $130 a year. 

Mayor Eric Garcetti and City Council President Herb Wesson are eloquent in promoting the City’s bid to be the Host City for the 2024 Summer Olympics. Unfortunately, the City’s track record does not inspire confidence.  

Rather than going it alone, the City should team up with the more efficient and fiscally responsible County.  And while that may limit Eric and Herb’s bragging rights, Angelenos will sleep better knowing that the County is working with the City to oversee the finances and operations of the 2024 Summer Olympics. 

And even though 80% of Angelenos support hosting the Olympics, we still have our doubts when it comes to footing the bill for potential losses. 

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

-cw

CityWatch

Vol 13 Issue 92

Pub: Nov 13, 2015

LA WATCHDOG--In 368 days, we will be voting for the next President of the United States.  In very blue California, the outcome is not in doubt.  Nor is the party of our next US Senator.  

On the other hand, the statewide ballot measures will be a donnybrook as special interests with wads of campaign cash are looking to raid our wallets and to prevent citizens from authorizing the issuance of billions in debt on major public works projects. 

The educational establishment, the teachers’ unions, and the building industry have placed a $9 billion general obligation school bond measure on the ballot.  This will end up costing taxpayers an average of $500 million a year for the next 35 years, a total of $17.6 billion, including $8.6 billion in interest.  The proceeds from these bonds will be used for new construction ($3 billion), modernization of K-12 public school facilities ($3 billion), charter schools ($1 billion), and California Community Colleges ($1 billion). 

The “No Blank Checks Initiative” has also qualified for the ballot.  This measure would require a public vote to approve any revenue bonds on state projects that exceed $2 billion.  Unlike general obligation bonds that are serviced with our tax dollars, revenue bonds rely on the cash flow of the particular project which, in turn, relies on the fees paid by the citizens using the services of the particular project.  

The provisions of this constitutional amendment would apply to Governor Brown’s two legacy pet projects, the $68 billion High Speed Rail boondoggle connecting Los Angeles and San Francisco and the $15 billion Twin Tunnels that will convey hundreds of billions of gallons of water every year from the Sacramento River to the California Aqueduct that serves Southern California and to farms in the Central Valley.     

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While No Blank Checks only qualified for the ballot on November 2, the political establishment and business and labor groups are already trashing this initiative that will limit their ability to pick the pockets of the citizens of California unless they have our approval. The opposition to this citizen empowering amendment will no doubt devote huge resources to defeat this measure sponsored by Dean Cortopassi, a Stockton based farmer who opposes the Twin Tunnels. 

We can also expect several other tax measures on the ballot, including efforts by the public sector unions to extend or make permanent the temporary tax increases imposed by Proposition 30 that was approved by 55% of the voters in November of 2012.  This measure increased our sales tax by a quarter of a cent until December 31, 2018 and the marginal tax rate on higher incomes ($250,00 and up) until December 31, 2016.  

Alternatively, State Senator Bob Hertzberg (D-Van Nuys) is considering a proposal to extend the sales tax to include services in order to smooth out the revenue swings of our boom or bust tax system that relies heavily on upper income residents and a good stock market.  But under the guise of reform, Hertzberg wants to raise $10 billion in additional revenue for the State.  Otherwise, to use the $10 Billion Man’s own words, “it’s not worth the effort.”  

But that’s not all folks!!!! 

There is also an effort to increase our gas tax to fund the $59 billion repair bill for our highways as designated funds were diverted by our free spending Legislature to pay for ever increasing personnel costs, including ballooning pension contributions. 

Other political insiders and union leaders are pushing for a “Split Roll” ballot measure where Proposition 13 would not apply to commercial properties, raising an estimated $9 billion for local governments. Of course, these proponents will fail to mention that these additional taxes will be passed along to us through higher prices for goods and services.  

In Los Angeles County, Metro and the Board of Supervisors are preparing to place on the ballot yet another half cent increase in our sales tax to pay for transportation projects.  Mayor Garcetti has endorsed this tax increase, in large part because the Local Return provision will kick back 25% of the tax revenue to our profligate City which, despite huge increases in tax revenues, still has not eliminated its Structural Deficit or made an effort to Live Within Its Means. 

Prepare for barrage of propaganda and a heavily financed assault on our wallets by the fiscally irresponsible politicians, the public sector unions, self-serving special interests, and their ring kissing cronies.  But until the City, County, and State reform their finances and inefficient operations, we need to reject their efforts to pick our pockets.  

After all, we are already one the highest taxed states in the nation, right up there with financial basket cases like New York, New Jersey, and Connecticut.  

We are not striving to be Number One.  Just Say No.  

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

-cw

CityWatch

Vol 13 Issue 90

Pub: Nov 6, 2015

LA WATCHDOG-“Public, Private Sector Wage Gap Heavily Favors Many LA Workers,” a front page article in Sunday’s Los Angeles Times, marks the beginning of the conversation involving the efficiency of the City’s operations and whether the City should “outsource” a portion of its operations, including the repair and maintenance of our deteriorating streets and broken sidewalks. 

In their 1,300 word article, Peter Jamison and Catherine Saillant detailed how many city workers earn considerably more than their private sector counterparts, with premiums ranging from 40% to over 100%.  

City workers are also entitled to very hefty benefits that far exceed those in the private sector, including a Cadillac healthcare plan, a generous defined benefit pension plan, ample vacation time, 13 paid holidays, and 12 sick days at full pay.   

The City’s operations also appear to be poorly managed, hindered by the lack of management information systems as was detailed in Controller Ron Galperin’s audit of the Bureau of Street Services.  As a result, the Bureau does not have a very good grasp of its performance metrics and overall operation.  

Galperin also revealed that the Bureau has very low direct labor utilization rates (57%) which results in the overstaffing of its work crews.    

The City’s cost structure is also burdened by a bloated, paper pushing bureaucracy which results in excessive department overheads.  This is compounded by unsupported allocations for centralized services and City Hall administrative expenses that are needed, in part, to handle the disruptive interference from members of the City Council, their staffs, and their favor seeking cronies. 

Our cash strapped City can no longer support these inefficient operations that are crowding out the City’s ability to provide basic core services such as the repair and maintenance of streets and sidewalks and the enforcement of traffic laws, planning and zoning rules, building and safety regulations, and local zoning ordinances, all of which impact our quality of life.     

As a first step, the City needs to determine the efficiency of its departments by benchmarking their operations against other governmental entities and private enterprise. While this may be a novel experience for the City, it is standard operating procedure in the private sector.  

The City should also implement a policy of “managed competition” where the City contracts with private contractors for a portion of the work and compares the results with those of City work crews.  

The Department of Water and Power had such a policy to replace selected water mains.  This resulted in a DWP construction work crew incurring 100% cost overruns while at the same time blowing its deadlines.  The private contractors were, for the most part, on time and on budget.  

The City should also consider implementing performance based evaluations of its employees while lessening the importance of seniority.  This would provide the City with considerably more operational flexibility to lower its costs and deliver a finished product on time and on budget.  

Together, these three reforms, benchmarking, managed competition, and performance based personnel evaluations, would result in significant savings, freeing up to $200 million (less than 10% of the civilian personnel costs) that would be devoted to eliminating the Structural Deficit, repairing and maintaining our streets and sidewalks, and restoring vital city services that are essential to our quality of life. 

Unfortunately, the Herb Wesson led City Council will reject these reforms because it does not have the courage to stand up to the campaign funding City unions.  Its solution is to continue to play games with the budget by raiding the Reserve Fund and deferring needed expenditures.  At the same time, they are concocting a plan to persuade the City’s skeptical voters to approve a massive increase in our taxes.  

But this rope-a-dope strategy of prioritizing their own personal political goals at our expense is not going to fly as the voters will demand work place and budget reform.  Maybe it is time that City Hall took the advice of former New York Governor Mario Cuomo: 

“It is not government’s obligation to provide services, but to see that they are provided.”

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

CityWatch

Vol 13 Issue 36

Pub: May 1, 2015

LA WATCHDOG-Comcast’s decision to terminate its $45 billion acquisition of Time Warner Cable may be good news for the 3.5 million Southern Californian households that have been deprived of the right to watch the Dodgers from the comfort of their own homes.  

Underlying this blackout of 70% of the market is the unwillingness of DirecTV, Charter, Cox, and other cable companies to pass along the $5 a month subscriber fee associated with TWC’s over-the-top offer to pay the Dodgers $8.35 billion over the next 25 years to distribute SportsNet LA, the Dodgers regional sports network.  Assuming five million subscribers, the public would eventually be tagged for $600 million a year when you factor in the 100% markup that is needed to preserve the distributors’ 50% gross profit margin.  

TWC has been reluctant to lower its price per subscriber because it may trigger a substantial write-off of its investment, probably in the range of $500 million to $1 billion. But TWC has been concerned that this sizeable hit to its financials would have an adverse impact on the market’s perception of its proposed deal with Comcast. 

But now that the deal with Comcast is history due to the opposition of the Federal Government, TWC is in a position where it can write-off not only its costs associated with the failed merger (probably in excess of $100 million), but a portion of the Dodger contract associated with a lower subscriber fee, probably in the range of $1 to $2 per subscriber, or $500 million to $1 billion. 

This write-off, while substantial, represents at most 2% of TWC’s $45 billion market value.  Furthermore, sophisticated investors, including Charter Communications which is interested in buying TWC, will see through the smoke and value the Dodger contract based on more rational assumptions. 

Consequently, it would be in everyone’s best interest for TWC to lower its price to around $3 a subscriber.  Unfortunately, life has become more complicated since early in 2013 when TWC inked its deal with the Dodgers. 

According to several newspaper accounts, the independent distributors may be trying to offset some of the high costs and low ratings associated with the TWC’s 20 year, $3 billion contract with the Lakers by lowering the subscriber fees for the Dodgers.  There may also be efforts to tie the fees of both the Dodgers and Lakers to their performance, thereby increasing TWC’s risk profile. 

The cable and satellite companies are also experiencing the increasing loss of subscribers as consumers are “cutting the cord,” embracing streaming services such as Netflix and Amazon in an attempt to lower their overhead.  This is forcing the distributors to become more cost conscious as can be seen by their reluctance to overpay for the Dodgers.

There is also considerable pressure for distributors to “unbundle” their basic offering which would allow consumers to choose channels on an a la carte basis. This is particularly true of the sports related offerings which comprise an estimated 50% of the cost of the basic cable TV package, but are only viewed by only 25% of the subscribers. 

This effort to “slim” down the basic offering is playing out in a lawsuit as Verizon, the sixth largest pay TV provider, is attempting to offer a basic package without ESPN, contrary to its contractual arrangement with the channel.  As a matter of interest, ESPN, along with its affiliated offerings that are forced upon the distributors, is by far and away the most expensive network.  

TWC is in an interesting predicament of its own making.  

Does it continue to lose $100 to $200 million a year by holding out for a $5 subscriber fee or does it take the $1 billion hit to its financials, recognizing that in its exuberance that it overpaid big time for the Dodgers’ media rights, cut its losses, and lower the subscriber fee to $3? 

If it is worried about its reputation, it is time for Time Warner Cable to take the hit for the home team.  It is time for Dodger baseball. 

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

CityWatch

Vol 13 Issue 35

Pub: Apr 28, 2015

LA WATCHDOG-We are entering the Silly Season of LA politics as the candidates for the open City Council seats are promising paved streets, level sidewalks, pension reform, a more efficient work force, restored services, development that is respectful of our neighborhoods, less traffic congestion, lower parking fines, affordable housing, housing for the homeless, a revitalized Los Angeles River, and the phase out of the gross receipts business tax, all without raising our taxes. 

These campaign pledges are nothing but hot air unless the City is able to fund its existing operations and these ambitious programs.  

However, this gives us the opportunity to ask the candidates a series of very simple questions about how they propose to eliminate the City’s projected budget deficits and its $25 to $30 billion mountain of unfunded pension liabilities, deferred maintenance, and existing long term debt. 

For openers, how do you intend to eliminate next year’s projected budget deficit of $165 million and the $425 million cumulative deficit over the next three years? 

The City Administrative Officer is projecting a budget surplus of $24 million for the 2018-19 fiscal year.  It assumes that there will be no raises or cost of living adjustments for City employees and that civilian workers will contribute 10% towards the cost of the City sponsored health plan.  Do you support these assumptions? 

Do you support the unanimous recommendation of the LA 2020 Commission to establish an Office of Transparency and Accountability to oversee the City’s finances? 

How do you propose to pay for the repair and maintenance of our streets and sidewalks? 

Do you support the LA 2020 Commission’s proposal to form a Committee on Retirement Security that will report its recommendations on how to “achieve equilibrium on retirement costs by 2020” within 120 days? 

Do you support the City’s creation of the new tier of pension benefits for new civilian employees even though the Employee Relations Board questioned its legality?  

What are your plans for pension reform?  

Do you believe that the City’s pension plans should be fully funded within 20 years?  

Do you support the proposal that would allow the City to amend future benefits for existing workers as was supported by San Jose Mayor Chuck Reed? 

Do you support the recent lowering of the investment rate assumption by the City’s two pension plans to 7½% even though it increased the City’s annual required contribution?  

Under what conditions would you support the lowering of the investment rate assumption to 6½%, a benchmark recommended by Warren Buffett of Berkshire Hathaway fame and fortune? 

How do you propose to finance the Mayor Garcetti’s plans for the Los Angeles River, Great Streets, and Sustainability? 

Mayor Garcetti pledged to phase out the $470 million gross receipts business tax? How would you replace the lost revenue? 

Do you support the “benchmarking” of City services to determine their effectiveness and efficiency?  And under what conditions would you support the contracting out of City services?  

Do you support transparent labor negotiations where all proposals and offers must be disclosed within 24 hours and that any proposed agreement be reviewed and analyzed by an independent third party prior to being approved by the City Council? 

Under what conditions would you support a half cent increase in our sales tax to fund the restoration of City services? 

Finally, do you support placing a measure on the ballot where voters would have the opportunity to accept or reject an amendment to reform our charter that would require the City to develop and adhere to a long term financial plan, pass two year balanced budgets based on Generally Accepted Accounting Principles, and, over the next twenty years, fully fund the City’s two pension plans and repair and maintain our streets, sidewalks, and the rest of our infrastructure? 

We deserve detailed written answers to all of these basic questions on how the candidates propose to eliminate the sea of red ink and reduce the $25 to $30 billion of liabilities that the current City Council is dumping on the next generation of Angelenos because of its inaction and its unwillingness to make tough decisions.  

Come to think of it, we should demand that Mayor Eric Garcetti, Council President Herb Wesson, Budget and Finance Chair Paul Krekorian, and all of the other members of the “kick the can down the road” City Council provide us with written answers to these questions. 

After all, it is not only our money they are squandering, but the future of our children and grandchildren. 

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

CityWatch

Vol 13 Issue 2

Repub: Jan 6, 2015

LA WATCHDOG - (Editor’s Note: In light of the online Bloomberg news report on Tuesday, it seemed appropriate to revisit this Jack Humphreville LA Watchdog column from 2009 on the same subject … proving Jack is ahead of his time.)

Why is the City Council hell bent on approving the huge five year wage package for IBEW workers at the Department of Water and Power without adequate hearings and transparency?

LA WATCHDOG - Over the last six years, Los Angeles City payroll and related benefits have increased by $720 million, a 24% bump, as average salaries have increased to $82,000 a year, not including very generous benefits. And contributions to the City’s two pension plans have increased by $540 million (over 150%) as pension liabilities ballooned by almost $10 billion, a 40% increase.

So what is the source of all the cash that is needed to fund these out of control personnel costs?

One source of ready cash was the money needed to maintain and repair our infrastructure: our streets and bridges (ranked the worst in the nation), sidewalks, parks, stormwater drains, street lights, and buildings.  The City has also short changed its motor vehicle fleet such as police cars, fire engines, and garbage trucks and has neglected to modernize our Stone Age computer systems and hardware.

LA WATCHDOG - Hallelujah.  We have a Ratepayers Advocate.

But now the heavy lifting begins as the newly appointed Ratepayers Advocate, Dr. Frederick H. Pickel, must review and analyze the proposed three year increases of 22% and 25% in our water and power rates, respectively.And it appears we have a winner in Dr. Pickel, the unanimous selection of the Citizens Committee.  

Beginning in early December, this volunteer Committee, along with Heather Renschler of the executive search firm of Ralph Anderson & Associates, did yeoman’s work, screening over 60 qualifying resumes and conducting two rounds of in person interviews, including the final in depth interviews that required the four finalists to review and analyze reams of information about our Department of Water and Power and the proposed rate increases.

LA'S BUDGET CRISIS - The Mayor and his staff have developed a very good Budget Survey that addresses the issues and choices concerning next year’s budget deficit that is estimated by the City Administrative Officer to be in the range of $200 million to $250 million.

The survey questions involve Budget Priorities, Potential Service Reductions, a Sustainable Workforce, Revenue Opportunities, Public Private Partnerships, and Improved Financial Management Tools. There is also the opportunity to provide ample comment.

LA’S BUDGET CRISIS - The Mayor wants your thoughts on how to close next year’s budget deficit that is expected to be over $200 million in the red.

LA WATCHDOG - IF the proposed $254 million Transfer Fee from the Power System of the Department of Water and Power to the City’s General Fund is not permitted pursuant to the recently passed Proposition 26 (Super Majority Vote Required to Pass New Taxes and Fees Act), then the City’s projected deficit for the fiscal year beginning July 1, 2011 will soar to $712 million, a 55% increase over the current projection of $458 million.  (Link)

The less than transparent Transfer Fee, equal to 8% of the Power System’s prior year retail revenues, is one of the largest sources of cash for the City’s General Fund, representing 5.8% of the $4.38 billion of General Receipts. The Transfer Fee is typically paid in four installments, beginning in March when about 60% is put on the Money Train to City Hall.

However, the Transfer Fee may be illegal based on the provisions of Proposition 26 which was passed by 53% of the voters in November 2010.  Prop 26 requires a two-thirds vote of the electorate to pass fees that are not related to the actual costs of the services provided.

As a result, on February 4, the City of Redding was sued in Superior Court to prevent the Redding Electric Utility, a city department like DWP, from imposing a “Payment In-Lieu of Taxes” of almost $6 million on the Ratepayers. 

LA’s General Fund loss of the $254 million Transfer Fee from the DWP Power System will throw a monkey wrench into the current budget negotiations. 

As it is, the City is having a difficult time closing the projected $458 million General Fund Deficit, relying on yet to be negotiated savings from the most sacred of all cows, the Police Department and its very police protective league, the Fire Department and its obstreperous union, and the unionized Civilian Workforce.  There are also over $100 million of “Reductions and Efficiencies” which need to be implemented.

There are also a few more gimmicks that involve dumping unfunded mandates on Special Revenue departments and issuing commercial paper to pay off existing Convention Center debt and to fund pension fund payments related to the fiscally irresponsible Early Retirement Inventive Plan that added over $200 million to the unfunded pension liability of the 60% funded Los Angeles City Employee Retirement System. 

This is the equivalent of paying your second or third mortgage with a credit card that has a low teaser rate.

And remember, the current budget does not provide for the adequate repair and maintenance of our infrastructure (such as our lunar crater streets, sidewalks, and parks) or the proper funding of the $11.7 billion unfunded pension liability, including about $6 billion of the 68% funded Fire and Police Pension Plans. 

And these “devastating” reductions do not even address the projected deficit of $281 million for the following fiscal year beginning July 1, 2012. 

Needless to say, The Mayor Who Broke LA will go into high gear, denouncing Prop 26 and saying it does not apply to the 8% Transfer Fee.  But that will be for the courts to decide. 

In the meantime, the municipal bond investment community, including the influential credit rating agencies, will be making their own judgments on the merits of the City’s June offering of Tax and Revenue Anticipation Notes that are required to fund the City’s operations for the first half of the fiscal year. 

But who would buy the very risky Tax and Revenue Anticipation Notes?

Individual retail investors who are focused on the preservation of capital would pass because of the high level of risk.

The most likely buyers would be large mutual funds who are stretching for yield. But these are the same mutual funds that conservative investors buy. But who are these mutual funds that are rolling the dice with investor money?  More than likely the large mutual fund complexes and banks such as Fidelity, Vanguard, Wells Fargo, T Rowe Price, Bank of America, JP Morgan, Merrill Lynch, Schwab, Northern Trust, and a host of other gambling investment funds.

But even if the yield hogs invested in this highly speculative junk paper, they would focus on the shorter maturities that mature within seven months, not like the current issue that has maturities of over $600 million in May and June.

To insure a successful offering of Notes that will provide the cash to fund the City’s operations, the City needs to address the $712 million budget deficit in a manner that is acceptable to the investment community.  And the City needs to brace itself for very high interest rates.  Otherwise, the City will run out of cash.

One alternative is for the City to ask the voters to approve the 8% Transfer Fee.  But what is the likelihood that voters would approve such a tax or a fee given the electorate’s lack of trust and confidence in the Mayor, City Hall, and the campaign funding leadership of City’s unions?

At the same time, DWP, which has its own set of trust issues, is asking for another significant increase in our water and power base rates.

But if our Elected Elite placed the 8% Transfer Fee on the ballot, what would the Citizens of Los Angeles demand in return?

The City must address the need for true structural reform, including the development and implementation of a long term solvency plan that addresses the repair of our infrastructure; true pension reform as suggested by The Little Hoover Commission; work place reform that focuses on the efficient delivery of core services and the rationalization of the compensation, benefit, and seniority arrangements; and a complete reform of the collective bargaining process.

As an incentive to Ratepayers, the Transfer Fee also needs to be restructured whereby the transfer is equal to 5% of the Power System’s revenues, provided that it is not lower than the current level of $254 million, adjusted for inflation. 

The City must also establish a Citizens Advocate, consisting of non political independent grownups, which has the right to review and oversee the operations and finances of the City and its related entities, not dissimilar to the New York City’s Emergency Financial Control Board that was established in 1975 when the Big Apple almost tanked. 

While the loss of the $254 million Transfer Fee has draconian implications, it will force our Mayor Villaraigosa, Controller Wendy Greuel, City Council President Eric Garcetti and the rest of our Elected Elite to address its structural deficit and make the necessary and reasonable financial and work place reforms that will be demanded by the electorate. 

And who knows, the inability of DWP to put the Transfer Fee on the Money Train to City Hall may offset the proposed increase in our electricity rates. 

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





CityWatch
Vol 9 Issue 38
Pub: May 13, 2011

CITY HALL MEMO: GARAGE SALE IS ON AGAIN? - In February, the City Council voted unanimously to kill the fiscally irresponsible fire sale of nine of the City’s parking garages and their over 8,200 parking spaces. This was contrary to the consequences-be-damned Mayor’s strong support of the sale, otherwise known as the Public Private Partnership. (Link)

But once again, the issue of the sale of our parking garages has surfaced as the result of inquiries from fee grubbing investment banks and private equity firms trying to take advantage of the City’s financial distress by offering our Elected Elite upfront cash, cash being the most powerful aphrodisiac known to politicians.

In a May 4 Inter-Departmental memo (see below) to the Budget and Finance Committee of the City Council, Miguel Santana, the City Administrative Officer, indicated that his office had received several “unsolicited offers” with respect to the nine parking garages.

These offers included a proposal to sell the parking garages for an upfront payment of over $200 million, similar to the proposals that were rejected by the City Council.  There are also convoluted Lease-Leaseback transactions that involve considerable financial engineering.  But again, they all appear to involve upfront cash in return for the ability to operate the parking garages.

But such offers are hardly unsolicited.  More than likely, there have been many back channel, off the record, not for attribution, back and forth conversations involving investment bankers, lawyers, consultants, city officials, Council Members, the Mayor, and their staffs and campaign consultants.

Santana also suggested that the City consider a management contract with an experienced private company to operate and manage the garages, accompanied by an upfront payment to pay off the parking related debt and upgrade the systems and technology.

As part of his recommendation, the City Administrative Officer suggested that the City Council address this issue in a CLOSED SESSION, in part because one the investment banks believed its offer contained proprietary and confidential information.

But closed sessions are totally unacceptable to the public, in large part because Angelenos do not trust City Hall to do what is in the best interests of the City or the impacted communities such as Hollywood, Downtown, and Westwood. 

However, since February, there has been considerable progress, especially as it relates to including the local impacted communities in the discussions and decision making.

In Westwood, there have been constructive conversations between the Westwood community and its Council Member, Paul Koretz, to develop a “fair and productive parking rate plan and parking district.”  It also includes the possible introduction of diagonal parking. 

And according to Eric Garcetti, Hollywood is working on the idea of a parking district.

Garcetti also indicated that a transaction involving the parking garages is not true structural reform, but rather a “short-sighted, one-off idea” that is not in the best interests of our neighborhoods.

As we have recommended in the past, the City should retain an experienced and well capitalized management company to oversee the management of the parking garages; assist in the collection of the 10% Parking Tax from private operators; develop an operating, rate, technology, and capital investment plan for each facility; and assist in the refinancing of the garages and the Parking Fund.

This concept should also be expanded to include the City’s 38,000 on-street parking meters. (Link)

And most importantly, there should be no more closed sessions.  We need an open and transparent process where the impacted communities and other citizens groups are intimately involved in the development of local plans for both the parking garages and on-street parking. 

As for the memo to the Budget and Finance Committee, the City Council spoke in February against the fire sale of our parking garages.  As such, the City Administrative Officer should dismiss these vulture investors and investment bankers and focus on working with the local communities to develop viable parking strategies and alternatives.    

May 4, 2011
To:       Budget and Finance Committee
From:   Miguel A. Santana, City Administrative Officer

Subject: PARKING ASSET OPTIONS

Since the Council took action to terminate the Public-Private Partnership (P3) for certain City parking structures in February 2011, this Office has received several unsolicited offers with respect to these assets. The following is a summary of those proposals.

Public-Private Partnership (P3) for Parking Revenue to City: over $200 million

We received a proposal from an investment bank offering an upfront payment of over $200 million in exchange for a long-term concession and lease agreement for the nine parking structures previously contemplated under the P3 parking project. The bank, in partnership with an experienced operator, would assume management and operation of the facilities, including technological and capital investments for a period of 50 years.

The City Attorney has advised that we cannot release the offer, absent explicit consent by the proposer, because the proposer has requested that it be kept proprietary and confidential. The proposer seeks to maintain its competitive position by keeping the offer confidential. If the Council wants to pursue further, instructions must be provided to schedule this item for closed session so the Council can provide this Office with negotiation instructions.

Lease-Leaseback Revenue to City: TBD

We received two offers for a lease-leaseback transaction. One proposal by an investment firm in partnership with an experienced operator specified a term of 20 to 35 years and provided that the City would retain operational control, including rate setting authority and usage. The firm would make an upfront lease payment in exchange for annual lease payments by City over the term of the agreement. The City would retain revenues in excess ·of lease payments.

The second proposal by an infrastructure firm specified a term of 15 to 30 years and provides that the firm purchases the buildings, but the City retains ownership of the land, with the title reverting to the City at the end of the term. The firm would lease the facility back to the City based on tax-exempt bond rates.

Lease-Leaseback Alternative Revenue to City: TBD

We received another offer for a transaction similar to a lease-leaseback transaction wherein the firm would pay the City an up-front inducement fee structured as debt and the City would make payment to the firm for management fees and debt service over a 25 year term. Revenues would be split 95 percent to the City, 5 percent to the firm. An experienced operator would be retained to manage and operate the structures.

The issue of currently outstanding debt and associated restrictions would need to be taken into consideration and may present obstacles that cannot be satisfactorily mitigated by some of these proposed transactions. Additional discussions would be needed to explore and further refine the terms and conditions of these proposed transactions, if the Council wishes to further pursue these offers. These offers would also be subject to a competitive bid process.

Management Contract Revenue to City: TBD

Another option would be a management contract for the City's parking structures. The City would contract with a Private Parking Operator to operate and manage all of the City's parking structures with either an upfront payment to payoff the debt, revenue sharing or a combination of both. Also contemplated is having this Operator upgrade the capital equipment with more efficient payment technology to reduce costs and increase revenue collection. This contract could also include meters and/or parking lots.

FISCAL IMPACT STATEMENT

Additional investigation and negotiations would be required in order to further assess the financial impacts of these offers.

RECOMMENDATIONS

If the Council determines that one of these proposals aligns with the Council's goals for optimizing the City's parking structures, direct the City Clerk to schedule a closed session hearing so that Council can provide the City Administrative Officer negotiation instructions.

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




CityWatch
Vol 9 Issue 37
Pub: May 10, 2011

DODGER DOLLAR DILEMMA - The Dodgers once again do not have enough money to meet their $8.25 million payroll at the end of May, according to Bill Shaikin of The Los Angeles Times, the leading voice on the financial woes of the Dodgers and their beleaguered 50% owner, Frank McCourt, the “irresponsible” Boston Parking Lot Attendant. (Link)

This crunch is after Frank borrowed $30 million from Fox Sports last month to meet the two April payrolls and the first payroll in May. The Fox Sports loan was after his family’s Boston based business, McCourt Construction (www.McCourtConstruction.com), prudently refused to extend credit to its wayward son.

But why are the Dodgers short of cash, especially now that the season has started and the cash is rolling in from attendance, concessions, and parking? For the first 18 games, while attendance is down 15.5%, the 650,000 fans generated revenues in excess of $25 million.

There is a very simple answer.  Frank has squandered all of the money received in advance from the season ticket sales to pay interest and principal on over $425 million in debt and support his Big Dog lifestyle.  And more than likely, he has also spent any advances related to broadcast rights and advertising sales.

To give you an idea of how much money Frank blew, if the Dodgers sold 20,000 season tickets for 81 home games at $20 per game, the team would have received over $32 million before the start of spring training. 

The parking revenues are not available since they are already pledged to secure borrowings on the Chavez Ravine land, which borrowings were part of the over $100 million that Frank looted from the Dodgers.

But what is truly amazing is that Frank has the audacity to question why the Commissioner of Baseball inserted Tom Schieffer to monitor the business and financial affairs of the Dodgers and its related assets.

But there is some good news for Dodger fans.  Now that Frank has depleted the Dodgers’ treasury of money that it is needed to pay tomorrow’s payroll and expenses, money that it has not “earned,” this trustee of Georgetown University has demonstrated to the world that he is morally and fiscally bankrupt, does not deserve the trust of Major League Baseball, is “not in the best interest of the game,” and is unfit to own the City’s beloved Dodgers. 

But as Frank knows, life is full of second chances.  It is the American way. So if life gets really tough for The Boston Parking Lot Attendant, he can still hang out with the Big Dogs, parking their cars at Dodger Stadium, or even better, at Fenway Park.

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





CityWatch
Vol 9 Issue 36
Pub: May 6, 2011

DWP RATES ARE GOING UP BUT …  - At the Tuesday meeting of the Board of Commissioners of our Department of Water and Power, General Manager Ron Nichols informed the Board that the DWP intended to increase our water and power rates. 

According to the timetable, the unspecified rate increases would take effect in November, but only after a thorough public and transparent review that would begin May 23.  This would include “stakeholder workshops and briefings” as well as working with the City Council and its Energy and Environment Committee.

This public review will need to include a thorough analysis of the DWP’s Strategic Plan which calls for outlays of $60 billion over the next 10 years, $45 billion for the Power System and $15 billion for the Water System.  We will also need to get a better understanding of the Integrated Resources Plan and the Urban Water Management Plan and the impact on rates and the credit ratings of both the Water and Power Systems.

Ratepayers understand all too well that water and power rates are going to increase, in large part because of the call for renewable energy, the increased regulatory requirements, and the need to repair and maintain the DWP’s infrastructure.

At the same time, Ratepayers must be assured that their money is being used efficiently.  The recent announcement by General Manager Nichols that DWP is reducing operating costs by $440 million over the next three years is obviously a step in the right direction. 

But Ratepayers need further assurances.  DWP needs to benchmark its operations and compare them to other regional utilities, both investor and municipally owned, and to other comparable city workers.  And Ratepayers need to get a better understanding of the IBEW Labor Premium, estimated to be over $250 million a year.

We also need a better understanding of the relationship between the DWP and the City, the pricing of any services, and the impact of Proposition 26 that requires the two-thirds approval of the voters for certain fees and taxes. 

And, we also need a better understanding of the DWP’s pension plan and its unfunded liability.  While the actuarial unfunded liability is $1.6 billion (81% funded), the unfunded liability based on the market value of the assets is $2.6 billion (70% funded).  This assumes an Investment Rate Assumption of 7.75%, considerably higher than the 6% and 6.5% recommended by Warren Buffett and Wilshire Associates.

An integral part of the process will be the Energy and Environment Committee of the City Council.  Fortunately, the City Council has retained PA Consulting to provide an independent review of the proposed increases in our water and power rates.

PA Consulting is very familiar with DWP, having completed the Charter mandated Industrial, Economic, and Administrative Survey in February 2009.  More importantly, PA Consulting did a first class job in analyzing the Energy Cost Adjustment Factor in February 2010 and then working with the City Council throughout the Mayor induced ECAF Fiasco.

But where are the Ratepayer Advocate and the Office of Public Accountability?

On March 8, almost 80% of the voters approved Measure I that authorized the Office of Public Accountability and the Ratepayer Advocate, to be effective July 1.  But during the last two months, little progress has been made other than a six page memo dated April 25. Compare this to the three weeks that it took the City Council to approve Measure B, the $4 billion plus Solar Initiative boondoggle that was a payback to Union Bo$$ Brian D’Arcy, the campaign funding, public be damned business manager of the IBEW, the DWP’s domineering union.

This is the same Union Bo$$ D’Arcy who pressured the IBEW Eight (Garcetti, Hahn, Zine, Wesson, Alarcon, Reyes, Huizar, and LaBonge) to water down Measure I and veto the ballot measure that would have allowed the City Council to remove the DWP General Manager or any Commissioner with a two-thirds vote.

While DWP customers understand that rates are going to go up, the Ratepayer Advocate needs to represent the underrepresented and underfunded Ratepayers to make sure that their interests are duly considered and that they are not going to be shafted. 

On the other hand, environmentalists have well funded organizations that rake in hundreds of millions of dollars of year in revenue to employ their paid advocates.  And the IBEW is certainly well represented at City Hall, especially since the IBEW was the major contributor to Mayor Villaraigosa and Controller Wendy Greuel.

Before approving any rate increases, the Office of Public Accountability and the Ratepayer Advocate must be established in a proper manner so that they can duly represent the Ratepayers. The DWP needs the trust and confidence of the Ratepayers and all Angelenos.

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






CityWatch
Vol 9 Issue 36
Pub: May 6, 2011

DODGER DOG MOSTLY BALONEY - The impeding cash crisis of the Dodgers is avoidable according to Frank McCourt (“The Boston Parking Lot Attendant”) if only Bud Selig, the consensus building Commissioner of Baseball, would approve the Dodgers $3 billion, 17 year media rights deal with Fox Sports.  As part of this transaction, Fox Sports will advance the Dodgers $285 million, all of which Frank pledged to invest in the Dodgers.

But the Commissioner is right to defer judgment on the Fox Sports media rights deal until he has a better understanding of why there is a cash crisis. 

In his announcement appointing a Monitor to oversee the business and the finances of the Dodgers, the Commissioner said that his office “will continue its thorough investigation into the operations and finances of the Dodgers and related entities during the period of Mr. McCourt’s ownership.”

This investigation should include not only past dealings and promises, but detailed financial projections for the next five to ten years.  It should also include a thorough analysis of all the debt of the Dodgers and related entities, including those related to Chavez Ravine and the already pledged parking revenues.  This would include any debt and personal guarantees of the McCourt family and related entities, including the Los Angeles Marathon.  Such analysis would include the nature of the debt, the interest rates, the maturities, and any related covenants.

Needless to say, this investigation will be very revealing as to how Frank and Jamie essentially looted the Dodgers for over $100 million to support their billionaire life style, depriving the Dodgers of two or three key players.

The Commissioner would also be prudent to wait until the ownership of the Dodgers is settled, especially after the recent court decision that ruled that the agreement supporting Frank’s sole ownership claim was invalid.

The Commissioner also needs to get a better understanding of the rumored interest of the Internal Revenue Service in the tax returns of the Dodgers and the battling McCourts. 

The Commissioner must also analyze the media rights agreement and any other related agreements, such as Frank’s 35% interest in Fox’s Prime Ticket regional sports network.

Of particular interest is the use of the $285 million that Fox Sports is advancing to the Dodgers at the signing of the contract.  While Frank says that it will all be invested in the Dodgers, he has also said that this contract would pay for his divorce settlement with Jamie.  The rumored settlement of $150 million to $200 million is hardly an investment in the Dodgers.

This would essentially increase the Dodgers debt to around $600 million since this advance is the equivalent of debt.

Furthermore, the current lenders who are owed anywhere from $425 million to $500 million will have their hands out since their approval of the media rights deal is more than likely required, especially since the Dodgers are in default on their current indebtedness. 

And given the current banking environment and higher level of scrutiny by bank regulators, the existing lenders will more than likely require that a significant portion of the continuing media rights payments be directed towards repayment, not the team.

In addition, the Dodgers are Frank’s major source of cash.  And he needs this money to pay his high priced lawyers, to maintain his Big Dog lifestyle of multiple estates and private planes, and to repay any personal debts, such as the $30 million personal loan from Fox Sports which he used to meet payroll.

So, at the end of the day, how much is going to be invested in the Dodgers?  Not much.

Ever since the Commissioner announced that he was appointing an overseer of the Dodgers, Frank has suddenly become more visible and vocal, providing some great sound bites for the media, including that the Commissioner’s actions were un-American.  These comments, and those of Steve Soboroff who called the appointment of a Monitor “irresponsible,” only infuriated the Commissioner and a number of the owners.

But this past week, The Boston Parking Lot Attendant had gone to charm school, apologizing to the Dodger fans for his embarrassing behavior, saying in an interview with Bill Shaikin of The Los Angeles Times that he has learned his lesson and deserves a second chance. (Link) 

But that is all baloney. Frank will say anything to get his hands on the cash, regardless of the consequences.  This is not dissimilar to our corrupt Mayor Villaraigosa who has short changed the underfunded pension plans and failed to fund the maintenance and repair of our lunar crater streets.

Frank is not to be trusted.  The evidence is overwhelming: the Fox Sports media rights transaction, the $285 million advance, the $30 million personal loan where he failed to consult with the Commissioner, the looting of the Dodgers to support his billionaire life style, and his litigious and less than ethical business dealings back in Boston. And if that is not enough, just look at the way he treated Jamie, his wife of over 30 years and the mother of their four sons.

The Commissioner is right not to approve the Fox Sports media rights deal until he has a better understanding of The Boston Parking Lots Attendant’s long term operational and financial plans that provide for continuing investment in the team and a sizable investment of new equity to pay down debt and buy out either Jamie or Frank. 

The alternative is to encourage the sale of the Dodgers and their related assets to a well capitalized ownership group with a long term investment horizon that will be able to field a championship team and win back the support of the True Blue Dodger fans.

In the meantime, we are fortunate to have an experienced baseball and trustworthy executive as the Monitor to oversee the operations and finances of the Dodgers and protect the team and its fans from the un-American and irresponsible con artist from Boston.

(Jack Humphreville writes LA Watchdog for CityWatch He is the President of the DWP Advocacy Committee and the Ratepayer Advocate for the Greater Wilshire Neighborhood Council. Humphreville is the publisher of the Recycler -- www.recycler.com .   He can be reached at:    l[email protected])    -cw







CityWatch
Vol 9 Issue 35
Pub: May 3, 2011

LA WATCHDOG - Janice Hahn, a candidate for the Congressional seat recently vacated by Jane Harman, is not a friend of the Ratepayers of our Department of Water and Power. 

Just this last fall, Hahn was a member of the IBEW Eight (which includes LA City Councilmembers Wesson, Alarcon, Reyes, wannabe Controller Zine, Garcetti, and Huizar) that watered down the Ratepayers Advocate ballot measure in response to Union Bo$$ Brian D’Arcy’s fear of increased transparency and accountability in the operations and finances of DWP. 

Yet, during the citywide forums on the proposed ballot measures, Hahn supported the Ratepayers Advocate Term Sheet that called for a well funded, empowered, and truly independent Ratepayers Advocate to oversee the operations, finances, and management of DWP on a timely and continuous basis.

Hahn and the other members of the IBEW Eight also supported Mayor Villaraigosa and Union Bo$$ D’Arcy by voting not to place on the ballot a measure that would have permitted the City Council to remove the DWP General Manager or a Commissioner with a two-thirds vote.

In the spring of 2010, Hahn was closely involved in Mayor Villaraigosa’s effort to increase our electricity rates by a breath taking 28%. She and Alarcon were the only Council Members to vote against the City Council asserting jurisdiction over the DWP Board of Commissioners action to implement these massive rate increases. 

She and her co-conspirator Richard Alarcon, with the support of Mayor Villaraigosa, also introduced a poorly conceived motion that called for affirming the 28% increase and a “Compromise Plan” that would have increased the exposure of Ratepayers to the Energy Cost Adjustment Factor.  This motion received only two votes.

As a result, the Mayor created the ECAF Fiasco as he tried to extort the City Council into approving the 28% increase by threatening to withhold $73.5 million of the DWP transfer to the City’s cash starved General Fund.

In 2009, Hahn was also one of the leading proponents of Measure B, the Solar Initiative that was a payback to campaign funding Union Bo$$ D’Arcy, the public-be-damned business manager of the IBEW, the DWP’s dominant union. But the blonde Hahn was clueless as to the financial impact of this Solar Initiative on Ratepayers.

Hahn was also a leading proponent of the 2008 increases in our water and power base rates, once again not understanding the impact on ratepayers. She was a strong supporter of the Power System’s Rate Restructuring Plan and the Water System’s Shortage Year Water Rates, both of which resulted in huge increases in the bimonthly bills of homeowners.

Hahn has also demonstrated that she is unwilling to make the tough decisions that are needed to solve the City’s structural budget deficit.  While she is good at giving lip service to balancing the budget, she is unwilling to take the necessary actions out of fear of offending her campaign funding Partners in Labor, putting her own political interests and those of the City Family ahead of the fiscal integrity of the City and the best interests of Citizens of Los Angeles.

On May 17, many Ratepayers will have the opportunity to vote for their next Congressional representative.  And in making that decision, Ratepayers may want to consider Hahn’s failure to watch out for their wallets. 

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




CityWatch
Vol 9 Issue 35
Pub: May 3, 2011

LA WATCHDOG - Standard & Poor’s, one of the major bond rating companies, cut its outlook for US Treasury paper to “negative” from “stable” because of Washington’s mounting budget deficits.  There is a 1-in-3 chance that Government will lose its AAA (Triple A) credit rating.

This potential downgrading of the credit of the US Treasury will impact the City of Los Angeles, its credit rating, and the maturity and interest rate of any offerings, including the June offering of Tax and Revenue Anticipation Notes that are needed to fund the City’s operations for the first half of the fiscal year.

As a result, investors are going to be focused on credit quality, and that is not good for the City.

While the Los Angeles’ credit rating is a AA- (Double A minus), the Mayor’s proposed 2011-12 Budget financials would indicate a credit rating approaching junk (non investment grade) status.

The Mayor’s new budget is projecting to cure a budget deficit of $463 million.  But this is based on numerous one time gimmicks and fails to make few, if any, structural changes to address the chronic budget deficits related to out of control employee costs.

This year, The Major Who Broke LA and his crack financial staff propose to “balance” the budget by extracting $151 million from the notoriously obstinate LAPD and LAFD and $115 million of furloughs yet to be negotiated from Coalition and other Civilian employees. 

An additional $101 million comes from the elimination of positions and the consolidations of departments. 

Another $40 million of savings is from dumping unfunded mandates onto special revenue departments and another $44 million is from fishy financial engineering related to the Convention Center and Early Retirement Incentive Plan.

Finally, the Mayor proposes to defer $48 million of necessary capital expenditures.

But the Mayor’s “non budget” does not address the $281 million deficit for the next fiscal year (2012-13), the result of the $296 million increase in employee related costs (compensation, pensions, health, and workmen’s compensation).

Nor does the Mayor’s “non budget” address the failure to fund the repair and maintenance of our lunar cratered streets, our sidewalks, street lamps, and parks despite claims to the contrary in his budget message. 

Nor does the Mayor’s “non budget” address the proper funding of the $11.7 billion unfunded pension liabilities associated with the Los Angeles City Employee Retirement System and the Fire and Police Pension Plans.

Overall, the City has a budget deficit north of $1 billion before the smoke and mirror savings and unspecified reductions in City services.

A key component to City’s financial plan is the offering of Tax and Revenue Anticipation Notes to finance the operations of the City prior to the December and January receipt of real estate taxes.  The last offering of these short term notes are scheduled to be outstanding for 357 days compared to 314 days in the previous year.  This allows the City to roll over the previous year’s deficit. 

The City is also playing the “float.” To use Wall Street lingo, the average life of the current offering of notes is about 10.5 months (there are four repayments at the end of March, April, May, and June) compared to 5.5 months if the notes were amortized based on the receipt of the real estate taxes in December and January and the amortization of the pension payments over a 12 month period.

But there is little that the Citizens of Los Angeles can do to force the City to truly balance the budget.  Our Elected Elite, led by the Little Three (Villaraigosa, Greuel, and Garcetti), have not even developed a long term solvency plan.  Nor are The Little Three willing to address the necessary structural changes in the City’s operations because of the fear of offending their campaign funding Partners in Labor and the City Family.

The only way that The Little Three will adopt a truly balanced budget and develop and implement a long term solvency plan is that they are required to by the investors, not dissimilar to what happened in New York City in 1975.

This will require the bond rating companies (S & P, Moody’s, and Fitch) to open their eyes to the financial shenanigans at City Hall and downgrade the City’s credit rating.  And investors also need to do their homework, not only with regards to the junk status of the City’s notes, but the risks associated with buying paper with maturities in April, May and June.

Even if the City is able to sell the Notes, the yield hogs will demand substantially higher rates than last year to compensate for the increased risk.

Of course, this assumes that the City is able to come up with $316 million at the end of May and almost $300 million at the end of June to pay off the outstanding Notes.

If S & P is willing take the political heat from President Obama and Treasury Secretary Geithner when they lowered the outlook for credit rating of the United States to “negative,” then the rating agencies should not have any problem taking on the fiscally irresponsible Little Three and the other City Hall politicians who are willing to ignore the best interests of the Citizens of Los Angeles to further their own political careers.

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





CityWatch
Vol 9 Issue 34
Pub: Apr 29, 2011

DODGER FINANCES ON THE ROCKS - Frank McCourt, affectionately known as The Boston Parking Lot Attendant on a good day, will eventually be spending a considerable amount of time in bankruptcy court.   

We all know that Frank is a riverboat gambler, loves deals, and has the stomach for living with heart wrenching amounts of debt that would not allow a corporate raider to sleep at night. 

No one knows this better than Jamie McCourt, his ex wife and former business partner, whose desire for financial security was one of the major issues that prompted their tabloid divorce war. 

But this time Frank went too far when he violated Bud Selig’s trust by obtaining a personal loan for $30 million to meet the Dodgers’ operating expenses without consulting with the Commissioner’s office in advance.  As a result, the Commissioner has appointed Tom Schieffer, the former President of the Texas Rangers (1991-1998), to be the Monitor of the Los Angeles Dodgers to “oversee the day to day operations, business, and finances of the Dodgers and all of the franchise’s related entities.”

Schieffer’s first action will be to control the check book of the Dodgers and franchise related assets, including Frank’s parking lot revenues.  This means that the Dodgers are no longer Frank’s personal piggy bank.  And without the Dodgers cash, Frank will not have the resources to meet his many financial obligations, both personal and corporate.

While the extent of Frank’s personal and corporate obligations are not known, we know that he is strapped for cash and has few assets that are not mortgaged.  The only collateral for the $30 million personal loan from Fox Sports is the net proceeds from the potential litigation against Bingham McCutchen, the law firm that bungled the ownership agreement between Frank and Jamie.  But that will be a long time in coming, if at all, since Bingham preempted Frank and filed a law suit in its hometown of Boston.

So how is The Boston Parking Lot Attendant going to pay his alimony?  Or the taxes, mortgage payments, and upkeep on his $100 million of residential real estate?  Or service the $30 million personal loan from Fox Sports?  

Frank also has obligations on other ventures, such as the Los Angeles Marathon that he purchased in September 2008.

We also know that the Dodgers are in default on their loans to the banks.  And this no doubt includes Frank since more than likely he cosigned the notes. 

In addition, there will be considerable pressure on McCourt to service the defaulted loans on the Dodgers “related assets” such as Dodger Stadium and the Chavez Ravine real estate that is not owned by the Dodgers, but by McCourt in separate entities.

And how will Frank pay his many high priced lawyers?  His and her divorce lawyers will continue to cost a fortune as will lawyers to fight the Commissioner and the Bingham McCutchen law firm.  Plus, he is on the hook to pay the lawyers of his lenders as they try to remedy his defaulted loans.

Compounding the massive amounts of debt and his total lack of liquidity and financial flexibility is a very complicated corporate structure with multiple guarantees and the cross collateralization of assets.  And more than likely, there will be some nasty surprises that will further alienate the lenders and the Commissioner.

At the same time, the Dodgers may lose money this year because attendance is in the tank, off 25% over the last eight games.

Frank is a fighter.  But in this case, the deck is stacked against him.  The Dodgers are in default on their loans and may lose money this year.  The team is having trouble making payroll.  He is in default on numerous loans that are collateralized by the franchise, the stadium, and the land.  And fighting the Commissioner has not been successful in the past.

The only viable alternative for Frank to protect the value of his assets is bankruptcy court where he and his creditors can restructure of his debts and assets in an orderly manner, including his ownership interest in the Dodgers, the franchise related assets, and the multiyear contract with Fox Sports.

About the only good news is that the Commissioner of Baseball has appointed a well respected baseball executive with an excellent record of public service to protect the Dodgers from McCourt and its lenders.

Hopefully, we will have a new, well capitalized owner that will provide a safe environment for a winning team.  And maybe if we let our fantasies run wild, we might have the same problem that the Texas Rangers had last year when they were under the supervision of the Commissioner: a trip to the World Series. 

Other commentaries on the MLB takeover of the LA Dodgers

● D J Waldie- “Take Them Out of the Ballgame” 
● Glenn Rothner- “Do We Want Another Rich Man’s Plaything or a Community Asset?” 

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




CityWatch
Vol 9 Issue 34
Pub: Apr 29, 2011

TICKETGATE - No sooner than the ink was dry on the April 1 Settlement Agreement where Mayor Antonio Villaraigosa essentially pleaded guilty to corruption in connection with his illegal use of over $200,000 of free tickets to prime time events such as the Lakers, Oscars and Emmys, he and his political operatives were hitting up the usual suspects of City Hall supplicants and ring kissers to fund the slap-on-the-wrist fine of $42,000 and the related legal expenses.

To facilitate the fund raising effort, our Ever So Clever Mayor has established three Legal Defense Funds: one for the City Ethics Commission and another for the California Fair Practices Political Commission.  However, the third Legal Defense Fund relates to the inquiry by the District Attorney who does not appear to be a party to the Settlement Agreement.

And not one to miss an opportunity to tap those ring kissers who can benefit from a well placed friend at City Hall, the Mayor is also soliciting “donations” to his Officeholder Account, essentially his personal slush fund.

For those of you who are interested, contributions are limited to $4,000 per person, $1,000 for each of the four accounts, or $8,000 per couple.

As we all know, lobbyists, lobbying firms, and MTA contractors are unable to make donations.  However, as is blatantly evident in the solicitation letter below, our ethically challenged Mayor and his cronies have no shame.  They are asking the lobbying and contractor communities to be “bundlers” by raising funds from “other sources.” 

The whole ticket scandal is a disgrace, beginning in late May when John Schwada of Fox 11 and Phil Willon of The Los Angeles Times blew the whistle on the Mayor’s ticket escapade. Initially, our ubiquitous Mayor said his attendance at these high profile events was part of his official duties.  But this lame excuse did not stand the light of day as it was apparent that the Mayor and his office devised ways to skirt the law and its intent.

Then the Mayor and his staff, aided by high priced outside lawyers and advisors that probably cost more than $100,000, spent 10 long months negotiating a well crafted Settlement Agreement which praised the Mayor for his cooperation and candor. Please!  He had no choice.  He was caught with both his hands in the cookie jar.  

And finally, the Settlement Agreement imposed a nickel dime fine relative to the value of the tickets, and then compounded that slap on the wrist by not having Villaraigosa pay the fine personally.  

Importantly, neither the City Ethics Commission nor the California Fair Practices Political Commission investigated how Mayor Villaraigosa manages to support his millionaire lifestyle on a mere $225,000 a year, despite ample anecdotal evidence that he is living way beyond his means.  Perhaps a visit by the Internal Revenue System would be appropriate.  

The failure of the politically appointed City Ethics Commission to vigorously enforce the law, compounded by its turning a blind eye to Villaraigosa’s finances and man about town life style, confirms that our insolvent City is for sale to those that are willing to grease the Mayor’s palm.

And if you have any doubts, read the following e mail that was sent out by one of the Mayor’s lobbyist buddies.

April 5, 2011

Dear [Jack],

Last week, the Fair Political Practices Commission released a copy of an agreement between that agency, the Los Angeles City Ethics Commission, and Major Villaraigosa resolving an investigation into the Mayor’s acceptance of free tickets to important entertainment industry events such as the Oscars, Emmy’s, and Grammy’s, sporting events, and concerts.  The agreement acknowledges that the Mayor attended these events in his “official capacity” to serve “an official purpose,” and that the Mayor had a “good faith and reasonable belief that he had no obligation to report his attendance” at these events on his annual gift reporting form “because he believed they fell within the exceptions” to the reporting requirements.

Nevertheless, the agencies determined that 34 of the 3,000 events attended by the Mayor did not fall within the exceptions, and imposed a combined agreed upon administrative penalty of approximately $42,000.  The agencies explained that the penalty is quite modest when compared to the possible maximum for a number of reasons, including the fact that the violation was “unintentional,” and caused by the Mayor’s “mistaken understanding” of his reporting requirements.  The Mayor’s “full cooperation,” “candor,” and lack of prior violations also helped lower the penalties.

We opened legal defense funds on behalf of the Mayor to pay the penalties and his legal bills.  Of course, we cannot accept donations from lobbyists or lobbying firms registered with the City, or from MTA contractors.  But I was hoping that you might help us raise funds from other sources.  The maximum contribution for an individual or entity is $4,000 (that breaks down to $3,000 for the legal defense funds and $1,000 for the Mayor’s “Officeholder Account.”)  A couple with a joint account can double that an amount if both people sign the form.

Here’s the hard part: we need to raise the $42,000 by the end of the week.

Contribution forms and additional information are attached.

Thank you and all the best.  Let’s talk soon.

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





CityWatch
Vol 9 Issue 33
Pub: Apr 26, 2011

DODGER STEW - Holy cow, did you see that move! Selig picked off McCourt, preventing Frank from stealing another $100 million from the Dodgers and their loyal but beleaguered fans.

On Wednesday, Bud Selig, the Commissioner of Baseball, announced that he will appoint a representative to “oversee all aspects of the business and the day-to-day operations” of the Dodgers.  The Commissioner’s Office will also “continue its thorough investigation into the operations and finances of the Dodgers and related entities during the period of Mr. McCourt’s ownership.”

This move was finally precipitated by Frank McCourt’s flagrant breach of trust when he personally borrowed $30 million from Fox Sports to help the Dodgers meet payroll (and probably a few personal obligations) without consulting with the Commissioner. That is a real No-No.

While unprecedented, this drastic action is warranted given the systematic looting of the Dodgers by Frank McCourt to support his family’s billionaire life style. Now the Dodgers have an unsupportable amount of debt and lack the financial flexibility to properly fund the team’s operations and payroll. 

The need for cash to service the increasing mountain of debt and fund the family’s over the top life style resulted in business decisions that led to the increase in sales of beer and booze and the cut back in the presence of uniformed LAPD officers and overall security, creating an attractive venue for gangbangers and abusive, foul mouthed drunks. 

This alcohol and drug infested environment finally resulted in the highly publicized unprovoked assault on Opening Day of Byran Stow, a 42 year old Giants fan from Santa Cruz, in the parking lot after the game.  The resultant adverse publicity has caused a 27% decrease in paid attendance for the last seven home games, resulting in a loss of about $3.4 million in highly profitable, incremental admission, parking, and concession revenue.

No wonder the Dodgers are having problems meeting payroll.

Of course, Frank is baffled by Selig’s action since he believes he is in compliance with Major League Baseball’s financial guidelines. Even his new best friend, Steve Soboroff, launched a spirited defense of the Boston Parking Lot Attendant, saying that the Commissioner’s actions were “irresponsible” and that Frank was “financially fine.” 

Of course, that is inconsistent with the fact that Dodgers are in default on their banks loans.  And Frank is on the hook for those loans because of his personal guarantee.

It also seems inconsistent with the fact that all Frank had to pledge as collateral for the Fox Sports $30 million personal loan was the anticipated proceeds from his potential lawsuit against Bingham McCutchen, the Boston based law firm that bungled the ownership agreement between Frank and his ex wife, Jamie. However, the Bingham law firm launched a lawsuit against Frank in Massachusetts seeking to bar him from suing the firm for malpractice, claiming that Frank was responsible for his own problems.

Unfortunately for Frank, there are other interested parties in addition to Major League Baseball that do not trust Frank and his Boston malarkey.

Jamie McCourt, his ex wife, for example, issued the following comment.  "As the 50% owner of the Los Angeles Dodgers, I welcome and support the Commissioner's actions to provide the necessary transparency, guidance and direction for the franchise and for Dodgers fans everywhere."

And you can bet the banks that own the Dodgers defaulted loans are none too pleased with the shenanigans at Dodger Stadium.  If attendance is off 25% this year, that is a $35 million hit to revenue, resulting in a situation where the Dodgers financials would be covered with red ink.  The Dodgers would be hard pressed to make their cash interest payments.

One of the consequences of the Commissioner’s action to control the Dodgers and its cash is that it may accelerate the collapse of Frank’s house of cards.

With the Commissioner and the banks controlling the cash, Frank will not have adequate resources to meet his other obligations, such as alimony, upkeep of his multiple estates (including real estate taxes and mortgage payments), personal loans, and his and her legal bills. This will result in other creditors surfacing, filing claims and heading to the courthouse to protect their interests.

Frank’s life is further complicated by the interest of the Internal Revenue Service and the California Board of Equalization in his tax returns, his aggressive tax strategies, the personal use of over $100 million of Dodger funds, and the no show jobs for his sons. 

The Boston Parking Lot Attendant will not give up without a fight. However, unlike his shenanigans back in Boston, he is battling with adversaries that have significantly more resources than the cash constrained McCourt who will not be able to rely on the Dodgers cash flow to pay high priced lawyers, tax accountants, and the other costs of litigation.

More than likely, Frank will have to file for personal bankruptcy to protect the value of his assets and give him time to rearrange his affairs in an orderly manner that respects all of his creditors.

But fortunately, the bold and proper actions of Commissioner Bud Selig to “protect the best interests of the Club, its great fans, and all of Major League Baseball” will separate the daily operations of the Dodgers from the meddling of Frank and Jamie McCourt and their financial demands.

Commissioner Bud Selig also has the power to force the sale of the Dodgers (and their related assets such as the Stadium and parking lots), an event that would be welcomed by Dodger fans, the players, the Dodger organization and all of its employees, and all Angelenos.

This Bud is for you, the true Blue Dodger fans.  Thank you.

You Might Also Like

● Dodger Boos-Frank’s Real Problem: Nobody Trusts the Bum-Humphreville (link) 

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



CityWatch
Vol 9 Issue 32
Pub: Apr 22, 2011

DODGER BOOS - It was not so long ago that Frank McCourt was running with the Big Dogs: a billionaire life style, private jets, and estates in Bel Air, Malibu, and Cape Cod.  And in 2009, he was the toast of town as the Dodgers won the division title and the first round of the playoffs and led all teams in attendance as 3.76 million fans (an average of 46,440 per game) came to Chavez Ravine.

But today, the Dodgers have a losing record and attendance for the first eight home games is off 13.3%. And the general feeling is that the Dodgers will be lucky to have a winning season.

Frank’s finances are becoming increasingly desperate. The highly leveraged Dodgers are in default on their bank loans, denying him cash to pay his alimony, his multiple mortgage payments, the upkeep and taxes on his many houses, and even his high priced lawyers.  The Commissioner of Baseball rightfully rejected his $200 million loan deal with Fox Sports because it would not benefit the team. 

But the very clever Boston Parking Attendant pulled an end run around the Commissioner and personally borrowed $30 million from Fox Sports, supposedly to help meet payroll on April 30.  More than likely, Frank will skim a few dollars off the top for his personal obligations.  

But the coup de grace may have been the unprovoked Opening Day beating of Byran Stow, a 42 year old Giants fan from Santa Cruz, by two out of control gang bangers in the parking lot after the game.  As Stow, a paramedic and the father of two lies in a coma, the police have a high profile dragnet looking for these hoods. 

The financial consequences of this violence and the resulting adverse publicity will be enormous.

Without doubt, the Dodgers will need to beef up security.  As part of his public relations campaign, Frank even hired Billy Bratton, a Boston native, who just happened to be LA’s former Chief of Police. But the added security at Dodger Stadium will more than likely cost an additional $2 million a year.

Then there is the cost of litigation. While the Dodgers may have adequate insurance, the insurance companies will no doubt investigate the level of security at Dodger Stadium to see if the Dodgers were doing a proper job.  And what they will find is what fans have known for a long while: Dodger Stadium is no longer a safe family environment and that security is so lax that the joint, especially the right field bleachers, has been overrun with gang bangers and drunken, foul mouthed jerks. 

This will give rise to the question as to whether the Dodgers, its management, and its owners were grossly negligent, which may negate any coverage.

In any event, the Dodgers’ insurance premiums will increase significantly.

However, the impact of the adverse publicity on this losing team will be devastating, causing many fickle fans to stay at home rather than risk their lives at Dodger Stadium.

If attendance for the year is down 13.3% for all 81 home games, there would be 475,000 fewer admissions (about 5,900 per game), resulting in a revenue loss of about $19 million in admissions, concessions, and parking.

However, the drop in attendance might be even greater.  In the four game series against the hot hitting Cardinals, the average per game head count was 28.6% lower than last year’s three games against St. Louis.  If that trend were to continue throughout the year, then revenues would be off $40 million.

This compares to operating profits after MLB Revenue Sharing and interest payments of only $10 million in 2009.

Needless to say, the lenders to both the Dodgers and McCourt are very concerned about the impact of significantly lower attendance and higher security expenses, both of which come off the bottom line. 

But of greater concern is that the Commissioner of Baseball and the other owners do not trust the Boston Parking Lot Attendant, especially after he pulled a “fast one” by borrowing $30 million personally from Fox Sports.  A reliable source indicated that the Commissioner is more than a little upset at this breach of trust.

But then again, this is nothing new to the people who did business with Frank back in Boston.

To compound Frank’s difficulties, Bingham McCutchen, the Boston based law firm that bungled the agreement that may have given Frank sole ownership of the Dodgers, filed a preemptive law suit in Massachusetts State Court that would effectively bar Frank from suing the firm for malpractice. 

In the law suit, Bingham alleges that “any injury, loss or expense he [Frank McCourt] has sustained or will sustain were caused not by Bingham's conduct, but by his own widely publicized financial problems, huge withdrawals of cash from the Dodgers, and strained relations with Major League Baseball.  None of this is attributable to Bingham's work."

Of course, Frank may not have the cash to fund a defense!

Frank appears to be down and out in Holmby Hills and Chavez Ravine.  He is running out of cash.  His lenders do not trust him.  The Commissioner and the other owners do not trust him.  And most important, the fans do not trust the Bum.

The Boston Parking Lot Attendant is not running with the Big Dogs any more.  Rather, the Big Dogs are trying to chase his sorry ass out of town and out of Major League Baseball.

Let’s hope they are successful. 

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



CityWatch
Vol 9 Issue 31
Pub: Apr 19, 2011

LA WATCHDOG - It is Budget Season.  And surprise, surprise, we have another budget crisis.

This year, the newly announced budget gap is $463 million, up from $350 million just a month ago.

But as we go through the theatre of balancing the budget, ask yourself the following two questions.

Do you trust Mayor Antonio Villaraigosa, Controller Wendy Greuel, and City Council President Eric Garcetti (the “Little Three”) to do what is in the best interests of the Citizens of Los Angeles?

Or do think that Villaraigosa, Greuel, and Garcetti have sold out to their campaign funding Partners in Labor to protect the City Family to the detriment of the Citizens of Los Angeles?

Unfortunately, the Little Three have yet to develop a long term solvency plan, despite the fact that former Mayor Riordan and Alex Rubalcava stated in a widely read Wall Street Journal opinion piece said the City would be bankrupt in 2014.

Nor have the Little Three made any concerted attempt to eliminate the “Structural Deficit” by addressing the ever escalating costs associated with payroll, benefits, and pensions, despite constructive suggestions by the City Administrative Officer, which included those of the Little Hoover Commission relating to reduction of current retirement benefits.

Once again, the Mayor has elected to “kick the can down the street” by relying on one time budget solutions and gimmicks to balance the budget.

The projected budget deficit is $463 million.  However, the major components of the increase from the $350 million deficit projection of last month have been known for months: the return to cash based over time for the police ($80 million) and the elimination of “rolling brownouts” for the Fire Department ($41.2 million). There is also a revenue reduction of $40 million due to the slow economy and lower telephone tax receipts. (Link)

While this implies a budget deficit of $511 million, the Mayor’s financial wizards have deferred $48 million related to the Capital Improvement Expenditure Program, calling it an expenditure reduction, not part of the solution.

Hence, we have a budget deficit of $463 million, but lower than the $492.4 million that we had a year ago.

The Mayor, his budget team, and his sound bite specialists have devised many one time “solutions” to close the budget gap, but few, if any, address the Structural Deficit.

The “solutions” include yet to be negotiated concessions of $51 million and $100 million respectively from the always cooperative Fire and Police Departments as well as “savings” of $115 million from Coalition and Civilian furloughs.  There is another $101 million of unspecified “savings” from “Reductions, Efficiencies & Other.”

There are $40 million in Special Fund Swaps where the City transfers responsibilities of the General Fund to a Special Revenue Fund.  For example, the responsibility for cleaning our 800 miles of alleys will be offloaded from the General Fund’s Bureau of Street Services to the Bureau of Sanitation, a special revenue department that is funded by our ever increasing trash tax.

There are also $40 million of one-time savings related to the refinancing at very favorable rates the obligations of the Convention Center and the Early Retirement Incentive Plan. ( link)

Conspicuously absent is any funding to repair and maintain our infrastructure, such as our lunar crater streets, crumbling sidewalks, and our deteriorating parks.  Nor is there any conversation about properly funding of the City’s two pension plans that are $11.7 billion underwater (64% funded).

In reality, our budget deficit is north of $1 billion.

On Wednesday, April 20, the Mayor will present his budget to the City which will reveal the details of the various “solutions.” But no doubt, they will be convoluted and difficult to understand, even if you are familiar with the City’s less than transparent accounting policies and antiquated management information systems.

And needless to say, there will be politics underlying every decision, many of which may not be in the best interests of all Angelenos.

The Mayor and his gang will no doubt discuss all the hard choices they have made over the years. 

The spinmeisters will discuss how they have reduced the work force by 4,000 positions.  However, 2,400 were the result of the Early Retirement Incentive Plan where participating senior employees were incented with over $150,000 extra in retirement benefits, burdening the already underfunded Los Angeles City Employee Retirement System with over $200 million in increased liabilities after counting higher employee contributions.

And a number of City employees were transferred to special revenue or the three proprietary departments.  The net is that less the 500 employees were laid off.

Or the Mayor and Eric Garcetti may tout the recent “pension reform” where employees contribute an additional 4% to fund their retirement healthcare benefits. Unfortunately, this plan is not actuarially sound, severely restricts the City’s operational and financial flexibility, provides the Coalition of Unions even more leverage in the renegotiation of their MOU, and extends the contract so that union wages and benefits will not become a hot button issue in the 2013 mayoral election. 

After considering the two questions of whether you trust the Little Three and whether they have sold out to the highest bidder, you will realize that they are not acting in the best interests of all Angelenos, but working to protect their campaign funding Partners in Labor, the City Family, and their own political ambitions. .

That is why we need an independent, well funded, and empowered CITIZENS ADVOCATE to oversee the operations and finances of the City and to help develop and implement solutions to eliminate the Structural Deficit, to repair and maintain our rapidly deteriorating infrastructure, and to insure that our pension plans are actuarially sound.

Otherwise, we will continue to be mushrooms in the dark with manure piled on top of us. 

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




CityWatch
Vol 9 Issue 31
Pub: Apr 19, 2011

LA WATCHDOG - Throughout the recent discussions regarding the Department of Water and Power and the Energy Cost Adjustment Factor, there have been few if any concrete discussions about the impact on electric rates over the next ten years, especially as it relates to the Mayor’s 2020 goals of No Coal and 40% Renewables.

Needless to say, the lack of a Strategic Plan and an Integrated Resource Plan makes it very difficult to predict the costs and the impact on rates.

However, over the next decade, it would not be surprising if DWP had capital expenditures in excess of $10 billion.  This in itself will have a dramatic impact on rates.  

And this is one of the primary reasons for Transparency recommended in the Independent Fiscal Review by PA Consulting.  The existing and future programs for Alternative Energy, Demand Supply Management, and Energy Efficiency would be separated from the current Energy Cost Adjustment Factor and would be subject to the automatic review and approval of the City Council, just like Base Rates Increases that were approved in April 2008.

With Transparency, Ratepayers would have a much better understanding of why their rates were increasing as compared to the current black box methodology.

But how much will rates increase over the next decade? To date, the vocal and politically influential environmental community, along with the Mayor and his blackmailing minions, Carr, Carson and Szabo (none of whom know an amp from an ohm), have also been silent as to the costs and impact on residential and commercial Ratepayers.

However, when one environmental hot shot was asked if an increase of 25% a year for the next decade was reasonable, the response was: “25% a year is not unreasonable.”

If rates increased at 25% a year for the next ten years, our rates would increase over nine times, from 12.2¢ to 113.6¢ per kilowatt-hour.

No wonder the Mayor and the environmental community do not want Transparency.

(Jack Humphreville writes LA Watchdog for CityWatch He is  the President of the DWP Advocacy Committee and the Ratepayer Advocate for the Greater Wilshire Neighborhood Council. Humphreville is the publisher of the Recycler -- www.recycler.com He can be reached at [email protected])  -cw





CityWatch
Vol 8 Issue 26
Pub: Apr 2, 2010