LA WATCHDOG--On Monday, April 17, the Board of Public Works approved a Memorandum of Understanding between the Bureau of Sanitation and Discovery Cube Los Angeles to “develop, promote, and assist with Sanitation’s educational events and programs for a term of three years at a cost not to exceed $3 million.” This includes increasing the awareness of the City’s environmental programs and services and promoting environmental stewardship for the next generation of Angelenos.
But this deal is accompanied by an unpleasant aroma because of the controversial “investment” in 2013 of $7.5 million in the Discovery Cube by Sanitation and the Department of Water and Power and the failure of the Board members to analyze the economics and efficiency of this $3 million transaction.
The Discovery Cube has a spotted history.
In 2003, then City Council President Alex Padilla (now California’s Secretary of State) hatched an ill-conceived plan to move the Children’s Museum to the Hansen Dam complex, an out of the way location 22 miles north of City Hall. By 2013, the City’s mismanagement resulted in a $22 million “architectural eyesore” that needed an additional $21 million to design and build the exhibits. And if the City failed to open the museum, it would be on the hook to repay $18 million to other governmental entities.
As part of its reorganization plan, the City entered into a long-term management contract with Discovery Cube Orange County, a successful operator of a strategically located science oriented museum in Santa Ana.
The City Council also decided to hit up Sanitation for $3.6 million by raiding the Sewer and Solid Waste Recovery funds that are financed by the fees that are part of our DWP bill. In addition, DWP and its Ratepayers were fleeced for $3.9 million, for a total of $7.5 million.
While the City Council justified the heist of our money by saying that our children would benefit from this “world-class education center” and environmentally oriented museum, this investment was the responsibility of the Department of Recreation and Parks and the City’s General Fund, not the DWP and Sanitation Ratepayers.
Of course, in their haste to approve this new contract, none of this history was discussed by the Board members when it approved this $3 million contract that once again involved the inappropriate use of our money.
Nor did the Board members discuss the services to be performed under this open-ended contract that did not have a specific work plan or a specific list of projects. But more to the point, they did not examine the capabilities of the Discovery Cube and its ability to deliver cost effective services to Sanitation, especially when compared to other advertising mediums or venues.
Nor did the Board members consider the financial condition of the Discovery Cube and whether it is generating enough cash to cover its $5.4 million operating budget. More than likely, the museum is not hitting its financial projections and is running short of cash. This places the City in an awkward position which is why the Mayor and the City Council are putting the arm on Sanitation and its Ratepayers to fund the operational shortfall of this poorly located facility.
But once again, this financial obligation belongs with Rec & Parks and the General Fund, not the Sanitation Ratepayers.
The Mayor, the City Council, and the Board of Public Works will not have second thoughts about sticking it to Sanitation’s Ratepayers. But this will confirm why we cannot trust them to be responsible stewards of our money.
But this is nothing. Just wait until we see the games they are playing with the Budget. Hearings begin on Wednesday at 1 PM at City Hall. Bring your hip boots.
(Jack Humphreville writes LA Watchdog for CityWatch. He is the President of the DWP Advocacy Committee and is the Budget and DWP representative for the Greater Wilshire Neighborhood Council. He is a Neighborhood Council Budget Advocate. Jack is affiliated with Recycler Classifieds -- www.recycler.com. He can be reached at: firstname.lastname@example.org.)
LA WATCHDOG--We are still ploughing through the more than 1,800 pages of budget material that was dropped on us this afternoon, trying to figure out what games the City is playing to finance this year’s budget deficit and how it proposes to close the $245 million budget gap for the upcoming fiscal year beginning July 1, 2017.
However, based on the City’s General Fund Budget Outlook, our Back to Basics City is having a difficult time living within its means as the cumulative budget deficit over the next four years is expected to be almost $300 million despite a $675 million increase in revenues.
For the fiscal year ending June 30, 2022, the last full year of Mayor Eric Garcetti’s second term, the City is projecting a surplus of $10 million, a pittance considering that over his nine years in office, revenues are expected to increase by $1.9 billion, or 42%.
This modest surplus of $10 million is pure fiction. It does reflect the real world.
The Budget Outlook does not take into consideration any new labor contracts for the police, firefighters, and civilian workers. This will cost the City at least $200 million a year more than projected.
The annual required contribution to the City’s two underfunded pension plans are understated as it is unlikely that the return on invested assets will meet the assumed rate of return of 7.5%, an overly optimistic rate per investment professionals such as Warren Buffett of Berkshire Hathaway fame and fortune.
The City may also follow the example of CalPERS (California Public Employees Retirement System), the country’s largest pension plan, by lowering its investment rate assumption. This would add hundreds of millions to the annual required contribution.
The City is also not addressing the deferred maintenance on its streets, sidewalks, parks, trees, building and facilities, and the rest of its deteriorating infrastructure. The deferred maintenance ticket has been estimated to be north of $10 billion a year.
If the City were to have a comprehensive plan to repair and maintain our streets and sidewalks, it would require at least another $100 to $200 million a year.
The City also needs to strengthen the Reserve Fund to an amount equal to 10% of General Fund revenues, a level recommended by the City Administrative Officer. The $100 million Budget Stabilization Fund would also be included in the rainy-day fund calculation. This will require an investment of $250 million over the next five years.
This additional investment in the Reserve Fund will benefit from the issuance of $60 million of Judgment Obligation Bonds, a done deal given the City’s desperate need for cash.
In his State of the City address, Mayor Eric Garcetti said that “our work will not be measured by what we do for ourselves today. It will be remembered for what we leave behind for our children and grandchildren.”
Despite all the fine rhetoric and lofty goals, we are doing a “disservice” to the next generations of Angelenos as we will leave them with a broken system and tens of billions in liabilities that will devour their future as they will pay for the sins of the past.
Back to Basics means that the City of Los Angeles must learn to Live Within Its Means.
(Jack Humphreville writes LA Watchdog for CityWatch. He is the President of the DWP Advocacy Committee and is the Budget and DWP representative for the Greater Wilshire Neighborhood Council. He is a Neighborhood Council Budget Advocate. Jack is affiliated with Recycler Classifieds -- www.recycler.com. He can be reached at: email@example.com.)
LA WATCHDOG--On Thursday morning, Mayor Eric Garcetti will deliver his State of the City address at City Hall where he will present his proposed budget for the upcoming fiscal year beginning on July 1, 2017. And over the next two weeks, the Budget and Finance Committee headed by Paul Krekorian will conduct a review of the budget, even though the major points have already been negotiated behind closed doors.
In California, elected officials at all levels of government are constantly complaining about the need for more money, even though we are one of the highest taxed states in the county. At the same time, something is not right as we have the worst roads in the nation and vital services are being crowded out by ever increasing pension contributions.
Over the past year, the tax burden for the four million Angelenos has ballooned by almost $1.6 billion. This includes not only taxes initiated by Mayor Eric Garcetti and the City Council, but our proportionate share of numerous other taxes and fees dumped on us by the County, State, and other governmental entities. This ding of $1.6 billion does not include the Soak the Rich income tax surcharge (Proposition 55) that would have added $700 million to the tab.
Most of us do not recognize the enormity of these tax increases because they are spread over multiple jurisdictions. They also come in many different shapes and forms: property taxes, parcel taxes, sales taxes, gasoline taxes, vehicle license fees, storm water taxes (aka the Rain Tax), income taxes, and a 20% tax on our DWP power bill.
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For the average Angeleno, the $1.6 billion hit averages about $390 per person, or $1,560 for a family of four.
To put it in a different perspective, if all these new levies were placed on our houses and apartments, our property taxes would balloon by almost 30%.
Or if the $1.6 billion in new taxes were to be paid via the sales tax, it would soar to 11.4%.
But wait, there’s more!
The City, the County, the South Coast Air Quality Management District, and State, are seriously considering an additional $2.7 billion in new taxes.
This does not include any initiatives from the Los Angeles Unified School District. Nor does it include any direct taxes to pay for our share for the tens and tens of billions of the unfunded pension liabilities, although a good argument can be made that a portion of these new and contemplated taxes will indirectly fund our ever-increasing pension contributions.
Combining the contemplated taxes with the 2016 and 2017 tax increases, the hit is $4.3 billion, or $1,100 for every Angeleno, $4,400 for a family of four and would result in a 16% sales tax (up over 80%), and an 80% bump in our property taxes.
So, when our elected officials come pleading poor mouth, you know the not so proper response to these money grubbing, self-servicing politicians. We are not your #*@^&+# ATM.
The following is a list of new taxes by jurisdiction which details our proportionate share. They are followed by taxes that are being considered by the financial wizards who occupy City Hall, the County Hall of Administration, the AQMD, and the State Capitol. You can also access the attached spread sheet for a one page summary.
City of Los Angeles (100%)
Measure HHH – The $1.2 billion homeless bond that was approved by voters in November will cost us an average of $65 million a year for the next 30 years.
DWP – The five year, $1 billion rate increase in our water and power rates that was approved by Mayor Garcetti and the City Council will provide the City with $150 million in tax revenue by 2021.
Measure M – The half cent increase in our sales tax that was approved in November is projected to raise $750 million a year. Our 40% share is $300 million.
Measure A – The parks parcel tax will raise about $100 million. Our 40% share is $40 million.
Measure H – The quarter cent increase in our sales tax that was approved in March will provide $375 million to fund services for the homeless. Our 40% share is $150 million.
Los Angeles Community College District (75%)
Measure CC – The $3.3 billion bond that was approved in November will cost us an average of $150 million over the next 30 years.
State of California (10%)
Measure 51 – Our share of the $9 billion educational facilities bond that was approved in November is $50 million a year for the next 30 years.
Measure 56 – Our share of the $1.4 billion cigarette tax that was approved by the voters in November is $140 million a year.
Gas Tax (SB 1 - The Road Repair and Accountability Act of 2017) – Governor Jerry Brown recently approved the $5.2 billion a year increase in the gas tax and vehicle license fees. We are on the hook for $520 million a year.
TAXES UNDER CONSIDERATION
Street Bond – The Measure M Local Return revenue from Metro and the funds allocated to local governments in the new Gas Tax reduced the street repair bond to $2 billion from $4.5 billion. This will cost us $120 million for the next 30 years.
The Affordable Housing Linkage Fee will raise an estimated $100 million a year from new residential and commercial developments. This fee will eventually flow through to us as there is no such thing as a free lunch.
Stormwater Tax – The County is considering a Rain Tax (“God created rain and you figured out how to tax it.”) to finance a $20 billion storm water capture plan over the next 20 years. Our share will be $400 million a year.
South Coast Air Quality Management District (25%)
The SCAQMD is discussing an increase in the vehicle license fee of $30, raising an estimated $300 million. This money will fund smog reduction programs in Los Angeles, Orange, Riverside, and San Bernardino Counties. Our share will be an estimated $75 million.
Sales Tax - Senator Bob Hertzberg is pushing to expand the sales tax to include services. Our share of the $10 billion increase will be $1 billion.
Split Roll – Property taxes on commercial and manufacturing property would be based on market value and not on the values established under Proposition 13. Our share of this $10 billion tax haul will be $1 billion.
UC Bonds – The State is considering asking the voters to approve a $2 billion bond to finance facilities for the University of California and the California State University systems. Our share will be $12 million a year for the next 30 years.
Park Bonds – The State is also considering placing a measure on the ballot to raise $3 billion to pay for the repair of the neglected State Parks. Our share will be $18 million a year for the next 30 years.
The creative geniuses that are responsible for our Structural Deficits, our lunar cratered streets and failing bridges, and tens of billions in unfunded pension liabilities will no doubt create other schemes to pick our pockets. They will select a hot button issue that appeals to our sympathies that has been underfunded because they are not willing to prioritize their spending, preferring to answer the demands of the campaign funding leaders of the City’s public unions.
Tax Angeles … to be continued! Unfortunately!
(Jack Humphreville writes LA Watchdog for CityWatch. He is the President of the DWP Advocacy Committee and is the Budget and DWP representative for the Greater Wilshire Neighborhood Council. He is a Neighborhood Council Budget Advocate. Jack is affiliated with Recycler Classifieds -- www.recycler.com. He can be reached at: firstname.lastname@example.org.)
LA WATCHDOG--Pension and postretirement benefits have slammed the finances of IBEW Local 18, the union that represents more than 90% of the employees of our Department of Water and Power. Over the last five years, the liability for postretirement benefit obligations has tripled, increasing by $4 million to $5.9 million. At the same time, the net worth of Local 18 has taken a 70% hit, declining by almost $5 million, from $7.1 million to only $2.2 million.
While dues from members has grown by $1.4 million (17%) to almost $10 million (1.25% of salaries) since 2011, increased costs for pensions and postretirement benefits have contributed to annual losses, including a ding of $1.6 million in 2016.
All this makes for a very nice pension plan for IBEW Union Bo$$ d’Arcy, the Local 18’s long time business manager. But if you talk to his members, they are not complaining about his generous compensation or his rich retirement package. To the contrary, they believe he has earned every cent given what he has accomplished for his more than 8,000 members who enjoy above average wages and benefits.
Over the years, the IBEW Labor Premium has been estimated to be in the range of $200 to $250 million. This does not include the impact of overly restrictive work rules and burdensome staffing requirements.
The key to Union Bo$$ d’Arcy’s success is that he has enjoyed the support of many members of the City Council who have benefitted from his generous campaign contributions. He has also intimidated those who would dare to oppose his contract demands. Just ask Bernard Parks who barely beat an incompetent opponent who was bankrolled by the IBEW in 2011.
The undue influence of Union Bo$$ d’Arcy is why we must insist on an open and transparent discussion of the ongoing labor negotiations between DWP and the IBEW. While personnel costs now exceed $1.5 billion, there are many other issues besides wages, healthcare benefits, and pensions that need to be addressed. These include overtime, outsourcing, work rules, staffing levels, benchmarking of operations, training (especially after the recent audit of Controller Ron Galperin), and the Joint Training and Safety Institutes.
As suggested by the Los Angeles Times, there needs to be public hearings that lay out the expectations and goals of the Department and the City and their impact on Ratepayers. These hearings should also disclose the status of the current negotiations as the existing contract expires on September 30.
We should also be informed on a timely basis (say 24 hours) of any offers and counter offers made by either party during the negotiations.
The cost of all offers or proposals should be analyzed by a qualified independent third party who, unlike the City Administrative Officer and the Chief Legislative Analyst, is free from political pressure.
All communications between the participants and their staffs must also be disclosed on a timely basis.
Finally, there must be adequate time for a “full and public analysis” of the contract before it is placed on the agenda of the City Council.
In the past, we have been presented with a “done deal” that is automatically approved by the City Council and Mayor without any real input from Ratepayers who are paying the bill. In this era of political upheaval and uncertainty, now is the time for our Elected Elite to endorse reform and implement an open and transparent process in labor negotiations that will help restore our trust and confidence in City Hall and the Department of Water and Power.
A little sunshine never hurt anyone.
LA WATCHDOG--While the City of Los Angeles has some of the worst streets in the country, there is no plan to repair and maintain our 6,500 miles of streets and 900 miles of alleys because of the lack of sufficient funding as pension contributions and other personnel costs have devoured the City’s budget. Rather, the City is bouncing from pot hole to pot hole, filing cracks with slurry, and ignoring the one-third of our streets that are in a failed condition.
In 2014, the Save Our Streets LA plan indicated that the City needed approximately $4 billion over the next twenty years to restore our network of streets to good working order. But in 2014, there was not the political will to place a half cent increase in our sales tax on the ballot, especially after the Controller’s audit of Street Services exposed a very inefficient department.
But now the City has two new sources of cash to fund the repair and maintenance of our streets and alleys.
Last week, the State passed a new transportation bill that will generate $52 billion over the next ten years from higher gasoline and diesel fuel taxes and increased vehicle license fees. Under the local return provisions of this legislation, the City anticipates receiving $100 million a year or $1 billion over the next ten years.
In November, the voters approved Measure M, the half cent increase in our sales tax to fund Metro’s ever increasing operating losses and its ambitious expansion plans. This measure provides that local governments will share in 17% of the revenue based on their share of the County’s population. Under this plan, the City will receive $56 million next year and $700 million over the next ten years based on Metro’s projections.
Over the next 40 years, the Measure M Local Return revenue to the City is projected to be $5.1 billion.
The Save Our Streets LA plan may also benefit from stricter oversight of the Local Return revenue from Measure R, the half cent increase in our sales tax that was approved by the voters in 2008. While the Local Return revenue is expected to be $45 million this year, only half of that revenue was allocated to Street Services as the City diverted $15 million to the General Fund and $8 million to the Department of Transportation.
Over the next 10 years, the Measure R Local Return revenue is expected to be over $600 million and $5 billion over the next 40 years.
The City also received Local Return revenue of $128 million this year from Proposition A (approved by the voters in 1980) and Proposition C (approved by the voters in 1990). But true to form, the City diverted 21% of this Local Return revenue to the General Fund while less than 10% made it to Street Services.
Well maintained streets are vital to the City’s economy and to the orderly flow of traffic. But they are not a budget priority for the Mayor or the City Council as funding for Street Services has been neglected while General Fund revenues have increased by $1 billion over the last four years.
But now that the City has the resources from the State and Metro, it is time to go Back to Basics and make the repair and maintenance of our lunar cratered streets and alleys a Priority Outcome.
Our City needs a network of efficient and well maintained streets, especially if we want to be a showcase to the world when we host the Olympics in 2024.
LA WATCHDOG--Contrary to the recommendation of Controller Ron Galperin, the Los Angeles City Council passed a resolution on Wednesday approving the issuance of up to $60 million of Judgment Obligation Bonds. The net proceeds will be used to replenish the City’s Reserve Fund that has been the source of the cash needed to pay for a slew of lost law suits that far exceeded the $68 million in the City’s budget.
Under this plan to fatten up the Reserve Fund, the City will be on the hook for annual payments of almost $8 million for the next ten years, a total of $80 million. This includes approximately $20 million in interest payments to wealthy California investors who love double tax exempt bonds, money that the City could devote to priorities such as our streets and sidewalks, Vision Zero (safe streets), or the homeless.
This annual payment of $8 million is in addition to the $9 million payment associated with the $50 million of Judgment Obligation Bonds issued in 2010 to fund, in part, the legal payments involving the May Day demonstrations in and around McArthur Park in 2007.
Galperin, on the other hand, recommends that the City save $20 million in interest expense by forgoing the issuance of the Judgment Obligation Bonds. He proposes to restore the balance of the Reserve Fund to a level above the targeted threshold amount of $279 million (an amount equal to 5% of the General fund revenue) by sweeping unspent departmental funds at year end into the Reserve Fund.
Financing everyday operating expenses (including legal judgments) and the Structural Deficit with long term debt is a fool’s solution that is embraced by Paul Krekorian, the Chair of the Budget and Finance Committee of the City Council. Not only is it poor financial policy, it burdens the next generation with the sins of the past.
At the City Council, Krekorian argued that it was prudent for the City to preserve the option to issue the Judgment Obligation Bonds because of the great uncertainties facing the City. These include projected budget deficits, revenue shortfalls, pressure on the Reserve Fund, a downturn in the economy, less money from Washington, a downgrade by the rating agencies, an adverse stock market, and a lowering of the investment rate assumption for the City’s two pension funds.
But this argument of preserving the City’s options is pure baloney. When City Hall smells new sources of cash, it is full speed ahead. There is no more dangerous place than standing between the members of the City Council and new cash for the General Fund unless it is between them and campaign contributions from real estate developers.
The Judgment Obligations Bonds would not have been necessary if Krekorian and his Budget and Finance Committee had followed the recommendation of the City Administrative Officer to increase the Liability Claims budget to $120 million, a number approximating the prior year’s expenditure of $110 million, almost a double of the budgeted $68 million.
If the Krekorian and the Budget and Finance Committee had been true stewards of the City’s treasury and our money, they would not have needlessly diverted $213 million from the Reserve Fund to the General Fund over the last three years to pay for everyday operating expenses. After all, revenues during this three-year period increased by almost $600 million.
If the Reserve Fund had not been raided, its balance would be almost $500 million, negating the need for any Judgment Obligation Bonds.
Krekorian also said that the lowering of the investment rate assumption for the City’s pension plans would be a “disserve to the public” because it would increase the City’s pension contributions by hundreds of millions. But that begs the question of how he proposes to eliminate the City’s unfunded pension liability that is estimated by Moody’s Investor Services to be more than $20 billion.
But it is Krekorian and his Budget and Finance Committee that are doing a “disservice to the public” by continuing to kick the budget can down our lunar cratered streets and broken sidewalks. We have rivers of red ink, Structural Deficits, massively underfunded pension plans, and some of the worst streets in the nation.
As a first step in reforming our City’s finances, deep six the Judgment Obligation Bonds and save us $20 million.
And then Krekorian and his Budget and Finance Committee need to develop a long term plan that will require the City to Live Within Its Means. Is that too much to ask of the highest paid City Council in the country?
LA WATCHDOG--The City of Los Angeles is considering the issuance of $60 million in Judgment Obligation Bonds to replenish the City’s Reserve Fund. This rainy-day fund has been depleted to pay for legal settlements that were significantly more than the budgeted liability of $68 million, a level considerably below the amount recommended by the City Administrative Officer last year.
Per the CAO, the Reserve Fund is slightly below the targeted policy level of $279 million, an amount equal to 5% of the budgeted General Fund revenue. The infusion of $60 million would increase the balance in this account to over 6% of the General Fund, giving the Reserve Fund additional flexibility to meet unexpected expenditures or emergencies.
Of course, the issuance of Judgment Obligations Bonds would not have been necessary if the Mayor and the Budget and Finance Committee led by Paul Krekorian had not siphoned off $213 million over the last three up-revenue years from this emergency fund to pay for every day operating expenses. If these funds had not been diverted, we would have had a very healthy Reserve Fund with a balance of $490 million, or 8.8% of General Fund revenue.
On March 2, the City Administrative Officer recommended that the City Council, subject to approval by the Mayor, authorize the issuance of up to $60 million in bonds.
You can almost see the City Hall gang rubbing their hands together in anticipation of this infusion of cash.
But on March 23, Controller Ron Galperin threw a wet blanket on the City Council’s plans as he delivered a two-page letter where he recommended that the City NOT proceed with the Judgment Obligation Bond at this time.
His logic was very simple. Galperin stated that “debt financing of liability claims should only be used in extraordinary circumstances and in times of great need. This year does not meet those criteria, and the City should live within its means instead of borrowing unnecessarily.” He also added that the City should “avoid short term solutions to long term problems.”
In addition, the City would avoid paying $20 million in interest expense over the next ten years by not issuing the bonds.
Galperin also stated that the Reserve Fund will benefit from unspent departmental funds at year end that will be swept into the fund, allowing it to exceed its minimum policy levels by $10 million.
More than likely, the City will NOT follow Galperin’s recommendation as the infusion of new cash is just too tempting for our politicians.
The City Administrative Officer will support the issuance of the bonds to bolster the depleted Reserve Fund, especially if this year’s revenues are lower than budgeted (which may well be the case). This is a reasonable request and strategy.
However, we cannot trust Garcetti and the City Council as once they smell the cash, they will want to raid the Reserve Fund, once again, to pay for every day operating expenses.
The City Council will consider the issuance of the Judgment Obligation Bonds on Tuesday, April 4. We will need to be prepared for the members of the City Council to demonstrate their financial acumen as they tell us how they are willing to make the tough decision to issue the bonds, recognizing that the bonds are a necessary evil. But do not expect the City Council to put any restrictions on its ability to tap into this new honey pot of cash.
Bring your hip boots as the sewer known as City Hall will be overflowing.
And a genuine thank you to Controller Ron Galperin for his willingness to speak the truth and be … the skunk at the garden party.
LA WATCHDOG--The City Administrative Officer’s Third Financial Status Report dated March 16 paints a bleak picture of the City’s finances, including the previous sacrosanct Reserve Fund.
For the current year, the City is looking at a $57 million deficit. But this does not take into consideration the strong probability of lower revenues from property and sales taxes, taxes on DWP Ratepayers (the 10% Utility Users’ Tax and the illegal 8% Transfer Tax), departmental fees from the City’s proprietary departments and special funds, parking fines, and franchise fees. These dings more than offset the growth in the hotel tax and the documentary transfer tax.
The Report also indicates that next year’s budget gap is anticipated to be $224 million. But even this projection for the fiscal year beginning on July 1 may be understated because of lower than anticipated revenues and the demand for increased services.
One of the culprits in this year’s deficit is the explosion in legal liabilities as the City is anticipating spending $147 million in settlements and judgments, almost $80 million more than the budgeted liability of $68 million. To cover these higher than anticipated losses, the City is hitting up the Reserve Fund for over $60 million.
Unfortunately, the Reserve Fund no longer has a surplus that can be tapped unless it is a true emergency. As of January 31, the Reserve Fund had dipped slightly below the minimum threshold of $279 million, an amount equal to 5% of General Fund revenues of $5.576 billion.
To replenish the Reserve Fund, the City is pursuing the issuance of $70 million of Judgment Obligation Bonds. But ev en with this infusion, the Reserve Fund may not be able to absorb this year’s losses, especially if revenues are lower than budgeted.
This will also preclude the Mayor and the City Council from raiding the Reserve Fund.
Over the last three years, the Mayor and the City Council have siphoned off $213 million from the Reserve Fund without blinking an eye.
But were these financial transactions necessary given that City revenues have increased by $900 million over the last four years?
Why did the Budget and Finance Committee chaired by Paul Krekorian permit this transfer from the Reserve Fund?
Why did the Budget and Finance Committee allocate only $68 million for legal liabilities when the City Administrative Officer recommended a significantly higher amount?
If the Reserve Fund had the $213 million that was drained from its accounts, the balance of our rainy-day fund would be almost $500 million, or 8.8% of the General Fund revenues.
And if you toss in the Budget Stabilization Fund of $94 million, total reserves increase to $585 million, or a very healthy 10.5% of General Fund revenues, exceeding the 10% level recommended by Miguel Santana, our previous CAO.
This is another case where the politically motivated spending policies of our Elected Elite trumped the long-term interests of the City. This is reminiscent of their failure to fund the repair and maintenance of our lunar cratered streets, our broken sidewalks, and the rest of our deteriorating infrastructure; their unwillingness to engage in real pension reform; and their approval of budget busting labor contracts.
We cannot trust Mayor Garcetti, the City Council, and the Budget and Finance Committee with our money.
We need an independent Office of Transparency and Accountability to oversee the City’s finances and protect us from the Mayor and the City Council pursuing short term political goals that are not in the best long-term interests of the City and all Angelenos.
LA WATCHDOG--Mayor Eric Garcetti is proposing to close part of the City’s $250 million budget gap for next year by using an estimated $50 million of Local Return money from Measure M, the permanent half cent increase in our sales tax that was approved by 71% of voters in November.
While the bulk of the proceeds of this new tax are to be used to finance Metro’s ambitious capital expenditure program and its money losing operations, 17% of the proceeds are designated for “Local Return.” Under this program, funds are returned to the cities based on their population for the communities’ “eligible transportation related uses.” These transportation needs include “transit, streets and roads, storm drains, Green Streets, Active Transportation Projects, Complete Streets, public transit access to recreational facilities, Transit Oriented Community Investments, and other unmet transit needs.”
Importantly, these Local Return funds are meant to supplement existing programs and not to free up money for the General Fund and other programs. In other words, they are not to be used for deficit reduction.
In recent interviews and during the campaign to pass Measure M, Garcetti said that these Measure M Local Return funds were to be used to fix, pave, or repair our streets.
In the upcoming year, the Local Return from Measure M is expected to be about $50 million. And over the next 40 years, the total haul is projected to be in the range of $5 billion based on Metro’s projections.
The infusion of these Local Return funds represents an excellent opportunity to jump start the development and implementation of a comprehensive plan to repair and maintain our 28,000 lane miles of streets, considered to some of the worst in the country, and 900 miles of alleys. A well-conceived long term plan will also go a long way in relieving congestion, the worst in the developed world per a recent article in The New York Times.
The City’s current street repair program, dubbed the pothole patrol plan, is not working. While City Hall tells us that the status of our streets has improved slightly because Street Services is budgeted to pave or repair 2,400 miles of roads this year, most Angelenos believe, based on experience, especially after the rains, that our streets have continued to deteriorate. Furthermore, the pothole patrol plan neglects the more than one third of our streets that are rated D and F, meaning that they need to be either resurfaced or reconstructed, all at great expense.
If the City combines the resources of the Local Return funds with the current expenditures of the Street Services and Transportation devoted to our roads, it can develop and implement a street repair program that over the next twenty years will make our streets some of the best in the nation.
Now that is Back to Basics. Forget the photo-ops. Keep your promises. Fix LA’s streets!
LA WATCHDOG--The City of Los Angeles is confronting a budget gap next year of “at least $250 million” based on Mayor Eric Garcetti’s comment to Larry Mantle, the host of KPCC’s (89.3) AirTalk.
But this not very well publicized shortfall of at least $250 million may be optimistic. The City believes that the $245 million Power Revenue Transfer Tax (previously known as the 8% Transfer Fee) from the Department of Water and Power, which is the subject of a class action lawsuit, is legal and does not require voter approval pursuant to Proposition 26 (the Supermajority Vote to Pass New Fees and Taxes) that was approved by California voters in 2010.
Garcetti did not offer any reasons for this staggering $250 million shortfall that exceeds the previously projected budget gap of $85 million. Nor did he discuss any specific plans to reduce this gap other than to say that the City will rely on several new sources of revenue.
But these new revenues are not for deficit reduction. Rather, they are intended to augment existing programs. This is certainly true for the $50 million of new “Local Return” money from Metro that is designated for the repair and maintenance of our lunar cratered streets. These kickback funds are the result of the passage of Measure M, the permanent half cent increase in our sales tax to fund Metro’s ambitious expansion plans and its ever-increasing operating deficits.
He also said that he would not institute any new spending polices other than for the homeless, public safety, and the restoration of services. But these new initiatives will cost north of $100 million. So much for austerity.
Underlying the $250 million budget gap is a significant increase in City’s legal liabilities and even greater shortfall in revenues. Property and sales taxes are anticipated to be $50 million lower than expected while revenue from taxes on the DWP Ratepayers are off by approximately $75 million.
There is something very fishy going on with the Power Revenue Transfer Tax because of the class action lawsuits that were filed in 2015.
This year, the Power Revenue Transfer Tax was budgeted to be $291 million. However, because DWP overestimated the Power System revenue by 10%, or $300 million, the Transfer Tax was only $264 million, a $27 million shortfall.
For the upcoming year, the Transfer is projected to be $245 million (6.5% of Power System revenues), down from the previous projection of $300 million (8% of revenues). This dip, despite DWP’s increase in revenues, gives credence to the scuttlebutt that City Hall has cut itself a sweet deal with the lawyers representing the plaintiffs in the class action lawsuit (Patrick Eck v. City of Los Angeles).
Of course, the lawyers will make out like bandits.
And the Ratepayers, rather than being reimbursed for over $1.5 billion in illegally collected taxes (not including interest) and abolishing the illegal Power Revenue Transfer Tax, will once again get the shaft as we will end up paying $245 million a year to the pay-to-play politicians who occupy City Hall.
But this backroom settlement that was cut over two months ago may not pass legal muster. Under Proposition 26, this so-called fee that is really a tax must be approved by the voters, a rumble that City Hall wants to avoid. This may be the reason why the City has not announced this deal because they cannot figure out how to disenfranchise us by not placing this tax on the ballot for our rejection or approval.
If this crooked deal does not pass the smell test, our friends that occupy City Hall will go ballistic as the projected budget deficit will balloon to $500 million.
But this sea of red ink is not our fault as the Mayor and the City Council have racked up a $250 million budget gap despite an increase in General Fund revenues of $1 billion. City Hall has also been on notice for years that the Power Revenue Transfer Tax is illegal, but failed to address the issue in a rational manner.
City Hall will no doubt ask us to approve this tax. But what do we get in return? Maybe it is our turn to ask that in return for approving this new tax, the City will agree to place on the ballot a charter amendment that will finally require our City to go Back to Basics and Live Within Its Means.
Hold on as we are in for a wild ride. Budget Madness begins on April 20 when the Mayor presents his new budget to Angelenos.
LA WATCHDOG--One of the Priority Outcomes of Mayor Eric Garcetti s Back to Basics agenda was that the City of Los Angeles would “live within its financial means.”
But this is not the case.
The City is grappling with a potential deficit of $245 million for this fiscal year that ends on June 30 and a budget gap of at least $250 million for the fiscal year that begins on July 1. This is despite revenues being up over $1 billion since Garcetti became Mayor.
These deficits are understated. They do not include adequate funds to repair and maintain our streets, sidewalks, parks, and the rest of our deteriorating infrastructure. They lowball the pension contributions that are determined using an overly optimistic investment rate assumption that “save” the City an estimated $500 million a year.
The impact of these deferrals is to dump an even larger financial burden on the next generation of Angelenos.
Projections for the next four years do take into consideration future salary increases for the police, civilian employees, and the firefighters.
It is not a pretty picture.
On March 8, the Budget Advocates, a volunteer group of citizens representing the charter authorized Neighborhood Councils, met with Mayor Garcetti and members of his budget team to discuss their annual White Paper and their “Back to Basics” Plan which includes the following recommendations.
- Develop and implement a seven-year operating and financial plan for the City. This is standard operating procedure for an enterprise with revenues of over $8 billion a year and 32,000 civilian and sworn employees.
- Address the Structural Deficit (where expenditures increase faster than revenues) by refraining from entering into any labor agreement or approving any new programs or initiatives that will result in future budget deficits.
- Require that ALL projects take into account the costs and savings over the entire life of the project, including ancillary costs and savings incurred by other City entities and stakeholders.
- Develop and implement a long-term plan to fix our streets along the lines of the Save Our Streets LA Measure that was proposed in April 2014.
- Implement a long-range plan to grow the City’s economy by developing new business friendly policies that encourage employers to move to LA or to remain and invest in LA.
- Benchmark the efficiency of the City’s departments and services and consider outsourcing projects to independent contractors.
- Appoint an experienced Chief Operating Officer/City Manager to oversee and coordinate the management of the City’s many departments and to improve their operating efficiency.
In addition, the Budget Advocates once again urged the Mayor and the City Council to implement the following excellent budget recommendations of the LA 2020 Commission that were endorsed by City Council President Herb Wesson at a well-attended press conference on April 9, 2014 at the California Endowment.
- Create an independent “Office of Transparency and Accountability” to analyze and report on the City’s budget, evaluate new legislation, examine existing issues and service standards, and increase accountability.
- Adopt a “Truth in Budgeting” ordinance that requires the City to develop a three-year budget and a three-year baseline budget with the goal of understanding the longer-term consequences of its policies and legislation.
- Establish a “Commission for Retirement Security” to review the City's retirement obligations to promote an accurate understanding of the facts and develop concrete recommendations on how to achieve equilibrium on retirement costs within five years. This Commission will also address the Buffett Rule and the investment rate assumptions of the pension plans.
Unfortunately, these recommendations that were designed to shine the sun on the City’s finances and operations have never seen the light of day.
In addition, the Budget Advocates have developed a list of revenue producing ideas for the General Fund. This resulted in a discussion about the specific suggestions and the City’s need for additional revenue to address our infrastructure, service levels, affordable housing, and services to the homeless.
The Budget Advocates also submitted reports on 26 of the City’s departments. They were based on numerous in person meetings with department heads that allowed the Budget Advocates to gain a better understanding of the departments and the overall operations of the City. These reports also contain recommendations specific to the departments.
The Mayor, recognizing the time, effort, and dedication of the Budget Advocates, will ask the City Administrative Officer and his budget team to report back on the White Paper and its findings and recommendations. Hopefully, this response will be shortly after the release of next year’s budget on April 20 so that Budget Advocates have ample time to prepare for the Budget and Finance Committee hearings on the budget.
The development of and the adherence to a long term operating and financial plan, the implementation of a Back to Basics Plan, the adoption of the recommendations of the LA 2020 Commission, the develop of new sources of revenue, and an improved business and investment environment will result in increased revenues for the City that will allow it to eliminate the Structural Deficit, to address its infrastructure needs, and to begin the proper funding of its pensions.
By increasing the transparency onto the City’s complex operations and finances and by implementing policies that require the City to “live within its means,” City Hall will begin the process of restoring Angelenos’ trust and confidence in its elected officials.
LA WATCHDOG--Money is the life blood of politics, especially for the politicians that occupy Los Angeles City Hall and the County Hall of Administration.
So when our Elected Elite support or oppose a ballot measure, we need to follow the cash to determine their true motivations. This is especially true for Measure S, the Neighborhood Integrity Initiative, and Measure H, the quarter of a cent increase in our sales tax that will fund services to the homeless.
Measure S requires that the City update the General Plan and its 35 Community Plans and assume the responsibility to oversee the development of Environmental Impact Reports and Traffic Studies. Measure S also eliminates “spot zoning” and places a 24 month moratorium ONLY on “up zoned” projects that would have received lucrative zoning changes, courtesy of the City Council and Mayor Eric Garcetti.
The delusional opponents claim that Measure S will make it impossible to build the affordable housing that LA desperately needs. But the truth is that City Hall does not have a plan to build affordable housing or the necessary billions to fund such a plan.
And now that the voters have approved JJJ, the Build Better LA ballot initiative, the cost of affordable units will increase by 46% according to Beacon Economics, the firm retained by the Los Angeles Chamber of Commerce, an ardent foe of Measure S. This massive cost increase will kill all residential development that needs a zoning change, whether it is luxury, market rate, or affordable.
The real reason for the opposition of Garcetti and the City Council is that if Measure S passes, the gravy train that has resulted in more than $10 million in campaign contributions from real estate developers will come to a stretching halt as City Hall will no longer be able to grant lucrative zoning changes to billionaire developers who have no respect for our neighborhoods and our quality of life.
With the passage of Measure S, the days where the real estate developers make billions, the City Hall politicians collect millions, and we get the shaft are over.
We will finally get a say in the destiny and density of our City and our neighborhoods as Measure S will require the City Planning Department to hold hearings on weeknights and weekends in our neighborhoods. No more schlepping downtown to City Hall during the day and only getting a minute to speak.
Measure H, the County ballot initiative to increase our sales tax by one quarter of cent, will raise $350 million to fund services for the homeless. While nobody denies that there is a homeless crisis, the County Supervisors have not made homelessness a budget priority, even after billions in new revenues swelled its total budget to $30 billion. Instead, the Supervisors approved new budget busting labor contracts and funneled money to their pet projects.
Homelessness only became a budget priority when they decided to pick our pockets for $4 billion over the next ten years.
The Supervisors and Mayor Eric Garcetti have been telling us that without this $4 billion tax increase, the County will not be able to provide the necessary services to the homeless population. But this sounds like the threats made in 2013 when Mayor Villaraigosa and LAPD Chief Charlie Beck told us that LA would be overrun by the Huns and Visigoths if we did not approve Proposition A, the half cent increase in our sales tax that was to be used to hire and retain more cops.
But shortly after Proposition A was rejected by 55% of the voters, Mayor Villaraigosa miraculously discovered the necessary money to fund the Police Department.
There is also the issue of trust.
In November, voters approved Measure M, a permanent half cent increase in our sales tax to fund Metro’s ambitious expansion program and its money losing operations. But the Supervisors and Mayor Garcetti were less than honest with us. They waited until after the election to disclose the massive cost overruns involving the widening of the 405 through the Sepulveda Pass, the Downtown Regional Connector, and the Gold Line Foothill Extension. And they failed to tell us about the decline in ridership.
The City, County, and State are also hatching more schemes to increase our taxes. In addition to Measure H, the County is preparing another Rain Tax to fund its storm water capture plan. The City is considering a multibillion street repair bond and a linkage fee on new developments. The South Coast AQMD is talking about a Vehicle License Fee. The State is considering a substantial bump in the gas tax and expanding the sales tax to cover services. And billions in bonds are being contemplated for the UC system and the State’s deteriorating parks.
The 2016 tax increases and the above contemplated taxes will cost the residents of the City of Los Angeles over $3 billion, the equivalent of raising our real estate taxes by over 60% or our sales tax by over 5%.
Enough is enough.
By voting YES on Measure S, the City will be required to update its General Plan and its 35 Community Plans in an open and transparent manner where we have a say in the future of our City. And at the same time, put a stop to the corrupt pay-to-play culture that permeates City Hall.
And by voting NO on Measure H, we can send to message to the pols that we are not their ATM.
It is time for us to take control of our City and our County.
LA WATCHDOG--We have numerous reasons to vote against all the fat cat incumbents running for reelection to the Los Angeles City Council. And they all add up to a City that does not work for us Angelenos, the folks footing the bill so that the 1% who occupies City Hall and their cronies can feast at our expense.
Our City’s finances are a mess.
The City is projecting a budget deficit next year of at least $250 million. Union leaders want more money that will only add to the deficit. The City’s two pension plans are a train wreck, underfunded by $22 billion and threaten the City’s ability to deliver services. And our lunar cratered streets, our broken sidewalks, and the rest of deteriorating infrastructure are in need of at least $10 billion of repairs.
But the City’s viability is not an issue for six members of our City Council who are seeking reelection. After all, they have raised over $5.5 million from their cronies and special interests to buy their reelection.
But hopefully Angelenos will wake up and send these politicians packing.
At the top of the list is Paul Koretz, a professional politician who has never met a tax hike, a rate increase, a union contract, or campaign contribution from a real estate developer he didn’t like.
Koretz is a member of the Executive Employee Relations Committee that negotiates the City’s labor agreements. This includes the budget busting contract with the City’s civilian unions that took a $68 million surplus to a $101 million deficit in 2020. That may explain why the unions have contributed $217,000 to an “independent” expenditure committee to support his reelection to augment the $440,000 war chest that he raised from the usual favor seeking suspects.
His key opponent is Jesse Creed, a young talented lawyer who received excellent reviews for his work on behalf of veterans involving the West LA property. While Creed lacks experience, he is independent, his own person who is not owned by the unions and real estate developers.
Mitch O’Farrell should also be shown the door as he betrayed his constituents by selling out to real estate developers who view Hollywood, Silver Lake, Atwater Village, Echo Park, and Elysian Valley as areas primed for highly profitable development, the neighborhoods be damned.
O’Farrell has raised over $400,000, where almost half of the usual favor seeking suspects maxed out. He is also the beneficiary of a $102,000 “independent” expenditure committee funded by real estate interests, unions, and Chevron Corporation, one of the world’s largest oil companies.
In the effort to Ditch Mitch, the goal is to force a runoff with one of the other viable candidates. This includes Doug Haines who has been endorsed by Mayor Richard Riordan because of his real estate expertise and his efforts in overturning the Hollywood Community Plan that was based on flawed assumptions. He also was instrumental in halting other illegal developments that had the support of developer owned O’Farrell.
Gil Cedillo should also be sent packing as he has supported the development of luxury housing that is inappropriate for many of the District’s neighborhoods. This has accelerated residential and commercial gentrification and dislocated long-time residents. He has also reneged on several campaign promises.
Cedillo was expecting to steamroll his opponents as he has raised $375,000 from the usual favor seeking suspects, 75% of which maxed out, and has the support of an “independent” expenditure committee that has also been funded primarily by Chevron.
However, much to Cedillo’s surprise and chagrin, the Los Angeles Times endorsed Joe Ali-Bray, a small businessman and bike enthusiast who, according to The Times, has an impressive understanding of land use policies.
Curren Price was also surprised by The Times endorsement of Jorge Nuno. Yet Price has the benefit of a $422,000 war chest and an “independent” expenditure committee that is ready to drop almost $150,000 to support his reelection. But will Price, an African-American, be able to buy the election in a district that is almost 80% Latino?
Joe Buscaino has raised $369,000 and faces limited competition. But he does not deserve to be reelected given the scandal where he took $94,500 of laundered campaign contributions and then approved the up zoning of the Sea Breeze residential development despite its rejection by the both the Area and City Planning Commissions.
Mike Bonin appears to be headed towards reelection and is supported by a war chest of $432,000 raised from the usual favor seeking suspects and a $61,000 “independent’ expenditure committee funded by primarily by the unions representing the police and firefighters. But Bonin has been weak on fiscal responsibility and has approved mega real estate developments that will further clog the Westside.
It is too much to expect all of the incumbents to lose, but success will be measured by ousting incumbents or forcing Council members into runoff elections on May 16, 2017. If so, this will send a message to City Hall that we are not happy campers and it is time to address the serious economic problems facing our City.
It is time for a change.
LA WATCHDOG--The City of Los Angeles is drowning a sea of red ink.
Its budget deficit for the upcoming fiscal year beginning July 1, 2017 is projected to be in the range of $200 to $250 million. This is up from the $85 million shortfall that Mayor Eric Garcetti outlined in his “Fiscal Year 2017-18 Budget Policy and Goals” memo in September.
There is also the real possibility that the cumulative budget gap for the next four years may soar to well over $750 million, up from the current estimate of $300 million.
But Eric, how is this possible if City revenues are $1 billion higher than they were four years ago and collections are projected to increase by $600 million over the next four years?
In January, the City Administrative Officer indicated that the City was looking at a potential budget deficit of $245 million for this fiscal year (2016-17). This contrasts with the “balanced” budget only six months earlier.
Expenditures rose by an unexpected $80 million over budget, primarily because of runaway legal settlements that will be in the range of $140 million (or more) this year. This is more than double the budgeted liability of $68 million.
Revenues were off by $165 million. This shortfall included $90 million in lower collections from property taxes, sales taxes, and taxes on the revenues of our Department of Water and Power.
These expenditure and revenue trends are expected to impact next year’s budget, increasing the September deficit of $85 million to $200 to $250 million.
The deficit for the following year (2018-19) is expected to grow as new labor contracts for the police and civilian workers will go into effect, probably adding $50 to $100 million to the projected deficit.
As if these deficits were not bad enough, the budget outlook does not include adequate funding to repair our lunar cratered streets and cracked sidewalks, despite an infusion of almost $50 million from the Local Return provisions of Measure M, the half cent increase in our sales tax that was approved by 71% of the voters in November.
Nor do the projections include sufficient monies to offset the deferred maintenance on the City’s infrastructure, including our run down parks, our urban forest, its Stone Age management systems, and its aging buildings and facilities.
The City’s Budget Outlook does not take into consideration higher pension contributions mandated by lower than anticipated returns on the investment portfolios of its two seriously underfunded pension plans and the impact of a lower investment rate assumption from the overly optimistic discount rate of 7½%.
And what will happen if we hit another economic downturn that results in lower City revenues?
With all this red ink and another budget crisis looming, why haven’t Mayor Garcetti and the Herb Wesson City Council adopted the four excellent budget recommendations of the LA 2020 Commission that were reiterated by the Neighborhood Council Budget Advocates in October?
In 2014, one of pillars of Eric’s “Back to Basics” Priority Outcomes was that LA would “live within its financial means.” But that is certainly not the case given the sea of red ink.
The Neighborhood Council Budget Advocates are developing its own “Back to Basics” Plan that calls for, among other recommendations, long range planning; developing a plan to repair and maintain our streets, sidewalks and the rest of our infrastructure; refraining from entering into any labor contract that will result in future deficits; limiting the hiring of any new employees unless there is adequate funding; implementing pension reform; benchmarking the efficiency of the City’s workforce; and developing business friendly policies that will encourage employers to remain and invest in LA.
The City’s impending financial fiasco has been kept under wraps so as not to endanger the reelection of Mayor Garcetti and seven members of the City Council. Nevertheless, this mess will not go away, nor will the efforts to treat us like mushrooms, keeping us in the dark and dumping tons of ripe manure on our heads.
LA WATCHDOG--Our City’s budget and finances are a mess. But City Hall is less than transparent, treating us like mushrooms, keeping us in the dark and dumping tons of ripe manure on our heads.
But on Saturday, you will have the opportunity to learn more about the City’s budget and finances by attending one of the six Regional Budget Day meetings throughout the City that are being hosted by the Neighborhood Council Budget Advocates. These meetings begin at 9:30 in the morning and will last for about two to three hours. Refreshments will be served. See below for the location nearest you or click here.
Importantly, the Neighborhood Council Budget Advocates are interested in your ideas about how to make the City more efficient and transparent and to increase revenues.
While the Advocates have produced many recommendations over the years that have saved the City considerable sums and increased revenues, City Hall has been resistant to implement common sense suggestions that would make the City’s finances and operations more transparent and curb its out of control spending.
On October 4, 2106, the Neighborhood Council Budget Advocates urged the City Council and Mayor Eric Garcetti to implement the following four excellent budget related recommendations of the LA 2020 Commission.
- Create an independent “Office of Transparency and Accountability” to analyze and report on the City’s budget, evaluate new legislation, examine existing issues and service standards, and increase accountability.
- Adopt a “Truth in Budgeting” ordinance that requires the City develop a three-year budget and a three-year baseline budget with the goal to understand the longer-term consequences of its policies and legislation. (Council File 14-1184-S2)
- Be honest about the cost of future promises by adopting a discount rate and pension earnings assumptions similar to those used by Warren Buffett.
- Establish a “Commission for Retirement Security” to review the City's retirement obligations in order to promote an accurate understanding of the facts.
For more information on this recommendation, see the October 6, 2016 CityWatch article, NC Budget Advocates Argue for Transparency Office and Truth in Budgeting Law.
But the City Council and the Mayor have done nothing to implement these recommendations despite the fact that they were enthusiastically endorsed by City Council President Herb Wesson at a press conference on April 9, 2014. Interestingly, Wesson was also the moving force behind the formation of the blue ribbon LA 2020 Commission headed by former Secretary of Commerce Mickey Kantor and Austin Beutner.
The City’s budget is out of control.
In January, the City Administrative Officer said that the City is looking at a potential budget deficit of $245 million this year (it was “balanced” on July 1, 2016) and that the Reserve Fund is in danger of dipping below mandated levels. As a result, the City’s credit rating is in jeopardy.
The City is projecting a river of red ink over the next four years despite revenues being up $1 billion over the last four years and another $600 million over the next four years. Our lunar cratered streets have continued to worsen, so much so that our gridlock is the worst in the developed world according to The New York Times. And our unfunded pension liability of more than $20 billion (according to Moody’s Investor Services) is a weapon of mass financial destruction aimed at the heart of all Angelenos.
In March, the Neighborhood Council Budget Advocates will issue its annual “White Paper” that will propose a “Back to Basics” Plan. This will include a call for long range planning, a policy of not entering into budget busting labor contracts, a plan to repair and maintain our streets and the rest of our infrastructure, and the development of a business friendly environment which encourages employers to remain and invest in our City.
The Neighborhood Council Budget Advocates look forward to your input. After all, it is our City.
See you on Saturday morning at 9:30 at the one of the following locations where coffee will be on the house.
- ACTION INFO
Regional Budget Day Locations
Marvin Braude Center
6262 Van Nuys Boulevard
Van Nuys 91401
Los Angeles Zoo and Botanical Gardens
Griffith Park Drive
Los Angeles 90027
Glassell Park Community Center
3650 Verdugo Road
Glassell Park 90065
Ridley Thomas Constituent Center
8475 S. Vermont Avenue
West LA Municipal Building
1645 Corinth Avenue
Los Angeles 90049
Croatian Cultural Center
510 W. 7th Street
San Pedro 90731
More info here.
LA WATCHDOG--The County Board of Supervisors has placed Measure H on the March 7 ballot, which, if approved by the two-thirds of the voters, will increase our sales tax by a quarter of a cent to 9 ½%. This ten year tax increase will generate $350 million a year which will be earmarked to finance services for the homeless.
Measure H is expected to be approved by County voters based on the results of the November election.
Measure HHH was approved by 77% of the voters. This measure authorizes the City to issue $1.2 billion in general obligation bonds to fund permanent supportive housing for the homeless. The County will be responsible for providing the necessary services as outlined in the ballot measure.
Measure M, approved by 71% of the County’s voters, authorizes a permanent half cent increase in our sales tax to finance Metro’s ambitious capital expenditure program and its money losing operations.
And 75% of the County’s voters approved Measure A, a $100 million tax to fund its Department of Parks and Recreation.
The proponents of Measure H have also raised over $1.5 million from the usual suspects, including our old friend, Frank McCourt of Dodger infamy, and other real estate developers as well as many other City and County ring kissers looking for future paybacks.
However, voter turnout in March is expected to be considerably lower than in November. While 3.4 million votes were cast in the County for the Presidential candidates, turnout in March is expected to be in the range of 1 million voters (30%), representing a very different voter profile.
In addition, County voters outside of the City have tended to be more fiscally prudent than City voters. And they outnumber City voters by 50%.
Voters in March may also be in a foul mood as a result of being hit with so many new taxes in 2016 and the prospect of even more taxes over the next two years.
In 2016, Angelenos were hit with a $150 million tax increase in connection with the massive DWP rate increase of over $1 billion.
Measure HHH, the $1.2 billion homeless bond, will cost City property owners an average of $65 million a year over the next 30 years.
The Los Angeles Community College District’s issuance of $3.2 billion in bonds will cost an average of around $200 million a year for the next 30 years.
County property owners will be tagged for another $100 million to fund its parks.
The Metro half cent sales tax increase will cost County residents an additional $750 million a year.
And this does not include state taxes associated with the new $2 a pack cigarette tax, the $9 billion K-12 school construction bond, or the Soak the Rich income tax surcharge.
There are more taxes that are in the pipeline.
The County Board of Supervisors is actively considering a Stormwater Tax that will raise between $300 and $500 million a year from property owners.
The City is still considering a multibillion Street Repair Bond that will tag taxpayers for $100 to $200 million a year.
The South Coast Air Quality Management District is contemplating raising $300 million through a new Vehicle Licensing Fee.
And the State is considering a $3 billion increase in our gas tax, a $10 billion expansion of the current sales tax (thank you, Bob Hertzberg), a multibillion bond to repair its neglected parks, and a $2 billion bond to finance University of California facilities.
There is also the issue of trust.
During the last election, the County Supervisors, Mayor Garcetti, and the management of Metro withheld information about significant cost overruns on the widening of the Sepulveda Pass and Downton Regional Connection until after the election.
And then you have the City’s budget and the tsunami of red ink, the County’s massively underfunded retirement plans, our failing infrastructure, the unwillingness of our elected officials to say no to unaffordable union demands, and the corrupt pay-to-play culture that permeates City Hall and the County Hall of Administration.
The Supervisors, Mayor Garcetti, and the City Council have told us that homelessness is their number one priority. If so, then the Supervisors need to find $350 million in the County’s $30 billion budget rather than hitting us up with yet another increase in our regressive sales tax.
By voting NO on H, we can send a message to Eric, the City Council, and the Board of Supervisors that they need to use our tax dollars more efficiently and that we are not their ATM.
Measure H: Los Angeles County Plan to Prevent and Combat Homelessness.
To fund mental health, substance abuse treatment, health care, education, job training, rental subsidies, emergency and affordable housing, transportation, outreach, prevention, and supportive services for homeless children, families, foster youth, veterans, battered women, seniors, disabled individuals, and other homeless adults; shall voters authorize Ordinance No. 2017-0001 to levy a ¼ cent sales tax for ten years, with independent annual audits and citizens’ oversight?
LA WATCHDOG--Mayor Eric Garcetti and the Herb Wesson led City Council are opposed to Measure S, the Neighborhood Integrity Initiative, that is on the March 7 ballot. Instead, they support the status quo where real estate developers make billions, the politicians receive millions, and we get the shaft.
In a slick mailer paid for by real estate developers and the County Federation of Labor, Garcetti said, “Measure S will cause major job losses, will cost taxpayers millions, and will make our housing and homelessness even worse.”
But the “facts” (see below) supporting Garcetti’s comments are based on the flawed Economic Policy Analysis by Beacon Economics, a local consulting firm that has close financial ties to opponents of Measure S, the Los Angeles Chamber of Commerce and Los Angeles City Hall.
This not so independent analysis has not been peer reviewed. Nor has it been the subject of an open and transparent discussion by the City Council, the City Administrative Officer, or the Chief Legislative Analyst as the business-as-usual Council Members are not willing to subject this report to rigorous scrutiny.
The fatal flaw in this analysis is that it compares the impact of Measure S with the market prior to the approval by the voters on November 7 of Initiative Ordinance JJJ, the Affordable Housing and Labor Standards Related to City Planning Initiative.
This overly complex ordinance that is over 10,000 words of confusing legal mumbo jumbo is a real deal and job killer.
According to a previous Beacon analysis prepared to support the Los Angeles Chamber of Commerce’s opposition to JJJ, this measure’s “potential to drastically reduce residential construction would further accelerate increases in home prices and rents in Los Angeles.”
[Note: The Los Angeles Times also opposed JJJ as it “could make LA’s housing crisis even worse.”]
JJJ would require a developer of a residential project of 10 or more units who seeks a zoning change to essentially enter into a “project labor agreement” that requires construction workers be paid the “prevailing wage,” a rate that is significantly higher than market rates. This will drive up project costs by 46% according to Beacon.
At the same time, developers will have to set aside up to 25% of a project’s units for low and moderate income tenants, thereby lowering the projected rental income.
The combination of Higher costs and lower rents is good reason not to build in LA, a reality that must be considered when analyzing the relative impact of Measure S.
Garcetti is also claiming that Measure S will stymie the development of affordable housing and permanent supportive housing. But this claim does not take into consideration that developers can build “as of right” without having to get zoning changes from City Hall. And with 785,000 parcels of property in the City, there are ample opportunities for the development of market rate, affordable, and permanent supportive housing under the Measure S 24-month moratorium.
Garcetti and the City Council claim they are beginning to reform the planning process. They are developing ordinances to update the city’s General Plan and its 35 Community Plans and to have the City (not the real estate developers) oversee the Environmental Impact Statements and Traffic Studies. They have introduced motions to limit campaign contributions from real estate developers.
But if the voters reject Measure S, will we ever get an objective analysis of the impact of JJJ, the union inspired initiative that will make the building of multifamily buildings uneconomic? Will the City continue to update on an accelerated basis the City’s General Plan and its 35 Community Plans in an open and transparent manner as required by Measure S? Will the City provide the Planning Department with the necessary resources, especially after July 1, 2018 when the new labor contracts kick in and result in a tsunami of red ink? Will the Garcetti and the City Council cut off the hand that feeds them and limit campaign contributions from real estate developers?
The answer is obviously NO since we cannot trust Garcetti and the Council Members when it comes to their ultimate aphrodisiac, campaign cash.
Vote Yes on S and end the status quo of a corrupt pay-to-play culture where real estate developers make billions, politicians receive millions, and we get the shaft.
- Costs taxpayers over $70 million each year.
- Destroys 12,000 jobs each year.
- Cost $640 million in lost wages each year.
- Results in losses of $1.9 billion to our City every year it is in effect
- What is the impact of JJJ and how does that compare to Measure S?
LA WATCHDOG--Section 245 (see below) of the Los Angeles City Charter allows the City Council to assert jurisdiction over any action by the Board of Commissioners of a City Commission by a two-thirds vote of the Council. There are certain exceptions for the Ethics Commission, pension plans, and personnel matters.
While the City Council has the ability to veto the action by a two-thirds vote, it does not have the ability to “amend, or take any action with respect to the Board’s action.”
However, there is an exception for City Planning that allows the City Council to amend the action of the City Planning Commission or the local Area Planning Commissions.
And my oh my, have the members of the City Council taken advantage of this loophole. They have extracted millions in campaign contributions and other favors from real estate speculators and developers, regardless of the impact on our neighborhoods and the increase in traffic.
The Los Angeles Times had a well-researched, front-page expose of the $600,000 in pay to play campaign contributions involving the approval of the $72 million Sea Breeze residential development in the Harbor area of the City. In this case, the City Council reversed the decision of the Area Planning Commission and the City Planning Commission, both of which had turned down the developer’s request for a zoning change for this industrial zoned property.
This City Council granted variance resulted in an increase in the value of the land of $25 million according to a CityWatch article by Austin Beutner. Of course, the beneficiaries of these laundered campaign contributions (Council members Joe Buscaino, Jose Huizar, Mitch Englander, and Nury Martinez as well as Supervisor Janice Hahn and Mayor Eric Garcetti) claim with a straight face and a touch of indignation that these overly generous cash contributions from people they had never met before did not influence their decision to grant the developer’s request.
There is also the recent action of the City Council that permitted a Beverly Hills developer to erect a 27 story residential skyscraper in a low-rise neighborhood in Koreatown. In this case, $1.25 million in contributions to two slush funds bought the cooperation of Mayor Eric Garcetti and City Council President Herb Wesson.
The list of developments where money talks goes on and on, including, but certainly not limited to, the Palladium in Hollywood, the Reef in South LA, the Cumulus at Jefferson and Rodeo, as well as many other mega-developments throughout the City that will cause increased congestion and stress on our already overtaxed infrastructure.
The net is that real estate speculators and developers make billions, our local politicians collect millions, and we and our neighborhoods get the shaft.
One of the major benefits of Measure S is that it will put the brakes on the corrupt pay to play culture at City Hall as “up zoned” developments will be prohibited under the two year moratorium. This will protect our neighborhoods and our quality of life while the City engages in real planning in an open and transparent manner.
So NO to pay-to-play corruption. Say YES to real planning. And Vote YES on Measure S.
Sec. 245. City Council Veto of Board Actions.
Actions of boards of commissioners shall become final at the expiration of the next five meeting days of the Council during which the Council has convened in regular session, unless the Council acts within that time by two-thirds vote to bring the action before it or to waive review of the action, except that as to any action of the Board of Police Commissioners regarding the removal of the Chief of Police, the time period within which the Council may act before the action of the Board shall become final shall be ten meeting days during which the Council has convened in regular session.
(a) Action by Council. If the Council timely asserts jurisdiction over the action, the Council may, by two-thirds vote, veto the action of the board within 21 calendar days of voting to bring the matter before it, or the action of the board shall become final. Except as provided in subsection (e), the Council may not amend, or take any other action with respect to the board’s action.
(b) Waiver. The Council may, by ordinance, waive review of classes or categories of actions, or, by resolution, waive review of an individual anticipated action of a board. The Council may also, by resolution, waive review of a board action after the board has acted. Actions for which review has been waived are final upon the waiver, or action of the board, as applicable.
(c) Effect of Veto. An action vetoed by the Council shall be remanded to the originating board, which board shall have the authority it originally held to take action on the matter.
(d) Exempt Actions. The following actions are exempt from Council review under this section:
(1) actions of the Ethics Commission;
(2) actions of the Board of Fire and Police Pension Commissioners;
(3) actions of the Board of Administration for Los Angeles City Employees Retirement System;
(4) actions of the Board of Administration of Water and Power Employees Retirement Plan;
(5) quasi-judicial personnel decisions of the Board of Civil Service Commissioners;
(6) actions of a board organized under authority of the Meyers-Milias Brown Act for administration of employer-employee relations;
(7) individual personnel decisions of boards of commissioners other than the Board of Police Commissioners; and
(8) actions which are subject to appeal or review by the Council pursuant to other provisions of the Charter, ordinance or other applicable law.
(e) Exceptions for Actions of City Planning Commission and Area Planning Commissions. The Council shall not be limited to veto of actions of the City Planning Commission or Area Planning Commissions, but, subject to the time limits and other limitations of this section, after voting to bring the matter before it, shall have the same authority to act on a matter as that originally held by the City Planning Commission or Area Planning Commission.
LA WATCHDOG-The La Kretz Innovation Campus is a welcome addition to the City’s economic development infrastructure. Located on 3.2 acres in the Arts District, this one story, renovated warehouse consists of 60,000 square feet of “modern, creative office and laboratory spaces” that will serve as an “incubator of startups and early stage businesses focused on the commercialization of clean technologies.”
Importantly, this tasteful, LEED certified development respects the character of the neighborhood, a rare feat in modern day Los Angeles.
There is also an attractive 25,000 square foot neighborhood park that will be leased to and operated by the Department of Recreation and Parks.
This $43 million development was named after Morton La Kretz, a philanthropist and real estate speculator who made a tax deductible contribution of $3 million in return for the naming rights to the Campus.
He is also one of the forces behind the controversial 1.4 million square foot, Crossroads of the World development that is located near Sunset and Highland, right in the middle of already traffic congested Hollywood. This massive mixed use development does not respect the character of this low rise neighborhood as it will have buildings that are 400 feet tall, will house 1,250 residential and hotel units, and will have 280,000 square feet of office, retail, and commercial space.
Needless to say, this massive project will require the approval of local Council Member Mitch O’Farrell, the Planning and Land Use Management Committee chaired by Jose Huizar, the Herb Wesson led City Council, and Mayor Eric Garcetti who represented this part of Hollywood when he was a member of the City Council.
In September, Jose Huizar made a motion (Council File 16-1109) calling for the Chief Legislative Analyst and the Economic and Workforce Development Department to report on the progress of the Campus, including incubating early stage green businesses and supporting energy and water conservation through research and education.
But no report would be complete unless it analyzed the adequacy of the economic returns to our Department of Water and Power which was forced to “invest” $20 million in this pet project of Eric Garcetti and Jose Huizar and to absorb the operating costs of $895,000 a year. The report should also include an analysis of whether the bargain rents from “green” tenants are consistent with the market and the high cost of the Campus.
This report should also address La Kretz’s use of philanthropy for his own personal gain. This would include not only the Crossroads of the World development in Hollywood, but his two controversial projects on the Los Angeles River, one in Atwater Village and the other across the river in Elysian Village.
La Kretz should be complimented for his generosity in helping to fund the Campus. And while he has not taken the well-travelled road of contributing to the campaign coffers of the Mayor and the members of the City Council, he has achieved a level of influence through his charitable gifts that may result in the approval of this massive, out of character development in Hollywood. More than likely, this will result in estimated profits in excess of $100 million.
Not a bad return on a tax deductible $3 million investment.
The pay to play culture surrounding the Crossroads of the World development is just another example of why we should VOTE YES ON MEASURE S on March 7 so we can help stem the corruption that has infected City Hall to the detriment of our neighborhoods.
LA WATCHDOG--You can’t make this stuff up.
Council District Nine Incumbent Curren Price’s campaign slogan, The Price is Right for the Ninth, is spot on given the pay to play culture permeating the cesspool of corruption known as City Hall.
This begs the question to Price, “What is the price that the deep pocketed real estate developers paid you to support the out of context, $1.2 billion high rise development of The Reef in South Central that has the very real potential to displace tens of thousands local residents?”
But Price is not alone.
We should demand that Mayor Garcetti and all of the members of the Herb Wesson led City Council come clean about all their shady dealings with real estate developers, starting with Garcetti, Buscaino, Englander, Huizar, and Martinez and their involvement with the $600,000 of laundered campaign contributions involving the $72 million Sea Breeze development that was disclosed in a well-researched front page story of the Los Angeles Times.
And the list of neighborhood destroying developments are too many to enumerate, but involves billions of congestion causing, “up zoned” developments approved by the Mayor Garcetti, the Herb Wesson City Council, and the Jose Huizar led Planning and Land Use Management committee.
As of December 31, the Mayor and the seven City Council incumbents have been showered with over $5 million in campaign contributions with millions more expected prior to the March 7 election. And this does not include millions in self-serving contributions to “independent” expenditure committees to support individual candidates and politically favored ballot measures.
While the price of admission to the cesspool of corruption known as City Hall is chump change relative to the value of favors granted to City Hall’s generous real estate development cronies, what is the price that we Angelenos will have to pay?
Trust me, it ain’t chump change.
Vote Yes on S, the Neighborhood Integrity Initiative.
LA WATCHDOG--As a result of Angelenos' accurate perception that our corrupt City Council and Mayor are unduly influenced by the campaign contributions of real estate developers, the leaders of the City’s public sector unions, and other special interests, Councilmember Mike Bonin introduced his “Clean Money Elections for Los Angeles” motion on January 17.
Under his proposal that “gets money out of politics,” the City would establish a system of publically financed municipal elections where candidates would “agree to forgo corporate donations, special interest money, further donations from individuals, or significant self-financing” in return for “a statutorily established amount of money sufficient to run an aggressive and well-financed campaign.”
This voluntary program would be fully funded by a dedicated revenue stream. According to Bonin’s motion, specific sources of financing would include fees on development and a severance tax for all oil and gas produced within the City of Los Angeles.
But rather than levying new taxes on the business community which will be passed onto all Angelenos, the City Council should investigate the use of their less than transparent discretionary slush funds that are reputed to haul in $20 to $25 million a year.
Sources of cash for these slush funds include the Street Furniture Fund (advertising revenues from bus shelters), Oil Pipeline Franchise Fees, the Real Property Trust Fund (50% of the proceeds of the sale of surplus property), and AB 1290 Funds (tax increment funds from the dissolution of the corrupt Community Redevelopment Agency).
There are also lucrative fees from the Lopez Canyon Landfill, the Sunshine Canyon Landfill, and the Central LA Recycling and Transfer Station that never see the light of day.
Unfortunately, these slush funds are shrouded in mystery as the City Council refuses to allow a detailed audit that is available to the public. Rather, our Elected Elite’s idea of transparency is a data dump of more than 100 pages of computer printouts which require an experienced forensic accountant to decipher.
And when asked by Mayor Villaraigosa in 2010 to “lend” $40 million to shore up the City’s Reserve Fund in the face of a projected $485 million deficit, the answer was a self-serving and resounding NO.
Despite this lack of transparency, each Councilmember has detailed information on their own discretionary slush fund.
Another source of cash would be to tap the combined $100 million annual budgets of the Mayor and City Council. But like the slush funds, this might be hitting too close to home and limit the ability of our Elected Elite to finance their pet projects and reward their friends, cronies, family, and contributors to their election campaigns.
Bonin requested that the Chief Legislative Analyst and the City Administrative Officer develop cost estimates and revenue sources for the Clean Money Public Campaign Financing System. He also moved that the Ethics Department to prepare a ballot measure for our rejection or acceptance in 2018.
Any reform will also need to address Independent Expenditure committees that are funded by real estate developers, the leaders of the City’s public unions, and other special interests. These committees are designed to support individual candidates, ballot measures, or tax increases where the Mayor and other elected officials put the arm on well healed donors who are looking for special treatment at City Hall.
Of course, any reform will require the cooperation of our 18 elected officials and any candidate for office. And this will be near impossible as campaign cash is the ultimate aphrodisiac for the money grubbing occupiers of City Hall and their cronies.
Note: The recent flurry of Council motions endorsing campaign reform, including a Ban on Developer Campaign Contributions, are an effort to blunt wide spread voter support of Measure S, the Neighborhood Integrity Initiative, and to offset voter outrage over the pay to play corruption involving real estate developers.
Recent articles and editorials in the Los Angeles Times and CityWatch have detailed the corruption involving the Sea Breeze development where $600,000 in suspicious money laundering campaign contributions to Supervisor Janice Hahn, Mayor Garcetti, and Councilmembers Buscaino, Jose Huizar, Mitch Englander, and Nury Martinez resulted in the approval of a $72 million development that was rejected by both the Area and City Planning Commissions.
The Los Angeles Times, CityWatch, and other LA area publications have also had a field day commenting on the pay to play corruption at the over height development of billionaire Rick Caruso near the already congested Beverly Center, the oversized Cumulus development at Jefferson and La Cienega, the out of character Reef in South Central, and the 27 story development at Catalina and Eighth in Koreatown where Garcetti and Wesson extorted $1.25 million from the Beverly Hills developer in return for a variance valued at an estimated $20 million.
LA WATCHDOG--In August of 2015, the City of Los Angeles announced what turned out to be a budget busting contract with the Coalition of City Unions that represents the City’s 20,000 civilian workers. According to Mayor Eric Garcetti, this agreement “prioritizes service delivery and strengthens our long term fiscal health.”
To the contrary, this back room deal contributed to the City’s never ending Structural Deficit (where personnel costs increase faster than revenues) and blew a gaping hole in the 2020 budget, turning a projected surplus of $68 million into $101 million deficit.
But that’s not all, folks.
The City also committed to a “goal” of hiring 5,000 civilian employees by June 30, 2018. But in a December report prepared by the City’s Personnel Department that outlined the Targeted Local Hire Program, not one mention was made about the cost of this program or the impact on the City’s budget. Yet the City is looking at an $85 million deficit next year, but that was before the City Administrative Officer informed us on January 6 that this year’s breakeven budget is a pipedream as the shortfall may be as high as $245 million thanks to lower revenues and higher than budgeted litigation costs.
While some of the new employees will replace higher cost retiring workers, the hit to the City’s budget has been rumored to be in the range of $250 million when considering the fully loaded costs of salaries, Cadillac healthcare plans, and very generous pensions.
The Targeted Local Hire Program appears to be more of a social welfare program as it is focused on hiring and retaining of local Angelenos from underserved communities. Under the proposed system, over 80% of the positions would be allocated to the applicants from the designated underserved communities.
But what about all the other Angelenos who have stayed out of trouble and done what was expected of them. Don’t they deserve a fair shot at these high paying, guaranteed for life City jobs that have very generous benefits that far exceed those in the private sector? And don’t the odds favor them doing a better job?
This is not the time to be expanding the City’s workforce. The City is looking at a river of red ink of almost $300 million over the next four years, and that was before the realization that this year’s unexpected deficit may be as high as $245 million. The depleted Reserve Fund is under severe pressure to fund this shortfall. And more than likely, the economy is going to be hitting some headwinds that will put additional pressure on the budget. And as we know, it will be hard to lay off employees that are represented by the campaign funding leaders of the City’s self-serving public unions who consider us their ATM.
Rather than hiring and training 5,000 new workers and adding to the City’s permanent overhead, why not hire independent third parties to complete specific tasks such as repairing our streets and sidewalks, trimming our trees, and maintaining our parks?
Before proceeding with the Targeted Local Hire Program, Councilmember Paul Koretz, the Chair of the Personnel Committee and one of the main promoters of this less than transparent program, should conduct public hearings and outreach so that we have a better understanding of this very expensive initiative and its impact on the City’s already precarious finances.
At the same time, Koretz, City Council President Herb Wesson, and Mayor Eric Garcetti would be wise to follow the advice of the Los Angeles Times to “commission and independent analysis of the impacts” of the program and “allow plenty of time for the public [and the Neighborhood Councils] to ask questions.”
A year ago, Koretz wrote, “The City of Los Angeles has a mission to provide the highest quality public service to the residents of the City in the most efficient and cost effective manner.”
Koretz must honor this pledge.
- Read More
Strategic Workforce Development Taskforce / Personnel Department / Letter of Agreement / Hiring Civilian Employees Council File 16-0109
LA WATCHDOG--Despite General Fund revenues being up by over $1 billion since Eric Garcetti became our Mayor, the City Administrative Officer indicated in a January 6 memo that the “combined potential deficit [for the fiscal year ending June 30, 2017] currently stands at $245 million.”
You have to be kidding. A billion bucks and these jokers cannot balance the budget.
The budget is being hammered by higher than anticipated expenditures and lower than expected revenues. But there are not many real operational solutions since the Mayor, the Personnel Committee headed by Paul Koretz, and the City Council are not even willing to considering laying off or furloughing unionized employees who represent the bulk of City budget expenditures.
Spending is anticipated to be $70 to $80 million over amounts approved by the City Council and Mayor Garcetti in June. The primary culprit is legal settlements and verdicts against the City that are more than double the budgeted $67 million. But this budgeted amount was significantly less than the amount recommended by the City Administrative Officer (rumored to be $120 million) last April when Garcetti presented his budget to the City Council.
The revenue shortfall (including those at risk) is projected to be $165 million, consisting of lower than expected reimbursements from the proprietary and special departments, lower taxes on DWP Ratepayers as Power System revenues are below projections, and lower collection of property and sales taxes.
The CAO has proposed a number of nickel and dime solutions which, when taken as a whole, may help eliminate some of the budget deficit. These include curtailing any new expenditures, limiting hiring, increasing revenues by collecting the hotel tax from short-term rental sites in addition to AirBnb, investigating the revenue potential of billboards on City property (subject to the approval of the City Council), and being reimbursed for services by major event venues.
As expected, the CAO has proposed that the City proceed with a ten year Judgment Obligation Bond of up to $70 million. The proceeds from this offering would be used to replenish the Reserve Fund so that it would have the capacity to help close the budget deficit.
But this financial strategy of using long term debt to finance operating losses highlights the financial follies that have been dumped on us by Garcetti, the Paul Krekorian Budget and Committee, the Personnel Committee chaired by Paul Koretz, and the Herb Wesson led City Council. They have steadfastly refused to follow the many common sense recommendations of Miguel Santana, the City Administrative Officer who, unfortunately, is leaving to become the Chief Executive Officer of the troubled Los Angeles County Fair Association.
The City will muddle through this financial mess by issuing Judgment Obligation Bonds, developing new sources of revenues, selected budget cuts, fewer hires, and/or raiding the Reserve Fund and maybe even the previous sacrosanct Budget Stabilization Fund. But it will not be pretty, especially when we have to listen to all the excuses of the City Council and the Mayor.
This financial fiasco demonstrates why the City Council and Garcetti need to place on the ballot a LIVE WTHIN ITS MEANS* charter amendment so that voters have the opportunity to either accept or reject budget reform.
Finally, Garcetti and Personnel Chair Paul Koretz do not deserve to be re-elected in March because they have failed the citizens of Los Angeles by refusing to adopt realistic budget and personnel policies that will allow the City to balance its budget and provide basic services to all Angelenos.
Time for a change. Throw the bums out.
*The “Live Within Its Means” charter amendment will require the City to develop and adhere to a Seven Year Financial Plan; to pass three year balanced budgets based on Generally Accepted Accounting Principles; to prohibit any labor contracts that result in future budget deficits; to benchmark the efficiency of its operations; to fully fund its pension plans within twenty years; to implement a twenty year plan to repair and maintain our streets, sidewalks, and the rest of our infrastructure; and to establish a fully funded independent Office of Transparency and Accountability to oversee the City’s finances and operations.
LA WATCHDOG--In 2013, Mayor Eric Garcetti told us that the revitalization of the 11 mile stretch of the Los Angeles River from Griffith Park to the Arts District was projected to cost $1.1 billion, of which the City’s share was $432 million.
In 2015, the cost increased to $1.4 billion, but our share for the 11 mile revitalization ballooned to $1.2 billion as federal regulations limited the Army Corps of Engineers contribution to $200-$300 million. While the City had no clue how it was going to come up with its share, the City Council authorized the City Administrative Officer to issue a letter to Army Corps of Engineers stating the City will have the financial capability to meet its cost sharing obligations.
In late 2016, the revitalization plan was expanded to include the first 32 miles of the 51 mile long Los Angeles River that flow through the City, beginning in Canoga Park and ending at the Vernon line. But once again, the cost ballooned, this time to an estimated $7 billion. The cost per mile also increased to $219 million, up 72% from the $127 million per mile for the 11 mile revitalization plan.
Importantly, EIFDs are not permitted to fund operating expenses such as ongoing maintenance and repairs, adding another level of expense to the river revitalization plan that has not been considered.
Consistent with past practice, Garcetti has not developed a plan to finance this aspirational, multi-decade project. However, one alternative that is being considered by the City Council and the Economic and Workforce Development Department (“EWDD”) is Enhanced Infrastructure Financing Districts (“EIFD”), a new financing vehicle authorized by the State in 2015 that allows local governments to fund capital projects by diverting “incremental” property tax revenues from the City to an EIFD to finance the payment of interest and principal on long term bonds.
In many ways, EIFDs are intended to replace the controversial and often corrupt Community Redevelopment Agencies by limiting their taxing authority to ‘consenting” entities (in this case the City and County, but not LAUSD) and requiring a 55% vote of the EIFD voters to approve the issuance of bonds.
The recent report prepared at the request of EWDD recommends establishing nine EIFDs along the 32 miles of the river that would be entitled to collect 75% of the incremental property taxes from properties within one mile of the River due to the City and County (52% of the total as any incremental tax revenues due LAUSD would not be included) that exceed the existing assessed value. This amount would then be reduced by interest payments, interest reserves, and delinquency reserves. And then another 20% would be set aside for affordable housing.
Over the next 30 years, the report indicated (but only after massaging the massive amounts of data) that over $7.6 million in incremental tax revenues would be available to the nine river EIFDs. But after financing costs (interest, interest coverage, and reserves) and the affordable housing set aside, only $1.5 billion (20%) is available for investment in river related projects. This is an unacceptable proposition that is dependent on issuing massive amounts of debt.
The report also indicates that the EIFDs will not increase taxes of the properties in the district. While true, it will divert the incremental property tax revenue from the City’s General Fund, resulting in less money for services for those who live in the remaining 88% of the City based on the assessed value of all City property. Again, this is not an acceptable proposition since the City’s voters do not have a say in the matter.
There are also issues of transparency and accountability that need to be addressed as the EFIDs may have a life span of up to 45 years and may have the ability to increase fees and assessments without the approval of the voters in the districts or the City.
What is not to like about a revitalized Los Angeles River? But does the river revitalization plan take priority over repairing our lunar cratered streets, our parks, and our urban forest; public safety (LAPD and LAFD); affordable housing and the homeless; and the restoration of City services. And should the City develop a pay as you go revitalization plan instead of issuing billions in new debt?
Before proceeding with the $7 billion river revitalization plan and the establishment of EIFDs, the City needs to reach out to the entire City and its Neighborhood Councils to determine the City’s priorities and educate the public on the revitalization plan and the intricacies of the Enhanced Infrastructure Financing Districts.
LA WATCHDOG--At its December 6 meeting, the politically appointed Board of Commissioners of our Department of Water and Power approved the transfer of $264 million of Ratepayer money from DWP’s Power System to the City coffers without any discussion, once again demonstrating their disregard for the Ratepayers and our hard earned cash. But this is standard operating procedure as witnessed by the Board’s recent blessing of the above market $41 million lease for the City owned Figueroa Plaza and the uneconomic $12 million Rooftop Solar Program.
The Commissioners also knew that the $264 million 8% Transfer Fee is the subject of a class action lawsuit that alleges that this fee is really a tax as it exceeds the cost of providing electrical service to the Ratepayers. This violates the California constitution because the tax has not been approved by the City’s voters.
But the Board does not bear the sole responsibility for its failure to stand up for the best interests of the Ratepayers. Behind the scenes is Mayor Eric Garcetti, calling the shots, pulling the strings, and directing the Commissioners to approve actions that help satisfy City Hall’s addiction to our cash.
But this $264 million transfer tax is $27 million less than budgeted $291 million, which, when combined with the projected budget deficit of $82 million for this year, will result in red ink of $110 million. And this does not include the projected $35 million shortfall in property tax revenues.
To fund this deficit, the City is considering issuing a $70 million Judgment Obligation Bond and/or levying a special assessment on the Department of Water and Power.
The City is desperate to settle the class action lawsuit in a way that will preserve all or most of the Transfer Tax without giving us the opportunity to vote on this tax. Rumors from well-placed sources indicate that the City is close to settling the class action litigation where the City will cap the transfer at $250 million a year without giving the voters the opportunity to approve or reject this tax.
This, however, will not be without a fight as taxpayers will protest any settlement that does not require a vote.
The purpose of this pushback is not to break the City, but to reform the City’s budget process.
As an incentive for voters to support the $250 million Transfer Tax (the equivalent of a half cent increase in our sales tax or a 5% bump in our property taxes), the City should also place a LIVE WITHIN ITS MEANS* charter amendment on the ballot. Each measure would require voter approval of the other ballot measure.
While we would all like to “save” $250 million a year, this is a fair price to pay for real budget reform, especially given that our fiscally irresponsible Mayor has been unwilling to confront the City’s Structural Deficit that continues to produce rivers of red ink, lunar cratered streets, and massive unfunded pension liabilities that will eventually overwhelm the City’s budget.
Here’s to Real Reform and a Happy, Healthy, and Wet 2017.
*The “Live Within Its Means” charter amendment will require the City to develop and adhere to a Seven Year Financial Plan; to pass three year balanced budgets based on Generally Accepted Accounting Principles; to prohibit any labor contracts that result in future budget deficits; to benchmark the efficiency of its operations; to fully fund its pension plans within 20 years; to implement a 20 year plan to repair and maintain our streets, sidewalks, and the rest of our infrastructure; and to establish a fully funded independent Office of Transparency and Accountability to oversee the City’s finances and operations.
LA WATCHDOG--The City is looking at an $82 million year end deficit according the Second Financial Status Report prepared by the City Administrative Officer. This gap does not include the possibility of lower revenues from the utility users’ tax, the sales tax, parking fines, and the 8% Transfer Tax from our Department of Water and Power.
One of the major reasons for this shortfall is that payouts from the Liability Claims Account are expected to be “at least” $135.5 million, $67 million over $68.5 million in the City’s Adopted Budget that was blessed by the City Council in May.
Included in these payouts is a jury verdict for an eye popping $23 million in a wrongful death suit against the deep pocketed City for its failure to repair a dangerous intersection in San Pedro. The City intends to finance this cash payout by raiding its Reserve Fund that can ill afford this hit.
And on Tuesday, the City Council approved the payment of $8 million to settle lawsuits involving three men who were shot and killed by LAPD officers. And once again, the Reserve Fund will end up footing the bill.
According to City Hall sources, there are a number of other lawsuits involving the Police Department that could cost the City big bucks. But rather than take the risk of being slammed by huge verdicts from runaway juries, the City, viewed as a deep pocket by the plaintiff ‘s bar, will elect to settle many of these cases for what appears to be outrageous amounts, but tiny compared to the potential exposure.
The City is considering financing the $67 million of excess settlements by issuing up to $70 million of Judgment Obligation Bonds. These bonds, which must be approved by the State and are payable over a maximum of ten years, would shore up the Reserve Fund’s liquidity, an important component in protecting the City’s high quality bond ratings.
At the same time, the bonds are paying for what is realistically considered an operating expense, allowing the City to continue to “kick the can down the road,” dumping yesterday’s obligation on tomorrow’s taxpayers.
A classic example is the $16 million judgment for the 2007 May Day demonstrations that was financed with a 2010 Judgment Obligation Bond that will not be paid off until 2020, 13 years after this incident involving the LAPD and 295 demonstrators in and around MacArthur Park.
Unfortunately, this low ball budgeting scam is not an isolated event. Last year, the City budgeted $54 million for Liability Claims, but ended up forking over $110 million in settlements.
In the future, the City needs to develop a realistic budget for it Liability Claims Account instead of relying on the Reserve Fund and Judgment Obligation Bonds.
At the same time, the City should make the Police Department and every other City department “own” its liabilities rather than relying on the General Fund and the Reserve Fund. This would force the Police Chief, the Fire Chief, and all department heads to focus on preventing potential liabilities.
Finally, the City should use its political clout in Sacramento to implement tort reform as California is considered one of the country’s top “Judicial Hellholes.”
But maybe we asking too much of Mayor Eric Garcetti and the Herb Wesson led City Council. After all, they have our wallets to raid. And they would not want to alienate the campaign funding lawyers who make an excellent living by suing our cash strapped City.
LA WATCHDOG--The Department of Water and Power’s pension plan and its plan to cover Other Post-Employment Benefits (“OPEB”) have unfunded liabilities of almost $4.8 billion, an obligation that the Ratepayers will be required to fund.
The Department of Water and Power pension plan is only 84% funded as assets of $10.3 billion are about $2 billion short of its future obligations of $12.3 billion.
At the same time, the OPEB obligations are only 75% funded as assets of $1.75 billion are about $600 million less that its future obligations of $2.3 billion.
Combined, DWP retirement obligations are only 83% funded, representing an unfunded liability of $2.5 billion.
That’s the good news.
When DWP finishes cooking the books and marks the assets to their true market value and assumes a more realistic investment rate assumption of 6.25%, the unfunded liability soars to $4.8 billion, representing an unhealthy funded ratio of 71%.
DWP’s retirement plans are also very expensive to maintain. This year, the Department is expected to contribute $550 million to the two plans, an amount equal to over 12.5% of Department revenues and equal to almost 60% of its payroll. The City, on the other hand, contributes less than 30% of civilian workers’ salaries to the Los Angeles City Employees’ Retirement System.
During the last year, the unfunded liability increased by 50% ($1.6 billion) to $4.8 billion, in large part because the return on invested assets was less than 1% (0.82%), a considerable shortfall from the overly optimistic investment rate assumption of 7.5%. At the same time, the annual contribution will increase to 60% of projected payroll, up from less than 50% the previous year.
DWP, to its credit, has been making some progress.
Several years ago, the Department contributed $600 million to fund a portion of its OPEB obligations, unlike the County and the State who have failed to fund any of this ever increasing liability. As an aside, the City has been funding a portion of this obligation for almost 20 years.
In the past year, it lowered its investment rate assumption to 7.25% even though it resulted in a higher unfunded liability and increased contributions.
The Department and IBEW 18 also agreed to establish a new pension tier with lower benefits for employees who were hired after January 1, 2014. This resulted in lower annual contributions as a percentage of the payroll.
But even with these changes, DWP’s retirement plans are not sustainable as the investment returns on the stock and bond portfolios are expected to be in the range of 6% to 6.5%, lower than the targeted rate of return of 7.25%. Furthermore, the investment rate assumption does not provide for the funding of the $4.8 billion unfunded liability which will continue to compound. At the same time, annual benefits of this mature pension plan will exceed contributions by the Department and its employees.
This shortfall will eventually be funded by the hard pressed Ratepayers who are already being smacked with a five year, $1 billion rate increase.
Rather than speculate about the status of DWP’s retirement plans, the Board of Commissioners should require the Department, with the assistance of the Ratepayers Advocate and the Neighborhood Councils, to follow the recommendation of the LA 2020 Commission to establish an independent and transparent Commission on Retirement Security to review the DWP’s retirement obligations in order to promote am accurate understanding of the facts, to report on employment costs in various categories, and to develop concrete recommendations on how to achieve equilibrium on retirement costs by 2020.
Is this too much to ask of the Garcetti appointed Commissioners?
LA WATCHDOG--At the November 15 meeting of Board of Water and Power Commissioners, President Mel Levine, Vice President Bill Funderburk, and Jill Banks Barad voted to approve the $13 million Solar Rooftop Program despite the lack of any financial analysis. But the absence of any definitive information is why Christina Noonan and Michael Fleming stood their ground and opposed this feel good, politically motivated project because there were too many unanswered questions and that it was obvious that this deal was a real stinker and was and is not in the best interest of the Ratepayers.
Under this pilot program, our Department of Water and Power will finance, install, and maintain 1 megawatt (1,000 kilowatts) of new photovoltaic solar power on the rooftops of 400 single story, owner occupied homes in low income and underserved areas of the City. In return, the homeowner will receive $30 a month ($360 a year) for the next 20 years pursuant to a one sided contract with the Department.
Importantly, all the electricity produced by these rooftop solar systems will not be used by the homeowners, but will be pumped into the DWP grid and will help the Department met its renewable energy mandates of 33% by 2020 and 50% by 2030.
But the economics of this deal stink.
Over the next 20 years, DWP is expected to spend almost $13 million on this pilot project. This includes $4 million for IBEW labor crews to install the photovoltaic systems over the next four years, $6 million for ongoing IBEW labor, and almost $3 million for customer lease payments. Including the cost of borrowed money, the cost per kilowatt hour is almost 50 cents, 5 times more expensive than DWP’s purchased wholesale solar alternatives and over 3 times more expensive than the retail price of 16 cents we are charged on our ever increasing bimonthly bills.
But it gets worse if you assume modest levels of overhead and insurance to repair damaged rooftops. Then the price per kilowatt hour increases to 75 cents.
But that’s not all folks! If there are cost overruns, a common occurrence for DWP / IBEW built solar projects, the price soars to a mindboggling $1.00 per kilowatt hour. This is more than 10 times the wholesale rate for solar power and more than 6 times the retail rate.
And this does not include the illegal 8% Transfer Fee!
The Board tried to justify this wildly uneconomic deal by relying on the new Equity Metrics Date Initiative claiming that the program was addressing the “solar access disparity” in the City. But the supporting data that was prepared by the Los Angeles Alliance for a New Economy, a labor dominated organization, is unavailable and does not appear to take into consideration the sizeable investment that environmentally conscious homeowners in higher end neighborhoods have made in rooftop solar systems that have a very low return on investment.
The Solar Rooftop Program is also a pet project of IBEW Union Bo$$ d’Arcy as 60% to 70% of the cost will be for IBEW labor. And if for some strange reason this program manages to survive, the anticipated 40 megawatt project will cost Ratepayers over $700 million and be a cash cow for the IBEW.
Mayor Eric Garcetti was also complicit in this Solar Rooftop Program as he approved this boondoggle pursuant to his Executive Directive No. 4 that was issued on June 24, 2014.
With friends like Eric Garcetti and his three politically appointed Commissioners, Mel Levine, Bill Funderburk, and Jill Barad Banks, picking our pockets, who needs enemies?
LA WATCHDOG--Earlier this week, Miguel Santana, our highly regarded City Administrative Officer, shocked the City when he announced that he will become the next Chief Executive Officer of the Los Angeles County Fair Association, the controversial nonprofit organization that runs the Fairplex on County owned land in Pomona.
But in July of 2009, everybody thought Miguel had lost his marbles when he agreed to be the City Administrative Officer for the City of Los Angeles. After all, the City was projecting a $2 billion river of red ink over the next two years.
Why would he want to work for the City and report to the 15 bickering nincompoops on the City Council and fiscally irresponsible Mayor Antonio Villaraigosa, who, along with City Council President Eric Garcetti, approved an overly generous, unsustainable five year, 25% raise for the City’s civilian workers just as the economy was tanking in 2007.
And then Santana, the new kid on the block, picked a fight with the campaign funding leadership of the City’s powerful civilian unions by questioning the economics of the Early Retirement Incentive Program that would have cost the civilian pension plan (and therefore the City and its taxpayers) $600 million over the next 15 years.
But this was just the opportunity that Santana envisioned after he received a Master in Public Administration from Harvard’s Kennedy School of Government in 2005.
Over the next several years, it was rough sledding as the City was unable to eliminate its Structural Deficit, where personnel expenditures grew faster than revenues. But there was meaningful progress, year after year, despite the constant interference by our Elected Elite.
The civilian unions and the City split the cost on the Early Retirement Incentive Program.
The City was able to spread out the five year, 25% wage increase over seven years, although there was considerable squawking from the unions about all their “sacrifices.”
There was modest pension reform that slowed the rate of growth in the unfunded pension liability.
There were tough decisions as the City was forced to cut projected expenditures year after year to balance the budget. There was even some cooking of the books to balance the budget when the City “banked” police overtime and deferred the maintenance of our streets.
The Structural Deficit became more manageable as the annual anticipated budget gap dropped year after year, from over $300 million in 2011-12 to under $100 million for the upcoming fiscal year beginning July 1, 2017.
Santana helped kill some boneheaded plans, including Villaraigosa’s scheme to sell the City’s parking garages to pay for every day operating expenditures.
Santana, the City’s equivalent of a Chief Financial Officer, also earned the trust of the investment community (who purchased the City’s bonds) and the credit rating agencies by being open and transparent about the City’s finances and its challenges and building a respectable Reserve Fund for emergencies and contingencies.
There were also situations where he put the City interests before those of the citizens. For example, he negotiated the settlement of the $1 billion class action lawsuit involving the Telephone Users’ Tax for a nickel on the dollar. But in his defense, we would have paid the bill, one way or the other. But it represented an opportunity to require the City to place on the ballot a “Live Within Its Means” charter amendment to entice us to approve a new tax to cover this shortfall.
He is also negotiating the settlement of class action litigation involving the illegal 8% Transfer Fee from DWP’s Power System to the City’s General Fund, capping the annual transfer at less than $250 million and waiving past liabilities that are north of $1.5 billion. But the question remains whether the proposed transfer needs to be approved by the voters pursuant to Proposition 26.
Miguel also earns kudos as a manager of his department. He has developed a team of highly qualified, trust worthy individuals who have served as a significant resource for the City Council, the Mayor, and the managers of the City’s departments.
The City still faces significant financial hurdles: a Structural Deficit of close to $100 million next year; an unfunded pension liability of $15 billion that has the possibility of doubling over the next ten years; deferred maintenance north of $10 billion to repair our streets, sidewalks, parks, and the rest of our deteriorating infrastructure; aggressive unions seeking raises exceeding the rate of inflation; and spending pressures from the Mayor and City Council who are unwilling to reform the City’s broken finances.
Of all the people at City Hall, there was nobody who I trusted more than Miguel. I will miss him, his intellect, his rigorous analysis, his directness, his openness, his hard work, his modesty, and his integrity. If not for Miguel, I hate to think of the mess we would be facing.
Thank you, Miguel.
LA WATCHDOG--Our Enlightened Elite who occupy Los Angeles City Hall tell us that pension reform is not necessary. After all, the recent actuarial report for the Fire and Police Pension Plan indicated that its $19 billion retirement plan was 94% funded as of June 30, 2016.
But as we all know, figures never lie, but liars figure, especially when it involves the finances of the City of Los Angeles.
The City will say that a pension plan that has assets equal to 80% of its future pension obligations is in good shape. Baloney! Pension plans should aim to be 100% funded, especially in down markets. And in today’s bull market, where the Dow Jones Industrial Average is hitting record highs, the pension plan should be 120% funded so that it can withstand another bear market.
Even at the 94% funded ratio, the unfunded pension liability for the retirement plan is pushing $1.2 billion, not exactly chump change when compared to the projected payroll of $1.4 billion for the 12,800 active cops and firefighters.
But there is more bad news that is buried in the opaque actuarial reports that, when pieced together and analyzed, reveals that the overall Fire and Police Pension Plan is over $6 billion in the red and that only 75% of its future obligations are funded.
The Fire and Police Pension Plans are also responsible for Other Postemployment Benefits (“OPEB”) which covers medical benefits for retirees. But the $3 billion of OPEB obligations are less than 50% funded, resulting in an additional $1.6 billion in unfunded liabilities.
The City is also cooking the books by “smoothing” the actual gains and losses in its investment portfolio over a seven year period. This little trick is covering up a $600 million hit to its investment portfolio.
Finally, if the newly calculated liability (that includes adjustments for OPEB and smoothing) of $3.4 billion (85% funded) is adjusted to reflect the more realistic investment rate assumption of 6.5% (as recommended by Warren Buffett), the unfunded pension liability soars to $6.25 billion and the funded ratio plummets to 75%.
When combined with the $9 billion liability of the Los Angeles Employees’ Retirement System, the City’s total unfunded pension liability exceeds $15 billion. And this liability is expected to double over the next ten years based on realistic rates of return that are in the range of 6% to 6.5%.
But what are Mayor Eric Garcetti, City Council President Herb Wesson, Budget and Finance Chair Paul Krekorian, and Personnel Chair Paul Koretz doing to address the single most important financial issue facing the City?
Nothing! Absolutely nothing other than put their heads in a potato sack and hope that a robust stock market will make the $15 billion problem go away.
They have ignored the recommendations of the LA 2020 Commission to form a Committee on Retirement Security to review and analyze the City’s two pension plans and develop proposals to “achieve equilibrium on retirement costs by 2020.”
Krekorian and Koretz made the bone headed suggestion to raise the investment rate assumption to 8% so that the City would be able to lower its annual required pension contributions to the underfunded pension plans, allowing more money for union raises.
Wesson has not even created a Council File for the pension and budget recommendations of the LA 2020 Commission.
But the real culprit is Garcetti who has refused to address the pension mess that will eventually become a crisis. He has not asked his political appointees on the two pension boards to initiate a study of the pension plans and the City’s ever increasing contributions that now devour 20% of the City’s General Fund budget. He has refused to contest the State’s Supreme Court “California Rule” which does not allow the City to reform the pension plans by lowering future, yet to be earned benefits.
Rather than look out for the best interests of the City and all Angelenos, he continues to kiss the rings of the campaign funding union leaders who are vital to his political ambitions.
The City’s lack of openness and transparency and its unwillingness to address its ever growing, unsustainable $15 billion pension liability can only be categorized as a major league cover up that should be front and center in the upcoming March election.
LA WATCHDOG--The County of Los Angeles has prided itself on being better managed than the City of Los Angeles.
In 2007, Mayor Antonio Villaraigosa and the Eric Garcetti led City Council approved a five year labor contract that granted the City’s civilian employees a 25% raise. While this contract was based on wishful thinking from the beginning, it turned into an unmitigated mess when the recession smacked the City’s unrealistic revenue projections, resulting in huge budget deficits. To balance its budget, the City reduced services, furloughed workers, dumped over 1,600 employees (and their unfunded pension liabilities) on our Department of Water and Power, laid off almost 500 employees, and implemented the $600 million Early Retirement Incentive Program for 2,400 senior employees.
The County, on the other hand, did not grant any meaningful raises during this period, and, as a result, did not have to cut services or furlough or layoff its employees in order to balance its budget.
The Supervisors also believe that the County’s pension plan, the Los Angeles County Employees Retirement Association, is in better shape than the City’s two pension plans, the Los Angeles City Employees Retirement System and the Los Angeles Fire and Police Pension Plans.
On the surface, this appears to be the case.
As of June 30, 2016, preliminary estimates (using the overly optimistic investment rate assumption of 7.5%) indicate that the County’s $58 billion plan is 83% funded with a shortfall of $10 billion. On the other hand, the City’s $43 billion of future obligations are only 77% funded, resulting in an unfunded liability of $10 billion.
At the same time, the County pension plan has 94,000 active members, 2½ times the 37,000 active members under the City’s much more generous plans.
However, when the County’s $31 billion of unfunded liability for Other Post-Employment Benefits (primarily retiree medical benefits) (“OPEB”) are considered, the County’s unfunded liability soars to over $40 billion, resulting in a funded ratio of a very unhealthy 55%. This is significantly lower than the City’s 77% funded ratio which includes its OPEB obligations.
Over the years, the County has failed to set aside any real money to fund its OPEB obligations, resulting in a funded ratio of less than 2%. On the other hand, the City, to its credit, has been making its annual required contributions since the late 1980’s, resulting in unfunded OPEB liability of “only” $2.1 billion and a funded ratio north of 60%.
[Note: Few governments have funded any of their Other Post-Employment Benefits, including the State of California which has an unfunded OPEB liability of a whopping $71 billion.]
If the Supervisors were to properly fund its Other Post-Employment Benefits, the annual required contribution will be in excess of $2.1 billion. But by ignoring this very real, snowballing obligation, the Supervisors are using these false “savings” to fund the County’s bloated bureaucracy, increases in salaries and employee benefits, additional social services, and to meet the demands of the campaign funding leaders of the County’s public unions.
When the unfunded pension liability is adjusted to reflect a more realistic investment rate assumption, the County has a $50 billion liability that has the potential to crowd out essential services.
But will the Supervisors address this $50 billion mess where the facts, issues, and recommendations for financial sustainability are discussed in an open and transparent manner? Or will they follow the example of Mayor Eric Garcetti and the Herb Wesson led City Council who have ignored the excellent recommendations of the LA 2020 Commission and who continue to kick the $16 billion can down our lunar cratered streets?
[Note: For each of the 4 million Angelenos, the total pension liability is $9,000, $5,000 for the County and $4,000 for the City. This does not include LAUSD or the State.]
LA WATCHDOG--According to the opaque actuarial report for the Los Angeles City Employees’ Retirement System (“LACERS”), 2016 was a good year. The return on its investment portfolio was 7%, the unfunded pension liability of $5.5 billion was $200 million lower than the previous year, the funded ratio “improved” to 72.6% from 70.7%, and the City’s 2017-18 Annual Required Contribution (“ARC”) to LACERS may be lower than this year’s payment.
But a more realistic analysis reveals that the City is “cooking the books,” relying on a set of false assumptions and policies that cover up the severity of the pension crisis.
In the real world, the return on investment was breakeven, the unfunded pension liability increased to almost $9 billion, the funded ratio decreased to a unhealthy 61%, and the ARC is understated by at least $300 million.
There are two policies adopted by the City that allows it to pull the wool over our eyes: “smoothing” where gains and losses compared to the targeted rate of return of 7.5% are amortized over a seven year period and two, the reliance on an overly optimistic investment rate assumption of 7.5%.
Smoothing was designed to even out the City’s pension contributions so they would not bounce around in an unpredictable manner based on the ups and downs of the stock market. But this has resulted in an understatement of the unfunded pension liability of $750 million as the cooked up actuarial value of its assets exceeds their market value by the same $750 million.
Smoothing also resulted in LACERS showing a 7% return on its investments. But in the real world, the ROI was breakeven (+0.05%) for the year, which, when compared to the targeted rate of return of 7.5%, resulted in an increase in the unfunded liability of almost $800 million, not a $200 million decrease as advertised by the actuaries.
The major culprit is the reliance on an overly optimistic investment rate assumption of 7.5%. Professional investors such as Warren Buffett of Berkshire Hathaway state that 6.5% is a more realistic rate of return, and even that rate may be optimistic.
If the investment rate assumption of 6.5% is used, LACERS’ unfunded liability based on market values will soar to almost $9 billion and the funding ratio will plummet to 61%. This is a far cry from the advertised $5.5 billion shortfall and a funded ratio of 72.6%.
The use of the more realistic investment rate assumption of 6.5% will also cause the Annual Required Contribution to increase by over $300 million, putting an even bigger dent in the City’s budget.
And this does not include the higher Annual Required Contribution for the Los Angeles Fire and Police Pension Plans that cover 26,000 active and retired firefighters and cops.
Together, the combined unfunded pension liability will soar to over $15 billion.
Despite this looming crisis, Mayor Eric Garcetti is unwilling to address real pension reform for fear of antagonizing the campaign financing leadership of the City’s public unions. Rather, he continues to support this shell game, this Ponzi scheme, burying his head in the sand, pretending there is no crisis, hoping beyond hope that the stock market will bail the City out, even though it will dump tens of billions of unfunded pension liabilities on the next two generations of Angelenos.
Rather than continuing down this path that will result in massive increases in our taxes, Mayor Garcetti needs to stop “waffling.” He should implement the recommendations of the LA 2020 Commission and the Neighborhood Council Budget Advocates to establish a “Commission for Retirement Security” to review the City's retirement obligations in order to promote an accurate understanding of the facts (transparency) and to develop concrete recommendations on how to achieve an equilibrium by 2020.
Without real pension reform, the next two generations of Angelenos will be short changed as escalating pension contributions will crowd out basic services while, at the same time, they will be paying more taxes to fund the past financial follies of the overly ambitious Eric Garcetti.
LA WATCHDOG--Pay-to-play is alive and well in Los Angeles as our Elected Elite continue to sell us out for cash campaign contributions, the ultimate aphrodisiac for Mayor Eric Garcetti and the members of the City Council.
In an excellent piece of investigative reporting, David Zahniser and Emily Alpert Reyes detailed how a sleazy real estate speculator / developer illegally funneled more than $600,000 through a network of questionable donors to selected members of the City Council and Mayor Garcetti. These contributions were part of a full court press to override the findings and recommendations of the City Planning Department and the City Planning Commission in the spring of 2014 that denied zoning changes and variances for Sea Breeze, a $72 million development of a 352 unit apartment building on land intended for industrial use in the Harbor Gateway area of the City.
[See A $72-million apartment project. Top politicians. Unlikely donors. Who wrote the checks to elected officials weighing approval? ]
But the $600,000 in campaign contributions was an excellent investment as the Planning and Land Use Management Committee of the City Council (“PLUM”), the City Council, and Mayor Garcetti approved the controversial zoning changes in early 2015, resulting in an estimated windfall profit well in excess of $10 million for the ethically challenged speculator.
Assisting with these zoning changes and variances benefited former Council Member Janice Hahn to the tune of $203,500 in campaign contributions. After she departed for Congress in late 2011, Joe Buscaino, the new Council Member for Harbor Gateway, “earned” $94,700 by ushering the developer’s appeal through the Planning and Land Use Management Committee. And as we all know, professional courtesy dictates that the local Council Member rules supreme in his district, no matter how bad the rotten Harbor fish stink.
The developer was not taking any chances as he also greased the palms of Jose Huizar, the Chair of PLUM, and the two other committee members, Mitch Englander and Gil Cedillo, with over $100,000 in contributions from a number of suspicious donors.
And that was topped off by multiple contributions totaling $60,000 to an independent campaign committee that supported Garcetti.
But this is well documented deal is not an isolated event as the pay-to-play game is taking place all over the City.
There is the NoHo West development in North Hollywood; the development the Martin Cadillac site on the congested Westside; the 27 story residential skyscraper in low rise Koreatown; the Cumulus monstrosity at the F rated intersection at La Cienega and Jefferson in South LA, the 1.6 million square foot Reef development in South Central, just south of DTLA; the Rocketdyne development in Warner Center section of Woodland Hills; and the Caruso luxury high rise apartment building near the already clogged intersections surrounding the Beverly Center.
And no doubt, other congestion causing monstrosities will be sprouting up all around town, especially in those parts of our City that are undergoing rapid gentrification like Boyle Heights, Echo Park, and Highland Park.
The corruption associated with the Sea Breeze development must be investigated by the City’s deliberately underfunded Ethics Department and Jackie Lacey, the County’s District Attorney, focusing not only on the sleazy developer and his partners in crime, but on all the beneficiaries of these illegal contributions.
At the same time, the City Council needs to adopt a rule that requires the real time disclosure of all campaign contributions (and behests) by any party affiliated with a council related action, including lobbyists and lawyers. This policy would also require our elected officials to sign off on these disclosures, with the requirement that they “know” their donors. This new rule has been labeled the “Political Donation Impact Review” by a neighbor to a mega-project that will cause ungodly amounts of congestion on surface streets and the adjoining freeway.
We also have the Neighborhood Integrity Initiative that has qualified for the March ballot. This reform measure calls for the City to plan for the City’s future, a task that has been neglected because it interferes with the fund raising activities of the City Council. The Initiative will require the City to update its General Plan and its 37 Community Plans. It will eliminate “spot zoning” where the City Council, under the leadership of the local Councilmember, will be able to create massive value for the developer by “up zoning” a specific property. It will also require the City to control the Environmental Impact Reviews, taking that responsibility away from the self-serving developers.
As an enforcement mechanism, the Initiative places a 24 month moratorium on “up zoned” projects. But contrary to the propaganda put out by its developer funded opponents, the Initiative does not place any restrictions on projects that are consistent with existing zoning regulations.
Reform of the City’s planning process has been made more complicated by the approval by the voters of JJJ, the Affordable Housing and Labor Standards Act, that requires inclusionary zoning and the equivalent of a project labor agreement on residential projects seeking zoning changes for projects of more than 10 units. However, with all the financial constraints imposed by JJJ and its numerous loopholes, the new law will lead to even greater corruption as it gives the City Council more power over residential developments.
In the next four months prior to the March election, we will have a raucous debate involving City Planning, the General Plan, the Community Plans, congestion, increased density, the allocation of the necessary resources to the Planning Department, and the absolute requirement for greater transparency into the impact of development on our local communities.
This process will also provide us with insight to the rigged system where real estate developers and the City Council are in cahoots with each other in ways that work against our best interests and those of our residential communities.
Sea Breeze is not an isolated deal. It is just the tip of the iceberg.
LA WATCHDOG--We have 24 ballot measures to contend with on Tuesday, four of which involve the City; one each for Metro, the County, and the Los Angeles Community College District; and 17 for the State of California.
When deciding how to vote on the following seven local ballot measures and six state measures that involve our wallets, we need to consider whether we trust our politicians with our hard earned money and whether our Elected Elite are working in our best interests or those of their campaign funding cronies, real estate developers, and union leaders.
The City of Los Angeles is corrupt enterprise where pay-to-play is standard operating procedure. On Sunday, the Los Angeles Times ran a front page expose detailing how $600,000 in illegal campaign contributions paved the way for the City Council and Mayor Garcetti to approve the $72 million Sea Breeze development in Harbor City despite being rejected by the City Planning Commission and the local Neighborhood Council.
The City is fiscally irresponsible. Over the last four years, revenues have increased by $1 billion and yet the City is projecting a budget deficit next year of $100 million.
Despite rivers of red ink and $15 billion of unfunded pension liabilities, Garcetti and the Herb Wesson led City Council have refused to consider the excellent budget recommendations of the LA 2020 Commission.
The City continues to use our Department of Water and Power as an ATM. In October, the politically appointed Board of Commissioners (with one dissenting vote) approved an incestuous $41 million, 10 year lease for 4 floors of Figueroa Plaza, a poorly maintained, out of the way complex owned by the City. Ratepayers are being taken for over $20 million.
Taxpayers are under attack. If all the State and local ballot measures are approved, Angelenos proportionate share is $1.6 billion. This equates to $400 a person or $1,600 for a family of four. $1.6 billion will increase our sales tax to 11.7% or require a 32% bump in our property taxes. There is another $2 billion in the pipeline. And this does not include funding for the hundreds of billions of unfunded pension liabilities.
Ask yourself, do you trust Mayor Garcetti, the Herb Wesson led City Council, or the reconstituted Board of Supervisors to act in the best interests of its hard working residents?
City Ballot Measures
Measure HHH – NO - $1.2 Billion Homeless Bond
This is a reward for bad behavior. Mayor Garcetti and the City Council tell us that homelessness is a priority, but it is not a budget priority despite a $1 billion increase in General Fund revenues over the last four years. Revenues are projected to increase another $600 million over the next four years. The alternative to this measure is a general obligation bond paid for by the General Fund, not through an increase in our property taxes.
Measure JJJ – HELL NO / Affordable Housing and Labor Standards
This ballot measure was cooked up by the County Federation of Labor. It calls for inclusionary housing, prevailing wages (a 100% premium to market wages), and the equivalent of a project labor agreement. But the numbers do not work. Affordable housing becomes more unaffordable as money is diverted to well-paid construction workers and their unions.
RRR – YES – DWP Reform
This is a step in the right direction. Additional ordinances will be needed for DWP to establish its own Human Resources Department, free from the City’s Personnel Department and its overly restrictive work rules. Management and the Board will have more flexibility provided they abide by the newly mandated strategic plan. The only power grab is by the City’s civilian unions.
SSS – NO – Airport Police Eligible for Fire and Police Pension Plans
We need to have increased transparency and pension reform before there are any changes to the existing pension plans. This proposal is more expensive than the existing arrangement with LACERS (Los Angeles City Employees Retirement System).
Metropolitan Transportation Authority
Measure M – NO - Metro / Los Angeles County Traffic Improvement Plan
A 9½% sales tax is regressive. It is one of the highest rates in the country. The Metropolitan Transportation Authority has a record of cost overruns (billions) and multiyear delays. The inefficient MTA is unable to manage its current infusion of $2.6 billion in taxpayer money. It does not deserve a 33% raise to $3.4 billion or another $75 billion over the next 40 years. It is a “forever” tax with no independent oversight. A $10 million campaign war chest supporting this new tax is being funded by crony capitalists looking to feast on our tax dollars. Do you trust the 13 politicians on the MTA Board?
County of Los Angeles
Measure A – NO – Parks Parcel Tax
This is another “forever” tax where the money is directed to pet projects. There is no plan to address deferred maintenance of $21 billion. Oversight by political appointees is inadequate: reactive as opposed to proactive. Come back with a 25 year, well thought out plan that includes deferred maintenance and real independent oversight.
Los Angeles Community College District
Measure CC – NO - $3.3 Billion Facilities Bond
CC was placed on the ballot without limited community input. This poorly run district is overreaching. $3.3 billion is too damn much for this enterprise with a record of squandering billions from previous bonds. Cut the amount in half, develop controls to manage the District, create an independent oversight body with real power, conduct community outreach, and then place a measure on the ballot.
State of California
Proposition 51 – NO - $9 Billion School Facilities Bond
An initiative cooked up by home builders, construction companies, realtors, unions, and their cronies. Keep Sacramento out of the local school systems. Governor Jerry Brown opposes Prop 51.
Proposition 53 – YES – No Blank Checks
No Blank Checks requires voter approval of State revenue bonds of more than $2 billion. It increases transparency and accountability. It may impact Jerry Brown’s two pet projects, the not so High Speed Railroad ($68 billion) and the controversial Twin Tunnels ($15 billion). A no brainer.
Proposition 54 – YES – Voters First, Not Special Interests
The State Legislature cannot pass any bill unless it has been in print and published on the internet for at least 72 hours before the vote. Prop 54 is a no brainer unless you are a backroom politician.
Proposition 55 – NO – Soak the Rich Income Tax Surcharge
Prop 55 extends the temporary income tax surcharge on higher incomes for another 12 years. Yet State revenues are up $50 billion (over 40%) since the surcharge was approved by the voters in 2012. The surcharge increases the reliance on the volatile stock market and the income tax, increasing the prospect of huge budget deficits when the market tanks. This is compounded by Sacramento’s spending spree. There are unintended consequences of having the highest income tax rate in the country. The unions and other special interests funding this initiative to the tune of $57 million have produced many misleading, scare tactic ads.
Proposition 56 – YES - Cigarette Tax
An additional $2 a pack tax will deter smoking, save lives, and lower healthcare costs. The tobacco industry has spent over $70 million opposing this proposition.
Proposition 61 – YES – Prescription Drug Pricing
This proposition is the result of the Legislature’s failure to address the escalating cost of prescription drugs. Big Pharma is spending over $100 million to defeat this measure.
Ballot measures HHH (the $1.2 billion homeless bond), Measure M (the Metropolitan Transportation Authority’s “forever” permanent half cent increase in our already regressive sales tax), and Measure A (the County’s “forever” parcel tax for parks) were placed on the ballot by our elected politicians.
By voting NO on these three measures, we can send a message to Mayor Garcetti, the Herb Wesson-led City Council, and the reconstituted County Board of Supervisors that we demand increased transparency and accountability, long range planning and multiyear budgeting, pension transparency and reform, and that the City, as well as the County, “Live Within Its Means.”
And most importantly, they need to understand that we are not their ATM.
LA WATCHDOG--Crony capitalism and pay to play are alive and well in Los Angeles.
In a well-researched front page story, Los Angeles Times reporters David Zahniser and Emily Alpert Reyes detailed how a sleazy real estate developer illegally funneled more than $600,000 to City politicians. As a result of this play to pay scheme, Mayor Eric Garcetti and the City Council “up zoned” Sea Breeze, his $72 million residential apartment building on industrially zoned land in the Harbor Gateway neighborhood that had been turned down by the Garcetti appointed City Planning Commission and the local neighborhood council.
Of course, the offending politicians (including Janice Hahn, a candidate for County Supervisor, who received over $200,000) are quick to deny that their favorable vote was influenced by campaign contributions. But we all know that our smooth talking Elected Elite never met a campaign contribution they did not like, the same as it is with tax increases, DWP rate hikes, and budget busting labor contracts.
But this is chump change compared to the $10 million campaign led by Mayor Garcetti to brow beat us into approving Measure M, a permanent half cent increase in our sales tax to a staggering 9½%, one of the highest rates in the country. This tax is designed to raise an additional $850 million a year for the Metropolitan Transportation Authority, increasing its annual haul from the County’s taxpayers by 33% to an astronomical $3.4 billion.
But who is financing this $10 million campaign that is equivalent on a per capita basis to the tobacco industry’s efforts to defeat Proposition 56, the state ballot measure to increase the tax on cigarettes by $2.00 a pack. And more importantly, what do they want in return?
The underwriters of Yes on Measure M Committee (a Coalition of Mayor Eric Garcetti, concerned citizens, labor organizations, businesses, and non-profits) include a large cast of cronies who want to feast at our expense on MTA contracts.
These vampires include unions (the Operating Engineers, the ILWU, IBEW Local 11, and the Carpenters & Joiners) who want high wages and numerous jobs; construction and engineering firms (Skanska, AECOM, and Parsons) who want big fat contracts; real estate developers (Westfield) and corporations (Fox, Disney, and NBCUniversal) who want special treatment from Garcetti, the City Council, and the County Board of Supervisors; and concerned citizens (Eli Broad, Jerry Perenchio, and Haim Saban) who have their own special agendas.
We are going to be pounded with slick ads promoting Measure M, the Los Angeles County Traffic Improvement Plan, promising improved mobility, less time in traffic, great middle class jobs, and the repair of our local streets. But outlandish campaign promises are a dime a dozen, especially when it comes to politicians eyeing our hard earned cash.
The MTA does not deserve a 33% increase in funding from the taxpayers. It is an inefficient organization whose projects are billions over budget and years behind schedule. Its operations are experiencing lower ridership. And it does not have the management, the engineering staff, the project managers, or the systems to be able handle its existing funding ($2.6 billion) and projects, to say nothing of the pipedreams envisioned by Mayor Garcetti.
The MTA is also a rogue organization that lacks adequate oversight as it Board of Directors consists of 13 politicians, including nine from the City and County, who have no clue how to manage or oversee a sprawling enterprise with 9,000 employees and an operating loss of $1 billion a year.
The City also does not deserve an increase in Local Return funds that would accompany this new tax. It already receives $200 million a year in Local Return funds from the three previously approved sales tax levies, but has failed to develop a plan to repair our streets, some of the worst in the nation. Which leads to the question: where the hell has all this Local Return money gone?
Our City has also failed to reform its finances, refusing to even consider the excellent budget recommendations of the LA 2020 Commission. As a result, the fiscally irresponsible Garcetti now faces a $100 million deficit next year despite an increase in revenues of $1 billion over the last four years.
Finally, if all of the tax increases on the November ballot were approved by the voters, Angelenos proportionate share will be $1.6 billion, or $400 for every resident. Lumped together into a single tax, this increase will increase our sales tax to 11.7% or require a 30% bump in our property taxes.
We cannot afford an increase in our sales tax to a breathtaking 9½% to say nothing about the other ballot measures for the City, County, Community College, and State.
Measure M is just another example of Crony Capitalism, but this time on steroids as we are being asked to approve a forever tax that will raise $75 billion over the next 40 years. It is time to tell Eric Garcetti and his cronies that we are not their ATM.
Vote NO on Measure M. After all, it is your money.
(Jack Humphreville writes LA Watchdog for CityWatch. He is the President of the DWP Advocacy Committee and is the Budget and DWP representative for the Greater Wilshire Neighborhood Council. He is a Neighborhood Council Budget Advocate. Jack is affiliated with Recycler Classifieds -- www.recycler.com. He can be reached at: email@example.com.)-cw
LA WATCHDOG--The Dodgers had a very good year, especially when you consider that they set a record for placing players on the disabled list, including a number of highly paid starting pitchers. The Bums won the National League West with 91 wins, eliminated the Washington Nationals in a nail biting five game series, and gave the Cubs a run for their money in the National League playoff.
And once again, we led Major League Baseball in attendance.
Now that the official season is over, the hard work begins on constructing next year’s roster so that the Dodgers have a shot of winning the World Series. At the same time, the team needs to guard its future by protecting promising prospects and by not entering into unsustainable long term contracts.
The first order of business is to sign Justin Turner, 31, and Hanley Jansen, 29, to reasonable contracts. This will involve handsome raises over their existing salaries of $2.5 million and $7.4 million, respectively.
The Dodgers will also have to trade for or enter into the free agent market to find two healthy starting pitchers and to add more punch to its lineup. This will require the Dodgers, who already have the largest payroll in baseball, to once again open up the check book.
The Dodgers are an attractive destination for a free agent: a winning team with a shot at a World Series ring, the second largest media market in the country, the glamor and hype of Hollywood, fantastic weather, and enthusiastic fans looking for a repeat of 1988.
But the Dodgers are starting out with two strikes because California has the highest marginal income tax rate in the country, topping out at 13.3% for all income north of $1,000,000. But a million bucks, while a lot of money to the ordinary fan, does not get us a starting player.
Rather, a quality starting pitcher or a productive hitter will command a multiyear contract with an annual salary at least $20 million. At that level, the tax bill from the State of California will be $2.6 million (12.6%), not exactly chump change.
If the Dodgers were to make the player whole for the extra tax, it would cost the Dodgers an extra $4 million when MLB’s luxury tax is taken into consideration.
On the other hand, if Proposition 55, the union sponsored ballot measure that extends the “temporary” Soak the Rich income tax for an additional 12 years, is rejected by the voters, the player will only have to pay 9.8% of his income, or about $2 million. But this is still a hefty amount when compared to other states (Texas, Florida, and Washington) that have no income tax.
But this incremental savings may make a difference to a player or players who may have the potential to help us win a World Series and end our 28 year drought.
While the self-serving proponents tell us that there are no adverse consequences if we stick it to the State’s highest earners, we all know that there is no such thing as a free lunch.
One very real consequence of our hostile tax environment is that many prosperous businesses and their high paying jobs will depart for locations with a more favorable tax and regulatory environment. Or how many large multinational companies will move large manufacturing operations out of Southern California to a more business friendly climate. Or how many people and companies will decide to pass on investing in California, especially since the State is sending the signal that it cannot be trusted when it comes to “temporary” taxes and that tax increases are a way of life.
Prop 55 will also increase our dependence on the income tax which, when the economy and stock market tanks, will result in massive deficits, especially since Sacramento is embarking on a spending spree given the economy’s recovery.
The Los Angeles Times, a supporter of Proposition 30 in 2012 that authorized the “temporary” income tax increase, is urging us to vote NO on Prop 55 because the Legislature has refused to reform our State’s tax structure that is “fiscally, politically, and socially unsound.”
While Prop 55 may not cost us the World Series, it is an example of the unintended consequences of this self-serving ballot measure cooked up by our public sector unions.
Vote NO on Proposition 55.
LA WATCHDOG--Last week, the Times Editorial Board rightfully criticized Mayor Eric Garcetti for not taking a position on Build Better LA (Measure JJJ, the Affordable Housing and Labor Standards Relating to City Planning), saying we “need straight talk from [our] City leaders” and “now’s the time for them to come out of hiding on Measure JJJ.”
The measure’s sponsor and major proponent, the politically powerful Los Angeles County Federation of Labor, claims that Build Better LA will create more affordable housing and more well-paying construction jobs.
The truth is that if JJJ is approved by the voters, it will stymie the development of multifamily residential housing, create fewer jobs, make affordable and market rate housing more expensive, and deprive the City of much needed revenues.
And given the loopholes in Build Better LA that allow the City Council to amend this initiative and the massive amounts of cash involved, there is the potential for mischief and corruption.
If passed, developers who want a zoning, height, or density change will be required to have up to 25% of the project’s units be affordable for low and moderate income tenants. But inclusionary housing, especially at the levels dictated by JJJ, is not a free lunch because it will have a significant downward impact on rents and the developer’s return on investment.
Developers will also have to meet stringent hiring requirements. These will require that construction workers be paid the “prevailing wage,” a rate that is significantly higher than market wages. Developers would also have to meet local hiring requirements and comply with onerous reporting requirements. Overall, these “project labor agreement” mandates will increase costs by more than 40% according LA based Beacon Economics, a well-regarded research and consulting firm that has been retained by the City on numerous occasions.
Between the lower per square foot rents resulting from the addition of affordable apartments and the significantly higher costs per unit caused by the prevailing wage and other hiring and union mandates, the developers’ return on investment tanks, the risks increase, the banks refuse to make construction loans, investors bail, and developers abandon projects that would have been viable if not for JJJ, Build BAD LA.
As a result, fewer apartments will be built, there will be fewer construction jobs, and rents will increase because of the scarcity factor. The City’s revenues will also be impacted by fewer construction and development related fees that are required from real estate developers.
And the City’s economy will be adversely impacted by the downturn in construction.
JJJ allows the City Council to adjust the affordable housing percentages if the developer is able to show that such adjustments are necessary to ensure the developer a “reasonable return on investment.” Of course, given the amount of money involved, a few targeted campaign contributions will help ensure that the affordable set-asides guidelines are relaxed.
The developers may also pay an “in-lieu fee” into the City’s Affordable Housing Trust Fund if they do not want to include affordable units in a project. This will allow the developers to maintain luxury buildings where the high end tenants do not have to mix with the hoi polloi.
But once this cash is in the Affordable Housing Trust Fund, the Mayor and creative geniuses on the City Council will no doubt figure out a way to direct these funds to their pet projects without these deals seeing the light of day.
We are being sold a bill of goods by the Los Angeles County Federation of Labor, which, along with IBEW Local 11, have invested over $1 million in this ballot initiative.
But where is Mayor Eric Garcetti? Why isn’t he shedding light on this scam that is being perpetuated by the same wise guys that tried (but failed) to pull a fast one by exempting companies whose workers were represented by unions from the recently enacted minimum wage requirements?
Or is our upwardly mobile Mayor, the wannabe Governor, Senator, or Cabinet Secretary, willing to sell us out for fear of alienating the campaign funding unions that are feasting at our expense?
The Los Angeles Times urges a NO vote as JJJ because it will make LA’s housing crisis even worse by making affordable housing more unaffordable.
Vote NO on JJJ. It is BAD for LA.
LA WATCHDOG--Since California is not a battleground state, we have been spared from many of the inane ads for Hillary and The Donald. But that is not to say we are off the hook as an estimated $400 to $500 million will be spent on the State’s 17 ballot measures by powerful special interests trying to convince us to reject or approve selected ballot measures.
Of the 17 November ballot measures, three ballot measures are attracting a substantial portion of cash: Proposition 56 (Cigarette Tax), Proposition 61 (Prescription Drug Pricing), and Proposition 55 (the extension of the “temporary” Soak the Rich Income Tax Surcharge).
Rather than succumb to barrage of ads, we should tell the big money special interests to take a hike, to buzz off, sending a loud and clear message that we are not for sale to the highest bidder, especially when they bombard us with many misleading advertisements.
As such, both Proposition 56 (Cigarette Tax) and Proposition 61 (Prescription Dug Pricing) deserve a YES vote as Big Tobacco and Big Pharma have spent over $150 million into ads opposing these two ballot measures.
On the other hand, Proposition 55 (Soak the Rich Income Tax Surcharge) deserves a NO vote as the California Teachers Association and the California Association of Hospitals have sunk over $55 million into this ballot measure that is betrayal of our trust and not in the best interest of the State and its economy.
YES on 56, the Cigarette Tax
If voters approve this initiative sponsored by the American Cancer Society, taxes on cigarettes will increase by $2.00 a pack. This economic signal to the market will discourage people from either continuing or taking up this nasty habit that costs us billions in healthcare costs.
The expected haul of $1.4 billion in the first year (which will decline over time as fewer butts are consumed) from this new tax will be allocated primarily to funding health care for low-income Californians.
But Big Tobacco (primarily Philip Morris and RJ Reynolds) has “invested” over $66 million to defeat this measure, making numerous misleading claims that this tax will benefit special interests (the medical industry) and deprive schools of much needed money. But these claims have been debunked by numerous credible sources, including our Los Angeles Times which endorses this proposition.
While many people oppose ballot box legislation, this initiative was the result of the failure of the Legislature to pass tax increases because our elected officials were bought off by generous campaign contributions (or threats) from the tobacco industry and their lobbyists.
YES on Proposition 61, Prescription Drug Pricing
Once again, our cowardly legislators have failed to represent their constituents as they have placed the profits of the pharmaceutical industry and their political careers and campaign war chests above our best interests.
In this case, the Legislature’s failure to pass laws that would increase transparency into the rapidly increasing prices of prescription drugs has prompted an initiative led by the Aids Healthcare Foundation (“AHF”) that will prohibit the State of California from buying any prescription drug at a price greater than the lowest price paid by the Department of Veteran Affairs.
While AHF has spent about $15 million placing this initiative on the ballot and purchasing airtime, this amount is dwarfed by the $87 million spent to date by pharmaceutical companies. And the industry is expected to dump considerably more cash into its efforts to defeat this measure, with some expecting expenditures of at least $100 million. The Los Angeles Times, which opposes this measure, raised a number of valid points as to why we should vote NO. But its solution to “fast rising drug prices” is a comprehensive, national solution that addresses competition, the speedy approval of new drugs, the role of federally funded research, and the development of new insurance models is not going to happen without prodding from the likes of AHF and the voters.
By voting YES on 61, we will send a message to Sacramento and the international drug companies that they need to get their asses in gear and develop a comprehensive policy that is acceptable to the voters of California. Otherwise, nothing will change and we (and our wallets) will continue to be sitting ducks for Big Pharma.
NO on Proposition 55, the Soak the Rich Income Tax Surcharge
In 2012, 55% of California’s voters approved Proposition 30. This measure authorized a “temporary” surcharge on higher income Californians to help plug the State’s budget deficit. And now that the State’s revenues have increased by almost $50 billion to almost $170 billion, there is no need to extend the Soak the Rich Income Tax Surcharge beyond its 2018 expiration date.
However, the California Teachers Association and the California Association of Hospitals and Health Systems are leading a $56 million campaign to extend this surcharge for another 12 years. They are also supported by a slew of elected officials, organizations that rely on the State’s cash, and public sector unions that are addicted to our cash and who have no problem betraying the promises that were made in 2012.
While this surcharge will produce an estimated $7 billion a year, it also increases the State’s dependence on the income tax derived from wealthy Californians. But this places the State’s finances in a very precarious position, especially when the stock market tanks, capital gains disappear, and incomes shrivel, resulting in significantly lower tax revenues and massive budget deficits like the State experienced during the Great Recession.
This is why the Los Angeles Times opposes Proposition 55, calling for the Legislature to produce a more comprehensive overhaul of the State’s budget process.
Rather than being bamboozled by Big Tobacco, Big Pharma, and the State’s public unions, we have the opportunity to see through their misleading ads and vote for what is in our best interests and not follow the lead of our Elected Elite who have their own personal agendas.
Vote YES on 56, Vote YES on 61, and Vote Hell NO on 55.
LA WATCHDOG--Of the 24 ballot measures on the November ballot, only four are specific to the City of Los Angeles. And of these four, only one deserves a YES vote (RRR - DWP Reform), two deserve a NO vote (HHH - the $1.2 billion homeless bond and SSS – Fire and Police Pension Plans), and one deserves a HELL NO vote (JJJ - Build Better LA). (See Ballot Summaries below.)
When determining how to vote, the first and most important question is whether you trust the proponents of the ballot measure. And in the case of the City of Los Angeles, Mayor Eric Garcetti and the City Council have not earned our trust and confidence as they have not embraced the reform of our City’s finances. They have ignored the excellent budget recommendations of the LA 2020 Commission, have refused to address the Structural Deficit where the increase in personnel expenditures (salaries, pensions, and medical benefits) exceed the growth in tax revenues, have passed on reforming the City’s two pension plans which are $15 billion in the hole, have failed to develop a plan to repair our streets and the rest of our failing infrastructure, and continue to bow to the wishes of real estate developers and billboard operators.
NO on Proposition HHH, the $1.2 Billion Homeless Bond
While our Enlightened Elite who occupy City Hall have told us that addressing homelessness is a priority, they have failed to make the average payment of $65 million a year a budget priority despite a $1 billion increase in City revenues over the last four years and another $600 million over the next four years. Rather than continue with this $2 billion revenue grab over the next 30 years (including interest payments) through an increase in our property taxes, the City has the capacity to pay for the homeless bonds by eliminating their discretionary slush funds, reduce their bloated staffs, and discontinue the hundreds of millions in “giveaways” to international hotel operators and mall operators such as Westfield.
The City has not developed a credible financial plan to fund the $2.8 billion gap between the $4 billion cost of 10,000 units of permanent supportive housing and the $1.2 billion in bond proceeds. Nor has it addressed the over the top cost of $400,000 a unit. Nor has it entered into a definitive agreement with the County which is considering a quarter cent increase in our sales tax ($350 million) to fund its service to the homeless.
The concept of throwing cash at the homeless problem without a financial and operational plan does not pass muster, especially given the lack of meaningful oversight.
For more information, see the CityWatch article, Los Angeles Must Resolve Its Homeless Crisis … This $1.2 Billion Taxpayer Ripoff is Not the Way to Do It.
NO on Charter Amendment SSS, the Los Angeles Fire and Police Pension Plans
If approved by a majority of the voters, Airport Police officers will be eligible to participate in the Los Angeles Fire and Police Pension Plans (“LAFPP”) instead of the less generous Los Angeles City Employees Retirement System (“LACERS”) plan. But without real pension reform that addresses the billions of unfunded liabilities of both LACERS and LAFPP, this ballot measure does not deserve our support. This scheme will also result in significantly higher pension contributions by the Airport and eventually its airline tenants.
The Los Angeles Times urges a NO vote. Police Pension Measure SSS Raises Too Much Doubt to Support.
HELL NO on Initiative Ordinance JJJ / Build Better LA Initiative
The Build Better LA Initiative is a crude attempt by the Los Angeles County Federation of Labor to take advantage of the affordable housing shortage in the City of Los Angeles. It would require real estate developers who request a zoning change or variance to include units of affordable housing in the development and to agree to the equivalent of a Project Labor Agreement. While there has not been any detailed analysis of the financial impact of this measure on housing costs, preliminary estimates indicate that it would drive up costs by 30% to 40%. This added expense will result in a transfer of money intended for affordable housing into the pockets of construction workers and their unions.
This misleading, self-serving ballot measure will make affordable housing more unaffordable.
The Los Angeles Times urges a NO vote. Measure JJJ Could Make LA’s Housing Crisis Even Worse.
For additional information, see the CityWatch article, Build Better LA Initiative: Affordable Housing Made More Unaffordable
YES on Charter Amendment RRR, DWP Reform
The major problem with our Department of Water and Power is City Hall. Unfortunately, this charter amendment does not address the issue of Ratepayers being used as an ATM by Mayor Garcetti and the City Council. Nor are there any major changes in the governance of the Department. But it does allow for more efficient procurement and contracting, increased oversight by the Ratepayers Advocate and a newly created Water & Power Analyst that reports directly to the Board of Commissioner, and a more transparent process of appointing a new General Manager. It also requires the Department and the Board of Commissioners to prepare a Four Year Strategic Plan beginning in 2020 for consideration by the City Council and the Mayor.
The major source of controversy is that this charter amendment begins the process that may lead to the Department establishing its own Human Resources Department for its 9,000 employees that is separate and distinct from the City’s Personnel Department and remove the Department from the City’s cumbersome civil service rules and regulations. The City’s civilian unions are labeling this as a “power grab” because it would lessen their influence over the affairs of the Department and limit the transfer of City employees to better paying jobs at DWP. But any major changes would require Council approval which would “undoubtedly prompt an epic political battle.”
While this ballot measure is not the answer to our prayers, it is a step in the right direction.
As a side note, City Council President deserves a pat on the back for ushering this ballot measure through the City Council. And with his leadership, hopefully other meaningful changes will be implemented by the City Council.
The Los Angeles Times in a very good editorial urges a YES vote.
Ballot Summary / Question
HHH - HOMELESSNESS REDUCTION AND PREVENTION, HOUSING, AND FACILITIES BOND. PROPOSITION HHH.
To provide safe, clean affordable housing for the homeless and for those in danger of becoming homeless, such as battered women and their children, veterans, seniors, foster youth, and the disabled; and provide facilities to increase access to mental health care, drug and alcohol treatment, and other services; shall the City of Los Angeles issue $1,200,000,000 in general obligation bonds, with citizen oversight and annual financial audits?
SSS – CITY OF LOS ANGELES FIRE AND POLICE PENSIONS; AIRPORT PEACE OFFICERS. CHARTER AMENDMENT SSS.
Shall the Charter be amended to: (1) enroll new Airport peace officers into Tier 6 of the Fire and Police Pensions System; (2) allow current Airport peace officers to transfer into Tier 6 from the City Employees’ Retirement System (LACERS) at their own expense; and (3) permit new Airport Police Chiefs to enroll in LACERS?
JJJ – AFFORDABLE HOUSING AND LABOR STANDARDS RELATED TO CITY PLANNING. INITIATIVE ORDINANCE JJJ.
Shall an ordinance: 1) requiring that certain residential development projects provide for affordable housing and comply with prevailing wage, local hiring and other labor standards; 2) requiring the City to assess the impacts of community plan changes on affordable housing and local jobs; 3) creating an affordable housing incentive program for developments near major transit stops; and 4) making other changes; be adopted?
RRR – CITY OF LOS ANGELES DEPARTMENT OF WATER AND POWER (DWP). CHARTER AMENDMENT RRR.
Shall the Charter be amended to: (1) add qualification requirements, stipends and removal protections for DWP Board; (2) expand Board to seven members; (3) require DWP prepare four-year Strategic Plans for Council and Mayoral approval; (4) modify DWP’s contracting, rate-setting and other authority; (5) permit future alternatives to existing civil service standards for DWP employees through collective bargaining; and (6) require monthly billing?
LA WATCHDOG--On September 28, Mayor Eric Garcetti issued his Fiscal Year 2017-18 Budget Policy and Goals to all of the General Managers of All City Departments. The goals include closing a projected $85 million deficit for the fiscal year beginning July 1, 2017, identifying over $40 million in new general funds to maintain the City’s current commitment to the homeless, and hiring 5,000 new employees by June 30, 2018 to restore services and replace retiring workers.
This missive is focused on next year’s budget and does not address the long term reforms that are desperately needed to tackle the City’s Structural Deficit (where the growth in personnel costs exceeds the increase in revenues), the massive unfunded liabilities of its two unsustainable pension plans (estimated to be in the range of $15 billion based on a more realistic investment rate assumption), and the deferred maintenance on its infrastructure (estimated to be north of $10 billion).
On October 4, the Neighborhood Council Budget Advocates (“NCBAs”)* delivered the following recommendation to Mayor Garcetti and the City Council.
Early White Paper Recommendation
The Neighborhood Council Budget Advocates (the “NCBAs”) urge the City Council and Mayor Eric Garcetti to implement the following recommendations of the LA 2020 Commission as part of its budget for the 2017-18 fiscal year:
- Create an independent “Office of Transparency and Accountability” to analyze and report on the City’s budget, evaluate new legislation, examine existing issues and service standards, and increase accountability.
- Adopt a “Truth in Budgeting” ordinance that requires the City to develop a three year budget and a three year baseline budget with the goal to understand the longer-term consequences of its policies and legislation. (Council File 14-1184-S2)
- Be honest about the cost of future promises by adopting a discount rate and pension earnings assumptions similar to those used by Warren Buffett.
- Establish a “Commission for Retirement Security” to review the City's retirement obligations in order to promote an accurate understanding of the facts.
We request that the Budget and Finance Committee assign a Council File for each of the recommendations and agendize each of these items for its next meeting on October 17, 2016.
The implementation of these recommendations will be the first step in addressing the City’s Structural Deficit, the massive unfunded liabilities of its two unsustainable pension plans, and the deferred maintenance on its infrastructure.
The adoption of the recommendations of the LA 2020 Commission will result in increased transparency into the City’s complex operations and finances and begin the process of restoring Angelenos’ trust and confidence in City Hall and its elected officials.
The NCBAs are making these recommendations prior to the 2017 Neighborhood Council Budget Advocates White Paper so that they will be an integral part of the upcoming fiscal year’s budget process.
The NCBAs look forward to a timely response.
Stay tuned to see if Mayor Garcetti and the City Council are willing to implement meaningful reform or will it be business as usual, kicking the can down the road and dumping tens of billions in unfunded obligations on the next generation of Angelenos.
NEED TO KNOW
*The Neighborhood Council Budget Advocates are the elected to represent the charter authorized Neighborhood Councils. Their role is to explore, research, study, seek input, prepare and present the concerns and interests of the communities of the City of Los Angeles ("City") about the use of City funds, City revenue collection, City budget and budget allocations, efficiency of City government, City finances, City financial obligations and other such concerns and related to financial matters of the City to the Mayor and City Council.
Join the discussion:
(Jack Humphreville writes LA Watchdog for CityWatch. He is the President of the DWP Advocacy Committee and is the Budget and DWP representative for the Greater Wilshire Neighborhood Council. He is a Neighborhood Council Budget Advocate. Jack is affiliated with Recycler Classifieds -- www.recycler.com. He can be reached at: firstname.lastname@example.org.) – cw
LA WATCHDOG--On Tuesday, the Board of Water and Power Commissioners voted 4 to 1 to approve an above market, 10 year, $41 million lease of four vacant floors of subpar office space at Figueroa Plaza, a 615,000 square foot, City owned office complex located north of the downtown Central Business District.
LA WATCHDOG--Mayor Eric Garcetti and his budget team are putting a full court press on the Board of Water and Power Commissioners to approve an above market, 10 year, $41 million lease for four vacant floors of office space at Figueroa Plaza, a two tower, 615,000 square foot City owned complex located north of the Central Business District in DTLA. (Photo above: Sculpture by Terry Allen. The bronze statue is located in Downtown L.A. at 7+FIG Plaza, on the corner of 7th and Figueroa Street, outside the corporate offices of Ernst Young)
But this deal, like the previous 10 year, $63 million lease for six vacant floors that was proposed in June, does not pass the smell test because this above market lease is not in the best interests of the Department of Water and Power or its Ratepayers.
Which leads us to the question of whether the five Commissioners, led by President Mel Levine and Vice President Bill Funderburk, will stand up for the interests of the Department and the Ratepayers or will they bow to the pressure from Mayor Garcetti and his budget team who are looking to balance the City’s budget on the backs of the Ratepayers?
Figueroa Plaza is not considered a desirable location for law firms, investment banks, commercial banks, consulting firms, or other professional organizations that occupy Class A space because of its poor location north of the Central Business District. In addition to being out of the way, this older building has a poor reputation for maintenance, services, and amenities. This is not helped by rent roll dominated by government employees.
Yet the City wants our Department of Water and Power to pay Central Business District Class A rents for this subprime space. At the same time, the City wants DWP to pony up $9 million for tenant improvements, an expense that is usually born by the landlord, in this case, the City of Los Angeles.
From the Mayor’s perspective, in the first year of the lease, the City will receive $3 million in rent and “save” $9 million in tenant improvements. This $12 million swing will help the City close its projected $85 million budget deficit for the upcoming fiscal year.
The Department maintains that it needs this additional space to accommodate 700 new employees. But without a well thought out Space Utilization Plan for its 9,576 employees, an 8 to 10 year lease is inappropriate, especially given its above market cost.
Any space plan would need to address the updating of DWP’s 50 year old historic headquarters building located across from the Music Center in downtown Los Angeles. But this is problematic as IBEW Local 18, DWP’s domineering union, will assert jurisdiction over all the work at overtime rates, doubling the cost and the time to completion. This will cost Ratepayers an additional $150 to $200 million.
The question has also been raised whether the IBEW and Union Bo$$ d’Arcy would claim jurisdiction over the work at Figueroa Plaza.
At its meeting on September 20, the Board of Commissioners discussed the proposed $41 million lease in closed session. When the $63 million lease was on the agenda in June, the Board deferred the matter until a later time. As a result, there has not been a public discussion or any outreach involving this controversial lease whose main beneficiary appears to be the City, not DWP or the Ratepayers.
The Department has prepared a 229 page memo outlining this transaction. This includes a 161 page report that justifies the lease. But several experts, including potential tenants and their representatives, have discounted this report stating it was “made as indicated” and does not reflect the real rental market.
Will the Commissioners conduct an open hearing on this above market lease? Will the Commissioners demand that DWP prepare a Space Utilization Plan before entering into this above market lease? Will this study include many different alternatives, including selling the DWP headquarters and moving to an area that would benefit from the economic development? Will the Commissioners demand that the Department update its Personnel Plan to reflect the addition of 700 new employees?
In other words, will the Commissioners act in the best interests of the Department and the Ratepayers and tell the Mayor and his budget team to buzz off?
(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@example.com.)-cw
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LA WATCHDOG--Mayor Eric Garcetti and the Herb Wesson led City Council are using the homeless issue to pick our pockets for almost $2 billion over the next 30 years in an effort to cover up their abject failure to make this unfortunate situation a priority in the City’s budget over the last four years.
If Proposition HHH (Homeless Reduction and Prevention, Housing, and Facilities Bond) is approved by two-thirds of the voters, the City will issue $1.2 billion of bonds over the next ten years. These funds, along with billions from politically wired real estate developers and other governmental entities, will finance the construction of 10,000 units of permanent supportive housing for LA’s homeless population at a cost as high as $4 billion.
LA WATCHDOG--Many believe that California would be better off if we sent Attorney General Kamala Harris to Washington to succeed Barbara Boxer, the 75 year old “junior” senator from California. But then again, is it fair to the rest of the country to stick the nation with the highly partisan Kamala Harris when Loretta Sanchez is the more qualified candidate?
Kamala Harris’ fatal flaw is that she is a staunch opponent of pension reform.
During the last two years, she has authored unfavorable and biased summaries for two bipartisan ballot measures that would have reformed California’s unsustainable pension plans. Pension reform is the most important financial issue facing all levels of government as ever increasing pension contributions are required to cover the estimated unfunded liability of up to $500 billion. But these growing contributions are crowding out basic services such as public safety and the repair of our infrastructure as well as progressive initiatives involving education, affordable housing, and services to the homeless.
This has resulted in numerous ballot measures for new taxes which, despite their stated use, are really going to fund the upside down pension plans.
But rather than endorsing pension reform, Harris sold out to the campaign funding leadership of the public unions who are vehemently opposed to any reform of the very generous pension plans. As a result, Harris has benefitted from significant cash contributions to her campaign war chest.
Obviously, Harris did not get the memo from Rhode Island Governor Gina Raimondo that “you can’t be a progressive and be opposed to pension reform.”
Ever since Harris was elected Attorney General in 2010, she has used her office as a stepping stone for higher office. Over the years, she has been gallivanting around the country, spending hundreds of thousands of dollars on first class travel, five star hotels, and limousines and hitting up the usual out of state suspects for campaign donations.
She has also used her office to reward her campaign contributors. In 2015, Harris placed so many conditions on Prime Healthcare’s acquisition of the money losing hospitals owned by the Daughters of Charity that the buyer walked away from the transaction. According to subsequent litigation, it was alleged that Harris was doing the bidding of the SEIU which was in a labor dispute with Prime Healthcare.
No wonder the SEIU has been so generous to Harris’ campaign war chest.
Harris has been so busy running around the country raising money and planning her next campaign that her office has suffered from the lack of organization and leadership and high turnover. Her office has failed to implement or follow through on numerous initiatives such as gun control and criminal justice. But that has not stopped her from claiming credit for the work of others as was the case with the national mortgage settlement that was spearheaded by the Attorney Generals in New York and Delaware.
Sanchez, on the other hand, has developed a reputation over her twenty years in House of Representatives as a legislator who can work in a bipartisan manner, much like Senator Diane Feinstein who has been an effective proponent for California. She has the endorsement of 17 of the State’s Democratic Congressional representatives, almost double the number that are supporting Harris.
Sanchez also has a strong working knowledge of immigration, a very important issue to Californians, as she is the co-chair of the Immigration Task Force, a member of the Hispanic Caucus, and the daughter of hard working immigrants who achieved the American Dream.
She has an excellent understanding of the water issues facing the State, having worked on matters involving conservation, groundwater, the Salton Sea, and other complex problems facing Orange County and Southern California.
She is a ranking member of the House Armed Services Committee, but voted against the Iraq War, and the House Homeland Security Committee.
Without doubt, Sanchez, an MBA and a financial analyst in the private sector before she upset B1 Bob Dornan in the 1996 election, is familiar with the federal budget, a complex issue that impacts all Californians.
While Sanchez and Harris are both Democrats, we have the choice between Harris, a San Francisco ideologue who has derailed pension reform in return for union campaign cash, or Sanchez, a Southern Californian and a seasoned legislator with private sector experience who has demonstrated that she can work in a bipartisan manner to get things done.
While Harris is leading in the polls, Sanchez has the unique opportunity to upset Harris by putting together a coalition of Hispanics, moderate Democrats, independents, and Republicans.
(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: firstname.lastname@example.org.)
LA WATCHDOG--In June, the Board of Commissioners of our Department of Water and Power postponed its consideration of a 10 year, $63 million lease of six floors of office space at Figueroa Plaza, a City owned office complex, because it did not pass the smell test.*
Now, the Department is considering another ten year lease, but only for four floors at a cost of $41 million. But once again, this deal is not ready for prime time as it is not in the best interests of the Department and the Ratepayers.
The Department’s management makes the valid argument that its needs this additional space to house 700 employees who are needed to oversee the repair and maintenance of its water and power infrastructure, to modernize its IT and financial management systems, and to facilitate succession planning and the transfer of institutional knowledge as a third of its work force is eligible to retire over the next five years.
But a ten year, $41 million lease is out of the question since DWP has not developed a long term plan to determine its real estate needs. This space plan would include the reconfiguration of the John Ferraro Building, DWP’s 50 year old, 1.6 million square foot headquarters that is located across from the Music Center in DTLA. Interestingly, this idea was nixed during the City’s budget crisis by Mayor Villaraigosa and the Eric Garcetti led City Council.
The “restacking” of JFB is estimated to be an expensive two or three year project if it were properly planned and managed by an experienced, independent contractor who would develop a floor by floor plan that would limit the disruption to the Department’s operations.
There is also the concept of locating some of the Department’s noncore functions in less expensive real estate in parts of our City that would benefit from economic development.
A well thought out and properly executed space plan would indicate that the Figueroa Plaza lease not exceed four or five years and that Department would need only three floors of “creative” office space. This would imply that a five year lease (including parking) would be in the range of $12 million, not including tenant improvements of around $9 million that the City wants DWP to pay. The total lease would be approximately $21 million, a significant discount to the new $41 million proposal.
However, the City should consider cutting DWP and its Ratepayers a break given that we are forking over $291 million to fund the illegal 8% Transfer Tax on Power System revenues. We are also being slammed with a five year $1 billion rate increase. As such, the City should consider waiving the annual rent of about $2 million a year, leaving DWP to pay for the tenant improvements and parking. DWP would be responsible for the $9 million tenant improvements that would stay with the building after the lease is over.
The City will argue that it cannot afford the loss of revenue. But given the vacancy factor of this out of the way location, its lack of amenities, its government dominated rent roll, the lack of interest by private sector renters, and the complex’s deferred maintenance, the likelihood of attracting tenants for these three floors is questionable.
And maybe it is time for the City to give a little something back to the Ratepayers.
- Previous CityWatch articles on the DWP lease of Figueroa Plaza
June 27, 2016
June 20, 2016
(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@example.com.)