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.

(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:  lajack@gmail.com.)

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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?

(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:  lajack@gmail.com.)

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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.

(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:  lajack@gmail.com.)

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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. 

 (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:  lajack@gmail.com.)

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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.” 

Bravo! 

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. 

(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:  lajack@gmail.com.)

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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!

(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:  lajack@gmail.com.)

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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.

 (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:  lajack@gmail.com.)

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