- Written by Jack Humphreville
02 Mar 2012
LA WATCHDOG - On June 10, 2010, in yet another overlooked financial sleight of hand by our globetrotting Mayor that was designed to deceive Angelenos into believing that we had a “balanced” budget, the City of Los Angeles issued $50,875,000 of Judgment Obligation Bonds at a premium to fund $53.2 million in court related judgments.
Underlying this scam was the City’s desire to “save” $53.2 million during the 2011 fiscal year and to spread this expense, including interest of $14 million, over the following ten years. This will require annual payments of about $6.5 million, totaling $64.4 million.
But like the failure to recognize the expenses associated with police overtime that were “banked” and with pay raises for civilian employees that were deferred until 2014, this accounting policy is not in accordance with Generally Accepted Accounting Principles.
This stunt also highlights the City’s failure to adequately reserve and account for on a timely basis the liabilities associated with outstanding litigation.
For example, rather than reserving for and then paying the $12.75 million judgment associated with 2007 May Day demonstrations in and around McArthur Park, the City financed this obligation and is now on the hook for $16.1 million, consisting of the principal amount plus $3.4 million of interest. The final payment is due on June 1, 2020, a full 13 years after this unfortunate incident involving the Los Angeles Police Department and 295 unruly demonstrators.
So rather than make the hard personnel decisions that are required to truly balance the budget, the Mayor, the Executive Employee Relations Committee, the City Council, and the Controller once again took the easy road, “kicking the can down the road,” placating the self serving leadership of the campaign funding City unions.
Since Mayor Villaraigosa took office, City workers have enjoyed a 24% increase in salaries and a 49% increase in benefits while our infrastructure, pension plans, and core services suffered.
The accounting issues and financial policies surrounding the issuance of Judgment Obligation once again highlights why we need a “Live Within Its Means” charter amendment that would mandate that the City develop and ADHERE to a Five Year Financial Plan. The City would be required to have a balanced budget based on Generally Accepted Accounting Principles. The budget would incorporate the need to repair and maintain of our streets and infrastructure pursuant to a 10 year plan and, at the same time, provide sufficient funding for the City’s two pension plans to eliminate the $9.5 billion unfunded liability over the next 10 to 15 years.
The City would also be required to approve a balanced two year operating budget every year so as to eliminate last minute shenanigans.
And any increases in spending (such as increases in wages) or decreases in taxes (such as the gross receipts business tax) would have to be offset by proven and sustainable sources of new revenue.
The City would be required to improve its financial reporting by having its audited financials prepared within four months of the end of the fiscal year (as opposed to three months in Corporate America). These financial reports would be accompanied by a detailed analysis of the City’s finances and operations. The City would also prepare quarterly financial information within three months of the end of each quarter.
The Five Year Financial Plan, the annual budgets, and all annual and quarterly financial reports would require the signature of the Mayor, the Controller, the City Attorney, and a majority of the City Council, affirming that the disclosure was full and complete in all material respects and was consistent with all laws, including Proposition 26 (The Supermajority Vote to Pass New Taxes and Fees Act).
Any non signing Council Member would be required to detail why he or she was not willing to sign.
And, in case of any litigation, the burden of proof would be the responsibility of the City.
Finally, the City would be required to enter into a Memorandum of Understanding with the Neighborhood Councils and other interested organizations that would obligate the City to hold regular meetings to inform Angelenos on its operational and financial affairs, including updates on our infrastructure and pension plans.
The financial shenanigans involving the Judgment Obligation Bonds is just another form of the systematic, Enron like corruption that pervades City Hall, not dissimilar to the scams revolving around police overtime, deferred civilian pay raises, the IBEW Labor Premium, and the Headworks Reservoir Pet Project.
This corruption threatens the City’s very solvency and creates a massive liability that will be a burden for the next generation of Angelenos.
This is not right. That is why we need to demand that the candidates for Mayor, the City Council, and the Controller provide us with detailed information over the next year about how they will have the City “Live Within Its Means.”
Vol. 10 Issue 18
Pub. Mar. 3, 2012