PERSPECTIVE - Back in 2009, then City Controller Laura Chick opposed placing Measure B on the ballot because of the flawed review process it underwent.
Measure B was the solar energy initiative, the primary objective of which was to enrich the members of IBEW Local 18 of the DWP. Highly paid DWP workers would have been installing solar panels rather than private firms contracted through a competitive bidding process.
We are currently facing another flawed process, and once again the IBEW is at the heart of it.
The proposed labor contract with the already well-compensated union is being hailed as the greatest thing since Thomas Edison invented the light bulb.
While Mayor Garcetti did an admirable job of pushing back, the concessions received were far from what were needed to bring the DWP union’s overall compensation package in line with the market and the other public employee unions. For example, it is beyond belief the IBEW members will continue to receive a free ride on medical insurance and benefit from work rules designed to provide them with windfalls.
What makes matters worse is the outrageous assertion concerning the savings the deal will generate.
Of particular interest to me is the estimated savings of $3.9 billion associated with the deferral of raises until 2016. The amount is the result of a very deceitful present value calculation.
The DWP is assuming the savings through the expiration of the proposed contract in 2016 (a total of $385 million over 4 years), will roll forward for another 26 years beyond the expiration date. The $3.9 billion, then, is a very subjective estimate of the next 30 years’ savings. Yet, it is being trumpeted to the public and the media as if it is rock solid.
Present value calculations are widely used to project costs or savings for medium- to long-term projects. It is extremely rare to see them go out beyond 20 years unless a long-term contract is in play or well-defined parameters are in place (even then, the present value is viewed with an appropriate degree of risk). Otherwise, the variables and risks increase with each passing year, making anything beyond 10 years very subjective, if not pure speculation.
The labor contracts with the IBEW are negotiated every 4 years or so. It’s like playing blackjack with the deck being reshuffled after so many hands – your ability to predict the odds of getting the card you need is greatly diminished.
The same logic applies when it comes to placing a value on the IBEW contract.
The reality of labor negotiations in a turbulent political environment, where politicians look to the public unions for big money, can and will lead to concessions being offset directly or indirectly in subsequent negotiations – a little give here, a little take there. Does anyone believe the IBEW won’t try to recoup what they have conceded? To assume the savings will roll forward is naive at best and deceitful at worst. I’m betting more on the latter.
Just as Controller Chick challenged the Measure B analysis, we need Controller Ron Galperin to review analyses that relate to significant assertions put forth by our elected officials. This deal would be a good place to start.
(Paul Hatfield is a CPA and serves as Treasurer for the Neighborhood Council Valley Village. He blogs at Village to Village, contributes to CityWatch and can be reached at: [email protected]) –cw
CityWatch
Vol 11 Issue 69
Pub: Aug 27, 2013